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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19140
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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes____ No 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 value 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.
As of December 31, 2000, the Partnership owned 20 Properties directly
and held interests in 15 Properties through joint venture or tenancy in common
arrangements. During the year ended December 31, 2001, the Partnership purchased
an additional interest in TGIF Pittsburgh Joint Venture from CNL Income Fund
XVIII, Ltd., an affiliate of the General Partners. During 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 in Baton
Rouge, Louisiana that was acquired from CNL Funding 2001-A, LP, an affiliate of
the General Partners. The Partnership also used the proceeds from the sale of
the Property in Friendswood, Texas and the proceeds from the promissory note
related to the 1995 sale of the Property in Florence, South Carolina to invest
in CNL VII & XVII Lincoln Joint Venture with an affiliate of the General
Partners to purchase and hold one restaurant Property and used the remaining
proceeds from the promissory note to invest in CNL VII, XV Columbus Joint
Venture with an affiliate of the General Partners to construct and hold one
restaurant Property. In addition, during 2001, the Partnership sold its
Properties in Daytona Beach, Gainesville, and Saddlebrook, Florida. In
connection with the sale of the Property in Daytona Beach, Florida, the
Partnership accepted a promissory note in the principal sum of $103,581. During
2002, the Partnership collected the outstanding principal balance in full.
During the year ended December 31, 2002, CNL Restaurant Investments II,
in which the Partnership owns an 18% interest, sold its Property in Columbus,
Ohio and used the proceeds from the sale to acquire a Property in Dallas, Texas.
In addition, during 2002, CNL Restaurant Investments II sold its property in
Pontiac, Michigan and the Partnership used a portion of the return of capital
from its pro-rata share of the net sales proceeds relating to this Property to
make an additional contribution of approximately $63,900 to CNL Mansfield Joint
Venture. In 2002, the Partnership also 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 an affiliate of the General Partners, to hold one restaurant
property. Also during 2002, CNL Mansfield Joint Venture, in which the
Partnership owns a 79% interest, sold its Property in Mansfield, Texas and
reinvested the proceeds in a Property in Arlington, Texas.
As of December 31, 2003, the Partnership owned 18 Properties directly
and held interests in 17 Properties indirectly through joint venture or tenancy
in common arrangements. 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.
The Partnership holds 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 consider factors such as potential capital
appreciation, net cash flow and federal income taxes. 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.
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 six to 20 years (the average being 16 years), and expire
between 2004 and 2022. 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
$30,000 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 five
successive five-year renewal options subject to the same terms and conditions as
the initial lease. Lessees of 26 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.
Major Tenants
During 2003, two lessees (or groups of affiliated tenants) of the
Partnership and its consolidated joint venture, (i) Golden Corral Corporation,
and (ii) Jack in the Box Inc. and Jack in the Box Eastern Division, L.P. (which
are affiliated entities under common control of Jack in the Box Inc.)
(hereinafter referred to as "Jack in the Box Inc."), each contributed more than
10% of the Partnership's total rental revenues (including total rental revenues
from the Partnership's consolidated joint venture and the Partnership's share of
total rental revenues from Properties owned by unconsolidated joint ventures and
Properties owned with affiliates of the General Partners as tenants-in-common).
As of December 31, 2003, Golden Corral Corporation was the lessee under leases
relating to six restaurants and Jack in the Box Inc. was the lessee under leases
relating to four restaurants. It is anticipated that, based on the minimum
rental payments required by the leases, these two lessees each will continue to
contribute more than 10% of the Partnership's total rental revenues in 2004. In
addition, three Restaurant Chains, Golden Corral Buffet and Grill ("Golden
Corral"), Hardee's, and Jack in the Box, each accounted for more than 10% of the
Partnership's total rental revenues in 2003 (including rental revenues from the
Partnership's consolidated joint venture and the Partnership's share of total
rental revenues from Properties owned by unconsolidated joint ventures and
Properties owned with affiliates of the General Partners as tenants-in-common).
In 2004, it is anticipated that these three Restaurant Chains each will continue
to account for more than 10% of the Partnership's total rental revenues to which
the Partnership is entitled under the terms of the leases. Any failure of these
lessees or Restaurant Chains will materially affect the Partnership's operating
results if the Partnership is not able to re-lease the Properties in a timely
manner. As of December 31, 2003, Golden Corral Corporation leased Properties
with an aggregate carrying value in excess of 20% of the total assets of the
Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into the following joint venture and tenancy in common arrangements as of December 31, 2003:
Entity Name Year Ownership Partners Property
San Antonio #849 Joint 1990 83.30% Various third party partners San Antonio, TX
Venture
CNL Restaurant Investments II 1991 18.00% CNL Income Fund VIII, Ltd. Dallas, TX
CNL Income Fund IX, Ltd. Hastings, MN
New Castle, IN
Raceland, LA
San Antonio, TX
Des Moines Real Estate Joint 1992 4.79% CNL Income Fund XI, Ltd. Des Moines, WA
Venture CNL Income Fund XII, Ltd.
CNL Mansfield Joint Venture 1997 79.00% CNL Income Fund XVII, Ltd. Arlington, TX
CNL Income Fund II, Ltd. and 1997 53.00% CNL Income Fund II, Ltd. Smithfield, NC
CNL Income Fund VII,
Ltd., Tenants in Common
CNL Income Fund III, Ltd., 1997 35.64% CNL Income Fund III, Ltd. Miami, FL
CNL Income Fund VII, CNL Income Fund X, Ltd.
Ltd., CNL Income Fund X, CNL Income Fund XIII, Ltd.
Ltd. and CNL Income Fund
XIII, Ltd., Tenants in
Common
CNL Income Fund VII, Ltd., 1999 71.00% CNL Income Fund IX, Ltd. Montgomery, AL
and CNL Income Fund IX,
Ltd., Tenants in Common
Duluth Joint Venture 1999 56.00% CNL Income Fund XIV, Ltd. Duluth, GA
TGIF Pittsburgh Joint Venture 2000 36.88% CNL Income Fund XV, Ltd. Homestead, PA
CNL Income Fund XVI, Ltd.
CNL Income Fund XVIII, Ltd.
CNL Income Fund VII, Ltd. and 2000 43.00% CNL Income Fund XII, Ltd. Colorado Springs, CO
CNL Income Fund XII,
Ltd., Tenants in Common
CNL VII & XVII Lincoln Joint 2001 14.00% CNL Income Fund XVII, Ltd. Lincoln, NE
Venture
CNL VII, XV Columbus Joint 2001 68.75% CNL Income Fund XV, Ltd. Columbus, GA
Venture
Arlington Joint Venture 2002 79.00% CNL Income Fund XVI, Ltd. Arlington, TX
CNL Restaurant Investments II was formed to hold six Properties,
however, all other joint ventures or tenancies in common were formed to hold one
Property. Currently, CNL Restaurant Investments II owns five Properties because
during 2002 the joint venture sold a Property and distributed the net sales
proceeds to the Partnership and the other co-venturers. Each CNL Income Fund is
an affiliate of the General Partners and is a limited partnership organized
pursuant to the laws of the state of Florida. The Partnership has management
control of San Antonio #849 Joint Venture and shares management control equally
with the affiliates of the General Partners for the other joint ventures.
The joint venture and tenancy in common arrangements provide for the
Partnership and its partners to share in all costs and benefits in proportion to
each partner's percentage interest in the entity or Property. The Partnership
and its partners are also jointly and severally liable for all debts,
obligations and other liabilities of the joint venture or tenancy in common. Net
cash flow from operations is distributed to each joint venture or tenancy in
common partner in accordance with its respective percentage interest in the
entity or Property.
San Antonio #849 Joint Venture, Des Moines Real Estate Joint Venture,
CNL Mansfield Joint Venture and Duluth Joint Venture each have an initial term
of 20 years and, after the expiration of the initial term, continues in
existence from year to year unless terminated at the option of either joint
venturer 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
its joint venture partner to dissolve 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. CNL VII & XVII
Lincoln Joint Venture, CNL VII, XV Columbus Joint Venture, TGIF Pittsburgh Joint
Venture and Arlington Joint Venture each have an initial term of 30 years. CNL
Restaurant Investment II's joint venture agreement does not provide a fixed
term, but continues in existence until terminated by any of the joint venturers.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer or assign its interest without first offering
it for sale to its partner, either upon such terms and conditions as to which
the parties may agree or, in the event the parties cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture or tenancy in common interest.
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.
Certain Management Services
RAI Restaurants, Inc. (the "Advisor"), an affiliate of the General
Partners, provided certain services relating to management of the Partnership
and its Properties pursuant to a management agreement with the Partnership.
Under this agreement, the Advisor is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices, and providing
information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross rental revenues from Properties
wholly owned by the Partnership plus the Partnership's allocable share of gross
revenues of joint ventures in which the Partnership is a co-venturer and the
Property held as tenants-in-common with an affiliate, but not in excess of
competitive fees for comparable services. Under the property management
agreement, the property 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.
