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 June 30, 2004
- --------------------------------------------------------------------------------
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 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Item 4. Controls and Procedures 11
Part II.
Other Information 12-13
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
2004 2003
------------------ ------------------
ASSETS
Real estate properties with operating leases, net $ 13,237,818 $ 13,399,674
Net investment in direct financing leases 1,745,406 1,777,315
Real estate held for sale 1,727,026 2,203,860
Investment in joint ventures 7,826,296 7,875,770
Cash and cash equivalents 2,960,190 1,569,729
Receivables, less allowance for doubtful accounts
of $92,602 and $27,488, respectively 277 144,162
Accrued rental income, less allowance for doubtful
accounts of $8,932 and $9,697, respectively 568,448 556,895
Other assets 25,274 31,310
------------------ ------------------
$ 28,090,735 $ 27,558,715
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 20,519 $ 6,728
Real estate taxes payable 8,292 14,220
Distributions payable 787,500 787,500
Due to related parties 18,296 12,517
Rents paid in advance 48,403 58,650
------------------ ------------------
Total liabilities 883,010 879,615
Minority interest 438,315 443,607
Commitments (Note 4)
Partners' capital 26,769,410 26,235,493
------------------ ------------------
$ 28,090,735 $ 27,558,715
================== ==================
See accompanying notes to condensed financial statements.
1
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
-------------- -------------- -------------- --------------
Revenues:
Rental income from operating leases $ 446,032 $ 445,462 $ 891,875 $ 894,264
Earned income from direct financing leases 48,893 50,881 98,448 102,179
Contingent rental income 9,412 7,339 23,801 10,769
Interest and other income 408 879 571 488
-------------- -------------- -------------- --------------
504,745 504,561 1,014,695 1,007,700
-------------- -------------- -------------- --------------
Expenses:
General operating and administrative 74,947 60,546 160,206 133,471
Property related 6,791 3,704 7,223 5,023
State and other taxes 1,363 -- 44,076 44,952
Depreciation and amortization 80,930 80,930 161,857 161,857
-------------- -------------- -------------- --------------
164,031 145,180 373,362 345,303
-------------- -------------- -------------- --------------
Income before minority interest and equity in earnings of
unconsolidated joint ventures 340,714 359,381 641,333 662,397
Minority interest (8,652) (8,630) (17,246) (17,266)
Equity in earnings of unconsolidated joint ventures 183,249 154,016 366,356 328,201
-------------- ------------- -------------- --------------
Income from continuing operations 515,311 504,767 990,443 973,332
-------------- ------------- -------------- --------------
Discontinued operations:
Income (loss) from discontinued operations (24,027) 65,498 (20,568) 148,474
Gain on disposal of discontinued operations -- -- 1,139,042 --
-------------- ------------- -------------- --------------
(24,027) 65,498 1,118,474 148,474
-------------- ------------- -------------- --------------
Net income $ 491,284 $ 570,265 $ 2,108,917 $ 1,121,806
============== ============= ============== ==============
Income (loss) per limited partner unit:
Continuing operations $ 7.36 $ 7.21 $ 14.15 $ 13.90
Discontinued operations (0.34) 0.94 15.98 2.13
-------------- ------------- -------------- --------------
$ 7.02 $ 8.15 $ 30.13 $ 16.03
============== ============= ============== ==============
Weighted average number of limited partner
units outstanding 70,000 70,000 70,000 70,000
============== ============= ============== ==============
See accompanying notes to condensed financial statements.
2
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
2004 2003
------------------ ------------------
General partners:
Beginning balance $ 291,598 $ 291,598
Net income -- --
------------------ ------------------
291,598 291,598
------------------ ------------------
Limited partners:
Beginning balance 25,943,895 26,736,255
Net income 2,108,917 2,357,640
Distributions ($22.50 and $45.00 per
limited partner unit, respectively) (1,575,000) (3,150,000)
------------------ ------------------
26,477,812 25,943,895
------------------ ------------------
Total partners' capital $ 26,769,410 $ 26,235,493
================== ==================
See accompanying notes to condensed financial statements.
