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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19141
CNL INCOME FUND V, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2922869
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes___ No X
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 50,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market 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 V, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 17, 1988. 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 December 16, 1988, the
Partnership offered for sale up to $25,000,000 in limited partnership interests
(the "Units") (50,000 Units at $500 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended. The
offering terminated on June 7, 1989, as of which date the maximum offering
proceeds of $25,000,000 had been received from investors who were admitted to
the Partnership as limited partners (the "Limited Partners").
The Partnership was organized 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 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, totaled
$22,125,000, and were used to acquire 30 Properties, including interests in
three Properties owned by joint ventures in which the Partnership is a
co-venturer.
As of December 31, 2000, the Partnership owned 17 Properties directly
and held interests in two 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. During the year ended December 31, 2001,
the Partnership sold its Property in Daleville, Indiana. During the year ended
December 31, 2002, the Partnership sold its Properties in Huron, Ohio; West
Lebanon, New Hampshire; Bountiful, Utah, and Lawrenceville, Georgia. During the
year ended December 31, 2003, the Partnership sold a parcel of land in
Connorsville, Indiana which was not needed for the operations of its restaurant.
As of December 31, 2003, the Partnership owned 12 Properties directly and held
interests in two 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 taxes. 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 or joint venture
purchase options granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms ranging from 10 to 20 years (the average being 18 years) and expire
between 2004 and 2021. The leases are generally 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
$42,000 to $222,800. Generally, the leases provide for percentage rent, based on
sales in excess of a specified amount, to be paid annually. In addition, a
majority of the leases provide that, commencing in the sixth lease year, the
percentage rent will be an amount equal to the greater of (i) the percentage
rent calculated under the lease formula or (ii) a specified percentage (ranging
from one-fourth to five percent) of the purchase price paid by the Partnership
for the Property.
Generally, the leases of the Properties provide for two to four
successive five-year renewal options subject to the same terms and conditions as
the initial lease. Lessees of 13 of the Partnership's 16 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.
The leases generally provide that, in the event the Partnership wishes
to sell the Property subject to that lease, the Partnership first must offer the
lessee the right to purchase the Property on the same terms and conditions, and
for the same price, as any offer which the Partnership has received for the sale
of the Property.
In October 2003, Chevy's, Inc., the tenant of the Property in
Vancouver, Washington which the Partnership owns as tenants-in-common with
affiliates of the General Partners, filed for Chapter 11 bankruptcy protection.
The Partnership owns a 27.78% interest in this Property. While the tenant has
neither rejected nor affirmed the one lease it has with the Partnership, there
can be no assurance that the lease will not be rejected in the future. The lost
revenues that would result if the tenant rejects this lease will have an adverse
effect on the equity in earnings of joint ventures of the Partnership if the
tenancy in common is not able to re-lease the Property in a timely manner.
Major Tenants
During 2003, three lessees of the Partnership, Slaymaker Group, Inc.;
IHOP Properties, Inc.; and Golden Corral Corporation each contributed more than
10% of the Partnership's total rental revenues (including the Partnership's
share of the total 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, 2003, Slaymaker Group, Inc.; IHOP Properties, Inc.; and
Golden Corral Corporation were each the lessee under a lease relating to one
Property. It is anticipated that, based on the minimum rental payments required
by the leases, these three lessees will each continue to contribute more than
10% of the Partnership's total rental revenues in 2004. In addition, four
Restaurant Chains, Tony Romas, Golden Corral Buffet and Grill ("Golden Corral"),
IHOP, and Arby's each accounted for more than 10% of the Partnership's total
rental revenues in 2003 (including the Partnership's share of the total rental
revenues from Properties owned by joint ventures and Properties owned with
affiliates of the General Partners as tenants-in-common). In 2004, it is
anticipated that these four Restaurant Chains each will continue to account for
more than 10% of the total rental revenues to which the Partnership is entitled
under the terms of the leases. Any failure of these lessees or Restaurant Chains
will materially affect the Partnership's operating results if the Partnership is
not able to re-lease the Properties in a timely manner. As of December 31, 2003,
no single tenant or group of affiliated tenants lease Properties with an
aggregate carrying value in excess of 20% of the total assets of the
Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into the following joint venture and
tenancy in common arrangements as of December 31, 2003:
Entity Name Year Ownership Partners Property
Cocoa Joint Venture 1988 43.00 % CNL Income Fund IV, Ltd. Cocoa, FL
CNL Income Fund II, Ltd. and 1997 42.09 % CNL Income Fund II, Ltd. Mesa, AZ
CNL Income Fund V, Ltd.,
Tenants in Common
CNL Income Fund, Ltd., CNL 1997 27.78% CNL Income Fund, Ltd. Vancouver, WA
Income Fund II, Ltd., CNL Income Fund II, Ltd.
CNL Income Fund V, Ltd. CNL Income Fund VI, Ltd.
and CNL Income Fund VI,
Ltd., Tenants in Common
Entity Name Year Ownership Partners Property
RTO Joint Venture 1998 53.12% CNL Income Fund III, Ltd. Orlando, FL
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 and 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 15 to 20 years and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of either joint venturer or by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property owned by the joint venture and mutual
agreement of the Partnership and its joint venture partner to dissolve the joint
venture. Any liquidation proceeds, after paying joint venture debts and
liabilities and funding reserves for contingent liabilities, will be distributed
first to the joint venture partners with positive capital account balances in
proportion to such balances until such balances equal zero, and thereafter in
proportion to each joint venture partner's percentage interest in the joint
venture.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer or assign its interest without first offering
it for sale to its partner, either upon such terms and conditions as to which
the parties may agree or, in the event the parties cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture or tenancy in common interest.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of Properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the Property if the proceeds are reinvested in an additional Property.
Certain Management Services
RAI Restaurants, Inc. (the "Advisor"), an affiliate of the General
Partners, provided certain services relating to management of the Partnership
and its Properties pursuant to a management agreement with the Partnership.
Under this agreement, the Advisor is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices, and providing
information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross 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, but not in
excess of competitive fees for comparable services. Under the property
management agreement, the management fee is subordinated to receipt by the
Limited Partners of an aggregate, ten percent, cumulative, noncompounded annual
return on their adjusted capital contributions (the "10% Preferred Return"),
calculated in accordance with the Partnership's limited partnership agreement
(the "Partnership Agreement"). In any year in which the Limited Partners have
not received the 10% Preferred Return, no property management fee will be paid.
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.
During 2003, CNL Capital Management, Inc., ("CCM"), a wholly owned
subsidiary of CNL Financial Group, Inc., began providing certain strategic
advisory services to the General Partners relative to the Partnership's
business. CCM is not reimbursed for these services by the Partnership. CCM also
began providing some accounting and portfolio management services to the
Partnership during 2003, through a subcontract with the Advisor.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation, the officers and employees of CNL Restaurant Properties, Inc.
(formerly CNL American Properties Fund, Inc.), the parent company of the
Advisor, and the officers and employees of CCM perform certain services for the
Partnership. In addition, the General Partners have available to them the
resources and expertise of the officers and employees of CNL Financial Group,
Inc., a diversified real estate company, and its affiliates, who may also
perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2003, the Partnership owned 16 Properties. Of the 16
Properties, 12 are owned by the Partnership in fee simple, two are owned
indirectly through joint venture arrangements and two are owned indirectly
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.
Description of Properties
Land. The Partnership's Property sites range from approximately 19,600
to 135,000 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, either directly or
indirectly, by the Partnership as of December 31, 2003 by state.
State Number of Properties
Arizona 1
Florida 3
Illinois 1
Indiana 2
Michigan 1
Ohio 1
Texas 4
Utah 1
Washington 2
-----
TOTAL PROPERTIES 16
=====
Buildings. Generally, each of the Properties owned, either directly or
indirectly, by the Partnership includes a building that is one of a Restaurant
Chain's approved designs. The buildings generally are rectangular and are
constructed from various combinations of stucco, steel, wood, brick and tile.
Building sizes range from approximately 1,700 to 10,100 square feet. All
buildings on Properties acquired by the Partnership are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations. As of December 31, 2003, the Partnership had no plans for
renovation of the Properties. Depreciation expense is computed for buildings and
improvements using the straight line method using depreciable lives of 31.5 and
39 years for federal income tax purposes.
As of December 31, 2003, the aggregate cost of the Properties owned by
the Partnership and unconsolidated joint ventures (including Properties owned
indirectly through tenancy-in-common arrangements) for federal income tax
purposes was $9,232,377 and $5,175,275, respectively.
The following table lists the Properties owned, either directly or
indirectly, by the Partnership as of December 31, 2003 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 2
Captain D's 2
Chevy's Fresh Mex 1
Del Taco 1
Denny's 1
Golden Corral 2
IHOP 1
Pizza Hut 1
Ruby Tuesday 1
Taco Bell 1
Tony Romas 1
Waffle House 1
Wendy's 1
-----
TOTAL PROPERTIES 16
=====
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
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.
The following is a schedule of the average rent per Property and
occupancy rates for the years ended December 31:
2003 2002 2001 2000 1999
------------- -------------- ------------- -------------- ---------------
Rental Revenues (1)(2) $ 1,224,696 $ 1,300,361 $ 1,476,917 $ 1,633,709 $ 1,721,252
Properties (2) 15 16 18 18 20
Average Rent per
Property $ 81,646 $ 81,273 $ 82,051 $ 90,762 $ 86,063
Occupancy Rate 94% 100% 90% 81% 87%
(1) Rental revenues include the Partnership's share of rental revenues from
the Properties owned indirectly through joint venture and tenancy in
common arrangements.
(2) Excludes Properties that were vacant at December 31 and that did not
generate rental revenues.
