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, 2001
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 0-19139
CNL INCOME FUND VIII, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2963338
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801-3336
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($1 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 35,000,000 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 VIII, 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 August 2, 1990, the
Partnership offered for sale up to $35,000,000 of limited partnership interests
(the "Units") (35,000,000 Units at $1 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
January 30, 1990. The offering terminated on March 7, 1991, at which date the
maximum offering proceeds of $35,000,000 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
$30,975,000 and were used to acquire 38 Properties, including interests in eight
Properties owned by joint ventures in which the Partnership is a co-venturer,
and to establish a working capital reserve for Partnership purposes. During the
year ended December 31, 1995, the Partnership sold its Property in Ocoee,
Florida and reinvested the majority of the net sales proceeds in a Property in
North Fort Myers, Florida. Also, during the year ended December 31, 1995, the
Partnership sold two Properties in Jacksonville, Florida. During the year ended
December 31, 1996, the Partnership reinvested the remaining net sales proceeds
from the 1995 sale of the Property in Ocoee, Florida, in Middleburg Joint
Venture, in which the Partnership is a co-venturer to purchase and hold one
property in Middleburg Heights, Ohio. Also, during the year ended December 31,
1996, the Partnership sold its Property in Orlando, Florida. During 1998, the
Partnership received a settlement from the Florida Department of Transportation
for a right of way taking relating to a parcel of land on its Property in
Brooksville, Florida. In addition, during the year ended December 31, 1999, the
Partnership received a prepaid principal payment from the borrower relating to
one of the promissory notes the Partnership had previously accepted. During
1999, the Partnership reinvested the prepaid principal, along with the
settlement received in the right of way taking, in Bossier Joint Venture, in
which the Partnership is a co-venturer to purchase and hold one Property in
Bossier City, Louisiana. During the year ended December 31, 2000, the
Partnership sold four Properties one in each of Brooksville, Bayonet Point, Sun
City, and Jacksonville, Florida; the Partnership reinvested a portion of the
sales proceeds it received from the sales of the Properties in a Bennigan's
Property located in Deerfield, Illinois and a Pizza Hut Property in Hialeah,
Florida. In 2000, the Partnership also used a portion of the net sales proceeds
from the sale of its Properties to acquire an interest in a Baker's Square
Property in Libertyville, Illinois, with an affiliate of the General Partners as
tenants-in-common. During the year ended December 31, 2001, the Partnership sold
its Property in Statesville, North Carolina, and reinvested the majority of the
net sales proceeds in a Jack in the Box Property located in Walker, Louisiana
and a Bennigan's Property located in Denver, Colorado, each held with affiliates
of the General Partners, which are Florida limited partnerships, as separate
tenants-in-common arrangements. In addition, during 2001, Middleburg Joint
Venture, in which the Partnership owns a 12.46% interest, sold its Property to
the tenant, and the Partnership received a return of capital from the net sales
proceeds. In April 2001, the Partnership reinvested the majority of the net
sales proceeds received from Middleburg Joint Venture and entered into a joint
venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with affiliates of
the General Partners which are Florida limited partnerships, to purchase and
hold one Property in Kokomo, Indiana, indirectly through a joint venture
arrangement in which the Partnership is a co-venturer. As a result of the above
transactions, as of December 31, 2001, the Partnership owned 37 Properties. The
37 Properties included interests in ten Properties owned by joint ventures in
which the Partnership is a co-venturer and three Properties owned with
affiliates as tenants-in-common. In addition, in January 2002, the Partnership
reinvested a portion of the net sales proceeds it received from the sale of the
Property in Statesville, North Carolina, and the prepaid principal relating to a
promissory note, in a Denny's Property located in Ontario, Oregon, at an
approximate cost of $654,400. The Properties are generally leased on a
triple-net basis with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. The Partnership has no obligation to sell all or any portion of a
Property at any particular time, except as may be required under property
purchase options granted to certain lessees.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had mutually
agreed to terminate the Agreement and Plan of Merger. The agreement to terminate
the Agreement and Plan of Merger was based, in large part, on the General
Partners' concern that, in light of market conditions relating to publicly
traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General Partners ability to
unequivocally recommend voting for the transaction, in the exercise of their
fiduciary duties, had become questionable.
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
joint ventures in which the Partnership is a co-venturer and the Property owned
as tenants-in-common with affiliates of the General Partners provide for initial
terms, ranging from 14 to 25 years (the average being 18 years), and expire
between 2005 and 2020. The leases are generally on a triple-net basis, with the
lessees 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
$49,200 to $251,500. The majority of the leases provide for percentage rent,
based on sales in excess of a specified amount. In addition, a majority of the
leases provide that, commencing in specified lease years (ranging from the third
to the sixth lease year), the annual base rent required under the terms of the
lease will increase.
Generally, the leases of the Properties provide for two to four
five-year renewal options subject to the same terms and conditions as the
initial lease. Lessees of 27 of the Partnership's 37 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 the 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.
During 2001, the Partnership reinvested the majority of the net sales
proceeds received from the sale of the Property owned by Middleburg Joint
Venture (as described above), a joint venture arrangement CNL VIII, X, XII
Kokomo Joint Venture, with affiliates of the General Partners, which are Florida
limited partnerships, to purchase and hold one Property. The lease terms for
this Property are substantially the same as the Partnership's other leases, as
described above.
During 2001, the Partnership reinvested the majority of the net sales
proceeds it received from the sale of the Property in Statesville, North
Carolina, in two Properties located in Walker, Louisiana and Denver, Colorado,
each as separate tenants-in-common arrangements with affiliates of the General
Partners and Florida limited partnerships. The lease terms for these Properties
are substantially the same as the Partnership's other leases, as described
above.
During 2000, the tenant of the Property in Palm Bay, Florida
experienced financial difficulties and vacated the Property. In September 2001,
the Partnership entered into a new lease for this Property, and rents commenced
in December 2001. The lease terms for this Property are substantially the same
as the Partnership's other leases, as described above.
In January 2002, the Partnership reinvested a portion of the net sales
proceeds it received from the sale of the Property in Statesville, North
Carolina, and the prepaid principal relating to a promissory note, in a Denny's
Property located in Ontario, Oregon, at an approximate cost of $654,400. The
lease terms for this Property are substantially the same as the Partnership's
other leases as described above.
In February 2002, a tenant, Brandon Fast Food Services, Inc., filed for
bankruptcy. The tenant has neither rejected nor affirmed the one lease it has
with the Partnership. As of March 15, 2002, the Partnership has continued
receiving a portion of the rental payments relating to this lease. While the
tenant has neither rejected nor affirmed this lease, there can be no assurance
that the lease will not be rejected in the future. The lost revenues resulting
from the possible rejection of this lease could have an adverse effect on the
results of operations of the Partnership if the Partnership is unable to
re-lease the Property in a timely manner.
Major Tenants
During 2001, two lessees of the Partnership and its consolidated joint
venture, Golden Corral Corporation and Carrols Corporation, each contributed
more than ten percent of the Partnership's total rental, earned and mortgage
interest income (including rental, earned and mortgage interest income from the
Partnership's consolidated joint venture and the Partnership's share of rental
and earned income from nine Properties owned by unconsolidated joint ventures
and three Properties owned with affiliates of the General Partners as
tenants-in-common). As of December 31, 2001, Golden Corral Corporation was the
lessee under leases relating to five restaurants, and Carrols Corporation was
the lessee under leases relating to five 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 ten percent of the Partnership's
total rental, earned and mortgage interest income in 2002. In addition, two
Restaurant Chains, Golden Corral Family Steakhouse Restaurants ("Golden Corral")
and Burger King, each accounted for more than ten percent of the Partnership's
total rental, earned and mortgage interest income in 2001 (including rental and
earned income from the Partnership's consolidated joint venture and the
Partnership's share of rental and earned income from nine Properties owned by
unconsolidated joint ventures and three Properties owned with affiliates of the
General Partners as tenants-in-common). In 2002, it is anticipated that these
two Restaurant Chains each will continue to account for more than ten percent of
the Partnership's total rental, earned and mortgage interest income to which the
Partnership is entitled under the terms of the leases. Any failure of these
lessees or Restaurant Chains could materially affect the Partnership's income if
the Partnership is not able to re-lease the Properties in a timely manner. No
single tenant or group of affiliated tenants lease Properties with an aggregate
carrying value in excess of 20 percent of the total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into a joint venture arrangement, Woodway
Joint Venture, with an unaffiliated entity to purchase and hold one Property. In
addition, the Partnership has entered into three separate joint venture
arrangements: Asheville Joint Venture with CNL Income Fund VI, Ltd., an
affiliate of the General Partners, to purchase and hold one Property; CNL
Restaurant Investments II with CNL Income Fund VII, Ltd. and CNL Income Fund IX,
Ltd., affiliates of the General Partners, to purchase and hold six Properties;
and Bossier City Joint Venture with CNL Income Fund XII, Ltd. and CNL Income
Fund XIV, Ltd., affiliates of the General Partners, to purchase and hold one
Property. In addition, in April 2001, the Partnership entered into a joint
venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with CNL Income Fund
X, Ltd. and CNL Income Fund XII, Ltd., affiliates of the General Partners', to
purchase and hold one Property. Each of the affiliates is a limited partnership
organized pursuant to the laws of the State of Florida.
The joint venture arrangements provide for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint ventures in accordance with their respective percentage interests in the
joint ventures. The Partnership has an 87.68% interest in Woodway Joint Venture,
an 85.54% interest in Asheville Joint Venture, a 36.8% interest in CNL
Restaurant Investments II, a 34% interest in Bossier City Joint Venture, and a
10% interest in CNL VIII, X, XII Kokomo Joint Venture. The Partnership and its
joint venture partners are also jointly and severally liable for all debts,
obligations and other liabilities of the joint ventures.
Woodway Joint Venture, Asheville Joint Venture and Bossier City Joint
Venture each have an initial term of 20 years, and CNL VIII, X, XII Kokomo Joint
Venture has an initial term of 30 years and, after the expiration of the initial
term, continue 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 each joint venture partner to dissolve the joint venture. CNL Restaurant
Investments II's joint venture agreement does not provide for a fixed term, but
continues in existence until terminated by any of the joint venturers.