3
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2004 2003
-------------- --------------
Net cash provided by operating activities $ 1,449,072 $ 1,450,527
-------------- --------------
Cash flows from investing activities:
Insurance proceeds for casualty loss on building -- 590,132
Proceeds from sale of assets 1,588,927 472,425
Payment of lease costs (50,000) --
-------------- --------------
Net cash provided by investing activities 1,538,927 1,062,557
-------------- --------------
Cash flows from financing activities:
Distributions to limited partners (1,575,000) (1,575,000)
Distributions to holder of minority interest (22,538) (22,555)
-------------- --------------
Net cash used in financing activities (1,597,538) (1,597,555)
-------------- --------------
Net increase in cash and cash equivalents 1,390,461 915,529
Cash and cash equivalents at beginning of period 1,569,729 1,169,848
-------------- --------------
Cash and cash equivalents at end of period $ 2,960,190 $ 2,085,377
============== ==============
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.
4
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2004 and 2003
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 six months ended June 30, 2004 may not be
indicative of the results that may be expected for the year ending
December 31, 2004. Amounts as of December 31, 2003, 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, 2003.
The Partnership accounts for its 64.29% interest in Warren Joint
Venture using the consolidation method. Minority interest represents
the minority joint venture partner's proportionate share of the equity
in the joint venture. All significant intercompany accounts and
transactions have been eliminated.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January
2003) ("FIN 46R"), "Consolidation of Variable Interest Entities"
requiring existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries. The primary beneficiary of
a variable interest entity is the party that absorbs a majority of the
entity's expected losses, receives a majority of its expected residual
returns, or both, as a result of holding variable interests, which are
the ownership, contractual, or other pecuniary interests in an entity
that change with changes in the fair value of the entity's net assets
excluding variable interests. Prior to FIN 46R, a company generally
included another entity in its financial statements only if it
controlled the entity through voting interests. Application of FIN 46R
is required in financial statements of public entities that have
interests in variable interest entities for periods ending after March
15, 2004. The Partnership adopted FIN 46R during the quarter ended
March 31, 2004, which resulted in the consolidation of a previously
unconsolidated joint venture, which was accounted for under the equity
method. FIN 46R does not require, but does permit restatement of
previously issued financial statements. The Partnership has restated
prior year's financial statements to maintain comparability between the
periods presented. Such consolidation resulted in certain assets and
minority interest, and revenues and expenses, of the entity being
reported on a gross basis in the Partnership's financial statements;
however, these restatements had no effect on partners' capital or net
income.
2. Reclassification
Certain items in the prior year's financial statements have been
reclassified to conform to 2004 presentation. These reclassifications
had no effect on total partners' capital or net income.
5
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2004 and 2003
3. Discontinued Operations
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 of insurance proceeds, resulting in a gain on casualty loss of
approximately $12,400. 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. In March 2004, the Partnership sold the
property and received net sales proceeds of approximately $1,588,900,
resulting in a gain on disposal of discontinued operations of
approximately $1,139,000.
During 2002, the tenant of the property in Hermitage, Tennessee filed
for bankruptcy and affirmed the one lease it had with the Partnership.
In March 2004, the tenant vacated the property and as a result, the
Partnership recorded a provision for write-down of assets of
approximately $6,800. In April 2004, the Partnership entered into an
agreement to sell this property. In addition, in June 2004, the
Partnership entered into an agreement to sell its property in Lawton,
Oklahoma. The Partnership reclassified the assets relating to these two
properties to real estate held for sale. The reclassified assets were
recorded at the lower of their carrying amount or fair value, less cost
to sell, which resulted in the Partnership recording a provision for
write-down of assets of approximately $51,500 relating to the property
in Lawton, Oklahoma.
The following presents the operating results of the discontinued
operations for these properties, along with the property in Broken
Arrow, Oklahoma that was sold in June 2003.
