UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19144
CNL INCOME FUND VI, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2922954
(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]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 70,000 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 VI, 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 June 8, 1989, the Partnership
offered for sale up to $35,000,000 in limited partnership interests (the
"Units") (70,000 Units at $500 per Unit) pursuant to a registration statement on
Form S-11 under the Securities Act of 1933, as amended, effective December 16,
1988. The offering terminated on January 22, 1990, at which date the maximum
offering proceeds of $35,000,000 had been received from investors who were
admitted to the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of selected national and regional fast-food and family-style
restaurant chains (the "Restaurant Chains"). Net proceeds to the Partnership
from its offering of Units, after deduction of organizational and offering
expenses, totaled $30,975,000, and were used to acquire 42 Properties, including
interests in four Properties owned by joint ventures in which the Partnership is
a co-venturer.
During the year ended December 31, 1994, the Partnership sold its
Properties in Batesville and Heber Springs, Arkansas, to the tenant and
reinvested the net sales proceeds in a Jack in the Box Property in Dallas,
Texas, and a Jack in the Box Property in Yuma, Arizona, which is owned as
tenants-in-common with an affiliate of the General Partners. In addition, during
1995, the Partnership sold its Property in Little Canada, Minnesota, and
reinvested the net sales proceeds in a Denny's Property in Broken Arrow,
Oklahoma, in 1995 and in a Property located in Clinton, North Carolina, with
affiliates of the General Partners as tenants-in-common, in 1996. Also, during
1996, the Partnership sold its Property in Dallas, Texas, and in 1997, the
Partnership reinvested the net sales proceeds in a Bertucci's Property located
in Marietta, Georgia. In addition, during 1997, the Partnership sold its
Properties in Plattsmouth, Nebraska; Venice, Florida; Naples, Florida; and
Whitehall, Michigan, and the Property in Yuma, Arizona, which was held as
tenants-in-common with an affiliate of the General Partners, and reinvested a
portion of these net sales proceeds in two IHOP Properties, one in each of
Elgin, Illinois, and Manassas, Virginia, and in a Property in Vancouver,
Washington, as tenants-in-common with affiliates of the General Partners. In
addition, Show Low Joint Venture, a joint venture in which the Partnership is a
co-venturer with an affiliate of the General Partners, sold its Property in Show
Low, Arizona. The joint venture reinvested the net sales proceeds in a Property
in Greensboro, North Carolina. During 1998, the Partnership reinvested the net
sales proceeds from the sales of the Properties in Whitehall, Michigan and
Plattsmouth, Nebraska in one Property in Overland Park, Kansas and one Property
in Memphis, Tennessee, as tenants-in-common, with affiliates of the General
Partners. In addition, in 1998, the Partnership sold its Properties in Deland,
Florida; Liverpool, New York; Melbourne, Florida; and Bellevue, Nebraska. The
Partnership reinvested the net sales proceeds from the sale of the Property in
Deland, Florida in one Property in Fort Myers, Florida, as tenants-in-common,
with an affiliate of the General Partners and the Partnership reinvested the net
sales proceeds from the sales of the Properties in Melbourne, Florida and
Bellevue, Nebraska in two joint ventures, Warren Joint Venture and Melbourne
Joint Venture, respectively, to each purchase and hold one restaurant Property.
In 1999, the Partnership sold four of its Burger King Properties all
located in Tennessee and reinvested a portion of the net sales proceeds in
Properties in Baytown and Round Rock, Texas and Dublin, California, each as
tenants-in-common with affiliates of the General Partners. In 2000, the
Partnership reinvested the majority of the remaining net sales proceeds in a
Property in Niles, Illinois, as tenants-in-common with an affiliate of the
General Partners. In addition, during 2000, the Partnership sold four of its
Popeye's Properties all located in Florida. In 2001, the Partnership reinvested
the net sales proceeds from the 2000 sale of the four Properties in Florida in
two Properties located in Burley, Idaho and Cleburne, Texas. In addition, during
2001, the Partnership sold its Properties in Chester, Pennsylvania and Cheyenne,
Wyoming and the Properties in Dublin, California and Round Rock, Texas, each of
which was held with an affiliate of the General Partners as tenants-in-common.
The Partnership reinvested the majority of the sales proceeds from the sales of
the Properties in Chester, Pennsylvania, Dublin, California and Round Rock,
Texas in a Property in Houston, Texas and a Property in Waldorf, Maryland with
CNL Income Fund IX, Ltd. and CNL Income Fund XVII, Ltd., each of which is a
Florida limited partnership and an affiliate of the General Partners.
As a result of the above transactions, as of December 31, 2001, the
Partnership owned 38 Properties. The 38 Properties include six Properties owned
by joint ventures in which the Partnership is a co-venturer and eight Properties
owned with affiliates as tenants-in-common. Generally, the Properties are leased
on a triple-net basis with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees 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.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had mutually
agreed to terminate the Agreement and Plan of Merger. The agreement to terminate
the Agreement and Plan of Merger was based, in large part, on the General
Partners' concern that, in light of market conditions relating to publicly
traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General Partners' ability to
unequivocally recommend voting for the transaction, in the exercise of their
fiduciary duties, had become questionable.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership, the
joint ventures in which the Partnership is a co-venturer and the properties
owned with affiliates as tenants-in-common provide for initial terms, ranging
from five to 20 years (the average being 18 years), and expire between 2003 and
2020. The leases generally are on a triple-net basis, with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities. The leases of the Properties provide for minimum base annual rental
payments (payable in monthly installments) ranging from approximately $39,500 to
$246,400. Generally, the leases provide for percentage rent based on sales in
excess of a specified amount. In addition, some of the leases provide that,
commencing in the fourth to sixth lease year, the percentage rent will be an
amount equal to the greater of the percentage rent calculated under the lease
formula or a specified percentage (ranging from one to five percent) of the
purchase price or gross sales.
Generally, the leases of the Properties provide for two to four
five-year renewal options subject to the same terms and conditions as the
initial lease. Lessees of 31 of the Partnership's 38 Properties also have been
granted options to purchase Properties at the Property's then fair market value,
or pursuant to a formula based on the original purchase price of the Property,
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm.
The leases also 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 2001, the Partnership reinvested the net sales proceeds from the
four Properties sold in Florida in two Properties located in Burley, Idaho and
Cleburne, Texas. In addition, in 2001, the Partnership reinvested the sales
proceeds from the sales of the Properties in Chester, Pennsylvania, Dublin,
California and Round Rock, Texas in a Property in Houston, Texas and a Property
in Waldorf, Maryland with affiliates of the General Partners, as described below
in "Joint Venture and Tenancy in Common Arrangements". The lease terms for these
Properties are substantially the same as the Partnership's other leases, as
described above.
Major Tenants
During 2001, two lessees of the Partnership and its consolidated joint
venture, Golden Corral Corporation and IHOP Properties, Inc., each contributed
more than ten percent of the Partnership's total rental and earned income
(including rental income from the Partnership's consolidated joint venture in
which the Partnership is a co-venturer and the Partnership's share of the rental
and earned income from the Properties owned by unconsolidated joint venturers
and the Properties owned with affiliates of the General Partners as
tenants-in-common). As of December 31, 2001, Golden Corral Corporation was the
lessee under leases relating to five restaurants and IHOP Properties, Inc. was
the lessee under leases relating to six restaurants. It is anticipated that,
based on the minimum rental payments required by the leases, these two lessees
each will continue to contribute more than ten percent of the Partnership's
total rental and earned income in 2002. In addition, two Restaurant Chains,
Golden Corral Family Steakhouse Restaurants ("Golden Corral") and IHOP, each
accounted for more than ten percent of the Partnership's total rental and earned
income in 2001 (including rental income from the Partnership's consolidated
joint venture and the Partnership's share of the rental and earned income from
the Properties owned by unconsolidated joint ventures in which the Partnership
is a co-venturer and the Properties owned with affiliates of the General
Partners as tenants-in-common). In 2002, it is anticipated that these two
Restaurant Chains each will continue to account for more than ten percent of the
total rental and earned income to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income if the Partnership is not able to
re-lease the Properties in a timely manner. As of December 31, 2001, no single
tenant or group of affiliated tenants leased 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 a joint venture arrangement, Caro
Joint Venture, with an unaffiliated entity to purchase and hold one Property. In
addition, the Partnership has entered into the following separate joint venture
arrangements: Auburn Joint Venture with CNL Income Fund IV, Ltd.; Show Low Joint
Venture with CNL Income Fund II, Ltd.; Asheville Joint Venture with CNL Income
Fund VIII, Ltd.; Melbourne Joint Venture with CNL Income Fund XIV, Ltd.; and
Warren Joint Venture with CNL Income Fund IV, Ltd. Each joint venture was formed
to purchase and 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 joint venture arrangements provide for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint venture in accordance with their respective percentage interest in the
joint venture. The Partnership has 66.14% interest in Caro Joint Venture, a 3.9%
interest in Auburn Joint Venture, a 36% interest in Show Low Joint Venture, a
14.46% interest in Asheville Joint Venture, a 50% interest in Melbourne Joint
Venture, and a 64.29% interest in Warren Joint Venture. The Partnership and its
joint venture partners are jointly and severally liable for all debts,
obligations and other liabilities of the joint venture.
Each joint venture has an initial term of 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 by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property owned by the joint venture and mutual
agreement of the Partnership and its joint venture partner to dissolve the joint
venture.
The Partnership has management control of Caro Joint Venture and shares
management control equally with affiliates of the General Partners for Auburn
Joint Venture, Show Low Joint Venture, Asheville Joint Venture, Melbourne Joint
Venture, and Warren Joint Venture. The joint venture agreements restrict each
venturer's ability to sell, transfer to assign its joint venture interest
without first offering it for sale to its joint venture partner, either upon
such terms and conditions as to which the venturers may agree or, in the event
the venturers cannot agree, on the same terms and conditions as any offer from a
third party to purchase such joint venture interest.
Net cash flow from operations of Auburn Joint Venture, Show Low Joint
Venture, Caro Joint Venture, Asheville Joint Venture, Melbourne Joint Venture,
and Warren Joint Venture is distributed 3.9%, 36%, 66.14%, 14.46%, 50%, and
64.29%, respectively, to the Partnership and the balance is distributed to each
of the other joint venture partners in accordance with its respective percentage
interest in the joint venture. Any liquidation proceeds, after paying joint
venture debts and liabilities and funding reserves for contingent liabilities,
will be distributed first to the joint venture partners with positive capital
account balances in proportion to such balances until such balances equal zero,
and thereafter in proportion to each joint venture partner's percentage interest
in the joint venture.
In addition to the above joint venture arrangements, the Partnership
has entered into agreements to hold a Property in Vancouver, Washington, as
tenants-in-common, with CNL Income Fund, Ltd., CNL Income Fund II, Ltd., and CNL
Income Fund V, Ltd., a Property in Clinton, North Carolina, as
tenants-in-common, with CNL Income Fund IV, Ltd., CNL Income Fund X, Ltd., and
CNL Income Fund XV, Ltd., a Property in Overland Park, Kansas, as
tenants-in-common, with CNL Income Fund II, Ltd. and CNL Income Fund III, Ltd.,
a Property in Memphis, Tennessee, as tenants-in-common, with CNL Income Fund II,
Ltd. and CNL Income Fund XVI, Ltd., a Property in Ft. Myers, Florida, as
tenants-in-common, with CNL Income Fund XV, Ltd., a Property in Baytown, Texas,
as tenants-in-common, with CNL Income Fund III, Ltd., a Property in Round Rock,
Texas, as tenants-in-common, with CNL Income Fund XI, Ltd., a Property in
Dublin, California, as tenants-in-common with CNL Income Fund IX, Ltd. and a
Property in Niles, Illinois, as tenants-in-common, with CNL Income Fund XIV,
Ltd. Each CNL Income Fund is an affiliate of the General Partners. The
agreements provide for the Partnership and the affiliates to share in the
profits and losses of the Property and net cash flow from the Properties, in
proportion to each party's percentage interest. In June 2001, the Partnership
and CNL Income IX, Ltd., as tenants-in-common, sold the Property in Dublin,
California. The Partnership owned a 75% interest in the profits and losses of
this Property. In addition, in October 2001, the Partnership and CNL Income XI,
Ltd., as tenants-in-common, sold the Property in Round Rock, Texas. The
Partnership owned a 77% interest in the profits and losses of this Property. The
Partnership owns a 23.04%, an 18%, a 34.74%, a 46.2%, an 85%, an 80%, and a 74%
interest in the Properties in Vancouver, Washington; Clinton, North Carolina;
Overland Park, Kansas; Memphis, Tennessee; Ft. Myers, Florida; Bay Town, Texas;
and Niles, Illinois, respectively.
