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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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 0-19140
CNL INCOME FUND VII, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2963871
(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 ($1 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 30,000,000 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 for such Units. Each Unit was originally sold at $1 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund VII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 18, 1989. 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 January 30, 1990, the
Partnership offered for sale up to $30,000,000 of limited partnership interests
(the "Units") (30,000,000 Units each at $1 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended. The
offering terminated on August 1, 1990, as of which date the maximum offering
proceeds of $30,000,000 had been received from investors who were admitted to
the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of 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
$26,550,000, and were used to acquire 42 Properties, including interests in nine
Properties owned by joint ventures in which the Partnership is a co-venturer,
and to establish a working capital reserve for Partnership purposes. During
1994, the Partnership sold its Property in St. Paul, Minnesota and reinvested
the majority of the net sales proceeds in a Checkers Property in Winter Springs,
Florida, consisting of only land, and a Jack in the Box Property in Yuma,
Arizona, which is owned as tenants-in-common with an affiliate of the General
Partners. The lessee of the Property consisting of only land owns the building
currently on the land. During 1995, the Partnership sold its Properties in
Florence, South Carolina and Jacksonville, Florida and accepted promissory notes
in the principal sum of $1,160,000 and $240,000, respectively. In addition, the
building located on the Partnership's Property in Daytona Beach, Florida was
demolished in accordance with a condemnation agreement during 1995. During the
year ended December 31, 1996, the Partnership sold its Properties in Hartland,
Michigan and Colorado Springs, Colorado and reinvested the net sales received
from the sale of the Colorado Springs, Colorado Property in a Boston Market
Property in Marietta, Georgia. During the year ended December 31, 1997, the
Partnership used the net sales proceeds from the sale of the Property in
Hartland, Michigan to invest in CNL Mansfield Joint Venture with an affiliate of
the General Partners in exchange for a 79 percent interest in the joint venture.
In addition, during 1997, the Partnership sold its Properties in Columbus,
Indiana and Dunnellon, Florida and sold the Property in Yuma, Arizona, which was
owned as tenants-in-common with an affiliate of the General Partners, and
reinvested the net sales proceeds in a Property in Smithfield, North Carolina
and a Property in Miami, Florida, each as tenants-in-common, with affiliates of
the General Partners. During the year ended December 31, 1999, the Partnership
sold its Property in Maryville, Tennessee and used the net sales proceeds to
invest in a Property in Montgomery, Alabama as tenants-in-common, with
affiliates of the General Partners. In addition, during 1999, the Partnership
received a prepaid principal payment from the borrower relating to one of the
promissory notes the Partnership had previously accepted. The Partnership used
the proceeds to invest in Duluth Joint Venture with affiliates of the General
Partners to construct and hold one restaurant property. In addition, during
1999, Halls Joint Venture, in which the Partnership owned a 51.1% interest, sold
its Property in Halls, Tennessee. During the year ended December 31, 2000, the
Partnership sold its Property in Pueblo, Colorado and reinvested the net sales
proceeds as tenants-in-common with affiliates of the General Partners to
purchase and hold one restaurant Property in Colorado Springs, Colorado. In
addition, during 2000, the Partnership liquidated Halls Joint Venture and used
the pro rata share of the liquidation proceeds it received to enter into a joint
venture arrangement, TGIF Pittsburgh Joint Venture, to purchase and hold one
restaurant Property. In addition, during 2000, the Partnership sold its three
Properties in Jacksonville, Florida; one Property in Lake City, Florida; one
Property in Brunswick, Georgia and one Property in Friendswood, Illinois. In
addition, during 2000, the Partnership purchased additional interest in Duluth
Joint Venture from CNL Income Fund V, Ltd. and CNL Income Fund XV, Ltd. As a
result of the above transactions, as of December 31, 2000, the Partnership owned
35 Properties. The 35 Properties included interests in eleven Properties owned
by joint ventures in which the Partnership is a co-venturer and four Properties
owned with affiliates as tenants-in-common. The Properties are, in general,
leased on a triple-net basis with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities. In February 2001, the
Partnership reinvested the net sales proceeds from the sale of three of its
Properties (two in Jacksonville, Florida and one in Lake City, Florida in a
Property located in Baton Rouge, Louisiana from CNL Funding 2001-A, LP, an
affiliate of the General Partners.
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
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, ("APF"), pursuant to which the
Partnership would be merged with an 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 CNL American Properties Fund, Inc.
("APF") announced that they had mutually agreed to terminate the Agreement and
Plan of Merger entered into in March 1999. 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. The General Partners are continuing to evaluate
strategic alternatives for the Partnership, including alternatives to provide
liquidity to the Limited Partners.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms ranging from five to 20 years (the average being 17 years), and expire
between 2003 and 2019. Generally, the leases are on a triple-net basis, with the
lessee 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
$21,600 to $259,900. The majority of the leases provide for percentage rent,
based on sales in excess of a specified amount. In addition, some of the leases
provide that, commencing in specified lease years (generally ranging from the
sixth to the eleventh lease year), the annual base rent required under the terms
of the lease will increase.
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 25 of the Partnership's 35 Properties also have been
granted options to purchase Properties at the Property's then fair market value
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.
The leases 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 that 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 December 1999, the Partnership entered into a joint venture
arrangement, Duluth Joint Venture, with CNL Income Fund V, Ltd., CNL Income Fund
XIV, Ltd. and CNL Income Fund XV, Ltd., each a Florida limited partnership and
an affiliate of the General Partners, to construct and hold one restaurant
Property. During 2000, the Partnership acquired the 12 percent interest and 33
percent interest previously held by CNL Income Fund V, Ltd. and CNL Income Fund
XV, Ltd., respectively.
In June 2000, the Partnership invested in a joint venture arrangement,
TGIF Pittsburgh Joint Venture, with CNL Income Fund XV, Ltd., CNL Income Fund
XVI, Ltd., and CNL Income Fund XVIII, Ltd., each a Florida limited partnership
and an affiliate of the General Partners, to purchase and hold one restaurant
Property. In August 2000, the Partnership invested the net sales proceeds from
the sale of the Property in Pueblo, Colorado in a Bennigan's Property in
Colorado Springs, Colorado, as tenants-in-common with CNL Income Fund XII, Ltd.,
a Florida limited partnership and an affiliate of the General Partners, to
purchase and hold one restaurant Property. The lease terms for these Properties
are substantially the same as the Partnership's other leases, as described
above.
In January 2001, the Partnership reinvested the net sales proceeds
received from the sale of three of its Properties (two in Jacksonville, Florida
and one in Lake City, Florida) in a Property located in Baton Rouge, Louisiana.
The lease terms for this Property are substantially the same as the
Partnership's other leases.
Major Tenants
During 2000, three lessees of the Partnership and its consolidated
joint venture, Golden Corral Corporation, Restaurant Management Services, Inc.,
and Waving Leaves, Inc., each contributed more than ten percent of the
Partnership's total rental, earned and mortgage interest income (including
rental income from the Partnership's consolidated joint venture and the
Partnership's share of rental and earned income from ten Properties owned by
unconsolidated joint ventures and four Properties owned with affiliates of the
General Partners as tenants-in-common). As of December 31, 2000, Golden Corral
Corporation was the lessee under leases relating to five restaurants, Restaurant
Management Services, Inc. was the lessee under a lease relating to one site
currently consisting of land only, and Waving Leaves, Inc. was the lessee under
leases relating to four restaurants. It is anticipated that, based on the
minimum rental payments required by the leases, Golden Corral Corporation and
Waving Leaves, Inc. each will continue to contribute more than ten percent of
the Partnership's total rental, earned and mortgage interest income in 2001. In
addition, three Restaurant Chains, Golden Corral Family Steakhouse Restaurants
("Golden Corral"), Hardee's, and Burger King, each accounted for more than ten
percent of the Partnership's total rental, earned and mortgage interest income
in 2000 (including rental income from the Partnership's consolidated joint
venture and the Partnership's share of rental and earned income from ten
Properties owned by unconsolidated joint ventures and four Properties owned with
affiliates of the General Partners as tenants-in-common). In 2001, it is
anticipated that these three Restaurant Chains each will continue to account for
more than ten percent of the Partnership's total rental, earned and mortgage
interest 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. No single tenant or groups of affiliated tenants
lease Properties with an aggregate carrying value in excess of 20 percent of the
total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into a joint venture arrangement, San
Antonio #849 Joint Venture, with an unaffiliated entity to purchase and hold one
Property. In addition, the Partnership has entered into four separate joint
venture arrangements with affiliates of the General Partners: CNL Restaurant
Investments II with CNL Income Fund VIII, Ltd. and CNL Income Fund IX, Ltd.; Des
Moines Real Estate Joint Venture with CNL Income Fund XI, Ltd. and CNL Income
Fund XII, Ltd.; CNL Mansfield Joint Venture with CNL Income Fund XVII, Ltd.; and
Duluth Joint Venture with CNL Income Fund XIV, Ltd. In addition, in June 2000,
the Partnership entered into a joint venture arrangement, TGIF Pittsburgh Joint
Venture, with CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., and CNL
Income Fund XVIII, Ltd. Each of the CNL Income Funds is an affiliate of the
General Partners and is a limited partnership organized pursuant to the laws of
the state of Florida. CNL Restaurants Investments II was formed to purchase and
hold six Properties and each of the other joint ventures was formed to purchase
and hold one Property.
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 interests in the
joint venture. The Partnership has an 83 percent interest in San Antonio #849
Joint Venture, an 18 percent interest in CNL Restaurant Investments II, a 4.79%
interest in Des Moines Real Estate Joint Venture, a 79 percent interest in CNL
Mansfield Joint Venture, a 56 percent interest in Duluth Joint Venture, and a
17.16% interest in TGIF Pittsburgh Joint Venture. The Partnership and its joint
venture partners are also jointly and severally liable for all debts,
obligations and other liabilities of the joint venture.
San Antonio #849 Joint Venture, Des Moines Real Estate Joint Venture,
CNL Mansfield Joint Venture, Duluth Joint Venture and TGIF Pittsburgh Joint
Venture each have an initial term of 20 years and, after the expiration of the
initial term, continue in existence from year to year unless terminated at the
option of any joint venturer or by an event of dissolution. Events of
dissolution include the bankruptcy, insolvency or termination of any joint
venturer, sale of the Property owned by the joint venture and mutual agreement
of the Partnership and each joint venture partner to dissolve the joint venture.
CNL Restaurant Investments II's joint venture agreement does not provide a fixed
term, but continues in existence until terminated by any of the joint venturers.
The Partnership has management control of the San Antonio #849 Joint
Venture and shares management control equally with affiliates of the General
Partners for CNL Restaurant Investments II, Des Moines Real Estate Joint
Venture, CNL Mansfield Joint Venture, Duluth Joint Venture, and TGIF Pittsburgh
Joint Venture. The joint venture agreements restrict each venturer's ability to
sell, transfer or 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 San Antonio #849 Joint Venture, CNL
Restaurant Investments II, Des Moines Real Estate Joint Venture, CNL Mansfield
Joint Venture, Duluth Joint Venture, and TGIF Pittsburgh Joint Venture is
distributed 83.3%, 18 percent, 4.79%, 79 percent, 56 percent and 17.16%,
respectively, to the Partnership and the balance is distributed to each of the
other joint venture partners in accordance with their respective percentage
interests 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 June 1999, Halls Joint Venture in which the Partnership owned a
51.1% interest, sold its Property to the tenant in accordance with the purchase
option under the lease agreement. During 2000, the Partnership and the joint
venture partner liquidated Halls Joint Venture and the Partnership received its
pro rata share of the liquidation proceeds from the joint venture.
