FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended September 30, 2004
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from ______________________ to _______________________
Commission file number
0-19140
---------------------------------------
CNL Income Fund VII, Ltd.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2963871
- -------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ----------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
--------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):Yes___ No X
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 10
Item 4. Controls and Procedures 10-11
Part II.
Other Information 12-13
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
2004 2003
------------------ -------------------
ASSETS
Real estate properties with operating leases, net $ 16,116,419 $ 16,352,461
Net investment in direct financing leases 2,946,766 3,057,744
Real estate held for sale -- 1,575,355
Investment in joint ventures 4,249,404 4,298,683
Cash and cash equivalents 2,087,197 996,918
Receivables -- 94,390
Accrued rental income 1,182,674 1,164,712
Other assets 85,265 85,335
------------------ -------------------
$ 26,667,725 $ 27,625,598
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 60,023 $ 6,378
Real estate taxes payable 10,062 3,656
Distributions payable 675,000 675,000
Due to related parties 17,064 11,333
Rents paid in advance 86,820 81,463
Deferred rental income 81,551 117,093
------------------ -------------------
Total liabilities 930,520 894,923
Minority interests 2,864,008 3,361,915
Partners' capital 22,873,197 23,368,760
------------------ -------------------
$ 26,667,725 $ 27,625,598
================== ===================
See accompanying notes to condensed financial statements.
1
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------------- ------------ ------------- ---------------
Revenues:
Rental income from operating leases $ 526,118 $ 524,381 $ 1,578,661 $ 1,571,754
Earned income from direct financing leases 90,258 94,661 274,198 287,001
Contingent rental income 1,590 -- 4,257 815
Interest and other income 387 26,555 589 28,057
------------- ------------ ------------- ---------------
618,353 645,597 1,857,705 1,887,627
------------- ------------ ------------- ---------------
Expenses:
General operating and administrative 89,734 53,116 235,976 182,198
Property related 7,979 6,846 19,065 17,001
State and other taxes -- 2,747 34,530 34,553
Depreciation and amortization 81,128 78,681 243,198 236,043
------------- ------------ ------------- ---------------
178,841 141,390 532,769 469,795
------------- ------------ ------------- ---------------
Income before minority interests and equity in
earnings of unconsolidated joint ventures 439,512 504,207 1,324,936 1,417,832
Minority interests (74,290) (77,984) (223,916) (224,086)
Equity in earnings of unconsolidated joint ventures 103,513 101,823 308,780 308,776
------------- ------------ ------------- ---------------
Income from continuing operations 468,735 528,046 1,409,800 1,502,522
------------- ------------ ------------- ---------------
Discontinued operations:
Income from discontinued operations 57,522 41,615 141,033 124,930
Gain on disposal of discontinued operations 32,985 -- 32,985 --
Minority interest (28,284) (13,005) (54,381) (39,041)
------------- ------------ ------------- ---------------
62,223 28,610 119,637 85,889
------------- ------------ ------------- ---------------
Net income $ 530,958 $ 556,656 $ 1,529,437 $ 1,588,411
============= ============ ============= ===============
Income per limited partner unit:
Continuing operations $ 0.016 $ 0.018 $ 0.047 $ 0.050
Discontinued operations 0.002 0.001 0.004 0.003
------------- ------------ ------------- ---------------
$ 0.018 $ 0.019 $ 0.051 $ 0.053
============= ============ ============= ===============
Weighted average number of limited partner
units outstanding 30,000,000 30,000,000 30,000,000 30,000,000
============= ============ ============= ===============
See accompanying notes to condensed financial statements.
2
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
2004 2003
--------------------- ------------------
General partners:
Beginning balance $ 230,931 $ 230,931
Net income -- --
--------------------- ------------------
230,931 230,931
--------------------- ------------------
Limited partners:
Beginning balance 23,137,829 23,609,162
Net income 1,529,437 2,228,667
Distributions ($0.068 and $0.090 per
limited partner unit, respectively) (2,025,000) (2,700,000)
--------------------- ------------------
22,642,266 23,137,829
--------------------- ------------------
Total partners' capital $ 22,873,19 $ 23,368,760
===================== ==================
See accompanying notes to condensed financial statements.