During 2003, CNL Capital Management, Inc., ("CCM"), a wholly owned
subsidiary of CNL Financial Group, Inc., began providing certain strategic
advisory services to the General Partners relative to the Partnership's
business. CCM is not reimbursed for these services by the Partnership. CCM also
began providing some accounting and portfolio management services to the
Partnership during 2003, through a subcontract with the Advisor.
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, the officers and employees of CNL Restaurant Properties, Inc.
(formerly CNL American Properties Fund, Inc.), the parent company of the
Advisor, and the officers and employees of CCM 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, 2003, the Partnership owned 35 Properties. Of the 35
Properties, 18 are owned by the Partnership in fee simple, 13 are owned
indirectly through joint venture arrangements and four are owned indirectly
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.
Description of Properties
Land. The Partnership's Property sites range from approximately 20,600
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, either directly or
indirectly, by the Partnership as of December 31, 2003 by state.
State Number of Properties
Alabama 1
Arizona 1
Colorado 1
Florida 3
Georgia 3
Indiana 1
Louisiana 2
Michigan 1
Minnesota 1
Nebraska 1
North Carolina 1
Ohio 6
Pennsylvania 1
Tennessee 2
Texas 9
Washington 1
-------
TOTAL PROPERTIES 35
=======
Buildings. Generally, each of the Properties 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. The Partnership's 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, 2003, 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, 2003, 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 tenancy in
common arrangements), for federal income tax purposes was $16,104,595 and
$22,548,895, respectively.
The following table lists the Properties owned, either directly or
indirectly, by the Partnership as of December 31, 2003 by Restaurant Chain.
Restaurant Chain Number of Properties
Bennigan's 1
Burger King 6
Checkers 1
Chevy's Fresh Mex 1
Golden Corral 6
Hardee's 6
IHOP 1
Jack in the Box 4
KFC 1
Mama Fu's Noodle House 1
Rally's 1
Roadhouse Grill 1
Sonny's Bar-B-Q 1
Taco Bell 1
Taco Cabana 2
TGI Friday's 1
-------
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
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.
The following is a schedule of the average rent per Property and
occupancy rates for each of the years ended December 31:
2003 2002 2001 2000 1999
------------- ------------- --------------- -------------- --------------
Rental Revenues (1) $ 2,887,017 $ 2,832,401 $ 2,686,849 $ 2,801,210 $ 2,902,968
Properties 35 35 35 35 40
Average Rent per
Property $ 82,486 $ 80,926 $ 76,767 $ 80,035 $ 72,574
Occupancy Rate 100% 100% 100% 100% 100%
(1) Rental revenues include the Partnership's share of rental revenues from
the Properties owned indirectly through joint venture and tenancy in
common arrangements.
The following is a schedule of lease expirations for leases in place as
of December 31, 2003 for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- ----------------- --------------------------
2004 1 $ 137,061 4.69%
2005 7 522,156 17.85%
2006 1 60,826 2.08%
2007 -- -- --
2008 2 124,884 4.27%
2009 -- -- --
2010 9 730,546 24.97%
2011 -- -- --
2012 4 328,339 11.22%
2013 -- -- --
Thereafter 11 1,021,645 34.92%
---------- ------------------ -------------
Total 35 $ 2,925,457 100.00%
========== ================== =============
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2003 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases six Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2004 and 2015) and the
average minimum base annual rent is approximately $155,000 (ranging from
approximately $137,100 to $186,600).
Jack in the Box Inc. leases four Jack in the Box restaurants. The
initial term of each lease is 10 to 20 years (expiring between 2010 and 2018)
and the average minimum base annual rent is approximately $121,400 (ranging from
approximately $101,100 to $140,900).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners, nor any affiliate of
the Partnership, 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 12, 2004, there were 3,120 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 2003, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), may have done so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units. From
inception through December 31, 2003, 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 2003 and 2002 other than
pursuant to the Plan, net of commissions.
2003 (1) 2002 (1)
-------------------------------- -------------------------------
High Low Average High Low Average
--------- --------- ---------- -------- ------- ----------
First Quarter $ .95 $ .60 $ .89 $ .79 $ .60 $ .66
Second Quarter 2.38 .69 1.05 (2 ) (2 ) (2 )
Third Quarter .79 .79 .79 .95 .95 .95
Fourth Quarter .95 .83 .92 1.00 .60 .83
(1) A total of 415,931 and 118,320 Units were transferred other than
pursuant to the Plan for the years ended December 31, 2003 and 2002,
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, 2003 and 2002, the Partnership
declared cash distributions of $2,700,000 to the Limited Partners. Distributions
of $675,000 were declared to the Limited Partners at the close of each of the
Partnership's calendar quarters during 2003 and 2002. 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, 2003 and 2002, are required to be or have been treated
by the Partnership as a return of capital for purposes of calculating the
Limited Partners' return on their adjusted capital contributions. 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
Year ended December 31: 2003 2002 2001 2000 1999
-------------- -------------- --------------- -------------- --------------
Continuing Operations:
Revenues $ 1,890,982 $ 1,886,389 $ 2,043,814 $ 2,404,733 $ 2,581,576
Equity in earnings of
unconsolidated joint ventures 863,472 1,027,311 717,096 456,050 429,997
Net income (1) 2,228,667 2,343,522 2,215,570 3,221,515 2,545,690
Income per Unit:
Continuing operations 0.074 0.078 0.074 0.107 0.085
Cash distributions declared 2,700,000 2,700,000 2,700,000 2,700,000 2,700,000
Cash distributions declared per
Unit 0.090 0.090 0.090 0.090 0.090
At December 31:
Total assets $24,270,530 $ 24,712,885 $ 25,073,220 $ 25,607,914 $ 25,146,133
Total partners' capital 23,368,760 23,840,093 24,196,571 24,681,001 24,159,486
(1) Net income for the years ended December 31, 2001, 2000, and 1999,
includes $382,122, $878,347, and $189,826, respectively, from gains on
sale of assets.
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
Restaurant Chains. The leases are generally triple-net leases, with the lessees
generally responsible for all repairs and maintenance, property taxes, insurance
and utilities. The leases provide for minimum base annual rental amounts
(payable in monthly installments) ranging from approximately $30,000 to
$259,900. The majority of the leases provide for percentage rent based on sales
in excess of a specified amount. In addition, the majority of the leases provide
that, commencing in specified lease years (generally the sixth lease year), the
annual base rent required under the terms of the lease will increase. As of
December 31, 2001, 2002 and 2003, the Partnership owned 18 Properties directly
and held interest in 17 Properties indirectly through joint venture or tenancy
in common arrangements.
Capital Resources
Cash from operating activities was $2,731,994, $2,648,131, and
$2,479,263, for the years ended December 31, 2003, 2002, and 2001, respectively.
The increase in cash from operating activities during 2003 and 2002, each as
compared to the previous year, was a result of changes in the Partnership's
working capital, such as the timing of transactions relating to the collection
of receivables and the payment of expenses, and changes in income and expenses,
such as changes in rental revenues and changes in operating and Property related
expenses.
Other significant sources and uses of cash included the following
during the years ended December 31, 2003, 2002, and 2001.
In January 2001, the Partnership reinvested the net sales proceeds
received from the 2000 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 for a purchase price of approximately $1,495,700. The Partnership
acquired the Property from CNL Funding 2001-A, LP, a Delaware limited
partnership and an affiliate of the General Partners. The Partnership reinvested
the remaining net sales proceeds in additional joint venture Properties. A
portion of the transaction relating to the sales of these Properties and the
reinvestment of the net sales proceeds in additional Properties qualified as a
like-kind exchange transaction for federal income tax purposes.
The Partnership had a mortgage note receivable relating to a sale in
1995 of a Property in Florence, South Carolina. 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
used the majority of the net sales proceeds to acquire a Property in Lincoln,
Nebraska, and a Property in Columbus, Georgia, each of which is held with
affiliates of the General Partners as tenants-in-common.
In April 2001, the Partnership used a portion of the proceeds from the
2000 sale of the Property in Friendswood, Texas and a portion of the amount
collected from the promissory note accepted in connection with the 1995 sale of
a Property in Florence, South Carolina, to invest in a joint venture
arrangement, CNL VII & XVII Lincoln Joint Venture, with CNL Income Fund XVII,
Ltd., a Florida limited partnership and affiliate of the General Partners, to
purchase and hold a Property in Lincoln, Nebraska for a total purchase price of
$1,740,374. The joint venture acquired the Property from CNL BB Corp., an
affiliate of the General Partners, who had purchased and temporarily held title
to the Property in order to facilitate the acquisition of the Property by the
joint venture. The purchase price paid represents the costs incurred by CNL BB
Corp. to acquire and carry the Property. The Partnership owns a 14% interest in
the profits and losses of the joint venture.