The Partnership has management control of Woodway Joint Venture, and
shares management control equally with affiliates of the General Partners for
Asheville Joint Venture, CNL Restaurant Investments II, Bossier City Joint
Venture and CNL VIII, X, XII Kokomo Joint Venture. The joint venture agreements
restrict each venturer's ability to sell, transfer or assign its joint venture
interest without first offering it for sale to its joint venture partner, either
upon such terms and conditions as to which the venturers may agree or, in the
event the venturers cannot agree, on the same terms and conditions as any offer
from a third party to purchase such joint venture interest.
Net cash flow from operations of Woodway Joint Venture, Asheville Joint
Venture, CNL Restaurant Investments II, Bossier City Joint Venture and CNL VIII,
X, XII Joint Venture is distributed 87.68%, 85.54%, 36.8%, 34% and 10%,
respectively, to the Partnership and the balance is distributed to each of the
other joint venture partners in accordance with their respective percentage
interest in the joint venture. Any liquidation proceeds, after paying joint
venture debts and liabilities and funding reserves for contingent liabilities,
will be distributed first to the joint venture partners with positive capital
account balances in proportion to such balances until such balances equal zero,
and thereafter in proportion to each joint venture partner's percentage interest
in the joint venture.
In addition, to the above joint venture agreements, the Partnership
entered into an agreement to hold a Property in Libertyville, Illinois, as
tenants-in-common, with CNL Income Fund IX, Ltd., an affiliate of the General
Partners. In addition in 2001, the Partnership entered into agreements to hold a
Property in Walker, Louisiana, as tenants-in-common, with CNL Income Fund XVI,
Ltd.; and a Property in Denver, Colorado, as tenants-in-common, with CNL Income
Fund XVIII, Ltd. The agreements provide for the Partnership and the affiliates
to share in the profits and losses of the Property and net cash flow from the
Property, in proportion to each co-venturer's percentage interest. The
Partnership owns a 66%, 17% and 19.3% interest in the Properties in
Libertyville, Illinois; Walker, Louisiana; and Denver, Colorado, respectively.
Each of the affiliates is a limited partnership organized pursuant to
the laws of the state of Florida. The tenancy in common agreement restricts each
party's ability to sell, transfer, or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining parties.
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
CNL APF Partners, LP, an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL APF Partners, LP (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 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, but not in
excess of competitive fees for comparable services. Under the management
agreement, the management fee is subordinated to receipt by the Limited Partners
of an aggregate, ten percent, cumulative, noncompounded annual return on their
adjusted capital contributions (the "10% Preferred Return"), calculated in
accordance with the Partnership's limited partnership agreement (the
"Partnership Agreement"). In any year in which the Limited Partners have not
received the 10% Preferred Return, no management fee will be paid.
During 2000, CNL Fund Advisors, Inc. assigned its rights in, and its
obligations under, the management agreement with the Partnership to CNL APF
Partners, LP. All of the terms and conditions of the management agreement,
including the payment of fees, as described, remain unchanged.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of APF, the parent company of the
Advisor, 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, 2001, the Partnership owned 37 Properties. Of the 37
Properties, 24 are owned by the Partnership in fee simple, ten are owned through
joint venture arrangements, and three are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 17,400
to 128,528 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation.
State Number of Properties
Arizona 1
Colorado 1
Florida 4
Illinois 2
Indiana 2
Louisiana 3
Michigan 3
Minnesota 1
New York 2
North Carolina 1
Ohio 8
Tennessee 2
Texas 6
Virginia 1
--------------
TOTAL PROPERTIES 37
==============
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
2,100 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, 2001, the Partnership had no plans for
renovation of the Properties. Depreciation expense is computed for buildings and
improvements using the straight line method using a depreciable life of 40 years
for federal income tax purposes.
As of December 31, 2001, 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 $24,018,253 and
$15,459,570, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.
Restaurant Chain Number of Properties
Baker's Square 1
Bennigan's 2
Burger King 13
Denny's 1
Golden Corral 5
Hardee's 4
IHOP 1
Jack in the Box 3
KFC 2
Perkins 1
Pizza Hut 1
Shoney's 1
Wendy's 1
Other 1
--------------
TOTAL PROPERTIES 37
==============
The General Partners consider the Properties to be well maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish buildings, premises,
signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
At December 31, 2001, 2000, 1999, 1998 and 1997, all of the Properties
were occupied. The following is a schedule of the average rent per Property for
each of the years ended December 31:
2001 2000 1999 1998 1997
------------- ------------- --------------- -------------- ---------------
Rental Revenues (1) $ 3,364,048 $ 3,361,651 $ 3,527,515 $ 3,443,094 $3,467,720
Properties 37 36 37 36 36
Average Rent per Property $ 90,920 $ 93,379 $ 95,338 $ 95,642 $ 96,326
(1) Rental income includes the Partnership's share of rental income from
the Properties owned through joint venture arrangements. Rental
revenues have been adjusted, as applicable, for any amounts for which
the Partnership has established a provision for doubtful accounts.
The following is a schedule of lease expirations for leases in place as
of December 31, 2001 for each year for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2002 -- $ -- --
2003 -- -- --
2004 -- -- --
2005 10 874,666 26.20%
2006 1 117,158 3.51%
2007 -- -- --
2008 -- -- --
2009 1 142,910 4.28%
2010 7 698,305 20.92%
2011 9 750,624 22.48%
Thereafter 9 754,744 22.61%
---------- ------------- -------------
Totals 37 $ 3,338,407 100.00%
========== ============= =============
Leases with Major Tenants. The terms of the leases with the
Partnership's major tenants as of December 31, 2001 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases five Golden Corral restaurants. The
initial term of each lease is 15 years (four leases expiring in 2005 and one
lease in 2016) and the average minimum base annual rent is approximately
$176,000 (ranging from approximately $145,500 to $225,800).
Carrols Corporation leases five Burger King restaurants. The initial
term of each lease is 20 years (expiring in 2011) and the average minimum base
annual rent is approximately $100,100 (ranging from approximately $83,000 to
$111,700).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective Properties, is party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 15, 2002, there were 3,414 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 2001,
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, 2001, 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 2001 and 2000 other than
pursuant to the Plan, net of commissions.
2001 (1) 2000 (1)
---------------------------------- ----------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- --------- ----------
First Quarter $0.80 $ 0.71 $ 0.75 (2) (2) (2)
Second Quarter 0.95 0.72 0.80 $0.80 $ 0.70 $ 0.72
Third Quarter 0.95 0.66 0.75 0.95 0.64 0.85
Fourth Quarter 0.95 0.62 0.77 0.95 0.73 0.88
(1) A total of 551,448 and 176,000 Units were transferred other than
pursuant to the Plan for the years ended December 31, 2001 and 2000,
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 year ended December 31, 2001 and 2000, the Partnership
declared cash distributions of $3,150,004 to the Limited Partners. Distributions
of $787,501 were declared to the limited partners at the close of each of the
Partnership's calendar quarters during 2001 and 2000. These amounts include
monthly distributions made in arrears for the Limited Partners electing to
receive such distributions on this basis. No amounts distributed to partners for
the years ended December 31, 2001 and 2000, 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
2001 2000 1999 1998 1997
-------------- --------------- -------------- -------------- ---------------
Year ended December 31:
Revenues (1) $3,371,578 $3,528,989 $3,500,669 $3,625,906 $3,619,489
Net income (2) 2,336,546 3,587,171 2,810,064 3,288,912 3,241,567
Cash distributions
declared (3) 3,150,004 3,150,004 3,150,004 3,850,003 3,150,003
Net income per Unit
(2) 0.067 0.102 0.079 0.093 0.092
Cash distributions
declared per Unit (3) 0.090 0.090 0.090 0.110 0.090
At December 31:
Total assets $30,977,243 $31,827,394 $31,479,495 $32,071,119 $32,258,296
Partners' capital 29,939,076 30,752,534 30,315,367 30,655,307 31,216,398
(1) Revenues include equity in earnings of unconsolidated joint ventures
and minority interest in income of consolidated joint ventures.
(2) Net income for the year ended December 31, 2001 includes $299,479 from
provision for write-down of assets. Net income for the year ended
December 31, 2001, 2000 and 1998, includes $28,301, $612,693 and
$108,176, respectively, from gain on sale of assets.
(3) Distributions for the year ended December 31, 1998, include two special
distributions to the Limited Partners for a total of $700,000 which
represented cumulative excess operating reserves.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on August 18, 1989, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are generally triple-net leases, with the lessee generally responsible
for all repairs and maintenance, property taxes, insurance and utilities. As of
December 31, 2001, the Partnership owned 37 Properties, either directly or
indirectly through joint venture arrangements.
Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 2001, 2000, and 1999 was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $3,196,595, $3,349,897,
and $3,321,006, for the years ended December 31, 2001, 2000, and 1999,
respectively. The decrease in cash from operations during 2001, as compared to
2000, and the increase in cash from operations during 2000, as compared to 1999,
were primarily a result of changes in income and expenses, as described in
"Results of Operations" below, and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
years ended December 31, 2001, 2000 and 1999.
As of December 31, 1999, the Partnership had accepted three promissory
notes in connection with the sale of three of its Properties. During the year
ended December 31, 1999, the borrower relating to one of the promissory notes
prepaid principal of $272,500, which was applied to the outstanding principal
balance. During the year ended December 31, 2001, the borrower relating to the
other two promissory notes prepaid principal of approximately $441,500 which
represented the outstanding principal balance.
In November 1999, the Partnership reinvested the right of way taking
proceeds received in 1998 and the prepaid principal in a joint venture, Bossier
City Joint Venture, with CNL Income Fund XII, Ltd. and CNL Income Fund XIV,
Ltd., both Florida limited partnerships and affiliates of the General Partners.
The joint venture was formed to purchase and hold one Property. The Partnership
contributed a total of $448,531 to the joint venture and owns a 34% interest in
its profits and losses.
