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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 2002
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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
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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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ---------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Part II.
Other Information 12
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
2002 2001
------------------ -------------------
ASSETS
Land and buildings on operating leases, net $ 11,221,504 $ 11,333,419
Net investment in direct financing leases 2,400,298 2,452,964
Investment in joint ventures 8,904,674 8,212,208
Mortgage and other notes receivable 104,646 104,717
Cash and cash equivalents 895,212 1,747,363
Receivables 569 74,097
Due from related parties 1,968 12,968
Accrued rental income 1,051,854 1,058,589
Other assets 86,376 76,895
------------------ -------------------
$ 24,667,101 $ 25,073,220
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4,328 $ 12,306
Distributions payable 675,000 675,000
Due to related parties 15,822 21,837
Rents paid in advance and deposits -- 25,716
------------------ -------------------
Total liabilities 695,150 734,859
Minority interest 140,442 141,790
Partners' capital 23,831,509 24,196,571
------------------ -------------------
$ 24,667,101 $ 25,073,220
================== ===================
See accompanying notes to condensed financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------------- ------------- -------------- ---------------
Revenues:
Rental income from operating leases $ 338,000 $ 389,023 $ 710,389 $ 793,013
Earned income from direct financing leases 73,851 76,879 148,505 154,467
Interest and other income 14,762 30,257 23,145 88,766
------------- ------------- -------------- ---------------
426,613 496,159 882,039 1,036,246
------------- ------------- -------------- ---------------
Expenses:
General operating and administrative 60,508 73,190 133,397 185,143
Property expenses 8,795 27,989 13,963 32,243
State and other taxes 6,970 479 29,446 31,888
Depreciation 55,957 62,715 111,915 126,093
Provision for write-down of assets -- 279,862 -- 279,862
------------- ------------- -------------- ---------------
132,230 444,235 288,721 655,229
------------- ------------- -------------- ---------------
Income Before Gain on Sale of Assets, Minority
Interest in Income of Consolidated Joint Venture
and Equity in Earnings of Unconsolidated Joint
Ventures 294,383 51,924 593,318 381,017
Gain on Sale of Assets -- -- -- 122,996
Minority Interest in Income of Consolidated
Joint Venture (4,682 ) (4,485 ) (9,245 ) (9,171 )
Equity in Earnings of Unconsolidated Joint Ventures 244,877 176,240 400,865 338,877
------------- ------------- -------------- ---------------
Net Income $ 534,578 $ 223,679 $ 984,938 $ 833,719
============= ============= ============== ===============
Net Income Per Limited Partner Unit $ 0.018 $ 0.008 $ 0.033 $ 0.028
============= ============= ============== ===============
Weighted Average Number of Limited Partner
Units Outstanding 30,000,000 30,000,000 30,000,000 30,000,000
============= ============= ============== ===============
See accompanying notes to condensed financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
2002 2001
-------------------- ------------------
General partners:
Beginning balance $ 230,931 $ 230,931
Net income -- --
-------------------- ------------------
230,931 230,931
-------------------- ------------------
Limited partners:
Beginning balance 23,965,640 24,450,070
Net income 984,938 2,215,570
Distributions ($0.045 and $0.090 per
limited partner unit, respectively) (1,350,000 ) (2,700,000 )
-------------------- ------------------
23,600,578 23,965,640
-------------------- ------------------
Total partners' capital $ 23,831,509 $ 24,196,571
==================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2002 2001
-------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 1,312,001 $ 1,320,260
-------------- ---------------
Cash Flows from Investing Activities:
Investment in joint venture (933,447 ) (743,670 )
Return of capital from joint venture 129,888 --
Decrease in restricted cash -- 1,503,682
Additions to land and buildings on operating
leases -- (1,495,699 )
Collections on mortgage note receivable -- 1,101,865
-------------- ---------------
Net cash (used in) provided by investing activities (803,559 ) 366,178
-------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,350,000 ) (1,350,000 )
Distributions to holder of minority interest (10,593 ) (10,204 )
-------------- ---------------
Net cash used in financing activities (1,360,593 ) (1,360,204 )
-------------- ---------------
Net (Decrease) Increase in Cash and Cash Equivalents (852,151 ) 326,234
Cash and Cash Equivalents at Beginning of Period 1,747,363 1,454,025
-------------- ---------------
Cash and Cash Equivalents at End of Period $ 895,212 $ 1,780,259
============== ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
period $ 675,000 $ 675,000
============== ===============
See accompanying notes to condensed financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 2002, may not be indicative
of the results that may be expected for the year ending December 31,
2002. Amounts as of December 31, 2001, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund VII, Ltd. (the "Partnership") for the year ended December
31, 2001.