In December 1997, the Partnership entered into an agreement to hold a
Property in Miami, Florida, as tenants-in-common with CNL Income Fund III, Ltd.,
CNL Income Fund X, Ltd. and CNL Income Fund XIII, Ltd., affiliates of the
General Partners. The agreement provides for the Partnership and the affiliate
to share in the profits and losses of the Property in proportion to each
co-tenant's percentage interest. The Partnership owns a 35.64% interest in the
Property in Miami, Florida.
In addition, in December 1997, the Partnership entered into an
agreement to purchase and hold a Golden Corral Property in Smithfield, North
Carolina, as tenants-in-common with CNL Income Fund II, Ltd., an affiliate of
the General Partners. The agreement provides for the Partnership and the
affiliate to share in the profits and losses of the Property in proportion to
each co-tenant's percentage interest. The Partnership owns a 53 percent interest
in this Property.
In November 1999, the Partnership entered into an agreement to purchase
and hold a IHOP property in Montgomery, Alabama, as tenants-in-common with CNL
Income Fund IX, Ltd., an affiliate of the General Partners. The agreement
provides for the Partnership and the affiliate to share in the profits and
losses of the Property in proportion to each co-tenant's percentage interest.
The Partnership owns a 71 percent interest in this Property.
In August 2000, the Partnership entered into an agreement to purchase
and hold a Bennigan's Property in Colorado Springs, Colorado, as
tenants-in-common with CNL Income Fund XII, Ltd., an affiliate of the General
Partners. The agreement provides for the Partnership and the affiliate to share
in the profits and losses of the Property in proportion to each co-tenant's
percentage interest. The Partnership owns an approximate 43 percent 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
co-tenant'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 co-tenant.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property. The
affiliates are limited partnerships organized pursuant to the laws of the state
of Florida.
Certain Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL Fund Advisors, Inc. 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. CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases. For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. 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.
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 CNL
Fund Advisors, Inc. 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, 2000, the Partnership owned 35 Properties. Of the 35
Properties, 20 are owned by the Partnership in fee simple, eleven are owned
through joint venture arrangements and four are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 17,800
to 110,200 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, 2000 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation.
State Number of Properties
Alabama 1
Arizona 1
Colorado 1
Florida 6
Georgia 2
Indiana 1
Louisiana 1
Michigan 2
Minnesota 1
North Carolina 1
Ohio 7
Pennsylvania 1
Tennessee 2
Texas 7
Washington 1
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TOTAL PROPERTIES 35
=======
Buildings. Generally, each of the Properties owned by the Partnership
includes a building that is one of a Restaurant Chain's approved designs.
However, the building located on the Checkers Property is owned by the tenant,
while the land parcel is owned by the Partnership. In addition, the building
located on the Partnership's Property in Daytona Beach, Florida was demolished
in accordance with a condemnation agreement during 1995. The buildings generally
are rectangular and are constructed from various combinations of stucco, steel,
wood, brick and tile. The sizes of the buildings owned by the Partnership range
from approximately 700 to 10,600 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, 2000, 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 40 years for federal income tax purposes.
As of December 31, 2000, the aggregate cost of the Properties owned by
the Partnership (including its consolidated joint venture) and the
unconsolidated joint ventures (including the Properties owned through
tenants-in-common arrangements), for federal income tax purposes was $16,547,577
and $19,616,916, respectively.
The following table lists the Properties owned by the Partnership as of December
31, 2000 by Restaurant Chain.
Restaurant Chain Number of Properties
Bennigan's 1
Boston Market 1
Burger King 8
Checkers 1
Chevy's Fresh Mex 1
Church's 2
Denny's 1
Golden Corral 5
Hardee's 6
IHOP 1
Jack in the Box 3
KFC 1
Rally's 1
Roadhouse Grill 1
Taco Bell 1
TGI Friday's 1
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TOTAL PROPERTIES 35
=======
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, 2000, 1999, 1998, 1997, and 1996, all of the Properties
were occupied. The following is a schedule of the average rent per Property for
each of the years ended December 31:
2000 1999 1998 1997 1996
------------- ------------- --------------- -------------- --------------
Rental Revenues (1) $ 2,801,210 $ 2,902,968 $2,879,831 $2,751,418 $2,850,721
Properties 35 40 40 40 40
Average Rent per
Property $ 80,035 $ 72,574 $ 71,996 $ 68,785 $ 71,268
(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.
The following is a schedule of lease expirations for leases in place as
of December 31, 2000 for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- ----------------- --------------------------
2001 -- $ -- --
2002 -- -- --
2003 1 30,000 1.28%
2004 1 137,061 5.85%
2005 9 561,873 23.98%
2006 1 62,327 2.66%
2007 -- -- --
2008 1 92,440 3.95%
2009 1 121,000 5.17%
2010 11 694,688 29.61%
Thereafter 10 644,397 27.50%
---------- ------------------ -------------
Total 35 $ 2,343,786 100.00%
========== ================== =============
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2000 (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 2012) and the
average minimum base annual rent is approximately $148,700 (ranging from
approximately $137,100 to $166,700).
Waving Leaves, Inc. leases four Hardee's restaurants. The initial term
of each lease is 20 years (expiring in 2010) and the average minimum base annual
rent is approximately $72,300 (ranging from approximately $62,800 to $79,800).
Restaurant Management Services, Inc. leases one site currently
consisting of land only (formerly operated as a Church's Fried Chicken). The
initial term for this lease is 19 years (expiring in 2010) and the minimum
annual base rent is approximately $37,400.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 15, 2001, there were 3,140 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 2000, 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 had the right to prohibit transfers of Units. From
inception through December 31, 2000, the price paid for any Unit transferred
pursuant to the Plan was $.95 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 2000 and 1999 other than
pursuant to the Plan, net of commissions.
2000 (1) 1999 (1)
----------------------------------------- --------------------------------------
High Low Average High Low Average
------------------- ---------- --------- ----------- ---------- --------- -----------
First Quarter $ .77 $ .77 $ .77 $ .95 $ .95 $ .95
-------------------
Second Quarter (2) (2) (2) .89 .87 .88
-------------------
Third Quarter .88 .68 .71 .91 .68 .79
-------------------
Fourth Quarter .68 .65 .68 1.57 .75 .96
-------------------
(1) A total of 138,570 and 273,773 Units were transferred other than
pursuant to the Plan for the years ended December 31, 2000 and 1999,
respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the plan.
The capital contribution per Unit was $1. 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, 2000 and 1999, the Partnership
declared cash distributions of $2,700,000 to the Limited Partners. Distributions
of $675,000 were declared at the close of each of the Partnership's calendar
quarters during 2000 and 1999 to the Limited Partners. These amounts include
monthly distributions made in arrears for the Limited Partners electing to
receive distributions on this basis. No amounts distributed to partners for the
years ended December 31, 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. No
distributions have been made to the General Partners to date.
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
2000 1999 1998 1997 1996
-------------- -------------- --------------- -------------- --------------
Year ended December 31:
Revenues (1) $ 2,842,101 $ 2,992,933 $ 2,948,217 $ 2,919,734 $ 2,882,709
Net income (2) 3,221,515 2,545,690 2,466,018 2,606,008 2,326,863
Cash distributions declared 2,700,000 2,700,000 2,700,000 2,700,000 2,700,000
Net income per Unit (2) 0.107 0.084 0.081 0.086 0.077
Cash distributions declared
per Unit 0.090 0.090 0.090 0.090 0.090
At December 31:
Total assets $25,607,914 $ 25,146,133 $25,218,258 $25,479,762 $25,523,853
Partners' capital 24,681,001 24,159,486 24,313,796 24,547,778 24,641,770
(1) Revenues include equity in earnings of unconsolidated joint ventures
and minority interest in income of the consolidated joint venture.
(2) Net income for the years ended December 31, 2000, 1999, 1998, 1997, and
1996, includes $878,347, $189,826, $1,025, $184,627, and $195,675,
respectively, from gains on sale of assets. Net income for the years
ended December 31, 1997 and 1996, includes a loss on sale of assets of
$19,739 and $235,465, respectively.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership was organized on August 18, 1989, 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 generally responsible
for all repairs and maintenance, property taxes, insurance and utilities. As of
December 31, 2000, the Partnership owned 35 Properties, either directly or
indirectly through joint venture or tenancy in common arrangements.
Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 2000, 1999, and 1998, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $2,620,009, $2,679,493,
and $2,790,975 for the years ended December 31, 2000, 1999, and 1998,
respectively. The decrease in cash from operations during 2000 and 1999, each as
compared to the previous year, was primarily a result of changes in the
Partnership's working capital.
Other significant sources and uses of capital included the following
during the years ended December 31, 2000, 1999, and 1998.
In August 1995, the Partnership sold its Property in Florence, South
Carolina, to the tenant of the Property for $1,160,000, and in connection
therewith, accepted a promissory note in the principal sum of $1,160,000
collateralized by a mortgage on the Property. The note bears interest at 10.25%
per annum and is being collected in 59 equal monthly installments of $10,395.
This sale is being accounted for under the installment sales method for
financial reporting purposes; therefore, the Partnership recognized a gain of
$1,147, $1,135, and $1,025 for financial reporting purposes for the years ended
December 31, 2000, 1999, and 1998, respectively. The mortgage note receivable
balance relating to this Property at December 31, 2000 and 1999 was $994,593 and
$994,408, respectively, including accrued interest of $15,723 and $6,407,
respectively. In February 2001, the Partnership received a balloon payment of
$1,115,301 which included the outstanding principal balance and $14,419 of
accrued interest. The Partnership may use the net sales proceeds to pay
liabilities of the Partnership, including quarterly distributions to the Limited
Partners, or to reinvest in additional Properties. 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 March 1996, the Partnership entered into an agreement with the
tenant of the Property in Daytona Beach, Florida, for payment of certain rental
payment deferrals the Partnership had granted to the tenant through March 31,
1996. Under the agreement, the Partnership agreed to abate approximately $13,200
of the rental payment deferral amounts. The tenant made payments of
approximately $5,700 in each of June 1998 and June 1999 in accordance with the
terms of the agreement. During 2000, the tenant paid the remaining balance due
of approximately $16,600.
In June 1999, the Partnership sold its Property in Maryville,
Tennessee, to the tenant in accordance with the purchase option under the lease
agreement for $1,068,802 and received net sales proceeds of $1,059,954,
resulting in a gain of $188,691 for financial reporting purposes. This Property
was originally acquired by the Partnership in 1990 and had a cost of
approximately $890,700, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately
$169,300 in excess of its original purchase price. In November 1999, the
Partnership reinvested these net sales proceeds in a Property in Montgomery,
Alabama, as tenants-in-common with an affiliate of the General Partners. The
sale of the Property in Maryville, Tennessee and the reinvestment of the net
sales proceeds in the Property in Montgomery, Alabama qualified as a like-kind
exchange transaction in accordance with Section 1031 of the Internal Revenue
Code.
In addition, in June 1999, Halls Joint Venture, in which the
Partnership owned a 51.1% interest, sold its Property to the tenant in
accordance with the purchase option under the lease agreement for $891,915,
resulting in a gain to the joint venture of approximately $239,300 for financial
reporting purposes. The Property was originally contributed to Halls Joint
Venture in 1990 and had a total cost to the joint venture of approximately
$672,000, excluding acquisition fees and miscellaneous acquisition expenses;
therefore, the joint venture sold the Property for approximately $219,900 in
excess of its original purchase price. During 2000, the Partnership and the
joint venture partner liquidated Halls Joint Venture and the Partnership
received approximately $460,900, representing its pro rata share of the
liquidation proceeds. In June 2000, the Partnership used a portion of the net
sales proceeds from the sale of the Property to enter into a joint venture
arrangement, TGIF Pittsburgh Joint Venture, with CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., and CNL Income Fund XVIII, Ltd., each a Florida limited
partnership and an affiliate of the General Partners, to purchase and hold one
restaurant Property. As of December 31, 2000, the Partnership owned a 17.16%
interest in the profits and losses of the joint venture. 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.