In July 2000, the Partnership sold its Properties in Brooksville,
Bayonet Point and Sun City, Florida, to an unrelated third party for a total of
approximately $3,465,100 and received net sales proceeds totaling approximately
$3,402,700, resulting in a total gain of approximately $484,800. The transaction
relating to the sale of the Properties in Sun City and Bayonet Point, Florida
and the reinvestment of the net sales proceeds, was structured to qualify as a
like kind exchange transaction for federal income tax purposes. However, the
Partnership will distribute amounts sufficient to enable the Limited Partners to
pay federal and state income taxes, if any (at a level reasonably assumed by the
General Partners), resulting from the sale.
In July 2000, the Partnership reinvested the sales proceeds it received
from the sale of the Properties in Sun City, Florida and Bayonet Point, Florida
in a Bennigan's Property located in Deerfield, Illinois, at an approximate cost
of $2,462,700. The Partnership acquired this Property from CNL BB Corp., an
affiliate of the General Partners. In connection therewith, the Partnership
entered into a long term, triple-net lease with terms substantially the same as
its other leases.
In August 2000, the Partnership used a portion of the net sales
proceeds from the sale of its 2000 properties to acquire an interest in a
Baker's Square Property in Libertyville, Illinois, as tenants-in-common, with
CNL Income Fund IX, Ltd., a Florida limited partnership, and an affiliate of the
general partners. As of December 31, 2001, the Partnership owned a 66% interest
in this Property.
In September 2000, the Partnership sold its property in Jacksonville,
Florida, for approximately $422,500 and received net sales proceeds of
approximately $420,000, resulting in a gain of approximately $127,900. The
Partnership distributed amounts sufficient to enable the Limited Partners to pay
federal and state income taxes, if any (at a level reasonably assumed by the
General Partners), resulting from the sale. In October 2000, the Partnership
reinvested the sales proceeds it received from the sale of its Property in
Jacksonville, Florida in a Pizza Hut Property in Hialeah, Florida at an
approximate cost of $472,300. In connection therewith, the Partnership entered
into a long term, triple-net lease with terms substantially the same as its
other leases.
In March 2001, Middleburg Joint Venture, in which the Partnership owned
a 12.46% interest, sold its Property to the tenant in accordance with the option
under its lease agreement to purchase the Property, for $1,900,000. Due to the
fact that the joint venture had recorded accrued rental income, representing
non-cash amounts that the joint venture had recognized as income since the
inception of the lease relating to the straight-lining of future scheduled rent
increases in accordance with generally accepted accounting principles, a loss of
approximately $61,900 was recorded in March 2001. Middleburg Joint Venture was
dissolved in accordance with the joint venture agreement and no gain or loss on
the dissolution of the joint venture was recorded. As a result, the Partnership
received approximately $236,700 as a return of capital for its pro-rata share of
the net sales proceeds. In April 2001, the Partnership reinvested the net sales
proceeds it received as a return of capital from Middleburg Joint Venture, in
another joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with
CNL Income Fund X, Ltd. and CNL Income Fund XII, Ltd., Florida limited
partnerships and affiliates of the general partners, to purchase and hold one
restaurant Property, at a total cost of approximately $2,112,000. The joint
venture acquired the Property from CNL BB Corp., an affiliate of the general
partners, who had purchased and temporarily held title to this Property in order
to facilitate the acquisition of the Property by the joint venture. As of
December 31, 2001, the Partnership had contributed approximately $211,200 and
had an approximate 10% interest in the profits and losses of the joint venture.
In May 2001, the Partnership sold its Property in Statesville, North
Carolina, and received net sales proceeds of $877,000, resulting in a gain of
approximately $28,300. In June 2001, the Partnership reinvested a portion of
these sales proceeds in an additional Property in Walker, Louisiana as
tenants-in-common with CNL Income Fund XVI, Ltd., a Florida limited partnership
and affiliate of the general partners. As of December 31, 2001, the Partnership
had contributed approximately $232,300 for a 17% interest in the Property.
In addition, in July 2001, the Partnership reinvested the remaining net
sales proceeds it received from the sale of the property in Statesville, North
Carolina in a Bennigan's property in Denver, Colorado, as tenants-in-common,
with CNL Income Fund XVIII, Ltd., a Florida limited partnership and an affiliate
of the general partners. As of December 31, 2001, the Partnership had
contributed approximately $422,500 for a 19.30% interest in the Property.
None of the Properties owned by the Partnership or the joint ventures,
in which the Partnership owns an interest, is or may be encumbered. Under its
Partnership Agreement, the Partnership is prohibited from borrowing for any
purpose; provided, however, that the General Partners or their affiliates are
entitled to reimbursement, at cost, for actual expenses incurred by the General
Partners or their affiliates on behalf of the Partnership. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments such as
demand deposit accounts at commercial banks, money market accounts and
certificates of deposit with less than a 90-day maturity date, pending the
Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At December 31, 2001, the Partnership had
$2,085,133 invested in such short-term investments as compared to $1,226,635 at
December 31, 2000. As of December 31, 2001, the average interest rate earned by
the Partnership on the rental income deposited in demand deposit accounts at
commercial banks was approximately 3.6% annually. The funds remaining at
December 31, 2001, after the payment of distributions and other liabilities,
will be used to invest in an additional Property and to meet the Partnership's
working capital needs.
In January 2002, the Partnership reinvested a portion of the net sales
proceeds it received from the sale of the Property in Statesville, North
Carolina, and the prepaid principal relating to a promissory note, in a Denny's
Property located in Ontario, Oregon, at an approximate cost of $654,400.
In February 2002, a tenant, Brandon Fast Food Services, Inc., filed for
bankruptcy. The tenant has neither rejected nor affirmed the one lease it has
with the Partnership. As of March 15, 2002, the Partnership has continued
receiving a portion of the rental payments relating to this lease. While the
tenant has neither rejected nor affirmed this lease, there can be no assurance
that the lease will not be rejected in the future. The lost revenues resulting
from the possible rejection of this lease could have an adverse effect on the
results of operations of the Partnership if the Partnership is unable to
re-lease the Property in a timely manner.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership. The Partnership's investment
strategy of acquiring Properties for cash and leasing them under triple-net
leases to operators who generally meet specified financial standards minimizes
the Partnership's operating expenses. The General Partners believe that the
leases will continue to generate cash flow in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because all leases of the Partnership's Properties are
generally on a triple-net basis, it is not anticipated that a permanent reserve
for maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based on cash from operations, the Partnership declared
distributions to the Limited Partners of $3,150,004 for each of the years ended
December 31, 2001, 2000 and 1999. This represents distributions of $0.09 per
Unit for each of the years ended December 31, 2001, 2000, and 1999. No amounts
distributed to the Limited Partners for the years ended December 31, 2001, 2000,
and 1999, are required to be or have been treated by the Partnership as a return
of capital for purposes of calculating the Limited Partners' return on their
adjusted capital contributions. 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, 2001 and 2000.
As of December 31, 2001 and 2000, the Partnership owed $20,432 and
$4,351, respectively, to affiliates for such amounts as operating expenses and
accounting and administrative services. As of March 15, 2002, the Partnership
had reimbursed the affiliates all such amounts. In addition, as of December 31,
2001, the Partnership had incurred $55,050 in real estate disposition fees due
to an affiliate as a result of services in connection with the sale of several
Properties. The payment of such fees is deferred until the Limited Partners have
received the sum of their 10% Preferred Return and their adjusted capital
contributions. Other liabilities of the Partnership, including distributions
payable, decreased to $855,851 at December 31, 2001, from $906,941 at December
31, 2000. The decrease in other liabilities was primarily attributable to a
decrease in the rents paid in advance and the amounts that were accrued for
transaction costs at December 31, 2001, as compared to December 31, 2000
relating to the proposed and terminated merger with APF, as described in
"Termination of Merger." The General Partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for using either the direct financing or the operating
method. 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 at the
inception of 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 its Properties and investments in unconsolidated
entities periodically (no less than once per year) for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through operations. Management determines whether
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.
Results of Operations
During 1999, the Partnership and its consolidated joint venture owned
and leased 28 wholly owned Properties. During 2000, the Partnership and its
consolidated joint venture, Woodway Joint Venture, owned and leased 30 wholly
owned Properties (including four Properties which were sold during 2000). During
2001, the Partnership and its consolidated joint venture, Woodway Joint Venture,
owned and leased 26 wholly owned Properties (including one Property which was
sold during 2001) to operators of fast-food and family-style restaurant chains.
During 1999, the Partnership was a co-venturer in three joint ventures that
owned and leased a total of eight Properties (including one Property which was
sold during 2001). In addition, during 1999, the Partnership was a co-venturer
in one additional joint venture that owned and leased one Property. During 2000,
the Partnership also owned and leased one additional Property with affiliates of
the General Partners, as tenants-in-common. In addition, during 2001, the
Partnership was a co-venturer in one additional joint venture that owned and
leased one Property, and also owned and leased two additional Properties with
affiliates of the General Partners, as tenants-in-common. As of December 31,
2001, the Partnership owned, either directly or through joint venture
arrangements, 37 Properties which are, in general, subject to long-term,
triple-net leases. The leases of the Properties provide for minimum base annual
rental amounts (payable in monthly installments) ranging from approximately
$49,200 to $251,500. The majority of leases provide for percentage rent based on
sales in excess of a specified amount. In addition, a majority of the leases
provide that, commencing in specified lease years (ranging from the third to
sixth lease year), the annual base rent required under the terms of the lease
will increase. For further description of the Partnership's leases and
Properties, see Item 1. Business - Leases and Item 2. Properties, respectively.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership and its consolidated joint venture earned $2,637,096, $2,837,794,
and $2,901,093, respectively, in rental income from operating leases and earned
income from direct financing leases. The decrease in rental and earned income
during 2001 and 2000, each as compared to the previous year, was partially due
to the fact that the Partnership sold one and four Properties, respectively, as
discussed in "Capital Resources," resulting in a decrease in rental and earned
income of approximately $272,600 and $187,300 during the years ended December
31, 2001 and 2000, respectively. The decrease in rental and earned income was
partially offset by an increase in rental and earned income of approximately
$204,800 and $130,600, during the years ended December 31, 2001 and 2000,
respectively, as a result of the Partnership reinvesting a portion of the net
sales proceeds in two Properties in Deerfield, Illinois and Hialeah, Florida, as
described in "Capital Resources." Rental and earned income are expected to
remain at reduced amounts while equity in earnings of joint ventures is expected
to increase due to the fact that the Partnership reinvested a portion of the net
sales proceeds, from the sale of a Property in 2001, in two Properties with
affiliates of the General Partners, as two separate tenants-in-common
arrangements.
