FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended September 30, 2003
---------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _________________________ to ____________________
Commission file number
0-19144
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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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- -------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
--------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for 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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes___ No X
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
12
Item 4. Controls and Procedures 12
Part II.
Other Information 13-14
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
2003 2002
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 14,442,238 $ 14,701,960
Net investment in direct financing leases 1,792,578 1,835,770
Real estate held for sale -- 472,425
Investment in joint ventures 8,397,023 8,483,605
Cash and cash equivalents 1,982,905 1,168,450
Receivables, less allowance for doubtful accounts of $9,774 in
2002 9,310 676,461
Accrued rental income, less allowance for doubtful accounts of
$9,697, in 2003 and 2002 560,692 550,037
Other assets 38,310 30,256
------------------- -------------------
$ 27,223,056 $ 27,918,964
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 21,727 $ 34,851
Real estate taxes payable 10,902 13,010
Distributions payable 787,500 787,500
Due to related parties 17,786 14,423
Rents paid in advance 46,554 41,327
------------------- -------------------
Total liabilities 884,469 891,111
Partners' capital 26,338,587 27,027,853
------------------- -------------------
$ 27,223,056 $ 27,918,964
=================== ===================
See accompanying notes to condensed financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------------- -------------- ------------- -------------
Revenues:
Rental income from operating leases $ 473,059 $ 501,152 $1,427,218 $1,517,688
Earned income from direct financing leases 50,452 52,095 152,631 157,415
Contingent rental income 7,673 6,282 18,442 23,445
Interest and other income 1,461 2,767 1,738 9,277
------------- -------------- ------------- -------------
532,645 562,296 1,600,029 1,707,825
------------- -------------- ------------- -------------
Expenses:
General operating and administrative 54,722 60,952 188,193 196,857
Property related 14,776 3,537 21,257 49,844
State and other taxes 1,128 51 46,080 28,687
Depreciation and amortization 86,987 92,923 260,961 278,769
------------- -------------- ------------- -------------
157,613 157,463 516,491 554,157
------------- -------------- ------------- -------------
Income Before Gain on Casualty Loss of Building and
Equity in Earnings of Unconsolidated Joint Ventures 375,032 404,833 1,083,538 1,153,668
Gain on Casualty Loss of Building -- -- 12,356 --
Equity in Earnings of Unconsolidated Joint Ventures 176,396 198,605 535,681 539,032
------------- -------------- ------------- -------------
Income from Continuing Operations 551,428 603,438 1,631,575 1,692,700
Discontinued Operations:
Income from discontinued operations -- 28,406 41,659 93,999
------------- -------------- ------------- -------------
Net Income $ 551,428 $ 631,844 $1,673,234 $1,786,699
============= ============== ============= =============
Income Per Limited Partner Unit:
Continuing Operations $ 7.88 $ 8.62 $ 23.31 $ 24.18
Discontinued Operations -- 0.41 0.59 1.34
------------- -------------- ------------- -------------
$ 7.88 $ 9.03 $ 23.90 $ 25.52
============= ============== ============= =============
Weighted Average Number of Limited Partner
Units Outstanding 70,000 70,000 70,000 70,000
============= ============== ============= =============
See accompanying notes to condensed financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
2003 2002
--------------------- ------------------
General partners:
Beginning balance $ 291,598 $ 291,598
Net income -- --
--------------------- ------------------
$ 291,598 $ 291,598
--------------------- ------------------
Limited partners:
Beginning balance 26,736,255 27,413,939
Net income 1,673,234 2,472,316
Distributions ($33.75 and $45.00 per
limited partner unit, respectively) (2,362,500 ) (3,150,000 )
--------------------- ------------------
26,046,989 26,736,255
--------------------- ------------------
Total partners' capital $ 26,338,587 $ 27,027,853
===================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2003 2002
-------------- --------------
Net Cash Provided by Operating Activities $ 2,114,398 $ 2,232,266
-------------- --------------
Cash Flows from Investing Activities:
Insurance proceeds for casualty loss on building 590,132 --
Proceeds from sale of assets 472,425 --
Investment in joint venture -- (247,437 )
-------------- --------------
Net cash provided by (used in) investing activities 1,062,557 (247,437 )
-------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (2,362,500 ) (2,362,500 )
Distributions to holder of minority interest -- (12,018 )
-------------- --------------
Net cash used in financing activities (2,362,500 ) (2,374,518 )
-------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents 814,455 (389,689 )
Cash and Cash Equivalents at Beginning of Period 1,168,450 1,126,921
-------------- --------------
Cash and Cash Equivalents at End of Period $ 1,982,905 $ 737,232
============== ==============
Supplemental Schedule of Non-Cash Financing Activities:
Distributions declared and unpaid at end of period $ 787,500 $ 787,500
============== ==============
See accompanying notes to condensed financial statements.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by generally
accepted accounting principles. The financial statements reflect all
adjustments, consisting of normal recurring adjustments, which are, in the
opinion of the general partners, necessary for a fair statement of the
results for the interim periods presented. Operating results for the
quarter and nine months ended September 30, 2003 may not be indicative of
the results that may be expected for the year ending December 31, 2003.