Quarter Ended Six Months Ended
June 30, June 30,
2004 2003 2004 2003
------------- --------------- ------------ --------------
Rental revenues $ 37,375 $ 80,517 $ 83,355 $ 164,848
Expenses (9,946) (15,019) (45,632) (28,730)
Provision for write-down of assets (51,456) -- (58,291) --
Gain on casualty loss of building -- -- -- 12,356
------------- --------------- ------------ --------------
Income (loss) from discontinued
operations $ (24,027) $ 65,498 $ (20,568) $ 148,474
============= =============== ============ ==============
4. Commitments
In April and June 2004, the Partnership entered into two separate
agreements, each with a third party, to sell the properties in
Hermitage, Tennessee and Lawton, Oklahoma, respectively.
5. Subsequent Events
On August 5, 2004, the Partnership sold its property in Hermitage,
Tennessee to a third party and received net sales proceeds of
approximately $831,100, resulting in a gain on disposal of discontinued
operations of approximately $46,800.
On August 9, 2004, the Partnership entered into a definitive Agreement
and Plan of Merger pursuant to which the Partnership will be merged
with a subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The
merger is one of multiple concurrent transactions pursuant to which 17
other affiliated limited partnerships also will be merged with a
subsidiary of U.S. Restaurant Properties, Inc. and in which CNL
6
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2004 and 2003
5. Subsequent Events - Continued
Restaurant Properties, Inc., an affiliate, also will be merged with
U.S. Restaurant Properties, Inc. CNL Restaurant Properties, Inc.
currently provides property management and other services to the
Partnership. The merger of the Partnership (and each of the 17 other
affiliated mergers) is subject to certain conditions including approval
by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as
measured by the value of the merger consideration) of all limited
partnerships, consummation of the merger between U. S. Restaurant
Properties, Inc. and CNL Restaurant Properties, Inc., approval of the
shareholders of U.S. Restaurant Properties, Inc., and availability of
financing. The transaction is expected to be consummated in the first
quarter of 2005.
Under the terms of the transaction, the limited partners will receive
total consideration of approximately $36.04 million, consisting of
approximately $30.14 million in cash and approximately $5.90 million in
U.S. Restaurant Properties, Inc. Series A Convertible Preferred Stock
that is listed on the New York Stock Exchange. The general partners
will receive total consideration of approximately $234,000 consisting
of approximately $196,000 in cash and approximately $38,000 in
preferred stock.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund VI, Ltd. (the "Partnership," which may be referred to
as "we," "us," or "our") 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 (the "Properties"), 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 June 30, 2003,
we owned 23 Properties directly and 15 Properties indirectly through joint
venture or tenancy in common arrangements. As of June 30, 2004, we owned 22
Properties directly and 15 Properties indirectly through joint venture or
tenancy in common arrangements.
Capital Resources
Net cash provided by operating activities was $1,449,072 and $1,450,527
for the six months ended June 30, 2004 and 2003, respectively. In March 2004, we
sold the Property in Marietta, Georgia, to the tenant and received net sales
proceeds of approximately $1,588,900, resulting in a gain on disposal of
discontinued operations of approximately $1,139,000. We had recorded a provision
for write-down of assets in a previous year relating to this Property. We intend
to reinvest these proceeds in an additional Property or to pay liabilities as
needed.
At June 30, 2004, we had $2,960,190 in cash and cash equivalents, as
compared to $1,569,729 at December 31, 2003. At June 30, 2004, these funds were
held in demand deposit accounts at a commercial bank. The increase was primarily
a result of holding sales proceeds at June 30, 2004. The funds remaining at June
30, 2004, after the payment of distributions and other liabilities, may be used
to either invest in additional Properties or to meet our working capital needs.
In August 2004, the Partnership sold its Property in Hermitage,
Tennessee to a third party and received net sales proceeds of approximately
$831,000, resulting in a gain on disposal of discontinued operations of
approximately $46,800.