In July 2001, the Partnership entered into an agreement to hold a
Bennigan's Property in Waldorf, Maryland, as tenants-in-common, with CNL Income
Fund IX, Ltd., and CNL Income Fund XVII, Ltd., each of which is an affiliate of
the General Partners. The agreement provides for the Partnership and the
affiliates to share in the profits and losses of the Property and net cash flow
from the Property, in proportion to each co-venturer's percentage interest. The
Partnership owns a 60% interest in this Property.
Each of the affiliates is a limited partnership organized pursuant to
the laws of the state of Florida. The tenancy in common agreement restricts each
party's ability to sell, transfer, or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining parties.
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 a
Property if the proceeds are reinvested in an additional Property.
Certain Management Services
CNL APF Partners, LP, an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL APF Partners, LP (the "Advisor") is responsible for collecting rental
payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices and
providing information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross rental revenues from Properties
wholly owned by the Partnership plus the Partnership's allocable share of gross
revenues of joint ventures in which the Partnership is a co-venturer and the
Property held as tenants-in-common with an affiliate, but not in excess of
competitive fees for comparable services. Under the management agreement, the
management fee is subordinated to receipt by the Limited Partners of an
aggregate, ten percent, cumulative noncompounded annual return on their adjusted
capital contributions (the "10% Preferred Return"), calculated in accordance
with the Partnership's limited partnership agreement (the "Partnership
Agreement"). In any year in which the Limited Partners have not received the 10%
Preferred Return, no property management fee will be paid.
During 2000, CNL Fund Advisors, Inc. assigned its rights in, and its
obligations under, the management agreement with the Partnership to CNL APF
Partners, LP. All of the terms and conditions of the management agreement,
including the payment of fees, as described above, remain unchanged.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of APF, the parent company of the
Advisor, perform certain services for the Partnership. In addition, the General
Partners have available to them the resources and expertise of the officers and
employees of CNL Financial Group, Inc., a diversified real estate company, and
its affiliates, who may also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2001, the Partnership owned 38 Properties. Of the 38
Properties, 24 are owned by the Partnership in fee simple, six are owned through
joint venture arrangements and eight owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 11,500
to 115,100 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
The following table lists the Properties owned by the Partnership as of
December 31, 2001, by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation for the year ended December 31, 2001.
State Number of Properties
----- --------------------
Florida 7
Georgia 1
Idaho 1
Illinois 2
Indiana 1
Kansas 1
Massachusetts 1
Maryland 1
Michigan 3
North Carolina 3
New Mexico 1
Ohio 1
Oklahoma 2
Tennessee 4
Texas 6
Virginia 2
Washington 1
-------------
TOTAL PROPERTIES 38
=============
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
1,200 to 10,700 square feet. All buildings on Properties are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations. As of December 31, 2001, the Partnership had no plans for
renovation of the Properties. Depreciation expense is computed for buildings and
improvements using the straight-line method using depreciable lives of 31.5 and
39 years for federal income tax purposes.
As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership (including its consolidated joint venture) and joint ventures
(including Properties owned through tenancy in common arrangements) for federal
income tax purposes was $20,649,706 and $17,578,300, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.
Restaurant Chain Number of Properties
---------------- --------------------
Arby's 1
Baker's Square 1
Bennigan's 2
Burger King 1
Chevy's Fresh Mex 1
Church's 2
Darryl's 1
Denny's 2
Durango's Steakhouse of Atlanta 1
Golden Corral 5
Hardee's 2
IHOP 6
Jack in the Box 3
KFC 3
Loco Lupe's Mexican Restaurant 1
Shoney's 1
Taco Bell 1
Taco Cabana 1
Waffle House 3
-----------------
TOTAL PROPERTIES 38
=================
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish buildings, premises,
signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
At December 31, 2001, 2000, 1999, 1998, and 1997, the Properties were
100%, 97%, 100%, 95%, and 98% occupied, respectively. The following is a
schedule of the average rent per Property for the years ended December 31:
2001 2000 1999 1998 1997
-------------- ------------- -------------- -------------- --------------
Rental Revenues (1)(2) $ 3,311,674 $ 3,456,021 $ 3,417,147 $ 3,342,220 $ 3,139,283
Properties (2) 38 37 41 42 39
Average Rent per
property $ 87,149 $ 93,406 $ 83,345 $ 79,577 $ 80,494
(1) Rental income includes the Partnership's share of rental income from
the Properties owned through joint venture arrangements and the
Properties owned through tenancy in common arrangements. Rental
revenues have been adjusted, as applicable, for any amounts for which
the Partnership has established an allowance for doubtful accounts.
(2) Excludes Properties that were vacant at December 31, and that did not
generate rental revenues during the year ended December 31.
The following is a schedule of lease expirations for leases in place as
of December 31, 2001 for the next ten years and thereafter.
Percentage of
Expiration Number Annual Rental Gross Annual
Year of Leases (1) Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2002 -- -- --
2003 1 54,000 1.59%
2004 3 515,141 15.15%
2005 3 314,800 9.26%
2006 -- -- --
2007 -- -- --
2008 3 124,077 3.65%
2009 2 91,818 2.70%
2010 7 566,638 16.66%
2011 2 27,059 0.80%
Thereafter 17 1,706,946 50.19%
---------- ------------- -------------
Total 38 $ 3,400,479 100.00%
========== ============= =============
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2001 (see Item 1. Business -
Major Tenants) are substantially the same as those described in Item 1. Business
- - Leases.
Golden Corral Corporation leases five Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2004 and 2011) and the
average minimum base annual rent is approximately $152,900 (ranging from
approximately $88,000 to $185,700).
IHOP Corp. leases six IHOP restaurants. The initial term of each lease
is 20 years (expiring between 2017 and 2019) and the average minimum base annual
rent is approximately $138,000 (ranging from approximately $114,500 to
$163,200).
Item 3. Legal Proceedings
Neither the Partnership, not its General Partners or any affiliate of
the General Partners, nor any of their respective Properties, is party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 15, 2002, there were 2,977 holders of record of the Units. There
is no public trading market for the Units, and it is not anticipated that a
public market for the Units will develop. During 2001, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), may have done so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units. The
price paid for any Unit transferred pursuant to the Plan was $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 2001 and 2000 other than
pursuant to the Plan, net of commissions.
2001 (1) 2000 (1)
----------------------------------- -----------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- -------- -----------
First Quarter $475 $370 $ 423 $ 380 $ 380 $ 380
Second Quarter 475 179 337 382 371 378
Third Quarter 351 328 339 387 334 363
Fourth Quarter 350 331 341 395 300 346
(1) A total of 319 and 216 Units were transferred other than pursuant to
the Plan for the years ended December 31, 2001 and 2000, respectively.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 2001 and 2000, the Partnership
declared cash distributions of $3,150,000 to the Limited Partners. Distributions
of $787,500 were declared at the close of each of the Partnership's calendar
quarter during 2001 and 2000 to the Limited Partners. No amounts distributed to
partners for the years ended December 31, 2001 and 2000, are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the Limited Partners' return on their adjusted capital
contributions. No distributions have been made to the General Partners to date.
These amounts include monthly distributions made in arrears for the Limited
Partners electing to receive distributions on this basis.
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
2001 2000 1999 1998 1997
-------------- --------------- -------------- --------------- ---------------
Year ended December 31:
Revenues (1) $3,405,046 $3,211,507 $3,461,440 $3,526,060 $3,456,406
Net income (2) 2,033,137 3,016,796 3,510,474 3,020,881 2,899,882
Cash distributions
declared (3) 3,150,000 3,150,000 3,150,000 3,220,000 3,150,000
Net income per Unit (2) 29.04 43.10 49.67 42.75 41.06
Cash distributions
declared per Unit (3) 45.00 45.00 45.00 46.00 45.00
At December 31:
Total assets $28,709,054 $29,820,589 $30,120,859 $29,655,896 $29,993,069
Partners' capital 27,705,537 28,822,400 28,955,604 28,595,130 28,794,249
(1) Revenues include equity in earnings of unconsolidated joint ventures,
minority interest in income of the consolidated joint venture, and
lease termination income.
(2) Net income for the years ended December 31, 2001, 2000, 1998, and 1997,
includes provision for write-down of assets of $565,061, $368,430,
$155,528, and $263,186, respectively. In addition, net income for the
years ended December 31, 2001 and 1997, includes $11,897 and $79,777,
respectively, from a loss on sale of assets. Net income for the years
ended December 31, 2000, 1999, 1998, and 1997, also includes $639,806,
$848,303, $345,122, and $626,804, respectively, from gains on sale of
assets.
(3) Distributions for the years ended December 31, 1998, include a special
distribution to the Limited Partners of $70,000, which represented
cumulative excess operating reserves.
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
selected national and regional fast-food and family-style Restaurant Chains. The
leases are generally triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 2001, the Partnership owned 38 Properties, either directly or indirectly
through joint venture or tenancy in common arrangements.
Capital Resources
During the years ended December 31, 2001, 2000, and 1999, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures and interest received, less cash paid
for expenses) of $2,900,366, $3,136,299, and $3,204,934, respectively. The
decrease in cash from operations during 2001 and 2000, each as compared to the
previous year, was primarily a result of changes in income and expenses as
described in "Results of Operations" below.
Other sources and uses of capital included the following during the
years ended December 31, 2001, 2000, and 1999.
In 1999 and 2000, the Partnership received payments amounting to
$18,600 and $55,800, respectively, related to certain rental payments deferral
agreed with one tenant in 1996. During 2000, the Partnership terminated the
lease with the tenant of the Property located in Chester, Pennsylvania due to
financial difficulties the tenant was experiencing. In connection with the
terminated lease, the Partnership received $175,000 in consideration for the
Partnership releasing the tenant from its obligations under the lease terms. In
May 2001, the Partnership sold this Property to an unrelated third party for
$85,000 and received net sales proceeds of $83,000. The Partnership had
previously recorded provisions for loss of $368,430 in a prior year relating to
this Property. The Partnership recorded an additional loss of $14,008 upon the
sale of this Property. In July 2001, the Partnership reinvested these net sales
proceeds in a Property in Waldorf, Maryland, as described below.
In June 1999, the Partnership sold four Burger King Properties, one in
each of Sevierville, Walker Springs, Broadway and Greeneville, Tennessee, to the
tenant in accordance with the purchase options under the lease agreements for a
total of approximately $4,354,000 and received net sales proceeds of $4,316,145,
resulting in a total gain of $848,303.
In October 1999, the Partnership used the majority of the net sales
proceeds from the sales of the Properties in Walker Springs and Broadway,
Tennessee, to invest approximately $2,108,100 in two Properties, one in each of
Baytown, Texas and Round Rock, Texas, with CNL Income Fund III, Ltd. and CNL
Income Fund XI, Ltd., respectively, affiliates of the General Partners, as
tenants-in-common for an 80% and a 77% interest, respectively, in the
Properties. In October 2001, the Partnership and CNL Income Fund XI, Ltd., sold
the Property in Round Rock, Texas, for approximately $1,539,000 and received net
sales proceeds of approximately $1,510,700, resulting in a gain, to the
tenancy-in-common, of approximately $123,900. The Partnership received
approximately $1,156,300 as a liquidating distribution for its pro-rata share of
the net sales proceeds. In December 2001, the Partnership reinvested the
majority of these proceeds in a Property in Houston, Texas at an approximate
cost of $964,900. The Partnership acquired this Property from CNL Funding
2001-A, LP, a Delaware limited partnership and an affiliate of the General
Partners. CNL Funding 2001-A, LP had purchased and temporarily held title to the
Property in order to facilitate the acquisition of the Property by the
Partnership. The purchase price paid by the Partnership represented the costs
incurred by CNL Funding 2001-A, LP to acquire and carry the Property, including
closing costs. A portion of the transaction relating to the sale of this
Property and the reinvestment of the net sales proceeds qualified as a like-kind
exchange transaction for federal income tax purposes. The Partnership
distributed amounts sufficient to enable the Limited Partners to pay federal and
state income taxes, if any (at a level reasonably assumed by the General
Partners) resulting from the sale.
In addition, in November 1999, the Partnership used the majority of the
net sales proceeds from the sale of the Property in Greeneville, Tennessee,
together with the sales proceeds from the 1998 sale of the Property in
Liverpool, New York, to invest in an IHOP Property in Dublin, California, with
CNL Income Fund IX, Ltd., a Florida limited partnership and an affiliate of the
General Partners, as tenants-in-common for a 75% interest in this Property. In
June 2001, the Partnership and CNL Income Fund IX, Ltd., as tenants-in-common,
sold the Property in Dublin, California, for a sales price of approximately
$1,743,300 and received net sales proceeds of approximately $1,699,600,
resulting in a gain, to the tenancy-in-common, of approximately $158,100. The
Partnership received approximately $1,273,800 as a liquidating distribution for
its pro-rata share of the net sales proceeds. The Partnership distributed
amounts sufficient to enable the Limited Partners to pay federal and state
income taxes, at a level reasonably assumed by the General Partners, resulting
from the sale. In July 2001, the Partnership reinvested the net sales proceeds
from the sale of the Property in Chester, Pennsylvania and the return of
capital, described above, in a Property in Waldorf, Maryland, as
tenants-in-common, with CNL Income Fund IX, Ltd. and CNL Income Fund XVII, Ltd.,
each of which is an affiliate of the General Partners and a Florida limited
partnership. The Partnership contributed approximately $1,368,300 to acquire the
Property. The Partnership owns an approximate 60% interest in the profits and
losses of the Property.