In August 2001, the Partnership used the other portion of the amount
collected from the promissory note to invest in a joint venture arrangement, CNL
VII, XV Columbus Joint Venture, with CNL Income Fund XV, Ltd., a Florida limited
partnership and affiliate of the General Partners, to purchase and construct one
restaurant Property in Columbus, Georgia. During 2001, the Partnership
contributed approximately $1,025,500 to purchase land and pay for construction
costs relating to the joint venture and contributed $76,700 during 2002 to
complete the construction. The Partnership owns a 68.75% interest in the profits
and losses of this joint venture.
In November 2001, the Partnership sold its Properties in Daytona Beach
and Gainesville, Florida to the tenant in accordance with the purchase option
under the lease agreements and received aggregate net sales proceeds of
$499,813, resulting in a gain of $184,894. In connection with the sales of the
Properties, the Partnership received $396,232 in cash and accepted an
uncollateralized promissory note in the amount of $103,581 related to the
Property in Daytona Beach, Florida. In October 2002, the Partnership received a
payment of $114,304 which included the outstanding principal balance and $10,723
of accrued interest.
In December 2001, the Partnership sold its Property in Saddlebrook,
Florida to a third party and received net sales proceeds of $698,050, resulting
in a gain of $74,232. The Partnership used the net sales proceeds to invest in
additional joint venture Properties.
During 2002, the Partnership used the proceeds from the sale of several
of its Properties in 2001 to enter into a joint venture arrangement, 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 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. 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 and carry the Properties. 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.
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 $722,600. The sale resulted in a loss to the
joint venture of approximately $189,800. The tenant exercised its option to
purchase the Property under the terms of the lease. As of December 31, 2002 the
Partnership received $129,888, representing its pro rata share of the net sales
proceeds as a return of capital.
In August 2002, CNL Mansfield Joint Venture sold its property in
Mansfield, Texas to the tenant for a sales price of $1,045,000 and received net
sales proceeds of approximately $1,011,500, resulting in a gain of approximately
$269,800. In September 2002, CNL Mansfield Joint Venture used the proceeds from
the sale of the Property and an additional contribution of approximately $63,900
received from the Partnership to acquire a Property in Arlington, Texas from CNL
Net Lease Investors, L.P. ("NLI"), a California limited partnership, at an
approximate cost of $1,089,900. The sale of the Property and the reinvestment of
the net sales proceeds was structured to qualify as a like-kind exchange
transaction for federal income tax purposes. During 2002, and prior to the joint
venture's acquisition of this Property, CNL Financial LP Holding, LP ("CFN"), a
Delaware limited partnership, and CNL Net Lease Investors GP Corp. ("GP Corp"),
a Delaware corporation, purchased the limited partner's interest and general
partner's interest, respectively, of NLI. Prior to this transaction, an
affiliate of the Partnership's general partners owned a 0.1% interest in NLI and
served as a general partner of NLI. The original general partners of NLI waived
their rights to benefit from this transaction. The acquisition price paid by CFN
for the limited partner's interest was based on the portfolio acquisition price.
The joint venture acquired the Property in Arlington, Texas at CFN's cost and
did not pay any additional compensation to CFN for the acquisition of the
Property. Each CNL entity is an affiliate of the Partnership's General Partners.
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.
At December 31, 2003, the Partnership had $979,093 invested in cash and
cash equivalents as compared to $972,797 at December 31, 2002. At December 31,
2003, these funds were held in demand deposit and money market accounts at
commercial banks. As of December 31, 2003, the average interest rate earned on
rental income held in demand deposit and money market accounts at commercial
banks was less than one percent annually. The funds remaining at December 31,
2003, after payment of distributions and other liabilities, will be used to
invest in additional Properties and to meet the Partnership's working capital
needs.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
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 Partnership generally distributes cash from operating activities
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 current and anticipated future cash from
operations, the Partnership declared distributions to the Limited Partners of
$2,700,000 for each of the years ended December 31, 2003, 2002, and 2001. This
represents distributions of $0.090 per Unit for each of the years ended December
31, 2003, 2002, and 2001. No amounts distributed to the Limited Partners for the
years ended December 31, 2003, 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.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2003, 2002 and 2001.
As of December 31, 2003 and 2002, the Partnership owed $11,333 and
$13,151, respectively, to affiliates for accounting and administrative services
and other amounts. As of March 12, 2004, the Partnership had reimbursed the
affiliates for these amounts. Other liabilities, including distributions
payable, of the Partnership were $754,240 at December 31, 2003, as compared to
$720,696 at December 31, 2002. The General Partners believe that the Partnership
has sufficient cash on hand to meet its current working capital needs.
Off-Balance Sheet Transactions
The Partnership holds interests in various unconsolidated joint venture
and tenancy in common arrangements that are accounted for using the equity
method. The General Partners do not believe that any such interest would
constitute an off-balance sheet arrangement requiring any additional disclosures
under the provisions of the Sarbanes-Oxley Act of 2002.
Contractual Obligations, Contingent Liabilities, and Commitments
The Partnership has no contractual obligations, contingent liabilities,
or commitments as of December 31, 2003.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for Leases"
("FAS 13"), and have been accounted for using either the direct financing or the
operating methods. FAS 13 requires management to estimate the economic life of
the leased property, the residual value of the leased property and the present
value of minimum lease payments to be received from the tenant. In addition,
management assumes that all payments to be received under its leases are
collectible. Changes in management's estimates or assumption regarding
collectibility of lease payments could result in a change in accounting for the
lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews the Partnership's Properties and investments in
unconsolidated entities for impairment at least once a year or whenever events
or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. The assessment is based on the carrying amount of the
Property or investment at the date it is tested for recoverability compared to
the sum of the estimated future cash flows expected to result from its operation
and sale through the expected holding period. If an impairment is indicated, the
asset is adjusted to its estimated fair value.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Accordingly, when the Partnership makes the
decision to sell or commits to a plan to sell a Property within one year, its
operating results are reported as discontinued operations.
Results of Operations
Comparison of year ended December 31, 2003 to year ended December 31, 2002
Rental revenues from continuing operations for the Partnership and its
consolidated joint venture were $1,769,553 for the year ended December 31, 2003
as compared to $1,780,431 during the same period of 2002. Rental revenues from
continuing operations during the year ended December 31, 2003 remained constant,
as compared to the year ended December 31, 2002, since there was no change in
the leased property portfolio.
The Partnership also earned $91,566 in contingent rental income for the
year ended December 31, 2003 as compared to $74,165 for the same period of 2002.
The increase in contingent rental income during 2003 was attributable to an
increase in gross sales of certain restaurant Properties, the leases of which
require the payment of contingent rent.
During the year ended December 31, 2003 and 2002, the Partnership
earned $863,472 and $1,027,311, respectively, attributable to net income earned
by unconsolidated joint ventures. Net income earned by joint ventures was higher
during 2002 as compared to 2003 because in August 2002, Mansfield Joint Venture,
in which the Partnership owns a 79% interest, sold the Property in Mansfield,
Texas. The Partnership recorded its pro-rata share of the gain resulting from
the sale of this Property as equity in earnings. The net sales proceeds were
reinvested in a Property in Arlington, Texas. In addition, in June 2002, CNL
Restaurant Investments II Joint Venture, 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 as equity in earnings. The decrease in net income
earned by unconsolidated joint ventures during 2003 was partially offset by
earnings related to Arlington Joint Venture which the Partnership acquired in
June 2002. The decrease in net income earned by joint ventures during 2003 was
also partially offset by the fact that the tenant of the Property owned by
Duluth Joint Venture, in which the Partnership owns a 56% interest, resumed
making rental payments to the joint venture during the second quarter of 2002.
The tenant of the Property had previously experienced financial difficulties and
had ceased making rental payments to the joint venture. Duluth Joint Venture had
stopped recording rental revenues during the quarter ended March 31, 2002.
During the year ended December 31, 2003, two lessees (or groups of
affiliated tenants) of the Partnership and its consolidated joint venture, (i)
Golden Corral Corporation, and (ii) Jack in the Box Inc. and Jack in the Box
Eastern Division, L.P. (which are affiliated entities under common control of
Jack in the Box Inc.) (hereinafter referred to as "Jack in the Box Inc."), each
contributed more than 10% of the Partnership's total rental revenues (including
total rental revenues from the Partnership's consolidated joint venture and the
Partnership's share of total rental revenues from Properties owned by
unconsolidated joint ventures and Properties owned with affiliates of the
General Partners as tenants-in-common). As of December 31, 2003, Golden Corral
Corporation was the lessee under leases relating to six restaurants, and Jack in
the Box 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 Jack in the Box Inc., each will continue to
contribute more than 10% of the Partnership's total rental revenues during 2004.