Short-Term Liquidity
Our investment strategy of acquiring Properties for cash and leasing
them under triple-net leases to operators who generally meet specified financial
standards minimizes our operating expenses. The general partners believe that
the leases will generate net cash flow in excess of operating expenses.
Our short-term liquidity requirements consist primarily of our
operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
our operations.
We generally distribute cash from operations remaining after the
payment of operating expenses, to the extent that the general partners determine
that such funds are available for distribution. Based on current and anticipated
future cash from operations, and for the six months ended June 30, 2004, a
portion of prior year sales proceeds, we declared distributions to limited
partners of $1,575,000 for each of the six months ended June 30, 2004 and 2003
($787,500 for each of the quarters ended June 30, 2004 and 2003). This
represents distributions of $22.50 per unit for each of the six months ended
June 30, 2004 and 2003 ($11.25 for each applicable quarter). No distributions
were made to the general partners for the quarters and six months ended June 30,
2004 and 2003. No amounts distributed to the limited partners for the six months
ended June 30, 2004 and 2003 are required to be or have been treated as a return
of capital for purposes of calculating the limited partners' return on their
adjusted capital contributions. We intend to continue to make distributions of
cash to the limited partners on a quarterly basis.
8
Total liabilities, including distributions payable, were $883,010 at
June 30, 2004, as compared to $879,615 at December 31, 2003. The general
partners believe that we have sufficient cash on hand to meet our current
working capital needs.
Contractual Obligations, Contingent Liabilities, and Commitments
In April and June 2004, we entered into two separate agreements, each
with a third party, to sell the Properties in Hermitage, Tennessee and Lawton,
Oklahoma, respectively. In August 2004, we sold the Property in Hermitage,
Tennessee, as described above. As of August 9, 2004, the sale of the Property in
Lawton, Oklahoma had not occurred.
Long-Term Liquidity
We have no long-term debt or other long-term liquidity requirements.
Results of Operations
Rental revenues from continuing operations were $990,323 during the six
months ended June 30, 2004, as compared to $996,443 during the same period of
2003, $494,925 and $496,343 of which were earned during the second quarters of
2004 and 2003, respectively. Rental revenues from continuing operations remained
relatively constant because all of the changes in the Property portfolio related
to the Properties accounted for as discontinued operations.
In December 2003, Waving Leaves, Inc., the tenant of the Property in
Waynesburg, Ohio filed for Chapter 11 bankruptcy protection. In June 2004, the
lease was assigned to and assumed by Hardee's Food Systems, Inc. As of August 9,
2004, we have received all rental payments relating to this lease.
We earned $23,801 in contingent rental income during the six months
ended June 30, 2004, as compared to $10,769 during the same period of 2003,
$9,412 and $7,339 of which were earned during the second quarters of 2004 and
2003, respectively. The increase in contingent rental income during 2004 was due
to an increase in reported gross sales of the restaurants with leases that
require the payment of contingent rents.
We also earned $366,356 attributable to net income earned by
unconsolidated joint ventures during the six months ended June 30, 2004, as
compared to $328,201 during the same period of 2003, $183,249 and $154,016 of
which were earned during the second quarters of 2004 and 2003, respectively. Net
income earned by unconsolidated joint ventures was lower during the quarter and
six months ended June 30, 2003, because Show Low Joint Venture, in which we
owned a 36% interest, recorded a provision for write-down of assets of
approximately $55,500, relating to the Property that Houlihan's Restaurant,
Inc., leased from the joint venture. During 2002, Houlihan's Restaurant, Inc.
filed for Chapter 11 bankruptcy protection and rejected its lease. 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 on disposal of
discontinued operations of approximately $29,500. In the fourth quarter of 2003,
the joint venture was liquidated and we recorded a loss on dissolution of joint
ventures of approximately $2,300. In November 2003 we acquired a Property in
Dalton, Georgia, as tenants-in-common, with CNL Income Fund XI, Ltd., CNL Income
Fund XV, Ltd., and CNL Income Fund XVI, Ltd., each of which is a Florida limited
partnership and an affiliate of the general partners.