In January 2000, the Partnership invested the majority of the net sales
proceeds from the sale of the Property in Sevierville, Tennessee, in a Property
in Niles, Illinois, with CNL Income Fund XIV, Ltd., a Florida limited
partnership and an affiliate of the General Partners, as tenants-in-common for a
74% interest in the Property. The Partnership acquired the Property from an
affiliate of the General Partners. The affiliate had purchased and temporarily
held title to the Property in order to facilitate the acquisition of the
Property by the Partnership. The purchase price paid by the Partnership
represented the costs incurred by the affiliate to acquire the Property,
including closing costs. A portion of the transaction relating to the sales of
the four Properties and the reinvestment of the net sales proceeds qualified as
a like-kind exchange transaction for federal income tax purposes. The
Partnership distributed amounts sufficient to enabled the Limited Partners to
pay federal and state income taxes, if any (at a level reasonably assumed by the
General Partners) resulting from the sales.
In September 2000, the Partnership sold four of its Popeyes Properties,
three in Jacksonville, Florida and one in Tallahassee, Florida, to a third party
for a total of approximately $2,081,800 and received net sales proceeds totaling
approximately $2,071,800 resulting in gains totaling approximately $639,800. In
January 2001, the Partnership invested a portion of these net sales proceeds in
two Properties located in Burley, Idaho and Cleburne, Texas at an approximate
cost of $2,098,400. The Partnership acquired these Properties from CNL Funding
2001-A, LP, a Delaware limited partnership and an affiliate of the General
Partners. CNL Funding 2001-A, LP had purchased and temporarily held title to the
Properties in order to facilitate the acquisition of the Properties by the
Partnership. The purchase price paid by the Partnership represented the costs
incurred by CNL Funding 2001-A, LP to acquire and carry the Properties,
including closing costs. A portion of the transaction relating to the sale of
these four Properties and the reinvestment of the net sales proceeds qualified
as a like-kind exchange transaction for federal income tax purposes. The
Partnership distributed amounts sufficient to enable the Limited Partners to pay
federal and state income taxes, if any (at a level reasonably assumed by the
General Partners) resulting from the sales.
In 2001, the Partnership entered in a promissory note with the
corporate General Partner for a loan in the amount of $75,000 in connection with
the operations of the partnership. The loan was uncollateralized, non-interest
bearing and due on demand. As of December 31, 2001, the Partnership had repaid
the loan in full to the corporate General Partner.
In December 2001, the Partnership sold its Property in Cheyenne,
Wyoming to an unrelated third party for approximately $300,000 and received net
sales proceeds of approximately $290,800, resulting in a gain of $2,111. The
Partnership intends to reinvest these sales proceeds in an additional Property.
The Partnership distributed amounts sufficient to enable the Limited Partners to
pay federal and state income taxes, if any (at a level reasonably assumed by the
General Partners) resulting from the sale.
None of the Properties owned by the Partnership, or the joint ventures
or tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Under its partnership agreement, the Partnership is
prohibited from borrowing for any purpose; provided, however, that the General
Partners or their affiliates are entitled to reimbursement, at cost, for actual
expenses incurred by the General Partners or their affiliates on behalf of the
Partnership. Affiliates of the General Partners from time to time incur certain
operating expenses on behalf of the Partnership for which the Partnership
reimburses the affiliates without interest.
Currently, rental income from the Partnership's Properties and net
sales proceeds from the sale of Properties, pending reinvestment in additional
Properties, are invested in money market accounts or other short-term, highly
liquid investments such as demand deposit accounts at commercial banks, money
market accounts and certificates of deposit with less than a 90-day maturity
date, pending the Partnership's use of such funds to pay Partnership expenses or
to make distributions to the partners. At December 31, 2001, the Partnership had
$1,126,921 invested in such short-term investments, as compared to $868,873 at
December 31, 2000. The increase in cash and cash equivalents during 2001 was
primarily a result of the Partnership receiving and holding the net sales
proceeds from the sale of the Property in Cheyenne, Wyoming, as described above,
pending the reinvestment in an additional Property. For the year ending December
31, 2001, the average interest rate earned on the rental income deposited in
demand deposit accounts at commercial banks was approximately 2.3% annually. The
funds remaining at December 31, 2001, after payment of distributions and other
liabilities, will be used to invest in an additional Property and to meet the
Partnership's working capital needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases of the Partnership's Properties are on a
triple-net basis, it is not anticipated that a permanent reserve for maintenance
and repairs will be established at this time. To the extent, however, that the
Partnership has insufficient funds for such purposes, the General Partners will
contribute to the Partnership an aggregate amount of up to one percent of the
offering proceeds for maintenance and repairs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based on current and anticipated future cash from operations, the
Partnership declared distributions to the Limited Partners of $3,150,000 for
each of the years ended December 31, 2001, 2000, and 1999. This represents
distributions of $45 per Unit for each of the years ended December 31, 2001,
2000, and 1999. No distributions were made to the General Partners during the
years ended December 31, 2001, 2000, and 1999. No amounts distributed to the
Limited Partners for the years ended December 31, 2001, 2000, and 1999, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the Limited Partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the Limited Partners on a quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2001 and 2000.
As of December 31, 2001 and 2000, the Partnership owed $11,507 and
$5,396, respectively, to affiliates for operating expenses and accounting and
administrative services and other amounts. As of March 15, 2002, the Partnership
had reimbursed all such amounts to the affiliates. Other liabilities of the
Partnership, including distributions payable were $854,867 at December 31, 2001,
as compared to $852,460 at December 31, 2000. The General Partners believe that
the Partnership has sufficient cash on hand to meet its current working capital
needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for using either the direct financing or the operating
method. FAS 13 requires management to estimate the economic life of the leased
property, the residual value of the leased property and the present value of
minimum lease payments to be received from the tenant. In addition, management
assumes that all payments to be received under its leases are collectible.
Changes in management's estimates or assumption regarding collectibility of
lease payments could result in a change in accounting for the lease at the
inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews its Properties and investments in unconsolidated
entities periodically (no less than once per year) for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through operations. Management determines whether
impairment in value has occurred by comparing the estimated future undiscounted
cash flows, including the residual value of the Property, with the carrying cost
of the individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
Results of Operations
During 1999, the Partnership and its consolidated joint venture, Caro
Joint Venture, owned and leased 32 wholly owned Properties (including four
Properties which were sold during 1999), and during 2000, the Partnership owned
and leased 28 wholly owned Properties (including four Properties which were sold
during 2000) and during 2001, the Partnership owned and leased 26 wholly owned
Properties (including two Properties which were sold during 2001). In addition,
during 1999, the Partnership was a co-venturer in five separate joint ventures
that owned and leased a total of five Properties and during 2000 and 2001 the
Partnership was a co-venturer in one additional joint venture that owned and
leased one Property. During 1999, the Partnership owned and leased eight
Properties with affiliates as tenants-in-common, and during 2000, the
Partnership owned and leased nine Properties with affiliates as
tenants-in-common, and during 2001, the Partnership owned and leased ten
Properties with affiliates as tenants-in-common (including two Properties which
were sold in 2001). As of December 31, 2001, the Partnership owned, either
directly, or through joint venture arrangements, 38 Properties which are
generally subject to long-term, triple-net leases. The leases of the Properties
provide for minimum base annual rental amounts (payable in monthly installments)
ranging from approximately $39,500 to $246,400. Generally, the leases provide
for percentage rent based on sales in excess of a specified amount. In addition,
some of the leases provide that, commencing in the fourth to sixth lease year,
the percentage rent will be an amount equal to the greater of the percentage
rent calculated under the lease formula or a specified percentage (ranging from
one to five percent) of the purchase price or gross sales. For further
description of the Partnership's leases and Properties, see Item 1. Business -
Leases and Item 2. Properties, respectively.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership and its consolidated joint venture earned $2,207,186, $2,355,377,
and $2,675,958, respectively, in rental income from operating leases and earned
income from direct financing leases. Rental and earned income decreased during
2001 and 2000, each as compared to the previous year, primarily as a result of
the sales of Properties during 2000 and 1999, as described above in "Capital
Resources." The decrease in rental and earned income during 2001 was partially
offset by an increase of approximately $215,700, due to the fact that in 2001,
the Partnership reinvested a portion of the net sales proceeds from the 2000 and
2001 sales of several Properties in three additional Properties, as described
above in "Capital Resources." Rental and earned income are expected to remain at
reduced amounts while equity in earnings of joint ventures is expected to
increase due to the fact that the Partnership reinvested a portion of the net
sales proceeds from the 2000 sales of several Properties and the majority of the
net sales proceeds from the 1999 sales of several Properties in joint ventures
or in Properties with affiliates of the General Partners, as tenants-in-common.
Rental and earned income remained at reduced amounts during 2001 and
2000, due to the fact that PRG, the tenant of two of the Partnership's
Properties, experienced financial difficulties during 2000 and in October 2001,
filed for bankruptcy and rejected the lease it had with the Partnership relating
to the Property in Cheyenne, Wyoming. As a result of the bankruptcy, the
Partnership stopped recording rental revenue relating to these Properties. PRG
has not rejected or affirmed the lease relating to the Property in Broken Arrow,
Oklahoma. While the tenant has not rejected or affirmed this lease, there can be
no assurance that the lease will not be rejected in the future. In December
2001, the Partnership sold the vacant Property in Cheyenne, Wyoming, as
described above in "Capital Resources." The lost revenues resulting from the
possible rejection of the remaining lease could have an adverse effect on the
results of operations of the Partnership if the Partnership is unable to
re-lease the Properties in a timely manner.
The decrease in rental and earned income during 2000, as compared to
1999, was partially offset by the fact that the Partnership collected and
recorded as income approximately $53,700 and $18,600 during 2000 and 1999, in
rental payment deferrals for the two Properties leased by the same tenant in
Chester, Pennsylvania, and Orlando, Florida. These amounts were collected in
accordance with the agreement entered into in March 1996, with the tenant to pay
the remaining balance of the rental payment deferral amounts as discussed above
in "Capital Resources." During 2000, the tenant terminated its lease relating to
the Property in Chester, Pennsylvania. In connection with the termination, the
Partnership received $175,000 in lease termination income in consideration for
the Partnership releasing the tenant from its obligations under the lease. In
May 2001, the Partnership sold this Property, as described above in "Capital
Resources." In July 2001, the Partnership reinvested these net sales proceeds in
a Property in Waldorf, Maryland, with CNL Income Fund IX, Ltd. and CNL Income
Fund XVII, Ltd., as tenants-in-common, as described in "Capital Resources".
Rental and earned income are expected to remain at reduced amounts while equity
in earnings of joint ventures is expected to increase due to the fact that the
Partnership reinvested these net sales proceeds in a Property with an affiliate
of the General Partners, as tenants-in-common.
In addition, for the years ended December 31, 2001, 2000, and 1999, the
Partnership earned $987,886, $672,749, and $524,643, respectively, attributable
to net income earned by joint ventures in which the Partnership is a
co-venturer. The increase in net income earned by joint ventures during 2001, as
compared to 2000, was partially due to the fact that in June 2001, the
Partnership and CNL Income Fund IX, Ltd., as tenants-in-common, sold the
Property in Dublin, California, in which the Partnership owned a 75% interest.