In addition, during the year ended December 31, 2003, three Restaurant Chains,
Golden Corral, Hardee's and Jack in the Box, each accounted for more than 10% of
the Partnership's total rental revenues (including total rental revenues from
the Partnership's consolidated joint venture and the Partnership's share of
total rental revenues from Properties owned by unconsolidated joint ventures and
Properties owned with affiliates of the General Partners as tenants-in-common).
In 2004, it is anticipated that these three Restaurant Chains each will continue
to account for more than 10% of the Partnership's total rental revenues to which
the Partnership is entitled under the terms of the leases. Any failure of these
lessees or Restaurant Chains will materially affect the Partnership's operating
results if the Partnership is not able to re-lease the Properties in a timely
manner.
During the years ended December 31, 2003 and 2002, the Partnership also
earned $29,863 and $31,793, respectively, in interest and other income.
Operating expenses, including depreciation expense, were $502,837 for
the year ended December 31, 2003 as compared to $551,657 for the same period of
2002. Operating expenses were higher during 2002 due to the fact that the
Partnership elected to reimburse the tenant of the Properties in El Paso,
Harlingen, and Odessa, Texas for certain renovation costs.
In addition, the decrease in operating expenses during 2003, as
compared to the same period of 2002, was partially due to a decrease in the
costs incurred for administrative expenses for servicing the Partnership and its
Properties. In October 2003, CNL Restaurant Investments II entered into
negotiations with a third party to sell the Property in San Antonio, Texas.
The financial results of this Property are reflected as discontinued
operations in the combined condensed joint venture financial information
presented in the footnotes to the accompanying financial statements.
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Rental revenues from continuing operations for the Partnership and its
consolidated joint venture were $1,780,431 for the year ended December 31, 2002
as compared to $1,866,700 during the same period of 2001. The decrease in rental
revenues from continuing operations was primarily due to the sales of several of
the Partnership's Properties during 2001 and the reinvestment of the net sales
proceeds in a joint venture during 2002. As a result, net income earned by joint
ventures increased in 2002 while rental revenues from continuing operations
decreased. The decrease in rental revenues from continuing operations 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.
The Partnership also earned $74,165 in contingent rental income for the
year ended December 31, 2002 as compared to $75,571 for the same period of 2001.
During the year ended December 31, 2002 and 2001, the Partnership
earned $1,027,311 and $717,096, respectively, attributable to net income earned
by unconsolidated joint ventures. The increase in net income earned by joint
ventures during the year ended December 31, 2002, as compared to the same period
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 as equity in earnings. 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 year ended December 31, 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 ended March 31, 2002.
During the second quarter of 2002, the tenant began making rental payments to
the joint venture and the joint venture recognized these amounts as rental
revenues. In addition, during 2002, the joint venture recorded a provision for
write-down of assets of approximately $65,800. The provision represented the
difference between the Property's net carrying value and its estimated fair
value.
During the years ended December 31, 2002 and 2001, the Partnership also
earned $31,793 and $101,543, respectively, in interest and other income. The
decrease in interest and other income during 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, the collection of the promissory note, as well as a decline in interest
rates.
Operating expenses, including depreciation expense and provision for
write-down of assets, were $551,657 for the year ended December 31, 2002 as
compared to $909,120 for the same period of 2001. Operating expenses were higher
during 2001 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 estimated 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.
In addition, the decrease in operating expenses during 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.
The decrease in operating expenses during 2002, as compared to the same
period of 2001, was partially offset by the fact that during 2002, the
Partnership elected to reimburse the tenant of the Properties in El Paso,
Harlingen, and Odessa, Texas for certain renovation costs.
During 2001, the Partnership collected the outstanding balance of the
mortgage note relating to the 1995 sale of the Property in Florence, South
Carolina and recognized $122,996 of previously deferred gain related to the sale
of the Property. The Partnership recorded the sale using the installment method,
and as such, the gain was deferred and recognized as income proportionally as
payments under the mortgage note were collected.
As a result of the sales of several Properties during 2001, the
Partnership recognized gains totaling $382,122.
During the year ended December 31 2002, CNL Restaurant Investments II
and CNL Mansfield Joint Venture identified and sold three Properties that are
reflected as discontinued operations in the combined condensed joint venture
financial information presented in the footnotes to the accompanying financial
statements. During 2002, CNL Restaurant Investments II sold its Property in
Columbus, Ohio to the tenant and recognized a gain of approximately $448,300 and
sold its Property in Pontiac, Michigan to the tenant resulting in a loss of
approximately $189,800. CNL Mansfield Joint Venture sold its Property in
Mansfield, Texas and recognized a gain of approximately $269,800. The financial
results of these Properties are reflected as discontinued operations in the
condensed joint venture financial information presented in the footnotes to the
accompanying financial statements. The tenants exercised their option to
purchase the Properties under the terms of their respective leases and the
proceeds from the sales were reinvested in additional income producing
Properties.
The General Partners continuously evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the Limited
Partners.
The Partnership's leases as of December 31, 2003, are generally
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Inflation, overall, has had a minimal effect on
results of operations of the Partnership. 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 January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting guidance
that addresses when a company should include the assets, liabilities and
activities of another entity in its financial statements. To improve financial
reporting by companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that company is
subject to a majority risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. Prior to FIN 46, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. In December 2003, the FASB issued FASB Interpretation No. 46R
("FIN 46R"), to clarify some of the provisions of FIN 46. Under FIN 46R, special
effective date provisions apply to entities that have fully or partially applied
FIN 46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public entities, other than small
business issuers, for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. The Partnership
did not fully or partially apply FIN 46 prior to the issuance of FIN 46R. Also,
the Partnership does not have interests in structures commonly referred to as
special-purpose entities. Therefore, application of FIN 46R is required in the
Partnership's financial statements for periods ending after March 15, 2004. The
General Partners believe adoption of this standard may result in either
consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint ventures, which are currently accounted for under the
equity method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 17
Financial Statements:
Balance Sheets 18
Statements of Income 19
Statements of Partners' Capital 20
Statements of Cash Flows 21-22
Notes to Financial Statements 23-34
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund VII, Ltd.
In our opinion, the accompanying balance sheets and the related statements of
income, of partners' capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund VII, Ltd. (a Florida limited
partnership) at December 31, 2003 and 2002, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003 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 15(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
March 24, 2004
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2003 2002
---------------- -----------------
ASSETS
Real estate properties with operating leases, net $ 10,885,752 $ 11,109,588
Net investment in direct financing leases 2,221,535 2,344,317
Investment in joint ventures 8,985,452 9,083,991
Cash and cash equivalents 979,093 972,797
Receivables 94,390 68,597
Accrued rental income 1,018,973 1,042,794
Other assets 85,335 90,801
---------------- -----------------
$ 24,270,530 $ 24,712,885
================ =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 6,203 $ 4,551
Distributions payable 675,000 675,000
Due to related parties 11,333 13,151
Rents paid in advance 73,037 41,145
---------------- -----------------
Total liabilities 765,573 733,847
Minority interest 136,197 138,945
Partners' capital 23,368,760 23,840,093
---------------- -----------------
$ 24,270,530 $ 24,712,885
================ =================
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2003 2002 2001
------------------ ------------------ ---------------
Revenues:
Rental income from operating leases $ 1,489,994 $ 1,486,761 $ 1,559,410
Earned income from direct financing leases 279,559 293,670 307,290
Contingent rental income 91,566 74,165 75,571
Interest and other income 29,863 31,793 101,543
------------------ ------------------ ---------------
1,890,982 1,886,389 2,043,814
------------------ ------------------ ---------------
Expenses:
General operating and administrative 231,555 237,355 273,351
Property related 12,116 61,025 75,250
State and other taxes 35,330 29,446 33,922
Depreciation 223,836 223,831 246,735
Provision for write-down of assets -- -- 279,862
------------------ ------------------ ---------------
502,837 551,657 909,120
------------------ ------------------ ---------------
Income before gain on sale of assets, minority interest
and equity in earnings of unconsolidated joint
ventures 1,388,145 1,334,732 1,134,694
Gain on sale of assets -- -- 382,122
Minority interest (22,950 ) (18,521 ) (18,342 )
Equity in earnings of unconsolidated joint ventures 863,472 1,027,311 717,096
------------------ ------------------ ---------------
Net income $ 2,228,667 $ 2,343,522 $ 2,215,570
================== ================== ===============
Income per limited partner unit $ 0.074 $ 0.078 $ 0.074
================== ================== ===============
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, 2003, 2002, and 2001
General Partners Limited Partners
-------------------------------------- -----------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2000 $ 1,000 $ 229,931 $ 30,000,000 $ (28,277,623 ) $ 26,167,693
Distributions to limited
partners ($0.090 per
limited partner unit) -- -- -- (2,700,000 ) --
Net income -- -- -- -- 2,215,570
--------------- ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2001 1,000 229,931 30,000,000 (30,977,623 ) 28,383,263
Distributions to limited
partners ($0.090 per
limited partner unit) -- -- -- (2,700,000 ) --
Net income -- -- -- -- 2,343,522
--------------- ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2002 1,000 229,931 30,000,000 (33,677,623 ) 30,726,785
Distributions to limited
partners ($0.090 per
limited partner unit) -- -- -- (2,700,000 ) --
Net income -- -- -- -- 2,228,667
--------------- ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2003 $ 1,000 $ 229,931 $ 30,000,000 $ (36,377,623 ) $ 32,955,452
=============== ================ ================= ================ =================
See accompanying notes to financial statements.
