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, 2001
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 0-17549
CNL INCOME FUND IV, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2854435
(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. No [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 60,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund IV, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on November 18, 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 May 6, 1988, the Partnership
offered for sale up to $30,000,000 in limited partnership interests (the
"Units") (60,000 Units at $500 per Unit) pursuant to a registration statement on
Form S-11 under the Securities Act of 1933, as amended. The offering terminated
on December 30, 1988, as of which date the maximum offering proceeds of
$30,000,000 had been received from investors who were admitted to the
Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of selected national and regional fast-food and family-style
restaurant chains (the "Restaurant Chains"). Net proceeds to the Partnership
from its offering of Units, after deduction of organizational and offering
expenses, totalled $26,550,000, and were used to acquire 40 Properties,
including interests in five Properties owned by joint ventures in which the
Partnership is a co-venturer. During the year ended December 31, 1994, the
Partnership sold its Property in York, Pennsylvania, and reinvested the majority
of the net sales proceeds in two Checkers Properties, consisting of only land,
located in Miami, Florida, and Douglasville, Georgia. The remaining net sales
proceeds were used to pay Partnership liabilities. The lessee of the two
Properties consisting of only land owns the buildings currently on the land and
has the right, if not in default under the lease, to remove the buildings from
the land at the end of the lease terms. During the year ended December 31, 1995,
the Partnership sold its Property in Hastings, Michigan, and during 1996
reinvested the net sales proceeds in a Property located in Clinton, North
Carolina, with affiliates of the General Partners as tenants-in-common. Also,
during the year ended December 31, 1996, the Partnership sold its Property in
Tampa, Florida, and reinvested the majority of the net sales proceeds in a
Boston Market in Richmond, Virginia. During the year ended December 31, 1997,
the Partnership sold its Property in Douglasville, Georgia. During the year
ended December 31, 1998, the Partnership sold its Properties in Fort Myers,
Florida and Union Township, Ohio and distributed the majority of the net sales
proceeds to the limited partners as a special distribution. In addition, during
the year ended December 31, 1998, the Partnership sold a Property in Leesburg,
Florida and reinvested the majority of the net sales proceeds in a joint
venture, Warren Joint Venture, to purchase and hold one restaurant Property, and
sold a Property in Naples, Florida. During 1999, the Partnership reinvested the
net sales proceeds received from the sale of the Property in Naples, Florida in
a Property in Zephryhills, Florida, with affiliates of the General Partners as
tenants-in-common. During the year ended December 31, 2000, the Partnership sold
its Properties in Temple Terrace and Punta Gorda, Florida, Topeka, Kansas and
Detroit, Michigan and distributed the majority of the net sales proceeds to the
limited partners as special distributions in 2000 and 2001. During the year
ended December 31, 2001, the Partnership sold its Properties in Palm Bay,
Florida and Corpus Christi, Texas and distributed the majority of the net sales
proceeds to the limited partners as a special distribution. As a result of the
above transactions, as of December 31, 2001, the Partnership owned 32
Properties. The 32 Properties include interests in six Properties owned by joint
ventures in which the Partnership is a co-venturer and two Properties owned with
affiliates of the General Partners as tenants-in-common. In January 2002,
Titusville Joint Venture sold its Property and the Partnership and the joint
venture partner liquidated the joint venture. 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 also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. The Partnership has no obligation to sell all or any portion of a
Property at any particular time, except as may be required under property
purchase options granted to certain lessees.
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.
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 and Properties owned as
tenants-in-common with affiliates of the General Partners provide for initial
terms, ranging from five to 20 years (the average being 17 years), and expire
between 2002 and 2019. Generally, the leases are on a triple-net basis, with the
lessees responsible for all repairs and maintenance, property taxes, insurance
and utilities. The leases of the Properties provide for minimum base annual
rental payments (payable in monthly installments) ranging from approximately
$20,300 to $130,300. Generally, the leases provide for percentage rent, based on
sales in excess of a specified amount, to be paid annually. In addition, some of
the leases provide that commencing in the sixth lease year the percentage rent
will be an amount equal to the greater of the percentage rent calculated under
the lease formula or a specified percentage (ranging from one-half to two
percent) of the purchase price.
Generally, the leases of the Properties provide for two to four
five-year renewal options subject to the same terms and conditions as the
initial lease. Lessees of 26 of the Partnership's 32 Properties also have been
granted options to purchase Properties at the Property's then fair market value,
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised. Additionally, certain
leases provide the 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 those 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 the 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.
During 1998, the tenant of the Property in Richmond, Virginia, filed
for bankruptcy and in June 2000, rejected the lease relating to this Property.
In December 2000, the Partnership entered into a new lease for this Property. In
connection therewith, the tenant agreed to pay for all costs necessary to
convert this Property into a different concept. Rents commenced in March 2001.
The lease terms for this Property are substantially the same as the
Partnership's other leases, as described above.
In addition, in 2001, the former lease for the Property in Streator,
Illinois, which was scheduled to expire in December 2002, was terminated by the
Partnership and the tenant. In connection therewith, the Partnership received
lease termination income in consideration for the Partnership releasing the
tenant from its obligations under the lease. The Partnership re-leased this
Property to a new tenant with terms substantially the same as the Partnership's
other leases. Rents due under the new lease are lower than rents due under the
previous lease; therefore, the Partnership expects that rental income in future
periods will remain at reduced amounts. However, the general partners do not
anticipate that any decrease in rental income relating to the new lease will
have a material adverse affect on the Partnership's financial position or
results of operations.
Major Tenants
During 2001, two lessees of the Partnership, Shoney's, Inc. and Tampa
Foods, L.P., each contributed more than ten percent of the Partnership's total
rental and earned income (including the Partnership's share of the rental and
earned income from Properties owned by joint ventures and Properties owned with
affiliates of the General Partners as tenants-in-common). As of December 31,
2001, Shoney's, Inc. was the lessee under leases relating to four restaurants,
and Tampa Foods, L.P. was the lessee relating to two restaurants. It is
anticipated that, based on the minimum rental payments required by the leases,
Shoney's, Inc. and Tampa Foods, L.P., each will continue to contribute more than
ten percent of the Partnership's total rental and earned income in 2002. In
addition, four Restaurant Chains, Shoney's, Denny's, Pizza Hut, and Wendy's Old
Fashioned Hamburger Restaurants ("Wendy's"), each accounted for more than ten
percent of the Partnership's total rental and earned income in 2001 (including
the Partnership's share of the rental and earned income from Properties owned by
joint ventures and Properties owned with affiliates of the General Partners as
tenants-in-common). In 2002, it is anticipated that these four Restaurant Chains
each will continue to account for more than ten percent of the total rental and
earned income to which the Partnership is entitled under the terms of the
leases. Any failure of these lessees or these Restaurant Chains could materially
affect the Partnership's income if the Partnership is unable to re-lease the
Property in a timely manner. No single tenant or group of affiliated tenants
lease 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 the following separate joint venture
arrangements, each to purchase and hold one Property: Holland Joint Venture with
CNL Income Fund II, Ltd., Titusville Joint Venture with CNL Income Fund III,
Ltd., Cocoa Joint Venture with CNL Income Fund V, Ltd., Auburn Joint Venture
with CNL Income Fund VI, Ltd., Kingsville Real Estate Joint Venture with CNL
Income Fund XII, Ltd., and Warren Joint Venture with CNL Income Fund VI, Ltd.
Each of the CNL Income Funds is an affiliate of the General Partners and is a
limited partnership organized pursuant to the laws of the state of Florida.
Each joint venture arrangement provides 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 interest in the
joint venture. The Partnership has a 51% interest in Holland Joint Venture, a
26.6% interest in Titusville Joint Venture, a 57% interest in Cocoa Joint
Venture, a 96.1% interest in Auburn Joint Venture, a 68.87% interest in
Kingsville Real Estate Joint Venture and a 35.71% interest in Warren Joint
Venture. 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 5 to 20 years
and, after the expiration of the initial term, continues in existence from year
to year unless terminated at the option of either joint venturer or by an event
of dissolution. Events of dissolution include the bankruptcy, insolvency or
termination of any joint venturer, sale of the Property owned by the joint
venture and mutual agreement of the Partnership and its joint venture partner to
dissolve the joint venture.
The Partnership shares management control of each joint venture equally
with affiliates of the General Partners. 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 partner, either upon
such terms and conditions as to which the venturers may agree or, in the event
the venturers 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 Holland Joint Venture, Titusville
Joint Venture, Cocoa Joint Venture, Auburn Joint Venture, Kingsville Real Estate
Joint Venture, and Warren Joint Venture is distributed 51%, 26.6%, 57%, 96.1%,
68.87%, and 35.71%, respectively, to the Partnership and the balance is
distributed to each of the other joint venture partners. 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 the capital account balances equal zero, and thereafter in proportion to
each joint venture partner's percentage interest in the joint venture.
In January 2002, Titusville Joint Venture, in which the Partnership
owned a 73.4% interest, sold its Property to an unrelated third party for
approximately $180,000 and received net sales proceeds of approximately
$165,600, resulting in a gain of $4,900 to the joint venture. In addition, in
January 2002, the Partnership and the joint venture partner liquidated
Titusville Joint Venture and the Partnership received its pro rata share of the
liquidation proceeds. No gain or loss was recorded relating to the liquidation.
In addition to the above joint venture arrangements, the Partnership
entered into an agreement to hold a Property in Clinton, North Carolina, as
tenants-in-common, with CNL Income Fund VI, Ltd., CNL Income Fund X, Ltd., and
CNL Income Fund XV, Ltd., affiliates of the General Partners; and an agreement
to hold a Property in Zephyrhills, Florida, as tenants-in-common, with CNL
Income Fund XVII, Ltd., 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 53 percent and 76 percent interest in the Properties in
Clinton, Tennessee and Zephyrhills, Florida, respectively. Each of the
affiliates is a limited partnership organized pursuant to the laws of the state
of Florida. The tenancy in common agreements restrict each co-tenant's ability
to sell, transfer, or assign its interest in the tenancy in common's Properties
without first offering it for sale to the remaining parties 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.