Rental and earned income decreased during the year ended December 31,
2001, as compared to the year ended December 31, 2000, by approximately $58,300
due to the fact that during the year ended December 31, 2001, the tenant of the
Property in North Fort Myers, Florida, vacated the Property and ceased making
rental payments on this Property. As a result, the Partnership stopped recording
rental and earned income relating to this Property. In September 2001, the
Partnership entered into a new lease with a new tenant for this Property for
which rental payments commenced in December 2001.
For the years ended December 31, 2001, 2000, and 1999, the Partnership
also earned $85,987, $113,627, and $113,285, respectively, in contingent rental
income. The decrease in contingent rental income for 2001, as compared to 2000,
was primarily attributable to a decrease in gross sales for certain restaurant
Properties requiring the payment of contingent rental income.
For the years ended December 31, 2001, 2000, and 1999, the Partnership
also earned $390,505, $319,184, and $276,012, respectively, attributable to net
income earned by unconsolidated joint ventures in which the Partnership is a
co-venturer. The increase in net income earned by joint ventures during 2001 and
2000, each as compared to the previous year, was primarily due to the fact that
the Partnership invested in 1999 in a Joint Venture, in 2000 in a Property as
tenants-in-common with affiliates of the General Partners, and in 2001 in a
Joint Venture and in a Property, as tenants-in-common, with affiliates of the
General Partners, as described in "Capital Resources." The increase in net
income earned by these joint ventures during the year ended December 31, 2001
was partially offset by a decrease in net income earned by these joint ventures
as a result of the sale of the Property owned by Middleburg Joint Venture in
March 2001. In addition, in conjunction with the sale of the Property,
Middleburg Joint Venture, recognized a loss of approximately $61,900 in March
2001, as described above in "Capital Resources."
During the year ended December 31, 2001, two lessees of the Partnership
and its consolidated joint venture, Golden Corral Corporation and Carrols
Corporation, each contributed more than ten percent of the Partnership's total
rental, earned and mortgage interest income (including rental and earned income
from the Partnership's consolidated joint venture and the Partnership's share of
rental and earned income from nine Properties owned by joint ventures and three
Properties owned with affiliates as tenants-in-common). As of December 31, 2001,
Golden Corral Corporation was the lessee under leases relating to five
restaurants, and Carrols Corporation was the lessee under leases relating to
five restaurants. It is anticipated that, based on the minimum annual rental
payments required by the leases, these two lessees will continue to contribute
more than ten percent of the Partnership's total rental, earned and mortgage
interest income during 2002. In addition, during the year ended December 31,
2001, two Restaurant Chains, Golden Corral and Burger King, each accounted for
more than ten percent of the Partnership's total rental, earned and mortgage
interest income (including rental and earned income from the Partnership's
consolidated joint venture and the Partnership's share of rental and earned
income from nine Properties owned by unconsolidated joint ventures and three
Properties owned with affiliates as tenants-in-common). In 2002, it is
anticipated that these two Restaurant Chains each will continue to account for
more than ten percent of the Partnership's total rental, earned and mortgage
interest income to which the Partnership is entitled under the terms of the
leases. Any failure of these lessees or Restaurant Chains could materially
affect the Partnership's income if the Partnership is not able to re-lease the
Property in a timely manner.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership also earned $270,989, $271,702, and $223,683, respectively, in
interest and other income. The increase in interest and other income during
2000, as compared to 1999, was due to interest earned on the net sales proceeds
received from the sale of Properties described above, pending reinvestment in
additional Properties, as described above in "Capital Resources." The increase
in interest and other income during 2000, as compared to 1999, was partially
offset by a reduction in interest income as a result of the prepayment of
principal on a mortgage note of $272,500 during 1999, as described above in
"Capital Resources."
Operating expenses, including depreciation expense and provisions for
write-down of assets, were $1,063,333, $554,511, and $690,605, for the years
ended December 31, 2001, 2000 and 1999, respectively. During the year ended
December 31, 2001, the Partnership recorded a provision for write-down of assets
in the amount of $181,815, including $93,671 in previously accrued rental
income, relating to the Property in North Fort Myers, Florida, due to the fact
that the tenant ceased operations and vacated this Property. The provision
represented the difference between the carrying value of the Property, including
the accumulated accrued rental income and the General Partners' estimated net
realizable value of the Property at December 31, 2001. In addition, during the
year ended December 31, 2001, the Partnership recorded a provision for
write-down of assets of $117,664 in previously accrued rental income relating to
the property located in Statesville, North Carolina. The tenant of the Property
defaulted under the terms of its lease, discontinued the operations of the
restaurant and vacated the Property. The accrued rental income was the
accumulated amount of non-cash accounting adjustments previously recorded in
order to recognize future scheduled rent increases as income evenly over the
term of the lease. The provision represented the difference between the carrying
value of the property, including the accumulated accrued rental income, and the
general partners' estimated net realizable value of the property. The
Partnership sold this Property in May 2001, as described above in "Capital
Resources."
The increase in operating expenses during the year ended December 31,
2001, as compared to the year ended December 31, 2000, was partially
attributable to, and the decrease during the year ended December 31, 2000, as
compared to the year ended December 31, 1999, was partially offset by, an
increase in the costs incurred for administrative expenses for servicing the
Partnership and its Properties, as permitted by the Partnership agreement. In
addition, the increase in operating expenses during the year ended December 31,
2001 was partially due to the Partnership incurring additional state taxes due
to changes in tax laws of a state in which the Partnership conducts business.
In addition, the increase in operating expenses during 2001, as
compared to 2000, was partially due to the fact the Partnership incurred certain
expenses such as legal fees and maintenance relating to several Properties. In
addition, the Partnership incurred real estate taxes during 2001, relating to
the Property in North Fort Myers, Florida, due to the tenant vacating the
Property. The Partnership ceased collection efforts of these real estate taxes.
The Partnership entered into a new lease with a new tenant for this Property,
and in accordance with the terms of the lease, the new tenant is responsible for
such expenses commencing December 2001.
The increase in operating expenses, during 2001, as compared to 2000,
was partially offset by, and the decrease during 2000, as compared to 1999, was
primarily attributable to, the fact that during 2000 and 1999 the Partnership
incurred $32,424 and $185,446, respectively, in transaction costs related to the
General Partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed merger with CNL American Properties
Fund, Inc. ("APF"). On March 1, 2000, the General Partners and APF mutually
agreed to terminate the merger. No such expenses were incurred during 2001.
As a result of the sales of the Properties as described above in
"Capital Resources," the Partnership recorded a total gain of $28,301 and
$612,693 during the years ended December 31, 2001 and 2000. No Properties were
sold during 1999.
The Partnership's leases as of December 31, 2001, 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 based 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 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.
The restaurant industry, as a whole, has been one of the many
industries affected by the general slowdown in the economy. While the
Partnership has experienced some losses due to the financial difficulties of a
limited number of restaurant operators, the General Partners remain confident in
the overall performance of the fast-food and family style restaurants, the
concepts that comprise the Partnership's portfolio. Industry data shows that
these restaurant concepts continue to outperform and remain more stable than
higher-end restaurants, which have been more adversely affected by the slowing
economy.
In December 1999, the Securities and Exchange Commission released SAB
101, which provides the staff's view in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 requires the
Partnership to defer recognition of certain percentage rental income until
certain defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
Partnership's results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" (FAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). 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 adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this Statement
retained the fundamental provisions of FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March 1,
2000, the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Interest Rate Risk
The Partnership accepted a promissory note in conjunction with the sale
of a Property. The principal amounts outstanding under the mortgage note totaled
$917,857 at December 31, 2001. The General Partners believe that the estimated
fair value of the mortgage notes at December 31, 2001 approximated the
outstanding principal amounts.
The Partnership is exposed to equity loss in the event of changes in
interest rates. The fair value of the mortgage notes would decline if interest
rates rise.
The following table presents the expected cash flows of principal that
are sensitive to these changes.