Syndication
Costs Total
-------------- --------------
$ (3,440,000 ) $24,681,001
-- (2,700,000 )
-- 2,215,570
- -------------- --------------
(3,440,000 ) 24,196,571
-- (2,700,000 )
-- 2,343,522
- -------------- --------------
(3,440,000 ) 23,840,093
-- (2,700,000 )
-- 2,228,667
- -------------- --------------
$ (3,440,000 ) $23,368,760
============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2003 2002 2001
---------------- ------------------- ---------------
Cash Flows from Operating Activities:
Net income $ 2,228,667 $ 2,343,522 $ 2,215,570
----------------- ------------------- ------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 223,836 223,831 246,735
Amortization of net investment in direct financing 122,782 108,647 95,360
leases
Minority interest 22,950 18,521 18,342
Gain on sale of assets -- -- (382,122 )
Provision for loss on real estate properties -- -- 279,862
Equity in earnings of unconsolidated joint
ventures, net of distributions 98,539 (66,871 ) 9,531
Decrease (increase) in receivables (25,839 ) 5,546 12,254
Decrease (increase) in due from related parties 46 12,922 (11,712 )
Decrease in interest receivable -- 1,136 18,335
Decrease (increase) in other assets 5,466 (13,906 ) 10,635
Decrease in accrued rental income 23,821 15,795 14,159
Increase (decrease) in accounts payable and
accrued expenses 1,652 (7,755 ) (19,109 )
Decrease in due to related parties (1,818 ) (8,686 ) (45,978 )
Increase in rents paid in advance 31,892 15,429 17,401
----------------- ------------------- ------------------
Total adjustments 503,327 304,609 263,693
----------------- ------------------- ------------------
Net cash provided by operating activities 2,731,994 2,648,131 2,479,263
----------------- ------------------- ------------------
Cash Flows from Investing Activities:
Additions to real estate properties with operating leases -- -- (1,495,699 )
Proceeds from sale of real estate properties -- -- 1,094,282
Investment in certificate of deposit -- -- 100,000
Investment in joint ventures -- (934,800 ) (1,769,135 )
Return of capital from joint venture -- 129,888 --
Decrease in restricted cash -- -- 1,503,682
Collections on mortgage notes receivable -- 103,581 1,101,865
----------------- ------------------- ------------------
Net cash (used in) provided by investing activities -- (701,331 ) 534,995
----------------- ------------------- ------------------
Cash Flows from Financing Activities:
Distributions to limited partners (2,700,000 ) (2,700,000 ) (2,700,000 )
Distributions to holders of minority interest (25,698 ) (21,366 ) (20,920 )
----------------- ----------------- ------------------
Net cash used in financing activities (2,725,698 ) (2,721,366 ) (2,720,920 )
----------------- ------------------- ------------------
Net increase (decrease) in cash and cash equivalents 6,296 (774,566 ) 293,338
Cash and cash equivalents at beginning of year 972,797 1,747,363 1,454,025
----------------- ------------------- ------------------
Cash and cash equivalents at end of year $ 979,093 $ 972,797 $ 1,747,363
================= =================== ==================
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2003 2002 2001
----------------- --------------- --------------
Supplemental Schedule of Non-Cash Financing Activities:
Promissory note accepted in exchange for
sale of land and building $ -- $ -- $ 103,581
================= =============== ==============
Distributions declared and unpaid at
December 31 $ 675,000 $ 675,000 $ 675,000
================= =============== ==============
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
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% 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
acquisitions of real estate properties at cost, including acquisition
and closing costs. Real estate properties are leased to 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. During
the years ended December 31, 2003, 2002, and 2001 tenants paid, or are
expected to pay, directly to real estate taxing authorities
approximately $259,700, $274,800 and $264,900, respectively, in
estimated real estate taxes in accordance with the terms of their
leases.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The Partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
operating or the direct financing methods.
Operating method - Property 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.
Direct financing method - 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).
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. 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
portion of these leases are operating leases.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date.
Substantially all leases are for 10 to 20 years and provide for minimum
and contingent rentals. The lease options generally allow tenants to
renew the leases for two to five 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.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
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.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is made to increase the
allowance for doubtful accounts. 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.
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, CNL VII & XVII
Lincoln Joint Venture and CNL VII, XV Columbus Joint Venture, Arlington
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 each joint venture
agreement requires the consent of all partners on all key decisions
affecting the operations of the underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds. 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 represent a reduction of
Partnership equity and a reduction in the basis of each partner's
investment.
Rents Paid in Advance - Rents paid in advance by lessees for future
periods are deferred upon receipt and are recognized as revenues during
the period in which the rental income is earned.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2003 presentation.
These reclassification had no effect on total partners' capital, net
income or cash flows.
Statement of Financial Accounting Standards No. 144 - 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.
FASB Interpretation No. 46 - In January 2003, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and
strengthen existing accounting guidance that addresses when a company
should include the assets, liabilities and activities of another entity
in its financial statements. To improve financial reporting by
companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. In December 2003,
the FASB issued FASB Interpretation No. 46R ("FIN 46R"), to clarify
some of the provisions of FIN 46. Under FIN 46R, special effective date
provisions apply to entities that have fully or partially applied FIN
46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests
in structures that are commonly referred to as special-purpose entities
for periods ending after December 15, 2003. Application by public
entities, other than small business issuers, for all other types of
variable interest entities is required in financial statements for
periods ending after March 15, 2004. The Partnership did not fully or
partially apply FIN 46 prior to the issuance of FIN 46R. Also, the
Partnership does not have interests in structures commonly referred to
as special-purpose entities. Therefore, application of FIN 46R is
required in the Partnership's financial statements for periods ending
after March 15, 2004. The general partners believe adoption of this
standard may result in either consolidation or additional disclosure
requirements of the Partnership's unconsolidated joint ventures, which
are currently accounted for under the equity method. However, such
consolidation is not expected to significantly impact the Partnership's
results of operations.
CNL INCOME FUND VII, LTD
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
2. Real Estate Properties with Operating Leases
Real estate properties with operating leases consisted of the following
at December 31:
2003 2002
----------------- -----------------
Land $ 6,756,854 $ 6,756,854
Buildings 6,714,927 6,714,927
---------------- ----------------
13,471,781 13,471,781
Less accumulated depreciation (2,586,029 ) (2,362,193 )
----------------- -----------------
$ 10,885,752 $ 11,109,588
================= =================
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2003:
2004 1,512,739
2005 1,210,453
2006 1,005,436
2007 984,805
2008 884,882
Thereafter 3,697,918
----------------
$ 9,296,233
================
3. Net Investment in Direct Financing Leases
The following lists the components of the net investment in direct
financing leases at December 31:
2003 2002
----------------- -----------------
Minimum lease payments receivable $ 2,821,213 $ 3,223,555
Estimated residual values 768,233 768,233
Less unearned income (1,367,911 ) (1,647,471 )
----------------- -----------------
Net investment in direct financing leases $ 2,221,535 $ 2,344,317
================= =================
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2003:
2004 402,342
2005 402,342
2006 402,342
2007 402,342
2008 402,342
Thereafter 809,503
--------------
$ 2,821,213
===============
CNL INCOME FUND VII, LTD
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures
The Partnership has an 18% interest, a 4.79% interest, a 79% interest,
a 56% interest, a 36.88% interest, a 14% interest, a 68.75% interest
and a 79% interest in the profits and losses of CNL Restaurant
Investments II, Des Moines Real Estate Joint Venture, CNL Mansfield
Joint Venture, Duluth Joint Venture, TGIF Pittsburgh Joint Venture, CNL
VII & XVII Lincoln Joint Venture, CNL VII, XV Columbus Joint Venture
and Arlington 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% interest
in a property in Smithfield, North Carolina, with an affiliate of the
general partners, as tenants-in-common, a 35.64% interest in a property
in Miami, Florida, with affiliates of the general partners, as
tenants-in-common, a 71% interest in a property in Montgomery, Alabama,
with an affiliate of the general partners, as tenants-in-common and a
43% interest in a property in Colorado Springs, Colorado, with an
affiliate of the general partners, as tenants-in-common. Amounts
relating to its investment are included in investment in joint
ventures.
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 tenants exercised their option to
purchase the properties under the terms of their respective leases. The
Partnership received $129,888 as a return of capital from the net sales
proceeds, and used approximately $63,900 to pay an additional
contribution to CNL Mansfield Joint Venture. 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.
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.