Certain Management Services
CNL APF Partners, LP, an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL APF Partners, LP (the "Advisor") is responsible for collecting rental
payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices and
providing information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee equal to one percent of the sum of gross rental revenues from
Properties wholly owned by the Partnership plus the Partnership's allocable
share of gross revenues of joint ventures in which the Partnership is a
co-venturer, but not in excess of competitive fees for comparable services.
Under the management agreement, the management fee is subordinated to receipt by
the Limited Partners of an aggregate, ten percent, cumulative, 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").
During 2000, CNL Fund Advisors, Inc. assigned its rights in, and its
obligations under, the management agreement with the Partnership to CNL APF
Partners, LP All of the terms and conditions of the management agreement,
including the payment of fees, as described above, remain unchanged.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
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 APF
Partners, LP, 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, 2001, the Partnership owned 32 Properties. Of the 32
Properties, 24 are owned by the Partnership in fee simple, six are owned through
joint venture arrangements and two are owned through a tenancy in common
arrangement. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 14,100
to 98,800 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, 2001 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation for the year ended December 31, 2001.
State Number of Properties
----- --------------------
Alabama 3
Florida 6
Illinois 2
Indiana 3
Maryland 1
Massachusetts 1
Michigan 3
Mississippi 1
North Carolina 1
Ohio 1
Tennessee 1
Texas 6
Virginia 2
Washington, D.C. 1
-----------------
Total Properties 32
=================
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. However, the
building located on one Checkers Property is owned by the tenant, while the land
parcel is owned by the Partnership. In addition, the Property in Maywood,
Illinois was leased to two tenants and each operate one separate restaurant
chain. The buildings generally are rectangular and are constructed from various
combinations of stucco, steel, wood, brick and tile. The sizes of buildings
owned by the Partnership range from approximately 1,200 to 6,800 square feet.
All buildings on Properties 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, 2001, 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 39 years for
federal income tax purposes.
As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and joint ventures (including Properties owned through tenancy
in common arrangements) for federal income tax purposes was $15,047,560 and
$6,039,412, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.
Restaurant Chain Number of Properties
---------------- --------------------
Arby's 3
Captain D's 2
Checkers 1
Denny's 4
Dunkin Donuts 1
Golden Corral 2
IHOP 1
Jack in the Box 1
KFC 1
Pizza Hut 5
Shoney's 3
Taco Bell 1
Waffle House 1
Wendy's 2
Other 5
---------------------
Total Chains on Properties 33
=====================
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, 2001, 2000, 1999, 1998, and 1997, the Properties were
97%, 94%, 97%, 97%, and 93% occupied, respectively. The following is a schedule
of the average rent per property for the years ended December 31:
2001 2000 1999 1998 1997
-------------- -------------- ------------- ------------- -------------
Rental Revenues (1)(2) $ 1,976,264 $ 2,255,228 $ 2,640,100 $ 2,544,386 $ 2,596,455
Properties (2) 31 32 37 36 37
Average Rent per Property $ 63,750 $ 70,476 $ 71,354 $ 70,677 $ 70,174
(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 a provision 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, 2001 for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2002 1 $ 18,630 0.96%
2003 1 29,618 1.53%
2004 1 33,058 1.71%
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 14 836,223 43.23%
2009 4 344,144 17.79%
2010 1 72,803 3.76%
2011 3 187,970 9.72%
Thereafter 7 411,706 21.30%
---------- ----------------- -------------
Total (1) 32 $ 1,934,152 100.00%
========== ================= =============
(1) Excludes one Property which was vacant at December 31, 2001.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2001 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Shoney's, Inc. leases three Shoney's restaurants and one Captain D's
restaurant. The initial term of each lease is 20 years (expiring in 2008) and
average minimum base rent is approximately $67,900 (ranging from approximately
$46,400 to $81,300).
Tampa Foods, L.P. leases one Wendy's Old Fashioned Hamburger Restaurant
and one Green Tea Restaurant. The initial term of each lease is 20 years
(expiring in 2008) and average minimum base rent is approximately $101,300
(approximately $108,000 and $94,600, respectively).
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, 2002, there were 2,904 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 2001, 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 have the right to prohibit transfer of Units. From
inception through December 2000, the price paid for any Unit transferred
pursuant to the Plan ranged from $405.10 to $475 per Unit. During 2001, due
primarily to the sales of Properties, the price paid for any Unit transferred
pursuant to the Plan was $357.40 per Unit. The price paid for any Unit
transferred other than pursuant to the Plan was subject to negotiation by the
purchasers 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 2001 and 2000 other than
pursuant to the Plan, net of commissions.
2001 (1) 2000 (1)
----------------------------------- ----------------------------------
High Low Average High Low Average
---------- -------- ---------- -------- -------- ----------
First Quarter $ 324 $ 207 $ 249 $ 365 $ 365 $ 365
Second Quarter 400 253 303 353 353 353
Third Quarter 298 248 281 328 185 317
Fourth Quarter 287 216 241 433 140 348
(1) A total of 458 and 262 Units were transferred other than pursuant to the
Plan for the years ended December 31, 2001 and 2000, respectively.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provision of
the Partnership Agreement.
For the years ended December 31, 2001 and 2000, the Partnership
declared cash distributions of $3,147,894 and $5,050,000, respectively, to the
Limited Partners. Distributions for the year ended December 31, 2001, included
$1,050,000 in special distributions, as a result of the distribution of net
sales proceeds from the sale of several Properties. These special distributions
were effectively a return of a portion of the Limited Partners' investment,
although, in accordance with the Partnership Agreement, $989,873 was applied
toward the Limited Partners' 10% Preferred Return and the balance of $60,127 was
treated as a return of capital for purposes of calculating the Limited Partners'
10% Preferred Return. As a result of the return of capital, the amount of the
Limited Partners, invested capital contributions (which generally is the Limited
Partners' capital contributions, less distributions from the sale of a Property
that are considered to be a return of capital) was decreased; therefore, the
amount of the Limited Partners' invested capital contributions on which the 10%
Preferred Return is calculated was lowered accordingly. Distributions for the
year ended December 31, 2000 included $2,800,000 and as a result of the
distribution of the net sales proceeds from the sale of the Properties in
Detroit, Michigan, and Temple Terrace and Punta Gorda, Florida, to the Limited
Partners. This amount was applied toward the Limited Partners' cumulative 10%
Preferred Return. The reduced number of Properties for which the Partnership
receives rental payments 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 in the quarters ended September 2001 and
2000. No amounts distributed to the partners for the years ended December 31,
2000, 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. This
amount includes monthly distributions made in arrears for the Limited Partners
electing to receive such distributions on this basis.
Quarter Ended 2001 2000
------------------- ------------- -------------
March 31 $ 975,000 $ 600,000
June 30 525,000 600,000
September 30 1,123,947 3,325,000
December 31 523,947 525,000
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
2001 2000 1999 1998 1997
-------------- -------------- -------------- -------------- --------------
Year ended December 31:
Revenues (1) $ 2,047,310 $ 2,189,760 $ 2,602,057 $ 2,285,696 $ 2,531,385
Net income (2) 1,089,094 2,078,310 1,827,359 1,821,449 1,720,668
Cash distributions
declared (3) 3,147,894 5,050,000 2,400,000 3,633,748 2,760,000
Net income per Unit (2) 18.15 34.64 30.15 30.15 28.42
Cash distributions declared
per Unit 52.46 84.17 40.00 60.56 46.00
At December 31:
Total assets $15,542,775 $17,616,159 $20,828,319 $21,189,833 $23,309,888
Partners' capital 14,736,869 16,795,669 19,767,359 20,340,000 22,152,299
(1) Revenues include equity in earnings (losses) of joint ventures.
(2) Net income for the years ended December 31, 2001, 2000 and 1997 include
$120,872, $92,397 and $6,652, respectively, from losses on the sale of
assets and $178,817, $439,132 and $70,337, respectively, for provisions for
write-down of assets. Net income for the years ended December 31, 2000 and
1998 includes $1,134,692 and $226,024, respectively, from gains on the sale
of assets.
(3) Distributions for the years ended December 31, 2001, 2000 and 1998 include
special distributions to the Limited Partners of $1,050,000, $2,800,000 and
$1,233,748, respectively, in net sales proceeds from the sale of two, four
and two Properties in 2001, 2000 and 1998, respectively.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8. hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership was organized on November 18, 1987, to acquire for
cash, either directly or through joint venture arrangements, both newly
constructed and existing restaurant Properties, as well as land upon which
restaurant Properties were to be constructed, which are leased primarily to
operators of selected national and regional fast-food and family-style
Restaurant Chains. Substantially all of the leases are triple-net leases, with
the lessees generally responsible for all repairs and maintenance, property
taxes, insurance and utilities. As of December 31, 2001, the Partnership owned
32 Properties, either directly or indirectly through joint venture or tenancy in
common arrangements.
Capital Resources
During the years ended December 31, 2001, 2000, and 1999, 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 $1,768,652, $1,827,107, and $2,401,313, respectively. The
decreases in cash from operations during 2001, as compared to 2000, and during
2000, as compared to 1999, were primarily a result of changes in income and
expenses, as described in "Results of Operations" below and changes in the
Partnership's working capital.
Other sources and uses of capital included the following during the
years ended December 31, 2001, 2000, and 1999.
In January 1999, the Partnership invested the net sales proceeds from
the sale of its Property in Naples, Florida in a Property in Zephyrhills,
Florida, with an affiliate of the General Partners as tenants-in-common for a 76
percent interest in the Property. A portion of the transaction relating to the
sale of the Property in Naples, Florida and the reinvestment of the net sales
proceeds qualified as a like-kind exchange transaction for federal income tax
purposes.