The Partnership accounts for its 83% interest in San Antonio #849 Joint
Venture using the consolidation method. Minority interest represents
the minority joint venture partners' proportionate share of the equity
in the Partnership's consolidated joint venture. All significant
intercompany accounts and transactions have been eliminated.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
2. Reclassification:
Certain items in the prior years' financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on total partners' capital or net income.
3. Investment in Joint Ventures:
In May 2002, Mansfield Joint Venture, in which the Partnership owns a
79% interest, entered into negotiations with an unrelated third party
to sell the property in Mansfield, Texas. As a result, the joint
venture reclassified the assets relating to this property from land and
building on operating leases and accrued rental income to real estate
held for sale. The property was recorded at the lower of its carrying
amount or fair value less cost to sell. In addition, the joint venture
stopped recording depreciation and accrued rental income upon
identifying the property for sale. The financial results for this
property are reflected as Discontinued Operations in the condensed
financial information presented below.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
3. Investment in Joint Ventures - Continued:
In June 2002, CNL Restaurant Investments II, in which the Partnership
owns an 18% interest, sold its property in Columbus, Ohio to the tenant
for a sales price of approximately $1,219,600 and received net sales
proceeds of approximately $1,215,700 resulting in a gain of $448,300.
In addition, in June 2002, CNL Restaurant Investments II sold its
property in Pontiac, Michigan to the tenant for a sales price of
$725,000 and received net sales proceeds of approximately $722,600
resulting in a loss of $189,800. The Partnership received $129,888 as a
return of capital from the net sales proceeds. The joint venture used
the proceeds from the sale of the property in Columbus, Ohio to acquire
a property in Dallas, Texas at an approximate cost of $1,147,400. The
joint venture acquired this property from CNL Funding 2001-A, LP, an
affiliate of the general partners (see Note 4). The financial results
for these properties are reflected as Discontinued Operations in the
condensed financial information presented below.
In addition, in June 2002, the Partnership used a portion of the net
sales proceeds from the 2001 sale of its properties in Saddlebrook,
Gainesville and Daytona Beach, Florida to enter into a joint venture
arrangement, Arlington Joint Venture, with CNL Income Fund XVI, Ltd.,
an affiliate of the general partners, to hold one restaurant property.
The joint venture acquired this property from CNL Funding 2001-A, LP,
an affiliate of the general partners (see Note 4). As of June 30, 2002,
the Partnership had contributed approximately $792,900 for a 79%
interest in the profits and losses of the joint venture.
As of June 30, 2002, CNL Restaurant Investments II owns and leases five
properties to operators of national fast-food restaurants or
family-style restaurants. Des Moines Joint Venture, CNL Mansfield Joint
Venture, Duluth Joint Venture, Pittsburgh Joint Venture, CNL VII & XVII
Joint Venture, CNL VII & XV Joint Venture and Arlington Joint Venture
each own and lease one property to operators of national fast-food
restaurants or family-style restaurants. In addition, the Partnership
and affiliates, in four separate tenancy in common arrangements, each
own and lease one property to national fast-food or family-style
restaurants.
The following presents the combined, condensed financial information
for all of the Partnership's investments in joint ventures and
properties held as tenants-in-common with affiliates at:
June 30, December 31,
2002 2001
----------------- ----------------
Land and buildings on operating leases, net $ 18,393,758 $ 16,405,484
Net investment in direct financing lease 1,755,113 1,765,740
Real estate held for sale 742,130 2,443,638
Cash 35,183 62,669
Restricted cash 60,265 --
Receivables 4,500 241,628
Accrued rental income 431,412 355,752
Other assets 124 1,471
Liabilities 146,745 256,902
Partners' capital 21,275,740 21,019,480
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
3. Investment in Joint Ventures - Continued:
Quarter Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------ ------------ ------------ -------------
Revenues $ 476,335 $ 435,050 $ 957,823 $ 883,029
Expenses (41,531 ) (30,665 ) (164,908 ) (112,913 )
------------- ------------ ------------ -------------
Income from continuing operations 434,804 404,385 792,915 770,116
------------- ------------ ------------ -------------
Discontinued operations:
Revenues 65,626 92,121 143,105 170,305
Expenses (6,993 ) (18,312 ) (26,560 ) (36,257 )
Gain on disposal of assets 258,505 -- 258,505 --
------------- ------------ ------------ -------------
317,138 73,809 375,050 134,048
------------- ------------ ------------ -------------
Net Income $ 751,942 $ 478,194 $1,167,965 $ 904,164
============= ============ ============ =============
The Partnership recognized income totaling $400,865 and $338,877 during
the six months ended June 30, 2002 and 2001, respectively, from these
joint ventures and the properties held as tenants-in-common with
affiliates, of which $244,877 and $176,240 was earned during the
quarters ended June 30, 2002 and 2001, respectively.