The following is a schedule of lease expirations for leases in place as
of December 31, 2003 for each of the next ten years and thereafter.
Percentage of
Expiration Number Annual Rental Gross Annual
Year of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2004 1 $ 132,151 10.90%
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 5 263,519 21.74%
2009 2 150,736 12.44%
2010 -- -- --
2011 -- -- --
2012 1 68,296 5.63%
2013 -- -- --
Thereafter 6 597,724 49.29%
---------- ------------- -------------
Total (1) 15 $ 1,212,426 100.00%
========== ============= =============
(1) Excludes one Property which was vacant and did not generate rental
revenues.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2003 (see Item 1. Business -Major
Tenants), are substantially the same as those described in Item 1. Business -
Leases.
Slaymaker Group, Inc. leases one Tony Romas restaurant pursuant to one
lease with an initial term of 20 years (expiring in 2017). The minimum base
annual rent for the lease is approximately $167,500.
Golden Corral Corporation leases one Golden Corral restaurant pursuant
to one lease with an initial term of 15 years (expiring in 2004). The minimum
base annual rent for the lease is approximately $132,100.
IHOP Properties, Inc. leases one IHOP restaurant pursuant to one lease
with an initial term of 20 years (expiring in 2017). The minimum base annual
rent for the lease is approximately $132,200.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners nor any affiliate of
the Partnership, nor any of their respective Properties, is a party to, or
subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 12, 2004, there were 2,423 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. During 2003, Limited Partners who
wished to sell their Units 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 transfers of Units. From
inception through December 31, 2003, the price paid for any Unit transferred
pursuant to the Plan ranged from $282 to $475 per Unit. The price paid for any
Unit transferred other than pursuant to the Plan was subject to negotiation by
the purchaser and the selling Limited Partner. The Partnership will not redeem
or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2003 and 2002 other than
pursuant to the Plan, net of commissions.
2003 (1) 2002 (1)
------------------------------------ ---------------------------------------
High Low Average High Low Average
--------- ---------- ---------- --------- ---------- -----------
First Quarter $ 222 $ 191 $ 208 $ 278 $ 206 $ 233
Second Quarter 319 132 245 245 245 245
Third Quarter 390 220 270 246 213 229
Fourth Quarter 285 225 248 254 75 197
(1) A total of 698 and 443 Units were transferred other than pursuant to
the Plan for the years ended December 31, 2003 and 2002, respectively.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 2003 and 2002, the Partnership
declared cash distributions of $1,195,945 and $3,577,572, respectively, to the
Limited Partners. Distributions during 2002 included a special distribution of
$2,150,000 as a result of the distribution of sales proceeds from the sales of
the Properties in Huron, Ohio; West Lebanon, New Hampshire; Bountiful, Utah and
Lawrenceville, Georgia. The special distribution in 2002 was effectively a
return of a portion of the Limited Partners' investment; although, in accordance
with the Partnership agreement, $979,322 was applied towards the 10% Preferred
Return, on a cumulative basis, and the balance of $1,170,678 was treated as a
return of capital for purposes of calculating the 10% Preferred Return. As a
result of the return of capital, the amount of the Limited Partners' invested
capital contributions (which is generally the Limited Partners' capital
contributions, less distributions from the sale of Properties that are
considered to be a return of capital) was decreased; therefore, the amount of
the Limited Partners' invested capital contributions on which the 10% Preferred
Return is calculated was lowered accordingly. As a result of the sales of
Properties during 2001 and 2002, the Partnership's total revenues were reduced
during 2002 and 2003 and are expected to remain reduced in subsequent years. The
decrease in Partnership revenues, combined with the fact that a significant
portion of the Partnership's expenses are fixed in nature, resulted in a
decrease in cash distributions to the Limited Partners commencing during the
quarters ended March and September 2002 and June 2003. No distributions have
been made to the General Partners to date.
As indicated in the chart below, these distributions were declared at
the close of each of the Partnership's calendar quarters. These amounts include
monthly distributions made in arrears for the Limited Partners electing to
receive such distributions on this basis.
Quarter Ended 2003 2002
------------------------- --------------- ----------------
March 31 $ 351,232 $ 1,512,606
June 30 281,571 1,362,501
September 30 281,571 351,233
December 31 281,571 351,232
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
(b) Not applicable.
Item 6. Selected Financial Data
2003 2002 2001 2000 1999
------------- -------------- ------------- -------------- -------------
Year ended December 31:
Continuing Operations (4):
Revenues $ 1,013,540 $ 1,024,153 $1,261,978 $1,294,848 $1,353,192
Equity in earnings of
unconsolidated joint
ventures 195,986 198,037 157,935 151,430 337,698
Income from continuing
operations (1) 793,468 1,394,238 949,278 811,968 1,274,973
Discontinued Operations (4):
Revenues 25,902 70,832 158,845 184,187 187,258
Income (loss) from and gain
on disposal of
discontinued operations (3) (2,020 ) 228,213 (3,305 ) 157,602 160,673
Net income 791,448 1,622,451 945,973 969,570 1,435,646
Income (loss) per Unit:
Continuing operations $ 15.87 $ 27.88 $ 18.99 $ 16.24 $ 25.50
Discontinued operations (0.04 ) 4.57 (0.07 ) 3.15 3.21
------------- -------------- ------------- -------------- -------------
$ 15.83 $ 32.45 $ 18.92 $ 19.39 $ 28.71
============= ============== ============= ============== =============
Cash distributions declared (2) 1,195,945 $ 3,577,572 $3,471,032 $2,375,000 $2,000,000
Cash distributions
declared per unit (2) 23.92 71.55 69.42 47.50 40.00
At December 31:
Total assets $ 9,907,243 $ 10,369,047 $12,306,054 $14,848,256 $16,680,780
Total partners' capital 9,372,641 9,777,138 11,732,259 14,257,318 15,662,748
(1) Income from continuing operations for the years ended December 31,
2002, 2001, 2000, and 1999 includes $571,759, $171,130, $15,088, and
$396,066, respectively, from gains on sale of assets. For the years
ended December 31, 2003, 2001, 2000, and 1999 income from continuing
operations includes $72,734, $156,643, $142,373, and $308,310 for
provisions for write-down of assets. For the year ended December 31,
2000 income from continuing operations includes $9,763 from gain on
dissolution of consolidated joint venture.
(2) Distributions for the years ended December 31, 2002, 2001 and 2000
included special distributions to the Limited Partners of $2,150,000,
$1,750,000 and $500,000, respectively.
(3) Income from discontinued operations for the year ended December 31,
2002 includes $193,496 in gains from sales of assets. Loss from
discontinued operations for the years ended December 31, 2003 and 2001
includes a provision for write-down of assets of $5,127 and $134,726,
respectively.
(4) Certain items in the prior years' financial data have been reclassified
to conform to 2003 presentation. This reclassification had no effect on
net income. The results of operations relating to properties that were
identified for sale as of December 31, 2001 but sold subsequently are
reported as continuing operations. The results of operations relating
to properties that were either identified for sale and disposed of
subsequent to January 1, 2002 or were classified as held for sale as of
December 31, 2003 are reported as discontinued operations for all
periods presented.
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 August 17, 1988, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
Restaurant Chains. The leases are generally triple-net leases, with the lessee
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 $42,000 to
$222,800. The majority of the leases provide that, commencing in specified lease
years (generally the sixth lease year), the annual base rent required under the
terms of the lease will increase. As of December 31, 2001, the Partnership
directly owned 16 Properties and owned four Properties indirectly through joint
venture or tenancy in common arrangements. As of December 31, 2003 and 2002, the
Partnership owned 12 Properties directly and four Properties indirectly through
joint venture or tenancy in common arrangements.
Capital Resources
For the years ended December 31, 2003, 2002, and 2001, the Partnership
generated cash from operating activities of $1,090,687, $1,049,272, and
$1,365,832, respectively. The increase in cash from operating activities during
2003 as compared to 2002 and the decrease in 2002, as compared to the previous
year, was a result of changes in the Partnership's working capital, such as the
timing of transactions relating to the collection of receivables and the payment
of expenses, and changes in income and expenses, such as changes in rental
revenues and changes in operating and Property related expenses.
Other sources and uses of cash included the following during the years
ended December 31, 2003, 2002, and 2001.
The Partnership had a mortgage note receivable relating to a sale in
1995 of a Property in Myrtle Beach, South Carolina. In February 2001, the
Partnership received a balloon payment of $999,083 which included the
outstanding principal balance and $12,084 of accrued interest and, in connection
therewith, recognized the remaining gain of $136,034 relating to this Property.
During 2001, the Partnership distributed the amount collected as a special
distribution to the Limited Partners.
During the year ended December 31, 1999, the Partnership collected
$1,043,770 representing the outstanding balance of a promissory note issued in
connection with the 1996 sale of a Property in St. Cloud, Florida. During 2000,
the Partnership distributed $500,000 of the amount collected as a special
distribution to the Limited Partners, and the majority of the remaining net
sales proceeds were distributed in 2001.
In March 2001, the Partnership sold its Property in Daleville, Indiana
to a third party and received net sales proceeds of $300,386 resulting in a gain
of $35,096. The Partnership had previously recorded provisions for write-down of
assets relating to this Property because the tenant terminated the lease with
the Partnership. In connection with the sale, the Partnership incurred a
deferred, real estate disposition fee of $9,750. Payment of the real estate
disposition fee is subordinated to receipt by the Limited Partners of the
cumulative 10% Preferred Return, plus their adjusted capital contributions. The
Partnership distributed the majority of the net sales proceeds to the Limited
Partners.