In May 2002, CNL Mansfield Joint Venture, in which the Partnership owns
a 79% interest, entered into negotiations with the tenant 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 as held for sale. In August 2002, the joint
venture sold the property to the tenant for a sales price of $1,045,000
and received net sales proceeds of approximately $1,011,500, resulting
in a gain of approximately $269,800. The joint venture used the
proceeds from the sale of the property in Mansfield, Texas and an
additional contribution of approximately $63,900 received from the
Partnership, as described above, to acquire a property in Arlington,
Texas from CNL Net Lease Investors, L.P., at an approximate cost of
$1,089,900. CNL Net Lease Investors, L.P. is an affiliate of the
general partners.
CNL INCOME FUND VII, LTD
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
In October 2003, CNL Restaurant Investments II, in which the
Partnership owns an 18% interest, entered into negotiations with a
third party to sell the property in San Antonio, Texas. As a result,
the joint venture reclassified the assets relating to this property
from land and building on operating leases 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 upon identifying the property as held for sale.
The financial results for the Columbus, Ohio; Pontiac, Michigan;
Mansfield, Texas and San Antonio, Texas properties are reflected as
discontinued operations in the condensed financial information
presented below.
As of December 31, 2003, CNL Restaurant Investments II owns five
properties. Des Moines Joint Venture, CNL Mansfield Joint Venture,
Duluth Joint Venture, TGIF Pittsburgh Joint Venture, CNL VII & XVII
Lincoln Joint Venture, CNL VII, XV Columbus Joint Venture and Arlington
Joint Venture each own one property. In addition, the Partnership and
affiliates, in four separate tenancy in common arrangements, each own
one property.
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:
December 31,
2003 2002
-------------------- -----------------
Real estate properties with operating leases,
net $ 18,124,486 $ 18,531,334
Net investment in direct financing leases $ 1,719,424 1,743,852
Real estate held for sale 724,380 739,968
Cash 89,783 52,263
Receivables -- 2,445
Accrued rental income 539,816 424,858
Other assets -- 512
Liabilities 172,186 149,219
Partners' capital 21,025,703 21,346,013
CNL INCOME FUND VII, LTD
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
Years ended December 31,
2003 2002 2001
--------------- --------------- ---------------
Continuing Operations:
Revenues $ 2,395,721 $ 2,193,739 $ 2,016,556
Expenses (422,734 ) (430,185 ) (341,214 )
Provision for write-down of assets -- (65,755 ) --
--------------- --------------- ---------------
Income from continuing operations 1,972,987 1,697,799 1,675,342
--------------- --------------- ---------------
Discontinued Operations:
Revenues 95,285 262,492 296,225
Expenses (15,988 ) (46,760 ) (65,841 )
Gain on disposal of assets -- 528,296 --
--------------- --------------- ---------------
Income from discontinued operations 79,297 744,028 230,384
--------------- --------------- ---------------
Net income $ 2,052,284 $ 2,441,827 $ 1,905,726
=============== =============== ===============
The Partnership recognized income totaling $863,472, $1,027,311, and
$717,096 for the years ended December 31, 2003, 2002, and 2001,
respectively, from these joint ventures and the properties held as
tenants in common with affiliates.
5. 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. However, 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
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.
CNL INCOME FUND VII, LTD
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
5. Allocations and Distributions - Continued
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 years
ended December 31, 2003, 2002 and 2001.
During each of the years ended December 31, 2003, 2002, and 2001, 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
Years Ended December 31, 2003, 2002, and 2001
6. 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:
2003 2002 2001
------------- ------------- ------------
Net income for financial reporting purposes $ 2,228,667 $2,343,522 $ 2,215,570
Effect of timing differences relating to
depreciation (20,814 ) (17,790 ) (14,382 )
Effect of timing differences relating to
gains/losses on property sales -- -- 109,317
Provision for loss on assets -- -- 279,862
Direct financing leases recorded as operating
leases for tax reporting purposes 128,479 108,647 95,360
Effect of timing differences relating to equity
in earnings of unconsolidated joint ventures (30,536 ) (318,050 ) (59,325 )
Accrued rental income 23,821 12,040 14,159
Rents paid in advance 31,891 4,628 17,901
Effect of timing differences relating to
minority interest (728 ) 12,630 (728 )
Effect of timing differences relating to
allowance for doubtful accounts -- -- (504 )
Other (294 ) -- --
------------- ------------- ------------
Net income for federal income tax purposes $ 2,360,486 $2,145,627 $ 2,657,230
============= ============= ============
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
7. Related Party Transactions
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, a wholly owned subsidiary of CNL Restaurant
Properties, Inc. (formerly known as CNL American Properties Fund, Inc.)
served as the Partnership's advisor until January 1, 2002, when it
assigned its rights and obligations under a management agreement to RAI
Restaurants, Inc. (the "Advisor"). The Advisor is a wholly owned
subsidiary of CNL Restaurant Properties, Inc. ("CNL-RP"). The
individual general partners are stockholders and directors of CNL-RP.
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, 2003, 2002, and 2001.
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, 2003, 2002, and 2001.
During the years ended December 31, 2003, 2002, and 2001, the
Partnership's advisor and its affiliates provided accounting and
administrative services to the Partnership. The Partnership incurred
$136,203, $166,302, and $170,123 for the years ended December 31, 2003,
2002, and 2001, respectively, for such services.
In June 2002, the Partnership and CNL Income Fund XVI, Ltd. through a
joint venture arrangement, Arlington Joint Venture, acquired a
property, in Arlington, Texas, from CNL Funding 2001-A, LP, for a
purchase price of approximately $1,003,600. In addition, in June 2002,
CNL Restaurant Investments II Joint Venture acquired a property in
Dallas, Texas from CNL Funding 2001-A, LP for a purchase price of
approximately $1,147,400. 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.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
7. Related Party Transactions - Continued
In September 2002, CNL Mansfield Joint Venture acquired a property in
Arlington, Texas from CNL Net Lease Investors, L.P. ("NLI"), at an
approximate cost of $1,089,900. During 2002, and prior to the joint
venture's acquisition of this property, CNL Financial LP Holding, LP
("CFN") and CNL Net Lease Investors GP Corp. ("GP Corp") purchased the
limited partner's interest and general partner's interest,
respectively, of NLI. Prior to this transaction, an affiliate of the
Partnership's general partners owned a 0.1% interest in NLI and served
as a general partner of NLI. The original general partners of NLI
waived their rights to benefit from this transaction. The acquisition
price paid by CFN for the limited partner's interest was based on the
portfolio acquisition price. The joint venture acquired the property in
Arlington, Texas at CFN's cost and did not pay any additional
compensation to CFN for the acquisition of the property. Each CNL
entity is an affiliate of the Partnership's general partners.
The amounts due to related parties totaled $11,333 and $13,151 at
December 31, 2003 and 2002, respectively.
8. Concentration of Credit Risk
The following schedule presents total rental revenues and mortgage
interest income from individual lessees, or affiliated groups of
lessees, each representing more than 10% of the Partnership's total
rental revenues and mortgage interest income (including the
Partnership's share of total rental revenues from the unconsolidated
joint ventures and the properties held as tenants-in-common with
affiliates of the general partners) for each of the years ended
December 31:
2003 2002 2001
------------- ------------- -------------
Golden Corral Corporation $ 789,309 $ 766,789 $ 763,975
Jack in the Box Inc. 383,219 366,284 349,985
Waving Leaves, Inc. N/A N/A 283,072
In addition, the following schedule presents total rental revenues and
mortgage interest income from individual restaurant chains, each
representing more than 10% of the Partnership's total rental revenues
and mortgage interest income (including the Partnership's share of
total rental revenues from the unconsolidated joint ventures and the
properties held as tenants-in-common with affiliates) for each of the
years ended December 31:
2003 2002 2001
------------- -------------- -------------
Golden Corral Buffet and Grill $ 789,309 $ 766,789 $ 763,975
Hardees 403,536 415,447 426,841
Jack in the Box 383,219 366,284 349,985
Burger King N/A N/A 305,348
The information denoted by N/A indicates that for each period
presented, the restaurant chain did not represent more than 10% of the
Partnership's total rental revenues and mortgage interest income.