In June 2000, the Partnership sold its Property in Detroit, Michigan to
the tenant for $1,095,000 and received net sales proceeds of $1,089,325,
resulting in a gain of approximately $552,600. In connection with the sale, the
Partnership incurred a deferred, subordinated, real estate disposition fee of
$32,850. In addition, in July 2000, the Partnership sold its Properties in
Temple Terrace, Florida and Punta Gorda, Florida, to a third party for
$2,353,583 resulting in a gain of approximately $582,100. In connection with the
sales, the Partnership incurred deferred subordinated real estate disposition
fees of $70,068. In October 2000, the Partnership distributed $2,800,000 of the
net sales proceeds from the sales of these Properties as a special distribution
to the Limited Partners, as described below, and used the remaining net proceeds
to pay Partnership liabilities. 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 sales.
In November 2000, the Partnership sold its Property in Topeka, Kansas
to a third party for $500,000 and received net sales proceeds of approximately
$496,400, resulting in a loss of approximately $92,400. In connection with the
sale, the Partnership incurred a deferred, subordinated, real estate disposition
fee of $15,000. In January 2001, the Partnership distributed $450,000 of the net
sales proceeds from the sale of this Property as a special distribution to the
Limited Partners, as described below, and used the remaining net proceeds to pay
Partnership liabilities. 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.
During 2001, the Partnership sold its Properties in Corpus Christi,
Texas, and Palm Bay, Florida, and received net sales proceeds of approximately
$679,900, resulting in losses of $120,872. In connection with the sale, the
Partnership incurred deferred, real estate disposition fees of $21,023. In
October 2001, the Partnership distributed $600,000 of the net sales proceeds
from the sales of these Properties as a special distribution to the Limited
Partners, as described below, and used the remaining net proceeds to pay
Partnership liabilities. 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 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. Under its partnership agreement, the Partnership is
prohibited from borrowing for any purpose; provided, however, that the General
Partners or their affiliates are entitled to reimbursement, at cost, for actual
expenses incurred by the General Partners or their affiliates on behalf 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.
In January 2002, Titusville Joint Venture, in which the Partnership
owned a 26.6% interest, sold its Property to an unrelated third party for
approximately $180,000 and received net sales proceeds of approximately
$165,600, resulting in a gain of $4,900 to the joint venture. In addition, in
January 2002, the Partnership and the joint venture partner liquidated
Titusville Joint Venture and the Partnership received its pro rata share of the
liquidation proceeds. No gain or loss was recorded relating to the liquidation.
The Partnership intends to use the liquidation proceeds to pay liabilities of
the Partnership.
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, certificates of deposit and money
market accounts with less than a 90-day maturity date, pending the Partnership's
use of such funds to pay Partnership expenses or to make distributions to the
partners. At December 31, 2001, the Partnership had $645,220 invested in such
short-term investments, as compared to $1,366,871 at December 31, 2000. The
decrease in the amount invested in short-term investments at December 31, 2001,
as compared to December 31, 2000, is primarily attributable to the Partnership
distributing the net sales proceeds it received from the 2000 sale of the
Property in Topeka, Kansas, as described above. As of December 31, 2001, the
average interest rate earned on the rental income deposited in demand deposit
accounts at commercial banks was 3.2% annually. The funds remaining at December
31, 2001, will be used to pay distributions and other liabilities of the
Partnership.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will 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 remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based on current and anticipated future cash from operations and
for the years ended December 31, 2001 and 2000, net sales proceeds from the sale
of Properties, the Partnership declared distributions to the Limited Partners of
$3,147,894, $5,050,000, and $2,400,000, for the years ended December 31, 2001,
2000, and 1999, respectively. This represents distributions of $52.46, $84.16,
and $40 per Unit for the years ended December 31, 2001, 2000, and 1999,
respectively. Distributions for the year ended December 31, 2001, included
$1,050,000 in special distributions, as a result of the distribution of net
sales proceeds from the sale of several Properties. These special distributions
were effectively a return of a portion of the Limited Partners' investment,
although, in accordance with the Partnership agreement, $989,873 was applied
toward the Limited Partners' 10% Preferred Return and the balance of $60,127 was
treated as a return of capital for purposes of calculating the Limited Partners'
10% Preferred Return. As a result of the return of capital, the amount of the
Limited Partners' invested capital contributions (which generally is the Limited
Partners' capital contributions, less distributions from the sale of a Property
that are considered to be a return of capital) was decreased; therefore, the
amount of the Limited Partners' invested capital contributions on which the 10%
Preferred Return is calculated was lowered accordingly. Distributions for the
year ended December 31, 2000 included $2,800,000, as a result of the
distribution of a portion of net sales proceeds from the sale of several
Properties. The special distributions were effectively a return of a portion of
the Limited Partners' investment, although, in accordance with the Partnership
agreement, they were applied to the Limited Partners' unpaid preferred return.
The reduced number of Properties for which the Partnership receives rental
payments 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 commencing the quarters ended September 30, 2001 and 2000.
No distributions were made to the General Partners for the years ended December
31, 2001, 2000 and 1999. 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. The
Partnership intends to continue to make distributions of cash available for
distribution to the Limited Partners on a quarterly basis.
As of December 31, 2001 and 2000, the Partnership owed affiliates
$4,841 and $8,556, respectively, for operating expenses and accounting and
administrative services. As of March 15, 2002, the Partnership had reimbursed
the affiliates all such amounts. In addition, during the years ended December
31, 2001 and 2000, the Partnership incurred $21,023 and $118,458, respectively,
in real estate disposition fees due to an affiliate as a result of its services
in connection with the sale of several Properties. The payment of such fees is
deferred until the Limited Partners have received the sum of their 10% Preferred
Return and their adjusted capital contributions.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2001 and 2000.
Amounts payable to other parties, including distributions payable,
decreased to $615,921 at December 31, 2001, from $647,813 at December 31, 2000.
The decrease in liabilities at December 31, 2001, was partially due to the
amounts of transaction costs relating to the proposed Merger with CNL American
Properties Fund, Inc. ("APF"), as described below in "Termination of Merger".
Total liabilities at December 31, 2001, to the extent they exceed cash and cash
equivalents, will be paid from anticipated future cash from operations, or in
the event the General Partners elect to make additional capital contributions or
loans, from the future General Partners' capital contributions or loans.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for using either the direct financing or the operating
method. FAS 13 requires management to estimate the economic life of the leased
property, the residual value of the leased property and the present value of
minimum lease payments to be received from the tenant. In addition, management
assumes that all payments to be received under its leases are collectible.
Changes in management's estimates or assumption regarding collectibility of
lease payments could result in a change in accounting for the lease at the
inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews its Properties and investments in unconsolidated
entities periodically (no less than once per year) for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through operations. Management determines whether
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.
Results of Operations
During 1999 and 2000, the Partnership owned and leased 30 wholly owned
Properties (including four Properties which were sold in 2000). During 2001, the
Partnership owned and leased 26 wholly owned Properties (including two sold
Properties). In addition, during 1999, 2000 and 2001, the Partnership was a
co-venturer in six separate joint ventures that each owned and leased one
Property and owned one Property with affiliates as tenants-in-common. In
addition, during 1999, 2000, and 2001, the Partnership owned and leased one
additional Property, with an affiliate of the General Partners, as
tenants-in-common. As of December 31, 2001, the Partnership owned, either
directly or through joint venture arrangements, 32 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 $20,300 to $130,300. Generally, the leases provide for percentage
rent based on sales in excess of a specified amount to be paid annually. In
addition, some of the leases provide that, commencing in the sixth lease year
the percentage rent will be an amount equal to the greater of the percentage
rent calculated under the lease formula or a specified percentage (ranging from
one-half to two percent) of the purchase price. For 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, 2001, 2000, and 1999, the
Partnership earned $1,542,156, $1,860,652 , and $2,132,891, respectively, in
rental income from operating leases and earned income from direct financing
leases from its wholly owned Properties described above. The decrease in rental
and earned income during 2001 and 2000, each as compared to the previous year,
was partially attributable to the sales of various Properties during 2001 and
2000. During 1999, the Partnership used the net sales proceeds from the sale of
a Property in Naples, Florida to acquire one Property in Zephryhills, Florida,
held as tenants-in-common with affiliates of the General Partners, as described
above in "Capital Resources." In addition, during 2001 and 2000, the Partnership
distributed a portion of the net sales proceeds from the sale of several
Properties to the Limited Partners, as described in "Short-Term Liquidity."
Rental and earned income are expected to remain at reduced amounts as a result
of distributing the net sales proceeds from the 2001 and 2000 sales of
Properties to the Limited Partners.
The decrease in rental and earned rental income during the year ended
December 31, 2001, as compared to the year ended December 31, 2000, was
partially attributable to the fact that during the year ended December 31, 2000,
the Partnership collected and recognized as income approximately $39,000 in past
due rental amounts from the guarantor of the original tenant of the Property in
Palm Bay, Florida. No such amounts were collected during the years ended
December 31, 2001 and 1999. The original tenant vacated the Property in October
1997. In February 1998, the Partnership entered into a new lease with a new
tenant for this Property, who then vacated the Property in May 2000 and
discontinued making rental payments. As a result, rental, earned and contingent
rental income decreased by approximately $72,200 during the year ended December
31, 2001. In August 2001, the Partnership sold this Property, as described
above, in "Capital Resources." Rental and earned rental income are expected to
remain at reduced amounts as a result of distributing the net sales proceeds
from the sale of this Property to the Limited Partners.
Rental and earned income also decreased by approximately $20,100 during
the year ended December 31, 2001 due to the fact that the Partnership entered
into a new lease relating to the Property in Streator, Illinois. The former
lease for the Property in Streator, Illinois, which was scheduled to expire in
December 2002, was terminated by the Partnership and the tenant during the year
ended December 31, 2001. In connection therewith, the Partnership received
approximately $67,100 in lease termination income in consideration for the
Partnership releasing the tenant from its obligations under the lease. The
Partnership re-leased this Property to a new tenant. Rents due under the new
lease are lower than rents due under the previous lease; therefore, the
Partnership expects that rental income in future periods will remain at reduced
amounts. However, the General Partners do not anticipate that any decrease in
rental income relating to the new lease will have a material adverse affect on
the Partnership's financial position or results of operations.
