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, 2002
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 Section12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section12(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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes___ No X -
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 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.
As of December 31, 1999, the Partnership owned 38 Properties, either
directly or indirectly through joint venture or tenancy in common arrangements.
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. In January 2002, Titusville Joint
Venture sold its Property and the Partnership and the joint venture partner
liquidated the joint venture; the Partnership used the majority of the
liquidation proceeds to pay liabilities of the Partnership. In February 2003,
the Partnership sold its property in Portland, Indiana. The Partnership expects
to use the majority of the net sales proceeds to make distributions to the
limited partners and to pay liabilities of the Partnership. As of December 31,
2002, the Partnership owned 31 Properties. The 31 Properties include interests
in five 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. Generally, the Properties are leased on a triple-net basis
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities.
The Partnership holds its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners consider factors such as potential capital
appreciation, net cash flow and federal income 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.
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 2003 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
$18,600 to $126,600. 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 24 of the Partnership's 31 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 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.
In February 2002, a tenant, Sybra, Inc., filed for bankruptcy. During
2002, the Partnership continued to receive rental payments relating to the
Property in Zephyrhills, Florida, held with an affiliate of the General
Partners, as tenants-in-common. In December 2002, Sybra, Inc. was acquired by
Triarc Companies, Inc. and emerged from bankruptcy. The lease relating to the
Property in Zephyrhills, Florida was affirmed.
Effective May 2002, the leases relating to two Arby's Properties in
Portland and Winchester, Indiana, were amended to eliminate guaranteed scheduled
rent increases. The General Partners do not believe that the rent reductions
will have a material adverse effect on the results of operations of the
Partnership. All other lease terms remain unchanged.
The two tenants of the Property in Maywood, Illinois are not expected
to exercise their option to renew their leases, which will expire in June 2003.
The lost revenues that would result from the loss of these leases will have an
adverse effect on the results of operations of the Partnership if the
Partnership is unable to lease the Property in a timely manner
Major Tenants
During 2002, 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 revenues (including the Partnership's share of the rental revenues from
Properties owned by joint ventures and Properties owned with affiliates of the
General Partners as tenants-in-common). As of December 31, 2002, Shoney's, Inc.
was the lessee under leases relating to three 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 revenues in 2003. In addition, three Restaurant
Chains, Shoney's, Denny's, and Wendy's Old Fashioned Hamburger Restaurants
("Wendy's"), each accounted for more than ten percent of the Partnership's total
rental revenues in 2002 (including the Partnership's share of the rental
revenues from Properties owned by joint ventures and Properties owned with
affiliates of the General Partners as tenants-in-common). In 2003, it is
anticipated that these three Restaurant Chains each will continue to account for
more than ten percent of the total rental revenues 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 joint venture and
tenancy in common arrangements as of December 31, 2002:
Entity Name Year Ownership Partners Property
Holland Joint Venture 1988 51.00 % CNL Income Fund II, Ltd. Holland, MI
Cocoa Joint Venture 1988 57.00% CNL Income Fund V, Ltd. Cocoa Beach, FL
Auburn Joint Venture 1989 96.10% CNL Income Fund VI, Ltd. Auburn, MA
Kingsville Real Estate Joint 1993 68.87% CNL Income Fund XII, Ltd. Kingsville, TX
Venture
CNL Income Fund IV, Ltd., CNL 1996 53.00% CNL Income Fund VI, Ltd. CNL Clinton, NC
Income Fund VI, CNL Income Fund X, Ltd.
Ltd., Income Fund X, CNL Income Fund XV, Ltd.
Ltd. and CNL Income Fund
XV, Ltd., Tenants in
Common
Warren Joint Venture 1998 35.71% CNL Income Fund VI, Ltd. Warren, MI
CNL Income Fund IV, Ltd. and 1999 76.00% CNL Income Fund XVII, Ltd. Zephyrhills, FL
CNL Income Fund XVII,
Ltd., Tenants in Common
Each joint venture or tenancy in common was formed to hold one
Property. Each CNL Income Fund is an affiliate of the General Partners and is a
limited partnership organized pursuant to the laws of the state of Florida. The
Partnership shares management control equally with the affiliates of the General
Partners.
The joint venture and tenancy in common arrangements provide for the
Partnership and its joint venture or tenancy in common partners to share in all
costs and benefits in proportion to each partner's percentage interest in the
business entity. The Partnership and its partners are also jointly and severally
liable for all debts, obligations and other liabilities of the joint venture or
tenancy in common. Net cash flow from operations is distributed to each joint
venture or tenancy in common partner in accordance with its respective
percentage interest in the business entity.
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 partners
to dissolve the joint venture. Any liquidation proceeds, after paying joint
venture debts and liabilities and funding reserves for contingent liabilities,
will be distributed first to the joint venture partners with positive capital
account balances in proportion to such balances until such balances equal zero,
and thereafter in proportion to each joint venture partner's percentage interest
in the joint venture.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer or assign its joint venture or tenancy in
common interest without first offering it for sale to its partners, either upon
such terms and conditions as to which the parties may agree or, in the event the
parties cannot agree, on the same terms and conditions as any offer from a third
party to purchase such joint venture or tenancy in common interest.
During 2002, Titusville Joint Venture was liquidated upon the sale of
the Property held by the joint venture and the net sales proceeds were
distributed to each joint venture partner in accordance with the terms of the
joint venture 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
RAI Restaurants, Inc. (formerly known as CNL Restaurants XVIII, Inc.),
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. CNL APF Partners, LP assigned its rights in, and
its obligations under, the management agreement with the Partnership to RAI
Restaurants, Inc. ("Advisor") effective January 1, 2002. All of the terms and
conditions of the management agreement, including the payment of fees, remained
unchanged. Under this agreement, the Advisor is responsible for collecting
rental payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices, and
providing information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership had 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 property management agreement, the property 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").
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 CNL American Properties Fund,
Inc., the parent company of the Advisor, 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, 2002, the Partnership owned 31 Properties. Of the 31
Properties, 24 are owned by the Partnership in fee simple, five are owned
through joint venture arrangements and two are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites, owned directly and indirectly,
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,
directly and indirectly, as of December 31, 2002 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, 2002.
State Number of Properties
Alabama 3
Florida 5
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 31
=================
Buildings. Each of the Properties owned by the Partnership, directly
and indirectly, 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, 2002, 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, 2002, 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,
directly and indirectly, as of December 31, 2002 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 4
---------------------
Total Chains on Properties (1) 32
=====================
(1) One Property was leased to two tenants and each operate one separate
restaurant chain.
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.
At December 31, 2002, 2001, 2000, 1999, and 1998, the Properties were
100%, 97%, 94%, 97%, and 97% occupied, respectively. The following is a schedule
of the average rent per property for the years ended December 31:
2002 2001 2000 1999 1998
-------------- -------------- ------------- ------------- -------------
Rental Revenues (1)(2) $ 1,975,618 $1,976,264 $ 2,255,228 $ 2,640,100 $ 2,544,386
Properties (2) 31 31 32 37 36
Average Rent per Property $ 63,730 $ 63,750 $ 70,476 $ 71,354 $ 70,677
(1) Rental revenues include the Partnership's share of rental revenues from
the Properties owned through joint venture and tenancy in common
arrangements.