Amounts as of December 31, 2002, included in the financial statements, have
been derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with the
financial statements and notes thereto included in Form 10-K of CNL Income
Fund VI, Ltd. (the "Partnership") for the year ended December 31, 2002.
In January 2003, the Financial Accounting Standards Board ("FASB") issued
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable Interest
Entities" to expand upon and strengthen existing accounting guidance that
addresses when a company should include the assets, liabilities and
activities of another entity in its financial statements. To improve
financial reporting by companies involved with variable interest entities
(more commonly referred to as special-purpose entities or off-balance sheet
structures), FIN 46 requires that a variable interest entity be
consolidated by a company if that company is subject to a majority risk of
loss from the variable interest entity's activities or entitled to receive
a majority of the entity's residual returns or both. Prior to FIN 46, a
company generally included another entity in its consolidated financial
statements only if it controlled the entity through voting interests. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities, created after January 31, 2003, and to older entities, in the
first fiscal year or interim period ending after December 15, 2003. The
general partners believe adoption of this standard may result in either
consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint ventures, which are currently accounted for under the
equity method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
In May 2003, the FASB issued FASB Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("FAS 150"). FAS 150 establishes standards for how an issuer
classifies and measures certain financial instruments with characteristics
of both liabilities and equity. FAS 150 will require issuers to classify
certain financial instruments as liabilities (or assets in some
circumstances) that previously were classified as equity. One requirement
of FAS 150 is that minority interests for majority owned finite lived
entities be classified as a liability and recorded at fair market value.
FAS 150 initially applied immediately to all financial instruments entered
into or modified after May 31, 2003, and otherwise was effective at the
beginning of the first interim period beginning after June 15, 2003.
Effective October 29, 2003, the FASB deferred implementation of FAS 150 as
it applies to minority interests of finite lived Partnerships. The deferral
of these provisions is expected to remain in effect while these interests
are addressed in either Phase II of the FASB's Liabilities and Equity
project or Phase II of the FASB's Business Combinations project; therefore,
no specific timing for the implementation of these provisions has been
stated. The implementation of the currently effective aspects of FAS 150
did not have an impact on the Partnership's results of operations.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
2. Reclassification
Certain items in the prior year's financial statements have been
reclassified to conform to 2003 presentation. These reclassifications had
no effect on total partners' capital or net income.
3. Real Estate Properties with Operating Leases
In October 2002, the building on the property in Marietta, Georgia was
destroyed by fire and the tenant terminated its lease relating to this
property. In March 2003, the Partnership received approximately $590,100 in
insurance proceeds, resulting in a gain on casualty loss of approximately
$12,400 during the nine months ended September 30, 2003. The Partnership
had recorded a provision for write-down of assets in the previous year
relating to this property. In September 2003, the Partnership entered into
a new lease, with a new tenant for this property. The lease terms for this
property are substantially the same as the Partnership's other leases. In
connection with the new lease, the new tenant has agreed to construct a new
building on the Property.