During 2001, the Partnership collected the outstanding balance of
$4,401 relating to the promissory note that was issued in 1997 in connection
with Properties in Connorsville and Richmond, Indiana.
During 2002, the Partnership sold its Properties in Huron, Ohio; West
Lebanon, New Hampshire; and Bountiful, Utah and received net sales proceeds
aggregating approximately $1,902,800. The Partnership recorded gains aggregating
approximately $571,700 relating to the sale of these Properties. Since the
Partnership had recorded provisions for write-down of assets in previous years
relating to the Property in Huron, Ohio because the tenant terminated its lease
in 2001, no gain or loss was recorded on the sale. In addition, in June 2002,
the Partnership sold its Property in Lawrenceville, Georgia to the tenant and
received net sales proceeds of $847,000, resulting in a gain on disposal of
discontinued operations of approximately $193,500. In connection with these
sales, the Partnership incurred deferred, real estate disposition fees of
$83,430. Payment of the real estate disposition fee is subordinated to receipt
by the Limited Partners of the cumulative 10% Preferred Return, plus their
adjusted capital contributions. The Partnership used the majority of the net
sales proceeds to pay special distributions to the Limited Partners, and used
the remaining funds to pay Partnership liabilities.
In November 2003, the Partnership sold an excess parcel of land in
Connorsville, Indiana and received net sales proceeds of approximately $97,000.
Because the Partnership had previously recorded a provision for write-down of
assets of approximately $72,700 for this Property, no gain or loss was
recognized relating to the sale. In connection with the sale, the Partnership
incurred a deferred, real estate disposition fee of $4,500. Payment of the real
estate disposition fee is subordinated to receipt by the Limited Partners of the
cumulative 10% Preferred Return, plus their adjusted capital contributions. The
General Partners intend to use the proceeds received from the sale to pay
Partnership liabilities, including distributions to the Limited Partners.
In October 2003, Chevy's, Inc., the tenant of the Property in
Vancouver, Washington which the Partnership owns as tenants-in-common with
affiliates of the General Partners, filed for Chapter 11 bankruptcy protection.
The Partnership owns a 27.78% interest in this Property. While the tenant has
neither rejected nor affirmed the one lease it has with the Partnership, there
can be no assurance that the lease will not be rejected in the future. The lost
revenues that would result if the tenant rejects this lease will have an adverse
effect on the equity in earnings of joint ventures of the Partnership if the
tenancy in common is not able to re-lease the Property in a timely manner.
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.
At December 31, 2003, the Partnership had $378,396 in cash and cash
equivalents as compared to $456,266 at December 31, 2002. At December 31, 2003,
these funds were held in a non-interest bearing demand deposit account at a
commercial bank. The funds remaining at December 31, 2003, will be used to pay
distributions and other liabilities of the Partnership.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and generally leasing them under triple-net leases to operators who generally
meet specified financial standards minimizes the Partnership's operating
expenses. The General Partners believe that the leases will continue to generate
net cash flow in excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The General Partners have the right, but not the obligation, to make
additional capital contributions 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 of 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 operating
activities, and for the years ended December 31, 2002 and 2001, a portion of the
sales proceeds received from the sales of the Properties, and collection of
amounts due under two promissory notes, the Partnership declared distributions
to the Limited Partners of $1,195,945, $3,577,572, and $3,471,032 for the years
ended December 31, 2003, 2002 and 2001, respectively. This represents
distributions of $23.92, $71.55 and $69.42 per Unit for the years ended December
31, 2003, 2002, and 2001, respectively. Distributions during 2002 included a
special distribution of $2,150,000 as a result of the distribution of sales
proceeds from the sales of the Properties in West Lebanon, New Hampshire;
Bountiful, Utah and Lawrenceville, Georgia. Distributions during 2001 included a
special distribution of $1,750,000 as a result of the distribution of sales
proceeds from the sale of the Property in Daleville, Indiana and the
distribution of amounts collected from the promissory notes related to the 1995
and 1996 sales of the Properties in Myrtle Beach, South Carolina and St. Cloud,
Florida, respectively. The special distributions in 2002 and 2001 were
effectively a return of a portion of the Limited Partners' investment; although,
in accordance with the Partnership agreement, $979,322 and $1,336,152 were
applied towards the 10% Preferred Return, on a cumulative basis, and the balance
of $1,170,678 and $413,848 was treated as a return of capital for purposes of
calculating the 10% Preferred Return. As a result of the return of capital, the
amount of the Limited Partners' invested capital contributions (which is
generally the Limited Partners' capital contributions, less distributions from
the sale of Properties that are considered to be a return of capital) was
decreased; therefore, the amount of the Limited Partners' invested capital
contributions on which the 10% Preferred Return is calculated was lowered
accordingly. The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2003, 2002, and 2001.
As of December 31, 2003 and 2002, the Partnership owed $7,389 and
$10,161, respectively, to affiliates for accounting and administrative services.
As of March 12, 2004, the Partnership had reimbursed the affiliates for these
amounts. In addition, during 2003 and 2002, the Partnership incurred $4,500 and
$83,430, respectively, in real estate disposition fees due to an affiliate as a
result of its services in connection with the sale of the parcel of land in 2003
and four Properties in 2002. As of December 31, 2003 and 2002, the Partnership
owed $201,630 and $197,130 respectively, to affiliates for real estate
disposition fees. 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,
decreased to $325,583 at December 31, 2003, from $384,618 at December 31, 2002,
primarily due to a decrease in distributions payable. Liabilities at December
31, 2003, to the extent they exceed cash and cash equivalents, will be paid from
anticipated future cash from operating activities.
Off-Balance Sheet Transactions
The Partnership holds interests in various unconsolidated joint venture
and tenancy in common arrangements that are accounted for using the equity
method. The General Partners do not believe that any such interest would
constitute an off-balance sheet arrangement requiring any additional disclosures
under the provisions of the Sarbanes-Oxley Act of 2002.
Contractual Obligations, Contingent Liabilities, and Commitments
The Partnership has no contractual obligations, contingent liabilities,
or commitments as of December 31, 2003.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for Leases"
("FAS 13"), and have been accounted for using either the direct financing or
operating method. FAS 13 requires management to estimate the economic life of
the leased property, the residual value of the leased property and the present
value of minimum lease payments to be received from the tenant. In addition,
management assumes that all payments to be received under its leases are
collectible. Changes in management's estimates or assumption regarding
collectibility of lease payments could result in a change in accounting for the
lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews the Partnership's Properties and investments in
unconsolidated entities for impairment at least once a year or whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The assessment is based on the carrying amount of the
Property or investment at the date it is tested for recoverability compared to
the sum of the estimated future cash flows expected to result from its operation
and sale through the expected holding period. If an impairment is indicated, the
asset is adjusted to its estimated fair value.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Accordingly, when the Partnership makes the
decision to sell or commits to a plan to sell a Property within one year, its
operating results are reported as discontinued operations.
Results of Operations
Comparison of year ended December 31, 2003 to year ended December 31, 2002
Total rental revenues from continuing operations were $940,326 during
the year ended December 31, 2003 as compared to $961,361 for the same period of
2002. The decrease in rental revenues from continuing operations during 2003 was
primarily the result of a lease amendment related to the Property in
Connorsville, Indiana. The General Partners do not believe that the amendment
will have a material adverse effect on the results of operations of the
Partnership. In addition, the decrease in rental revenues from continuing
operations during 2003 was also partially attributable to the sale of the
Property in Bountiful, Utah in 2002.
The Partnership also earned $69,523 in contingent rental income for the
year ended December 31, 2003 as compared to $53,922 for the same period of 2002.
The increase in contingent rental income during 2003 was due to an increase in
gross sales of certain restaurant Properties, the leases of which require the
payment of contingent rent.
For the year ended December 31, 2003, the Partnership earned $195,986
as compared to $198,037 during the same period of 2002 attributable to net
income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. Net income earned by joint ventures during 2003, as compared to the
same period of 2002, remained constant as there was no change in the leased
Property portfolio owned by the joint ventures and tenancies in common.
During the year ended December 31, 2003, three lessees of the
Partnership, Slaymaker Group, Inc., IHOP Properties, Inc. and Golden Corral
Corporation each contributed more than 10% of the Partnership's total rental
revenues (including the Partnership's share of the total rental revenues from
Properties owned by unconsolidated joint ventures and Properties owned with
affiliates of the General Partners as tenants-in-common). As of December 31,
2003, Slaymaker Group, Inc., IHOP Properties Inc. and Golden Corral Corporation
were each the lessee under a lease relating to one Property. It is anticipated
that, based on the minimum rental payments required by the leases, these three
lessees will each continue to contribute more than 10% of the Partnership's
total rental revenues during 2004. In addition, four Restaurant Chains, Tony
Romas, Golden Corral, IHOP and Arby's each accounted for more than 10% of the
Partnership's total rental revenues during 2003 (including the Partnership's
share of the total rental revenues from Properties owned by unconsolidated joint
ventures and Properties owned with affiliates of the General Partners as
tenants-in-common). It is anticipated that these four Restaurant Chains each
will continue to account for more than 10% of the total rental revenues to which
the Partnership is entitled under the terms of the leases. Any failure of these
lessees or Restaurant Chains will materially affect the Partnership's operating
results if the Partnership is not able to re-lease the Properties in a timely
manner.
Operating expenses, including depreciation expense and provision for
write-down of assets, were $416,058 for the year ended December 31, 2003 as
compared to $399,711 for the same period of 2002. The increase in operating
expenses during 2003 was the result of the Partnership recording a provision for
write-down of assets of approximately $72,700 related to the parcel of land in
Connorsville, Indiana. The increase during 2003 was partially offset by a
decrease in costs incurred for administrative expenses for servicing the
Partnership and its Properties. In addition, during the year ended December 31,
2002, the Partnership incurred expenses such as legal fees and repairs and
maintenance related to the Property in West Lebanon, New Hampshire, which was
sold during 2002.