As of December 31, 1998, the Partnership had accepted two promissory
notes in connection with the sale of two of its Properties. In July 1999, the
Partnership collected the outstanding principal balance of $235,564 relating to
the promissory note accepted in connection with the 1995 sale of the Property in
Jacksonville, Florida. The note bore an interest rate of ten percent per annum
and was to be collected in 119 equal monthly installments of $2,106, with a
balloon payment of $218,252 to be due December 2005. In December 1999, the
Partnership reinvested these amounts in Duluth Joint Venture with CNL Income
Fund V, Ltd., CNL Income Fund XIV, Ltd., and CNL Income Fund XV, Ltd., each a
Florida limited partnership and an affiliate of the General Partners, to
construct and hold one restaurant Property. During 2000 and 1999, the
Partnership contributed approximately $969,300 and $119,100, respectively, to
purchase land and pay for construction costs relating to the joint venture. As
of December 31, 1999, the Partnership had an 11 percent interest in the profits
and losses of this joint venture. In October 2000, the Partnership acquired an
additional 45 percent interest in Duluth Joint Venture, from CNL Income Fund V,
Ltd. and CNL Income Fund XV, Ltd. for an aggregate purchase price of
approximately $610,000. As of December 31, 2000, the Partnership had a 56
percent interest in the profits and losses of this joint venture.
In June 2000, the Partnership sold its Property in Pueblo, Colorado, to
an unrelated third party and received net sales proceeds of $1,005,000,
resulting in a gain of $97,056 for financial reporting purposes. This Property
was originally acquired by the Partnership in 1990 and had a cost totaling
approximately $961,600, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately $43,400
in excess of its original purchase price. In August 2000, the Partnership
reinvested the majority of the net sales proceeds in an additional Property in
Colorado Springs, Colorado as tenants-in-common with an affiliate of the General
Partners. The Partnership distributed amounts sufficient to be able 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 September 2000, the Partnership sold its Property in Brunswick,
Georgia, its Property in Lake City, Florida, and three Properties in
Jacksonville, Florida, to unrelated third parties for a total of approximately
$2,404,800 and received net sales proceeds of approximately $2,392,300,
resulting in a total gain of $619,495 for financial reporting purposes. These
Properties were originally acquired by the Partnership in 1990, and had costs
totaling approximately $2,055,900, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold these Properties for
approximately $336,400 in excess of their original purchase prices. In February
2001, the Partnership reinvested the net sales proceeds received from the sales
of two Properties in Jacksonville, Florida and the Property in Lake City,
Florida in a Jack in the Box Property in Baton Rouge, Louisiana. The Partnership
acquired the Property from an affiliate of the General Partners. The Partnership
intends to reinvest the remaining net sales proceeds in additional Properties.
The General Partners believe a portion of the transaction relating to the sales
of these Properties and the reinvestment of the net sales proceeds in additional
Properties will qualify as a like-kind exchange for federal income tax purposes.
However, the Partnership will distribute amounts sufficient to be able 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
addition, in December 2000, the Partnership sold its Property in Friendswood,
Texas to its tenant and received net sales proceeds of $725,000 resulting in a
gain of $160,649 for financial reporting purposes. This Property was originally
acquired by the Partnership in 1990 and had a cost of approximately $485,000;
therefore, the Partnership sold the Property for approximately $239,100 in
excess of its original purchase price. The Partnership, with CNL Income Fund
XII, Ltd., an affiliate of the General Partners, acquired an interest in a
Bennigan's Property from CNL BB Corp., an affiliate of the General Partners for
a purchase price of $2,226,134. 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 represents the costs incurred by CNL BB
Corp. to acquire and carry the Property, including closing costs. The
Partnership distributed amounts sufficient to be able 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 30-day maturity
date, pending the Partnership's use of such funds to pay Partnership expenses,
invest in additional Properties, or make distributions to the partners. At
December 31, 2000, the Partnership had $1,557,525 invested in such short-term
investments (including a certificate of deposit in the amount of $100,000), as
compared to $925,348 at December 31, 1999. The increase in cash and cash
equivalents was primarily attributable to the fact that the Partnership received
net sales proceeds from the sale of several Properties during 2000, as described
above. As of December 31, 2000, the average interest rate earned on the rental
income deposited in demand deposit accounts at commercial banks was
approximately three percent annually. The funds remaining at December 31, 2000,
after payment of distributions and other liabilities, will be used to invest in
an additional Property and to meet the Partnership's working capital and other
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 believe that the Partnership has sufficient working capital reserves at
this time. In addition, because all 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 primarily on cash from operations, the Partnership declared
distributions to the Limited Partners of $2,700,000 for each of the years ended
December 31, 2000, 1999, and 1998. This represents distributions of $0.090 per
Unit for each of the years ended December 31, 2000, 1999, and 1998. No amounts
distributed to the Limited Partners for the years ended December 31, 2000, 1999,
and 1998 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 year ended December 31, 2000.
As of December 31, 2000, 1999, and 1998, the Partnership owed $67,815,
$59,131 and $17,911, respectively, to affiliates for accounting and
administrative services and other amounts. As of March 15, 2001 $8,800 of such
amounts had been reimbursed. In addition, as of December 31, 1998, the
Partnership owed $7,200 in real estate disposition fees to an affiliate as a
result of its services in connection with the 1995 sale of the Property in
Jacksonville, Florida. Because the General Partners initially considered not
reinvesting the sales proceeds in an additional Property, the Partnership
accrued $7,200 of a real estate disposition fee and therefore included these
amounts in the determination of the gain on sale for financial reporting
purposes during 1995. However, during the year ended December 31, 1999, the
Partnership reinvested the net sales proceeds in an additional Property.
Accordingly, the Partnership reversed this subordinated real estate disposition
fee during the year ended December 31, 1999. Other liabilities, including
distributions payable, of the Partnership decreased to $714,730 at December 31,
2000, from $782,001 at December 31, 1999 primarily as a result of the
Partnership paying amounts accrued at December 31, 2000 relating to the proposed
and terminated Merger with APF, as described in "Termination of Merger." 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
During 1999, and 1998, the Partnership and its consolidated joint
venture, San Antonio #849 Joint Venture, owned and leased 29 wholly owned
Properties (including one Property which was sold in June 1999) and during 2000,
the Partnership and its consolidated joint venture, owned and leased 27 wholly
owned Properties (including seven Properties which were sold in 2000). During
1998, the Partnership and its consolidated joint venture, was a co-venturer in
four separate unconsolidated joint ventures which owned and leased nine
Properties, and owned and leased two Properties with affiliates as
tenants-in-common. During 1999, the Partnership and its consolidated joint
venture, was a co-venturer in five, separate unconsolidated joint ventures which
owned and leased ten Properties (including one Property which was sold in June
1999), and owned and leased three Properties with affiliates as
tenants-in-common. During 2000, the Partnership and its consolidated joint
venture, was a co-venturer in six separate unconsolidated joint ventures which
owned and leased ten Properties, and owned and leased four Properties with
affiliates as tenants-in-common. As of December 31, 2000, the Partnership and
its consolidated joint venture, owned (either directly, as tenants-in-common
with an affiliate or through joint venture arrangements) 35 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 $21,600 to $259,900. Substantially all of the leases
provide for percentage rent based on sales in excess of a specified amount. In
addition, some of the leases provide that, commencing in the specified lease
years (generally ranging from the sixth to the eleventh lease year), the annual
base rent required under the terms of the lease will increase. 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, 2000, 1999, and 1998, the
Partnership and its consolidated joint venture, earned $2,145,945, $2,318,042,
and $2,390,557, respectively, in rental income from operating leases and earned
income from direct financing leases. The decrease in rental and earned income
during 2000 and 1999, each as compared to the previous year, was primarily a
result of the sale of several Properties, as described in "Capital Resources."
Rental and earned income are expected to remain at reduced amounts in future
years as a result of the Partnership reinvesting the proceeds from the sales of
several Properties in joint ventures and in Properties owned with affiliates, as
tenants-in-common, as described in "Capital Resources." However, as a result of
the Partnership reinvesting in joint ventures and in Properties owned with
affiliates as tenants-in-common, net income earned by unconsolidated joint
ventures increased in 1999 and 2000, as described below.
For the years ended December 31, 2000, 1999, and 1998, the Partnership
also earned $91,842, $76,601, $93,906, respectively, in contingent rental
income. Contingent rental income was lower during 1999 than 2000 and 1998,
primarily due to the fact that during 1999, the Partnership adjusted estimated
contingent rental amounts accrued at December 31, 1998, to actual amounts.
For the years ended December 31, 2000, 1999, and 1998, the Partnership
also earned $456,050, $429,997, and $311,081, respectively, attributable to net
income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer and Properties owned indirectly with affiliates as
tenants-in-common. The increase in net income earned by unconsolidated joint
ventures during 2000 as compared to 1999 is primarily due to the Partnership
investing in TGIF Pittsburgh Joint Venture, in June 2000, and Properties in
Colorado Springs, Colorado and Montgomery, Alabama, with affiliates of the
General Partners as tenants-in-common in August 2000 and November 1999,
respectively, as described above in "Capital Resources." The increase in net
income earned by unconsolidated joint ventures during 1999, as compared to 1998,
was partially due to the fact that in June 1999, Halls Joint Venture, in which
the Partnership owned a 51.1% interest, recognized a gain of approximately
$239,300, approximately $122,000 of which was allocated to the Partnership for
financial reporting purposes as a result of the sale of its Property.
During the year ended December 31, 2000, three lessees of the
Partnership and its consolidated joint venture, Golden Corral Corporation,
Restaurant Management Services, Inc., and Waving Leaves, Inc., each contributed
more than ten percent of the Partnership's total rental, earned and mortgage
interest income (including rental income from the Partnership's consolidated
joint venture and the Partnership's share of rental and earned income from ten
Properties owned by unconsolidated joint ventures and four Properties owned with
affiliates of the General Partners as tenants-in-common). As of December 31,
2000, Golden Corral Corporation was the lessee under a lease relating to five
restaurants, Restaurant Management Services, Inc. was the lessee under a lease
relating to one site currently consisting of land only, and Waving Leaves, Inc.
was the lessee under leases relating to four restaurants. It is anticipated
that, based on the minimum rental payments required by the leases, Golden Corral
Corporation and Waving Leaves, Inc. will continue to contribute more than ten
percent of the Partnership's total rental, earned and mortgage interest income
during 2001. In addition, during the year ended December 31, 2000, three
Restaurant Chains, Golden Corral, Hardee's, and Burger King, each accounted for
more than ten percent of the Partnership's total rental, earned and mortgage
interest income (including rental income from the Partnership's consolidated
joint venture and the Partnership's share of rental and earned income from ten
Properties owned by unconsolidated joint ventures and four Properties owned with
affiliates of the General Partners as tenants-in-common). In 2001, it is
anticipated that these three Restaurant Chains each will continue to account for
more than ten percent of the Partnership's total rental, earned and mortgage
interest 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.