4. Related Party Transactions:
In June 2002, the Partnership and CNL Income Fund XVI, Ltd. through a
joint venture arrangement, CNL Arlington Joint Venture, acquired a
property, in Arlington, Texas, from CNL Funding 2001-A, LP, for a
purchase price of approximately $1,003,600 (see Note 3). In addition,
in June 2002, CNL Restaurant Investments II acquired a property in
Dallas, Texas from CNL Funding 2001-A, LP for a purchase price of
approximately $1,147,400 (see Note 3). CNL Funding 2001-A, LP is an
affiliate of the general partners. CNL Funding 2001-A, LP had purchased
and temporarily held title to the properties in order to facilitate the
acquisition of the properties by the joint ventures. The purchase price
paid by the joint ventures represented the costs incurred by CNL
Funding 2001-A, LP to acquire and carry the properties, including
closing costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund VII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 18, 1989, to acquire for cash, either
directly or through joint venture and tenancy in common arrangements, both newly
constructed and existing restaurants, as well as land 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 leases generally are triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of June 30,
2001, the Partnership owned 21 Properties directly and owned 16 Properties
indirectly through joint venture or tenancy in common arrangements. As of June
30, 2002, the Partnership owned 19 Properties directly and owned 16 Properties
indirectly through joint venture or tenancy in common arrangements.
Capital Resources
The Partnership generated cash from operating activities (which
includes cash received from tenants, distributions from joint ventures, and
interest and other income received, less cash paid for expenses) of $1,312,001
and $1,320,260 for the six months ended June 30, 2002 and 2001, respectively.
The decrease in cash from operating activities for the six months ended June 30,
2002, as compared to the six months ended June 30, 2001, was primarily a result
of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 2002.
In August 2001, the Partnership entered into a joint venture
arrangement, CNL VII & XV Columbus Joint Venture, with CNL Income Fund XV, Ltd.,
a Florida limited partnership and an affiliate of the general partners, to
construct and hold one restaurant Property. During the six months ended June 30,
2002, the Partnership contributed approximately $76,700 to the joint venture to
pay for construction costs. Construction of the restaurant was completed in
February 2002 and, as of June 30, 2002 the Partnership owned a 68.75% interest
in the profits and losses of the joint venture.
During the six months ended June 30, 2002, the Partnership used the
proceeds from the sale of several of its Properties in 2001 to enter into a
joint venture arrangement, CNL Arlington Joint Venture, with CNL Income Fund
XVI, Ltd., a Florida limited partnership and an affiliate of the general
partners. The joint venture acquired a Property in Arlington, Texas at an
approximate cost of $1,003,600. In addition, in June 2002, CNL Restaurants
Investments II, in which the Partnership owns an 18% interest, sold its Property
in Columbus, Ohio to the tenant for a sales price of approximately $1,219,600
and received net sales proceeds of approximately $1,215,700 resulting in a gain
of $448,300. The joint venture used the proceeds from this sale to acquire a
Property in Dallas, Texas at an approximate cost of $1,147,400. The joint
ventures acquired these Properties from CNL Funding 2001-A, LP, a Delaware
limited partnership and an affiliate of the general partners. The purchase price
paid by the joint ventures represented the costs incurred by CNL Funding 2001-A,
LP to acquire the Properties including closing costs. The transaction relating
to the sale of the Property in Columbus, Ohio and the reinvestment of the net
sales proceeds was structured to qualify as a like-kind exchange transaction for
federal income tax purposes. However, the Partnership anticipates that its
distributions will be 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 June 2002, CNL Restaurant Investments II also sold its Property in
Pontiac, Michigan to the tenant for a sales price of $725,000 and received net
sales proceeds of approximately $772,600. The sale resulted in a loss to the
joint venture of approximately $129,800. As of June 30, 2002 the Partnership
received $129,888, representing its pro rata share of the net sales proceeds as
a return of capital.
Currently, rental income from the Partnership's Properties, any net
sales proceeds held by the Partnership and any amounts collected from the
promissory note are invested in money market accounts or other short-term,
highly liquid investments such as demand deposit accounts at commercial banks,
money market accounts and certificates of deposit with less than a 90-day
maturity date, pending the Partnership's use of such funds to acquire additional
Properties, pay Partnership expenses or to make distributions to the partners.