The tenancy in common recognized a gain of approximately $158,100 during, 2001,
as described above in "Capital Resources." The tenancy in common distributed to
the Partnership its pro-rata share of the net sales proceeds from this sale as a
liquidation distribution, as described above in "Capital Resources". The
increase in net income earned by joint ventures was also attributable to the
fact that during 2001, the Partnership reinvested these proceeds in an
additional Property, as tenants-in-common with CNL Income Fund IX, Ltd. and CNL
Income Fund XVII, Ltd. as described above in "Capital Resources." In addition,
the increase in net income earned by joint ventures during 2001, as compared to
2000, was partially due to the fact that in October 2001, the Partnership and
CNL Income Fund XI, Ltd., as tenants-in-common, sold the Property in Round Rock,
Texas, in which the Partnership owned a 77% interest, as described above in
"Capital Resources." The tenancy in common recognized a gain of approximately
$123,900 during, 2001. The tenancy in common distributed to the Partnership its
pro-rata share of the net sales proceeds from this sale as a liquidating
distribution, and the Partnership reinvested these proceeds in a Property in
Houston, Texas, as described above in "Capital Resources". The increase in net
income earned by joint ventures during 2001 was partially offset by the fact
that in January 2002, Houlihan's Restaurant, Inc., which leases the Property
owned by Show Low Joint Venture, filed for bankruptcy and rejected the lease
relating to this Property. As a result, during 2001, the joint venture recorded
a provision for write-down of assets of approximately $56,400 related to
previously accrued rental income relating to this Property. The accrued rental
income was the accumulated amount of non-cash accounting adjustment previously
recorded in order to recognize future scheduled rent increases as income evenly
over the term of the lease. No such provision was recorded during 2000 or 1999,
relating to this Property. The provision represented the difference between the
carrying value of the Property, including the accumulated accrued rental income
balance and the General Partners' estimated net realizable value of the
Property. The joint venture will not recognize any rental and earned income from
this Property until the Property is re-leased or the Property is sold and the
proceeds are reinvested in an additional Property. The joint venture is
currently seeking a replacement tenant or purchaser for this Property. The lost
revenues resulting from the vacant Property could have an adverse effect on the
equity in earnings of joint ventures, if the joint venture is not able to
re-lease or sell the Property in a timely manner.
The increase in net income earned by joint ventures during 2000, as
compared to 1999, was primarily due to the fact that in 1999 and 2000, the
Partnership reinvested the net sales proceeds it received from the 1999 sales of
four Burger King Properties in four Properties with affiliates of the general
partners as tenants-in-common. The increase in net income earned by joint
ventures during 2000 was partially offset by the fact that during 2000, the
lease relating to the Property owned by Melbourne Joint Venture, in which the
Partnership owns a 50% interest, was amended to provide for rent reductions
starting in February 2000. In June 2000, the operator of this Property vacated
the Property and discontinued operations. As a result, during 2000, the joint
venture stopped recording rental revenue relating to this Property. The joint
venture will continue to pursue collection of past due rental amounts. The joint
venture did not recognize any rental income relating to this Property until June
2001, at which time the joint venture re-leased this Property to a new tenant.
The lease terms for this Property are substantially the same as the
Partnership's other leases. In addition, during 2000, the joint venture
established a provision for write-down of assets for this Property of
approximately $219,100. The provision represented the difference between the
Property's net carrying value at December 31, 2000 and the current estimated net
realizable value for the Property. No such provision was recognized during 2001
or 1999.
During 2001, two lessees of the Partnership and its consolidated joint
venture, Golden Corral Corporation and IHOP Properties, Inc., each contributed
more than ten percent of the Partnership's total rental and earned income
(including rental income from the Partnership's consolidated joint venture in
which the Partnership is a co-venturer and the Partnership's share of the rental
and earned income from the Properties owned by unconsolidated joint venturers
and the Properties owned with affiliates of the General Partners as
tenants-in-common). As of December 31, 2001, Golden Corral Corporation was the
lessee under leases relating to five restaurants and IHOP Properties, Inc. was
the lessee under leases relating to six restaurants. It is anticipated that,
based on the minimum rental payments required by the leases, these two lessees
each will continue to contribute more than ten percent of the Partnership's
total rental and earned income in 2002. In addition, two Restaurant Chains,
Golden Corral Family Steakhouse Restaurants ("Golden Corral") and IHOP, each
accounted for more than ten percent of the Partnership's total rental and earned
income in 2001 (including rental income from the Partnership's consolidated
joint venture and the Partnership's share of the rental and earned income from
the Properties owned by unconsolidated joint ventures in which the Partnership
is a co-venturer and the Properties owned with affiliates of the General
Partners as tenants-in-common). In 2002, it is anticipated that these two
Restaurant Chains each will continue to account for more than ten percent of the
total rental and earned income to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income if the Partnership is not able to
re-lease the Properties in a timely manner.
For the years ended 2001, 2000, and 1999, the Partnership also earned
$83,689, $58,100, and $147,908, respectively, in interest and other income.
Interest and other income were higher during 2001 and 1999, as compared to 2000
primarily due to the amount interest earned on the net sales proceeds received
and held in escrow relating to the sales of several Properties, until such
proceeds were reinvested in additional Properties, as described above in
"Capital Resources."
Operating expenses, including depreciation and amortization expense and
provisions for losses on assets, were $1,360,012, $1,009,517, and $799,269, for
the years ended December 31, 2001, 2000, and 1999, respectively. The increase in
operating expenses during 2001, as compared to 2000, was partially attributable
to the fact that the Partnership established a provision for write-down of
assets of approximately $565,100 relating to the Properties in Broken Arrow,
Oklahoma and Cheyenne, Wyoming. The tenant of these Properties filed for
bankruptcy and rejected the lease relating to the Property in Cheyenne, Wyoming,
as described above. In addition, the Partnership recorded a provision for
doubtful accounts of approximately $33,100 for past due rental amounts relating
to these Properties. The General Partners will continue to pursue collection of
these past due rental amounts. In addition, the Partnership incurred legal fees,
repairs and maintenance and real estate taxes relating to these Properties
during 2001. The Partnership anticipates that it will continue to incur such
costs relating to the remaining vacant Property and will pursue collection of
these amounts from the tenant.
The increase in operating expenses during 2001, as compared to 2000,
was also partially attributable to an increase in the costs incurred for
administrative expenses for servicing the Partnership and its Properties, as
permitted by the Partnership agreement. In addition, the increase in operating
expenses during 2001 was partially due to the Partnership incurring additional
state taxes due to changes in tax laws of a state in which the Partnership
conducts business.
The increase in operating expenses during 2000, as compared to 1999,
was primarily due to the fact that during 2000, the Partnership recorded a
provision for write-down of assets in the amount of $368,430, for the Property
in Chester, Pennsylvania. This lease for this Property was terminated in 2000,
as described above in "Capital Resources." The provision represented the
difference between the Property's carrying value at December 31, 2000, and the
General Partners' estimated net realizable value for this Property. No such
provision was recorded during 1999. In May 2001, the Partnership sold this
Property, as described above in "Capital Resources." The increase during 2000,
as compared to 1999, was partially offset by, a decrease in depreciation expense
due to sales of several Properties in 2000 and 1999.
The increase in operating expenses during 2000 and 1999, each as
compared to the previous year, was partially offset by the fact that during 2000
and 1999 the Partnership incurred $34,287 and $174,233, respectively, in
transaction costs relating to the General Partners retaining financial and legal
advisors to assist them in evaluating and negotiating the proposed merger with
CNL American Properties Fund, Inc. ("APF"). On March 1, 2000 the general
partners and APF mutually agreed to terminate the merger. No such expenses were
incurred during 2001.
As a result of the sale of the Properties in Chester, Pennsylvania and
Cheyenne, Wyoming, as described above in "Capital Resources," the Partnership
recognized a loss of $11,897 during the year ended December 31, 2001. As a
result of the sales of four Popeye's Properties in 2000 and four Burger King
Properties in 1999, as described above in "Capital Resources," the Partnership
recognized gains of $639,806 and $848,303, respectively.
The restaurant industry, as a whole, has been one of the many
industries affected by the general slowdown in the economy. While the
Partnership has experienced some losses due to the financial difficulties of a
limited number of restaurant operators, the General Partners remain confident in
the overall performance of the fast-food and family style restaurants, the
concepts that comprise the Partnership's portfolio. Industry data shows that
these restaurant concepts continue to outperform and remain more stable than
higher-end restaurants, which have been more adversely affected by the slowing
economy.
The Partnership's leases as of December 31, 2001, are generally
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in 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 December 1999, the Securities and Exchange Commission released SAB
101, which provides the staff's view in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 requires the
Partnership to defer recognition of certain percentage rental income until
certain defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
Partnership results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" (FAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement requires
that a long-lived asset be tested for recoverability whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable. The
carrying amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. The assessment is based on the carrying amount of the
asset at the date it is tested for recoverability. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds its fair
value. If an impairment is recognized, the adjusted carrying amount of a
long-lived asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this Statement
retained the fundamental provisions of FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March 1,
2000, the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONTENTS
--------
Page
----
Report of Independent Certified Public Accountants 20
Financial Statements:
Balance Sheets 21
Statements of Income 22
Statements of Partners' Capital 23
Statements of Cash Flows 24-25
Notes to Financial Statements 26-43
Report of Independent Certified Public Accountants
--------------------------------------------------
To the Partners
CNL Income Fund VI, 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 VI, Ltd. (a Florida limited
partnership) at December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under item 14(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 8, 2002
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------ --------------------
ASSETS
------
Land and buildings on operating leases, net $ 16,023,866 $13,428,503
Net investment in direct financing leases 2,399,329 3,324,866
Investment in joint ventures 8,387,142 9,280,761
Cash and cash equivalents 1,126,921 868,873
Certificate of deposit -- 103,500
Restricted cash -- 2,062,036
Receivables, less allowance for doubtful accounts of $150,802
and $193,869, respectively 124,865 141,085
Due from related parties 15,981 13,593
Accrued rental income, less allowance for doubtful accounts
of $47,718 in 2001 and 2000
590,190 533,412
Other assets 40,760 63,960
------------------ --------------------
$ 28,709,054 $ 29,820,589
================== ====================
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Accounts payable $ 16,859 $ 41,715
Accrued and escrowed real estate taxes payable 13,119 11,126
Due to related parties 11,507 5,396
Distributions payable 787,500 787,500
Rents paid in advance and deposits 37,389 12,119
------------------ --------------------
Total liabilities 866,374 857,856
Minority interest 137,143 140,333
Partners' capital 27,705,537 28,822,400
------------------ --------------------
$ 28,709,054 $ 29,820,589
================== ====================
See accompanying notes to financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
------------------ --------------- ---------------
Revenues:
Rental income from operating leases $ 2,003,280 $ 1,935,866 $ 2,217,409
Earned income from direct financing leases 203,906 419,511 458,549
Contingent rental income 149,286 152,450 149,981
Lease termination income -- 175,000 --
Interest and other income 83,689 58,100 147,908
------------------ --------------- ---------------
2,440,161 2,740,927 2,973,847
------------------ --------------- ---------------
Expenses:
General operating and administrative 274,012 169,603 158,011
Professional services 47,035 45,719 45,076
Provision for doubtful accounts 33,147 -- --
Real estate taxes 25,704 3,780 --
State and other taxes 42,557 18,720 10,042
Depreciation and amortization 372,496 368,978 411,907
Provision for write-down of assets 565,061 368,430 --
Transaction costs -- 34,287 174,233
------------------ --------------- ---------------
1,360,012 1,009,517 799,269
------------------ --------------- ---------------
Income Before Gain (Loss) on Sale of Assets, Minority
Interest in Income of Consolidated Joint Venture and
Equity in Earnings of Unconsolidated Joint Ventures 1,080,149 1,731,410 2,174,578
Gain (Loss) on Sale of Assets (11,897 ) 639,806 848,303
Minority Interest in Income of Consolidated Joint Venture (23,001 ) (27,169 ) (37,050 )
Equity in Earnings of Unconsolidated Joint Ventures 987,886 672,749 524,643
------------------ --------------- ---------------
Net Income $ 2,033,137 $ 3,016,796 $ 3,510,474
================== =============== ===============
Allocation of Net Income:
General partners $ -- $ -- $ 33,908
Limited partners 2,033,137 3,016,796 3,476,566
------------------ --------------- ---------------
$ 2,033,137 $ 3,016,796 $ 3,510,474
================== =============== ===============
Net Income Per Limited Partner Unit $ 29.04 $ 43.10 $ 49.67
================== =============== ===============
Weighted Average Number of Limited Partner Units
Outstanding 70,000 70,000 70,000
================== =============== ===============
See accompanying notes to financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001, 2000 and 1999
General Partners Limited Partners
---------------------------- ------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
--------------- ------------ ------------- ---------------- ---------------- ------------- -------------
Balance, December 31, 1998 $ 1,000 $ 256,690 $ 35,000,000 $ (28,804,226 ) $ 26,156,666 $ (4,015,000 ) $28,595,130
Distributions to limited