4. Investment in Joint Ventures
In September 2003, Show Low Joint Venture, in which the Partnership owns a
36% interest, sold its vacant property in Greensboro, North Carolina to a
third party and recorded a loss on disposal of assets of approximately
$29,500. The joint venture had recorded provisions for write-down of assets
in previous periods relating to this property, including a provision for
write-down of assets of $55,500 during the nine months ended September 30,
2003. The financial results for this property are reflected as Discontinued
Operations in the condensed financial information presented below.
Auburn Joint Venture, Asheville Joint Venture, Melbourne Joint Venture, and
Warren Joint Venture, each own one property. In addition, the Partnership
and affiliates as tenants-in-common in ten separate tenancy in common
arrangements each own one property.
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
4. Investment in Joint Ventures - Continued
The following presents the combined, condensed financial information for
the joint ventures and the properties held as tenants-in-common with
affiliates at:
September 30, December 31,
2003 2002
---------------- ----------------
Real estate properties with operating $ 14,662,754 $ 14,884,873
leases, net
Net investment in direct financing
leases 2,682,244 2,719,398
Real estate held for sale -- 562,600
Cash 517,588 34,613
Receivables 6,061 30,855
Accrued rental income 708,814 635,573
Other assets 100 444
Liabilities 10,946 3,519
Partners' capital 18,566,615 18,864,837
Quarter Ended Nine Months Ended September
September 30, 30,
2003 2002 2003 2002
------------ ---------------- ------------- ----------------
Revenues $ 501,328 $ 540,501 $1,510,386 $ 1,384,376
Expenses (81,737 ) (81,783 ) (232,773 ) (217,608 )
------------ ---------------- ------------- ----------------
Income from continuing operations 419,591 458,718 1,277,613 1,166,768
------------ ---------------- ------------- ----------------
Discontinued operations:
Revenues -- -- 94 6,860
Expenses (6,112 ) (17,498 ) (27,957 ) (37,923 )
Provision for write-down of assets -- -- (55,500 ) --
Loss on disposal of assets (29,509 ) -- (29,509 ) --
------------ ---------------- ------------- ----------------
(35,621 ) (17,498 ) (112,872 ) (31,063 )
------------ ---------------- ------------- ----------------
Net Income $ 383,970 $ 441,220 $1,164,741 $ 1,135,705
============ ================ ============= ================
The Partnership recognized income of $535,681 and $539,032 during the nine
months ended September 30, 2003 and 2002, respectively, $176,396 and
$198,605 of which were earned during the third quarters of 2003 and 2002,
respectively, from these joint ventures and tenants-in-common arrangements.
5. Discontinued Operations
During 2002, the Partnership identified and sold one property, owned by
Caro Joint Venture, in which the Partnership owned a 66.14% interest and
which was accounted for under the consolidation method, that was classified
as Discontinued Operations in the accompanying financial statements. In
January 2003, the Partnership identified another property for sale. In June
2003, the Partnership sold this property in Broken
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
5. Discontinued Operations - Continued
Arrow, Oklahoma and recorded no gain or loss on disposal of assets during
the nine months ended September 30, 2003. The Partnership had recorded
provisions for write-down of assets relating to this property in previous
years.
The operating results of the discontinued operations for these properties
are as follows:
Quarter Ended Nine Months Ended September
September 30, 30,
2003 2002 2003 2002
------------- ------------- --------------- ------------
Rental revenues $ -- $ 38,719 $ $ 125,291
41,884
Expenses -- (4,644 ) (225 ) (12,744 )
Minority interest in income of
consolidated joint venture -- (5,669 ) -- (18,548 )
------------- ------------- --------------- ------------
Income from discontinued
operations $ -- $ 28,406 $ 41,659 $ 93,999
============= ============= =============== ============
6. Subsequent Events
In October 2003, Show Low Joint Venture was dissolved and the Partnership
received approximately $189,200 as its pro-rata share of the liquidating
distribution from the joint venture. No gain or loss was recognized related
to the dissolution. The Partnership owned a 36% interest in this joint
venture.