At June 30, 2002, the Partnership had $895,212 invested in such short-term
investments, as compared to $1,747,363 at December 31, 2001. The decrease in
cash and cash equivalents at June 30, 2002 was primarily a result of the
Partnership investing the proceeds from Properties sold in 2001 in CNL Arlington
Joint Venture and contributing amounts to pay construction costs related to CNL
VII & XV Columbus Joint Venture. The funds remaining at June 30, 2002, after
payment of distributions and other liabilities, will be used to meet the
Partnership's working capital needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations, the Partnership
declared distributions to the limited partners of $1,350,000 for each of the six
months ended June 30, 2002 and 2001 ($675,000 for each applicable quarter). This
represents distributions for each of the applicable six months of $0.045 per
unit ($0.023 per unit for each applicable quarter). No distributions were made
to the general partners for the quarters and six months ended June 30, 2002 and
2001. No amounts distributed to the limited partners for the six months ended
June 30, 2002 and 2001 are required to be or have been treated by the
Partnership as a return of capital for purposes of calculating the limited
partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution to
the limited partners on a quarterly basis.
Total liabilities of the Partnership, including distributions payable,
were $695,150 at June 30, 2002, as compared to $734,859 at December 31, 2001.
The decrease in liabilities was primarily a result of a decrease in accounts
payable, amounts due to related parties and rents paid in advance and deposits
at June 30, 2002, as compared to December 31, 2001. The general partners believe
that the Partnership has sufficient cash on hand to meet its current working
capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues for the Partnership and San Antonio #849 Joint
Venture were $858,894 for the six months ended June 30, 2002, as compared to
$947,480 in the comparable period of 2001, of which $411,851 and $465,902 were
earned during the second quarter of 2002 and 2001, respectively. The decrease in
rental revenues for the quarter and six months ended June 30, 2002, as compared
to the same periods of 2001, was primarily due to the sales of several of the
Partnership's Properties during 2001. The decrease in rental revenues during the
quarter and six months ended June 30, 2002 was partially offset by the fact that
in January 2001, the Partnership reinvested a portion of these net sales
proceeds in a Property in Baton Rouge, Louisiana.
During the six months ended June 30, 2002 and 2001, the Partnership
also earned $23,145 and $88,766, respectively, in interest and other income of
which $14,762 and $30,257 were earned during the quarters ended June 30, 2002
and 2001, respectively. The decrease in interest and other income during the
quarter and six months ended June 30, 2002 was primarily due to a decrease in
the average cash balance as a result of the reinvestment of sales proceeds in
additional Properties through joint venture arrangements during 2002 and due to
a decline in interest rates.
During the six months ended June 30, 2002 and 2001, the Partnership
earned $400,865 and $338,877, respectively, attributable to net income earned by
unconsolidated joint ventures, $244,877 and $176,240 of which was earned during
the quarters ended June 30, 2002 and 2001, respectively. The increase in net
income earned by joint ventures during the quarter and six months ended June 30,
2002, as compared to the same periods of 2001, was primarily due to the fact
that in June 2002, CNL Restaurant Investments II, in which the Partnership owns
an 18% interest, sold its Properties in Columbus, Ohio and Pontiac, Michigan to
the tenant. The Partnership recorded its pro-rata share of the gains resulting
from the sales of these Properties. The increase was also attributable to
earnings received from the new joint venture arrangements with affiliates of the
general partners, CNL VII & XVII Lincoln Joint Venture and CNL VII, XV Columbus
Joint Venture acquired in April and August 2001, respectively, and Arlington
Joint Venture acquired in June 2002. The increase in net income earned by joint
ventures during the quarter and six months ended June 30, 2002 was partially
offset by the fact that the tenant of the Property owned by Duluth Joint
Venture, in which the Partnership owns a 56% interest, experienced financial
difficulties and ceased making rental payments to the joint venture. As a
result, Duluth Joint Venture stopped recording rental revenues during the
quarter and six months ended June 30, 2002.
In May 2002, Mansfield Joint Venture, in which the Partnership owns a
79% interest, entered into negotiations with an unrelated third party to sell
the Property in Mansfield, Texas, as described below.