partners ($45.00 per
limited partner unit) -- -- -- (3,150,000 ) -- -- (3,150,000 )
Net income -- 33,908 -- -- 3,476,566 -- 3,510,474
--------------- ------------ ------------- ---------------- ---------------- ------------- -------------
Balance, December 31, 1999 1,000 290,598 35,000,000 (31,954,226 ) 29,633,232 (4,015,000 ) 28,955,604
Distributions to limited
partners ($45.00 per
limited partner unit) -- -- -- (3,150,000 ) -- -- (3,150,000 )
Net income -- -- -- -- 3,016,796 -- 3,016,796
--------------- ------------ ------------- ---------------- ---------------- ------------- -------------
Balance, December 31, 2000 1,000 290,598 35,000,000 (35,104,226 ) 32,650,028 (4,015,000 ) 28,822,400
Distributions to limited
partners ($45.00 per
limited partner unit) -- -- -- (3,150,000 ) -- -- (3,150,000 )
Net income -- -- -- -- 2,033,137 -- 2,033,137
--------------- ------------ ------------- ---------------- ---------------- ------------- -------------
Balance, December 31, 2001 $ 1,000 $ 290,598 $ 35,000,000 $ (38,254,226 ) $ 34,683,165 $ (4,015,000 ) $27,705,537
=============== ============ ============= ================ ================ ============= =============
See accompanying notes to financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
--------------- --------------- ---------------
Increase ( Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 2,384,714 $ 2,647,604 $ 2,817,707
Distributions from unconsolidated joint ventures 819,773 881,943 483,152
Cash paid for expenses (380,274) (437,139) (227,913)
Interest received 76,153 43,891 131,988
------------------ ------------------ ------------------
Net cash provided by operating activities 2,900,366 3,136,299 3,204,934
------------------ ------------------ ------------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 373,800 2,071,847 4,316,145
Additions to land and buildings on operating
leases (3,063,219) -- --
Investment in joint ventures (1,368,300) (1,112,500) (3,314,843)
Liquidating distribution from joint ventures 2,430,032 -- --
Redemption of (investment in) certificate of
deposit 100,000 (100,000) --
Decrease (increase) in restricted cash 2,061,560 (2,061,560) --
Payment of lease costs -- -- (3,300)
------------------ ------------------ ------------------
Net cash provided by (used in) investing
activities 533,873 (1,202,213) 998,002
------------------ ------------------ ------------------
Cash Flows from Financing Activities:
Proceeds from loan from corporate General
Partner 75,000 -- --
Repayment of loan from corporate General
Partner (75,000) -- --
Distributions to limited partners (3,150,000) (3,150,000) (3,220,000)
Distributions to holder of minority interest (26,191) (40,706) (28,129)
------------------ ------------------ ------------------
Net cash used in financing activities (3,176,191) (3,190,706) (3,248,129)
------------------ ------------------ ------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 258,048 (1,256,620) 954,807
Cash and Cash Equivalents at Beginning of Year 868,873 2,125,493 1,170,686
------------------ ------------------ ------------------
Cash and Cash Equivalents at End of Year $ 1,126,921 $ 868,873 $ 2,125,493
================== ================== ==================
See accompanying notes to financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2001 2000 1999
--------------- --------------- ---------------
Reconciliation of Net Income to Net Cash Provided by Operating
Activities:
Net income $ 2,033,137 $ 3,016,796 $ 3,510,474
--------------- --------------- ---------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 370,848 367,328 410,257
Amortization 1,648 1,650 1,650
Provision for doubtful accounts 33,147 -- --
Equity in earnings of unconsolidated joint ventures, net
of distributions (168,113 ) 209,194 (41,491 )
Loss (gain) on sale of assets 11,897 (639,806 ) (848,303 )
Provision for write-down of assets 565,061 368,430 --
Minority interest in income of consolidated joint
venture 23,001 27,169 37,050
Decrease (increase) in due from related parties (2,388 ) 5,518 --
Increase in receivables (12,951 ) (10,584 ) (2,676 )
Decrease in net investment in direct financing leases 71,787 68,794 64,697
Increase in accrued rental income (56,778 ) (97,498 ) (95,735 )
Decrease (increase) in other assets 21,552 (27,163 ) (1,898 )
Increase (decrease) in accounts payable and accrued and
escrowed real estate taxes payable (22,863 ) (89,824 ) 135,333
Increase (decrease ) in due to related parties 6,111 (59,824 ) 45,817
Increase (decrease) in rents paid in advance and
deposits 25,270 (3,881 ) (10,241 )
--------------- --------------- ---------------
Total adjustments 867,229 119,503 (305,540 )
--------------- --------------- ---------------
Net Cash Provided by Operating Activities $ 2,900,366 $ 3,136,299 $ 3,204,934
=============== =============== ===============
Supplemental Schedule of Non-Cash Financing Activities:
Distributions declared and unpaid at December 31 $ 787,500 $ 787,500 $ 787,500
=============== =============== ===============
See accompanying notes to financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund VI, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
generally on a triple-net basis, whereby the tenant is responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 4). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or reverses the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, the assets are
adjusted to the fair value. Although the general partners have made
their best estimate of these factors based on current conditions, it is
reasonably possible that changes could occur in the near term which
could adversely affect the general partners' best estimate of net cash
flows expected to be generated from its properties and the need for
asset impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables
and accrued rental income, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its 66%
interest in Caro Joint Venture, a Florida general partnership, using
the consolidation method. Minority interests represent the minority
joint venture partners' proportionate share of equity in the
Partnership's consolidated joint venture. All significant intercompany
accounts and transactions have been eliminated.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
The Partnership's investments in Auburn Joint Venture, Show Low Joint
Venture, Asheville Joint Venture, Warren Joint Venture, and Melbourne
Joint Venture and properties in Clinton, North Carolina; Vancouver,
Washington; Overland Park, Kansas; Memphis, Tennessee; Fort Myers,
Florida; Baytown, Texas; Waldorf, Maryland; and Niles, Illinois, each
of which is held as tenants-in-common with affiliates of the general
partners, are accounted for using the equity method since the joint
venture agreement requires the consent of all partners on all key
decisions affecting the operations of the underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts.
Lease Costs - Other assets include brokerage fees and lease incentive
costs incurred in finding new tenants and negotiating new leases for
the Partnership's properties which are amortized over the terms of the
new leases using the straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment. See "Income Taxes"
footnote for a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2001 presentation.
These reclassifications had no effect on total partners' capital or net
income.
Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Partnership
to defer recognition of certain percentage rental income until certain
defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material
impact on the Partnership results of operations.
Statement of Financial Accounting Standards No. 141 ("FAS 141") and
Statement of Financial Accounting Standards No. 142 ("FAS 142") - In
July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" (FAS
141) and Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" (FAS 142). The Partnership has reviewed
both statements and has determined that both FAS 141 and FAS 142 do not
apply to the Partnership as of December 31, 2001.
Statement of Financial Accounting Standards No. 144 ("FAS 144") - In
October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement requires
that a long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
the date it is tested for recoverability. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds its
fair value. If an impairment is recognized, the adjusted carrying
amount of a long-lived asset is its new cost basis. The adoption of FAS
144 did not have any effect on the partnership's recording of
impairment losses as this Statement retained the fundamental provisions
of FAS No. 121 "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of."
2. Leases:
------
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." The leases generally are
classified as operating leases; however, some leases have been
classified as direct financing leases. For the leases classified as
direct financing leases, the building portions of the property leases
are accounted for as direct financing leases while the land portions of
some of these leases are operating leases. Substantially all leases are
for 15 to 20 years and provide for minimum and contingent rentals. In
addition, the tenant pays all property taxes and assessments, fully
maintains the interior and exterior of the building and carries
insurance coverage for public liability, property damage, fire and
extended coverage. The lease options generally allow tenants to renew
the leases for two to four successive five-year periods subject to the
same terms and conditions as the initial lease. Most leases also allow
the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at
December 31:
2001 2000
---------------- ---------------
Land $ 8,135,133 $ 6,645,816
Buildings 11,416,408 9,944,871
---------------- ---------------
19,551,541 16,590,687
Less accumulated depreciation (3,527,675 ) (3,162,184 )
---------------- ---------------
$ 16,023,866 $ 13,428,503
================ ===============
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
In January 2000, the Partnership reinvested a portion of the net sales
proceeds from the 1999 sale of the property in Sevierville, Tennessee
in a property located in Niles, Illinois, as a tenants-in-common with
affiliates of the general partners (see Note 5).
In September 2000, the Partnership sold four of its properties, three
in Jacksonville, Florida and one in Tallahassee, Florida, to a third
party for a total of approximately $2,081,800 and received net sales
proceeds totaling approximately $2,071,800 resulting in gains totaling
approximately $639,800. In February 2001, the Partnership reinvested
the net sales proceeds in two additional properties located in Burley,
Idaho and Cleburne, Texas at an approximate cost of $2,098,400. The
Partnership acquired these properties from CNL Funding 2001-A, LP, a
Delaware limited partnership and an affiliate of the general partners
(see Note 10).
During 2000, the Partnership recorded a provision for write-down of
assets of $368,430 relating to the property located in Chester,
Pennsylvania due to the fact that the operator of this property vacated
the property and ceased operations. The provision represented the
difference between the net carrying value of the property at December
31, 2000, and the realizable value for this property. In May 2001, the
Partnership sold this property to an unrelated third party for $85,000
and received net sales proceeds of $83,000. During 2001, the
Partnership recorded an additional loss of $14,008 upon the sale of the
property.
In December 2001, the Partnership reinvested the net sales proceeds
from the sale of the property in Round Rock, Texas, which the
Partnership held as tenants-in-common with CNL Income Fund XI, Ltd.
(see Note 5), in a property in Houston, Texas at an approximate cost of
$964,900. The Partnership acquired this property from CNL Funding
2001-A, LP, a Delaware limited partnership and an affiliate of the
general partners (see Note 10).
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2001:
2002 $2,050,440
2003 2,029,122
2004 2,016,977
2005 1,355,367
2006 1,265,516
Thereafter 9,761,483
----------------
$18,478,905
================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2001 2000
------------ ------------
Minimum lease payments receivable $ 4,513,438 $ 5,684,730
Estimated residual values 709,897 1,244,870
Less unearned income (2,824,006 ) (3,604,734 )
------------ ------------
Net investment in direct financing leases $ 2,399,329 $ 3,324,866
============ ============
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Net Investment in Direct Financing Leases - Continued:
-----------------------------------------------------
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2001:
2002 $ 347,756
2003 347,756
2004 347,756
2005 350,645
2006 365,875
Thereafter 2,753,650
---------------
$ 4,513,438
===============
The above table does not include future minimum lease payments for
renewal periods, for contingent rental payments that may become due in
future periods (see Note 3).
During the year ended December 31, 2000, the tenant relating to the
property in Chester, Pennsylvania, defaulted under the terms of its
lease and vacated the property and terminated its lease. In connection
with the termination, the Partnership received termination income in
consideration for the Partnership releasing the tenant from its
obligations under the lease. As a result, the Partnership reclassified
the related assets from net investment in direct financing leases to
land and building on operating leases. In accordance with Statement of
Financial Accounting Standards No. 13, "Accounting for Leases," the
Partnership recorded the reclassified asset at the lower of original
cost, present fair value, or present carrying value. No loss on
termination of direct financing leases was recorded. In May 2001, the
Partnership sold this property to an unrelated third party (see Note
3).
In December 2001, the Partnership sold its property in Cheyenne,
Wyoming for which the land and building portions were classified as a
direct financing lease. In connection with the sale, the gross
investment (minimum lease payments receivable and the estimated
residual value) and unearned income relating to the assets classified
as a direct financing lease, were removed from the accounts. The
Partnership sold this property to an unrelated third party for
approximately $300,000 and received net sales proceeds of approximately
$290,800, resulting in a gain of $2,111.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures:
----------------------------
The Partnership has a 3.9%, a 36%, a 14.46%, a 64.29%, a 50%, a 23.04%,
an 18%, a 34.74%, a 46.2% and an 85% interest in the profits and losses
of Auburn Joint Venture, Show Low Joint Venture, Asheville Joint
Venture, Warren Joint Venture, Melbourne Joint Venture, a property in
Vancouver, Washington, a property in Clinton, North Carolina, a
property in Overland Park, Kansas, a property in Memphis, Tennessee,
and a property in Fort Myers, Florida, held as tenants-in-common,
respectively. The remaining interests in these joint ventures and the
properties held as tenants in common are held by affiliates of the
Partnership which have the same general partners.
In October 1999, the Partnership used the majority of the net sales
proceeds from the sales of the properties in Walker Springs and
Broadway, Tennessee, to invest in two properties, one in each of
Baytown, Texas and Round Rock, Texas, with CNL Income Fund III, Ltd.
and CNL Income Fund XI, Ltd., respectively, affiliates of the general
partners, as tenants-in-common, for an 80% and a 77% interest,
respectively, in the properties. As of December 31, 2000, the
Partnership had contributed a total of approximately $2,108,100 to
these tenancy in common arrangements. In October 2001, the Partnership
and CNL Income Fund XI, Ltd. sold the property in Round Rock, Texas,
for approximately $1,539,000 and received net sales proceeds of
approximately $1,510,700, resulting in a gain, to the
tenancy-in-common, of approximately $123,900. The Partnership received
approximately $1,156,300 as a liquidating distribution for its pro-rata
share of the net sales proceeds. In December 2001, the Partnership
reinvested the majority of these proceeds in a property in Houston,
Texas (see Note 3).