In October 2003, Chevy's, Inc., the tenant of the property in Vancouver,
Washington which the Partnership owns as tenants-in-common with affiliates
of the general partners, filed for Chapter 11 bankruptcy protection. The
Partnership owns a 23.04% interest in this property. As of November 7,
2003, Chevy's, Inc. had neither rejected nor affirmed the lease related to
this property.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund VI, Ltd. (the "Partnership") is a Florida limited
partnership that 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 restaurants were to
be constructed which are leased primarily to operators of selected national and
regional fast-food and family-style restaurant chains (collectively, the
"Properties"). The leases are triple-net leases, with the lessees generally
responsible for all repairs and maintenance, property taxes, insurance, and
utilities. As of September 30, 2002, the Partnership owned 25 Properties
directly and 15 Properties indirectly through joint venture or tenancy in common
arrangements. As of September 30, 2003, the Partnership owned 23 Properties
directly and 14 Properties indirectly through joint venture or tenancy in common
arrangements.
Capital Resources
Cash from operating activities was $2,114,398 for the nine months ended
September 30, 2003, as compared to $2,232,266 during the same period of 2002.
Other sources and uses of cash included the following during the nine months
ended September 30, 2003.
In October 2002, the building on the Property in Marietta, Georgia was
destroyed by fire and the tenant terminated its lease relating to the Property.
In March 2003, the Partnership collected approximately $590,100 in insurance
proceeds relating to this Property, resulting in a gain of approximately $12,400
during the nine months ended September 30, 2003. The Partnership intends to use
these proceeds to either invest in an additional Property or pay liabilities of
the Partnership as needed.
In June 2003, the Partnership sold its Property in Broken Arrow,
Oklahoma, to a third party and received net sales proceeds of approximately
$472,400, resulting in no gain or loss on disposal of assets during the nine
months ended September 30, 2003. The Partnership had recorded provisions for
write-down of assets in previous years relating to this asset. The Partnership
intends to reinvest these proceeds in an additional Property or to pay
liabilities of the Partnership as needed.
In September 2003, Show Low Joint Venture, in which the Partnership owns
a 36% interest, sold its Property in Greensboro, North Carolina to a third party
and received net sales proceeds of approximately $468,900, resulting in a loss
to the joint venture of approximately $29,500. The joint venture had recorded
provisions for write-down of assets relating to this Property in previous
periods, including a provision for write-down of assets of $55,500 during the
nine months ended September 30, 2003. In October 2003, the Partnership received
approximately $189,200 as its pro-rata share of the liquidating distribution
from the joint venture. The Partnership intends to use these proceeds to either
invest in an additional Property or pay liabilities of the Partnership.
At September 30, 2003, the Partnership had $1,982,905 in cash and cash
equivalents, as compared to $1,168,450 at December 31, 2002. At September 30,
2003, these funds were held in demand deposit accounts at commercial banks. The
increase in cash and cash equivalents at September 30, 2003, as compared to
December 31, 2002, was due to the Partnership holding the sales proceeds from
the sale of the Property in Broken Arrow, Oklahoma and holding the insurance
proceeds relating to the casualty loss on the Property in Marietta, Georgia. The
funds remaining at September 30, 2003, after the payment of distributions and
other liabilities, will be used to invest in an additional Property and to meet
the Partnership's working capital needs.
In October 2003, Chevy's, Inc., the tenant of the Property in Vancouver,
Washington which the Partnership owns as tenants-in-common with affiliates of
the general partners, filed for Chapter 11 bankruptcy protection. The
Partnership owns a 23.04% interest in this Property. As of November 7, 2003,
Chevy's, Inc. had neither rejected nor affirmed the lease related to this
Property. The lost revenues that would result if the lease were to be rejected
will have an adverse effect on the equity in earnings of joint ventures of the
Partnership if the tenancy in common is not able to re-lease or sell the
Property in a timely manner.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will generate net cash flow in
excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of 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 limited partners of $2,362,500 for each of the nine
months ended September 30, 2003 and 2002, ($787,500 for each of the quarters
ended September 30, 2003 and 2002). This represents distributions of $33.75 per
unit for each of the nine months ended September 30, 2003 and 2002, ($11.25 per
unit for each applicable quarter). No distributions were made to the general
partners for the quarters and nine months ended September 30, 2003 and 2002. No
amounts distributed to the limited partners for the nine months ended September
30, 2003 and 2002 are required to be or have been treated by the Partnership as
a return of capital for purposes of calculating the limited partners' return on
their adjusted capital contributions. The Partnership intends to continue to
make distributions of cash available for distribution to the limited partners on
a quarterly basis.