As a result of the sales of the Properties in West Lebanon, New
Hampshire and Bountiful, Utah, during 2002, the Partnership recognized gains of
$571,759. Because these Properties were identified for sale prior to the January
2002 implementation of Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets", the results of
operations relating to these Properties were included as Income from Continuing
Operations in the accompanying financial statements.
During 2002, the Partnership identified and sold its Property in
Lawrenceville, Georgia. The Partnership recognized a gain of approximately
$193,500 on the sale. The Partnership had recorded a provision for write-down of
assets in a previous year relating to this Property. The provision represented
the difference between the net carrying value of the Property and its estimated
fair value. The tenant exercised its option to purchase the Property under the
terms of the lease and the proceeds from the sale were distributed to the
Limited Partners as a special distribution. During 2003, the Partnership
identified for sale its Property in Livingston, Texas. The tenant experienced
financial difficulties, vacated the Property in May 2003 and ceased making
rental payments. As a result, the Partnership recorded a provision for
write-down of assets of approximately $5,100. The provision represented the
difference between the carrying value of the Property and its estimated fair
value. These Properties are classified as discontinued operations in the
accompanying financial statements. The Partnership recognized a net rental loss
(rental revenues less Property related expenses and provision for write-down of
assets) of $2,020 and net rental income of $34,717 during the years ended
December 31, 2003 and 2002, respectively, relating to these Properties.
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Total rental revenues from continuing operations were $961,361 during
the year ended December 31, 2002 as compared to $1,053,211 for the same period
of 2001. Rental revenues from continuing operations were lower in 2002 due to
the sale of Properties, as described above. The Partnership used the majority of
the net sales proceeds from the sale of these Properties to make distributions
to the Limited Partners.
The Partnership also earned $53,922 in contingent rental income for the
year ended December 31, 2002 as compared to $94,469 for the same period of 2001.
The decrease in contingent rental income during 2002 was attributable to the
sale of Properties, and to a decrease in gross sales of certain restaurant
Properties, the leases of which require the payment of contingent rent.
During the year ended December 31, 2001, the Partnership recognized
$52,676 in lease termination income from the former tenant of the Property in
Huron, Ohio as consideration for the Partnership releasing the former tenant
from its obligation under the terms of its lease.
During the year ended December 31, 2002, the Partnership also earned
$8,870 as compared to $48,249 for the same period of 2001 in interest and other
income. The decrease in interest and other income during 2002 was attributable
to a decrease in the average cash balance due to the payment of a special
distribution of $2,150,000 of net sales proceeds to the Limited Partners during
2002 and due to a decline in interest rates.
For the year ended December 31, 2002, the Partnership earned $198,037
as compared to $157,935 during the same period of 2001 attributable to net
income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. The increase in net income earned by unconsolidated joint ventures
during 2002 was primarily attributable to the fact that the Partnership and CNL
Income Fund II, Ltd., as tenants-in-common, re-leased the Property in Mesa,
Arizona, to a new tenant in September 2001 with terms substantially the same as
the Partnership's other leases. The former tenant of the Property, in which the
Partnership owns an approximate 42% interest with an affiliate of the General
Partners, as tenants-in-common, had filed for bankruptcy in 1998 and in June
2000 had rejected the lease.
Operating expenses, including depreciation expense and provision for
write-down of assets, were $399,711 for the year ended December 31, 2002 as
compared to $628,392 for the same period of 2001. Operating expenses were higher
in 2001 because the Partnership recorded a provision for write-down of assets
for the Property in Huron, Ohio amounting to approximately $156,600. The
provision represented the difference between the net carrying value of the
Property and its estimated fair value.
In addition, operating expenses were higher during 2001 due to the fact
that the Partnership incurred certain expenses, such as repairs and maintenance,
insurance and real estate taxes, as a result of the tenant of the Property in
West Lebanon, New Hampshire defaulting under the terms of its lease and due to
the tenant of the Property in Huron, Ohio terminating its lease. In January
2002, the Partnership sold these Properties. The Partnership will not incur
expenses relating to these Properties in the future.
The decrease in operating expenses during the year ended December 31
2002, as compared to the same period of 2001, was also partially due to a
decrease in the costs incurred for administrative expenses for servicing the
Partnership and its Properties and due to lower depreciation expense during 2002
as a result of the sale of four Properties, as described above.
As a result of the sales of three Properties during 2002, as described
above, the Partnership recognized gains of $571,759. During the year ended
December 31, 2001, the Partnership recognized approximately $136,000 in gains
from Properties sold in 1995 and 1996, which were accounted for using the
installment sales method. In addition, the Partnership sold the Property in
Daleville, Indiana and recognized approximately $35,000 in gains during 2001.
The General Partners continuously evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the Limited
Partners.
The Partnership's leases as of December 31, 2003, are, in general,
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Inflation, overall, has had a minimal effect on
the results of operations of the Partnership. Continued inflation may cause
capital appreciation of the Partnership's Properties. Inflation and changing
prices, however, also may have an adverse impact on the sales of the restaurants
and on potential capital appreciation of the Properties.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting guidance
that addresses when a company should include the assets, liabilities and
activities of another entity in its financial statements. To improve financial
reporting by companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that company is
subject to a majority risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. Prior to FIN 46, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. In December 2003, the FASB issued FASB Interpretation No. 46R
("FIN 46R"), to clarify some of the provisions of FIN 46. Under FIN 46R, special
effective date provisions apply to entities that have fully or partially applied
FIN 46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public entities, other than small
business issuers, for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. The Partnership
did not fully or partially apply FIN 46 prior to the issuance of FIN 46R. Also,
the Partnership does not have interests in structures commonly referred to as
special-purpose entities. Therefore, application of FIN 46R is required in the
Partnership's financial statements for periods ending after March 15, 2004. The
General Partners believe adoption of this standard may result in either
consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint ventures, 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 V, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 17
Financial Statements:
Balance Sheets 18
Statements of Income 19
Statements of Partners' Capital 20
Statements of Cash Flows 21-22
Notes to Financial Statements 23-35
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund V, 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 V, Ltd. (a Florida limited
partnership) at December 31, 2003 and 2002, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
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 Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
March 24, 2004
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2003 2002
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 5,660,976 $ 5,825,135
Net investment in direct financing leases 1,161,173 1,196,659
Real estate held for sale 387,625 568,699
Investment in joint ventures 1,935,639 1,933,290
Cash and cash equivalents 378,396 456,266
Receivables, less allowance for doubtful accounts of
$60,252 and $8,040, respectively 1,774 25,233
Due from related parties 745 --
Accrued rental income 374,571 358,503
Other assets 6,344 5,262
------------------- -------------------
$ 9,907,243 $ 10,369,047
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 4,357 $ 10,324
Real estate taxes payable 10,583 6,935
Distributions payable 281,571 351,233
Due to related parties 209,019 207,291
Rents paid in advance and deposits 29,072 16,126
------------------- -------------------
Total liabilities 534,602 591,909
Partners' capital 9,372,641 9,777,138
------------------- -------------------
$ 9,907,243 $ 10,369,047
=================== ===================
See accompanying notes to financial statements.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2003 2002 2001
---------------- ----------------- ----------------
Revenues:
Rental income from operating leases $ 811,306 $ 828,887 $ 914,319
Earned income from direct financing leases 129,020 132,474 138,892
Contingent rental income 69,523 53,922 94,469
Lease termination income -- -- 52,676
Interest and other income 3,691 8,870 48,249
---------------- ----------------- ----------------
1,013,540 1,024,153 1,248,605
---------------- ----------------- ----------------
Expenses:
General operating and administrative 168,921 190,408 201,218
Property related 5,681 35,323 66,406
State and other taxes 4,562 9,806 545
Depreciation 164,160 164,174 203,580
Provision for write-down of assets 72,734 -- 156,643
---------------- ----------------- ----------------
416,058 399,711 628,392
---------------- ----------------- ----------------
Income before gain on sale of assets and equity in earnings of
unconsolidated joint ventures 597,482 624,442 620,213
Gain on sale of assets -- 571,759 171,130
Equity in earnings of unconsolidated joint ventures 195,986 198,037 157,935
---------------- ----------------- ----------------
Income from continuing operations 793,468 1,394,238 949,278
---------------- ----------------- ----------------
Discontinued operations
Income (loss) from discontinued operations (2,020) 34,717 (3,305 )
Gain on disposal of discontinued operations -- 193,496 --
---------------- ----------------- ----------------
(2,020) 228,213 (3,305 )
---------------- ----------------- ----------------
Net income $ 791,448 $ 1,622,451 $ 945,973
================ ================= ================
Income (loss) per limited partner unit:
Continuing operations $ 15.87 $ 27.88 $ 18.99
Discontinued operations (0.04) 4.57 (0.07 )
---------------- ----------------- ----------------
$ 15.83 $ 32.45 $ 18.92
================ ================= ================
Weighted average number of limited partner units outstanding 50,000 50,000 50,000
================ ================= ================
See accompanying notes to financial statements.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2003, 2002, and 2001
General Partners Limited Partners
------------------------------------ -----------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
----------------- ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2000 $ 343,200 $ 170,826 $ 25,000,000 $ (27,981,567) $ 19,589,859
Distributions to limited
partners ($69.42 per
limited partner unit) -- -- (413,848 ) (3,057,184) --
Net income -- -- -- -- 945,973
----------------- ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2001 343,200 170,826 24,586,152 (31,038,751) 20,535,832
Distributions to limited
partners ($71.55 per
limited partner unit) -- -- (1,170,678 ) (2,406,894) --
Net income -- -- -- -- 1,622,451
---------------- ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2002 343,200 170,826 23,415,474 (33,445,645) 22,158,283
Distributions to limited
partners ($23.92 per
limited partner unit) -- -- -- (1,195,945) --
Net income -- -- -- -- 791,448
----------------- ---------------- ----------------- ----------------- ----------------
Balance, December 31, 2003 $ 343,200 $ 170,826 $ 23,415,474 $ (34,641,590) $ 22,949,731
================= ================ ================= ================ =================
See accompanying notes to financial statements.