In October 1998, the tenant of one Boston Market Property filed for
bankruptcy, and in June 2000, rejected the lease relating to this Property. As a
result, the tenant discontinued making rental payments on the rejected lease. In
December 2000, the Partnership entered into a new lease with a new tenant for
this Property for which rental payments commenced in March 2001. The decrease in
rental and earned rental income during the year ended December 31, 2001 was
partially offset by an increase in rental and earned income as a result of the
Partnership entering into this new lease.
For the years ended December 31, 2001, 2000, and 1999, the Partnership
also earned $81,550, $24,545, and $126,521, respectively, in contingent rental
income from the Partnership's Properties. The increase in contingent rental
income 2001, as compared to 2000, and the decrease during 2000, as compared to
1999 was partially attributable to fluctuations in gross sales for certain
restaurant Properties whose leases require the payment of contingent rental
income.
For the years ended December 31, 2001, 2000, and 1999, the Partnership
also recognized income of $278,224, $234,317 and $303,223, respectively,
attributable to net income earned by joint ventures in which the Partnership is
a co-venturer. During 1997, the tenant of the Property owned by Titusville Joint
Venture vacated the Property and ceased operations. For the years ended December
31, 2001, 2000, and 1999, Titusville Joint Venture (in which the Partnership
owns a 26.6% interest in the profits and losses of the joint venture) incurred
expenses, which are fixed in nature, such as real estate taxes, insurance and
maintenance. Titusville Joint Venture had previously recorded a provision for
write-down of assets relating to this Property prior to 1999. In addition,
during 2001 and 2000, the joint venture established additional provisions for
write-down of assets for its Property for approximately $73,600 and $227,100,
respectively. The provisions represented the difference between the Property's
carrying values at December 31, 2001 and 2000, respectively, and the estimated
net realizable value of the Property. Titusville Joint Venture has ceased
collection efforts on past due amounts. During January 2002, the joint venture
sold this Property, as described above, in "Capital Resources." Net income
earned by joint ventures is expected to remain at reduced amounts as a result of
distributing the majority of net sales proceeds received to the Limited
Partners.
During the year ended December 31, 2001, two of the Partnership's
lessees, Shoney's, Inc. and Tampa Foods, L.P., each contributed more than ten
percent of the Partnership's total rental and earned income (including the
Partnership's share of the rental and earned income from six Properties owned by
joint ventures and two Properties owned with affiliates of the General Partners
as tenant-in-common). As of December 31, 2001, Shoney's, Inc. was the lessee
under leases relating to four restaurants, and Tampa Foods, L.P. was the lessee
relating to two restaurants. It is anticipated that, based on the minimum rental
payments required by the leases, Shoney's, Inc. and Tampa Foods, L.P., each will
continue to contribute more than ten percent of the Partnership's total rental
income during 2002. In addition, during the year ended December 31, 2001, four
Restaurant Chains, Denny's, Shoney's, Pizza Hut and Wendy's, each accounted for
more than ten percent of the Partnership's total rental and earned income
(including the Partnership's share of the rental and earned income from six
Properties owned by joint ventures and two Properties owned with affiliates of
the General Partners as tenants-in-common). In 2002, it is anticipated that
these four Restaurant Chains each will continue to account for more than ten
percent of the total rental income to which the Partnership is entitled under
the terms of the leases. Any failure of these lessees or these Restaurant Chains
could materially affect the Partnership's income if the Partnership is not able
to re-lease the Properties in a timely manner.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership also earned $78,307, $70,246 and $39,422, respectively, in interest
and other income. The increase in interest and other income during 2001 and
2000, each as compared to the previous year, was due to interest earned on the
net sales proceeds received from the sale of Properties described above, pending
distribution to the Limited Partners, as described above in "Short-Term
Liquidity."
Operating expenses, including depreciation and amortization expense,
and provision for write-down of assets, were $837,344, $1,153,745, and $774,698,
for the years ended December 31, 2001, 2000, and 1999, respectively. During
2000, the Partnership established a provision for write-down of assets in the
amount of $400,442, including $12,830 in previously accrued rental income for
the Property in Palm Bay, Florida. The tenant of this Property defaulted under
the terms of its lease and vacated the Property. The accrued rental income was
the accumulated amount of non-cash accounting adjustments previously recorded in
order to recognize future scheduled rent increases as income evenly over the
term of the lease. The provision represented the difference between the
Property's carrying value , including the accumulated accrued rental income, at
December 31, 2000, and the general partners' estimated net realizable value for
this Property. During the year ended December 31, 2001, the Partnership recorded
an additional provision for write-down of assets of $178,817. The increase in
the provision represented the difference between the carrying value of the
Property at June 30, 2001, and the estimated net realizable value of the
Property based on a sales contract with an unrelated third party. No such
provision was established during 1999. As a result of the sale of the Property,
as described above in "Capital Resources," the Partnership recognized a loss of
approximately $27,100 during the year ended December 31, 2001.
In addition, during 2000, the Partnership recorded a provision for
write-down of assets of $38,691 in previously accrued rental income relating to
the property located in Richmond, Virginia. In October 1998, the tenant of one
Boston Market Property filed for bankruptcy, and in June 2000, rejected, the
lease relating to this Property. As a result, the tenant discontinued making
rental payments on the rejected lease. The accrued rental income was the
accumulated amount of non-cash accounting adjustments previously recorded in
order to recognize future scheduled rent increases as income evenly over the
term of the lease. The provision represented the difference between the carrying
value of the property, including the accumulated accrued rental income, and the
general partners' estimated net realizable value of the property. In December
2000, the Partnership entered into a new lease, as described above.
The decrease in operating expenses for 2001, as compared to 2000, was
partially due to, and the increase in 2000, as compared to 1999, was partially
offset by, a reduction in depreciation expense due to the sale of Properties in
2000 and 2001. In addition, the decrease in operating expenses during 2001, as
compared to 2000, and the increase in 2000, as compared to 1999 was partially
offset, due to the fact that during the years ended December 31, 2000 and 1999,
the Partnership incurred $36,493 and $142,244 in transaction costs related to
the general partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed merger with CNL American Properties
Fund, Inc. ("APF"). On March 1, 2000, the general partners and APF mutually
agreed to terminate the merger. No such expenses were incurred during the year
ended December 31, 2001.
The increase in 2000, as compared to 1999, was partially due to the
Partnership expensing the balance of unamortized lease costs, during 2000,
relating to the Partnership's Property in Palm Bay, Florida, for which the
tenant defaulted under the terms of its lease agreement. The decrease in
operating expenses during the year ended December 31, 2001, was partially offset
by an increase in the costs incurred for administrative expenses for servicing
the Partnership and its Properties, as permitted by the Partnership agreement.
As a result of the sale of the Property in Corpus Christi, Texas, as
described above in "Capital Resources," the Partnership recognized a loss of
approximately $93,800 during the year ended December 31, 2001.
As a result of the sale of three Properties during 2000, the
Partnership recognized a total gain of $1,134,692 during the year ended December
31, 2000. In addition, as a result of the sale of the Property in Topeka,
Kansas, the Partnership recognized a loss of $92,397 for the year ended December
31, 2000. No Properties were sold during 1999.
The restaurant industry, as a whole, has been one of the many
industries affected by the general slowdown in the economy. While the
Partnership has experienced some losses due to the financial difficulties of a
limited number of restaurant operators, the General Partners remain confident in
the overall performance of the fast-food and family style restaurants, the
concepts that comprise the majority of the Partnership's portfolio. Industry
data shows that these restaurant concepts continue to outperform and remain more
stable than higher-end restaurants, which have been more adversely affected by
the slowing economy.
The Partnership's leases as of December 31, 2001, are generally
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in based rent at specified times
during the term of the lease. Inflation, overall, has had a minimal effect on
results of operations of the Partnership. Continued inflation may cause capital
appreciation of the Partnership's Properties. Inflation and changing prices,
however, also may have an adverse impact on the sales of the restaurants and on
potential capital appreciation of the Properties.
In 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's results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" (FAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement requires
that a long-lived asset be tested for recoverability whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable. The
carrying amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. The assessment is based on the carrying amount of the
asset at the date it is tested for recoverability. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds its fair
value. If an impairment is recognized, the adjusted carrying amount of a
long-lived asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this Statement
retained the fundamental provisions of FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
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 IV, LTD.
(A Florida Limited Partnership)
CONTENTS
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Page
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Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22-23
Notes to Financial Statements 24-40
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund IV, Ltd.