During the years ended December 31, 2000, 1999, and 1998, the
Partnership earned $166,946, $186,933, and $171,263, respectively, in interest
and other income. The decrease in interest and other income during 2000, as
compared to 1999, is primarily attributable to the Partnership in 1999
collecting the outstanding balance of the mortgage note related to the 1995 sale
of the Property in Jacksonville, Florida, as described in "Capital Resources."
The decrease in interest and other income was partially offset by, and the
increase during 1999, was primarily due to an increase in interest income earned
on the net sales proceeds relating to the sale of several Properties pending the
reinvestment of the net sales proceeds in additional Properties. In November
1999, the net sales proceeds from the 1999 sale of the Property in Maryville,
Tennessee were invested in an IHOP Property in Montgomery, Alabama, as described
above in "Capital Resources."
Operating expenses, including depreciation and amortization expense,
were $498,933, $637,069, and $483,224, for the years ended December 31, 2000,
1999, and 1998, respectively. The decrease in operating expenses during 2000, as
compared to 1999 and the increase during 1999, as compared to 1998, was
partially due to the fact that the Partnership incurred $35,134, $160,426, and
$18,781 during 2000, 1999 and 1998, respectively, in transaction costs related
to the General Partners retaining financial and legal advisors to assist them in
evaluating and negotiating the purposed and terminated merger with APF, as
described in "Termination of Merger." In addition, the increase in operating
expenses during 1999, as compared to 1998, 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.
In connection with the sale of its Property in Florence, South
Carolina, during 1995, the Partnership recognized a gain for financial reporting
purposes of $1,147, $1,135, and $1,025, for the years ended December 31, 2000,
1999, and 1998, respectively. In accordance with Statement of Financial
Accounting Standards No. 66, "Accounting for Sales of Real Estate," the
Partnership recorded the sale using the installment sales method. As such, the
gain on sale was deferred and is being recognized as income proportionately as
payments under the mortgage note are collected. Therefore, the balance of the
deferred gain of $122,996 at December 31, 2000 is being recognized as income in
future periods as payments are collected. For federal income tax purposes, a
gain of approximately $93,421 from the sale of this Property was also deferred
during 1995 and is being recognized as payments under the mortgage note are
collected. In February, 2001, the Partnership collected the outstanding balance
relating to the promissory note collateralized by the Property. As a result,
during 2001, the Partnership recognized the remaining deferred gain of $122,996.
As a result of the sales of several Properties during 2000, as
described above in "Capital Resources," the Partnership recognized gains
totaling $877,200 for financial reporting purposes. As a result of the sale of
the Property in Maryville, Tennessee, during 1999, as described above in
"Capital Resources" the Partnership recognized a gain of $188,691 for financial
reporting purposes during the year ended December 31, 1999.
The Partnership's leases as of December 31, 2000, 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 has had a minimal effect on income from
operations. Management expects that increases in restaurant sales volumes due to
inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also 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's result of operations.
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments, embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The Statement requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. In June 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral
of the Effective Date of FASB Statement No. 133, an Amendment of FASB Statement
No. 133." FAS 137 deferred the effective date of FAS 133 for one year. FAS 133,
as amended, is now effective for all fiscal quarters of all fiscal years
beginning after June 15, 2000. The partnership has reviewed both statements and
has determined that both FAS 133 and FAS 137 do not apply to the Partnership as
of December 31, 2000.
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 entered into in March 1999. 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. The General
Partners are continuing to evaluate strategic alternatives for the Partnership
including alternatives to provide liquidity to the Limited Partners.
Interest Rate Risk
The Partnership accepted a promissory note in conjunction with the sale
of a Property. The General Partners believe that the estimated fair value of the
mortgage notes at December 31, 2000 approximated the outstanding principal
amounts. The Partnership is exposed to equity loss in the event of changes in
interest rates. The following table presents the expected cash flows of
principal that are sensitive to these changes:
Mortgage Notes
Fixed Rates
-----------------
2001 $ 1,101,865
2002 --
2003 --
2004 --
2005 --
Thereafter --
-----------------
$ 1,101,865
=================
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The information is described above in Item 7. Management's Discussion
and Analysis of Financial Condition and Results of Operations - Interest Rate
Risk.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 18
- ----------------------------------------------------------------------
Financial Statements:
- ----------------------------------------------------------------------
Balance Sheets 19
- ----------------------------------------------------------------------
Statements of Income 20
- ----------------------------------------------------------------------
Statements of Partners' Capital 21
- ----------------------------------------------------------------------
Statements of Cash Flows 22-23
- ----------------------------------------------------------------------
Notes to Financial Statements 24-41
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Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund VII, Ltd..
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund VII, Ltd. (a Florida limited partnership) at December 31,
2000 and 1999, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 2000 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 statement statements. These financial statements and financial
statements 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 2, 2001, except for Note 12 for which the date is February 15, 2001
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2000 1999
---------------- -----------------
ASSETS
Land and buildings on operating leases, less
accumulated depreciation $11,297,040 $13,984,334
Net investment in direct financing leases 2,548,324 3,273,155
Investment in joint ventures 6,452,604 4,605,906
Mortgage note receivable, less deferred gain 994,593 994,408
Cash and cash equivalents 1,454,025 925,348
Certificate of deposit 103,500 --
Restricted cash 1,503,929 --
Receivables, less allowance for doubtful accounts of
$504 and $16,679, respectively 86,351 72,644
Due from related parties 1,256 --
Prepaid expenses 27,108 14,220
Accrued rental income, less allowance for doubtful
accounts of $9,845 in 2000 and 1999 1,078,762 1,215,696
Other assets 60,422 60,422
---------------- -----------------
$25,607,914 $25,146,133
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 31,415 $ 96,894
Distributions payable 675,000 675,000
Due to related parties 67,815 59,131
Rents paid in advance and deposits 8,315 10,107
---------------- -----------------
Total liabilities 782,545 841,132
Minority interest 144,368 145,515
Partners' capital 24,681,001 24,159,486
---------------- -----------------
$25,607,914 $25,146,133
================ =================
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2000 1999 1998
------------------ ------------------ ---------------
Revenues:
Rental income from operating leases $ 1,765,623 $ 1,914,671 $ 1,976,709
Earned income from direct financing leases 380,322 403,371 413,848
Contingent rental income 91,842 76,601 93,906
Interest and other income 166,946 186,933 171,263
------------------ ------------------ ---------------
2,404,733 2,581,576 2,655,726
------------------ ------------------ ---------------
Expenses:
General operating and administrative 162,242 139,519 133,915
Professional services 24,451 28,903 23,443
State and other taxes 14,209 14,422 2,729
Depreciation 262,897 293,799 304,356
Transaction costs 35,134 160,426 18,781
------------------ ------------------ ---------------
498,933 637,069 483,224
------------------ ------------------ ---------------
Income Before Minority Interest in Income
of Consolidated Joint Venture, Equity in
Earnings of Unconsolidated Joint Ventures and
Gain on Sale of Assets 1,905,800 1,944,507 2,172,502
Minority Interest in Income of Consolidated
Joint Venture (18,682 ) (18,640 ) (18,590 )
Equity in Earnings of Unconsolidated Joint
Ventures 456,050 429,997 311,081
Gain on Sale of Assets 878,347 189,826 1,025
------------------ ------------------ ---------------
Net Income $ 3,221,515 $ 2,545,690 $ 2,466,018
================== ================== ===============
Allocation of Net Income
General partners $ -- $ 25,187 $ 24,659
Limited partners 3,221,515 2,520,503 2,441,359
------------------ ------------------ ---------------
$ 3,221,515 $ 2,545,690 $ 2,466,018
================== ================== ===============
Net Income Per Limited Partner Unit $ 0.107 $ 0.084 $ 0.081
================== ================== ===============
Weighted Average Number of
Limited Partner Units Outstanding 30,000,000 30,000,000 30,000,000
================== ================== ===============
See accompanying notes to financial statements
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2000, 1999, 1998
General Partners
---------------------------------------
Accumulated
Contributions Earnings
------------------ ----------------- -
Balance, December 31, 1997 $ 1,000 $ 180,085
Distributions to limited
partners ($0.090 per
limited partner unit) -- --
Net income -- 24,659
------------------ ----------------- -
Balance, December 31, 1998 1,000 204,744
Distributions to limited
partners ($0.090 per
limited partner unit) -- --
Net income -- 25,187
------------------ ----------------- -
Balance, December 31, 1999 1,000 229,931
Distributions to limited
partners ($0.090 per
limited partner unit) -- --
Net income -- --
------------------ ----------------- -
Balance, December 31, 2000 $ 1,000 $ 229,931
================== ================= =
Limited Partners
- -----------------------------------------------------------------------
Accumulated Syndication
Contributions Distributions Earnings Costs Total
- --------------- ---------------- ----------------- -------------- --------------
$ 30,000,000 $ (20,177,623 ) $ 17,984,316 $ (3,440,000 ) $24,547,778
-- (2,700,000 ) -- -- (2,700,000 )
-- -- 2,441,359 -- 2,466,018
- --------------- ---------------- ----------------- -------------- --------------
30,000,000 (22,877,623 ) 20,425,675 (3,440,000 ) 24,313,796
-- (2,700,000 ) -- -- (2,700,000 )
-- -- 2,520,503 -- 2,545,690
- --------------- ---------------- ----------------- -------------- --------------
30,000,000 (25,577,623 ) 22,946,178 (3,440,000 ) 24,159,486
-- (2,700,000 ) -- -- (2,700,000 )
-- -- 3,221,515 -- 3,221,515
- --------------- ---------------- ----------------- -------------- --------------
$ 30,000,000 $ (28,277,623 ) $ 26,167,693 $ (3,440,000 ) $24,681,001
=============== ================ ================= ============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
---------------- ------------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 2,266,898 $ 2,369,760 $ 2,435,937
Distributions from unconsolidated joint ventures 508,532 348,952 376,557
Cash paid for expenses (303,954 ) (217,856 ) (187,925 )
Interest received 148,533 178,637 166,406
----------------- ------------------- ------------------
Net cash provided by operating
activities 2,620,009 2,679,493 2,790,975
----------------- ------------------- ------------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 4,122,336 1,059,954 --
Investment in certificate of deposit (100,000 ) -- --
Investment in joint ventures (2,361,644 ) (1,196,927 ) --
Return of capital from joint venture 461,208 -- --
Increase in restricted cash (1,503,682 ) -- --
Collections on mortgage notes receivable 10,279 245,733 10,811
Other -- -- 13,221
------------------- ------------------
----------------- ------------------- ------------------
Net cash provided by investing activities 628,497 108,760 24,032
----------------- ------------------- ------------------
Cash Flows from Financing Activities:
Distributions to limited partners (2,700,000 ) (2,700,000 ) (2,700,000 )
Distributions to holders of minority interest (19,829 ) (19,730 ) (19,499 )
-------------------
----------------- ------------------
Net cash used in financing activities (2,719,829 ) (2,719,730 ) (2,719,499 )
----------------- ------------------- ------------------
Net Increase (Decrease) in Cash and Cash
Equivalents 528,677 68,523 95,508
Cash and Cash Equivalents at Beginning of Year 925,348 856,825 761,317
----------------- ------------------- ------------------
Cash and Cash Equivalents at End of Year $ 1,454,025 $ 925,348 $ 856,825
================= =================== ==================
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2000 1999 1998
----------------- --------------- --------------
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
Net Income $ 3,221,515 $2,545,690 $2,466,018
----------------- --------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 262,897 293,799 304,356
Minority interest in income of
consolidated joint venture 18,682 18,640 18,590
Gain on sale of assets (878,347 ) (189,826 ) (1,025 )
Equity in earnings of unconsolidated joint
ventures, net of distributions 53,738 (81,045 ) 65,476
Decrease (increase) in receivables (13,707 ) 5,834 (27,330 )
Increase in due from related parties (1,256 ) -- --
Decrease (increase) in interest receivable (13,064 ) 2,050 --
Decrease (increase) in prepaid expenses (12,888 ) (10,104 ) 639
Decrease in net investment in direct
financing leases 100,821 92,237 81,760
Increase in accrued rental income (59,795 ) (81,057 ) (90,896 )
Increase (decrease) in accounts payable and
accrued expenses (65,479 ) 88,175 (5,197 )
Increase (decrease) in due to related
parties 8,684 34,020 (9,772 )
Decrease in rents paid in advance and
deposits (1,792 ) (38,920 ) (11,644 )
----------------- --------------- --------------
Total adjustments (601,506 ) 133,803 324,957
----------------- --------------- --------------
Net Cash Provided by Operating Activities $ 2,620,009 $2,679,493 $2,790,975
================= =============== ==============
Supplemental Schedule of Non-Cash Financing Activities:
Distributions declared and unpaid at
December 31 $ 675,000 $ 675,000 $ 675,000
================= =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999, and 1998
1. Significant Accounting Policies:
- ----------------------------------------
Organization and Nature of Business - CNL Income Fund VII, 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 percent 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 generally
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 VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2000, 1999, and 1998
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 their 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' 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 to decrease rental or other income or increase bad debt expense for
the current period, 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 83.3%
interest in San Antonio #849 Joint Venture using the consolidation
method. Minority interest represents the minority joint venture
partner's proportionate share of the equity in the Partnership's
consolidated joint venture. All significant intercompany accounts and
transactions have been eliminated.