Mortgage Note
Fixed Rate
-------------------
2002 $ 55,609
2003 61,890
2004 68,881
2005 76,662
2006 85,321
Thereafter 569,494
-------------------
$ 917,857
===================
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
This information is described above in Item 7. Management's Discussion
and Analysis of Financial Condition -- Interest Rate Risk.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22-23
Notes to Financial Statements 24-41
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund VIII, 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 VIII, Ltd. (a Florida
limited partnership) at December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 14(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial 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
February 8, 2002
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------- -------------------
ASSETS
Land and buildings on operating leases, less
accumulated depreciation $ 16,121,783 $ 16,275,305
Net investment in direct financing leases 5,164,624 6,439,056
Investment in joint ventures 4,601,808 4,075,551
Mortgage notes receivable 926,080 1,424,436
Cash and cash equivalents 2,085,133 1,226,635
Certificates of deposit 378,889 461,394
Receivables, less allowance for doubtful accounts of
$1,114 and $459, respectively 88,175 105,075
Due from related parties 52,641 30,010
Accrued rental income 1,488,236 1,710,973
Other assets 69,874 78,959
------------------- -------------------
$ 30,977,243 $ 31,827,394
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 5,600 $ 34,293
Escrowed real estate taxes payable 10,654 12,501
Distributions payable 787,501 787,501
Due to related parties 75,482 59,401
Rents paid in advance and security deposits 52,096 72,646
------------------- -------------------
Total liabilities 931,333 966,342
Minority interest 106,834 108,518
Partners' capital 29,939,076 30,752,534
------------------- -------------------
$ 30,977,243 $ 31,827,394
=================== ===================
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
------------------ --------------- ---------------
Revenues:
Rental income from operating leases $ 1,950,560 $ 1,976,318 $ 1,961,199
Earned income from direct financing leases 686,536 861,476 939,894
Contingent rental income 85,987 113,627 113,285
Interest and other income 270,989 271,702 223,683
------------------ --------------- ---------------
2,994,072 3,223,123 3,238,061
------------------ --------------- ---------------
Expenses:
General operating and administrative 293,533 175,678 150,176
Professional services 73,818 24,829 35,453
Real estate taxes 19,565 -- --
State and other taxes 54,965 18,228 19,342
Depreciation 321,973 303,352 300,188
Provision for write-down of assets 299,479 -- --
Transaction costs -- 32,424 185,446
------------------ --------------- ---------------
1,063,333 554,511 690,605
------------------ --------------- ---------------
Income Before Gain on Sale of Assets, Minority
Interest in Income of Consolidated Joint Venture
and Equity in Earnings of Unconsolidated Joint
Ventures 1,930,739 2,668,612 2,547,456
Gain on Sale of Assets 28,301 612,693 --
Minority Interest in Income of Consolidated
Joint Venture (12,999 ) (13,318 ) (13,404 )
Equity in Earnings of Unconsolidated Joint
Ventures 390,505 319,184 276,012
------------------ --------------- ---------------
Net Income $ 2,336,546 $ 3,587,171 $ 2,810,064
================== =============== ===============
Allocation of Net Income
General Partners $ -- $ -- $ 28,101
Limited partners 2,336,546 3,587,171 2,781,963
------------------ --------------- ---------------
$ 2,336,546 $ 3,587,171 $ 2,810,064
================== =============== ===============
Net Income Per Limited Partner Unit $ 0.067 $ 0.102 $ 0.079
================== =============== ===============
Weighted Average Number of
Limited Partner Units Outstanding 35,000,000 35,000,000 35,000,000
================== =============== ===============
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001, 2000, and 1999
General Partners Limited Partners
--------------------------------- -------------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 1998 $ 1,000 $ 257,248 $ 35,000,000 $ (26,184,644 ) $ 25,596,703
Distributions to limited
partners ($0.090 per
limited partner unit) -- -- -- (3,150,004 ) --
Net income -- 28,101 -- -- 2,781,963
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 1999 1,000 285,349 35,000,000 (29,334,648 ) 28,378,666
Distributions to limited
partners ($0.090 per
limited partner unit) -- -- -- (3,150,004 ) --
Net income -- -- -- -- 3,587,171
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2000 1,000 285,349 35,000,000 (32,484,652 ) 31,965,837
Distributions to limited
partners ($0.090 per
limited partner unit) -- -- -- (3,150,004 ) --
Net income -- -- -- -- 2,336,546
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2001 $ 1,000 $ 285,349 $ 35,000,000 $ (35,634,656 ) $ 34,302,383
================== ================ ================= ================ =================
See accompanying notes to financial statements.
- -----------
Syndication
Costs Total
-------------- --------------
$ (4,015,000 ) $30,655,307
-- (3,150,004 )
-- 2,810,064
-------------- --------------
(4,015,000 ) 30,315,367
-- (3,150,004 )
-- 3,587,171
-------------- --------------
(4,015,000 ) 30,752,534
-- (3,150,004 )
-- 2,336,546
-------------- --------------
$ (4,015,000 ) $29,939,076
============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
---------------- ---------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 2,960,023 $ 3,160,831 $ 3,014,746
Distributions from unconsolidated joint ventures 493,525 401,558 336,445
Cash paid for expenses (461,707 ) (437,972 ) (247,332 )
Interest received 204,754 225,480 217,147
---------------- ---------------- ---------------
Net cash provided by operating activities 3,196,595 3,349,897 3,321,006
---------------- ---------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 877,000 3,822,716 --
Additions to land and buildings on operating leases -- (2,925,217 ) --
Liquidating distribution from joint venture 236,665 -- --
Investment in joint venture (865,942 ) (960,068 ) (448,000 )
Collections on mortgage notes receivable 494,206 48,701 335,154
Investment in certificates of deposit (368,111 ) (450,000 ) --
Redemption of certificates of deposit 452,772 -- --
---------------- ---------------- ---------------
Net cash provided by (used in) investing
activities 826,590 (463,868 ) (112,846 )
---------------- ---------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,150,004 ) (3,150,004 ) (3,500,004 )
Distributions to holder of minority interest (14,683 ) (13,379 ) (13,425 )
---------------- ---------------- ---------------
Net cash used in financing activities (3,164,687 ) (3,163,383 ) (3,513,429 )
---------------- ---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents 858,498 (277,354 ) (305,269 )
Cash and Cash Equivalents at Beginning of Year 1,226,635 1,503,989 1,809,258
---------------- ---------------- ---------------
Cash and Cash Equivalents at End of Year $ 2,085,133 $ 1,226,635 $ 1,503,989
================ ================ ===============
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2001 2000 1999
--------------- --------------- --------------
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
Net Income $ 2,336,546 $ 3,587,171 $ 2,810,064
--------------- --------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 321,973 303,352 300,188
Provision for write-down of assets 299,479 -- --
Minority interest in income of
consolidated joint venture 12,999 13,318 13,404
Equity in earnings of unconsolidated joint
ventures, net of distributions 103,020 82,374 60,433
Gain on sale of assets (28,301 ) (612,693 ) --
Decrease (increase) in receivables 18,894 (3,581 ) (25,188 )
Increase in due from related parties (22,631 ) (30,010 ) --
Decrease in net investment in direct
financing leases 181,500 171,457 166,924
Increase in accrued rental income (960 ) (61,481 ) (91,099 )
Decrease (increase) in other assets 9,085 (10,803 ) (11,526 )
Increase (decrease) in accounts payable,
accrued expenses, and escrowed real
estate taxes payable (30,540 ) (76,533 ) 91,231
Increase (decrease) in due to related
parties 16,081 (61,926 ) 45,530
Increase (decrease) in rents paid in
advance and security deposits (20,550 ) 49,252 (38,955 )
--------------- --------------- --------------
Total adjustments 860,049 (237,274 ) 510,942
--------------- --------------- --------------
Net Cash Provided by Operating Activities $ 3,196,595 $ 3,349,897 $ 3,321,006
=============== =============== ==============
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid at
December 31 $ 787,501 $ 787,501 $ 787,501
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund VIII, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of
the Corporate general partner. The General Partners have responsibility
for managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
generally on a triple-net basis, whereby the tenant is generally
responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance and repairs. The
leases are accounted for using either the direct financing or the
operating method. Such methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 4). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or reverses the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
General Partners of the Partnership review the properties for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through
operations. The General Partners determine whether an impairment in
value has occurred by comparing the estimated future undiscounted cash
flows, including the residual value of the property, with the carrying
cost of the individual property. If an impairment is indicated, the
assets are adjusted to their fair value. Although the General Partners
have made their best estimate of these factors based on current
conditions, it is reasonably possible that changes could occur in the
near term which could adversely affect the General Partners' estimate
of net cash flows expected to be generated from its properties and the
need for asset impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
although the Partnership continues to pursue collection of such
amounts. If amounts are subsequently determined to be uncollectible,
the corresponding receivable and the allowance for doubtful accounts
are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its 87.68%
interest in Woodway Joint Venture using the consolidation method.
Minority interest represents the minority joint venture partner's
proportionate share of the equity in the Partnership's consolidated
joint venture. All significant intercompany accounts and transactions
have been eliminated.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
The Partnership's investments in Asheville Joint Venture; CNL
Restaurant Investments II; Bossier City Joint Venture; and CNL VIII, X,
XII Kokomo Joint Venture; and a property in Libertyville, Illinois; a
property in Walker, Louisiana; and a property in Denver, Colorado for
which each property is held with affiliates of the General Partners as
tenants-in-common, 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 (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment. See "Income Taxes"
footnote for a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes.
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
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
and future cash flows associated with long-lived assets. Actual results
could differ from those estimates.
Reclassification - Certain items in the prior year's financial
statements have been reclassified to conform to 2001 presentation.
These reclassifications had no effect on total partner's capital or net
income.
Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Partnership
to defer recognition of certain percentage rental income until certain
defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material
impact on the Partnership's results of operations.
Statement of Financial Accounting Standards No. 141 ("FAS 141") and
Statement of Financial Accounting Standards No. 142 ("FAS 142") - In
July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets". The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the
Partnership as of December 31, 2001.
Statement of Financial Accounting Standards No. 144 ("FAS 144") - In
October 2001, the Financial Accounting Standards Board issued 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 adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this
Statement retained the fundamental provisions of FAS No. 121
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of".
2. Leases:
------
The Partnership leases its land and buildings primarily to operators of
national and regional fast-food and family-style restaurants. The
leases are accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." Some of the
leases have been classified as operating leases and some of the leases
have been classified as direct financing leases. For property leases
classified as direct financing leases, the building portions of the
majority of property leases are accounted for as direct financing
leases while the land portions of these leases are accounted for as
operating leases. Substantially all leases are for 14 to 25 years and
provide for minimum and contingent rentals. In addition, the tenant
generally pays all property taxes and assessments, fully maintains the
interior and exterior of the building and carries insurance coverage
for public liability, property damage, fire and extended coverage. The
lease options generally allow tenants to renew the leases for two to
four successive five-year periods subject to the same terms and
conditions of the initial lease. Most leases also allow the tenant to
purchase the property at fair market value after a specified portion of
the lease has elapsed.
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at
December 31:
2001 2000
-------------------- --------------------
Land $ 9,348,100 $ 9,605,325
Buildings 9,069,529 8,643,853
-------------------- --------------------
18,417,629 18,249,178
Less accumulated depreciation (2,295,846 ) (1,973,873 )
-------------------- --------------------
$ 16,121,783 $ 16,275,305
==================== ====================
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
In July 2000, the Partnership sold its properties in Brooksville,
Bayonet Point and Sun City, Florida, for a total of approximately
$3,465,100 and received net sales proceeds totaling approximately
$3,402,700, resulting in a total gain of approximately $484,800.
In July 2000, the Partnership reinvested the sales proceeds it received
from the sale of the properties in Sun City, Florida and Bayonet Point,
Florida in a Bennigan's property located in Deerfield, Illinois, at an
approximate cost of $2,462,700 from CNL BB Corp., an affiliate of the
general partners. In connection therewith, the Partnership entered into
a long term, triple-net lease with terms substantially the same as its
other leases (see Note 9).