In our opinion, the accompanying balance sheets and the related statements of
income, of partners' capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund IV, Ltd. (a Florida limited
partnership) at December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001 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 8, 2002
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------ ------------------
ASSETS
Land and buildings on operating leases, net $ 11,106,349 $ 12,385,122
Net investment in direct financing leases 323,935 339,689
Investment in joint ventures 3,108,042 3,197,510
Cash and cash equivalents 645,220 1,366,871
Receivables, less allowance for doubtful
accounts of $301,517 in 2000 51,516 45,144
Due from related parties 4,574 15,226
Accrued rental income 269,464 250,635
Other assets 33,675 15,962
------------------ ------------------
$ 15,542,775 $ 17,616,159
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 10,252 $ 45,070
Accrued and escrowed real estate taxes payable 48,654 48,508
Distributions payable 523,947 525,000
Due to related parties 189,985 172,677
Rents paid in advance and deposits 33,068 29,235
------------------ ------------------
Total liabilities 805,906 820,490
Partners' capital 14,736,869 16,795,669
------------------ ------------------
$ 15,542,775 $ 17,616,159
================== ==================
See accompanying notes to financial statements.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
---------------- ---------------- ----------------
Revenues:
Rental income from operating leases $ 1,506,977 $ 1,781,392 $ 2,009,987
Earned income from direct financing leases 35,179 79,260 122,904
Contingent rental income 81,550 24,545 126,521
Lease termination income 67,073 -- --
Interest and other income 78,307 70,246 39,422
---------------- ---------------- ----------------
1,769,086 1,955,443 2,298,834
---------------- ---------------- ----------------
Expenses:
General operating and administrative 225,125 168,539 146,650
Provision for doubtful accounts 10,792 12,685 --
Professional services 40,403 46,673 36,759
Real estate taxes 29,281 30,731 21,468
State and other taxes 30,350 15,479 17,426
Depreciation and amortization 322,576 404,013 410,151
Provision for write-down of assets 178,817 439,132 --
Transaction costs -- 36,493 142,244
---------------- ---------------- ----------------
837,344 1,153,745 774,698
---------------- ---------------- ----------------
Income Before Gain (Loss) on Sale of Assets
and Equity in Earnings of Joint Ventures 931,742 801,698 1,524,136
Gain (Loss) on Sale of Assets (120,872 ) 1,042,295 --
Equity in Earnings of Joint Ventures 278,224 234,317 303,223
---------------- ---------------- ----------------
Net Income $ 1,089,094 $ 2,078,310 $ 1,827,359
================ ================ ================
Allocation of Net Income:
General partners $ -- $ -- $ 18,273
Limited partners 1,089,094 2,078,310 1,809,086
---------------- ---------------- ----------------
$ 1,089,094 $ 2,078,310 $ 1,827,359
================ ================ ================
Net Income per Limited Partner Unit $ 18.15 $ 34.64 $ 30.15
================ ================ ================
Weighted Average Number of Limited
Partner Units Outstanding 60,000 60,000 60,000
================ ================ ================
See accompanying notes to financial statements.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001, 2000, and 1999
General Partners Limited Partners
----------------------------- ----------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
--------------- ------------- -------------- -------------- ------------ -------------- --------------
Balance, December 31, 1998 $ 557,804 $ 211,274 $ 30,000,000 $ (28,841,711) $ 21,852,633 $ (3,440,000) $ 20,340,000
Distributions to limited
partners ($40 per
limited partner unit) -- -- -- (2,400,000) -- -- (2,400,000 )
Net income -- 18,273 -- -- 1,809,086 -- 1,827,359
--------------- ------------- -------------- -------------- ------------ -------------- --------------
Balance, December 31, 1999 557,804 229,547 30,000,000 (31,241,711) 23,661,719 (3,440,000) 19,767,359
Distributions to limited
partners ($84 per
limited partner unit) -- -- -- (5,050,000) -- -- (5,050,000 )
Net income -- -- -- -- 2,078,310 -- 2,078,310
--------------- ------------- -------------- -------------- ------------ -------------- --------------
Balance, December 31, 2000 557,804 229,547 30,000,000 (36,291,711) 25,740,029 (3,440,000) 16,795,669
Distributions to limited
partners ($52 per
limited partner unit) -- -- (60,127) (3,087,767) -- -- (3,147,894 )
Net income -- -- -- -- 1,089,094 -- 1,089,094
--------------- ------------- -------------- -------------- ------------ -------------- --------------
Balance, December 31, 2001 $ 557,804 $ 229,547 $ 29,939,873 $ (39,379,478) $ 26,829,123 $ (3,440,000) $ 14,736,869
=============== ============= ============== ============== ============ ============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
---------------- ---------------- ----------------
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 1,667,646 $ 1,972,961 $ 2,186,946
Distributions from joint ventures 367,692 368,819 367,317
Cash paid for expenses (337,465 ) (569,192 ) (181,668 )
Interest received 70,779 54,519 28,718
---------------- ---------------- ----------------
Net cash provided by operating
activities 1,768,652 1,827,107 2,401,313
---------------- ---------------- ----------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 679,894 3,939,271 --
Investment in joint ventures -- -- (533,200 )
Decrease in restricted cash -- -- 533,598
Payment of lease costs (21,250 ) -- (15,600 )
---------------- ---------------- ----------------
Net cash provided by (used in) investing
activities 658,644 3,939,271 (15,202 )
---------------- ---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,148,947 ) (5,125,000 ) (2,400,000 )
---------------- ---------------- ----------------
Net cash used in financing activities (3,148,947 ) (5,125,000 ) (2,400,000 )
---------------- ---------------- ----------------
Net Increase (Decrease) in Cash and Cash
Equivalents (721,651 ) 641,378 (13,889 )
Cash and Cash Equivalents at Beginning of Year 1,366,871 725,493 739,382
---------------- ---------------- ----------------
Cash and Cash Equivalents at End of Year $ 645,220 $ 1,366,871 $ 725,493
================ ================ ================
See accompanying notes to financial statements.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2001 2000 1999
---------------- ---------------- ----------------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 1,089,094 $ 2,078,310 $ 1,827,359
---------------- ---------------- ----------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 320,213 376,013 405,488
Amortization 2,363 28,000 4,663
Provision for doubtful accounts 10,792 12,685 --
Provision for write-down of assets 178,817 439,132 --
Loss (gain) on sale of assets 120,872 (1,042,295 ) --
Equity in earnings of joint ventures,
net of distributions 89,468 134,502 64,094
Decrease (increase) in receivables (17,164 ) 83,846 (113,323 )
Decrease (increase) in due from related
parties 10,652 (15,226 ) --
Decrease in net investment in direct
financing leases 15,754 31,769 41,994
Decrease (increase) in accrued rental
income (18,829 ) (16,153 ) (34,542 )
Decrease (increase) in other assets 1,174 452 (5,547 )
Increase (decrease) in accounts
payable and accrued expenses (34,818 ) (46,004 ) 86,571
Increase (decrease) in accrued and
escrowed real estate taxes 146 (15,077 ) 26,853
Increase (decrease) in due to related
parties (3,715 ) (187,290 ) 92,531
Increase (decrease) in rents paid in
advance and deposits 3,833 (35,557 ) 5,172
---------------- ---------------- ----------------
Total adjustments 679,558 (251,203 ) 573,954
---------------- ---------------- ----------------
Net Cash Provided by Operating Activities $ 1,768,652 $ 1,827,107 $ 2,401,313
================ ================ ================
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Deferred real estate disposition fees incurred
and unpaid at December 31 $ 21,023 $ 118,458 $ --
================ ================ ================
Distributions declared and unpaid at
December 31 $ 523,947 $ 525,000 $ 600,000
================ ================ ================
See accompanying notes to financial statements.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund IV, 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 and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are generally 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 method 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 IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
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, are removed from the
accounts and gains or losses from sales are 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' best 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,
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's investments in Holland
Joint Venture, Titusville Joint Venture, Cocoa Joint Venture, Auburn
Joint Venture, Kingsville Real Estate Joint Venture, Warren Joint
Venture, and properties in Clinton, North Carolina and Zephyrhills,
Florida, held as tenants-in-common, are accounted for using the equity
method since each joint venture agreement requires the consent of all
partners on all key decisions affecting the operations of the
underlying property.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
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.
Lease Costs - Other assets include brokerage fees associated with
negotiating new leases which are amortized over the terms of the new
leases using the straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. 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. See "Income Taxes"
footnote for a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2001 presentation.
These reclassifications had no effect on total partners' capital or net
income.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
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's results of operations.
Statement of Financial Accounting Standards No. 141 ("FAS 141") and
Statement of Financial Accounting Standards No. 142 ("FAS 142") - In
July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets." The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the
Partnership as of December 31, 2001.
Statement of Financial Accounting Standards No. 144 ("FAS 144") - In
October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets." This statement requires
that a long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this
Statement retained the fundamental provisions of FAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of."
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
2. Leases:
------
The Partnership leases its land or land and buildings primarily to
operators of national and regional fast-food and family-style
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, some leases have been classified as direct financing leases.
For the leases classified as direct financing leases, the building
portions of the property leases are accounted for as direct financing
leases while the land portion of these leases are operating leases. The
majority of the 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 to four
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:
2001 2000
-------------- ---------------
Land $ 5,768,381 $ 6,237,393
Buildings 9,027,177 9,981,376
-------------- ---------------
14,795,558 16,218,769
Less accumulated depreciation (3,689,209 ) (3,833,647 )
-------------- ---------------
$ 11,106,349 $ 12,385,122
============== ===============
In June 2000, the Partnership sold its property in Detroit, Michigan to
the tenant for $1,095,000 and received net sales proceeds of
$1,089,325, resulting in a gain of approximately $552,600. In
connection with the sale, the Partnership incurred a deferred,
subordinated, real estate disposition fee of $32,850 (see Note 8).
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
In July 2000, the Partnership sold its properties in Temple Terrace,
Florida and Punta Gorda, Florida, to a third party for $2,353,583
resulting in a gain of approximately $582,100. In connection with the
sales, the Partnership incurred deferred, subordinated, real estate
disposition fees of $70,608 (see Note 8).
In November 2000, the Partnership sold its property in Topeka, Kansas
to a third party for $500,000 and received net sales proceeds of
approximately $496,400, resulting in a loss of approximately $92,400.
In connection with the sale, the Partnership incurred a deferred,
subordinated, real estate disposition fee of $15,000 (see Note 8).
As of December 31, 2000, the Partnership recorded a provision for
write-down of assets of $38,691 in previously accrued rental income
relating to the property located in Richmond, Virginia. In October
1998, the tenant of one Boston Market Property filed for bankruptcy,
and in June 2000, rejected, the lease relating to this Property. As a
result, the tenant discontinued making rental payments on the rejected
lease. The accrued rental income was the accumulated amount of non-cash
accounting adjustments previously recorded in order to recognize future
scheduled rent increases as income evenly over the term of the lease.
The provision represented the difference between the carrying value of
the property, including the accumulated accrued rental income, and the
general partners' estimated net realizable value of the property.
As of December 31, 2000, the Partnership recorded a provision for
write-down of assets of $400,442, including $12,830 in previously
accrued rental income, relating to the property in Palm Bay, Florida.