CNL INCOME FUND VII, LTD
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
1. Significant Accounting Policies - Continued:
- ----------------------------------------------------
The Partnership's investments in CNL Restaurant Investments II, Des
Moines Real Estate Joint Venture, CNL Mansfield Joint Venture, Duluth
Joint Venture, and TGIF Pittsburgh Joint Venture, and a property in
Smithfield, North Carolina, a property in Miami, Florida, a property in
Montgomery, Alabama, and a property in Colorado Springs, Colorado, for
which each of the four properties is held as tenants-in-common with
affiliates of the general partners, are accounted for using the equity
method since the Partnership shares control with affiliates which have
the same general partners.
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.
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.
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.
CNL INCOME FUND VII, LTD
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
1. Significant Accounting Policies - Continued:
-------------------------------------------
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's results of
operations.
Statement of Financial Accounting Standards No. 133 ("FAS 133")
and Statement of Financial Accounting Standards No. 137 (FAS 137")
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments, embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
The Statement requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. In June 1999, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging
Activities-Deferral of the Effective Date of FASB Statement No. 133, an
Amendment of FASB Statement No. 133." FAS 137 deferred the effective
date of FAS 133 for one year. FAS 133, as amended, is now effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000.
The partnership has reviewed both statements and has determined that
both FAS 133 and FAS 137 do not apply to the Partnership as of December
31, 2000.
2. Leases:
- ---------------
The Partnership leases its land or land and buildings primarily 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 the majority 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
generally pays all property taxes and assessments, fully maintains the
interior and exterior of the building and carries insurance
CNL INCOME FUND VII, LTD
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
2. Leases-Continued:
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:
2000 1999
------------------ -----------------
Land $ 6,850,655 $ 8,010,699
---------------------------------
Buildings 6,671,945 8,576,088
----------------- -----------------
- -
13,522,600 16,586,787
Less accumulated depreciation (2,225,560 ) (2,602,453 )
---------------- -----------------
$ 11,297,040 $ 13,984,334
-------------------------------------------------================= =================
CNL INCOME FUND VII, LTD
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
3. Land and Buildings on Operating Leases - Continued:
---------------------------------------------------
In June 1999, the Partnership sold its property in Maryville, Tennessee
to the tenant in accordance with the purchase option under the lease
agreement for $1,068,802 and received net sales proceeds of $1,059,954,
resulting in a gain of $188,691 for financial reporting purposes. This
property was originally acquired by the Partnership in 1990 at a cost
of approximately $890,700, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold this property for
a total of approximately $169,300 in excess of its original purchase
price. The Partnership reinvested the net sales proceeds in an
additional property as tenants-in-common with CNL Income Fund IX, Ltd.,
a Florida limited partnership and affiliate of the general partners
(see Note 5).
In June 2000, the Partnership sold its property in Pueblo, Colorado, to
an unrelated third party and received net sales proceeds of $1,005,000,
resulting in a gain of $97,056 for financial reporting purposes. This
property was originally acquired by the Partnership in 1990 and had a
cost of approximately $961,600, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the
property for approximately $43,400 in excess of its original purchase
price. In August 2000, the Partnership reinvested the majority of the
net sales proceeds in an additional Property in Colorado Springs,
Colorado as tenants-in-common with CNL Income Fund XII, Ltd., an
affiliate of the general partners (see Note 5).
In September 2000, the Partnership sold its property in Brunswick,
Georgia, its property in Lake City, Florida, and three properties in
Jacksonville, Florida, for which the land and building of one of the
properties was classified as a direct financing lease (see Note 4) to
unrelated third parties for a total of approximately $2,404,800 and
received net sales proceeds of approximately $2,392,300, resulting in a
total gain of $619,495 for financial reporting purposes. These
properties were originally acquired by the Partnership in 1990 and had
costs totaling approximately $2,055,900 excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold
these properties for approximately $336,400 in excess of their original
purchase prices.
In addition, in December 2000, the Partnership sold its property in
Friendswood, Texas for which the building was classified as a direct
financing lease (see Note 4) to the tenant in accordance with the
purchase option under the lease agreement for $725,000 resulting in a
gain of $160,649 for financial reporting purposes. This property was
originally acquired by the Partnership in 1990 and had a cost of
approximately $485,900; therefore, the Partnership sold the property
for approximately $239,100 in excess of its original purchase price.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, 1998
3. Land and Buildings on Operating Leases - Continued:
---------------------------------------------------
Some leases provide for escalating guaranteed minimum rents throughout
the lease terms. Income from these scheduled rent increases is
recognized on a straight-line basis over the terms of the leases. For
the years ended December 31, 2000, 1999, and 1998, the Partnership
recognized $59,795, $81,057, and $90,896, respectively, of such rental
income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2000:
2001 $ 1,539,884
-----------------------
2002 1,543,382
-----------------------
2003 1,523,978
-----------------------
2004 1,522,961
-----------------------
2005 1,214,804
-----------------------
Thereafter 5,143,632
----------------------- ---------------------
$ 12,488,641
----------------------- =====================
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:
2000 1999
------------------------------------------------------------- -----------------
Minimum lease payments receivable $4,028,512 $ 5,419,945
Estimated residual values 768,233 1,008,935
Less unearned income (2,248,421 ) (3,155,725 )
----------------- -----------------
Net investment in direct financing leases $ 2,548,324 $ 3,273,155
================= =================
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, 1998
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, 2000:
2001 $ 402,336
-------------------------------------------
2002 402,336
-------------------------------------------
2003 402,336
-------------------------------------------
2004 402,336
-------------------------------------------
2005 402,336
-------------------------------------------
Thereafter 2,016,832
------------------------------------------- -------------------
$ 4,028,512
===================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods ( see Note 3).
During 2000, the Partnership sold two of its properties for which land
and buildings were classified as direct financing leases. 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 (see Note 3).
5. Investment in Joint Ventures:
----------------------------
The Partnership has an 18 percent interest, a 4.79% interest , and a 79
percent interest in the profits and losses of CNL Restaurant
Investments II, Des Moines Real Estate Joint Venture, and CNL Mansfield
Joint Venture, respectively. The remaining interests in these joint
ventures are held by affiliates of the Partnership which have the same
general partners. The Partnership also has a 53 percent interest in a
property in Smithfield, North Carolina, with an affiliate of the
general partners, as tenants-in-common and a 35.64% interest in a
property in Miami, Florida, with an affiliate of the general partners
as tenants-in-common. Amounts relating to its investment are included
in investment in joint ventures.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
5. Investment in Joint Ventures - Continued:
- -------------------------------------------------
In December 1999, the Partnership entered into a joint venture
arrangement, Duluth Joint Venture, with CNL Income Fund V, Ltd., CNL
Income Fund XIV, Ltd., and CNL Income Fund XV, Ltd., each a Florida
limited partnership and affiliate of the general partners, to construct
and hold one restaurant property in Duluth, Georgia. As of December 31,
2000 and 1999, the Partnership contributed approximately $969,299 and
$119,100, respectively, to purchase land and pay for construction costs
relating to the joint venture. In October 2000, the Partnership
acquired an additional 45 percent interest in Duluth Joint Venture,
from CNL Income Fund V, Ltd. and CNL Income Fund XV, Ltd. for an
aggregate purchase price of approximately $610,000 As of December 31,
2000, the Partnership owned a 56 percent interest in the profits and
losses of the joint venture.
In June 1999, Halls Joint Venture, in which the Partnership owned a
51.1% interest, sold its property to the tenant in accordance with the
purchase option under the lease agreement for $891,915, resulting in a
gain to the joint venture of approximately $239,300 for financial
reporting purposes. The property was originally contributed to Halls
Joint Venture in 1990 and had a total cost of approximately $672,000,
excluding acquisition fees and miscellaneous acquisition expenses;
therefore, the joint venture sold the property for approximately
$219,900 in excess of it original purchase price. During 2000, the
Partnership and the joint venture partner liquidated Halls Joint
Venture and the Partnership received approximately $460,900,
representing its pro rata share of the liquidation proceeds. In June
2000, the Partnership reinvested approximately $195,107 of these
proceeds and approximately $240,000 from the payoff of a note
receivable related to the 1995 sale of a property in Jacksonville,
Florida, in a joint venture arrangement, TGIF Pittsburgh Joint Venture,
with CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., and CNL
Income Fund XVIII, Ltd., each of which is a Florida limited partnership
and an affiliate of the general partners to purchase and hold one
restaurant property. The Partnership accounts for its investment using
the equity method since it shares control with affiliates. As of
December 31, 2000, the Partnership owned a 17.16% interest in the
profits and losses of the joint venture.
In November 1999, the Partnership used a portion of the net sales
proceeds from the 1998 sale of the property in Maryville, Tennessee to
acquire a property in Montgomery, Alabama as tenants in common with CNL
Income Fund IX, ltd. a Florida limited partnership and affiliate of the
general partners. Amounts relating to its investment are included in
investment in joint ventures. As of December 31, 1999, the Partnership
owned a 71 percent interest in this property.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
5. Investment in Joint Ventures - Continued:
- -------------------------------------------------
In August 2000, the Partnership used the net sales proceeds from the
sale of the property in Pueblo, Colorado to acquire a property in
Colorado Springs, Colorado as tenants in common with CNL Income Fund
XII, Ltd., ("CNL XII") a Florida limited partnership and affiliate of
the general partners. In connection therewith, the Partnership and the
affiliate entered into an agreement whereby each co-tenant will share
in the profits and losses of the property in proportion to its
applicable percentage interest. The Partnership and CNL XII acquired
this property from CNL BB Corp., an affiliate of the general partners.
As of December 31, 2000, the Partnership owned a 43 percent interest in
the property in Colorado Springs, Colorado (see Note 9).
CNL Restaurant Investments II owns and leases six properties to an
operator of national fast-food or family-style restaurants, and Des
Moines Real Estate joint Venture, CNL Mansfield Joint Venture, Duluth
Joint Venture, TGIF Pittsburgh Joint Venture, and the Partnership and
affiliates as tenants in common in four separate tenancy in common
arrangements, each own and lease one property to an operator of
national fast-food or family-style restaurants.