(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, 2002 for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2003 2 $ 48,247 2.60%
2004 1 33,058 1.78%
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 14 836,223 45.07%
2009 4 344,144 18.55%
2010 1 72,803 3.92%
2011 3 187,970 10.13%
2012 -- -- --
Thereafter 6 333,078 17.95%
---------- ----------------- -------------
Total (1) (2) 31 $ 1,855,523 100.00%
========== ================= =============
(1) One Property was leased to two tenants and each operate one
separate restaurant chain.
(2) Excludes a property sold in February 2003.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2002 (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. The initial term of
each lease is 20 years (expiring in 2008) and average minimum base rent is
approximately $75,000 (ranging from approximately $64,900 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 10, 2003, there were 2,871 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 2002,
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 and 2002, due primarily to the sales of Properties, the price paid
for any Unit transferred pursuant to the Plan was $357.40 and $332 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 2002 and 2001 other than
pursuant to the Plan, net of commissions.
2002 (1) 2001 (1)
----------------------------------- ------------------------------------
High Low Average High Low Average
---------- -------- ---------- ---------- -------- ----------
First Quarter $ 263 $200 $ 232 $ 324 $207 $ 249
Second Quarter 259 259 259 400 253 303
Third Quarter 508 23 249 298 248 281
Fourth Quarter 325 228 281 287 216 241
(1) A total of 747 and 458 Units were transferred other than pursuant to
the Plan for the years ended December 31, 2002 and 2001, 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, 2002 and 2001, the Partnership
declared cash distributions of $2,095,788 and $3,147,894, 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. The
reduced number of Properties for which the Partnership receives rental payments
reduced the Partnership's revenues. Therefore, 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 quarter ended September 2001. No amounts distributed
to the partners for the years ended December 31, 2002, 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 2002 2001
------------------- ------------- -------------
March 31 $ 523,947 $ 975,000
June 30 523,947 525,000
September 30 523,947 1,123,947
December 31 523,947 523,947
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
2002 2001 2000 1999 1998
-------------- -------------- -------------- -------------- -----------------
Year ended December 31:
Revenues $ 1,609,524 $ 1,769,086 $ 1,955,443 $ 2,298,834 $ 2,375,840
Equity in earnings (losses)
of joint ventures 315,135 278,224 234,317 303,223 (90,144)
Net Income (1) 1,117,445 1,089,094 2,078,310 1,827,359 1,821,449
Cash distributions
declared (2) 2,095,788 3,147,894 5,050,000 2,400,000 3,633,748
Net income per Unit 18.62 18.15 34.64 30.15 30.15
Cash distributions declared
per Unit (2) 34.93 52.46 84.17 40.00 60.56
At December 31:
Total assets $14,797,910 $15,542,775 $17,616,159 $20,828,319 $21,189,833
Partners' capital 13,968,526 14,736,869 16,795,669 19,767,359 20,340,000
(1) Income for the years ended December 31, 2002, 2001, 2000 includes
$210,000, $178,817 and $439,132, respectively, for provisions for
write-down of assets. Income for the years ended December 31, 2001 and
2000 includes $120,872 and $92,397, respectively, from losses on the sale
of assets. 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.
(2) 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. The leases provide for minimum base annual
rental amounts (payable in monthly installments) ranging from approximately
$18,600 to $126,600. The majority of the leases provide for percentage rent,
based on sales in excess of a specified amount. In addition, some of the leases
provide that, commencing in specified lease years (generally the sixth lease
year), the annual base rent required under the terms of the lease will increase.
As of December 31, 2000, the Partnership owned 26 Properties directly
and as of December 31, 2002 and 2001, 24 Properties directly. In addition, the
Partnership owned eight Properties indirectly through joint venture or tenancy
in common arrangements as of December 31, 2000 and 2001, and seven Properties as
of December 31, 2002.
Capital Resources
For the years ended December 31, 2002, 2001 and 2000, cash from
operating activities was $1,813,739, $1,768,652 and $1,827,107, respectively.
The increase in cash from operating activities during 2002, as compared to 2001,
primarily resulted from changes in working capital, while the decrease in cash
from operating activities during 2001, as compared to 2000, resulted from
changes in income and expenses.
Other sources and uses of cash included the following during the years
ended December 31, 2002, 2001, and 2000.
In 2000, the Partnership sold its Property in Detroit, Michigan to the
tenant and received net sales proceeds of $1,089,325, resulting in a gain of
approximately $552,600. 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 of these three properties, the Partnership incurred deferred
subordinated real estate disposition fees of $103,458. 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 and used the
remaining net proceeds to pay Partnership liabilities.
In November 2000, the Partnership sold its Property in Topeka, Kansas
to a third party 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 and used the remaining net proceeds to pay Partnership liabilities.
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 and used the remaining net proceeds to pay Partnership liabilities.
In January 2002, Titusville Joint Venture, in which the Partnership
owned a 26.6% interest, sold its Property to a third party and received net
sales proceeds of approximately $165,600 resulting in a gain of approximately
$4,900 to the joint venture. This Property was identified for sale as of
December 31, 2001. The Partnership and the joint venture partner dissolved the
joint venture in accordance with the joint venture agreement and the Partnership
received approximately $42,000 representing its pro rata share of the joint
venture's liquidating distribution. No gain or loss was recorded relating to the
dissolution of the joint venture. The Partnership used the majority of the
liquidation proceeds to pay liabilities of the Partnership.
The Partnership has entered into an agreement to sell the property in
Richmond, Virginia. In connection with the anticipated sale, a provision for
write-down of assets of $37,000 was recognized at December 2002. This property
was identified for sale in February 2003. As of March 10, 2003, the sale had not
occurred.
In February 2003, the Partnership sold its property in Portland,
Indiana and received net sales proceeds of approximately $776,100, resulting in
a gain of approximately $129,400. This property was identified for sale in
February 2003. The Partnership expects to use the majority of the net sales
proceeds to make distributions to the Limited Partners and to pay liabilities of
the Partnership.
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.
Currently, rental income from the Partnership's Properties are invested
in short-term highly liquid investments such as demand deposit accounts at
commercial banks, money market accounts and certificates of deposit with less
than a 90-day maturity date, pending use of such funds to pay Partnership
expenses, or to make distributions to partners. At December 31, 2002, the
Partnership had $405,155 invested in such short-term investments as compared to
$645,220 at December 31, 2001. The decrease in the amount invested in short-term
investments at December 31, 2002, as compared to December 31, 2001, is primarily
attributable to the Partnership making distributions to the limited partners. As
of December 31, 2002, the average interest rate earned by the Partnership on the
rental income deposited in demand deposit accounts at commercial banks was
approximately 1.18% annually. The funds remaining at December 31, 2002, will be
used to pay distributions and other liabilities of the Partnership.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate net cash
flow in excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
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 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
net sales proceeds from the sale of Properties, the Partnership declared
distributions to the Limited Partners of $2,095,788, $3,147,894, and $5,050,000,
for the years ended December 31, 2002, 2001 and 2000, respectively. This
represents distributions of $ 34.93, $52.46 and $84.16 per Unit for the years
ended December 31, 2002, 2001 and 2000, 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, in special distributions, 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 two decreases in cash distributions to
the Limited Partners commencing the quarters ended September 30, 2000 and 2001.