Operating expenses, including depreciation expense and provision for
write-down of assets, were $288,721 and $655,229 for the six months ended June
30, 2002 and 2001, respectively, of which $132,230 and $444,235 was incurred
during the quarters ended June 30, 2002 and 2001, respectively. Operating
expenses were higher during the six months ended 2001, as compared to the same
period of 2002, due to the fact that the Partnership recorded a provision for
write-down of assets of $279,862 for the Property in Saddlebrook, Florida in
June 2001. The tenant ceased restaurant operations and vacated the Property. The
provision represented the difference between the carrying value of the Property
and its fair value at June 30, 2001. In addition, the Partnership incurred
expenses such as repairs and maintenance and real estate taxes during 2001 in
connection with this Property. The Partnership sold this Property in December
2001.
The decrease in operating expenses during the six months ended June 30,
2002, as compared to the same period of 2001, was partially due to a decrease in
the costs incurred for administrative expenses for servicing the Partnership and
its Properties and due to the Partnership incurring less depreciation expense
during 2002 as a result of the sale of several Properties in 2001.
In connection with the sale of its Property in Florence, South
Carolina, in August 1995, the Partnership recognized a gain of $122,996 during
the six months ended June 30, 2001. The Partnership recorded the sale of the
Property using the installment sales method. As such, the gain on the sale was
deferred, and was recognized as income proportionally as payments under the
mortgage note were collected. The gain recognized, during 2001 was due to the
fact that during the six months ended June 30, 2001, the Partnership collected
the outstanding balance of the mortgage note collaterized by this Property.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
In May 2002, Mansfield Joint Venture, in which the Partnership owns a
79% interest, entered into negotiations with an unrelated third party to sell
the Property in Mansfield, Texas. The joint venture expects to use the proceeds
from the sale to reinvest in an additional Property. In accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", the joint venture classified the
assets relating to this Property from land and building on operating leases and
accrued rental income to real estate held for sale. The Property in Mansfield,
Texas was recorded at the lower of its carrying amount or fair value less cost
to sell. During the quarter and six months ended June 30, 2002, the joint
venture suspended the recording of depreciation and accrued rental income upon
identifying the Property for sale.
In June 2002, CNL Restaurant Investments II, in which the Partnership
owns an 18% interest sold its Property in Columbus, Ohio to the tenant for
approximately $1,219,600 and received net sales proceeds of approximately
$1,215,700 resulting in a gain of approximately $448,300. In addition, in June
2002, CNL Restaurant Investments II also sold its Property in Pontiac, Michigan
to the tenant for $725,000 and received net sales proceeds of approximately
$722,600 resulting in a loss of approximately $189,800. The joint ventures
recognized rental income (rental revenues less Property related expenses) of
$116,545 and $134,048 during the six months ended June 30, 2002 and 2001,
respectively, of which $58,633 and $73,809 was earned during the quarters ended
June 30, 2002 and 2001, respectively. The Partnership's pro-rata share of these
amounts are included as equity in earnings of joint ventures in the accompanying
financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes in the Partnership's market risk occurred from
December 31, 2001 through June 30, 2002. Information regarding the Partnership's
market risk at December 31, 2001 is included in its Annual Report on Form 10-K
for the year ended December 31, 2001.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
------------------
Item 2. Changes in Securities. Inapplicable.
----------------------
Item 3. Default upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
----------------------------------------------------
Item 5. Other Information. Inapplicable.
------------------
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
3.1 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.)
10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 to Form 10-Q filed with the Securities
and Exchange Commission on August 10, 2001, and
incorporated herein by reference.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Filed
herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended June 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 9th day of June, 2002
CNL INCOME FUND VII, LTD.
By:CNL REALTY CORPORATION
General Partner
By:/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund VII, Ltd. (the
"Partnership"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Partnership's Quarterly
Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The
undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
Date: August 9, 2002 /s/ James M. Seneff, Jr.
--------------------- -----------------------------
Name: James M. Seneff, Jr.
Title: Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Robert A. Bourne, the President and Treasurer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund VII, Ltd. (the
"Partnership"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Partnership's Quarterly
Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The
undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
Date: August 9, 2002 /s/ Robert A. Bourne
--------------------- ----------------------------------
Name: Robert A. Bourne
Title: President and Treasurer
EXHIBIT INDEX
Exhibit Number
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.)
10.4 Assignment of Management Agreement from CNL Fund Advisors,
Inc. to CNL APF Partners, LP. (Included as Exhibit 10.4 to
Form 10-Q filed with the Securities and Exchange Commission
on August 10, 2001, and incorporated herein by reference.)
10.5 Assignment of Management Agreement from CNL APF Partners, LP
to CNL Restaurants XVIII, Inc. (Filed herewith.)