The following presents the combined, condensed financial information
for the joint ventures and the three properties held as
tenants-in-common with affiliates at December 31:
2000 1999
-------------------------------------------------------- ---------------- ----------------
Land and buildings on operating leases,
less accumulated depreciation $16,729,763 $11,427,388
Net investment in direct financing lease 922,091 932,696
--------------------------------------------------------
Cash 153,432 962,409
--------------------------------------------------------
Receivables 8,444 39,213
--------------------------------------------------------
Prepaid expenses 810 --
--------------------------------------------------------
Accrued rental income 236,243 148,868
--------------------------------------------------------
Other assets -- 1,917
--------------------------------------------------------
Liabilities 172,475 68,783
--------------------------------------------------------
Partners' capital 17,878,308 13,443,708
--------------------------------------------------------
Revenues 1,661,292 1,297,799
--------------------------------------------------------
Gain on sale of assets -- 239,336
--------------------------------------------------------
Net income 1,326,080 1,246,689
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
5. Investment in Joint Ventures - Continued:
- -------------------------------------------------
The Partnership recognized income totaling $456,050, $429,997, and
$311,081 for the years ended December 31, 2000, 1999, and 1998,
respectively, from these joint ventures and the four properties held as
tenants in common with affiliates.
6. Restricted Cash:
- ------------------------
As of December 32, 2000, total net sales proceeds of $1,503,682 from
the sale of the Partnership's properties in Jacksonville and Lake City,
Florida and Brunswick, Georgia plus accrued interest of $247 were being
held in an interest bearing account pending the release of funds to
acquire additional properties.
7. Mortgage Notes Receivable:
-------------------------
In connection with the sale of its property in Florence, South Carolina
during 1995, the Partnership accepted a promissory note in the
principal sum of $1,160,000, collateralized by a mortgage on the
property. The promissory note bears interest at a rate of 10.25% per
annum and is being collected in 59 equal monthly installments of
$10,395, including interest. As a result of this sale being accounted
for using the installment sales method for financial reporting purposes
as required by Statement of Financial Accounting Standards No. 66,
"Accounting for Sales of Real Estate," the Partnership recognized a
gain of $1,147, $1,135, and $1,025, for the years ended December 31,
2000, 1999, and 1998, respectively. In February 2001, the Partnership
received a balloon payment of $1,115,301 which included the outstanding
principal balance and $14,419 of accrued interest (see Note 12).
In addition, the Partnership accepted a promissory note in the
principal sum of $240,000 in connection with the sale of one of its
properties in Jacksonville, Florida in December 1995. The note was
collateralized by a mortgage on the property. The promissory note bore
interest at a rate of ten percent per annum and was to be collected in
119 equal monthly installments of $2,106, with a balloon payment of
$218,252 due in December 2005. During the year ended December 31, 1999,
the Partnership collected the outstanding principal balance of $235,564
(plus accrued interest) relating to the promissory note.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
7. Mortgage Notes Receivable - Continued:
-------------------------------------
The mortgage notes receivable consisted of the following at December
31:
2000 1999
----------------- ------------------
Principal balance $ 1,101,865 $ 1,112,144
Accrued interest receivable 15,724 6,407
Less deferred gain on sale of
land and building (122,996 ) (124,143 )
----------------- ------------------
$ 994,593 $ 994,408
================= ==================
The general partners believe that the estimated fair values of mortgage
notes receivable at December 31, 2000 and 1999, approximate the
outstanding principal amount based on estimated current rates at which
similar loans would be made to borrowers with similar credit and for
similar maturities.
8. Allocations and Distributions:
-----------------------------
From inception through December 31, 1999, all net income and net losses
of the Partnership, excluding gains and losses from the sale of
properties, were allocated 99 percent to the limited partners and one
percent to the general partners. From inception through December 31,
1999, distributions of net cash flow were made 99 percent to the
limited partners and one percent to the general partners; 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").
From inception through December 31, 1999, generally, net sales proceeds
from the sale of properties not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their 10% Preferred
Return, plus the return of their adjusted capital contributions. The
general partners then received, to the extent previously subordinated
and unpaid, a one percent interest in all prior distributions of net
cash flow and a return of their capital contributions. Any remaining
sales proceeds were distributed 95 percent to the limited partners and
five percent to the general partners. Any gain from the sale of a
property not in liquidation of the Partnership was, in general,
allocated in the same manner as net sales proceeds are distributable.
Any loss from the sale of a property not in liquidation of the
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
8. Allocations and Distributions - Continued:
-----------------------------------------
Partnership was, in general, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts; and
thereafter, 95 percent to the limited partners and five percent to the
general partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after allocations, of net income, gains
and/or losses, to distribute to the partners with positive capital
accounts balances, in proportion to such balances, up to amounts
sufficient to reduce such positive balances to zero, and (v)
thereafter, any funds remaining shall then be distributed 95 percent to
the limited partners and five percent to the general partners.
Effective January 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distribution during the year
ended December 31, 2000.
During each of the years ended December 31, 2000, 1999, and 1998, the
Partnership declared distributions to the limited partners of
$2,700,000. No distributions have been made to the general partners to
date.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
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:
2000 1999 1998
------------- ------------- ------------
Net income for financial reporting purposes $ 3,221,515 $2,545,690 $ 2,466,018
Depreciation for tax reporting purposes in excess
of depreciation for financial reporting
purposes (19,345 ) (19,957 ) (16,795 )
Gain on sale of assets for financial reporting
purposes in excess of gain for tax
reporting purposes (832,083 ) (188,377 ) (246 )
Direct financing leases recorded as operating
leases for tax reporting purposes 100,821 92,237 81,760
Equity in earnings of unconsolidated joint
ventures for tax reporting purposes in
excess of (less than) equity in earnings
of unconsolidated joint ventures for
financial
reporting purposes (6,585 ) 54,093 11,026
Accrued rental income (59,795 ) (81,057 ) (90,896 )
Rents paid in advance (1,792 ) (48,027 ) (12,644 )
Minority interest in timing differences of
unconsolidated joint venture 981 981 982
Allowance for uncollectible accounts (16,175 ) (12,174 ) (4,106 )
Capitalization (Deduction) of transaction costs
for tax reporting purposes (179,206 ) 160,425 18,781
------------- ------------- ------------
Net income for federal income tax purposes $ 2,208,336 $2,503,834 $ 2,453,880
============= ============= ============
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
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 Fund Advisors, Inc. (the "Advisor") was a majority owned
subsidiary of CNL Financial Group, Inc. until it merged with CNL
American Properties Fund, Inc. ("APF"), effective September 1, 1999.
The individual general partners are stockholders and directors of APF.
In connection therewith, the Partnership has agreed to pay the Advisor
an annual, noncumulative, subordinated management fee of one percent of
the sum of gross revenues from properties wholly owned by the
Partnership and the Partnership's allocable share of gross revenues
from joint ventures and the properties held as tenants-in-common with
affiliates, but not in excess of competitive fees for comparable
services. These fees will be incurred and will be 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 fee 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, 2000, 1999, and 1998.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to the receipt by the limited partners of their aggregate
10% Preferred Return, plus their adjusted capital contributions. No
deferred, subordinated real estate disposition fees were incurred for
the years ended December 31, 2000, 1999, and 1998.
During the years ended December 31, 2000, 1999, and 1998, the Advisor
and its affiliate provided accounting and administrative services to
the Partnership on a day-to-day basis including services relating to
the proposed and terminated merger. The Partnership incurred $91,926,
$102,417, and $87,256 for the years ended December 31, 2000, 1999, and
1998, respectively, for such services.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
10. Related Party Transactions - Continued:
--------------------------------------
During 2000, the Partnership and CNL XII, as tenants in common,
acquired an interest in a Bennigan's property from CNL BB Corp., an
affiliate of the general partners, for a purchase price of $2,226,134.
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 accordance with the State of Policy of Real
Estate Programs for the North American Securities Administrators
Association, Inc., all income, expenses, profits and losses generated
by or associated with the property, were treated as belonging to the
Partnership. For the year ended December 31, 2000, other income of the
tenants in common included $3,693 of such amounts.
The amounts due to related parties totaled $67,815 and $59,131 at
December 31, 2000 and 1999, respectively.
11. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental, earned and mortgage
interest income from individual lessees, each representing more than
ten percent of the Partnership's total rental, earned and mortgage
interest income (including the Partnership's share of total rental and
earned income from the unconsolidated joint ventures and the four
properties held as tenants-in-common with affiliates of the general
partners) for each of the years ended December 31:
2000 1999 1998
------------- ------------- -------------
Golden Corral Corporation $ 732,948 $712,877 $732,650
Restaurant Management
Services, Inc. 328,244 456,440 448,691
Waving Leaves, Inc. 289,268 295,176 300,546
In addition, the following schedule presents total rental, earned and
mortgage interest income from individual restaurant chains, each
representing more than ten percent of the Partnership's total rental,
earned and mortgage interest income (including the Partnership's share
of total rental and earned income from the unconsolidated joint
ventures and the four properties held as tenants-in-common with
affiliates) for each of the years ended December 31:
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
11. Concentration of Credit Risk - Continued:
----------------------------------------
2000 1999 1998
------------- -------------- -------------
Golden Corral Family
Steakhouse Restaurants $ 732,948 $ 712,877 $ 732,650
Burger King 313,857 380,586 469,984
Hardees 544,275 443,819 451,348
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.
12. Subsequent Events:
-----------------
In January 2001, the Partnership used $1,495,700 in net sales proceeds
received from the sale of three of its properties (two in Jacksonville,
Florida and one in Lake City, Florida) to acquire a property located in
Baton Rouge, Louisiana from CNL Funding 2001-A, LP, an affiliate of the
general partners. CNL Funding 2001-A, LP had purchased and temporarily
held title to this property in order to facilitate the acquisition of
the property by the Partnership.
On February 15, 2001, the Partnership collected the outstanding
principal balance and $14,419 of accrued interest in connection with
the sale of the Partnership's property in Florence, South Carolina to
the tenant in August 1995 for which the Partnership accepted a
promissory note collateralized by a mortgage on the property.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
13. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during they years ended December 31, 2000
and 1999:
2000 Quarter First Second Third Fourth Year
----------------------- --------------- ---------------- ----------------- --------------- -------------
Revenues (1) $ 717,803 $ 679,982 $ 701,529 $742,787 $ 2,842,101
Net Income 537,436 631,366 1,202,585 850,128 3,221,515
Net income per
limited partner 0.018 0.021 0.040 0.028 0.107
unit
1999 Quarter First Second Third Fourth Year
----------------------- --------------- ---------------- ----------------- --------------- -------------
Revenues (1) $ 704,314 $ 828,853 $ 689,441 $770,325 $ 2,992,933
Net Income 542,415 828,713 522,774 651,788 2,545,690
Net income per
limited partner
unit 0.018 0.027 0.017 0.022 0.084
(1) Revenues include equity in earnings of unconsolidated joint
ventures and minority interest in income of the consolidated
joint venture.
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 54. 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 (the "Advisor") until it merged with APF in September 1999, and in June
2000, was re-elected to those positions of the Advisor. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc. (formerly CNL Group, Inc.), a diversified real estate company, and
has served as a director, Chairman of the Board and Chief Executive Officer of
CNL Financial Group, Inc. since its formation in 1980. CNL Financial Group, Inc.
is the parent company, either directly or indirectly through subsidiaries, of
CNL Real Estate Services, Inc., CNL Capital Markets, Inc., CNL Investment
Company and CNL Securities Corp. 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 53. 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 and Vice Chairman 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 the Advisor prior to its
merger with 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. (formerly CNL Group, Inc.); Director,
Vice Chairman of the Board and President of CNL Hospitality Properties, Inc., a
public, unlisted real estate investment trust; as well as, Director and
President of CNL Hospitality Corp., its advisor. In addition, Mr. Bourne serves
as Director and President of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust; as well as, a Director and President of its
advisor, CNL Retirement Corp. Mr. Bourne also serves as a Director of CNL Bank.