3
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2004 2003
-------------- ---------------
Net cash provided by operating activities $ 2,291,483 $ 2,369,229
-------------- ---------------
Cash flows from investing activities:
Proceeds from sale of assets 1,600,000 --
-------------- ---------------
Net cash provided by investing activities 1,600,000 --
-------------- ---------------
Cash flows from financing activities:
Distributions to limited partners (2,025,000) (2,025,000)
Distributions to holders of minority interests (776,204) (308,350)
-------------- ---------------
Net cash used in financing activities (2,801,204) (2,333,350)
-------------- ---------------
Net increase in cash and cash equivalents 1,090,279 35,879
Cash and cash equivalents at beginning of period 996,918 989,165
-------------- ---------------
Cash and cash equivalents at end of period $ 2,087,197 $ 1,025,044
============== ===============
Supplemental schedule of non-cash financing activities:
Distributions declared and unpaid at end of
period $ 675,000 $ 675,000
============== ===============
See accompanying notes to condensed financial statements.
4
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the general partners, necessary for a fair
statement of the results for the interim periods presented. Operating
results for the quarter and nine months ended September 30, 2004, may
not be indicative of the results that may be expected for the year
ending December 31, 2004. Amounts as of December 31, 2003, included in
the financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund VII, Ltd. (the "Partnership") for the year ended December
31, 2003.
The Partnership accounts for its 83% interest in San Antonio #849 Joint
Venture, its 79% interest in CNL Mansfield Joint Venture, its 56%
interest in Duluth Joint Venture, its 36.88% interest in TGIF
Pittsburgh Joint Venture and its 79% interest in Arlington Joint
Venture using the consolidation method. Prior to the liquidation of CNL
VII, XV Columbus Joint Venture, in September 2004, the Partnership
accounted for its 68.75% interest in the joint venture using the
consolidation method. Minority interests represent the minority joint
venture partners' proportionate share of the equity in the consolidated
joint ventures. All significant intercompany accounts and transactions
have been eliminated.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January
2003) ("FIN 46R"), "Consolidation of Variable Interest Entities"
requiring existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries. The primary beneficiary of
a variable interest entity is the party that absorbs a majority of the
entity's expected losses, receives a majority of its expected residual
returns, or both, as a result of holding variable interests, which are
the ownership, contractual, or other pecuniary interests in an entity
that change with changes in the fair value of the entity's net assets
excluding variable interests. Prior to FIN 46R, a company generally
included another entity in its financial statements only if it
controlled the entity through voting interests. Application of FIN 46R
is required in financial statements of public entities that have
interests in variable interest entities for periods ending after March
15, 2004. The Partnership adopted FIN 46R during the quarter ended
March 31, 2004, which resulted in the consolidation of previously
unconsolidated joint ventures, which had been accounted for under the
equity method. FIN 46R does not require, but does permit restatement of
previously issued financial statements. The Partnership has restated
prior year's financial statements to maintain comparability between the
periods presented. Such consolidation resulted in certain assets and
minority interests, and revenues and expenses, of the entities being
reported on a gross basis in the Partnership's financial statements;
however, these restatements had no effect on partners' capital or net
income.
2. Discontinued Operations
In August 2004, CNL VII, XV Columbus Joint Venture, in which the
Partnership owned a 68.75% interest and accounted for under the
consolidation method, entered into an agreement with a third party to
sell its property in Columbus, Georgia. In August 2004, the joint
venture sold this property and received net sales proceeds of
$1,600,000, resulting in a gain of approximately $33,000 on disposal of
discontinued operations. As a result of the sale, the joint venture was
dissolved, and approximately $499,700 was paid to the minority interest
holder, representing its pro-rata share of the liquidating
distribution.
5
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
2. Discontinued Operations - Continued
The following presents the operating results of the discontinued
operations for this property.
Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
-------------- -------------- -------------- ----------------
Rental revenues $ 60,840 $ 51,815 $ 164,469 $ 155,444
Expenses (3,318) (10,200) (23,436) (30,514)
-------------- -------------- -------------- ----------------
Income from discontinued
operations $ 57,522 $ 41,615 $ 141,033 $ 124,930
============== ============== ============== ================
3. Investment in Joint Ventures
During 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. During 2004, the contract was
terminated and as a result, the joint venture reclassified the assets
from real estate held for sale to real estate properties with operating
leases.