Although the Partnership's properties have some geographic diversity in
the United States and the Partnership's lessees operate a variety of
restaurant concepts, default by any lessee or restaurant chain
contributing more than 10% of the Partnership's revenues will
significantly impact the results of operations of the Partnership if
the Partnership is not able to re-lease the properties in a timely
manner.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
9. Selected Quarterly Financial Data
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2003 and
2002:
2003 Quarter First Second Third Fourth Year
---------------------------- ------------ --------------- ------------ --------------- ---------------
Revenues $443,696 $ 444,089 $ 468,591 $ 534,516 $ 1,890,892
Equity in earnings of
unconsolidated
joint ventures 213,573 217,242 214,710 217,947 863,472
Net Income 492,599 539,156 556,656 640,256 2,228,667
Income per limited
partner unit $ 0.016 $ 0.018 $ 0.019 $ 0.021 $ 0.074
2002 Quarter First Second Third Fourth Year
---------------------------- ------------ --------------- ------------ --------------- ---------------
Revenues $455,426 $ 426,613 $ 486,651 $ 517,699 $ 1,886,389
Equity in earnings of
unconsolidated
joint ventures 155,988 244,877 426,399 200,047 1,027,311
Net Income 450,360 534,578 757,687 600,897 2,343,522
Income per limited
partner unit $ 0.015 $ 0.018 $ 0.025 $ 0.020 $ 0.078
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
Item 9A. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART 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-RP, CCM, CNL Financial Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 57. 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-RP, a public, unlisted real
estate investment trust since 1994. Mr. Seneff served as Chief Executive Officer
of CNL-RP from 1994 through August 1999 and as Co-Chief Executive Officer from
December 2000 through September 2003. Mr. Seneff served as Chairman of the Board
and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, from its inception in 1990 until it merged with a
wholly-owned subsidiary of CNL-RP in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. CNL Fund Advisors,
Inc., formerly CNL Institutional Advisors, Inc., is a registered investment
advisor. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the parent
company of CNL Financial Group, Inc., a diversified real estate company, and has
served as a Director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since 1973. CNL Financial Group, Inc. is and 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., all of which are engaged in the business of real estate
finance. Mr. Seneff also serves as a Director and Chairman of the Board of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
and served as Chief Executive Officer of CNL Hospitality Properties, Inc. from
its inception in 1997 until 2003 and served as Co-Chief Executive Officer from
February 2003 until May 1, 2003. Mr. Seneff has served as Chairman of the Board
of CNL Hospitality Corp., the advisor to CNL Hospitality Properties, Inc., since
its inception in 1997. Mr. Seneff also served as Chief Executive Officer from
its inception in 1997 through February 2003, and currently serves as Co-Chief
Executive Officer of CNL Hospitality Corp. Mr. Seneff has served as Director and
Chairman of the Board of CNL Retirement Corp. since 1997 and served as Chief
Executive Officer of CNL Retirement Corp. from 1997 through 2003. CNL Retirement
Corp. is the advisor to CNL Retirement Properties, Inc., a public, unlisted real
estate investment trust. Mr. Seneff has also served as Director and Chairman of
the Board of Commercial Net Lease Realty, Inc., a public real estate investment
trust that is listed on the New York Stock Exchange, since 1992 and served as
Chief Executive Officer of Commercial Net Lease Realty, Inc. from 1992 through
February 2004. Mr. Seneff has served as a Director, Chairman of the Board, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff has
served as Chairman of the Board and Chief Executive Officer of CNL Commercial
Finance, Inc. since 2000. Mr. Seneff also serves as Chairman of the Board of
CNLBank, an independent, state-chartered commercial 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 the
Florida state retirement plan. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 56. 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 has
served as a Director and Vice Chairman of the Board of CNL-RP since 1994. Mr.
Bourne also served as President of CNL-RP from 1994 through February 1999 and
served as Treasurer from February 1999 through August 1999 and from May 1994
through December 1994. Mr. Bourne served in various executive positions with CNL
Fund Advisors, Inc. prior to its merger with a wholly-owned subsidiary of CNL-RP
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. Mr. Bourne serves as Director, Vice Chairman of the Board
and Treasurer and from 1997 until June 2002 served as President of CNL
Hospitality Properties, Inc. and as Director, President and Treasurer of CNL
Hospitality Corp. Mr. Bourne also serves as Director and Treasurer of CNL
Retirement Properties, Inc. and as Director and Treasurer of CNL Retirement
Corp. Mr. Bourne serves as a Director of CNLBank. Mr. Bourne has also 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. Mr. Bourne 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. 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 48. Mr. McWilliams has served as President of
CNL-RP since May 2001 and as Chief Executive Officer of CNL-RP since September
2003. Mr. McWilliams served as Co-Chief Executive Officer of CNL-RP from
December 2000 through September 2003 and served as Chief Executive Officer from
September 1999 through December 2000. Mr. McWilliams also served as President
and Chief Executive Officer of CNL Franchise Network Corp., a wholly owned
subsidiary of CNL-RP since August 2002 and served as President of CNL-RP from
February 1999 until September 1999 and as Executive Vice President of CNL-RP
from 1997 through February 1999. Mr. McWilliams served as an Executive Vice
President of CNL Financial Group, Inc. from the time he joined the company in
April 1997 until September 1999. Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and CNL Financial Services, Inc., a corporation engaged in the
business of real estate financing, from April 1997 until the acquisition of such
entities by wholly owned subsidiaries of CNL-RP in September 1999. From
September 1983 through March 1997, Mr. McWilliams was employed by Merrill Lynch
& Co. The majority of his career at Merrill Lynch & Co. was in the Investment
Banking division where he served as a Managing Director. Mr. McWilliams received
a B.S.E. in Chemical Engineering from Princeton University in 1977 and a Master
of Business Administration degree with a concentration in finance from the
University of Chicago in 1983.
Steven D. Shackelford, age 40. Mr. Shackelford was promoted to
Executive Vice President and Chief Operating Officer of CNL-RP in September
2003. Mr. Shackelford has also served as Chief Financial Officer since January
1997. He served as Senior Vice President of CNL-RP from January 1997 through
July 2000, when he was promoted to Executive Vice President. Mr. Shackelford has
also served as Secretary and Treasurer of CNL-RP since September 1999. He also
served as Chief Financial Officer of CNL Fund Advisors, Inc. from September 1996
to September 1999. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse LLP where he was responsible
for advising foreign clients seeking to raise capital and a public listing in
the United States. From August 1992 to March 1995, he was a manager in the
Paris, France office of Price Waterhouse, serving several multi-national
clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor
of Arts degree in Accounting, with honors, and a Master of Business
Administration degree from Florida State University and is a certified public
accountant.
Thomas Arasi, age 46. Mr. Arasi has served as President of CCM since it
was formed in July 2003 to provide strategic advisory services to the General
Partners. He has served in various consulting capacities to CNL Hospitality Corp
and other CNL affiliates since January 2003. Since November 2001 he has been an
independent consultant working for a variety of operating and investment
companies in the hospitality industry. Until October 2001, Mr. Arasi was
President & Chief Executive Officer, and a member of the Board of Directors of
Lodgian, Inc., a New York Stock Exchange traded company, one of the largest
independent hotel owner/operators in North America, with hotel properties under
most brand names including Marriott, Courtyard by Marriott, Fairfield Inn by
Marriott, Crowne Plaza, Holiday Inn, Hilton, and Radisson. From June 1997
through November 2000, Mr. Arasi was a member of the Management Committee and
held several top operating positions with Bass Hotels & Resorts, one of the
leading international owners, operators and franchisors of hotels, most recently
serving as President, Bass Hotels & Resort--The Americas. Mr. Arasi was formerly
President of Tishman Hotel Corporation, Vice President of Salomon Brothers,
Inc., in New York, Tokyo and Los Angeles and held positions with Sheraton,
Westin and HVS International. Mr. Arasi graduated from Cornell University in
January 1981, where he received a Bachelor's degree in Hotel and Restaurant
Administration.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2003.
Code of Business Conduct
The Partnership does not have employees and, accordingly, has not
adopted a code of business conduct applicable exclusively to the Partnership.
However, employees of the General Partners or their affiliates, including the
individual General Partners, are bound by the Code of Business Conduct adopted
November 11, 2003 by CNL Holdings, Inc. Separately, the employees of the Advisor
are bound by the similar Code of Business Conduct adopted by CNL Restaurant
Properties, Inc. Each of these codes of business conduct will be made available
to any person who writes the Partnership requesting a copy.
Audit Committee Financial Expert
Due to its organization as a limited partnership, the Partnership does
not have an audit committee that is responsible for supervising the
Partnership's relationship with its independent auditors. For the Partnership,
this role is performed by the General Partners. Based on his previous service as
the principal financial officer of companies with businesses similar to that of
the Partnership, Robert A. Bourne, one of the General Partners, has the
requisite experience to be considered an "audit committee financial expert" as
defined in the rules under the Securities Exchange Act of 1934, if the
Partnership had an audit committee. As a General Partner, Mr. Bourne is not
independent of the Partnership.
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 and
Related Stockholder Matters
As of March 12, 2004, 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 12, 2004, 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.
The Partnership does not have any equity compensation plans.
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, 2003, 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, 2003
Reimbursement to affiliates for Operating expenses are reimbursed Accounting and administrative
operating expenses at the lower of cost or 90% of the services: $136,203
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, 2003
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, 2003
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.