No distributions were made to the General Partners for the years ended December
31, 2002, 2001 and 2000. No amounts distributed to the Limited Partners for the
years ended December 31, 2002 and 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. The
Partnership intends to continue to make distributions of cash available for
distribution to the Limited Partners on a quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2002, 2001 and 2000.
As of December 31, 2002 and 2001, the Partnership owed $12,798 and
$4,841, respectively, to affiliates for operating expenses, accounting and
administrative services, and management fees. As of March 15, 2003, the
Partnership had reimbursed the affiliates for these amounts. In addition, during
the year ended December 31, 2001, the Partnership incurred $21,023 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.
Other liabilities, including distributions payable, increased to
$631,442 at December 31, 2002, from $615,921 at December 31, 2001. Total
liabilities at December 31, 2002, 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' 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 assumptions 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 the Partnership's Properties and investments in
unconsolidated entities periodically for impairment at least once a year or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The assessment is based on the carrying amount
of the Property or investment at the date it is tested for recoverability
compared to the sum of the estimated future cash flows expected to result from
its operation and sale through the expected holding period. If an impairment is
indicated, the asset is adjusted to its estimated fair value.
When the Partnership makes the decision to sell or commits to a plan to
sell a Property, its operating results are reported as discontinued operations.
Results of Operations
Comparison of the year ended December 31, 2002 to the year ended December 31,
2001
Total rental revenues were $1,515,900 for the year ended December 31,
2002 as compared to $1,542,156 in the same period in 2001. The decrease in
rental revenues during 2002, as compared to the same period in 2001, was
partially attributable to the sale of the Properties in Palm Bay, Florida and
Corpus Christi, Texas during 2001. During 2001, the Partnership distributed a
portion of the net sales proceeds from the sale of these Properties to the
Limited Partners, as a result, rental revenues are expected to remain at reduced
amounts.
Rental revenues also decreased during 2002 because the Partnership
entered into a new lease relating to the Property in Streator, Illinois. The
former lease for this Property, which was scheduled to expire in December 2002,
was terminated by the Partnership and the tenant during 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 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 revenues in future period will
remain at reduced amounts. However, the General Partners do not anticipate that
the decrease in rental revenues relating to the new lease will have a material
adverse affect on the Partnership's financial position or results of operations.
The decrease in rental revenues, during 2002, was partially offset by
an increase in rental revenues as a result of the Partnership re-leasing the
Property in Richmond, Virginia in 2001. This Property was vacant during the
first quarter of 2001.
During the years ended December 31, 2002 and 2001, the Partnership also
earned $78,184 and $81,550, respectively, in contingent rental income.
During the years ended December 31, 2002 and 2001, the Partnership
earned $315,135 and $278,224, respectively, attributable to the net income
earned by unconsolidated joint ventures, respectively. Net operating results
reported by joint ventures were lower during 2001, as compared to the same
period in 2002, due to the fact that the tenant of the Property owned by
Titusville Joint Venture (in which the Partnership owns a 26.6% interest in the
profits and losses of the joint venture) vacated the Property in 1997, and the
Partnership incurred expenses, which are of a fixed nature, such as real estate
taxes, insurance and maintenance during 2001. In addition, during 2001, the
joint venture established a provision for write-down of assets for its Property
for approximately $73,600. The provision represented the difference between the
Property's carrying value at December 31, 2001, and its estimated fair value. In
January 2002, the joint venture sold this Property. This Property was identified
for sale as of December 31, 2001.
In February 2002, a tenant, Sybra, Inc., filed for bankruptcy. During
2002, the Partnership continued to receive rental payments relating to the
Property in Zephyrhills, Florida, held with an affiliate of the General
Partners, as tenants-in-common. In December 2002, Sybra, Inc. was acquired by
Triarc Companies, Inc. and emerged from bankruptcy. The lease relating to the
Property in Zephyrhills, Florida was affirmed.
During 2002, 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 revenues (including the Partnership's share of the rental revenues from
Properties owned by joint ventures and Properties owned with affiliates of the
General Partners as tenants-in-common). As of December 31, 2002, Shoney's, Inc.
was the lessee under leases relating to three 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 revenues in 2003. In addition, three Restaurant
Chains, Shoney's, Denny's, and Wendy's Old Fashioned Hamburger Restaurants
("Wendy's"), each accounted for more than ten percent of the Partnership's total
rental revenues in 2002 (including the Partnership's share of the rental
revenues from Properties owned by joint ventures and Properties owned with
affiliates of the General Partners as tenants-in-common). In 2003, it is
anticipated that these three Restaurant Chains each will continue to account for
more than ten percent of the total rental revenues 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.
During the years ended December 31, 2002 and 2001, the Partnership also
earned $15,440 and $78,307, respectively, in interest and other income. Interest
and other income during 2001 was higher because the Partnership earned interest
on the net sales proceeds received from the sale of Properties pending
distribution to the Limited Partners. During 2002, the Partnership received and
recorded as income proceeds received from the right of way taking relating to a
parcel of land on its Property in Streator, Illinois.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $807,214 and $837,344 for the years
ended December 31, 2002 and 2001, respectively. The decrease in operating
expenses during 2002, as compared to the same period in 2001, was partially due
to a decrease in depreciation expense due to the sale of two Properties in 2001.
In addition, the Partnership recorded a provision for doubtful accounts for past
due rental amounts relating to the Big Boy's Property located in Topeka, Kansas,
due to financial difficulties the tenant was experiencing. The decrease in
operating expenses during 2002, as compared to the same period in 2001, was also
partially due to the fact that during 2001, the Partnership incurred expenses
such as legal fees, repairs and maintenance, and real estate taxes relating to
several Properties with tenants who experienced financial difficulties. In
addition, state taxes were higher during 2001, as compared to the same period in
2002, due to the fact that the Partnership incurred additional taxes on gains on
sale of assets.
During 2001, the Partnership recorded a provision for write-down of
assets of approximately $178,800 relating to the Property in Palm Bay, Florida.
The tenant defaulted under the terms of its lease and vacated the Property. The
increase in the provision represented the difference between the carrying value
of the Property at December 31, 2001, and its estimated fair value. During 2001,
the Partnership sold this Property and recognized a loss of approximately
$27,100. In December 2002, the Partnership recorded a provision for write-down
of assets of $173,000 relating to the property in Maywood, Illinois since the
two tenants of this Property are not expected to exercise their option to renew
their leases, which will expire in June 2003. The provision represented the
difference between the carrying value of the property and its estimated fair
value. The lost revenues that would result from the loss of these leases will
have an adverse effect on the results of operations of the Partnership if the
Partnership is unable to lease the Property in a timely manner. In addition, the
Partnership also recorded a provision for write-down of assets of $37,000 in
December 2002 relating to the property in Richmond, Virginia in anticipation of
the sale of this Property. The provision represented the difference between the
carrying value of the Property and its estimated fair value. As of March 10,
2003, the sale of this Property had not occurred.