CNL Restaurant Investments II owns five properties. Des Moines Real
Estate Joint Venture and CNL VII & XVII Lincoln 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 the joint ventures and the properties held as tenants-in-common
with affiliates at:
September 30, December 31,
2004 2003
---------------- ----------------
Real estate properties with operating $ 11,639,216 $ 11,861,912
leases, net
Net investment in direct financing
leases 871,563 883,215
Cash 14,173 71,961
Receivables 10,691 --
Accrued rental income 368,489 338,964
Liabilities 3,842 42,836
Partners' capital 12,900,290 13,113,216
Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------------ ---------------- ------------- ----------------
Revenues $ 397,051 $ 393,404 $ 1,180,359 $ 1,181,189
Expenses (77,143) (78,945) (229,570) (231,053)
------------ ---------------- ------------- ----------------
Net income $ 319,908 $ 314,459 $ 950,789 $ 950,136
============ ================ ============= ================
6
CNL INCOME FUND VII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
3. Investment in Joint Ventures - Continued
The Partnership recognized income of $308,780 and $308,776 during the
nine months ended September 30, 2004 and 2003, respectively, $103,513
and $101,823 of which were earned during the third quarters of 2004 and
2003, respectively, from these joint ventures and tenants-in-common
arrangements.
4. Merger Transaction
On August 9, 2004, the Partnership entered into a definitive Agreement
and Plan of Merger pursuant to which the Partnership will be merged
with a subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The
merger is one of multiple concurrent transactions pursuant to which 17
other affiliated limited partnerships also will be merged with a
subsidiary of U.S. Restaurant Properties, Inc. and in which CNL
Restaurant Properties, Inc., an affiliate, also will be merged with
U.S. Restaurant Properties, Inc. CNL Restaurant Properties, Inc.
currently provides property management and other services to the
Partnership. The merger of the Partnership (and each of the 17 other
affiliated mergers) is subject to certain conditions including approval
by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as
measured by the value of the merger consideration) of all limited
partnerships, consummation of the merger between U.S. Restaurant
Properties, Inc. and CNL Restaurant Properties, Inc., approval of the
shareholders of U.S. Restaurant Properties, Inc., and availability of
financing. The transaction is expected to be consummated in the first
quarter of 2005.
Under the terms of the merger agreement, if the transaction is
approved, the limited partners will receive total consideration of
approximately $30.21 million, consisting of approximately $25.26
million in cash and approximately $4.95 million in U.S. Restaurant
Properties, Inc. Series A Convertible Preferred Stock that is listed on
the New York Stock Exchange. The general partners will receive total
consideration of approximately $188,000 consisting of approximately
$157,000 in cash and approximately $31,000 in preferred stock.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund VII, Ltd. (the "Partnership," which may be referred to
as "we," "us," or "our") is a Florida limited partnership that was organized on
August 18, 1989, to acquire for cash, either directly or through joint venture
and tenancy in common arrangements, both newly constructed and existing
restaurants, as well as land upon which restaurants were to be constructed (the
"Properties"), which are leased primarily to operators of national and regional
fast-food restaurant chains. The leases generally are triple-net leases, with
the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities. As of September 30, 2003, we owned 18 Properties
directly and 17 Properties indirectly through joint venture or tenancy in common
arrangements. As of September 30, 2004, we owned 18 Properties directly and 16
Properties indirectly through joint venture or tenancy in common arrangements.
Merger Transaction
The general partners believe their primary objective is to maintain
current operations with restaurant operators as successfully as possible, while
evaluating strategic alternatives, including alternatives that may provide
liquidity to the limited partners. Real estate markets are strong throughout
much of the nation, and the performance of restaurants has generally improved
after several challenging years. As a result, the general partners believe that
this is an attractive period for a strategic event to monetize the interests of
the limited partners.
In furtherance of this, on August 9, 2004, we entered into a definitive
Agreement and Plan of Merger pursuant to which we will be merged with a
subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The merger is one of
multiple concurrent transactions pursuant to which 17 other affiliated limited
partnerships also will be merged with a subsidiary of U.S. Restaurant
Properties, Inc. and in which CNL Restaurant Properties, Inc., an affiliate,
also will be merged with U.S. Restaurant Properties, Inc. Our merger (and each
of the 17 other affiliated mergers) is subject to certain conditions including
approval by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as measured
by the value of the merger consideration) of all limited partnerships,
consummation of the merger between U.S. Restaurant Properties, Inc. and CNL
Restaurant Properties, Inc., approval of the shareholders of U.S. Restaurant
Properties, Inc., and availability of financing. U.S. Restaurant Properties,
Inc. is a real estate investment trust (REIT) that focuses primarily on
acquiring, owning and leasing restaurant properties. The transaction is expected
to be consummated in the first quarter of 2005.