In October 2003, Chevy's, Inc., the tenant of the Property in
Vancouver, Washington, which we own as tenants-in-common with affiliates of the
general partners, filed for Chapter 11 bankruptcy protection. We own a 23.04%
interest in this Property. While the tenant has neither rejected nor affirmed
the one lease it has, there can be no assurance that the lease will not be
rejected in the future. From the bankruptcy date through August 9, 2004, the
tenancy in common has received all rental payments relating to this lease. The
lost revenues that would result if the tenant were to reject this lease will
have an adverse effect on the equity in earnings of unconsolidated joint
ventures if the tenancy in common is not able to re-lease the Property in a
timely manner.
9
Operating expenses, including depreciation and amortization expense,
were $373,362 during the six months ended June 30, 2004, as compared to $345,303
during the same period of 2003, $164,031 and $145,180 of which were incurred
during the second quarters of 2004 and 2003, respectively. Operating expenses
were higher during the quarter and six months ended June 30, 2004, as compared
to the same periods of 2003, because we incurred additional general operating
and administrative expenses, including legal fees.
We recognized income from discontinued operations (rental revenues and
gain on casualty loss of building less property related expenses) of $65,498 and
$148,474 during the quarter and six months ended June 30, 2003, relating to the
Properties in Broken Arrow, Oklahoma; Marietta, Georgia; Hermitage, Tennessee;
and Lawton, Oklahoma. We sold the Property in Broken Arrow, Oklahoma in June
2003 and recorded no gain or loss on disposal of discontinued operations. In
October 2002, the building on the Property in Marietta, Georgia was destroyed by
fire and the tenant terminated its lease. In March 2003, we received
approximately $590,100 of insurance proceeds, resulting in a gain of
approximately $12,400. We had recorded a provision for write-down of assets in
2002 relating to this Property. In September 2003, we entered into a new lease,
with a new tenant. We recognized net rental losses from discontinued operations
of $24,027 and $20,568 during the quarter and six months ended June 30, 2004.
The net rental losses were caused by us incurring certain property related
expenses, such as legal fees, repairs and maintenance, insurance and real estate
taxes relating to the Property in Hermitage, Tennessee. In 2002, the tenant,
Loco Lupe's of Hermitage, Inc., filed for Chapter 11 bankruptcy protection.
Although the tenant affirmed the one lease it had with us, the tenant stopped
making rental payments in September 2003 and vacated the Property in March 2004.
In addition, during 2004, we recorded a provision for doubtful accounts of
approximately $8,600 relating to past due amounts and a provision for write-down
of assets of approximately $6,800. Based on anticipated sales proceeds, we
recorded a provision for write-down of assets of approximately $51,500. The
provisions for write-down of assets represented the difference between each
Property's net carrying value and its estimated fair value. In March 2004, we
sold the Property and recorded a gain on disposal of discontinued operations of
approximately $1,139,000. In August 2004, we sold the Property in Hermitage,
Tennessee, as described above. As of August 9, 2004, the sale of the Property in
Lawton, Oklahoma had not occurred.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January 2003) ("FIN
46R"), "Consolidation of Variable Interest Entities" requiring existing
unconsolidated variable interest entities to be consolidated by their primary
beneficiaries. The primary beneficiary of a variable interest entity is the
party that absorbs a majority of the entity's expected losses, receives a
majority of its expected residual returns, or both, as a result of holding
variable interests, which are the ownership, contractual, or other pecuniary
interests in an entity that change with changes in the fair value of the
entity's net assets excluding variable interests. Prior to FIN 46R, a company
generally included another entity in its financial statements only if it
controlled the entity through voting interests. Application of FIN 46R is
required in financial statements of public entities that have interests in
variable interest entities for periods ending after March 15, 2004. We adopted
FIN 46R during the quarter ended March 31, 2004, which resulted in the
consolidation of a previously unconsolidated joint venture, Warren Joint
Venture, which was accounted for under the equity method. FIN 46R does not
require, but does permit restatement of previously issued financial statements.