As a result of the sales of the Properties in Corpus Christi, Texas and
Palm Bay, Florida during 2001, the Partnership recognized losses of
approximately $120,900 during 2001.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its estimated fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived asset is
its new cost basis. The statement also requires that the results of operations
of a component of an entity that either has been disposed of or is classified as
held for sale be reported as a discontinued operation if the disposal activity
was initiated subsequent to the adoption of the Standard.
The Property in Titusville, Florida, which was sold during 2002, did
not meet the criteria of this standard because it was identified for sale as of
December 31, 2001.
Comparison of the year ended December 31, 2001 to the year ended December 31,
2000
Total rental revenues were $1,542,156 for the year ended December 31,
2001 as compared to $1,860,652 in the same period in 2000. The decrease in
rental revenues during 2001, as compared to the same period in 2000, was
partially attributable to the 2001 and 2000 sales of various Properties. During
2001 and 2000, the Partnership distributed a portion of the net sales proceeds
from the sale of several Properties to the Limited Partners. Rental revenues are
expected to remain at reduced amounts as a result of the distributions of the
net sales proceeds from the 2001 and 2000 sales of Properties to the Limited
Partners.
Rental revenues were also higher during 2000 because the Partnership
collected and recognized as income approximately $39,000 in past due rental
amounts from the guarantor of a tenant of the Property in Palm Bay, Florida, who
had vacated the Property in October 1997. In August 2001, the Partnership sold
this Property.
Rental revenues also decreased by approximately $20,100 during 2001
because the Partnership entered into a new lease relating to the Property in
Streator, Illinois. The former lease for this Property, which was scheduled to
expire in December 2002, was terminated by the Partnership and the tenant during
2001, and the Partnership received approximately $67,100 in lease termination
income, as described above.
In June 2000, the tenant of a Boston Market Property 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 revenues during 2001 was
partially offset by an increase in rental revenues as a result of the
Partnership entering into this new lease.
During the years ended December 31, 2001 and 2000, the Partnership also
earned $81,550 and $24,545, respectively, in contingent rental income. The
increase in contingent rental income in 2001 was partially attributable to
increases in gross sales for certain restaurant Properties whose leases require
the payment of contingent rental income.
During the years ended December 31, 2001 and 2000, the Partnership
earned $278,224 and $234,317, respectively, attributable to the net income
earned by unconsolidated joint ventures. During 1997, the tenant of the Property
owned by Titusville Joint Venture vacated the Property and ceased operations.
During 2001, 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.
In addition, during 2001 and 2000, the joint venture established provisions for
write-down of assets for this 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 its estimated
fair value. During January 2002, the joint venture sold this Property and the
Partnership and the joint venture partner dissolved the joint venture. Net
income earned by joint ventures is expected to remain at reduced amounts as a
result of the Partnership using its pro rata share of the joint venture's
liquidating distribution to pay liabilities of the Partnership.
During the years ended December 31, 2001 and 2000, the Partnership also
earned $78,307 and $70,246, respectively, in interest and other income. The
increase in interest and other income during 2001, as compared to the previous
year, was due to higher average cash balances during 2001 pending the
distribution of net sales proceeds to the Limited Partners.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $837,344 and $1,153,745 for the years
ended December 31, 2001 and 2000, respectively. During 2000, the Partnership
established a provision for write-down of assets in the amount of $400,442, for
the Property in Palm Bay, Florida. The tenant of this Property defaulted under
the terms of its lease and vacated the Property. The provision represented the
difference between the Property's carrying value at December 31, 2000, and its
estimated fair value. During 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 its estimated fair value based on a sales contract with a third
party. In connection with the sale of the Property, the Partnership recognized
an additional loss of approximately $27,100 during 2001.
During 2000, the Partnership also recorded a provision for write-down
of assets of $38,690 relating to the property located in Richmond, Virginia. The
tenant of a Boston Market Property rejected the lease relating to this Property,
as described above. The provision represented the difference between the
carrying value of the property and its estimated fair value.
The decrease in operating expenses for 2001, as compared to 2000, was
partially due to a reduction in depreciation expense due to the sale of
Properties in 2000 and 2001. The decrease in operating expenses during 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. During 2000, the Partnership incurred $36,493 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.
As a result of the sale of the Property in Corpus Christi, Texas, the
Partnership recognized a loss of approximately $93,800 during 2001. As a result
of the sale of three Properties during 2000, the Partnership recognized a total
gain of $1,134,692. In addition, as a result of the sale of the Property in
Topeka, Kansas, the Partnership recognized a loss of $92,397 for 2000.
The restaurant industry has been relatively resilient during this
volatile time with steady performance during 2002. However, the industry remains
in a state of cautious optimism. Restaurant operators expect their business to
be better in 2003, according to a nationwide survey conducted by the National
Restaurant Association, but are concerned by the budget deficits being
experienced by many states and the potential of new taxes on the industry to
alleviate the situation.
The Partnership's leases as of December 31, 2002, 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 base 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 January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be considered by a company if that company is subject to a majority risk of loss
from the variable interest entity's activities or entitled to receive a majority
of the entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. Consolidation of variable
interests entities will provide more complete information about the resources,
obligations, risks and opportunities of the consolidated company. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003, and to older entities in the first
fiscal year or interim period beginning after June 15, 2003. Management believes
adoption of this standard may result in either consolidation or additional
disclosure requirements with respect to the Partnership's unconsolidated joint
ventures or Properties held with affiliates of the General Partners as
tenants-in-common, which are currently accounted for under the equity method.