Under the terms of the merger agreement, if the transaction is
approved, our limited partners will receive total consideration of approximately
$30.21 million, consisting of approximately $25.26 million in cash and
approximately $4.95 million in U.S. Restaurant Properties, Inc. Series A
Convertible Preferred Stock that is listed on the New York Stock Exchange. The
general partners will receive total consideration of approximately $188,000
consisting of approximately $157,000 in cash and approximately $31,000 in
preferred stock.
We received an opinion from Wachovia Capital Markets, LLC that as of
August 9, 2004 the merger consideration to be received by the holders of our
general and limited partnership interests is fair, from a financial point of
view, to such holders.
As reflected above, the contemplated transactions are complex, and
contingent upon certain conditions. The restaurant marketplace, the real estate
industry, and the equities markets, all individually or taken as a whole, could
impact the economics of this transaction. As a result, there is no assurance
that we will be successful in completing the contemplated transaction.
Capital Resources
For the nine months ended September 30, 2004 and 2003, net cash
provided by operating activities was $2,291,483 and $2,369,229, respectively.
8
In August 2004, CNL VII, XV Columbus Joint Venture, in which we owned a
68.75% interest and accounted for under the consolidation method, sold its
Property in Columbus, Georgia and received net sales proceeds of $1,600,000,
resulting in a gain on disposal of discontinued operations of approximately
$33,000. As a result of the sale of the Property, the joint venture was
dissolved, and $499,690 was paid to the minority interest holder, representing
its pro-rata share of the liquidating distribution. We may reinvest the net
sales proceeds in additional Properties or use the sales proceeds to pay
liabilities.
At September 30, 2004, we had $2,087,197 in cash and cash equivalents,
as compared to $996,918 at December 31, 2003. At September 30, 2004, these funds
were held in demand deposit accounts at a commercial bank. The increase in cash
and cash equivalents was primarily a result of holding sales proceeds, net of
the amount distributed to the minority interest holder. The funds remaining at
September 30, 2004, after payment of distributions and other liabilities, may be
used to invest in additional Properties and to meet our working capital needs.
Short-Term Liquidity
Our investment strategy of acquiring Properties for cash and leasing
them under triple-net leases to operators who generally meet specified financial
standards minimizes our operating expenses. The general partners believe that
the leases will continue to generate cash flow in excess of operating expenses.
Our short-term liquidity requirements consist primarily of our
operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
our operations.
We generally distribute cash from operations remaining after the
payment of operating expenses to the extent that the general partners determine
that such funds are available for distribution. Based primarily on current cash
from operations, we declared distributions to the limited partners of $2,025,000
for each of the nine months ended September 30, 2004 and 2003 ($675,000 for each
applicable quarter). This represents distributions of $0.068 per unit for each
of the nine months ended September 30, 2004 and 2003 ($0.023 per unit for each
applicable quarter). No distributions were made to the general partners for the
quarters and nine months ended September 30, 2004 and 2003. No amounts
distributed to the limited partners for the nine months ended September 30, 2004
and 2003 are required to be or have been treated as a return of capital for
purposes of calculating the limited partners' return on their adjusted capital
contributions. We intend to continue to make distributions of cash to the
limited partners on a quarterly basis.
Total liabilities, including distributions payable, were $930,520 at
September 30, 2004, as compared to $894,923 at December 31, 2003. The increase
in liabilities was primarily the result of an increase in accounts payable and
accrued expenses. The increase in liabilities was partially offset by a decrease
in deferred rental income. The general partners believe that we have sufficient
cash on hand to meet our current working capital needs.
Long-Term Liquidity
We have no long-term debt or other long-term liquidity requirements.
Results of Operations
Rental revenues from continuing operations were $1,852,859 during the
nine months ended September 30, 2004, as compared to $1,858,755 during the same
period of 2003, $616,376 and $619,042 of which were earned during the third
quarter of 2004 and 2003, respectively. Rental revenues from continuing
operations during the quarter and nine months ended September 30, 2004, as
compared to the same periods of 2003, remained relatively constant because the
only change in the Property portfolio related to a Property accounted for as
discontinued operations.
9
In December 2003, Waving Leaves, Inc., the tenant of the Properties in
Orrville, Akron, Minerva and Seville, Ohio filed for Chapter 11 bankruptcy
protection. In May 2004, the leases were assigned to and assumed by Hardee's
Food Systems, Inc. As of November 5, 2004, we have received all rental payments
relating to these leases.