In addition, in November 1999, the Partnership used the majority of the
net sales proceeds from the sale of the property in Greeneville,
Tennessee, and the property in Liverpool, New York, to invest
$1,162,602 in an IHOP Property in Dublin, California with CNL Income
Fund IX, Ltd., an affiliate of the general partners, as
tenants-in-common, for 75% interest in the property. In June 2001, the
Partnership and CNL Income Fund IX, Ltd. sold this property for
approximately $1,743,300 and received net sales proceeds of
approximately $1,699,600, resulting in a gain, to the
tenancy-in-common, of approximately $158,100. The Partnership received
approximately $1,273,800 as a liquidating distribution for its pro-rata
share of the net sales proceeds.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
In July 2001, the Partnership reinvested these net sales proceeds in a
property in Waldorf, Maryland, as tenants-in-common with CNL Income
Fund IX, Ltd. and CNL Income Fund XVII, Ltd., each of which is a
Florida limited partnership and an affiliate of the general partners.
As of December 31, 2001, the Partnership had contributed approximately
$1,368,300 for a 60% interest in the property.
During 2000, the lease relating to the property owned by Melbourne
Joint Venture was amended to provide for rent reductions. As a result,
the joint venture reclassified the building portion of the property
from a net investment in direct financing lease to an operating lease.
In accordance with Statement of Financial Accounting Standards No. 13,
"Accounting for Leases" the joint venture recorded the reclassified
asset at the lower of original cost, present fair value, or present
carrying value. No loss on termination of direct financing leases was
recorded. As of December 31, 2000, the joint venture, in which the
Partnership has a 50% interest, recorded a provision for write-down of
assets totaling approximately $219,100, due to the fact that the
operator of this property vacated the property and ceased operations.
The provision represented the difference between the property's net
carrying value at December 31, 2000 and the general partners' estimate
of net realizable value of the property. In June 2001, the joint
venture re-leased this property to a new tenant.
In January 2000, the Partnership used the net sales proceeds received
from the 1999 sale of a property in Sevierville, Tennessee, to acquire
an interest in a Baker's Square property in Niles, Illinois, with CNL
Income Fund XIV, Ltd., a Florida limited partnership and an affiliate
of the general partners, as tenants-in-common. The Partnership acquired
this interest from CNL BB Corp., an affiliate of the general partners.
In connection therewith, the Partnership and CNL Income Fund XIV, Ltd.
entered into an agreement whereby each co-venturer will share in the
profits and losses of the property in proportion to its applicable
percentage interest. As of December 31, 2001, the Partnership owned a
74% interest in this property.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
In January 2002, Houlihan's Restaurant, Inc., which leases the property
owned by Show Low Joint Venture, filed for bankruptcy and rejected the
lease relating to this property (see Note 13). As a result, at December
31, 2001, the joint venture reclassified the building portion of the
property from a net investment in direct financing lease to an
operating lease. In accordance with Statement of Financial Accounting
Standards No. 13, "Accounting for Leases" the joint venture recorded
the reclassified asset at the lower of original cost, present fair
value, or present carrying value. No loss on termination of direct
financing leases was recorded. In addition, during the year ended
December 31, 2001, the Partnership recorded a provision for write-down
of assets of $56,398 related to previously accrued rental income
relating to this property. The accrued rental income was the
accumulated amount of non-cash accounting adjustments previously
recorded in order to recognize future scheduled rent increases as
income evenly over the term of the lease. The provision represented the
difference between the carrying value of the property, including the
accumulated accrued rental income balance and the joint venture's
estimated net realizable value of the property.
Auburn Joint Venture, Show Low Joint Venture, Asheville Joint Venture,
Melbourne Joint Venture, Warren Joint Venture, and the Partnership and
affiliates as tenants-in-common in eight separate tenancy-in-common
arrangements, each own and lease one property to an operator of
national fast-food and family-style restaurants. The following presents
the combined, condensed financial information for the joint ventures
and the properties held as tenants-in-common with affiliates at
December 31:
2001 2000
----------------- ------------------
Land and buildings on operating leases, net $ 13,817,152 $ 14,169,149
Net investment in direct financing leases 2,750,031 3,273,874
Cash 86,895 43,276
Receivables, less allowance for doubtful
accounts 31,451 41,191
Accrued rental income 497,023 476,522
Other assets 3,412 1,927
Liabilities 1,057 23,270
Partners' capital 17,184,907 17,982,669
Revenues 1,671,581 1,861,676
Provision for write-down of assets -- (219,053 )
Net income 1,357,037 1,320,968
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
The Partnership recognized income totaling $987,886, $672,749, and
$524,643, for the years ended December 31, 2001, 2000, and 1999,
respectively, from these joint ventures and the properties held as
tenants-in-common with affiliates.
6. Restricted Cash:
---------------
As of December 31, 2000, the net sales proceeds of $2,061,560 from the
sales of the four Popeye's properties, plus accrued interest of $476,
were being held in interest-bearing escrow accounts pending the release
of funds by the escrow agent to acquire additional properties on behalf
of the Partnership. These funds were released by the escrow agent in
January 2001 and were used to acquire two properties in Burley, Idaho
and Cleburne, Texas (see Note 3).
7. Receivables:
-----------
In June 1997, the Partnership terminated the lease with the tenant of
the property in Greensburg, Indiana. In connection therewith, the
Partnership accepted a promissory note from the former tenant for
$13,077 for amounts relating to past due real estate taxes the
Partnership had incurred as a result of the former tenant's financial
difficulties. The promissory note, which is uncollateralized, bears
interest at a rate of ten percent per annum and is being collected in
36 monthly installments. Receivables at December 31, 2000 included
$1,657 of such amounts, which were collected during 2001.
8. Allocations and Distributions:
-----------------------------
From inception through December 31, 1999, generally, all net income and
net losses of the Partnership, excluding gains and losses from the sale
of properties, were allocated 99% 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; provided however,
that the one percent of net cash flow to be distributed to the general
partners was subordinated to receipt by the limited partners of an
aggregate, ten percent, cumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. Allocations and Distributions - Continued:
-----------------------------------------
From inception through December 31, 1999, generally, net sales proceeds
from the sale of properties not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their 10% Preferred
Return, plus the return of their adjusted capital contributions. The
general partners then received, to the extent previously subordinated
and unpaid, a one percent interest in all prior distributions of net
cash flow and a return of their capital contributions. Any remaining
sales proceeds were distributed 95% 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 amounts
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.
Effective January 1, 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partner in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the years
ended December 31, 2001 or 2000.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. Allocations and Distributions - Continued:
-----------------------------------------
During each of the years ended December 31, 2001, 2000, and 1999, the
Partnership declared distributions to the limited partners of
$3,150,000. No distributions have been made to the general partners to
date.
9. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2001 2000 1999
--------------- ---------------- ---------------
Net income for financial reporting purposes $ 2,033,137 $ 3,016,796 $ 3,510,474
Depreciation for tax reporting purposes in excess of
depreciation for financial reporting purposes (31,672) (57,187) (61,184)
Provision for write-down of assets 565,061 368,430 --
Direct financing leases recorded as operating leases for
tax reporting purposes 71,806 68,794 64,696
Gain and loss on sale of assets for financial reporting
purposes in excess of gain and loss on sale for tax
reporting purposes (216,733) (639,806) (459,787)
Equity in earning of unconsolidated joint ventures for
financial reporting purposes (in excess of) less than
equity in earnings of unconsolidated joint ventures for
tax reporting purposes (264,234) 4,976 (70,289)
Allowance for doubtful accounts (43,067) (46,628) (83,316)
Accrued rental income (56,778) (97,498) (95,735)
Rents paid in advance 25,270 (4,381) (10,241)
Capitalization (deduction) of transaction costs for tax
reporting purposes -- (194,444) 174,233
Minority interest in timing differences of consolidated
joint venture (267) 3,761 15,618
--------------- ---------------- ---------------
Net income for federal income tax purposes $ 2,082,523 $ 2,422,813 $ 2,984,469
=============== ================ ===============
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
10. 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 (the "Advisor") is a wholly owned subsidiary
of CNL American Properties Fund, Inc. ("APF"). CNL Fund Advisors, Inc.,
a majority owned subsidiary of CNL Financial Group, Inc. until it
merged with and into APF effective September 1, 1999, served as the
Partnership's advisor until it assigned its rights in and obligations
under a management agreement with the Partnership to the Advisor
effective July 1, 2000. The individual general partners are
stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with
the Partnership. In connection therewith, the Partnership agreed to pay
the Advisor a 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 and
the property held as tenants-in-common with an affiliate, but not in
excess of competitive fees for comparable services. These fees are
payable only after the limited partners receive their 10% Preferred
Return. Due to the fact that these fees are noncumulative, if the
limited partners have not received their 10% Preferred Return in any
particular year, no management fees will be due or payable for such
year. As a result of such threshold, no management fees were incurred
during the years ended December 31, 2001 and 2000.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the sales proceeds are reinvested in a placement 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. No deferred,
subordinated real estate disposition fees have been incurred since
inception.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
10. Related Party Transactions:
--------------------------
During the year ended December 31, 2000, the Partnership and CNL Income
Fund XIV, Ltd., as tenants-in-common, acquired an interest in a Baker's
Square property from CNL BB Corp., an affiliate of the general
partners, for a purchase price of $1,112,500. CNL Income Fund XIV,
Ltd., is a Florida limited partnership and an affiliate of the general
partners. CNL BB Corp. had purchased and temporarily held title to this
property in order to facilitate the acquisition of the property by the
Partnership. The purchase price paid by the Partnership represents the
costs incurred by CNL BB Corp. to acquire and carry the property,
including closing costs.
In addition, during 2001, the Partnership acquired three properties,
one in Burley, Idaho, one in Cleburne, Texas, and one in Houston,
Texas, from CNL Funding 2001-A, LP, for a purchase price of
approximately $3,063,300 (see Note 3). CNL Funding 2001-A, LP is a
Delaware limited partnership and an affiliate of the general partners.
CNL Funding 2001-A, LP had purchased and temporarily held title to the
properties in order to facilitate the acquisition of the properties by
the Partnership. The purchase price paid by the Partnership represented
the costs incurred by CNL Funding 2001-A, LP to acquire and carry the
properties, including closing costs.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership's Advisor and its affiliates provided accounting and
administrative services to the Partnership on a day-to-day basis,
including services during 2000 and 1999 relating to the proposed and
terminated merger. The Partnership incurred $198,307, $97,772, and
$118,067, for the years ended December 31, 2001, 2000, and 1999,
respectively, for such services.
The due to related parties at December 31, 2001 and 2000, totaled
$11,507 and $5,396, respectively.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
11. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned income (including the
Partnership's share of total rental and earned income from joint
ventures and the properties held as tenants-in-common with affiliates
of the general partners) for each of the years ended December 31:
2001 2000 1999
-------------- ---------------- ---------------
Golden Corral Corporation $779,116 $ 771,099 $761,226
IHOP Properties, Inc. 772,413 864,889 574,011
Restaurant Management of S.C., Inc. N/A N/A 404,659
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of total rental and earned income
from joint ventures and the properties held as tenants-in-common with
affiliates of the general partners) for each of the years ended
December 31:
2001 2000 1999
-------------- ---------------- ----------------
Golden Corral Family Steakhouse
Restaurants $779,116 $ 771,099 $ 761,226
IHOP 772,413 864,889 574,011
The information denoted by N/A indicates that for each period
presented, the tenant did not represent more than ten percent of the
Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
12. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2001 and
2000.
2001 Quarter First Second Third Fourth Year
------------------------ -------------- ------------- ------------- -------------- --------------
Revenue (1) $804,867 $888,215 $775,176 $936,788 $ 3,405,046
Net income 523,339 379,518 333,791 796,489 2,033,137
Net income per
limited partner
unit 7.48 5.42 4.77 11.37 29.04
2000 Quarter First Second Third Fourth Year
------------------------ -------------- ------------- ------------- -------------- --------------
Revenue (1) $872,222 $685,446 $830,586 $823,253 $ 3,211,507
Net income 660,915 506,573 1,484,346 364,962 3,016,796
Net income per
limited partner
unit 9.35 7.16 21.02 5.57 43.10
(1) Revenues include equity in earnings of unconsolidated joint
ventures, minority interest in income of consolidated joint
ventures and interest and other income.
13. Subsequent Event:
----------------
In January 2002, Houlihan's Restaurant, Inc., which leases the property
owned by Show Low Joint Venture, filed for bankruptcy and rejected the
lease relating to this property.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Financial Group, Inc.
and their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 55. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL American Properties Fund,
Inc. ("APF"), a public, unlisted real estate investment trust, since 1994. Mr.