However, such consolidation is not expected to significantly impact the
Partnership's results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22-23
Notes to Financial Statements 24-34
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, 2002 and 2001, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2002 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 15(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.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
January 31, 2003, except for Note 11, as to which the date is February 28, 2003
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2002 2001
------------------ ------------------
ASSETS
Real estate properties with operating leases, net $ 10,590,312 $ 11,106,349
Net investment in direct financing leases 300,064 323,935
Investment in joint ventures 2,979,763 3,108,042
Cash and cash equivalents 405,155 645,220
Receivables 9,755 51,516
Due from related parties -- 4,574
Accrued rental income 275,823 269,464
Other assets 27,038 33,675
------------------ ------------------
$ 14,587,910 $ 15,542,775
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 10,757 $ 10,252
Real estate taxes payable 47,973 48,654
Distributions payable 523,947 523,947
Due to related parties 197,942 189,985
Rents paid in advance and deposits 48,765 33,068
------------------ ------------------
Total liabilities 829,384 805,906
Commitment (Note 9)
Partners' capital 13,758,526 14,736,869
------------------ ------------------
$ 14,587,910 $ 15,542,775
================== ==================
See accompanying notes to financial statements.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2002 2001 2000
---------------- ---------------- ----------------
Revenues:
Rental income from operating leases $ 1,483,121 $ 1,506,977 $ 1,781,392
Earned income from direct financing leases 32,779 35,179 79,260
Contingent rental income 78,184 81,550 24,545
Lease termination income -- 67,073 --
Interest and other income 15,440 78,307 70,246
----------------
---------------- ----------------
1,609,524 1,769,086 1,955,443
---------------- ---------------- ----------------
Expenses:
General operating and administrative 238,752 236,930 169,862
Property expenses 35,664 57,879 76,081
Provision for doubtful accounts -- 10,792 12,685
State and other taxes 14,283 30,350 15,479
Depreciation and amortization 308,515 322,576 404,013
Provision for write-down of assets 210,000 178,817 439,132
Transaction costs -- -- 36,493
---------------- ---------------- ----------------
807,214 837,344 1,153,745
---------------- ---------------- ----------------
Income Before Gain (Loss) on Sale of Assets
and Equity in Earnings of Joint Ventures 802,310 931,742 801,698
Gain (Loss) on Sale of Assets -- (120,872 ) 1,042,295
Equity in Earnings of Joint Ventures 315,135 278,224 234,317
---------------- ---------------- ----------------
Net Income $ 1,117,445 $ 1,089,094 $ 2,078,310
================ ================ ================
Net Income per Limited Partner Unit $ 18.62 $ 18.15 $ 34.64
================ ================ ================
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, 2002, 2001, and 2000
General Partners Limited Partners
---------------------------------- -------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs
-------------- ------------- --------------- ---------------- ------------ ---------------
Balance, December 31, 1999 $ 557,804 $ 229,547 $ 30,000,000 $ (31,241,711 ) $ 23,661,719 $ (3,440,000 )
Distributions to limited
partners ($84 per limited
partner unit) -- -- -- (5,050,000 ) -- --
Net income -- -- -- -- 2,078,310 --
------------ ------------- -------------- -------------- ------------- ---------------
Balance, December 31, 2000 557,804 229,547 30,000,000 (36,291,711 ) 25,740,029 (3,440,000 )
Distributions to limited
partners ($52 per limited
partner unit) -- -- (60,127 ) (3,087,767 ) -- --
Net income -- -- -- -- 1,089,094 --
------------ ------------- -------------- -------------- ------------- ---------------
Balance, December 31, 2001 557,804 229,547 29,939,873 (39,379,478 ) 26,829,123 (3,440,000 )
Distributions to limited
partners ($35 per limited
partner unit) -- -- -- (2,095,788 ) -- --
Net income -- -- -- -- 1,117,445 --
------------ ------------- -------------- -------------- ------------- ---------------
Balance, December 31, 2002 $ 557,804 $ 229,547 $ 29,939,873 $ (41,475,266 ) $ 27,946,568 $ (3,440,000 )
============ ============= ============== ============== ============= ===============
Total
----------------
$ 19,767,359
(5,050,000
2,078,310
---------------
16,795,669
(3,147,894
1,089,094
---------------
14,736,869
(2,095,788
1,117,445
---------------
$ 13,758,526
===============
See accompanying notes to financial statements.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2002 2001 2000
---------------- ---------------- ----------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Net income $ 1,117,445 $ 1,089,094 $ 2,078,310
---------------- ---------------- ----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 306,037 320,213 376,013
Amortization 2,478 2,363 28,000
Provision for doubtful accounts -- 10,792 12,685
Provision for write-down of assets 210,000 178,817 439,132
Loss (gain) on sale of assets -- 120,872 (1,042,295 )
Equity in earnings of joint ventures,
net of distributions 86,295 89,468 134,502
Decrease (increase) in receivables 41,804 (17,164 ) 83,846
Decrease (increase) in due from related
parties 4,531 10,652 (15,226 )
Amortization of investment in direct
financing leases 23,871 15,754 31,769
Increase in accrued rental income (6,359 ) (18,829 ) (16,153 )
Increase in other assets 4,159 1,174 452
Increase (decrease) in accounts
payable and accrued expenses 505 (34,818 ) (46,004 )
Increase (decrease) in accrued and
escrowed real estate taxes (681 ) 146 (15,077 )
Increase (decrease) in due to related 7,957 (3,715 ) (187,290 )
parties
Increase (decrease) in rents paid in
advance and deposits 15,697 3,833 (35,557 )
---------------- ---------------- ----------------
Total adjustments 696,294 679,558 (251,203 )
---------------- ---------------- ----------------
Net Cash Provided by Operating
Activities 1,813,739 1,768,652 1,827,107
---------------- ---------------- ----------------
Cash Flows from Investing Activities:
Proceeds from sale of real estate properties -- 679,894 3,939,271
Liquidating distribution from joint venture 41,984 -- --
Payment of lease costs -- (21,250 ) --
---------------- ---------------- ----------------
Net cash provided by investing activities 41,984 658,644 3,939,271
---------------- ---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (2,095,788 ) (3,148,947 ) (5,125,000 )
---------------- ---------------- ----------------
Net cash used in financing activities (2,095,788 ) (3,148,947 ) (5,125,000 )
---------------- ---------------- ----------------
Net Increase (Decrease) in Cash and Cash
Equivalents (240,065 ) (721,651 ) 641,378
Cash and Cash Equivalents at Beginning of Year 645,220 1,366,871 725,493
---------------- ---------------- ----------------
Cash and Cash Equivalents at End of Year $ 405,155 $ 645,220 $ 1,366,871
================ ================ ================
See accompanying notes to financial statements.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2002 2001 2000
---------------- ---------------- ----------------
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 $ 523,947 $ 525,000
================ ================ ================
See accompanying notes to financial statements.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
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 real
estate property acquisitions at cost. The properties are leased to
third parties generally on a triple-net basis, whereby the tenant is
generally responsible for all operating expenses relating to the
property, including property taxes, insurance, maintenance and repairs.
During the years ended December 31, 2002, 2001 and 2000, tenants paid
directly to real estate taxing authorities $202,200, $193,800, and
$200,400, respectively, in real estate taxes in accordance with the
terms of their triple net leases with the Partnership.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
direct financing or the operating method. Such methods are described
below:
Direct financing method - 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). 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 investment in
the leases. For property leases classified as direct
financing leases, the building portions of the majority of
property leases are accounted for as direct financing leases
while the land portions of these leases are accounted for as
operating leases.
Operating method - Real estate property 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.
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
The majority of the leases are for 15 to 20 years and provide for
minimum and contingent rentals. 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 of the initial lease.
Most leases also allow the tenant to purchase the property at fair
market value after a specified portion of the lease has elapsed.
When the properties are sold, the related cost and accumulated
depreciation 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 estimated fair value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is recorded to increase the
allowance for doubtful accounts. 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, 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.
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 leases and are amortized over the terms of the new leases
using the straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
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 represent a reduction
of Partnership equity and a reduction in the basis of each partner's
investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior year's financial
statements have been reclassified to conform to 2002 presentation,
including a change in presentation of the statement of cash flows from
the direct to the indirect method. These reclassifications had no
effect on partner's capital, net income or cash flows.
Statement of Financial Accounting Standards No. 144 ("FAS 144") -
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its estimated fair
value. If an impairment is recognized, the adjusted carrying amount of
a long-lived asset is its new cost basis. The statement also requires
that the results of operations of a component of an entity that either
has been disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
FASB Interpretation No. 46 ("FIN 46") - In January 2003, FASB issued
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting
guidance that addresses when a company should include the assets,
liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with
variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be considered by a company if
that company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. Consolidation of
variable interests entities will provide more complete information
about the resources, obligations, risks and opportunities of the
consolidated company. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31,
2003, and to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Management believes adoption of this
standard may result in either consolidation or additional disclosure
requirements with respect to the Partnership's unconsolidated joint
ventures or properties held with affiliates of the general partners as
tenants-in-common, which are currently accounted for under the equity
method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
2. Real Estate Properties with Operating Leases:
--------------------------------------------
Real estate properties with operating leases consisted of the following
at December 31:
2002 2001
------------------ ------------------
Land $ 5,653,381 $ 5,768,381
Buildings 8,932,177 9,027,177
------------------ ------------------
14,585,558 14,795,558
Less accumulated depreciation (3,995,246 ) (3,689,209 )
------------------ ------------------
$ 10,590,312 $ 11,106,349
================== ==================
As of December 31, 2000, the Partnership recorded a provision for
write-down of assets of $400,442, 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
Partnership also recorded a provision for write-down of assets of
approximately $38,700 for the property located in Richmond, Virginia.