We earned $308,780 attributable to net income earned by unconsolidated
joint ventures during the nine months ended September 30, 2004, as compared to
$308,776 during the same period of 2003, $103,513 and $101,823 of which were
earned during the quarters ended September 30, 2004 and 2003, respectively. Net
income earned by unconsolidated joint ventures during 2004, as compared to the
same periods of 2003, remained relatively constant, as the property portfolio
owned by the joint ventures and tenancies in common did not change. During 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. During 2004, the contract was terminated and as a result, the
joint venture reclassified the assets from real estate held for sale to real
estate properties with operating leases.
Operating expenses, including depreciation and amortization expense,
were $532,769 during the nine months ended September 30, 2004, as compared to
$469,795 during the same period of 2003, $178,841 and $141,390 of which were
incurred during the quarters ended September 30, 2004 and 2003, respectively.
The increase in operating expenses during the quarter and nine months ended
September 30, 2004, was primarily due to incurring additional general operating
and administrative expenses, including, primarily, legal fees incurred in
connection with the merger transaction described above.
We recognized income from discontinued operations (rental revenues less
property related expenses) of $141,033 as compared to $124,930 during the same
period of 2003, $57,522 and $41,615 of which were earned during the quarters
ended September 30, 2004 and 2003. In August 2004, CNL VII, XV Columbus Joint
Venture, in which we owned a 68.75% interest and accounted for under the
consolidation method, sold its property in Columbus, Georgia to a third party
resulting in a gain on disposal of discontinued operations of approximately
$33,000. The amount of income and gain attributed to the owner of the 31.25%
interest was $54,381 and $39,041 during the nine months ended September 30, 2004
and 2003, respectively, of which $28,284 and $13,005 related to the quarters
ended September 30, 2004 and 2003, respectively.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January 2003) ("FIN
46R"), "Consolidation of Variable Interest Entities" requiring existing
unconsolidated variable interest entities to be consolidated by their primary
beneficiaries. The primary beneficiary of a variable interest entity is the
party that absorbs a majority of the entity's expected losses, receives a
majority of its expected residual returns, or both, as a result of holding
variable interests, which are the ownership, contractual, or other pecuniary
interests in an entity that change with changes in the fair value of the
entity's net assets excluding variable interests. Prior to FIN 46R, a company
generally included another entity in its financial statements only if it
controlled the entity through voting interests. Application of FIN 46R is
required in financial statements of public entities that have interests in
variable interest entities for periods ending after March 15, 2004. We adopted
FIN 46R during the quarter ended March 31, 2004, which resulted in the
consolidation of previously unconsolidated joint ventures, CNL Mansfield Joint
Venture, Duluth Joint Venture, TGIF Pittsburgh Joint Venture and Arlington Joint
Venture, which had been accounted for under the equity method. Prior to its
liquidation in September 2004, CNL VII, XV Columbus Joint Venture was also
consolidated and had previously been accounted for under the equity method. FIN
46R does not require, but does permit restatement of previously issued financial
statements. We restated prior year's financial statements to maintain
comparability between the periods presented. Such consolidation resulted in
certain assets and minority interests, and revenues and expenses, of the
entities being reported on a gross basis in our financial statements; however,
these restatements had no effect on partners' capital or net income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
10
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in our
filings under the Securities Exchange Act of 1934 is recorded, processed,
summarized and reported within the time periods specified in the Securities and
Exchange Commission's rules and forms. The principal executive and financial
officers of the corporate general partner have evaluated our disclosure controls
and procedures as of the end of the period covered by this Quarterly Report on
Form 10-Q and have determined that such disclosure controls and procedures are
effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
------------------
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
------------------------------------------------------------
Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
----------------------------------------------------
Item 5. Other Information. Inapplicable.
------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger among U.S. Restaurant
Properties, Inc., Ivanhoe Acquisition VII, LLC, and CNL
Income Fund VII, Ltd., dated as of August 9, 2004.
(Included as Exhibit 99.2 to Form 8-K filed with the
Securities and Exchange Commission on August 9, 2004,
and incorporated herein by reference.)
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.)
12
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.)
13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 10th day of November 2004
CNL INCOME FUND VII, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-------------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-------------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit Number
Exhibits
2.1 Agreement and Plan of Merger among U.S. Restaurant
Properties, Inc., Ivanhoe Acquisition VII, LLC, and CNL
Income Fund VII, Ltd., dated as of August 9, 2004.
(Included as Exhibit 99.2 to Form 8-K filed with the
Securities and Exchange Commission on August 9, 2004,
and incorporated herein by reference.)
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