Seneff served as Chief Executive Officer of APF from 1994 through August 1999,
and has served as Co-Chief Executive Officer of APF since December 2000. Mr.
Seneff served as Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors, Inc., formerly the Partnership's advisor, until it merged with a
wholly-owned subsidiary of APF in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc., a diversified real estate company, and has served as a Director,
Chairman of the Board and Chief Executive Officer of CNL Financial Group, Inc.
since its formation in 1980. CNL Financial Group, Inc. is the parent company,
either directly or indirectly through subsidiaries, of CNL Real Estate Services,
Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp.
Mr. Seneff also serves as a Director, Chairman of the Board and Chief Executive
Officer of CNL Hospitality Properties, Inc., a public, unlisted real estate
investment trust, as well as, CNL Hospitality Corp., its advisor. In addition,
he serves as a Director, Chairman of the Board and Chief Executive Officer of
CNL Retirement Properties, Inc., a public, unlisted real estate investment trust
and its advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has also served as
a Director, Chairman of the Board and Chief Executive Officer of Commercial Net
Lease Realty, Inc., a public real estate investment trust that is listed on the
New York Stock Exchange. Mr. Seneff has also served as a Director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a Director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNL Bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 54. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne is
Director of the Board of Directors of APF. Mr. Bourne served as President of APF
from 1994 through February 1999. He also served as Treasurer from February 1999
through August 1999 and from May 1994 through December 1994. He also served in
various executive positions with CNL Fund Advisors, Inc. prior to its merger
with a wholly-owned subsidiary of APF including, President from 1994 through
September 1997, and Director from 1994 through August 1999. Mr. Bourne serves as
President and Treasurer of CNL Financial Group, Inc.; Director, Vice Chairman of
the Board, President and Treasurer of CNL Hospitality Properties, Inc., a
public, unlisted real estate investment trust; as well as, Director, Vice
Chairman of the Board, President and Treasurer of CNL Hospitality Corp., its
advisor. In addition, Mr. Bourne serves as Director, Vice Chairman of the Board,
President and Treasurer of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust; as well as, a Director, Vice Chairman of the
Board, President and Treasurer of its advisor, CNL Retirement Corp. Mr. Bourne
also serves as a Director of CNL Bank. He has served as a Director since 1992,
Vice Chairman of the Board since February 1996, Secretary and Treasurer from
February 1996 through 1997, and President from July 1992 through February 1996,
of Commercial Net Lease Realty, Inc., a public real estate investment trust
listed on the New York Stock Exchange. Mr. Bourne also serves as Director,
President and Treasurer for various affiliates of CNL Financial Group, Inc.
including, CNL Investment Company, CNL Securities Corp. and CNL Institutional
Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified Public Accountants, from 1971 through 1978, where he attained the
position of Tax Manager in 1975. Mr. Bourne graduated from Florida State
University in 1970 where he received a B.A. in Accounting, with honors.
Curtis B. McWilliams, age 46. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as Chief
Executive Officer from September 1999 through December 2000. Prior to the
acquisition of CNL Fund Advisors, Inc., Mr. McWilliams served as President of
APF from February 1999 until September 1999. From February 1998 to February
1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL
Financial Group, Inc. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc. from April
1997 until the acquisition of such entities by wholly-owned subsidiaries of APF
in September 1999. From September 1983 through March 1997, Mr. McWilliams was
employed by Merrill Lynch & Co. The majority of his career at Merrill Lynch &
Co. was in the Investment Banking division where he served as a Managing
Director. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.
Steven D. Shackelford, age 38. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors, Inc. from September 1996 to September 1999. From March
1995 to July 1996, Mr. Shackelford was a senior manager in the national office
of Price Waterhouse LLP where he was responsible for advising foreign clients
seeking to raise capital and a public listing in the United States. From August
1992 to March 1995, he was a manager in the Paris, France office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and senior from 1986 to 1992 in the Orlando, Florida office of Price
Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business Administration degree from Florida State
University and is a certified public accountant.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 15, 2002, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 15, 2002, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2001, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and administrative
operating expenses the lower of cost or 90% of the services: $198,307
prevailing rate at which comparable
services could have been obtained in
the same geographic area.
Affiliates of the General Partners
from time to time incur certain
operating expenses on behalf of the
Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual, subordinated 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 and the Property owned
with an affiliate as tenants-in-
common, 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 have not
received their 10% Preferred Return
in any particular year, no
management fees will be due
or payable for such year.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee payable disposition fee, payable upon sale
to affiliates of one or more Properties, in an
amount equal to the lesser of (i)
one-half of a competitive real
estate commission, or (ii) three
percent of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the sale
of a Property or Properties and
shall be subordinated to certain
minimum returns to the Limited
Partners. However, if the net sales
proceeds are reinvested in a
replacement Property, no such real
estate disposition fee will be
incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales proceeds distributions of such net sales
from a sale or sales not in proceeds, subordinated to certain
liquidation of the Partnership minimum returns to the Limited
Partners.
Amount Incurred
Type of Compensation For the Year
And Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net loss,
gain and loss, in proportion to such
balances, up to amounts sufficient
to reduce such balances to zero; and
(iii) thereafter, 95% to the Limited
Partners and 5% to the General Partners.
In addition, during 2001, the Partnership acquired three Properties from CNL
Funding 2001-A, LP, an affiliate of the General Partners, for a purchase price
of approximately $3,063,300. CNL Funding 2001-A, LP had purchased and
temporarily held title to these Properties in order to facilitate the
acquisition of the Properties by the Partnership. The purchase price paid by the
Partnership represents the costs incurred by CNL Funding 2001-A, LP to acquire
and carry the Properties, including closing costs.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2001 and 2000
Statements of Income for the years ended December 31, 2001,
2000, and 1999
Statements of Partners' Capital for the years ended December
31, 2001, 2000, and 1999
Statements of Cash Flows for the years ended December 31,
2001, 2000, and 1999
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II -Valuation and Qualifying Accounts for the years
ended December 31, 2001, 2000 and 1999
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2001
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2001
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund
VI, Ltd. (Included as Exhibit 3.3 to Registration
Statement No. 33-23892 on Form S-11 and incorporated
herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund
VI, Ltd. (Included as Exhibit 4.2 to Registration
Statement No. 33-23892 on Form S-11 and incorporated
herein by reference.)
4.2 Agreement and Certificate of Limited Partnership of
CNL Income Fund VI, Ltd. (Included as Exhibit 4.2 to
Form 10-K filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated herein
by reference.)
10.1 Management Agreement (Included as Exhibit 10.1 to
Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein
by reference.)
10.2 Assignment of 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
Exchange Commission on August 9, 2001, and
incorporated herein by reference).
(b) The Registrant filed no reports on Form 8-K during the period
October 1, 2001 through December 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 25th day of
March, 2002.
CNL INCOME FUND VI, 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, 2002
- ------------------------------------ (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 25, 2002
- ------------------------------------ (Principal Executive Officer)
James M. Seneff, Jr.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000, and 1999
Additions Deductions
------------------------------------------------- --------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ------- ----------------- -------------- --------------- ---------------- ------------- -------------- ------------
1999 Allowance for
doubtful
accounts (a) $ 362,757 $ -- $ 29,049 (b) $ -- $ 103,591 $ 288,215
============== =============== ================ ============= ============== ============
2000 Allowance for
doubtful
accounts (a) $ 288,215 $ -- $ 37,003 (b) $ -- $ 83,631 $ 241,587
============== =============== ================ ============= ============== ============
2001 Allowance for
doubtful
accounts (a) $ 241,587 $ 44,987 $ 164,929 (b) $ 243,222 (c) $ 9,761 $ 198,520
============== =============== ================ ============= ============== ============
(a) Deducted from receivables and accrued rental income on the
balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
Costs Capitalized
Subsequent to
Initial Cost Acquisition
------------------------- ------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
---------- ------------ ------------ --------- -------
Properties the Partnership
has Invested in Under
Operating Leases:
Arby's Restaurants:
Greensburg, Indiana - $222,559 - $640,529 -
Church's Fried Chicken
Restaurants:
Gainesville, Florida - 83,542 208,564 192,227 -
Orlando,Florida - 177,440 270,985 - -
Durangos Steakhouse:
Marietta, Georgia - 399,885 712,762 - -
Golden Corral Family
Steakhouse Restaurants:
Albuquerque, New Mexi-o 717,708 1,018,823 - -
Amarillo, Texas - 773,627 908,171 - -
Lawton, Oklahoma - 559,095 838,642 - -
El Paso, Texas - 670,916 - 837,317 -
Hardee's Restaurants:
Springfield, Tennessee - 203,159 413,221 - -
IHOP:
Elgin, Illinois - 426,831 - - -
Manassas, Virginia - 366,992 759,788 - -
Jack in the Box Restaurant:
San Antonio, Texas - 272,300 - - -
Cleburne, Texas - 516,894 620,888 - -
Burley, Idaho - 453,108 507,477 - -
KFC Restaurants:
Caro, Michigan - 150,804 - 373,558 -
Gainesville, Florida - 321,789 287,429 - -
Shoney's Restaurant:
Goodlettsville, Tennessee- 320,540 531,507 - -
Taco Bell Restaurant:
Detroit, Michigan - 171,240 - 385,709 -
Taco Cabana Restaurant:
Houston, Texas - 543,888 420,965 - -
Waffle House Restaurants:
Clearwater Florida - 130,499 268,580 - -
Roanoke, Virginia - 119,533 236,219 - -
Atlantic Beach, Florida - 141,627 263,021 - -
Other:
Hermitage, Tennessee - 391,157 - 720,026 -
------------ ------------ --------- -------
$8,135,133 $8,267,042 $3,149,366 -
============ ============ ========= =======
Property of Joint Venture
in Which the Partnership
has a 36% Interest and has
Invested in Under an
Operating Lease:
Darryl's Restaurant:
Greensboro, North Carolin- (j) $261,013 - $489,757 -
============ ============ ========= =======
Property of Joint Venture
in Which the Partnership
has a 3.9% Interest and has
Invested in Under an
Operating Lease:
KFC Restaurant:
Auburn, Massachusetts - $484,362 - - -
============ ============ ========= =======
Property of Joint Venture
in Which the Partnership
has a 14.46% Interest and has
Invested in Under an
Operating Lease:
Burger King Restaurant:
Asheville, North Carolina- $438,695 $450,432 - -
============ ============ ========= =======
Property in Which the Partner-
ship has a 18% Interest
as Tenants-in-Common and
has Invested in Under an
Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Clinton, North Caroli-a $138,382 $676,588 - -
============ ============ ========= =======
Property in Which the Partner-
ship has a 23.04% Interest
as Tenants-in-Common and
has Invested in Under an
Operating Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $875,659 $1,389,366 - -
============ ============ ========= =======
Property in Which Partnership
has a 46.20% Interest as
Tenants-in-Common has
Invested in Under an
Operating Lease:
IHOP Restaurant:
Memphis, Tennessee - $678,890 $825,076 - -
============ ============ ========= =======
Property of Joint Venture
in Which the Partnership
has a 50% Interest and
has Invested in Under an
Operating Lease:
Denny's
Melbourne, Florida(i) - $438,972 $639,141 - -
============ ============ ========= =======
Property in Which the Partnership
has a 85% Interest as
Tenants-in-Common and
has Invested in Under an
Operating Lease:
Bennigan's Restaurant:
Fort Myers, Florida - $638,026 - - -
============ ============ ========= =======
Property of Joint Venture
in Which the Partnership
has a 64.29% Interest and
has Invested in Under an
Operating Lease:
IHOP Restaurant:
Warren,nMichiganan - $507,965 $889,080 - -
============ ============ ========= =======
Property in Which
the Partnership has a 80% as
Tenants-in-Common Interest
and has Invested in Under
an Operating Lease:
IHOP Restaurant:
Baytown,,Texasigan - $495,847 $799,469 - -
============ ============ ========= =======
Property in Which
the Partnership has a 60% as
Tenants-in-Common Interest
and has Invested in Under