The provisions represented the difference between the carrying value of
the properties and their estimated fair value. During 2001, the
Partnership increased the provision for the property in Palm Bay,
Florida by $178,817 to $579,259. The additional provision represented
the difference between the carrying value of the property at June 30,
2001 and its estimated fair value based on a sales contract with a
third party. In August 2001, the Partnership sold the property and
received net sales proceeds of approximately $289,894, resulting in a
loss of approximately $27,100. In connection with the sale, the
Partnership incurred a deferred, subordinated, real estate disposition
fee of $9,323.
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.
In December 2002, the Partnership recorded a provision for write-down
of assets of $173,000 relating to the property in Maywood, Illinois
since the two tenants of this Property are not expected to exercise
their option to renew their leases, which will expire in June 2003. The
provision represented the difference between the carrying value of the
property and its estimated fair value.
In addition in December 2002, the Partnership also recorded a provision
for write-down of assets of $37,000 relating to the property in
Richmond, Virginia in anticipation of the sale of this Property. The
provision represented the difference between the carrying value of the
Property and its estimated fair value.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2002:
2003 $ 1,453,621
2004 1,450,350
2005 1,463,030
2006 1,466,800
2007 1,470,384
Thereafter 3,963,605
---------------
$ 11,267,790
===============
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
3. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2002 2001
----------------- -----------------
Minimum lease payments receivable $ 322,398 $ 379,048
Estimated residual values 114,886 114,886
Less unearned income (137,220 ) (169,999 )
----------------- -----------------
Net investment in direct financing
leases $ 300,064 $ 323,935
================= =================
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2002:
2003 $ 53,568
2004 53,568
2005 53,568
2006 53,568
2007 53,568
Thereafter 54,558
-----------
$ 322,398
===========
4. Investment in Joint Ventures:
----------------------------
As of December 31, 2002, the Partnership had a 51%, 57%, 96.1%, 68.87%,
and 35.71% interest in the profits and losses of Holland Joint Venture,
Cocoa Joint Venture, Auburn Joint Venture, Kingsville Real Estate Joint
Venture and Warren Joint Venture, respectively, and a 53% and 76%
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, 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 owned 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 its estimated fair value. During the year
ended December 31, 2001, the joint venture increased the provision by
$73,570 to $572,954. The additional provision represented the
difference between the carrying value of the property at December 31,
2001 and its estimated fair value based on a sales contract with a
third party. In January 2002, the joint venture sold the property and
received net sales proceeds of approximately $165,600 resulting in a
gain of approximately $4,900 to the joint venture. The property was
identified for sale as of December 31, 2001. The Partnership and the
joint venture partner dissolved the joint venture and the Partnership
received
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
----------------------------------------
approximately $42,000 representing its pro rata share of the joint
venture's liquidating distribution. No gain or loss was recorded
relating to the dissolution of the joint venture.
The following presents the combined, condensed financial information
for the joint ventures and the properties held as tenants-in-common
with affiliates at:
December 31,
2002 2001
------------------ ------------------
Real estate properties with operating
leases, net $ 4,399,190 $ 4,672,053
Net investment in direct financing lease 325,247 343,619
Cash 19,781 24,547
Receivables 33,692 23,086
Accrued rental income, less
allowance for doubtful accounts 157,190 161,143
Other assets 170 3,111
Liabilities 11,554 21,941
Partners' capital 4,923,716 5,205,618
Year Ended December 31,
2002 2001 2000
-------------- --------------- -----------
Rental revenues $ 629,838 $ 613,956 $ 606,228
Expenses (129,383 ) (152,765 ) (156,256 )
Provision for write-down of assets -- (73,750 ) (227,093 )
Gain on disposal of assets 4,901 -- --
-------------- --------------- --------------
Net Income $ 505,356 $ 387,441 $ 222,879
============== =============== ==============
The Partnership recognized income totaling $315,135, $278,224 and
$234,317 for the years ended December 31, 2002, 2001 and 2000,
respectively, from these joint ventures.
5. 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. However, the
one percent of net cash flow to be distributed to the general partners
was subordinated to receipt by the limited partners of an aggregate,
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, 2002, 2001, and 2000
5. Allocations and Distributions - Continued:
-----------------------------------------
From inception through December 31, 1999, generally, net sales proceeds
from the sale of properties not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their 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, 2002, 2001 and 2000.
During each of the years ended December 31, 2002, 2001 and 2000, the
Partnership declared distributions to the limited partners of
$2,095,788, $3,147,894 and $5,050,000, 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
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
5. Allocations and Distributions - Continued:
-----------------------------------------
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.
6. 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:
2002 2001 2000
------------- ------------- -------------
Net income for financial reporting
purposes $ 1,117,445 $ 1,089,094 $ 2,078,310
Effect of timing differences relating to
depreciation 11,954 6,102 (3,055 )
Provision for write-down of assets 210,000 178,817 439,132
Direct financing leases recorded as
operating leases for tax reporting
purposes 23,871 15,754 31,769
Effect of timing differences relating to
gains/losses on real estate property sales -- (576,193 ) 89,247
Deduction of transaction costs for tax
reporting purposes -- -- (160,530 )
Effect of timing differences relating to
equity in earnings of joint ventures (128,173 ) 20,451 73,569
Effect of timing differences relating to
allowance for doubtful accounts -- (301,517 ) 86,488
Accrued rental income (6,359 ) (18,829 ) (16,153 )
Rents paid in advance 15,697 (1,772 ) (11,518 )
------------- ------------- -------------
Net income for federal income tax
purposes $ 1,244,435 $ 411,907 $ 2,607,259
============= ============= =============
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
7. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, a wholly owned subsidiary of CNL American
Properties Fund, Inc. ("APF") served as the Partnership's advisor until
January 1, 2002, when it assigned its rights and obligations under a
management agreement to RAI Restaurants, Inc. (formerly known as CNL
Restaurants XVIII, Inc.). RAI Restaurants, Inc. ("the Advisor") is a
wholly owned subsidiary of APF. The individual general partners are
stockholders and directors of APF.
The Advisor provides services 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, 2002, 2001 and 2000.
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, 2002.
During the years ended December 31, 2002, 2001 and 2000, the
Partnership's advisor and its affiliates provided accounting and
administrative services. The Partnership incurred $159,198, $152,529
and $88,356 for the years ended December 31, 2002, 2001 and 2000,
respectively, for such services.