In September 2000, the Partnership sold its property in Jacksonville,
Florida, for $422,506 and received net sales proceeds of approximately
$420,000, resulting in a gain of approximately $127,900.
In October 2000, the Partnership reinvested the sales proceeds it
received from the sale of its property in Jacksonville, Florida in a
Pizza Hut Property in Hialeah, Florida at an approximate cost of
$472,300. In connection therewith, the Partnership entered into a long
term, triple-net lease with terms substantially the same as its other
leases.
In May 2001, the Partnership sold its property in Statesville, North
Carolina, and received net sales proceeds of $877,000, resulting in a
gain of approximately $28,300 (see Note 4).
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2001:
2002 $2,031,058
2003 2,063,300
2004 2,077,429
2005 1,951,193
2006 1,475,826
Thereafter 8,239,630
----------------
$17,838,436
================
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2001 2000
---------------- ----------------
Minimum lease payments
receivable $ 7,516,731 $ 10,334,143
Estimated residual values 1,838,111 2,152,532
Less unearned income (4,190,218 ) (6,047,619 )
---------------- ----------------
Net investment in direct
financing leases $ 5,164,624 $ 6,439,056
================ ================
In July 2000, the Partnership sold two properties, for which the
building portion had been classified as a direct financing lease. In
connection therewith, the gross investment (minimum lease payments
receivable and the estimated residual value) and unearned income
relating to the building were removed from the accounts and the gain
from the sale of the property was reflected in income (see Note 3).
In May 2001, the Partnership sold a property, for which the building
portion had been classified as a direct financing lease. In connection
therewith, the gross investment (minimum lease payments receivable and
the estimated residual value) and unearned income relating to the
building were removed from the accounts and the gain from the sale of
the property was reflected in income (see Note 3).
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Net Investment in Direct Financing Leases - Continued:
-----------------------------------------------------
At June 30, 2001, the Partnership established a provision for
impairment in carrying value in the amount of $88,144 for its property
in North Fort Myers, Florida, due to the fact that the tenant ceased
operations and vacated this property. The provision represented the
difference between the carrying value of the net investment in the
direct financing lease and the general partners' estimated net
realizable value of the investment in the direct financing lease at
June 30, 2001. During July 2001, this lease was terminated due to the
fact that the tenant vacated the property and ceased restaurant
operations. As a result, the Partnership reclassified the lease from
direct financing leases to land and buildings on operating leases. In
accordance with the Statement of Financial Accounting Standards No. 13,
"Accounting for Leases," the Partnership recorded the reclassified
lease at the lower of original cost, present fair value, or present
carrying amount. No loss on the reclassification of the direct
financing lease was recorded.
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2001:
2002 $ 831,145
2003 831,145
2004 831,145
2005 831,145
2006 857,472
Thereafter 3,334,679
----------------
$7,516,731
================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (See Note 3).
5. Investment in Joint Ventures:
----------------------------
The Partnership has an 85.54%, a 36.8%, and a 34% interest in the
profits and losses of Asheville Joint Venture, CNL Restaurant
Investments II, and Bossier City Joint Venture, respectively. The
remaining interests in these joint ventures are held by affiliates of
the Partnership which have the same general partners. Asheville Joint
Venture and Bossier City Joint Venture each owns and leases one
property, and CNL Restaurant Investments
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
II owns and leases six properties, to an operator of national fast-food
or family-style restaurants.
In August 2000, the Partnership used a portion of the net sales
proceeds from sale of its properties to acquire an interest in a
Baker's Square property in Libertyville, Illinois, with CNL Income Fund
IX, Ltd., ("CNL IX") a Florida limited partnership, and an affiliate of
the general partners. The Partnership accounts for its investment using
the equity method since the agreement requires the consent of all
partners on all key decisions affecting the operations of the
underlying property. As of December 31, 2001, the Partnership owned a
66% interest in this property.
In March 2001, Middleburg Joint Venture, in which the Partnership owned
a 12.46% interest, sold its property to the tenant, in accordance with
the purchase option under the lease agreement, for $1,900,000. Due to
the fact that the joint venture had recorded accrued rental income,
representing non-cash amounts that the joint venture had recognized as
income since the inception of the lease relating to the straight-lining
of future scheduled rent increases in accordance with generally
accepted accounting principles, a loss of approximately $61,900 was
recorded by the joint venture in March 2001. The Partnership dissolved
the joint venture and did not recognize any gain/loss on the
dissolution of the joint venture. As a result, the Partnership received
approximately $236,700 as a return of capital for its pro-rata share of
the net sales proceeds. The Partnership reinvested the proceeds
received as a return of capital from Middleburg Joint Venture in
another joint venture arrangement, as described below.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
In April 2001, the Partnership reinvested the amounts received as a
return of capital from Middleburg Joint Venture in another joint
venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with CNL
Income Fund X, Ltd. and CNL Income Fund XII, Ltd., both Florida limited
partnerships and affiliates of the general partners. The Partnership
acquired this interest from CNL BB Corp., an affiliate of the general
partners (see Note 9). As of December 31, 2001, the Partnership had
contributed approximately $211,200 for a 10% interest in the profits
and losses of the joint venture. The Partnership accounts for its
investment in this joint venture under the equity method since the
joint venture agreement requires the consent of all partners on all key
decisions affecting the operations of the underlying property.
In June 2001, the Partnership reinvested a portion of the sales
proceeds from the property in Statesville, North Carolina, described
above, in an additional property in Walker, Louisiana as
tenants-in-common with CNL Income Fund XVI, Ltd., a Florida limited
partnership and affiliate of the general partners. As of December 31,
2001, the Partnership had contributed approximately $232,300 for a 17%
interest in the property. The Partnership accounts for its investment
under the equity method since the agreement requires the consent of all
partners on all key decisions affecting the operations of the
underlying property.
In July 2001, the Partnership reinvested the remaining sales proceeds
it received from the sale of the property in Statesville, North
Carolina, in an additional property in Denver, Colorado, as
tenants-in-common, with CNL Income Fund XVIII, Ltd., a Florida limited
partnership and affiliate of the general partners. As of December 31,
2001, the Partnership had contributed approximately $422,500 for a
19.30% interest in the profits and losses of the property. The
Partnership accounts for its investment in this property under the
equity method since the agreement requires the consent of all partners
on all key decisions affecting the operations of the underlying
property.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
The following presents the joint ventures' combined, condensed
financial information at December 31:
2001 2000
----------------- ---------------
Land and buildings on operating
leases, net $13,562,341 $8,714,670
Net investment in direct financing
lease -- 1,280,255
Cash 38,224 117,189
Receivables 9,601 28,510
Accrued rental income 145,174 247,527
Other assets 796 566
Liabilities 4,452 80,916
Partners' capital 13,751,684 10,307,801
Revenues 1,377,783 1,128,453
Net income 1,071,726 903,843
The Partnership recognized income totaling $390,505, $319,184, and
$276,012, for the years ended December 31, 2001, 2000, and 1999,
respectively, from these joint ventures.
6. Mortgage Notes Receivable:
-------------------------
As of December 31, 1996, the Partnership had accepted two promissory
notes in the principal sum totalling $460,000 in connection with the
sale of two of its properties in Jacksonville, Florida. The promissory
notes, which are collateralized by mortgages on the properties, bear
interest at a rate of 10% per annum, and are being collected in 119
equal monthly installments of $2,106 and $1,931, with balloon payments
of $218,252 and $200,324, respectively, due in December 2005. During
the year ended December 31, 2001, the borrower repaid principal in the
amount of approximately $441,500 which represented the total
outstanding principal balance for both notes.
In addition, in connection with the 1996 sale of its property in
Orlando, Florida, the Partnership accepted a promissory note in the
principal sum of $1,388,568, representing the gross sales price of
$1,375,000, plus tenant closing costs of $13,568 that the Partnership
financed on behalf of the tenant. The promissory note bears interest at
a rate of 10.75% per annum, is collateralized by a mortgage on the
property and is being
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
6. Mortgage Notes Receivable - Continued:
-------------------------------------
collected in 12 monthly installments of interest only, in 17 monthly
installments of $15,413 consisting of principal and interest, and
thereafter in 151 monthly installments of $12,633 consisting of
principal and interest. During the year ended December 31, 1999, the
borrower repaid principal in the amount of $272,500. This amount was
applied to the outstanding principal balance.
The mortgage notes receivable consisted of the following at December
31:
2001 2000
---------------- ----------------
Principal balance $ 917,857 $ 1,412,064
Accrued interest receivable 8,223 12,372
---------------- ----------------
$ 926,080 $ 1,424,436
================ ================
The General Partners believe that the estimated fair value of mortgage
notes receivable at December 31, 2001 and 2000, approximated the
outstanding principal amount based on estimated current rates at which
similar loans would be made to borrowers with similar credit and for
similar maturities.
7. Allocations and Distributions:
-----------------------------
From inception through December 31, 1999, generally, all net income and
net losses of the Partnership, excluding gains and losses from the sale
of properties, were allocated 99% 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% to the limited
partners and one percent to the General Partners; provided, however,
that the one percent of net cash flow to be distributed to the General
Partners was subordinated to receipt by the limited partners of an
aggregate, ten percent, cumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
From inception through December 31, 1999, generally, net sales proceeds
from the sale of properties not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their 10% Preferred
Return, plus the return of their adjusted capital contributions. The
General Partners then received, to the extent previously subordinated
and unpaid, a one percent
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. Allocations and Distributions - Continued:
-----------------------------------------
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 was, in general, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts; thereafter,
95 percent to the limited partners and five percent to the General
Partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after allocations of net income, gains
and/or losses, to distribute to the partners with positive capital
account 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 1, 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 distributions during the years
ended December 31, 2001 and 2000.