Total liabilities, including distributions payable, were $884,469 at
September 30, 2003, as compared to $891,111 at December 31, 2002. The general
partners believe that the Partnership has sufficient cash on hand to meet its
current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues were $1,579,849 during the nine months ended
September 30, 2003, as compared to $1,675,103 during the same period of 2002,
$523,511 and $553,247 of which were earned during the third quarters of 2003 and
2002, respectively. Rental revenues were lower during the quarter and nine
months ended September 30, 2003 because the Partnership stopped recording rental
revenues in October 2002 when the building on the Property in Marietta, Georgia
was destroyed by fire and the tenant terminated the lease relating to this
Property. In March 2003, the Partnership received approximately $590,100 in
insurance proceeds and intends to use these proceeds to invest in an additional
Property or pay liabilities of the Partnership. In September 2003, the
Partnership entered into a new lease, with a new tenant, for this Property. The
lease terms for this Property are substantially the same as the Partnership's
other leases. In connection with the new lease, the new tenant has agreed to
construct a new building on the Property. Construction of the building is
expected to be completed early in 2004, at which point rental payments are
expected to commence.
During 2002, a tenant, Loco Lupe's of Hermitage, Inc., filed for
bankruptcy. In June 2003, the tenant affirmed the one lease it has with the
Partnership. The Partnership has continued receiving rental payments relating to
this lease.
The Partnership also earned $18,442 in contingent rental income during
the nine months ended September 30, 2003, as compared to $23,445 during the same
period of 2002, $7,673 and $6,282 of which were earned during the third quarters
of 2003 and 2002, respectively.
The Partnership also earned $535,681 attributable to net income earned
by unconsolidated joint ventures during the nine months ended September 30,
2003, as compared to $539,032 during the same period of 2002, $176,396 and
$198,605 of which were earned during the third quarters of 2003 and 2002,
respectively. Net income earned by joint ventures was lower during the quarter
and nine months ended September 30, 2003, because Houlihan's Restaurant, Inc.,
which leased the Property owned by Show Low Joint Venture, filed for bankruptcy
and rejected the lease relating to this Property in January 2002. As a result,
the joint venture, in which the Partnership owns a 36% interest, stopped
recording rental revenues relating to this Property. In addition, during the
nine months ended September 30, 2003, Show Low Joint Venture recorded a
provision for write-down of assets of $55,500 relating to this Property. The
provision represented the difference between the Property's net carrying value
and its estimated fair value. In September 2003, the joint venture sold this
vacant Property to a third party and recorded an additional loss of
approximately $29,500. In October 2003, the joint venture was dissolved. The
Partnership intends to use these proceeds to either invest in another Property
or to pay liabilities of the Partnership. The decrease in net income earned by
unconsolidated joint ventures was partially offset by the fact that the
Partnership acquired two Properties in June 2002, each as a separate tenancy in
common arrangement with CNL Income Fund XI, Ltd., a Florida limited partnership
and an affiliate of the general partners.
Operating expenses, including depreciation and amortization expense,
were $516,491 during the nine months ended September 30, 2003, as compared to
$554,157 during the same period of 2002, $157,613 and $157,463 of which were
incurred during the third quarters of 2003 and 2002, respectively. Operating
expenses were higher during the nine months ended September 30, 2002, because
the Partnership elected to reimburse the tenant of the Properties in El Paso,
and Amarillo, Texas for certain renovation costs. In addition, depreciation
expense decreased during the quarter and nine months ended September 30, 2003 as
a result of the building on the Property in Marietta, Georgia being destroyed by
fire in October 2002. The decrease in operating expenses was partially offset by
an increase in state tax expense relating to several states in which the
Partnership conducts business. During the quarter and nine months ended
September 30, 2002 and 2003 the Partnership incurred certain property related
expenses, such as legal fees, repairs and maintenance, insurance and real estate
taxes relating to vacant Properties. In May 2002, the Partnership assigned the
lease relating to one of the two vacant Properties to a new tenant. The
Partnership did not incur any additional expenses relating to this Property
after the assignment of the lease had occurred. In September 2003, the
Partnership entered into a new lease for the remaining vacant Property, as
described above. The new tenant is responsible for real estate taxes, insurance,
and maintenance relating to the Property in accordance with the terms of its
lease; therefore, the general partners do not anticipate the Partnership will
incur these expenses for this Property in the future.