The due to related parties consisted of the following at December 31:
2002 2001
-------------- --------------
Due to the Advisor:
Accounting and administrative services $ 12,798 $ 4,841
Deferred, subordinated real estate
disposition fee 185,144 185,144
-------------- --------------
$ 197,942 $ 189,985
============== ==============
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
8. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental revenues from individual
lessees, each representing more than ten percent of rental revenues
(including the Partnership's share of rental revenues from the joint
ventures and the properties held as tenants-in-common with affiliates
of the General Partners), for each of the years ended December 31:
2002 2001 2000
-------------- ------------- --------------
Shoney's, Inc. $ 284,611 $ 279,529 $ 313,115
Tampa Foods, L.P. 207,354 203,277 N/A
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than ten percent
of rental revenues (including the Partnership's share of rental
revenues from the joint ventures and the properties held as
tenants-in-common with affiliates of the General Partners), for each of
the years ended December 31:
2002 2001 2000
-------------- -------------- -------------
Wendy's Old Fashioned
Hamburger Restaurants $ 329,268 $ 330,682 $ 386,618
Denny's 241,596 127,024 236,184
Shoney's 237,036 232,325 327,448
Pizza Hut N/A 212,266 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 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.
9. Commitment:
----------
The Partnership has entered into an agreement to sell the property in
Richmond, Virginia. In connection with the anticipated sale, a
provision for write-down of assets of $37,000 was recognized at
December 2002. This property was identified for sale in February 2003.
As of March 10, 2003, the sale had not occurred.
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
10. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2002 and
2001:
2002 Quarter First Second Third Fourth Year
------------------------------ ---------- ----------- ----------- ----------- -------------
Revenue (1) $405,902 $386,302 $418,153 $ 399,167 $1,609,524
Equity in earnings of joint
ventures 71,923 80,011 75,218 87,983 315,135
Net income (2) 315,404 312,118 352,326 137,597 1,117,445
Net income per limited
partner unit 5.26 5.20 5.87 2.29 18.62
2001 Quarter First Second Third Fourth Year
----------------------------- --------- ----------- ----------- ------------ ------------
Revenue (1) $424,480 $462,523 $419,254 $1,769,086
$462,829
Equity in earnings of
joint ventures 73,501 58,596 80,513 65,614 278,224
Net income 42,616 376,751 367,605 1,089,094
302,122
Net income per limited
partner unit 5.04 0.71 6.27 6.13 18.15
(1) Certain items in the quarterly financial data have been reclassified
to conform to the 2002 presentation. These reclassifications had no
effect on total net income.
(2) In December 2002, the Partnership recorded a provision for
write-down of assets of $173,000 relating to the property in
Maywood, Illinois since the two tenants of this Property are not
expected to exercise their option to renew their leases, which will
expire in June 2003. In addition in December 2002, the Partnership
also recorded a provision for write-down of assets of $37,000
relating to the property in Richmond, Virginia in anticipation of
the sale of this Property. The provisions represented the difference
between the carrying values of the properties and their estimated
fair values.
11. Subsequent Event:
----------------
In February 2003, the Partnership sold its property in Portland,
Indiana and received net sales proceeds of approximately $776,100,
resulting in a gain of approximately $129,400. This property was
identified for sale in February 2003.
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 American Properties Fund, Inc. ("APF"), 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 56. 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 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. (formerly CNL Group, Inc.), a
diversified real estate company, and has served as a Director, Chairman of the
Board and Chief Executive Officer of CNL Financial Group, Inc. since its
formation in 1980. CNL Financial Group, Inc. is the parent company, either
directly or indirectly through subsidiaries, of CNL Real Estate Services, Inc.,
CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp., all
of which are engaged in the business of real estate finance. 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, an independent,
state-chartered commercial bank. Mr. Seneff previously served on the Florida
State Commission on Ethics and is a former member and past Chairman of the State
of Florida Investment Advisory Council, which recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration, Florida's principal investment advisory and
money management agency, oversees the investment of 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 55. 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 a
Director 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, and Treasurer , and from 1997 until June 2002 served as President, of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
as well as, Director, Vice Chairman of the Board, and Treasurer, and from 1997
until June 2002 served as President, of CNL Hospitality Corp., its advisor. In
addition, Mr. Bourne serves as Director, Vice Chairman of the Board, and
Treasurer, and from 1997 until June 2002 served as President, of CNL Retirement
Properties, Inc., a public, unlisted real estate investment trust; as well as, a
Director, Vice Chairman of the Board, and Treasurer, and from 1997 until June
2002 served as President, of its advisor, CNL Retirement Corp. Mr. Bourne also
serves as a Director of CNL Bank. He has served as a Director since 1992, Vice
Chairman of the Board since February 1996, Secretary and Treasurer from February
1996 through 1997, and President from July 1992 through February 1996, of
Commercial Net Lease Realty, Inc., a public real estate investment trust listed
on the New York Stock Exchange. Mr. Bourne also serves as Director, President
and Treasurer for various affiliates of CNL Financial Group, Inc. including, CNL
Investment Company, CNL Securities Corp. and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans. Mr. Bourne began his career as
a certified public accountant employed by Coopers & Lybrand, Certified Public
Accountants, from 1971 through 1978, where he attained the position of Tax
Manager in 1975. Mr. Bourne graduated from Florida State University in 1970
where he received a B.A. in Accounting, with honors.
Curtis B. McWilliams, age 47. 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., a
corporation engaged in the business of real estate financing, 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 39. 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2002.
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 10, 2003, 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 10, 2003, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
The Partnership does not have any equity compensation plans.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2002, 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, 2002
- --------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and
operating expenses the lower of cost or 90% of the administra-tive services:
prevailing rate at which comparable $159,198
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 One percent of the sum of gross $-0-
man-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, 2002
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
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, 2002
- --------------------------------- -------------------------------------- ------------------------------
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.
Item 14. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate General Partner have evaluated the
Partnership's disclosure controls and procedures within 90 days prior to the
filing of this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
Subsequent to the above evaluation, there were no significant changes
in internal controls or other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2002 and 2001
Statements of Income for the years ended December 31, 2002, 2001 and 2000
Statements of Partners' Capital for the years ended December 31, 2002, 2001 and 2000
Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2002, 2001 and 2000
Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002
Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002
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.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included as
Exhibit 10.5 to Form 10-Q filed with the Securities and
Exchange Commission on August 14, 2002, and incorporated
herein by reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from October
1, 2002 through December 31, 2002.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 24th day of
March, 2003.
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 24, 2003
---------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 24, 2003
---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund IV, Ltd. (the
"registrant"), certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 24, 2003
/s/ James M. Seneff, Jr.
- ---------------------------
James M. Seneff, Jr.