He has served as a Director since 1992, Vice Chairman of the Board since
February 1996, Secretary and Treasurer from February 1996 through 1997, and
President from July 1992 through February 1996, of Commercial Net Lease Realty,
Inc., a public real estate investment trust listed on the New York Stock
Exchange. Mr. Bourne also serves as Director, President and Treasurer for
various affiliates of CNL Financial Group, Inc. including, CNL Investment
Company, CNL Securities Corp. and CNL Institutional Advisors, Inc., a registered
investment advisor for pension plans. Mr. Bourne began his career as a certified
public accountant employed by Coopers & Lybrand, Certified Public Accountants,
from 1971 through 1978, where he attained the position of Tax Manager in 1975.
Mr. Bourne graduated from Florida State University in 1970 where he received a
B.A. in Accounting, with honors.
Curtis B. McWilliams, age 45. 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 the Advisor, Mr. McWilliams served as President of APF from
February 1999 until September 1999. From April 1997 to February 1999, he served
as Executive Vice President of APF. Mr. McWilliams joined CNL Financial Group,
Inc. (formerly CNL Group, Inc.) in April 1997 and served as an Executive Vice
President until September 1999. In addition, Mr. McWilliams served as President
of the Advisor and CNL Financial Services, Inc. from April 1997 until the
acquisition of such entities by 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.
John T. Walker, age 42. Mr. Walker has served as President of APF since
September 1999 and as Chief Operating Officer since March 1995. Mr. Walker also
served as a board member of CNL Restaurant Property Services, Inc., a subsidiary
of APF from December 1999 until December 2000. Previously, he served as
Executive Vice President of APF from January 1996 to September 1999. Mr. Walker
joined the Advisor in September 1994, as Senior Vice President responsible for
Research and Development. He served as the Chief Operating Officer of the
Advisor from April 1995 until September 1999 and as Executive Vice President
from January 1996 until September 1999, at which time it merged with APF. Mr.
Walker also served as Executive Vice President of CNL Hospitality Properties,
Inc. and CNL Hospitality Corp. (formerly CNL Hospitality Advisors, Inc.) from
1997 to October 1998. From May 1992 to May 1994, he was Executive Vice President
for Finance and Administration and Chief Financial Officer of Z Music, Inc., a
cable television network which was subsequently acquired by Gaylord
Entertainment, where he was responsible for overall financial and administrative
management and planning. From January 1990 through April 1992, Mr. Walker was
Chief Financial Officer of the First Baptist Church in Orlando, Florida. From
April 1984 through December 1989, he was a partner in the accounting firm of
Chastang, Ferrell & Walker, P.A., where he was the partner in charge of audit
and consulting services, and from 1981 to 1984, Mr. Walker was a Senior
Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a cum laude graduate
of Wake Forest University with a Bachelor of Science degree in Accountancy and
is a certified public accountant.
Steven D. Shackelford, age 37. Mr. Shackelford was promoted to
Executive Vice President and Chief Financial Officer of APF in July 2000. He
served as Senior Vice President and Chief Financial Officer of APF since January
1997. Mr. Shackelford also served as Secretary and Treasurer of APF since
September 1999. He also served as Chief Financial Officer of the Advisor 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, 2001, 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, 2001, 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, 2000, 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, 2000
------------------------- --------------------- -----------------------
Reimbursement to affiliates for Operating expenses are reimbursed Accounting and administrative
operating expenses at the lower of cost or 90 percent services: $91,926
of the 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 manage-ment fee to One percent of the sum of gross $ - 0 -
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
Properties owned with affiliates
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
non-cumulative, if the Limited
Partners have not received their
10% Preferred Return in any
particular year, no management
fees will be due or payable for
such year.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2000
------------------------- --------------------- -----------------------
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to affiliates estate disposition fee, payable
upon sale 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 $ - 0 -
sub-ordinated share of Partnership net equal to one percent of Partnership
cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or sales not Partnership distributions of such
in liquidation of the Partnership net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2000
------------------------- --------------------- -----------------------
General Partners' share of Partnership Distributions of net sales proceeds $ - 0 -
net sales proceeds from a sale or sales from a sale or sales of
in liquidation of the Partnership substantially all of the
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, the Partnership acquired an additional 45% interest in Duluth Joint
Venture from CNL Income Fund, V, Ltd. and CNL Income Fund XV, Ltd., each an
affiliate of the general partners, for an aggregate purchase price of
approximately $610,000.
The Partnership, with CNL Income Fund XII, Ltd., an affiliate of the general
partners acquired an interest in a Bennigan's property from CNL BB Corp., an
affiliate of the general partners, for a purchase price of $2,226,134. 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.
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, 2000 and 1999
Statements of Income for the years ended December 31, 2000,
1999, and 1998
Statements of Partners' Capital for the years ended December
31, 2000, 1999, and 1998
Statements of Cash Flows for the years ended December 31,
2000, 1999, and 1998
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2000, 1999 and 1998
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2000
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2000
Schedule IV - Mortgage Loans on Real Estate at December 31,
2000
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 Affidavit and Certificate of Limited Partnership of
CNL Income Fund VII, Ltd. (Included as Exhibit 4.1 to
Registration Statement No. 33-31482 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund VII, Ltd. (Included as Exhibit 4.1 to
Registration Statement No. 33-31482 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund VII, 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 VII,
Ltd. and CNL Investment Company (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, 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.)
27 Financial Data Schedule (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period
from October 1, 2000 through December 31, 2000.
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 28th day of
March, 2001.
CNL INCOME FUND VII, 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. President, Treasurer and Director March 28, 2001
- ----------------------------------------
Bourne (Principal Financial and
- -----------------------------
Robert A. Bourne Accounting Officer)
/s/ James M. Seneff, Chief Executive Officer and Director March 28, 2001
- ----------------------------------------
Jr. (Principal Executive Officer)
- ----------------------
James M. Seneff, Jr.
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:
Boston Market Restaurant:
Marietta, Georgia - $534,421 $507,133 - -
Burger King Restaurants:
Jefferson City, Tennessee- 216,633 546,967 - -
Sierra Vista, Arizona - 421,170 - - -
Checkers Drive-In Restaurant:
Winter Springs, Florida - 397,536 - - -
Church's Fried Chicken
Restaurants:
Gainesville, Florida -h) 79,395 124,653 - -
Daytona Beach, Florid- 149,701 - - -
Golden Corral Family
Steakhouse Restaurants:
Odessa, Texas - 502,364 815,831 - -
Midland, Texas - 481,748 857,185 - -
El Paso, Texas - 745,506 - 802,132 -
Harlingen, Texas - 503,799 - 890,878 -
Hardee's Restaurants:
Akron, Ohio - 198,086 - - -
Dalton, Ohio - 180,556 - - -
Minerva, Ohio - 143,775 - - -
Orrville, Ohio - 176,169 - - -
Seville, Ohio - 245,648 - - -
Clinton, Tennessee - 295,861 - - -
Jack in the Box Restaurant:
San Antonio, Texas - 525,720 - 381,591 -
KFC Restaurant:
Arcadia, Florida - 175,020 333,759 - -
Rally's Restaurant:
Toledo, Ohio - 281,880 196,608 47,002 -
Shoney's Restaurants:
Saddlebrook, Florida - 427,238 - 765,532 -
Taco Bell Restaurant:
Detroit, Michigan - 168,429 - 402,674 -
------------ ------------- ------------ -------
$6,850,655 $3,382,136 $3,289,809 -
============ ============= ============ =======
Properties of Joint Venture in
Which the Partnership has an 18%
Interest and has Invested in
Under Operating Leases:
Burger King Restaurants:
Columbus, Ohio - $345,696 $651,985 - -
San Antonio, Texas - 350,479 623,615 - -
Pontiac, Michigan - 277,192 982,200 - -
Raceland, Louisiana - 174,019 986,879 - -
New Castle, Indiana - 264,239 662,265 - -
Hastings, Minnesota - 155,553 657,159 - -
------------ ------------- ------------ -------
$1,567,178 $4,564,103 - -
============ ============= ============ =======
Property of Joint Venture in Which
the Partnership has a 4.79%
Interest and has Invested in
Under an Operating Lease:
Jack in the Box Restaurant:
Des Moines, Washington - $322,726 $791,658 - -
============ ============= ============ =======
Property of Joint Venture in Which
the Partnership has a 79%
Interest and has Invested in
Under an Operating Lease:
Jack in the Box Restaurant:
Mansfield, Texas - $297,295 $482,914 - -
============ ============= ============ =======
Property of Joint Venture in
Which the Partnership has a 56%
Interest and had Invested
in Under an Operating Lease
Roadhouse Grill Restaurant:
Duluth, Georgia - $1,078,469 - $865,185 -
============ ============= ============ =======
Property of Joint Venture in Which
the Partnership has a 17.16%
Interest and has Invested in
Under an Operating Lease:
TGI Friday's Restaurant:
Homestead, Pennsylvania - $ 1,036,297 $ 1,499,296 - -
============ ============= ============ =======
Property in which the
Partnership has a 43%
Interest as Tenants-in-Common
and has Invested in Under an
Operating Lease:
Bennigan's Restaurant:
Colorado Springs, Colorad- $ 947,120 $ 1,279,013 - -
============ ============= ============ =======
Property in Which the Partnership
has a 53% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Golden Corral Restaurant:
Smithfield, North Carolin- $264,272 $ 1,155,018 - -
============ ============= ============ =======
Property in Which the Partnership
has a 35.64% Interest as
Tenants- in-Common and has
Invested in Under an Operating
Lease:
Chevy's Fresh Mex Restaurant:
Miami, Florida - $976,357 $974,016 - -
============ ============= ============ =======
Property in Which the Partnership
has a 71% Interest as Tenants-
in-Common and has Invested
in Under an Operating Lease:
IHOP Restaurant:
Montgomery, Alabama - $584,126 - - -
============ ============= ============ =======
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurant:
Sierra Vista, Arizona - - - $333,212 -
Hardee's Restaurants:
Akron, Ohio - - 540,215 - -
Dalton, Ohio - - 490,656 - -
Minerva, Ohio - - 436,663 - -
Orrville, Ohio - - 446,337 - -
Seville, Ohio - - 487,630 - -
Clinton Tennessee - - 338,216 - -
- $2,739,717 $333,312 -
============ ============= ============ =======
Property in Which the Partnership has
a 71% Interest as Tenants-in-Common
and has Invested in Under a Direct
Financing Lease:
IHOP Restaurant:
Montgomery, Alabama - - $933,873 - -
============ ============= ============ =======
Life on Which
Gross Amount at Which Depreciation in
Carried at Close of Period (c) Date Latest Income
- ---------------------------------------------
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
- ------------- ------------- -------------- ------------ ------- ------- ------------
$534,421 $507,133 $1,041,554 $70,481 1994 10/96 (b)
216,633 546,967 763,600 193,062 1988 01/90 (b)
421,170 (f) 421,170 - 1990 06/90 (d)
397,536 - 397,536 (g) - 07/94 (g)
79,395 124,653 204,048 41,380 1983 01/91 (b)