During each of the years ended December 31, 2001, 2000, and 1999 the
Partnership declared distributions to the limited partners of
$3,150,004. No distributions have been made to the General Partners to
date.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. 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:
2001 2000 1999
-------------- -------------- ---------------
Net income for financial reporting purposes 2,336,546 $ 3,587,171 $2,810,064
Depreciation for tax reporting purposes in
excess of depreciation for financial
reporting purposes (57,394 ) (99,400 ) (113,202 )
Provision for write-down of assets 299,479 -- --
Direct financing leases recorded as operating
leases for tax reporting purposes 181,500 171,457 166,924
Allowance for doubtful accounts 211,991 (5,305 ) (18,872 )
Accrued rental income (212,295 ) (61,481 ) (91,099 )
Rents paid in advance (32,217 ) 49,252 (38,955 )
Gain or loss on sale of assets for tax
reporting purposes in excess of (less than)
gain or loss for financial reporting purposes 60,643 (597,936 ) 38,341
Capitalization (deduction) of transaction costs
for tax reporting purposes -- (206,488 ) 185,446
Equity in earnings of unconsolidated joint
ventures for tax reporting purposes in excess
of equity in earnings of unconsolidated
joint ventures for financial reporting purposes 15,396 14,929 21,563
Minority interest in timing differences of
consolidated joint venture (481 ) 1,113 1,292
-------------- -------------- ---------------
Net income for federal income tax purposes $ 2,803,168 $ 2,853,312 $ 2,961,502
============== ============== ===============
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
9. 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 Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc. CNL
APF Partners, LP (the "Advisor") is a wholly owned subsidiary of CNL
American Properties Fund, Inc. ("APF"). CNL Fund Advisors, Inc., a
majority owned subsidiary of CNL Financial Group, Inc. until it merged
with and into APF effective September 1, 1999, served as the
Partnership's advisor until it assigned its rights and obligations
under a management agreement with the Partnership to the Advisor
effective July 1, 2000. The individual general partners are
stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with
the Partnership. 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, 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 fees 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, 2001, 2000, and 1999.
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 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, 2001, 2000 and 1999.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
9. Related Party Transactions - Continued:
--------------------------------------
In July 2000, the Partnership reinvested the sales proceeds it received
from the sale of the properties in Sun City, Florida and Bayonet Point,
Florida in a Bennigan's property located in Deerfield, Illinois, at an
approximate cost of $2,462,700 from CNL BB Corp., an affiliate of the
general partners. CNL BB Corp. had purchased and temporarily held title
to this property in order to facilitate the acquisition of the property
by the Partnership. The purchase price paid by the Partnership
represents the costs incurred by CNL BB Corp. to acquire and carry the
property, including closing costs.
In April 2001, the Partnership, CNL Income Fund X, Ltd., and CNL Income
Fund XII, Ltd., through a joint venture agreement, acquired an interest
in a Golden Corral property from CNL BB Corp., an affiliate of the
general partners, at an approximate cost of $2,112,000. CNL Income Fund
X, Ltd. and CNL Income Fund XII, Ltd., are Florida limited partnerships
and affiliates of the general partners. CNL BB Corp. had purchased and
temporarily held title to this property in order to facilitate the
acquisition of the property by the Partnership. The purchase price paid
by the Partnership represents the costs incurred by CNL BB Corp. to
acquire and carry the property, including closing costs.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership's advisor and its affiliates provided accounting and
administrative services to the Partnership on a day-to-day basis,
including services during 2000 and 1999 relating to the proposed and
terminated merger. The Partnership incurred $201,158, $95,548, and
$118,104, for the years ended December 31, 2001, 2000, and 1999,
respectively, for such services.
The due to related parties consisted of the following at December 31:
2001 2000
----------------- ------------------
Due to Advisor and its Affiliates:
Accounting and administrative
services $ 5,357 $ 4,351
Deferred, subordinated real
estate disposition fee 55,050 55,050
Other 15,075 --
----------------- ------------------
$ 75,482 $ 59,401
================= ==================
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
10. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental, earned and mortgage
interest income from individual lessees, each representing more than
ten percent of the Partnership's total rental, earned and mortgage
interest income (including the Partnership's share of total rental and
earned income from the unconsolidated joint ventures and the property
held as tenants-in-common with affiliates of the general partners), for
each of the years ended December 31:
2001 2000 1999
--------------- --------------- ---------------
Golden Corral Corporation $703,279 $694,735 $ 711,714
Carrols Corporation 421,048 422,375 419,844
Restaurant Management Services,
Inc. N/A N/A 572,803
In addition, the following schedule presents total rental, earned and
mortgage interest income from individual restaurant chains, each
representing more than ten percent of the Partnership's total rental,
earned and mortgage interest income (including the Partnership's share
of total rental and earned income from the unconsolidated joint
ventures and the property held as tenants-in-common with affiliates of
the general partners) for each of the years ended December 31:
2001 2000 1999
--------------- --------------- ---------------
Burger King $581,888 $882,922 $ 887,291
Golden Corral Family
Steakhouse Restaurants 680,395 722,115 747,008
Shoney's N/A 363,946 599,081
The information denoted by N/A indicates that for each period
presented, the tenants and the chains did not represent more than ten
percent of the Partnership's total rental and mortgage interest income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
11. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2001 and
2000:
2001 Quarter First Second Third Fourth Year
------------------------ ------------- ------------- ------------- --------------- --------------
Revenue (1) $896,847 $823,190 $813,529 $ 838,012 $3,371,578
Net income 406,084 593,390 669,339 667,733 2,336,546
Net income per
limited partner
unit 0.012 0.017 0.019 0.019 0.067
2000 Quarter First Second Third Fourth Year
------------------------ ------------- ------------- ------------- --------------- --------------
Revenue (1) $857,005 $731,135 $855,989 $1,084,860 $3,528,989
Net income 657,317 568,458 1,336,592 1,024,804 3,587,171
Net income per
limited partner
unit $ 0.019 $ 0.016 $ 0.038 $ 0.029 $ 0.102
(1) Revenues include equity in earnings of unconsolidated joint ventures
and minority interest in income of consolidated joint ventures.
12. Subsequent Event:
----------------
In January 2002, the Partnership reinvested a portion of the net sales
proceeds it received from the sale of the property in Statesville,
North Carolina and the proceeds received relating to its promissory
notes, in a Denny's property located in Ontario, Oregon, at an
approximate cost of $654,400.
In February 2002, a tenant, Brandon Fast Food Services, Inc., filed for
bankruptcy. The tenant has neither rejected nor affirmed the one lease
it has with the Partnership. While the tenant has neither rejected nor
affirmed this lease, there can be no assurance that the lease will not
be rejected in the future.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Financial Group, Inc.
and their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 55. 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 of CNL American Properties Fund, Inc. ("APF"), a public,
unlisted real estate investment trust, since 1994. Mr. Seneff served as Chief
Executive Officer of APF from 1994 through August 1999, has served as Chairman
of the Board from 1994 to 2000, and has been Co-CEO since 2000. Mr. Seneff
served as Chairman of the Board and Chief Executive Officer of CNL Fund Advisors
(the "Advisor") until it merged with APF in September 1999, and in June 2000,
was re-elected to those positions of the Advisor. Mr. Seneff is a principal
stockholder of CNL Holdings, Inc., the parent company of CNL Financial Group,
Inc. (formerly CNL Group, Inc.), a diversified real estate company, and has
served as a Director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since its formation in 1980. CNL Financial Group, Inc. is
the parent company, either directly or indirectly through subsidiaries, of CNL
Real Estate Services, Inc., CNL Capital Markets, Inc., CNL Investment Company
and CNL Securities Corp. Mr. Seneff also serves as a Director, Chairman of the
Board and Chief Executive Officer of CNL Hospitality Properties, Inc., a public,
unlisted real estate investment trust, as well as, CNL Hospitality Corp., its
advisor. In addition, he serves as a Director, Chairman of the Board and Chief
Executive Officer of CNL Retirement Properties, Inc., a public, unlisted real
estate investment trust and its advisor, CNL Retirement Corp. Since 1992, Mr.
Seneff has also served as a Director, Chairman of the Board and Chief Executive
Officer of Commercial Net Lease Realty, Inc., a public real estate investment
trust that is listed on the New York Stock Exchange. Mr. Seneff has also served
as a Director, Chairman of the Board and Chief Executive Officer of CNL
Securities Corp. since 1979; CNL Investment Company since 1990; and CNL
Institutional Advisors, Inc., a registered investment advisor for pension plans,
since 1990. Mr. Seneff formerly served as a Director of First Union National
Bank of Florida, N.A., and currently serves as the Chairman of the Board of CNL
Bank. Mr. Seneff previously served on the Florida State Commission on Ethics and
is a former member and past Chairman of the State of Florida Investment Advisory
Council, which recommends to the Florida Board of Administration investments for
various Florida employee retirement funds. The Florida Board of Administration,
Florida's principal investment advisory and money management agency, oversees
the investment of more than $60 billion of retirement funds. Mr. Seneff received
his degree in Business Administration from Florida State University in 1968.
Robert A. Bourne, age 54. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne is
Director of the Board of Directors of APF. Mr. Bourne served as President of APF
from 1994 through February 1999. He also served as Treasurer from February 1999
through August 1999 and from May 1994 through December 1994. He also served in
various executive positions with the Advisor prior to its merger with APF
including, President from 1994 through September 1997, and Director from 1994
through August 1999. Mr. Bourne serves as President and Treasurer of CNL
Financial Group, Inc. (formerly CNL Group, Inc.); Director, Vice Chairman of the
Board and President of CNL Hospitality Properties, Inc., a public, unlisted real
estate investment trust; as well as, Director, President and Treasurer of CNL
Hospitality Corp., its advisor. In addition, Mr. Bourne serves as Director,
President and Treasurer of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust; as well as, a Director, President and Treasurer of
its advisor, CNL Retirement Corp. Mr. Bourne also serves as a Director of CNL
Bank. He has served as a Director since 1992, Vice Chairman of the Board since
February 1996, Secretary and Treasurer from February 1996 through 1997, and
President from July 1992 through February 1996, of Commercial Net Lease Realty,
Inc., a public real estate investment trust listed on the New York Stock
Exchange. Mr. Bourne also serves as Director, President and Treasurer for
various affiliates of CNL Financial Group, Inc. including, CNL Investment
Company, CNL Securities Corp. and CNL Institutional Advisors, Inc., a registered
investment advisor for pension plans. Mr. Bourne began his career as a certified
public accountant employed by Coopers & Lybrand, Certified Public Accountants,
from 1971 through 1978, where he attained the position of Tax Manager in 1975.
Mr. Bourne graduated from Florida State University in 1970 where he received a
B.A. in Accounting, with honors.