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Bourne, President and Treasurer of CNL Realty Corporation,
the corporate general partner of CNL Income Fund IV, Ltd. (the "registrant")
certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 24, 2003
/s/ Robert A. Bourne
Robert A. Bourne
President and Treasurer
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2002, 2001, and 2000
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
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
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 $ --
============== =============== ================ ============= ============ ============
2002 Allowance for
doubtful
accounts (a) $ -- $ -- $ 11,830 (b) $ 11,830 (c) $ -- $ --
============== =============== ================ ============= ============ ============
(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, 2002
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 (j) 504,169 522,025 - -
Wendy's Old Fashioned
Hamburger Restaurants:
Mechanicsville, -irginia 346,627 502,117 - -
Tampa, Florida - 530,456 432,958 - -
Other Restaurants:
Maywood, Illinoi- (e) 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 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 - - -
=========== ============ ========== =======
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 (i)- $270,189 - $243,326 -
=========== ============ ========== =======
Property in Which the Partner-
ship 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 -
=========== ============ ========== =======
Life on Which
Net Cost Basis at Which Depreciation in
Carried at Close of Period (c) Date Latest Income
- ---------------------------------------
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation structioAcquired Computed
- ------------- ----------- ----------- ----------- ------ --------- ------------
$287,769 $567,785 $855,554 $239,574 1988 07/88 (b)
187,928 657,931 845,859 265,750 1989 11/88 (b)
120,210 279,689 399,899 130,751 1988 12/88 (b)
169,951 281,686 451,637 130,928 1988 12/88 (b)
174,336 - 174,336 (g) - 06/94 (g)
161,616 650,934 812,550 311,002 1988 08/88 (b)
135,407 334,665 470,072 120,079 1989 10/88 (h)
251,650 372,278 623,928 175,798 1988 10/88 (b)
107,560 586,375 693,935 283,415 1988 06/88 (b)
476,755 368,405 845,160 171,997 1987 12/88 (b)
352,957 368,702 721,659 170,013 1989 11/88 (b)
26,510 231,874 258,384 110,462 1985 09/88 (b)
40,444 232,823 273,267 110,914 1981 09/88 (b)
8,826 178,570 187,396 85,069 1981 09/88 (b)
63,708 184,279 247,987 87,788 1974 09/88 (b)
191,737 (f) 191,737 (d) 1986 01/89 (d)
202,438 428,406 630,844 200,275 1988 12/88 (b)
312,574 452,601 765,175 211,627 1988 12/88 (b)
363,432 426,123 789,555 199,247 1988 12/88 (b)
440,355 523,478 963,833 242,108 1989 10/88 (b)
484,169 505,025 989,194 104,453 1996 12/96 (b)
346,627 502,117 848,744 235,716 1988 12/88 (b)
530,456 432,958 963,414 202,134 1984 12/88 (b)
215,966 365,473 581,439 206,146 1988 09/88 (b)
- ------------- ----------- ----------- -----------
$5,653,381 $8,932,177 $14,585,558 $3,995,246
============= =========== =========== ===========
$295,987 $780,451 $1,076,438 $368,546 1988 10/87 (b)
============= =========== =========== ===========
$183,229 $192,857 $376,086 $83,627 1986 12/89 (b)
============= =========== =========== ===========
$507,965 $889,080 $1,397,045 $127,313 1996 09/98 (b)
============= =========== =========== ===========
$484,362 (f) $484,362 (d) 1989 03/90 (d)
============= =========== ===========
$150,742 $243,326 $394,068 $51,228 1988 10/88 (h)
============= =========== =========== ===========
$138,382 $676,588 $814,970 $156,485 1996 01/96 (b)
============= =========== =========== ===========
$260,146 $441,434 $701,580 $58,160 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, 2002
(a) Transactions in real estate and accumulated depreciation during
2002, 2001 and 2000 summarized as follows:
Accumulated
Cost Depreciation
---------------- -----------------
Properties the Partnership has Invested
in Under Operating Leases:
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
Provision for write-down of assets (210,000 ) --
Depreciation expense -- 306,037
---------------- -----------------
Balance, December 31, 2002 $ 14,585,558 $ 3,995,246
================ =================
Property of Joint Venture in Which the Partnership has a 51% Interest
and has Invested in Under an Operating Lease:
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
Depreciation expense -- 26,015
---------------- -----------------
Balance, December 31, 2002 $ 1,076,438 $ 368,546
================ =================
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION CONTINUED
December 31, 2002
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, 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
Depreciation expense -- --
Disposition (i) (449,381 ) (288,670 )
---------------- -----------------
Balance, December 31, 2002 $ -- $ --
================ =================
Property of Joint Venture in Which the Partnership has a 57% Interest
and has Invested in Under an Operating Lease:
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
Depreciation expense -- 6,429
---------------- -----------------
Balance, December 31, 2002 $ 376,086 $ 83,627
================ =================
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 2002
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, 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
Depreciation expense -- 29,636
---------------- -----------------
Balance, December 31, 2002 $ 1,397,045 $ 127,313
================ =================
Property of Joint Venture in Which the Partnership has a 96.1%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1999 $ 484,362 $ --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2000 484,362 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2001 484,362 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2002 $ 484,362 $ --
================ =================
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 2002
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, 1999 (i) (h) $ 394,068 $ 12,807
Depreciation expense -- 12,807
----------------- -----------------
Balance, December 31, 2000 (i) (h) 394,068 25,614
Depreciation expense -- 12,807
----------------- -----------------
Balance, December 31, 2001 (i) (h) 394,068 38,421
Depreciation expense -- 12,807
----------------- -----------------
Balance, December 31, 2002 (i)(h) $ 394,068 $ 51,228
================= =================
Property in Which the Partnership has a 53% Interest as Tenants-in-Common
and has Invested in Under an Operating Lease:
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
Depreciation expense -- 22,553
----------------- -----------------
Balance, December 31, 2002 $ 814,970 $ 156,485
================= =================
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 2002
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, 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
Depreciation expense -- 14,712
----------------- -----------------
Balance, December 31, 2002 $ 701,580 $ 58,160
================= =================
(b) Depreciation expense is computed for buildings and improvements
based upon estimated lives of 30 years.
(c) As of December 31, 2002, 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. The undepreciated cost of the Property in Maywood,
Illinois was written down to its estimated fair value. The
Partnership recognized the impairment by recording a provision
for write-down of assets in the amount of $173,000 during the
year ended December 31, 2002 since the two tenants of this
Property are not expected to exercise their option to renew their
leases, which will expire in June 2003. The provision represented
the difference between the Property's carrying value and its
estimated fair value. The cost of the Property presented on this
schedule is the net amount at which the Property was carried at
December 31, 2002, including the provision for write-down of
assets.
(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, 2002
(i) Due to an anticipated impairment in value, the Partnership
recorded a provision for write-down of assets for the Property in
Kingsville, Texas 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 its estimated fair value. 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, 2002, including the
provision for write-down of assets.
(j) The undepreciated cost of the Property in Richmond, Virginia was
written down to its estimated fair value. The Partnership
recognized the impairment by recording a provision for write-down
of assets in the amount of $37,000 during the year ended December
31, 2002 in anticipation of the sale of this Property. The
provision represented the difference between the Property's
carrying value and the estimated fair value of the Property. The
cost of the Property presented on this schedule is the net amount
at which the Property was carried at December 31, 2002, including
the provision for write-down of assets. As of March 10, 2003, the
sale had not occurred.
EXHIBIT INDEX
Exhibit Number
(a) 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.)
10.5 Assignment of Management Agreement from CNL APF Partners, LP to
CNL Restaurants XVIII, Inc. (Included as Exhibit 10.5 to Form
10-Q filed with the Securities and Exchange Commission on August
14, 2002, and incorporated herein by reference.)
99.2 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
99.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
EXHIBIT 99.1
EXHIBIT 99.2