Item 14. Principal Accountant Fees and Services
The following table outlines the only fees paid or accrued by the
Partnership for the audit and other services provided by the Partnership's
independent certified public accountants, PricewaterhouseCoopers LLP, for the
years ended December 31:
2003 2002
---------------- -----------------
Audit Fees (1) $ 10,695 $ 8,600
Tax Fees (2) 3,171 4,651
---------------- -----------------
Total $ 13,866 $ 13,251
================ =================
(1) Audit services of PricewaterhouseCoopers LLP for 2003 and 2002
consisted of the examination of the financial statements of the
Partnership and quarterly review of financial statements.
(2) Tax Fees relates to tax consulting and compliance services.
Each of the non-audit services described above was approved by the General
Partners. Due to its organization as a limited partnership, the Partnership does
not have an audit committee.
PART IV
Item 15. 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, 2003 and 2002
Statements of Income for the years ended December 31, 2003,
2002, and 2001
Statements of Partners' Capital for the years ended December
31, 2003, 2002, and 2001
Statements of Cash Flows for the years ended December 31,
2003, 2002, and 2001
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2003, 2002, and 2001
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2003
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2003
Schedule IV - Loans on Real Estate at December 31, 2003
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.)
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. (Included
as Exhibit 10.5 to Form 10-Q filed with the
Securities and Exchange Commission on August 13,
2002, and incorporated herein by reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period
from October 1, 2003 through December 31, 2003.
(c) Not applicable.
(d) Other Financial Information
The Partnership is required to file audited financial
information of one of its tenants (Golden Corral Corporation)
as a result of this tenant leasing more than 20% of the
Partnership's total assets for the year ended December 31,
2003. Golden Corral Corporation is a privately-held company
and its financial information is not available to the
Partnership to include in this filing. The Partnership will
file this financial information under cover of a Form 10-K/A
as soon as it is available.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 25th day of
March, 2004.
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. Bourne President, Treasurer and Director March 25, 2004
---------------
Robert A. Bourne (Principal Financial and
Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 25, 2004
----------------
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2003, 2002, and 2001
Additions Deductions
--------------------------------- -------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
2001 Allowance for
doubtful
accounts (a) $ 10,349 $ -- $ -- $ 9,845 (b) $ 504 $ --
============== =============== ================ ============= ============ ============
2002 Allowance for
doubtful
accounts (a) $ -- $ -- $ -- $ -- $ -- $ --
============== =============== ================ ============= ============ ============
2003 Allowance for
doubtful
accounts (a) $ -- $ -- $ -- $ -- $ -- $ --
============== =============== ================ ============= ============ ============
(a) Deducted from receivables and accrued rental income on the balance
sheet.
(b) Amounts written off as uncollectible.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
Subsequent To Net Cost Basis at Which
Initial Cost Acquisition Carried at Close of Period (c)
--------------------- ----------------------------------------------------
Encum- Buildings anImprove- Carrying Buildings and
brances Land Improvementsments Costs Land Improvements Total
--------- --------- --------------------- ------ ---------- -----------------------
Burger King Restaurants:
Jefferson City, Tenn-ssee $216,633 $546,967 - - $216,633 $546,967 $763,600
Sierra Vista, Arizon- 421,170 - - - 421,170 (e) 421,170
Checkers Drive-In Restaurant:
Winter Springs, Flor-da 397,536 - - - 397,536 - 397,536
Mama Fu's Noodle House
Marietta, Georgia - 534,421 507,133 - - 534,421 507,133 1,041,554
Golden Corral Buffet and Grill:
Odessa, Texas - 502,364 815,831 - - 502,364 815,831 1,318,195
Midland, Texas - 481,748 857,185 - - 481,748 857,185 1,338,933
El Paso, Texas - 745,506 - 802,132 - 745,506 802,132 1,547,638
Harlingen, Texas- 503,799 - 890,878 - 503,799 890,878 1,394,677
Hardee's Restaurants:
Akron, Ohio - 198,086 - - - 198,086 (e) 198,086
Dalton, Ohio - 180,556 - - - 180,556 (e) 180,556
Minerva, Ohio - 143,775 - - - 143,775 (e) 143,775
Orrville, Ohio - 176,169 - - - 176,169 (e) 176,169
Seville, Ohio - 245,648 - - - 245,648 (e) 245,648
Clinton, Tennessee - 295,861 - - - 295,861 (e) 295,861
Jack in the Box Restaurants:
Baton Rouge, Lousian-a 562,533 933,167 - - 562,533 933,167 1,495,700
San Antonio, Texas - 525,720 - 381,591 - 525,720 381,591 907,311
KFC Restaurant:
Arcadia, Florida - 175,020 333,759 - - 175,020 333,759 508,779
Rally's Restaurant:
Toledo, Ohio - 281,880 196,608 47,002 - 281,880 243,610 525,490
Taco Bell Restaurant:
Detroit, Michigan - 168,429 - 402,674 - 168,429 402,674 571,103
--------- ---------- --------- ------ ---------- ----------- -----------
$6,756,854 $4,190,650 $2,524,277 - $6,756,854 $6,714,927 $13,471,781
========= ========== ========= ====== ========== =========== ===========
Burger King Restaurant:
Sierra Vista, Arizon- - - $333,212 - - (e) (e)
Hardee's Restaurants:
Akron, Ohio - - 540,215 - - - (e) (e)
Dalton, Ohio - - 490,656 - - - (e) (e)
Minerva, Ohio - - 436,663 - - - (e) (e)
Orrville, Ohio - - 446,337 - - - (e) (e)
Seville, Ohio - - 487,630 - - - (e) (e)
Clinton, Tennessee - - 338,216 - - - (e) (e)
- $2,739,717 $333,212 -
========= ========== ========= ======
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con-Date Statement is
DepreciationstructiAcquired Computed
- --------------------------------------
$247,755 1988 01/90 (b)
- 1990 06/90 (d)
(f) - 07/94 (f)
121,198 1994 10/96 (b)
374,162 1990 03/90 (b)
392,582 1990 04/90 (b)
355,207 1990 05/90 (b)
396,953 1990 06/90 (b)
- 1990 11/90 (d)
- 1990 11/90 (d)
- 1990 11/90 (d)
- 1990 11/90 (d)
- 1990 11/90 (d)
- 1992 09/92 (d)
93,315 2000 01/01 (b)
170,828 1990 05/90 (b)
149,139 1985 08/90 (b)
105,501 1990 01/91 (b)
179,389 1990 06/90 (b)
- -----------
$2,586,029
===========
(d) 1990 06/90 (d)
(d) 1990 11/90 (d)
(d) 1990 11/90 (d)
(d) 1990 11/90 (d)
(d) 1990 11/90 (d)
(d) 1990 11/90 (d)
(d) 1992 09/92 (d)
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 2003, 2002, and 2001 have been adjusted to
reflect the reclassification of properties accounted for as
discontinued operations.
Accumulated
Cost Depreciation
----------------- ----------------
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 2000 $ 13,522,600 $ 2,225,560
Acquisitions 1,495,700 --
Dispositions (1,546,519) (333,933 )
Depreciation expense -- 246,735
----------------- ----------------
Balance, December 31, 2001 13,471,781 2,138,362
Depreciation expense -- 223,831
----------------- ----------------
Balance, December 31, 2002 13,471,781 2,362,193
Depreciation expense -- 223,836
----------------- ----------------
Balance, December 31, 2003 $ 13,471,781 $2,586,029
================= ================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2003, the aggregate cost of the Partnership's wholly
owned Properties was $ 16,104,595 for federal income tax purposes. All
of the leases are treated as operating leases for federal income tax
purposes.
(d) The portion of the lease relating to the building has been recorded as
a direct financing lease. The cost of the building has been included in
the net investment in direct financing leases; therefore, depreciation
is not applicable.
(e) 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.
(f) The building portion of this Property is owned by the tenant;
therefore, depreciation is not applicable.
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - LOANS ON REAL ESTATE
December 31, 2003
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
- ------------------ --------- ----------------- ----------- ---------- ------------- -------------- -------------
Church's-
Daytona Beach,
Florida 12.34% November 2004 (1) $ -- $ 103,581 $ -- $ --
---------- ------------- -------------- -------------
Total $ -- $ 103,581 $ -- $ --
========== ============= ============== =============
(1) Monthly payments of interest only at an annual rate of 12.34%, with a
balloon payment at maturity of $103,581.
(2) The changes in the carrying amounts are summarized as follows:
2003 2002 2001
------------------ --------------- ---------------
Balance at beginning of period $ -- $ 104,717 $ 994,593
New promissory note -- -- 103,581
Interest earned -- 9,587 9,243
Collection of principal and interest -- (114,304 ) (1,125,696 )
Recognition of deferred gain on sale
of -- -- 122,996
land and building
------------------ --------------- ---------------
Balance at end of period $ -- $ -- $ 104,717
================== =============== ===============
EXHIBIT INDEX
Exhibit Number
(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. (Included
as Exhibit 10.5 to Form 10-Q filed with the
Securities and Exchange Commission on August 13,
2002, and incorporated herein by reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2