In March 2003, the Partnership received insurance proceeds relating to
the Property in Marietta, Georgia that was destroyed by fire in October 2002, as
described above. As a result, the Partnership recorded a gain of approximately
$12,400 during the nine months ended September 30, 2003.
During the year ended December 31, 2002, the Partnership identified and
sold one Property, owned by Caro Joint Venture, in which the Partnership owned a
66.14% interest and accounted for under the consolidation method, that was
classified as Discontinued Operations in the accompanying financial statements.
In addition, in January 2003, the Partnership identified for sale its Property
in Broken Arrow, Oklahoma. The Partnership recognized net rental income (rental
revenues less Property related expenses) of $28,406 and $93,999 during the
quarter and nine months ended September 30, 2002, respectively, relating to
these two Properties. In June 2003, the Partnership sold the Property in Broken
Arrow, Oklahoma and recorded no gain or loss on disposal of assets. The
Partnership had recorded provisions for write-down of assets in previous years
relating to this Property. The Partnership recognized net rental income of
$41,659 during the nine months ended September 30, 2003, relating to this
Property.
In September 2003, Show Low Joint Venture, in which the Partnership owns
a 36% interest, sold its Property in Greensboro, North Carolina, as described
above. The financial results relating to this Property were classified as
Discontinued Operations in the combined, condensed financial information for the
joint ventures and the properties held as tenants-in-common with affiliates
reported in the footnotes to the accompanying financial statements. The
Partnership's pro-rata share of these amounts was included in equity in earnings
of unconsolidated joint ventures in the accompanying financial statements.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting guidance
that addresses when a company should include the assets, liabilities and
activities of another entity in its financial statements. To improve financial
reporting by companies involved with variable interest entities (more commonly
referred to as special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. Prior to FIN 46, a company generally included another entity in
its consolidated financial statements only if it controlled the entity through
voting interests. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003, and to older
entities, in the first fiscal year or interim period ending after December 15,
2003. The general partners believe adoption of this standard may result in
either consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint ventures, which are currently accounted for under the
equity method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
In May 2003, the FASB issued FASB Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("FAS 150"). FAS 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. FAS 150 will require issuers to classify certain
financial instruments as liabilities (or assets in some circumstances) that
previously were classified as equity. One requirement of FAS 150 is that
minority interests for majority owned finite lived entities be classified as a
liability and recorded at fair market value. FAS 150 initially applied
immediately to all financial instruments entered into or modified after May 31,
2003, and otherwise was effective at the beginning of the first interim period
beginning after June 15, 2003. Effective October 29, 2003, the FASB deferred
implementation of FAS 150 as it applies to minority interests of finite lived
Partnerships. The deferral of these provisions is expected to remain in effect
while these interests are addressed in either Phase II of the FASB's Liabilities
and Equity project or Phase II of the FASB's Business Combinations project;
therefore, no specific timing for the implementation of these provisions has
been stated. The implementation of the currently effective aspects of FAS 150
did not have an impact on the Partnership's results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) 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).
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included
as Exhibit 10.5 to Form 10-Q filed with the Securities
and Exchange Commission on August 13, 2002, and
incorporated herein by reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 2003.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
DATED this 10th day November, 2003.
CNL INCOME FUND VI, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
---------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
---------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit Number
(c) 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).
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc.
(Included as Exhibit 10.5 to Form 10-Q filed with
the Securities and Exchange Commission on August 13,
2002, and incorporated herein by reference.)
31.1 Certification of Chief Executive Officer of
Corporate General Partner Pursuant to Rule 13a-14 as
Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of
Corporate General Partner Pursuant to Rule 13a-14 as
Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of
Corporate General Partner Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of
Corporate General Partner Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2