Curtis B. McWilliams, age 46. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as Chief
Executive Officer from September 1999 through December 2000. Prior to the
acquisition of the Advisor, Mr. McWilliams served as President of APF from
February 1999 until September 1999. From February 1998 to February 1999, he
served as Executive Vice President of APF. Mr. McWilliams joined CNL Financial
Group, Inc. (formerly CNL Group, Inc.) in April 1997 and served as an Executive
Vice President until February 1999 and served as President from February 1999 to
September 1999. In addition, Mr. McWilliams served as President of the Advisor
and CNL Financial Services, Inc. from April 1997 until the acquisition of such
entities by APF in September 1999. From September 1983 through March 1997, Mr.
McWilliams was employed by Merrill Lynch & Co. The majority of his career at
Merrill Lynch & Co. was in the Investment Banking division where he served as a
Managing Director. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.
Steven D. Shackelford, age 38. Mr. Shackelford was promoted to
Executive Vice President of APF in July 2000. He served as Senior Vice President
and Chief Financial Officer of APF from January 1997 until his promotion. Mr.
Shackelford also served as Secretary and Treasurer of APF since September 1999.
He also served as Chief Financial Officer of the Advisor from September 1996 to
September 1999. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse LLP where he was responsible
for advising foreign clients seeking to raise capital and a public listing in
the United States. From August 1992 to March 1995, he was a manager in the
Paris, France office of Price Waterhouse, serving several multi-national
clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor
of Arts degree in Accounting, with honors, and a Master of Business
Administration degree from Florida State University and is a certified public
accountant.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 15, 2002, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 15, 2002, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2001, 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, 2001
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and administra-
operating expenses the lower of cost or 90% of the tive services: $201,158
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- One percent of the sum of gross $-0-
ment fee to affiliates revenues (excluding noncash and
lease accounting adjustments) 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,
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 are noncumulative, if the
Limited Partners have not received
their 10% Preferred Return in any
particular years 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, 2001
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee payable disposition fee, payable upon sale
to affiliates 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
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 equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales proceeds distributions of such net sales
from a sale or sales not in proceeds, subordinated to certain
liquidation of the Partnership minimum returns to the Limited
Partners.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net loss,
gain and loss, in proportion to such
balances, up to amounts sufficient
to reduce such balances to zero; and
(iii) thereafter, 95% to the Limited
Partners and 5% to the General Partners.
In April 2001, the Partnership, CNL Income Fund X, Ltd., and CNL Income Fund
XII, Ltd., through a joint venture agreement, acquired an interest in a Golden
Corral property from CNL BB Corp., an affiliate of the general partners, at an
approximate cost of $2,112,000. CNL Income Fund X, Ltd. and CNL Income Fund XII,
Ltd., are Florida limited partnerships and affiliates of the general partners.
CNL BB Corp. had purchased and temporarily held title to this property in order
to facilitate the acquisition of the property by the Partnership. The purchase
price paid by the Partnership represents the costs incurred by CNL BB Corp. to
acquire and carry the property, including closing costs.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2001 and 2000
Statements of Income for the years ended December 31, 2001,
2000, and 1999
Statements of Partners' Capital for the years ended December
31, 2001, 2000, and 1999
Statements of Cash Flows for the years ended December 31,
2001, 2000, and 1999
Notes to Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2001
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2001
Schedule IV - Mortgage Loans on Real Estate at December 31,
2001
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 VIII, Ltd. (Included as Exhibit 3.2
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 VIII, Ltd. (Included as Exhibit 3.2
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 VIII, 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 VIII,
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 9, 2001, and
incorporated herein by reference.)
(b) The Registrant filed no reports on Form 8-K during the period October
1, 2001 through December 31, 2001.
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 26th day of
March, 2002.
CNL INCOME FUND VIII, 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 26, 2002
- ------------------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 26, 2002
- ------------------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(a) Transactions in real estate and accumulated depreciation during 2001,
2000, and 1999, are summarized as follows:
Accumulated
Cost Depreciation
---------------- -------------------
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 1998 $ 17,454,788 $ 1,685,510
Depreciation expense -- 300,188
---------------- -------------------
Balance, December 31, 1999 17,454,788 1,985,698
Dispositions (2,130,827 ) (315,177 )
Acquisitions 2,925,217 --
Depreciation expense -- 303,352
---------------- -------------------
Balance, December 31, 2000 18,249,178 1,973,873
Reclassified to operating lease(j) 425,676 --
Dispositions (257,225 ) --
Depreciation expense -- 321,973
---------------- -----------------
Balance, December 31, 2001 $ 18,417,629 $ 2,295,846
================ =================
Property of Joint Venture in Which the Partnership has an 85.54%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 889,127 $ 116,948
Depreciation expense -- 15,014
---------------- -----------------
Balance, December 31, 1999 889,127 131,962
Depreciation expense -- 15,014
---------------- -----------------
Balance, December 31, 2000 889,127 146,976
Depreciation expense -- 15,014
---------------- -----------------
Balance, December 31, 2001 $ 889,127 $ 161,990
================ =================
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -----------------
Property in Which the Partnership has a 66% Interest
and has Invested in Under an Operating Lease
Balance, December 31, 1999 $ -- $ --
Acquisition 1,454,649 --
Depreciation expense -- 11,528
---------------- -----------------
Balance, December 31, 2000 1,454,649 11,528
Depreciation expense -- 27,667
---------------- -----------------
Balance, December 31, 2001 $ 1,454,649 $ 39,195
================ =================
Property of Joint Venture in Which the Partnership has
36.8% Interest and has Invested in Under Operating
Leases:
Balance, December 31, 1998 $ 6,131,281 $ 1,104,972
Depreciation expense -- 152,137
---------------- -----------------
Balance, December 31, 1999 6,131,281 1,257,109
Depreciation expense -- 152,137
---------------- -----------------
Balance, December 31, 2000 6,131,281 1,409,246
Depreciation expense -- 152,137
---------------- -----------------
Balance, December 31, 2001 $ 6,131,281 $ 1,561,383
================ =================
Property of Joint Venture in Which the Partnership has
a 34% Interest and has Invested in Under an
Operating Lease
Balance, December 31, 1998 $ -- $ --
Acquisition 1,319,208 --
Depreciation expense -- 4,542
---------------- -----------------
Balance, December 31, 1999 1,319,208 4,542
Depreciation expense -- 28,874
---------------- -----------------
Balance, December 31 2000 1,319,208 33,416
Depreciation expense -- 28,874
---------------- -----------------
Balance, December 31, 2001 $ 1,319,208 $ 62,290
================ =================
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -----------------
Property of Joint Venture in Which the Partnership has a 10%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 2000 $ -- $ --
Acquisition (k) 2,112,011 --
Depreciation expense -- 36,696
---------------- -----------------
Balance, December 31, 2001 $ 2,112,011 $ 36,696
================ =================
Property in Which the Partnership has a 17% Interest and has
Invested in Under an Operating Lease:
Balance, December 31, 2000 $ -- $ --
Acquisition 1,366,405 --
Depreciation expense -- 14,354
---------------- -----------------
Balance, December 31, 2001 $ 1,366,405 $ 14,354
================ =================
Property in Which the Partnership has a 19.3% Interest and has
Invested in Under an Operating Lease:
Balance, December 31, 2000 $ -- $ --
Acquisition 2,188,872 --
Depreciation expense -- 23,304
---------------- -----------------
Balance, December 31, 2001 $ 2,188,872 $ 23,304
================ =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures for federal income tax purposes was
$24,018,253 and $15,549,570, respectively. 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 lease; therefore, depreciation
is not applicable.
(e) The lease for land and building has been recorded as a direct financing
lease. The cost of the land and building has been included in net
investment in direct financing leases; therefore, depreciation is not
applicable.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
(f) Certain components of the lease relating to land and building have been
recorded as a direct financing lease. Accordingly, costs relating to
these components of this lease are not shown.
(g) The restaurant on this Property was converted from a Popeyes Famous
Fried Chicken Restaurant to a Burger King restaurant in February 1993.
(h) Effective January 1, 1994, the lease for this Property was amended,
resulting in the reclassification of the building portion of the lease
as an operating lease. The building was recorded at net book value as
of January 1, 1994, and depreciated over its remaining estimated life
of approximately 27 years.
(i) Effective August 1, 1998, the lease for this Property was amended,
resulting in the reclassification of the building portion of the lease
as an operating lease. The building was recorded at net book value as
of August 1, 1998, and depreciated over its remaining estimated life of
approximately 23 years.
(j) Effective July 16, 2001, the lease for this Property was terminated,
resulting in the reclassification of the building portion of the lease
as an operating lease. The building was recorded at net book value as
of July 16, 2001, and depreciated over its remaining estimated life of
approximately 24 years.
(k) During the year ended December 31, 2001, the Partnership and affiliates
of the General Partners, as tenant-in-common, purchased land and
building from CNL BB Corp., an affiliate of the General Partners, for
an aggregate cost of $2,112,011.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2001
Principal
Amount
of Loans
Subject to
Carrying Delinquent
Final Periodic Face Amount of Principal or
Interest Maturity Payment Prior Amount of Mortgages Description
Rate Date Terms Liens Mortgages (1) Interest
---------- --------------- ----------- ----------- -------------- ------------- ---------------
Ponderosa
Orlando, FL
First Mortgage 10.75% October 2011 (2) $ -- $ 1,388,568 $ 926,080 $ --
=========== ============== ============= ===============
(1) The tax carrying value notes is $917,857.
(2) Monthly payments of $12,633 were consisting of principal and interest
at an annual rate of 10.75%. During 1999, the Partnership received a
prepaid principal payment from the borrower that was applied to the
unpaid principal balance, reflected in the carrying amount of mortgage.
(3) The changes in the carrying amounts are summarized as follows:
2001 2000 1999
------------- ------------- --------------
Balance at beginning of
period $1,424,436 $1,473,571 $1,811,726
Interest earned 131,931 150,897 162,182
Collection of principal and
interest (630,287 ) (200,032 ) (500,337 )
------------- ------------- --------------
Balance at end of period $ 926,080 $1,424,436 $1,473,571
============= ============= ==============