- -------------
Syndication
Costs Total
- -------------- --------------
$ (2,865,000) $14,257,318
-- (3,471,032)
-- 945,973
- -------------- --------------
(2,865,000) 11,732,259
-- (3,577,572)
-- 1,622,451
- -------------- ----------------
(2,865,000) 9,777,138
-- (1,195,945)
-- 791,448
- -------------- --------------
$ (2,865,000) $9,372,641
============== ==============
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2003 2002 2001
----------------- -------------------- ------------------
Cash Flows from Operating Activities:
Net income $ 791,448 $ 1,622,451 $ 945,973
----------------- -------------------- ------------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 171,312 181,293 229,845
Amortization of net investment in
direct financing leases 35,486 32,031 27,765
Equity in earnings (loss) of
unconsolidated joint ventures,
net of distributions (2,349 ) (2,454 ) 9,024
Gain on sale of assets -- (765,255 ) (171,130 )
Provisions for write-down of 77,861 -- 291,369
assets
Decrease in accrued interest on
mortgage note receivable -- -- 16,866
Decrease in receivables 22,714 22,961 102,431
Increase in other assets (1,082 ) (1,097 ) (1,355 )
Increase in accrued rental income (17,058 ) (54,367 ) (65,305 )
Decrease in accounts payable and
accrued expenses and escrowed
real estate taxes payable (2,319 ) (3,110 ) (20,825 )
Increase in due to related parties 1,728 5,276 1,700
Increase (decrease) in rents paid
in advance and deposits 12,946 11,543 (526 )
----------------- -------------------- ------------------
Total adjustments 299,239 (573,179 ) 419,859
----------------- -------------------- ------------------
Net cash provided by operating activities 1,090,687 1,049,272 1,365,832
Cash Flows from Investing Activities:
Proceeds from sale of real estate properties 97,050 2,749,808 300,386
Collections on mortgage notes receivable -- -- 987,881
----------------- -------------------- ------------------
Net cash provided by investing activities 97,050 2,749,808 1,288,267
----------------- -------------------- ------------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,265,607 ) (3,656,597 ) (3,478,274 )
----------------- -------------------- ------------------
Net cash used in financing activities (1,265,607 ) (3,656,597 ) (3,478,274 )
----------------- -------------------- ------------------
Net increase (decrease) in cash and cash (77,870 ) 142,483 (824,175 )
equivalents
Cash and cash equivalents at beginning of year 456,266 313,783 1,137,958
----------------- -------------------- ------------------
Cash and cash equivalents at end of year $ 378,396 $ 456,266 $ 313,783
================= ==================== ==================
See accompany notes to financial statements.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2003 2002 2001
--------------- --------------- --------------
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Deferred real estate disposition fees incurred
and unpaid at end of year $ 4,500 $ 83,430 $ 9,750
=============== =============== ==============
Distributions declared and unpaid at
December 31 $ 281,571 $ 351,233 $ 430,258
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies
Organization and Nature of Business - CNL Income Fund V, 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
acquisitions of real estate properties at cost, including acquisition
and closing costs. Real estate properties are leased to unrelated 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 2003, 2002 and 2001 tenants paid, or
are expected to pay, directly to real estate taxing authorities
approximately $147,800, $165,200 and $166,800, respectively, in
estimated real estate taxes in accordance with the terms of their
leases.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The Partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
operating or the direct financing methods.
Operating method - 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.
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 net investment in
the leases. For the leases classified as direct financing
leases, the building portions of the property leases are
accounted for as direct financing leases while the land
portion of some of the leases are operating leases.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date.
Substantially all 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 as the initial lease. Most leases also
allow the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
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 are
considered to be doubtful, a provision is made to increase the
allowance for doubtful accounts. If amounts are subsequently determined
to be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its
interest in Cocoa Joint Venture, RTO Joint Venture, and a property in
each of Mesa, Arizona and Vancouver, Washington, held as
tenants-in-common with affiliates of the general partners, using the
equity method, since each joint venture agreement requires the consent
of all partners on all key decisions affecting the operations of the
underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks. Cash 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 may exceed federally insured levels;
however, the Partnership has not experienced any losses in such
accounts.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and properties.
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.
Rents Paid in Advance - Rents paid in advance by lessees for future
periods are deferred upon receipt and are recognized as revenues during
the period in which the rental income is earned.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of estimates relate to the allowance for doubtful accounts and
future cash flows associated with long-lived assets. Actual results
could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2003 presentation.
These reclassifications had no effect on partners capital, net income
or cash flows.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
Statement of Financial Accounting Standards No. 144 - Effective January
1, 2002, the Partnership adopted Statement of Financial Accounting
Standards No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets." This statement requires that a long-lived asset be
tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying
amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and
eventual disposition of the asset. The assessment is based on the
carrying amount of the asset at the date it is tested for
recoverability. An impairment loss is recognized when the carrying
amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is
its new cost basis. The statement also requires that the results of
operations of a component of an entity that either has been disposed of
or is classified as held for sale be reported as a discontinued
operation if the disposal activity was initiated subsequent to the
adoption of the Standard.
FASB Interpretation No. 46 - In January 2003, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and
strengthen existing accounting guidance that addresses when a company
should include the assets, liabilities and activities of another entity
in its financial statements. To improve financial reporting by
companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. In December 2003,
the FASB issued FASB Interpretation No. 46R ("FIN 46R"), to clarify
some of the provisions of FIN 46. Under FIN 46R, special effective date
provisions apply to entities that have fully or partially applied FIN
46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests
in structures that are commonly referred to as special-purpose entities
for periods ending after December 15, 2003. Application by public
entities, other than small business issuers, for all other types of
variable interest entities is required in financial statements for
periods ending after March 15, 2004. The Partnership did not fully or
partially apply FIN 46 prior to the issuance of FIN 46R. Also, the
Partnership does not have interests in structures commonly referred to
as special-purpose entities. Therefore, application of FIN 46R is
required in the Partnership's financial statements for periods ending
after March 15, 2004. The general partners believe adoption of this
standard may result in either consolidation or additional disclosure
requirements of the Partnership's unconsolidated joint ventures, 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 V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
2. Real Estate Properties with Operating Leases
Real estate properties with operating leases consisted of the following
at December 31:
2003 2002
-------------------- --------------------
Land $ 2,937,139 $ 2,937,138
Buildings 4,621,626 4,621,626
-------------------- --------------------
7,558,765 7,558,764
Less accumulated depreciation (1,897,789 ) (1,733,629 )
-------------------- --------------------
$ 5,660,976 $ 5,825,135
==================== ====================
During 2002, the Partnership sold its properties in Huron, Ohio; West
Lebanon, New Hampshire; and Bountiful, Utah and received net sales
proceeds aggregating approximately $1,902,800. The Partnership recorded
gains aggregating approximately $571,700 relating to the sale of the
properties in West Lebanon, New Hampshire and Bountiful, Utah. Due to
the fact that the Partnership had recorded provisions for write-down of
assets in previous years, no gain or loss was recorded in 2002 relating
to the property in Huron, Ohio. As of December 31, 2001, these
properties had been identified for sale. In connection with these
sales, the Partnership incurred deferred, subordinated, real estate
disposition fees of $57,930.
During 2003, the Partnership identified and sold excess land in
Connorsville, Indiana which was not needed for the operation of its
restaurant. Due to the fact that the Partnership had recorded a
provision for write-down of assets of approximately $72,700, no gain or
loss was recorded. In connection with this sale, the Partnership
incurred a deferred, subordinated, real estate disposition fee of
$4,500.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2003:
2004 $ 814,239
2005 684,144
2006 684,144
2007 688,597
2008 719,473
Thereafter 3,594,109
-----------------
$ 7,184,706 (1)
=================
(1) Excludes one property which was classified as real estate held for
sale.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
3. Net Investment in Direct Financing Leases
The following lists the components of the net investment in direct
financing leases at December 31:
2003 2002
----------------- ----------------
Minimum lease payments
receivable $ 1,855,578 $ 2,020,082
Estimated residual values 425,049 425,049
Less unearned income (1,119,454 ) (1,248,472 )
----------------- ----------------
Net investment in direct
financing leases $ 1,161,173 $ 1,196,659
================= ================
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2003:
2004 $ 164,506
2005 164,506
2006 164,506
2007 164,506
2008 163,907
Thereafter 1,033,645
----------------
$ 1,855,576
================
4. Investment in Joint Ventures
As of December 31, 2003, the Partnership had a 43% and a 53.12%,
interest in the profits and losses of Cocoa Joint Venture and RTO Joint
Venture, respectively. The remaining interests in these joint ventures
are held by affiliates of the Partnership which have the same general
partners.
In addition, the Partnership owns a property in each of Mesa, Arizona
and Vancouver, Washington, as tenants-in-common with affiliates of the
general partners. As of December 31, 2003, the Partnership owned a
42.09% and a 27.78% interest in the properties, respectively.