The tenant of this property filed for bankruptcy and ceased payment of
rents under the terms of its lease agreement. The accrued rental income
was the accumulated amount of non-cash accounting adjustments
previously recorded in order to recognize future scheduled rent
increases as income evenly over the term of the lease. The provision
represented the difference between the carrying value of the property,
including the accumulated accrued rental income, at December 31, 2000
and the general partners' estimated net realizable value for the
property. During 2001, the Partnership increased the provision by
$178,817 to $579,259. The adjusted provision represented the difference
between the carrying value of the property at June 30, 2001 and the
estimated net sales proceeds from the sale of the property based on a
sales contract with an unrelated third party. In August 2001, the
Partnership sold the property and received net sales proceeds of
approximately $289,894, resulting in a loss of
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
approximately $27,100. In connection with the sale, the Partnership
incurred a deferred, subordinated, real estate disposition fee of
$9,323 (see Note 8).
In June 2001, the Partnership sold its property in Corpus Christi,
Texas to the tenant and received net sales proceeds of $390,000,
resulting in a loss of approximately $93,800. In connection with the
sale, the Partnership incurred a deferred subordinated, real estate
disposition fee of $11,700 (see Note 8).
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2001:
2002 $ 1,477,516
2003 1,457,983
2004 1,462,475
2005 1,475,155
2006 1,478,925
Thereafter 5,766,309
------------------
$ 13,118,363
==================
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 terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2001 2000
----------------- -----------------
Minimum lease payments receivable $ 379,048 $ 429,981
Estimated residual values 114,886 114,886
Less unearned income (169,999 ) (205,178 )
----------------- -----------------
Net investment in direct financing
leases $ 323,935 $ 339,689
================= =================
During 2000, the Partnership sold its property in Punta Gorda, Florida,
for which the building portion had been classified as a direct
financing lease. In connection therewith, the gross investment (minimum
lease payments receivable and the estimated residual value) and
unearned income relating to the building were removed from the accounts
and the gain from the sale of the property was reflected in income (see
Note 3).
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2000:
2002 $ 53,568
2003 53,568
2004 53,568
2005 53,568
2006 53,568
Thereafter 111,208
-----------------
$ 379,048
=================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures:
----------------------------
As of December 31, 2001, the Partnership had a 51%, 26.6%, 57%, 96.1%,
68.87%, and 35.71% interest in the profits and losses of Holland Joint
Venture, Titusville Joint Venture, Cocoa Joint Venture, Auburn Joint
Venture, Kingsville Real Estate Joint Venture and Warren Joint Venture,
respectively, and a 53 percent and 76 percent interest in the profits
and losses of properties in Clinton, North Carolina and Zephyrhills,
Florida, held as tenants-in-common with affiliates of the general
partners. The remaining interests in these joint ventures are held by
affiliates of the Partnership which have the same general partners.
Holland Joint Venture, Titusville Joint Venture, Cocoa Joint Venture,
Auburn Joint Venture, Kingsville Real Estate Joint Venture, Warren
Joint Venture and the Partnership and affiliates, as tenants-in-common,
each owns and leases one property to an operator of national fast-food
or family-style restaurants.
As of December 31, 2000, Titusville Joint Venture, in which the
Partnership owns a 26.6% interest, had recorded a provision for
write-down of assets of $499,383. During 1997, the tenant of the joint
venture's property vacated and ceased operations. The provision
represented the difference between the carrying value of the property
at December 31, 2000 and the estimated net realizable value for the
property. During the year ended December 31, 2001, the joint venture
increased the provision by $73,570 to $572,954. The adjusted provision
represented the difference between the carrying value of the property
at December 31, 2001 and the estimated net sales proceeds from the sale
of the property based on a sales contract with an unrelated third party
(see Note 11).
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
The following presents the joint ventures' combined, condensed
financial information at December 31:
2001 2000
-------------- -------------
Land and buildings on operating
leases, net $ 4,672,053 $ 4,866,583
Net investment in direct financing
lease 343,619 358,308
Cash 24,547 32,143
Receivables 23,086 20,345
Accrued rental income, less
allowance for doubtful accounts 161,143 165,097
Other assets 3,111 3,252
Liabilities 21,941 56,461
Partners' capital 5,205,618 5,389,267
Revenues 613,956 606,228
Provision for write-down of assets (73,570 ) (227,093 )
Net income 387,441 222,879
The Partnership recognized income totaling $278,224, $234,317 and
$303,223 for the years ended December 31, 2001, 2000 and 1999,
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 property, 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, cumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
6. Allocations and Distributions:
-----------------------------
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 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 not in
liquidation of the Partnership 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 partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the years
ended December 31, 2001 and 2000.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
6. Allocations and Distributions - Continued:
-----------------------------------------
During each of the years ended December 31, 2001, 2000, and 1999, the
Partnership declared distributions to the limited partners of
$3,147,894, $5,050,000, and $2,400,000, respectively. Distributions for
the year ended December 31, 2000, included $2,800,000 in a special
distribution, as a result of the distribution of net sales proceeds
from the sale of the properties in Temple Terrace and Punta Gorda,
Florida and Detroit, Michigan. This amount was applied toward the
limited partners' 10% Preferred Return. Distributions for the year
ended December 31, 2001, included $1,050,000 in special distributions,
as a result of the distributions of net sales proceeds from the sale of
several properties. These special distributions were effectively a
return of a portion of the limited partners' investment, although, in
accordance with the Partnership agreement, $989,873 was applied toward
the limited partners' 10% Preferred Return and the balance of $60,127
was treated as a return of capital for purposes of calculating the
limited partners 10% Preferred Return. As a result of the return of
capital, the amount of the limited partners' invested capital
contributions (which generally is the limited partners' capital
contributions, less distributions from the sale of a property that are
considered to be a return of capital) was decreased; therefore, the
amount of the limited partners' invested capital contributions on which
the 10% Preferred Return is calculated was lowered accordingly. No
distributions have been made to the general partners to date.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
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:
2001 2000 1999
------------- ------------- -------------
Net income for financial reporting
purposes $ 1,089,094 $ 2,078,310 $ 1,827,359
Depreciation for tax reporting purposes less
than (in excess of) of depreciation for 6,102 (3,055 ) (8,171 )
financial reporting purposes
Provision for write-down of assets 178,817 439,132 --
Direct financing leases recorded as
operating leases for tax reporting
purposes 15,754 31,769 41,995
Gain on sale of assets for financial
reporting purposes less than (in excess
of) gain for tax reporting purposes (576,193 ) 89,247 --
Capitalization (deduction) of transaction
costs for tax reporting purposes -- (160,530 ) 142,244
Equity in earnings of joint ventures
for financial reporting purposes less
than (in excess of) equity in earnings
of joint ventures for tax reporting
purposes 20,451 73,569 (76,060 )
Allowance for doubtful accounts (301,517 ) 86,488 (43,612 )
Accrued rental income (18,829 ) (16,153 ) (34,542 )
Rents paid in advance (1,772 ) (11,518 ) (14,327 )
------------- ------------- -------------
Net income for federal income tax
purposes $ 411,907 $ 2,607,259 $ 1,834,886
============= ============= =============
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
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 Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc. CNL
APF Partners, LP (the "Advisor") is a wholly owned subsidiary of CNL
American Properties Fund, Inc. ("APF"). CNL Fund Advisors, Inc., a
majority owned subsidiary of CNL Financial Group, Inc. until it merged
with and into APF effective September 1, 1999, served as the
Partnership's advisor until it assigned its rights and obligations
under a management agreement with the Partnership to the Advisor
effective July 1, 2000. 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 agreed to pay
the Advisor an annual, noncumulative, subordinated management fee of
one percent of the sum of gross revenues from properties wholly owned
by the Partnership and the Partnership's allocable share of gross
revenues from joint ventures, but not in excess of competitive fees for
comparable services. These fees are incurred payable only after the
limited partners receive their 10% Preferred Return. Due to the fact
that these fees are noncumulative, if the limited partners have not
received their 10% Preferred Return in any particular year, no
management fees will be due or payable for such year. As a result of
such threshold, no management fees were incurred during the years ended
December 31, 2001, 2000 and 1999.
The Advisor is also entitled to receive a deferred, subordinated, real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to the receipt by the limited partners of their aggregate
10% Preferred Return, plus their adjusted capital contributions. For
the years ended December 31, 2001 and 2000, the Partnership incurred
$21,023 and $118,458, respectively, in deferred, subordinated, real
estate disposition fees as a result of the sales of properties. No
deferred, subordinated, real estate disposition fees were incurred for
the year ended December 31, 1999.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. Related Party Transactions - Continued:
---------------------------------------
During the years ended December 31, 2001, 2000 and 1999, the
Partnership's advisor and its affiliates provided accounting and
administrative services to the Partnership on a day-to-day basis,
including services during 2000 and 1999 relating to the proposed and
terminated merger. The Partnership incurred $152,529, $88,356, and
$107,553 for the years ended December 31, 2001, 2000 and 1999,
respectively, for such services.
The due to related parties consisted of the following at December 31:
2001 2000
------------ -------------
Due to the Advisor:
Accounting and administrative
services $ 4,841 $ 3,556
Deferred, subordinated real
estate disposition fee 185,144 164,121
Other -- 5,000
------------ -------------
$ 189,985 $ 172,677
============ =============
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:
2001 2000 1999
------------- ------------ -------------
Shoney's, Inc. $279,529 $313,115 $347,088
Tampa Foods, L.P. 203,277 N/A N/A
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
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 total 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:
2001 2000 1999
-------------- ------------ ------------
Wendy's Old Fashioned
Hamburger Restaurants $ 330,682 $ 386,618 $442,195
Shoney's 232,325 327,448 466,964
Pizza Hut 212,266 N/A N/A
Denny's 127,024 236,184 N/A
The information denoted by N/A indicates that for each period
presented, the tenant and the chain 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 of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
10. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2001 and
2000:
2001 Quarter First Second Third Fourth Year
------------------------ -------------- ------------- ------------- -------------- --------------
Revenue (1) $536,330 $479,605 $533,855 $497,520 $ 2,047,310
Net income 302,122 42,616 376,751 367,605 1,089,094
Net income per
limited partner
unit 5.04 0.71 6.27 6.13 18.15
'
2000 Quarter First Second Third Fourth Year
------------------------ -------------- ------------- ------------- -------------- --------------
Revenue (1) $661,494 $610,497 $484,190 $433,579 $ 2,189,760
Net income 430,730 487,937 890,412 269,231 2,078,310
Net income per
limited partner
unit 7.11 8.27 14.73 4.53 34.64
(1) Revenues include equity in earnings of joint ventures.