We restated prior year's financial statements to maintain comparability between
the periods presented. Such consolidation resulted in certain assets and
minority interest, and revenues and expenses, of the entity being reported on a
gross basis in our financial statements; however, these restatements had no
effect on partners' capital or net income.
The general partners believe their primary objective is to maintain
current operations with restaurant operators as successfully as possible, while
evaluating strategic alternatives, including alternatives that may provide
liquidity to the limited partners. Real estate markets are strong throughout
much of the nation, and the performance of restaurants has generally improved
after several challenging years. As a result, the general partners believe that
this is an attractive period for a strategic event to monetize the interests of
the limited partners.
In furtherance of this, on August 9, 2004, we entered into a definitive
Agreement and Plan of Merger pursuant to which we will be merged with a
subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The merger is one of
multiple concurrent transactions pursuant to which 17 other affiliated limited
partnerships also will be merged with a subsidiary of U.S. Restaurant
Properties, Inc. and in which CNL Restaurant Properties, Inc., an affiliate,
also will be merged with U.S. Restaurant Properties, Inc. Our merger (and each
of the 17 other affiliated mergers) is subject to certain conditions including
approval by a majority of the limited partners, consummation of a minimum number
10
of limited partnership mergers representing at least 75.0% in value (as measured
by the value of the merger consideration) of all limited partnerships,
consummation of the merger between U. S. Restaurant Properties, Inc. and CNL
Restaurant Properties, Inc., approval of the shareholders of U.S. Restaurant
Properties, Inc., and availability of financing. U.S. Restaurant Properties,
Inc. is a real estate investment trust (REIT) that focuses primarily on
acquiring, owning and leasing restaurant properties. The transaction is expected
to be consummated in the first quarter of 2005.
Under the terms of the transaction, our limited partners will receive
total consideration of approximately $36.04 million, consisting of approximately
$30.14 million in cash and approximately $5.90 million in U.S. Restaurant
Properties, Inc. Series A Convertible Preferred Stock that is listed on the New
York Stock Exchange. The general partners will receive total consideration of
approximately $234,000 consisting of approximately $196,000 in cash and
approximately $38,000 in preferred stock.
We received an opinion from Wachovia Capital Markets, LLC that as of
August 9, 2004 the merger consideration to be received by the holders of our
general and limited partnership interests is fair, from a financial point of
view, to such holders.
As reflected above, the contemplated transactions are complex, and
contingent upon certain conditions. The restaurant marketplace, the real estate
industry, and the equities markets, all individually or taken as a whole, could
impact the economics of this transaction. As a result, there is no assurance
that we will be successful in completing the contemplated transaction.
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 our
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 our 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.
11
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 between CNL Income Fund VI, Ltd. and CNL
Investment Company. (Included as Exhibit 10.1 to Form 10-K
filed with the Securities and Exchange Commission on March
31, 1994, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL Investment
Company to CNL Income Fund Advisors, Inc. (Included as
Exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated
herein by reference.)
10.3 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and incorporated herein
by reference.)
10.4 Assignment of Management Agreement from CNL Fund Advisors,
Inc. to CNL APF Partners, LP. (Included as Exhibit 10.4 to
Form 10-Q filed with the Securities 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.)
12
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 June
30, 2004.
13
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 9th day of August 2004.
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 between CNL Income Fund VI, Ltd. and CNL
Investment Company. (Included as Exhibit 10.1 to Form 10-K
filed with the Securities and Exchange Commission on March
31, 1994, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL Investment
Company to CNL Income Fund Advisors, Inc. (Included as
Exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated
herein by reference.)
10.3 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and incorporated herein
by reference.)
10.4 Assignment of Management Agreement from CNL Fund Advisors,
Inc. to CNL APF Partners, LP. (Included as Exhibit 10.4 to
Form 10-Q filed with the Securities 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