Cocoa Joint Venture, RTO Joint Venture, and the Partnership and
affiliates as tenants-in-common in two separate tenancy in common
arrangements each own one property.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
The following presents the combined condensed financial information for
all of the Partnership's investments in joint ventures at December 31:
2003 2002
----------------- -----------------
Real estate properties with operating leases, net $ 3,337,399 $ 3,390,140
Net investment in direct financing lease 1,313,166 1,334,196
Cash 51,514 9,887
Receivables 1,232 1,994
Accrued rental income 278,345 245,226
Other assets -- 97
Liabilities 31,379 32,300
Partners' capital 4,950,277 4,949,240
Years Ended December 31,
2003 2002 2001
-------------- --------------- ---------------
Revenues $ 550,695 $ 559,263 $ 485,699
Expenses (62,637 ) (64,620 ) (86,509 )
-------------- --------------- ---------------
Net Income $ 488,058 $ 494,643 $ 399,190
============== =============== ===============
The Partnership recognized income totaling $195,986, $198,037 and
$157,935, for the years ended December 31, 2003, 2002, and 2001,
respectively, from these joint ventures and tenancies in common.
5. Discontinued Operations
In June 2002, the Partnership sold its property in Lawrenceville,
Georgia to the tenant and received net sales proceeds of $847,000,
resulting in a gain on disposal of discontinued operations of
approximately $193,500. During 2001, the Partnership recorded a
provision for write-down of assets of $134,726. The provision
represented the difference between the carrying value of the property
and its estimated fair value. In connection with the sale, the
Partnership incurred a deferred, subordinated, real estate disposition
fee of $25,500.
As of December 31, 2003, the Partnership was marketing its property in
Livingston, Texas for sale. During 2003, the Partnership recorded a
provision for write-down of assets of approximately $5,100. The
provision represented the difference between the carrying value of the
property and its estimated fair value.
The financial results for these properties are reflected as
discontinued operations in the accompanying financial statements.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
5. Discontinued Operations - Continued
The operating results of discontinued operations are as follows:
2003 2002 2001
-------------- --------------- --------------
Rental revenues $ 24,378 $ 67,021 $ 141,884
Interest and other income 1,524 3,811 16,961
Expenses (22,795 ) (36,115 ) (27,424 )
Provision for write-down of assets (5,127 ) -- (134,726 )
-------------- --------------- --------------
Income (loss) from discontinued
operations $ (2,020 ) $ 34,717 $ (3,305 )
============== =============== ==============
6. Allocations and Distributions
From inception through December 31, 1999, all net income and net losses
of the Partnership, excluding gains and losses from the sale of
properties, were allocated 99% to the limited partners and one percent
to the general partners. From inception through December 31, 1999,
distributions of net cash flow were made 99% to the limited partners
and one percent to the general partners. However, the one percent of
net cash flow to be distributed to the general partners was
subordinated to receipt by the limited partners of an aggregate, ten
percent, cumulative, noncompounded annual return on their adjusted
capital contributions (the "10% Preferred Return").
From inception through December 31, 1999, 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% to the limited partners and five percent
to the general partners. Any gain from the sale of a property not in
liquidation of the Partnership was, in general, allocated in the same
manner as net sales proceeds are distributable. Any loss from the sale
of a property was, in general, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts, and
thereafter, 95% to the limited partners and five percent to the general
partners.
Generally, net sales proceeds from a liquidating sale of properties
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after allocations of net income, gains
and/or losses, to distribute to the partners with positive capital
accounts balances, in proportion to such balances, up to an amount
sufficient to reduce such positive balances to zero, and (v)
thereafter, any funds remaining shall then be distributed 95% to the
limited partners and five percent to the general partners.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
6. Allocations and Distributions - Continued
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, 2003, 2002 and 2001.
During the years ended December 31, 2003, 2002, and 2001, the
Partnership declared distributions to the limited partners of
$1,195,945, $3,577,572, and $3,471,032, respectively. Distributions
during 2002 included a special distribution of $2,150,000 as a result
of the distribution of sales proceeds from the sales of the Properties
in Huron, Ohio; West Lebanon, New Hampshire; Bountiful, Utah and
Lawrenceville, Georgia. Distributions for the year ended December 31,
2001 included $1,750,000 in a special distribution as a result of the
distribution of the net sales proceeds from the sale of the property in
Daleville, Indiana and the distribution of the amounts collected from
the promissory notes relating to the 1995 sale of the property in
Myrtle Beach, South Carolina and the 1996 sale of the property in St.
Cloud, Florida. The special distributions in 2002 and 2001 were
effectively a return of a portion of the Limited Partners' investment;
although, in accordance with the Partnership agreement, $979,322 and
$1,336,152, respectively, were applied towards the 10% Preferred
Return, on a cumulative basis, and the balance of $1,170,678 and
$413,848, respectively, was treated as a return of capital for purposes
of calculating the 10% Preferred Return.
As a result of the return of capital, the amount of Limited Partners'
invested capital contributions (which is generally the Limited
Partners' capital contributions, less distributions from the sale of
Properties that are considered to be a return of capital) was
decreased; therefore the amount of the Limited Partners' invested
capital contributions on which the 10% Preferred Return is calculated
was lowered accordingly. No distributions have been made to the general
partners to date.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
7. Income Taxes
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2003 2002 2001
-------------- -------------- ---------------
Net income for financial reporting purposes $ 791,448 $ 1,622,451 $ 945,973
Effect of timing differences relating to
depreciation (13,391 ) (10,568 ) (12,688 )
Effect of timing differences relating to gains on
real estate property sales (72,734 ) (423,194 ) (158,699 )
Provision for write-down of assets 77,861 -- 291,369
Direct financing leases recorded as operating
leases for tax reporting purposes 35,486 32,032 30,452
Effect of timing differences relating to equity
in earnings of unconsolidated joint ventures (17,078 ) (33,195 ) (32,904 )
Effect of timing difference relating to allowance
for doubtful accounts 52,212 (27,277 ) (99,481 )
Accrued rental income (17,057) (54,367 ) (65,304 )
Rents paid in advance 16,693 6,952 (526 )
Effect of timing differences relating to real
estate taxes (7,012 ) -- --
Other (190) -- (2,686 )
-------------- -------------- ------------------
Net income for federal income tax purposes $ 846,236 $ 1,112,834 $ 895,506
============== ============== ==================
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
8. Related Party Transactions
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, a wholly owned subsidiary of CNL Restaurant
Properties, Inc. (formerly known as CNL American Properties Fund, Inc.)
served as the Partnership's advisor until January 1, 2002, when it
assigned its rights and obligations under a management agreement to RAI
Restaurants, Inc. (the "Advisor"). The Advisor is a wholly owned
subsidiary of CNL Restaurant Properties, Inc. ("CNL-RP"). The
individual general partners are stockholders and directors of CNL-RP.
The Advisor provides services pursuant to a management agreement with
the Partnership. In connection therewith, the Partnership 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 in the same geographic area. These fees are
incurred and payable only after the limited partners receive their 10%
Preferred Return. Due to the fact that these fees are noncumulative, if
the limited partners do not receive their 10% Preferred Return in any
particular year, no management fees will be due or payable for such
year. As a result of such threshold, no management fees were incurred
during the years ended December 2003, 2002 and 2001.
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. During
the years ended December 31, 2003, 2002, and 2001, the Partnership
incurred deferred, subordinated real estate disposition fees of $4,500,
$83,430 and $9,750, respectively, as the result of the sales of
properties during 2003, 2002 and 2001.
During the years ended December 31, 2003, 2002, and 2001, the Advisor
and its affiliates provided accounting and administrative services to
the Partnership. The Partnership incurred $93,273, $127,235 and
$140,658 for the years ended December 31, 2003, 2002, and 2001,
respectively, for such services.
The due to related parties consisted of the following at December 31:
2003 2002
----------------- ------------------
Due to the Advisor and its affiliates:
Accounting and administrative services $ 7,389 $ 10,161
Deferred, subordinated real estate
disposition fee 201,630 197,130
----------------- ------------------
$ 209,019 $ 207,291
================= ==================
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
8. Related Party Transactions - Continued
The deferred, subordinated real estate disposition fees will not be
paid until after the limited partners have received their cumulative
10% Preferred Return, plus their adjusted capital contributions.
9. Concentration of Credit Risk
The following schedule presents total rental revenues from individual
lessees, or affiliated groups of lessees, each representing more than
10% of the Partnership's total rental revenues and mortgage interest
income (including the Partnership share of total rental revenues from
unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates of the general partners) for each of
the years ended December 31:
2003 2002 2001
--------------- --------------- ---------------
Slaymaker Group, Inc. $ 177,992 $ 179,796 $181,387
IHOP Properties, Inc. 139,454 139,482 N/A
Golden Corral Corporation 132,151 132,151 163,831
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than 10% of the
Partnership's total rental revenues and mortgage interest income
(including the Partnership's share of total rental revenues from joint
ventures and the properties held as tenants-in-common with affiliates
of the general partners) for each of the years ended December 31:
2003 2002 2001
--------------- ---------------- ---------------
Tony Romas $ 177,992 $ 179,796 $ 181,387
Golden Corral Buffet and Grill 156,529 189,172 192,721
IHOP 139,454 139,482 N/A
Arby's 126,925 124,914 N/A
Taco Bell N/A N/A 186,453
The information denoted by N/A indicates that for each period
presented, the tenant or restaurant chain did not represent more that
10% of the Partnership's total rental revenues and mortgage interest
income.