(2) Revenues have been adjusted to reclassify any reversals of
accrued rental income to provisions for write-down of assets.
This reclassification had no effect on total net income.
11. Subsequent Event:
----------------
In January 2002, Titusville Joint Venture, in which the Partnership
owned a 26.6% interest, sold its property to an unrelated third party
for approximately $180,000 and received net sales proceeds of
approximately $165,600, resulting in a gain of $4,900 to the joint
venture. In addition, in January 2002, the Partnership and the joint
venture partner liquidated Titusville Joint Venture and the Partnership
received its pro rata share of the liquidation proceeds. No gain or
loss was recorded relating to the liquidation.
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 55. 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, Inc., formerly the Partnership's advisor, until it merged with a
wholly-owned subsidiary of APF in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc., a diversified real estate company, and has served as a Director,
Chairman of the Board and Chief Executive Officer of CNL Financial Group, Inc.
since 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 54. 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 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 CNL Fund Advisors, Inc. prior to its merger
with a wholly-owned subsidiary of 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.; Director, Vice Chairman of
the Board, President and Treasurer of CNL Hospitality Properties, Inc., a
public, unlisted real estate investment trust; as well as, Director, Vice
Chairman of the Board, President and Treasurer of CNL Hospitality Corp., its
advisor. In addition, Mr. Bourne serves as Director, Vice Chairman of the Board,
President and Treasurer of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust; as well as, a Director, Vice Chairman of the
Board, President and Treasurer 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 46. 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 CNL Fund Advisors, Inc., Mr. McWilliams served as President of
APF from February 1999 until September 1999. From February 1998 to February
1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL
Financial Group, Inc. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc. from April
1997 until the acquisition of such entities by wholly-owned subsidiaries of 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.
Steven D. Shackelford, age 38. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors, Inc. from September 1996 to September 1999. From March
1995 to July 1996, Mr. Shackelford was a senior manager in the national office
of Price Waterhouse LLP where he was responsible for advising foreign clients
seeking to raise capital and a public listing in the United States. From August
1992 to March 1995, he was a manager in the Paris, France office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and senior from 1986 to 1992 in the Orlando, Florida office of Price
Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business Administration degree from Florida State
University and is a certified public accountant.
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, 2002, 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, 2002, 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, 2001, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and administra
operating expenses the lower of cost or 90% of the -tive services: $152,529
prevailing rate at which comparable
services could have been obtained in
the same geographic area.
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 man One percent of the sum of gross $-0-
- -agement fee to affiliates operating revenues from Properties
wholly owned by the Partnership plus
the Partnership's allocable share of
gross revenues of joint ventures in
which the Partnership is a
co-venturer, subordinated to certain
minimum returns to the Limited
Partners. The management fee will
not exceed competitive fees for
comparable services. Due to the
fact that these fees are
non-cumulative, if the Limited
Partners have not received their 10%
Preferred Return in any particular
year, no management fees will be due
or payable for such year.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $21,023
estate disposition fee payable disposition fee, payable upon sale
to affiliates. 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 equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales proceeds distributions of such net sales
from a sale or sales not in proceeds, subordinated to certain
liquidation of the Partnership minimum returns to the Limited
Partners
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net loss,
gain and loss, in proportion to such
balances, up to amounts sufficient
to reduce such balances to zero; and
(iii) thereafter, 95% to the Limited
Partners and 5% to the General Partners.
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, 2001 and 2000
Statements of Income for the years ended December 31, 2001,
2000 and 1999
Statements of Partners' Capital for the years ended December
31, 2001, 2000 and 1999
Statements of Cash Flows for the years ended December 31,
2001, 2000 and 1999
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2001, 2000 and 1999
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2001
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2001
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
IV, Ltd. (Included as Exhibit 3.1 in Amendment No. 1
to Registration Statement No. 33-20249 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1994,
and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund
IV, Ltd. (Included as Exhibit 3.1 in Amendment No. 1
to Registration Statement No. 33-20249 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1994,
and incorporated herein by reference.)
10.1 Property Management Agreement (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on March 31, 1994, 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.)
10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 to Form 10-Q filed with the Securities
and Exchange Commission on August 9, 2001, and
incorporated herein by reference.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 2001 through December 31, 2001.
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 26th day of
March, 2002.
CNL INCOME FUND IV, 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 26, 2002
--------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 26, 2002
--------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000, and 1999
Additions Deductions
--------------------------------- -------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
1999 Allowance for
doubtful
accounts (a) $ 258,641 $ -- $ 18,765 (b) $ 7,167 (c) $ 55,210 $ 215,029
============== =============== ================ ============= ============ ============
2000 Allowance for
doubtful
accounts (a) $ 215,029 $ 28,953 $ 153,383 (b) $ -- $ 95,848 $ 301,517
============== =============== ================ ============= ============ ============
2001 Allowance for
doubtful
accounts (a) $ 301,517 $ 10,792 $ 16,339 (b) $ 309,608 (c) $ 19,040 $ --
============== =============== ================ ============= ============ ============
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
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:
Arby's Restaurants:
Winchester, Indiana - $287,769 - $567,785 -
Portland, Indiana - 187,928 - 657,931 -
Captain D's Restaurants:
Alexander City, Alabama - 120,210 279,689 - -
Oak Ridge, Tennessee - 169,951 281,686 - -
Checkers Drive-In Restaurant:
Miami, Florida - 174,336 - - -
Chipper's Grill Restaurant:
Streator, Illinois - 161,616 650,934 - -
Denny's Restaurants:
Marion, Ohio - 135,407 334,665 - -
Dundee, Michigan - 251,650 - 372,278 -
Golden Corral Family
Steakhouse Restaurants:
Franklin, Indiana - 107,560 586,375 - -
Green Tea Restaurant:
Tampa, Floridaa, Florida - 476,755 368,405 - -
Jack in the Box Restaurant:
San Antonio, Texas - 352,957 - 368,702 -
Pizza Hut Restaurants:
Memphis, Texas - 26,510 231,874 - -
Carthage, Texas - 40,444 232,823 - -
Crystal City, Texas - 8,826 178,570 - -
Sequin, Texas - 63,708 184,279 - -
Washington, D.C. - 191,737 - - -
Shoney's Restaurants:
Alexander City, Alabama - 202,438 428,406 - -
Brookhaven, Mississippi - 312,574 452,601 - -
Auburn, Alabama - 363,432 426,123 - -
Taco Bell Restaurant:
Edgewood, Maryland - 440,355 - 523,478 -
The Vitamin Shoppe:
Richmond, Virginia 504,169 522,025 - -
Costs Capitalized
Subsequent to
Initial Cost Acquisition
------------------------- -------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
---------- ----------- ------------ ---------- -------
Wendy's Old Fashioned
Hamburger Restaurants:
Mechanicsville, -irginia 346,627 502,117 - -
Tampa, Florida - 530,456 432,958 - -
Other Restaurants:
Maywood, Illinoi- (i) 310,966 - 443,473 -
----------- ------------ ---------- -------
$5,768,381 $6,093,530 $2,933,647 -
=========== ============ ========== =======
Property of Joint Venture in
Which the Partnership has a
51% Interest and has
Invested in Under an
Operating Lease:
Denny's Restaurant:
Holland, Michigan - $295,987 - $780,451 -
=========== ============ ========== =======
Property of Joint Venture in
Which the Partnership has
a 26.6% Interest and has
Invested in Under an
Operating Lease:
Po Folks Restaurant:
Titusville, Florida (-) $271,350 - $750,985 -
=========== ============ ========== =======
Property of Joint Venture in
Which the Partnership has a
57% Interest and has Invested
in Under an Operating Lease:
Waffle House Restaurant:
Cocoa, Florida $183,229 $192,857 - -
=========== ============ ========== =======
Property of Joint Venture in
Which the Partnership has a
35.71% Interest and has
Invested in Under an
Operating Lease:
IHOP Restaurant:
Warren, Michigan - $507,965 $889,080 - -
=========== ============ ========== =======
Property of Joint Venture in
Which the Partnership has a
96.1% Interest and has
Invested in Under an
Operating Lease:
KFC Restaurant:
Auburn, Massachusetts- $484,362 - - -
=========== ============ ========== =======
Costs Capitalized
Subsequent to
Initial Cost Acquisition
------------------------- -------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
---------- ----------- ------------ ---------- -------
Property of Joint Venture in
Which the Partnership has
a 68.87% Interest and has
Invested in Under an
Operating Lease:
Denny's Restaurant:
Kingsville, Texas (k)- $270,189 - $243,326 -
=========== ============ ========== =======
Property in Which the
Partnership has a 53%
Interest as Tenants-in-
Common and has Invested
in Under an Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Clinton, North Ca-olina $138,382 $676,588 - -
=========== ============ ========== =======
Property in Which the Partnership
has a 76% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Arby's Restaurant:
Zephyrhills, Florida - $260,146 $441,434 - -
=========== ============ ========== =======
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Pizza Hut Restaurant:
Washington, D. C. - - $459,543 - -
=========== ============ ========== =======
Property of Joint Venture in
Which the Partnership has a
96.1% Interest and has Invested
in Under a Direct Financing
Lease:
KFC Restaurant:
Auburn, Massachusetts- - - $434,947 -
=========== ============ ========== =======
Net Cost Basis 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 structioAcquired Computed
- ------------- ----------- ----------- ----------- ------ --------- ------------
$287,769 $567,785 $855,554 $218,882 1988 07/88 (b)
187,928 657,931 845,859 242,064 1989 11/88 (b)
120,210 279,689 399,899 121,428 1988 12/88 (b)
169,951 281,686 451,637 122,321 1988 12/88 (b)
174,336 - 174,336 (g) - 06/94 (g)
161,616 650,934 812,550 289,304 1988 08/88 (b)
135,407 334,665 470,072 106,737 1989 10/88 (h)
251,650 372,278 623,928 163,389 1988 10/88 (b)
107,560 586,375 693,935 263,869 1988 06/88 (b)
476,755 368,405 845,160 159,717 1987 12/88 (b)
352,957 368,702 721,659 157,723 1989 11/88 (b)
26,510 231,874 258,384 102,733 1985 09/88 (b)
40,444 232,823 273,267 103,154 1981 09/88 (b)
8,826 178,570 187,396 79,117 1981 09/88 (b)
63,708 184,279 247,987 81,645 1974 09/88 (b)
191,737 (f) 191,737 - 1986 01/89 (d)
202,438 428,406 630,844 185,995 1988 12/88 (b)
312,574 452,601 765,175 196,540 1988 12/88 (b)
363,432 426,123 789,555 185,042 1988 12/88 (b)
440,355 523,478 963,833 224,659 1989 10/88 (b)
504,169 522,025 1,026,194 87,052 1996 12/96 (b)
Net Cost Basis 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 structioAcquired Computed
- ------------- ----------- ----------- ----------- ------ --------- ------------
346,627 502,117 848,744 218,979 1988 12/88 (b)
530,456 432,958 963,414 187,702 1984 12/88 (b)
310,966 443,473 754,439 191,157 1988 09/88 (b)
- ------------- ----------- ----------- -----------
$5,768,381 $9,027,177 $14,795,558 $3,689,209
============= =========== =========== ===========
$295,987 $780,451 $1,076,438 $342,531 1988 10/87 (b)
============= =========== =========== ===========
$85,235 $364,146 $449,381 $288,670 1988 10/87 (b)
============= =========== =========== ===========
$183,229 $192,857 $376,086 $77,198 1986 12/89 (b)
============= =========== =========== ===========
$507,965 $889,080 $1,397,045 $97,677 1996 09/98 (b)
============= =========== =========== ===========
$484,362 (f) $484,362 (d) 1989 03/90 (d)
============= =========== ===========
Net Cost Basis 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 structioAcquired Computed
- ------------- ----------- ----------- ----------- ------ --------- ------------
$150,742 $243,326 $394,068 $38,421 1988 10/88 (d)
============= =========== =========== ===========
$138,382 $676,588 $814,970 $133,932 1996 01/96 (b)
============= =========== =========== ===========
$260,146 $441,434 $701,580 $43,448 1990 01/99 (b)
============= =========== =========== ===========
- (f) (f) (d) 1986 01/89 (d)
=============
- (f) (f) (d) 1989 03/90 (d)
=============
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(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, 1998 $ 19,231,068 $ 3,744,609
Depreciation expense -- 405,488
---------------- -----------------
Balance, December 31, 1999 19,231,068 4,150,097
Dispositions (2,624,687 ) (692,463 )
Provision for write-down of assets (387,612 ) --
Depreciation expense -- 376,013
---------------- -----------------
Balance, December 31, 2000 16,218,769 3,833,647
Dispositions (1,244,394 ) (464,651 )
Provisions for write-down of assets (178,817 ) --
Depreciation expense -- 320,213
---------------- -----------------
Balance, December 31, 2001 $ 14,795,558 $ 3,689,209
================ =================
Property of Joint Venture in Which the Partnership has
a 51% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 1,076,438 $ 264,486
Depreciation expense -- 26,015
---------------- -----------------
Balance, December 31, 1999 1,076,438 290,501
Depreciation expense -- 26,015
---------------- -----------------
Balance, December 31, 2000 1,076,438 316,516
Depreciation expense -- 26,015
---------------- -----------------
Balance, December 31, 2001 $ 1,076,438 $ 342,531
================ =================
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -----------------
Property of Joint Venture in Which the Partnership
has a 26.6% Interest and has Invested in Under
an Operating Lease:
Balance, December 31, 1998 $ 750,045 $ 245,306
Depreciation expense -- 17,624
---------------- -----------------
Balance, December 31, 1999 750,045 262,930
Depreciation expense -- 16,936
Provision for write-down of assets (i) (227,094 ) --
---------------- -----------------
Balance, December 31, 2000 522,951 279,866
Depreciation expense -- 8,804
Provision for write-down of assets (i) (73,570 ) --
---------------- -----------------
Balance, December 31, 2001 $ 449,381 $ 288,670
================ =================
Property of Joint Venture in Which the Partnership has
a 57% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 376,086 $ 57,911
Depreciation expense -- 6,429
---------------- -----------------
Balance, December 31, 1999 376,086 64,340
Depreciation expense -- 6,429
---------------- -----------------
Balance, December 31, 2000 376,086 70,769
Depreciation expense -- 6,429
---------------- -----------------
Balance, December 31, 2001 $ 376,086 $ 77,198
================ =================
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -----------------
Property of Joint Venture in Which the Partnership has
a 35.71% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 1,397,045 $ 8,769
Depreciation expense -- 29,636
---------------- -----------------
Balance, December 31, 1999 1,397,045 38,405
Depreciation expense -- 29,636
---------------- -----------------
Balance, December 31, 2000 1,397,045 68,041
Depreciation expense -- 29,636
---------------- -----------------
Balance, December 31, 2001 $ 1,397,045 $ 97,677
================ =================
Property of Joint Venture in Which the Partnership has
a 96.1% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 484,362 $ --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 1999 484,362 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2000 484,362 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2001 $ 484,362 $ --
================ =================
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
----------------- -----------------
Property of Joint Venture in Which the Partnership has
a 68.87% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 (j) $ 150,742 $ --
Reclassified from net investment in direct
financing lease (h) 243,326 --
Depreciation expense -- 12,807
----------------- -----------------
Balance, December 31, 1999 (j)(h) 394,068 12,807
Depreciation expense -- 12,807
----------------- -----------------
Balance, December 31, 2000 (j)(h) 394,068 25,614
Depreciation expense -- 12,807
----------------- -----------------
Balance, December 31, 2001 (j)(h) $ 394,068 $ 38,421
================= =================
Property in Which the Partnership has a 53% Interest
as Tenants-in-Common and has Invested in Under
an Operating Lease:
Balance, December 31, 1998 $ 814,970 $ 66,273
Depreciation expense -- 22,553
----------------- -----------------
Balance, December 31, 1999 814,970 88,826
Depreciation expense -- 22,553
----------------- -----------------
Balance, December 31, 2000 814,970 111,379
Depreciation expense -- 22,553
----------------- -----------------
Balance, December 31, 2001 $ 814,970 $ 133,932
================= =================
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
----------------- -----------------
Property in Which the Partnership has a 76% Interest
as Tenants-in-Common and has Invested in Under
an Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 701,580 --
Depreciation expense -- 13,532
----------------- -----------------
Balance, December 31, 1999 701,580 13,532
Depreciation expense -- 15,202
----------------- -----------------
Balance, December 31, 2000 701,580 28,734
Depreciation expense -- 14,714
----------------- -----------------
Balance, December 31, 2001 $ 701,580 $ 43,448
================= =================
(b) Depreciation expense is computed for buildings and improvements based upon
estimated lives of 30 years.
(c) As of December 31, 2001, the aggregate cost of the Properties owned by the
Partnership and joint ventures for federal income tax purposes was
$15,047,560 and $6,039,412, respectively. All of the leases are treated as
operating leases for federal income tax purposes.
(d) 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 leases, therefore, depreciation is not
applicable.
(e) The restaurant on the Property in Maywood, Illinois, was converted to a
Dunkin Donuts restaurant and a Holsum Bread bakery in 1993.
(f) Certain components of the lease relating to land and building have been
recorded as a direct financing lease. Accordingly, costs relating to these
components are not shown.
(g) The building portion of this Property is owned by the tenant; therefore,
depreciation is not applicable.
(h) Effective January 1, 1999, the lease for this Property was amended,
resulting in the reclassification of the building portion of the lease as
an operating lease. The building was recorded at net book value as of
January 1, 1999, and depreciated over remaining estimated life of
approximately 19 years.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 2001
(i) The undepreciated cost of the Property in Titusville, Florida, was written
down to net realizable value due to an anticipated impairment in value. The
Partnership recognized the impairment by recording provisions for
write-down of assets in the amount of $125,251 and $147,039 at December 31,
1998 and December 31, 1997, respectively. During 1997, the operator of this
Property vacated the Property and ceased operations. The impairment at
December 31, 1998, represented the difference between the Property's
carrying value and the estimated net realizable value of the Property. No
additional impairment was recorded during 1999. During 2000, the
Partnership recognized an additional impairment by recording a provision
for write-down of assets in the amount of $227,094. During 2001, the
Partnership recognized an additional impairment by recording a provision
for write-down of assets in the amount of $73,570. The cost of the Property
presented on this schedule is the net cost basis at which the Property was
carried at December 31, 2001, including the provisions for loss on assets.
(j) The undepreciated cost of the Property in Kingsville, Texas, was written
down to net realizable value due to an anticipated impairment in value. The
Partnership recognized the impairment by recording a provision for
write-down of assets in the amount of $119,447 at December 31, 1998. The
tenant of this Property experienced financial difficulties and ceased
payment of rents under the terms of their lease agreement. The impairment
at December 31, 1998, represented the difference between the Property's
carrying value at December 31, 1998, and the estimated net realizable value
of the Property. During 1999, the joint venture re-leased the Property to a
new tenant, resulting in the reclassification of the building portion of
the lease as an operating lease. The building was recorded at net book
value as of January 15, 1999, and depreciated over the remaining life of
approximately 19 years. The cost of land for this the Property presented on
this schedule is the net cost basis at which the Property was carried at
December 31, 2001, including the provision for write-down of assets.