an Operating Lease:
Bennigan's Restaurant:
Waldorf,,Marylandn - $968,984 $1,311,515 - -
============ ============ ========= =======
Property in Which
the Partnership has a 74% as
Tenants-in-Common Interest
and has Invested in Under
an Operating Lease:
Baker's Square
Niles, Illinois - $664,944 $838,434 - -
============ ============ ========= =======
Properties the Partnership
has Invested in Under
Direct Financing Leases:
Denny's Restaurant:
Broken Arrow, Oklahoma - 164,640 559,972 - -
IHOP:
Elgin, Illinois - - 1,057,282 - -
Hardee's Restaurant:
Waynesburg, Ohio - 136,242 441,299 - -
Jack in the Box Restaurant:
San Antonio, Texas - - 420,568 - -
------------ ------------ --------- -------
- $300,882 $2,479,121 - -
============ ============ ========= =======
Property of Joint Venture in
Which the Partnership has a
3.9% Interest and has
Invested in Under a Direct
Financing Lease:
KFC Restaurant:
Auburn, Massachusetts - - - $434,947 -
============ ============ ========= =======
Property in Which the Partnerhsip
has a 34.74% Interest as
Tenants-in-Common and
has Invested in Under
a Direct Financing Lease:
IHOP Restaurant:
Overland Park, Kansas - $335,374 $1,273,134 - -
============ ============ ========= =======
Property in Which the Partnership
has a 85% Interest as
Tenants-in-Common and
has Invested in Under
a Direct Financing Lease:
Bennigan's Restaurant:
Fort Myers, Florida - - $831,741 - -
============ ============ ========= =======
$222,559 $640,529 $863,088 $232,292 1989 07/89 (b)
83,542 400,791 484,333 151,985 1990 04/90 (b)
177,440 270,985 448,425 105,474 1985 04/90 (b)
399,885 712,762 1,112,647 115,187 1993 02/97 (b)
717,708 1,018,823 1,736,531 408,093 1989 12/89 (b)
773,627 908,171 1,681,798 363,766 1989 12/89 (b)
559,095 838,642 1,397,737 335,916 1989 12/89 (b)
670,916 837,317 1,508,233 318,716 1990 04/90 (b)
203,159 413,221 616,380 153,099 1990 11/90 (b)
426,831 (f) 426,831 (d) 1997 12/97 (d)
366,992 759,788 1,126,780 101,441 1986 12/97 (b)
272,300 (f) 272,300 (d) 1990 08/90 (d)
516,894 620,888 1,137,782 20,696 2000 01/01 (b)
453,108 507,477 960,585 16,916 2000 01/01 (b)
150,804 373,558 524,362 146,311 1990 03/90 (b)
321,789 287,429 609,218 106,992 1985 11/90 (b)
320,540 531,507 852,047 217,773 1988 09/89 (b)
171,240 385,709 556,949 153,403 1990 01/89 (b)
543,888 420,965 964,853 1,169 1990 12/01 (b)
130,499 268,580 399,079 107,162 1988 01/90 (b)
119,533 236,219 355,752 94,250 1987 01/90 (b)
141,627 263,021 404,648 104,656 1986 01/90 (b)
391,157 720,026 1,111,183 272,377 1990 02/90 (b)
- ------------- ----------- ----------- ----------
$8,135,133 $11,416,408 $19,551,541 $3,527,675
============= =========== =========== ==========
$261,013 $489,757 $750,770 $9,603 1974 06/97 (b)
============= =========== =========== ==========
$484,362 (f) $484,362 (d) 1989 01/90 (d)
============= ===========
$438,695 $450,432 $889,127 $161,992 1986 03/91 (b)
============= =========== =========== ==========
$138,382 $676,588 $814,970 $133,933 1996 01/96 (b)
============= =========== =========== ==========
$875,659 $1,389,366 $2,265,025 $185,373 1994 12/97 (b)
============= =========== =========== ==========
$678,890 $825,076 $1,503,966 $109,151 1997 01/98 (b)
============= =========== =========== ==========
$438,972 $420,088 $859,060 $30,294 1998 04/98 (i)
============= =========== =========== ==========
$638,026 (f) $638,026 (d) - 06/98 (d)
============= ===========
$507,965 $889,080 $1,397,045 $97,675 - 09/98 (b)
============= =========== =========== ==========
$495,847 $799,469 $1,295,316 $58,616 1998 10/99 (b)
============= =========== =========== ==========
$968,984 $1,311,515 $2,280,499 $21,859 2001 07/01 (b)
============= =========== =========== ==========
$664,944 $838,434 $1,503,378 $55,896 2000 01/00 (b)
============= =========== =========== ==========
(f) (f) (f) (e) 1982 08/95 (e)
- (f) (f) (e) 1997 12/97 (e)
(f) (f) (f) (e) 1990 11/90 (e)
- (f) (f) (d) 1990 08/90 (d)
- -------------
-
=============
- (f) (f) (d) 1989 01/90 (d)
=============
(f) (f) (f) (d) - 01/98 (d)
- (f) (f) (d) - 06/98 (d)
=============
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(a) Transactions in real estate and accumulated depreciation during 2001,
2000, and 1999, are summarized as follows:
Accumulated
Cost Depreciation
---------------------- ---------------------
Properties the Partnership has invested in Under
Operating leases:
Balance, December 31, 1998 $ 22,145,930 $ 3,586,086
Dispositions (3,818,459 ) (738,677 )
Depreciation expense -- 410,257
---------------------- ---------------------
Balance, December 31, 1999 18,327,471 3,257,666
Dispositions (1,839,149 ) (462,810 )
Reclassified from capital lease (h) 470,795 --
Provision for write-down of assets (368,430 ) --
Depreciation expense -- 367,328
---------------------- ---------------------
Balance, December 31, 2000 16,590,687 3,162,184
Dispositions (102,365 ) (5,357 )
Acquisitions 3,063,219 --
Depreciation expense -- 370,848
---------------------- ---------------------
Balance, December 31, 2001 $ 19,551,541 $ 3,527,675
====================== =====================
Property of Joint Venture in Which the Partnership has
a 36% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 261,013 $ --
Depreciation expense (d) -- --
---------------------- ---------------------
Balance, December 31, 1999 261,013 --
Depreciation expense (d) -- --
---------------------- ---------------------
Balance, December 31, 2000 261,013 --
Reclassified from capital lease (j) 489,757 --
Depreciation expense -- 9,603
---------------------- ---------------------
Balance, December 31, 2001 $ 750,770 $ 9,603
====================== =====================
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
--------------------- --------------------
Properties of Joint Venture in Which the Partnership
has a 3.9% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 484,362 $ --
Depreciation expense (d) -- --
--------------------- --------------------
Balance, December 31, 1999 484,362 --
Depreciation expense (d) -- --
--------------------- --------------------
Balance, December 31, 2000 484,362 --
Depreciation expense (d) -- --
--------------------- --------------------
Balance, December 31, 2001 $ 484,362 $ --
===================== ====================
Properties of Joint Venture in Which the Partnership
has a 14.46% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 889,127 $ 116,948
Depreciation expense -- 15,014
--------------------- --------------------
Balance, December 31, 1999 889,127 131,962
Depreciation expense -- 15,015
--------------------- --------------------
Balance, December 31, 2000 889,127 146,977
Depreciation expense -- 15,015
--------------------- --------------------
Balance, December 31, 2001 $ 889,127 $ 161,992
===================== ====================
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
--------------------- ------------------ ---
Properties of Joint Venture in Which the Partnership
has a 64.29% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 1,397,045 $ 8,769
Depreciation expense -- 29,636
---------------------- -------------------
Balance, December 31, 1999 1,397,045 38,405
Depreciation expense -- 29,635
---------------------- -------------------
Balance, December 31, 2000 1,397,045 68,040
Depreciation expense -- 29,635
---------------------- -------------------
Balance, December 31, 2001 $ 1,397,045 $ 97,675
====================== ===================
Properties in Which the Partnership has an 18% Interest
as Tenants-in-Common and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 814,970 $ 66,274
Depreciation expense -- 22,553
---------------------- -------------------
Balance, December 31, 1999 814,970 88,827
Depreciation expense -- 22,553
---------------------- -------------------
Balance, December 31, 2000 814,970 111,380
Depreciation expense -- 22,553
---------------------- -------------------
Balance, December 31, 2001 $ 814,970 $ 133,933
====================== ===================
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------------- --------------------
Properties in Which the Partnership has a 23.04%
Interest as Tenants-in-Common and has Invested in
Under an Operating Lease:
Balance, December 31, 1998 $ 2,265,025 $ 46,437
Depreciation expense -- 46,312
---------------------- --------------------
Balance, December 31, 1999 2,265,025 92,749
Depreciation expense -- 46,312
---------------------- --------------------
Balance, December 31, 2000 2,265,025 139,061
Depreciation expense -- 46,312
---------------------- --------------------
Balance, December 31, 2001 $ 2,265,025 $ 185,373
====================== ====================
Property in Which the Partnership has a 46.20% Interest
as Tenants-in-Common and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 1,503,966 $ 26,642
Depreciation expense -- 27,503
---------------------- --------------------
Balance, December 31, 1999 1,503,966 54,145
Depreciation expense -- 27,503
---------------------- --------------------
Balance, December 31, 2000 1,503,966 81,648
Depreciation expense -- 27,503
---------------------- --------------------
Balance, December 31, 2001 $ 1,503,966 $ 109,151
====================== ====================
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------------- --------------------
Property of Joint Venture in Which the Partnership has
a 50% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 1,042,865 $ 937
Reclassified to capital lease (g) (603,893 ) (937 )
Depreciation expense -- --
---------------------- --------------------
Balance, December 31, 1999 438,972 --
Reclassified from capital lease (i) 639,141 --
Provision for loss (219,053 ) --
Depreciation expense -- 16,220
---------------------- --------------------
Balance, December 31, 2000 859,060 16,220
Depreciation expense -- 14,074
---------------------- --------------------
Balance, December 31, 2001 859,060 $ 30,294
====================== ====================
Property in Which the Partnership has a 85% Interest
as Tenants-in-Common and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 638,026 $ --
Depreciation expense -- --
---------------------- --------------------
Balance, December 31, 1999 638,026 --
Depreciation expense (d) -- --
---------------------- --------------------
Balance, December 31, 2000 638,026 --
Depreciation expense (d) -- --
---------------------- --------------------
Balance, December 31, 2001 $ 638,026 $ --
====================== ====================
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------------- --------------------
Property of Joint Venture in Which the Partnership has
a 80% Interest as Tenants-in-Common and has
Invested in Under an Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 1,295,316 --
Depreciation expense -- 5,318
---------------------- --------------------
Balance, December 31, 1999 1,295,316 5,318
Depreciation expense -- 26,649
---------------------- --------------------
Balance, December 31, 2000 1,295,316 31,967
Depreciation expense -- 26,649
---------------------- --------------------
Balance, December 31, 2001 $ 1,295,316 $ 58,616
====================== ====================
Property in Which the Partnership has a 60% Interest as
Tenants-in-Common and has Invested in Under an
Operating Lease:
Balance, December 31, 2000 $ -- $ --
Acquisition 2,280,499 --
Depreciation expense -- 21,859
---------------------- --------------------
Balance, December 31, 2001 $ 2,280,499 $ 21,859
====================== ====================
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------------- --------------------
Property in Which the Partnership has a 74% Interest as
Tenants-in-Common and has Invested in Under an
Operating Lease:
Balance, December 31, 1999 $ -- $ --
Acquisition 1,503,378 --
Depreciation expense -- 27,948
---------------------- --------------------
Balance, December 31, 2000 1,503,378 27,948
Depreciation expense -- 27,948
---------------------- --------------------
Balance, December 31, 2001 $ 1,503,378 $ 55,896
====================== ====================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures (including the two Properties held as
tenants-in-common) for federal income tax purposes was $20,649,706 and
$17,578,300, respectively. All of the leases are treated as operating
leases for federal income tax purposes.
(d) The portion of the lease relating to the building has been recorded as
a direct financing lease. The cost of the building has been included in
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 land and building have been
recorded as a direct financing lease. Accordingly, costs relating to
these components of this lease are not shown.
(g) Effective September 24, 1999, the lease for this Property was amended
resulting in the reclassification of the building portion of the lease
as a capital lease.
(h) The undepreciated cost of the Property in Chester, Pennsylvania, was
written down to net realizable value due to an impairment in value. The
Partnership recognized the impairment by recording a provision for
write-down of assets in the amount of $368,430 at December 31, 2000.
The impairment represented the difference between the Property's
carrying value and the estimated net realizable value of the Property
at December 31, 2000. In May 2001, the Partnership sold this Property
to an unrelated third party.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
(i) During 2000, the undepreciated cost of the Property in Melbourne,
Florida, was reduced to its estimated net realizable value due to an
impairment in value. The tenant of this Property vacated the Property
and ceased restaurant operations, resulting in a reclassification of
the building portion of the lease to an operating lease. The building
was recorded at net book value and depreciated over its remaining
estimated life of approximately 29 years.
(j) In January 2002, the tenant of this Property filed for bankruptcy and
rejected the lease relating to this Property, resulting in the
reclassification of the building portion of the lease to an operating
lease, effective December 2001. The building was recorded at net book
value and is being depreciated over its remaining estimated life of
approximately 25.5 years.
(k) During the year ended December 31, 2001, the Partnership purchased land
and building from CNL Funding 2001-A, LP., an affiliate of the General
Partners, for an aggregate cost of $3,063,300.