Although the Partnership's properties have some geographic diversity in
the United States and the Partnership's lessees operate a variety of
restaurant concepts, default by any lessee or restaurant chain
contributing more than 10% of the Partnership's revenues will
significantly impact the results of operations of the Partnership if
the Partnership is not able to re-lease the properties in a timely
manner.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
10. Selected Quarterly Financial Data
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2003 and
2002:
2003 Quarter First Second Third Fourth Year
------------------------------- ------------- -------------- ------------- ------------- --------------
Continuing Operations (1):
Revenues $ 262,124 $ 249,287 $ 241,146 $ 260,983 $1,013,540
Equity in earnings of
unconsolidated joint
ventures 49,333 49,664 49,162 47,827 195,986
Income from
continuing
operations 211,068 217,334 130,180 234,886 793,468
Discontinued Operations (1):
Revenues 23,044 -- 693 2,165 25,902
Income (loss) from
discontinued
operations 19,052 (17,731 ) (4,656 ) 1,315 (2,020 )
Net Income 230,120 199,603 125,524 236,201 791,448
Income (Loss) per limited partner unit:
Continuing operations $ 4.22 $ 4.35 $ 2.60 $ 4.70 $ 15.87
Discontinued operations 0.38 (0.36 ) (0.09 ) 0.03 (0.04 )
------------- -------------- ------------- ------------- --------------
$ 4.60 $ 3.99 $ 2.51 $ 4.73 $ 15.83
============= ============== ============= ============= ==============
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
10. Selected Quarterly Financial Data - Continued:
2002 Quarter First Second Third Fourth Year
-------------------------------- ------------- -------------- ------------ ------------- --------------
Continuing Operations (1):
Revenues $ 258,682 $ 257,786 $ 254,794 $ 252,891 $1,024,153
Equity in earnings of
unconsolidated joint
ventures 50,700 46,534 50,763 50,040 198,037
Income from
continuing
operations 769,409 193,369 219,122 212,338 1,394,238
Discontinued Operations (1):
Revenues 14,965 15,591 32,349 7,927 70,832
Income from and gain on
disposal of
discontinued
operations 6,275 201,808 19,563 567 228,213
Net Income 775,684 395,177 238,685 212,905 1,622,451
Income per limited partner unit:
Continuing operations $ 15.39 $ 3.86 $ 4.38 $ 4.25 $ 27.88
Discontinued operations 0.12 4.04 0.39 0.02 4.57
------------- -------------- ------------ ------------- --------------
$ 15.51 $ 7.90 $ 4.77 $ 4.27 $ 32.45
============= ============== ============ ============= ==============
(1) Certain items in the quarterly financial data have been
reclassified to conform to 2003 presentation. This
reclassification had no effect on net income. The results of
operations relating to properties that were identified for sale as
of December 31, 2001 but sold subsequently are reported as
continuing operations. The results of operations relating to
properties that were either identified for sale and disposed of
subsequent to January 1, 2002 or were classified as held for sale
as of December 31, 2003 are reported as discontinued operations
for all periods presented.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL-RP, CCM, CNL Financial Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 57. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL-RP, a public, unlisted real
estate investment trust since 1994. Mr. Seneff served as Chief Executive Officer
of CNL-RP from 1994 through August 1999 and as Co-Chief Executive Officer from
December 2000 through September 2003. Mr. Seneff served as Chairman of the Board
and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, from its inception in 1990 until it merged with a
wholly-owned subsidiary of CNL-RP in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. CNL Fund Advisors,
Inc., formerly CNL Institutional Advisors, Inc., is a registered investment
advisor. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the parent
company of CNL Financial Group, Inc., a diversified real estate company, and has
served as a Director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since 1973. CNL Financial Group, Inc. is and is the parent
company, either directly or indirectly through subsidiaries, of CNL Real Estate
Services, Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL
Securities Corp., all of which are engaged in the business of real estate
finance. Mr. Seneff also serves as a Director and Chairman of the Board of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
and served as Chief Executive Officer of CNL Hospitality Properties, Inc. from
its inception in 1997 until 2003 and served as Co-Chief Executive Officer from
February 2003 until May 1, 2003. Mr. Seneff has served as Chairman of the Board
of CNL Hospitality Corp., the advisor to CNL Hospitality Properties, Inc., since
its inception in 1997. Mr. Seneff also served as Chief Executive Officer from
its inception in 1997 through February 2003, and currently serves as Co-Chief
Executive Officer of CNL Hospitality Corp. Mr. Seneff has served as Director and
Chairman of the Board of CNL Retirement Corp. since 1997 and served as Chief
Executive Officer of CNL Retirement Corp. from 1997 through 2003. CNL Retirement
Corp. is the advisor to CNL Retirement Properties, Inc., a public, unlisted real
estate investment trust. Mr. Seneff has also served as Director and Chairman of
the Board of Commercial Net Lease Realty, Inc., a public real estate investment
trust that is listed on the New York Stock Exchange, since 1992 and served as
Chief Executive Officer of Commercial Net Lease Realty, Inc. from 1992 through
February 2004. Mr. Seneff has served as a Director, Chairman of the Board, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff has
served as Chairman of the Board and Chief Executive Officer of CNL Commercial
Finance, Inc. since 2000. Mr. Seneff also serves as Chairman of the Board of
CNLBank, an independent, state-chartered commercial bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of the
Florida state retirement plan. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 56. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne has
served as a Director and Vice Chairman of the Board of CNL-RP since 1994. Mr.
Bourne also served as President of CNL-RP from 1994 through February 1999 and
served as Treasurer from February 1999 through August 1999 and from May 1994
through December 1994. Mr. Bourne served in various executive positions with CNL
Fund Advisors, Inc. prior to its merger with a wholly-owned subsidiary of CNL-RP
including, President from 1994 through September 1997, and Director from 1994
through August 1999. Mr. Bourne serves as President and Treasurer of CNL
Financial Group, Inc. Mr. Bourne serves as Director, Vice Chairman of the Board
and Treasurer and from 1997 until June 2002 served as President of CNL
Hospitality Properties, Inc. and as Director, President and Treasurer of CNL
Hospitality Corp. Mr. Bourne also serves as Director and Treasurer of CNL
Retirement Properties, Inc. and as Director and Treasurer of CNL Retirement
Corp. Mr. Bourne serves as a Director of CNLBank. Mr. Bourne has also served as
a Director since 1992, Vice Chairman of the Board since February 1996, Secretary
and Treasurer from February 1996 through 1997, and President from July 1992
through February 1996, of Commercial Net Lease Realty, Inc. Mr. Bourne serves as
Director, President and Treasurer for various affiliates of CNL Financial Group,
Inc. including, CNL Investment Company, CNL Securities Corp. and CNL
Institutional Advisors, Inc. Mr. Bourne began his career as a certified public
accountant employed by Coopers & Lybrand, Certified Public Accountants, from
1971 through 1978, where he attained the position of Tax Manager in 1975. Mr.
Bourne graduated from Florida State University in 1970 where he received a B.A.
in Accounting, with honors.
Curtis B. McWilliams, age 48. Mr. McWilliams has served as President of
CNL-RP since May 2001 and as Chief Executive Officer of CNL-RP since September
2003. Mr. McWilliams served as Co-Chief Executive Officer of CNL-RP from
December 2000 through September 2003 and served as Chief Executive Officer from
September 1999 through December 2000. Mr. McWilliams also served as President
and Chief Executive Officer of CNL Franchise Network Corp., a wholly owned
subsidiary of CNL-RP since August 2002 and served as President of CNL-RP from
February 1999 until September 1999 and as Executive Vice President of CNL-RP
from 1997 through February 1999. Mr. McWilliams served as an Executive Vice
President of CNL Financial Group, Inc. from the time he joined the company in
April 1997 until September 1999. Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and CNL Financial Services, Inc., a corporation engaged in the
business of real estate financing, from April 1997 until the acquisition of such
entities by wholly owned subsidiaries of CNL-RP in September 1999. From
September 1983 through March 1997, Mr. McWilliams was employed by Merrill Lynch
& Co. The majority of his career at Merrill Lynch & Co. was in the Investment
Banking division where he served as a Managing Director. Mr. McWilliams received
a B.S.E. in Chemical Engineering from Princeton University in 1977 and a Master
of Business Administration degree with a concentration in finance from the
University of Chicago in 1983.
Steven D. Shackelford, age 40. Mr. Shackelford was promoted to
Executive Vice President and Chief Operating Officer of CNL-RP in September
2003. Mr. Shackelford has also served as Chief Financial Officer since January
1997. He served as Senior Vice President of CNL-RP from January 1997 through
July 2000, when he was promoted to Executive Vice President. Mr. Shackelford has
also served as Secretary and Treasurer of CNL-RP since September 1999. He also
served as Chief Financial Officer of CNL Fund Advisors, Inc. from September 1996
to September 1999. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse LLP where he was responsible
for advising foreign clients seeking to raise capital and a public listing in
the United States. From August 1992 to March 1995, he was a manager in the
Paris, France office of Price Waterhouse, serving several multi-national
clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor
of Arts degree in Accounting, with honors, and a Master of Business
Administration degree from Florida State University and is a certified public
accountant.
Thomas Arasi, age 46. Mr. Arasi has served as President of CCM since it
was formed in July 2003 to provide strategic advisory services to the General
Partners. He has served in various consulting capacities to CNL Hospitality Corp
and other CNL affiliates since January 2003. Since November 2001 he has been an
independent consultant working for a variety of operating and investment
companies in the hospitality industry. Until October 2001, Mr. Arasi was
President & Chief Executive Officer, and a member of the Board of Directors of
Lodgian, Inc., a New York Stock Exchange traded company, one of the largest
independent hotel owner/operators in North America, with hotel properties under
most brand names including Marriott, Courtyard by Marriott, Fairfield Inn by
Marriott, Crowne Plaza, Holiday Inn, Hilton, and Radisson. From June 1997
through November 2000, Mr. Arasi was a member of the Management Committee and
held several top operating positions with Bass Hotels & Resorts, one of the
leading international owners, operators and franchisors of hotels, most recently
serving as President, Bass Hotels & Resort--The Americas. Mr. Arasi was formerly
President of Tishman Hotel Corporation, Vice President of Salomon Brothers,
Inc., in New York, Tokyo and Los Angeles and held positions with Sheraton,
Westin and HVS International. Mr. Arasi graduated from Cornell University in
January 1981, where he received a Bachelor's degree in Hotel and Restaurant
Administration.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2003.