149,701 - 149,701 - 1985 01/91 (i)
502,364 815,831 1,318,195 292,581 1990 03/90 (b)
481,748 857,185 1,338,933 306,864 1990 04/90 (b)
745,506 802,132 1,547,638 274,996 1990 05/90 (b)
503,799 890,878 1,394,677 307,861 1990 06/90 (b)
198,086 (f) 198,086 - 1990 11/90 (d)
180,556 (f) 180,556 - 1990 11/90 (d)
143,775 (f) 143,775 - 1990 11/90 (d)
176,169 (f) 176,169 - 1990 11/90 (d)
245,648 (f) 245,648 - 1990 11/90 (d)
295,861 (f) 295,861 - 1992 09/92 (d)
525,720 381,591 907,311 132,669 1990 05/90 (b)
175,020 333,759 508,779 115,764 1985 08/90 (b)
281,880 243,610 525,490 81,136 1990 01/91 (b)
427,238 765,532 1,192,770 269,650 1990 04/90 (b)
168,429 402,674 571,103 139,116 1990 06/90 (b)
- ------------- ------------- -------------- ------------
$6,850,655 $6,671,945 $13,522,600 $2,225,560
============= ============= ============== ============
$345,696 $651,985 $997,681 $201,312 1986 09/91 (b)
350,479 623,615 974,094 192,552 1986 09/91 (b)
277,192 982,200 1,259,392 303,271 1987 09/91 (b)
174,019 986,879 1,160,898 304,716 1988 09/91 (b)
264,239 662,265 926,504 204,486 1988 09/91 (b)
155,553 657,159 812,712 202,909 1990 09/91 (b)
- ------------- ------------- -------------- ------------
$1,567,178 $4,564,103 $6,131,281 $1,409,246
============= ============= ============== ============
$322,726 $791,658 $1,114,384 $216,673 1992 10/92 (b)
============= ============= ============== ============
$297,295 $482,914 $780,209 $61,158 1997 02/97 (b)
============= ============= ============== ============
$1,078,469 $865,185 $1,943,654 $7,210 1999 12/99 (k)
============= ============= ============== ============
$ 1,036,297 $ 1,499,296 $ 2,535,593 $ 29,288 2000 06/00 (b)
============= ============= ============== ===============
$ 947,120 $ 1,279,013 $ 2,226,133 $ 17,765 2000 08/00 (b)
============= ============= ============== ============
$ 264,272 $ 1,155,018 $ 1,419,290 $ 116,452 1996 12/97 (b)
============= ============= ============== ============
$976,357 $974,016 $1,950,373 $97,490 1995 12/97 (b)
============= ============= ============== ============
$584,126 (f) $584,126 - 1998 11/99 (d)
============= ==============
- (f) (f) (d) 1990 06/90 (d)
- (f) (f) (d) 1990 11/90 (d)
- (f) (f) (d) 1990 11/90 (d)
- (f) (f) (d) 1990 11/90 (d)
- (f) (f) (d) 1990 11/90 (d)
- (f) (f) (d) 1990 11/90 (d)
- (f) (f) (d) 1992 09/92 (d)
(f) (f) (f) (d) 1998 11/99 (d)
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
(a) Transactions in real estate and accumulated depreciation during 2000,
1999 and 1998, are summarized as follows:
Accumulated
Cost Depreciation
------------------------------------------- ----------------- ----------------
Properties the Partnership has Invested
in Under Operating Leases:
-------------------------------------------
-------------------------------------------
Balance, December 31, 1997 $ 17,552,433 $ 2,169,570
-------------------------------------------
Depreciation expense -- 304,356
------------------------------------------- ----------------- ----------------
-------------------------------------------
Balance, December 31, 1998 17,552,433 2,473,926
-------------------------------------------
Dispositions (965,646) (165,272 )
-------------------------------------------
Depreciation expense -- 293,799
------------------------------------------- ----------------- ----------------
-------------------------------------------
Balance, December 31, 1999 16,586,787 2,602,453
-------------------------------------------
Dispositions (3,064,187) (639,790 )
-------------------------------------------
Depreciation expense -- 262,897
------------------------------------------- ----------------- ----------------
-------------------------------------------
Balance, December 31, 2000 $ 13,522,600 $ 2,225,560
------------------------------------------- ================= ================
Properties of Joint Venture in Which the Partnership has an 18%
Interest and has Invested in Under Operating Leases:
Balance, December 31, 1997 $ 6,131,281 $ 952,835
Depreciation expense -- 152,137
---------------- ---------------
Balance, December 31, 1998 6,131,281 1,104,972
Depreciation expense -- 152,137
---------------- ---------------
Balance, December 31, 1999 6,131,281 1,257,109
Depreciation expense -- 152,137
---------------- ---------------
Balance, December 31, 2000 $ 6,131,281 $ 1,409,246
================ ===============
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
Accumulated
Cost Depreciation
---------------- ---------------
Property of Joint Venture in Which the Partnership has a 4.79% Interest
and has Invested in Under an Operating Lease:
Balance, December 31, 1997 $ 1,114,384 $ 137,507
Depreciation expense -- 26,388
---------------- ---------------
Balance, December 31, 1998 1,114,384 163,895
Depreciation expense -- 26,389
---------------- ---------------
Balance, December 31, 1999 1,114,384 190,284
Depreciation expense -- 26,389
---------------- ---------------
Balance, December 31, 2000 $ 1,114,384 $ 216,673
================ ===============
Property of Joint Venture in Which the Partnership has a 79% Interest
and has Invested in Under an Operating Lease:
Balance, December 31, 1997 $ 780,209 $ 12,778
Depreciation expense -- 16,186
----------------- ----------------
Balance, December 31, 1998 780,209 28,964
Depreciation expense -- 16,097
----------------- ----------------
Balance, December 31, 1999 780,209 45,061
Depreciation expense -- 16,097
----------------- ----------------
Balance, December 31, 2000 $ 780,209 $ 61,158
================= ================
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2000
Accumulated
Cost Depreciation
------------------ -----------------
Property of Joint Venture in Which the Partnership has a 17.16% Interest
and has Invested in Under an Operating Lease:
Balance, December 31, 1999 $ -- $ --
Acquisition 2,535,593 --
Depreciation expense -- 29,288
------------------ -----------------
Balance, December 31, 2000 $ 2,535,593 $ 29,288
================== =================
Property of Joint Venture in Which the Partnership has a 53% Interest as
Tenants-in-Common and has Invested in Under an Operating Lease:
Balance, December 31, 1997 $ 1,419,290 $ 949
Depreciation expense -- 38,501
---------------- ----------------
Balance, December 31, 1998 1,419,290 39,450
Depreciation expense -- 38,501
---------------- ----------------
Balance, December 31, 1999 1,419,290 77,951
Depreciation expense -- 38,501
---------------- ----------------
Balance, December 31, 2000 $ 1,419,290 $ 116,452
================ ================
Property in Which the Partnership has a 35.64% Interest as Tenants-in-
Common and has Invested in Under an Operating Lease:
Balance December 31, 1997 $ 1,950,373 $ 89
Depreciation -- 32,467
---------------- ----------------
Balance December 31, 1998 1,950,373 32,556
Depreciation -- 32,467
---------------- ----------------
Balance December 31, 1999 1,950,373 65,023
Depreciation -- 32,467
---------------- ----------------
Balance December 31, 2000 $ 1,950,373 $ 97,490
================ ================
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
----------------------------------------------------------------------------
December 31, 2000
Accumulated
Cost Depreciation
---------------- -----------------
Property of Joint Venture in Which the Partnership has a 56% Interest and
has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 1,083,153 --
Depreciation expense -- --
---------------- -----------------
Balance, December 31, 1999 1,083,153 --
Acquisition 860,501 --
Depreciation expense -- 7,210
---------------- -----------------
Balance, December 31, 2000 $ 1,943,654 $ 7,210
================ =================
Property in Which the Partnership has a 71% Interest as Tenants-in Common
and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 584,126 --
Depreciation expense (d) -- --
---------------- -----------------
Balance December 31, 1999 584,126 --
Depreciation expense (d) -- --
---------------- -----------------
Balance December 31, 2000 $ 584,126 $ --
================ =================
Property in Which the Partnership has a 43% Interest as Tenants-in Common
and has Invested in Under an Operating Lease:
Balance December 31, 1999 $ -- $ --
Acquisition 2,226,133 --
Depreciation expense -- 17,765
---------------- -----------------
Balance December 31, 2000 $ 2,226,133 $ 17,765
================ =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
----------------------------------------------------------------------------
December 31, 2000
(c) As of December 31, 2000, the aggregate cost of the Properties owned by
the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures (including the Properties held as
tenants-in-common) for federal income tax purposes was $16,547,577 and
$19,616,916, respectively. All of the leases are treated as operating
leases for federal income tax purposes.
(d) For financial reporting purposes, the portion of the lease relating to
the building has been recorded as a direct financing lease. The cost of
the building has been included in the net investment in direct
financing leases; therefore, depreciation is not applicable.
(e) For financial reporting purposes, 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) For financial reporting purposes, 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) The building portion of this Property is owned by the tenant;
therefore, depreciation is not applicable.
(h) The tenant of this Property, Restaurant Management Services, Inc., has
subleased this Property to a local, independent restaurant. Restaurant
Management Services, Inc. continues to be responsible for complying
with all the terms of the lease agreement and is continuing to pay rent
on this Property, subject to certain rent concessions, to the
Partnership.
(i) The building located on this Property was demolished in 1995;
therefore, depreciation is not applicable.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2000
Principal
Amount of
Loans
Subject to
Final Periodic Face Carrying Delinquent
Interest Maturity Payment Prior Amount of Amount of Principal
Description Rate Date Terms Liens Mortgages Mortgages(2) or Interest
- ------------------ --------- ----------------- ----------- ---------- ------------- -------------- -------------
Perkins -
Florence, SC
First Mortgage 10.25% February 2001 (1) $ -- $ 1,160,000 $ 994,593 $ --
---------- ------------- -------------- -------------
Total $ -- $ 1,160,000 $ 994,593 (3) $ --
========== ============= ============== =============
(1) Monthly payments of principal and interest at an annual rate of 10.25%, with a balloon payment at maturity of $1,100,882.
(2) The tax carrying value of the notes is approximately $1,101,866, which is net of deferred gain of $93,421.
(3) The changes in the carrying amounts are summarized as follows:
2000 1999 1998
------------------------------------------- ---------------- --------------- ---------------
-------------------------------------------
Balance at beginning of period $ 994,408 $ 1,241,056 $ 1,250,597
-------------------------------------------
-------------------------------------------
Interest earned 113,379 127,054 139,446
-------------------------------------------
-------------------------------------------
Collection of principal and interest (114,341 ) (374,837 ) (150,012 )
-------------------------------------------
-------------------------------------------
Recognition of deferred gain on sale
of 1,147 1,135 1,025
land and building
------------------------------------------- ---------------- --------------- ---------------
-------------------------------------------
Balance at end of period $ 994,593 $ 994,408 $ 1,241,056
------------------------------------------- ================ =============== ===============
EXHIBITS
EXHIBIT INDEX
Exhibit Number
3.1 Affidavit and Certificate of Limited Partnership of CNL Income Fund
VII, Ltd. (Included as Exhibit 3.1 to Registration Statement No.
33-31482 on Form S-11 and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL Income Fund
VII, Ltd. (Included as Exhibit 4.1 to Registration Statement No.
33-31482 on Form S-11 and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership of CNL Income
Fund VII, 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 VII, Ltd. and CNL
Investment Company (Included as Exhibit 10.1 to Form 10-K filed with
the Securities and Exchange Commission on April 1, 1996, 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.)