Code of Business Conduct
The Partnership does not have employees and, accordingly, has not
adopted a code of business conduct applicable exclusively to the Partnership.
However, employees of the General Partners or their affiliates, including the
individual General Partners, are bound by the Code of Business Conduct adopted
November 11, 2003 by CNL Holdings, Inc. Separately, the employees of the Advisor
are bound by the similar Code of Business Conduct adopted by CNL Restaurant
Properties, Inc. Each of these codes of business conduct will be made available
to any person who writes the Partnership requesting a copy.
Audit Committee Financial Expert
Due to its organization as a limited partnership, the Partnership does
not have an audit committee that is responsible for supervising the
Partnership's relationship with its independent auditors. For the Partnership,
this role is performed by the General Partners. Based on his previous service as
the principal financial officer of companies with businesses similar to that of
the Partnership, Robert A. Bourne, one of the General Partners, has the
requisite experience to be considered an "audit committee financial expert" as
defined in the rules under the Securities Exchange Act of 1934, if the
Partnership had an audit committee. As a General Partner, Mr. Bourne is not
independent of the Partnership.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
As of March 12, 2004, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 12, 2004, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2003, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates Operating expenses are reimbursed at Accounting and
for operating expenses the lower of cost or 90% of the administrative services:
prevailing rate at which comparable $93,273
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-
management 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 noncumulative, if the
Limited Partners do not receive their 10%
Preferred Return in any particular year,
no management fees will be due or payable
for such year.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $4,500
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.
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. Principal Accountant Fees and Services
The following table outlines the only fees paid or accrued by the
Partnership for the audit and other services provided by the Partnership's
independent certified public accountants, PricewaterhouseCoopers LLP, for the
years ended December 31:
2003 2002
--------------------- ---------------------
Audit Fees (1) $ 8,775 $ 6,900
Tax Fees (2) 5,736 6,374
--------------------- ---------------------
Total $ 14,511 $ 13,274
===================== =====================
(1) Audit services of PricewaterhouseCoopers LLP for 2003 and 2002
consisted of the examination of the financial statements of the
Partnership and quarterly review of financial statements.
(2) Tax Fees relates to tax consulting and compliance services.
Each of the non-audit services described above was approved by the
General Partners. Due to its organization as a limited partnership, the
Partnership does not have an audit committee.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2003 and 2002
Statements of Income for the years ended December 31, 2003, 2002, and
2001
Statements of Partners' Capital for the years ended December 31,
2003, 2002, and 2001
Statements of Cash Flows for the years ended December 31, 2003, 2002,
and 2001
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 2003, 2002, and 2001
Schedule III - Real Estate and Accumulated Depreciation at December
31, 2003
Notes to Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2003
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or notes
thereto.
3. Exhibits
3.1 Amended and Restated Affidavit and Certificate of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
3.1 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
4.1 Amended and Restated Affidavit and Certificate of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
3.1 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
4.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit
4.2 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
10.1 Management Agreement between CNL Income Fund V, Ltd. and CNL
Investment Company. (Included as Exhibit 10.1 to From 10-K
filed with the Securities and Exchange Commission on March 31,
1994, and incorporated herein by reference.)
10.2 Assignment of 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 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 13, 2002, and incorporated herein by reference.)
31.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
32.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from October
1, 2003 through December 31, 2003.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 25th day of
March, 2004.
CNL INCOME FUND V, 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 25, 2004
- ------------------------------------ (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 25, 2004
- ------------------------------------ (Principal Executive Officer)
James M. Seneff, Jr.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2003, 2002, and 2001
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
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
2001 Allowance for
doubtful
accounts (a) $ 134,799 $ -- $ 35,317 (b) $ 134,799 (c) $ -- $ 35,317
============== =============== ================ ============= ============ ============
2002 Allowance for
doubtful
accounts (a) $ 35,317 $ -- $ 41,780 (b) $ 69,057 (c) $ -- $ 8,040
============== =============== ================ ============= ============ ============
2003 Allowance for
doubtful
accounts (a) $ 8,040 $ -- $ 69,964 (b) $ -- $ 17,752 $ 60,252
============== =============== ================ ============= ============ ============
(a) deducted from receivables on the balance sheet.
(b) reduction of rental and other income.
(c) amounts written off as uncollectible.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
Costs Capitalized
Subsequent To Net Cost Basis at Which
Initial Cost Acquisition Carried at Close of Period (c)
-------------------------- -------------------- --------------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
----------- ------------ ------------ ---------- -------- ------------ ----------- -----------
Properties the Partnership
has Invested in Under
Operating Leases:
Arby's Restaurants:
Connorsville, Indiana (i) - $109,881 - $591,137 - $109,881 $591,137 $701,018
South Haven, Michigan - 120,847 599,339 120,363 - 120,847 719,702 840,549
Captain D's Restaurant:
Belleville, Illinois - 186,050 383,781 - - 186,050 383,781 569,831
Denny's Restaurant:
New Castle, Indiana - 117,394 471,340 - - 117,394 471,340 588,734
Golden Corral Buffet and Grill:
Victoria, Texas - 504,787 742,216 - - 504,787 742,216 1,247,003
IHOP:
Houston, Texas - 513,384 671,713 - - 513,384 671,713 1,185,097
Pizza Hut Restaurant:
Mexia, Texas - 237,944 200,501 - - 237,944 200,501 438,445
Taco Bell Restaurants:
Centralia, Washington - 215,302 - 378,836 - 215,302 378,836 594,138
Tony Romas:
Sandy, Utah - 595,330 - - - 595,330 (f) 595,330
Wendy's Old Fashioned
Hamburger Restaurants:
Tampa, Florida - 336,220 462,400 - - 336,220 462,400 798,620
------------ ------------ ---------- -------- ------------ ----------- -----------
$2,937,139 $3,531,290 $1,090,336 - $2,937,139 $4,621,626 $7,558,765
============ ============ ========== ======== ============ =========== ===========
Properties the Partnership
has Invested in Under
Direct Financing Leases:
Captain D's Restaurant
Zanesville, Ohio - $99,651 $390,518 - - (f) (f) (f)
Tony Romas:
Sandy, Utah - - 911,072 - - - (f) (f)
------------ ------------ ---------- --------
$99,651 $1,301,590 - -
============ ============ ========== ========
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
----------- ------- ------- -------------
$259,389 1989 03/89 (b)
272,542 1989 03/89 (h)
189,225 1988 03/89 (b)
187,845 1989 02/89 (g)
347,222 1989 12/89 (b)
136,521 1997 11/97 (b)
98,580 1985 03/89 (b)
177,839 1989 08/89 (b)
(d) 1997 12/97 (d)
228,626 1987 02/89 (b)
-----------
$1,897,789
===========
(e) 1988 03/89 (e)
(d) 1997 12/97 (d)
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2003
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 2003, 2002, and 2001 have been adjusted to
reflect the reclassification of properties accounted for as
discontinued operations.
Accumulated
Cost Depreciation
---------------- -------------------
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 2000 $ 9,448,217 $ 1,813,237
Acquisition 371,418 --
Disposition (295,909 ) (40,370 )
Provision for write-down of assets (156,645 ) --
Depreciation expense -- 203,580
---------------- ----------------
Balance, December 31, 2001 9,367,081 1,976,447
Dispositions (1,638,532 ) (406,993 )
Depreciation expense -- 164,175
---------------- ----------------
Balance, December 31, 2002 7,728,549 1,733,629
Dispositions (i) (169,784 ) --
Depreciation expense -- 164,160
---------------- ----------------
Balance, December 31, 2003 $ 7,558,765 $ 1,897,789
================ ================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2003, the aggregate cost of the Partnership's wholly
owned Properties was $9,232,377 for federal income tax purposes. 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 lease for the land and building has been recorded as a direct
financing lease. The cost of the land and building has been included in
net investment in direct financing leases; therefore, depreciation is
not applicable.
(f) Certain components of the lease relating to the land and building have
been recorded as a direct financing lease. Accordingly, costs related
to these components of this lease are not shown.
(g) Effective January 1994, 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, 1994, and will be depreciated over its remaining
estimated life of approximately 25 years.
CNL INCOME FUND V, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2003
(h) Effective February 1994, the lease for this Property was terminated,
resulting in the lease's reclassification as an operating lease. The
building was recorded at net book value as of February 1994 and will be
depreciated over its remaining estimated life of approximately 25
years.
(i) During the year ended December 31, 2003, the Partnership sold an excess
parcel of land relating to this Property.
EXHIBIT INDEX
Exhibit Number
(a) Exhibits
3.1 Amended and Restated Affidavit and Certificate of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit 3.1
to Form 10-K filed with the Securities and Exchange Commission on
March 31, 1994, and incorporated herein by reference.)
3.2 Amended and Restated Affidavit and Certificate of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit 3.1
to Form 10-K filed with the Securities and Exchange Commission on
March 31, 1994, and incorporated herein by reference.)
4.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund V, Ltd. (Included as Exhibit 4.2
to Form 10-K filed with the Securities and Exchange Commission on
March 31, 1994, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund V, Ltd. and CNL
Investment Company. (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 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 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
13, 2002, and incorporated herein by reference.)
31.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2