FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 2002
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _____________________ to _____________________
Commission file number
0-19139
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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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- --------------------------------- ------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 14
Part II.
Other Information 15
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
2002 2001
------------------- -------------------
ASSETS
Land and buildings on operating leases, net $ 17,353,668 $ 15,726,970
Net investment in direct financing leases 4,653,348 4,741,762
Real estate held for sale -- 911,293
Investment in joint ventures 4,372,573 4,601,808
Mortgage notes receivable -- 926,080
Cash and cash equivalents 2,697,872 2,085,133
Certificate of deposit 380,356 378,889
Restricted cash 29,479 --
Receivables, less allowance for doubtful accounts
of $7,514 and $1,114, respectively 8,067 88,175
Due from related parties 1,310 52,641
Accrued rental income 1,397,138 1,394,618
Other assets 80,382 69,874
------------------- -------------------
$ 30,974,193 $ 30,977,243
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 4,678 $ 5,600
Real estate taxes payable 8,474 10,654
Distributions payable 787,501 787,501
Due to related parties 72,045 75,482
Rents paid in advance and security deposits 40,493 52,096
------------------- -------------------
Total liabilities 913,191 931,333
Commitment (Note 9)
Minority interest 105,907 106,834
Partners' capital 29,955,095 29,939,076
------------------- -------------------
$ 30,974,193 $ 30,977,243
=================== ===================
See accompanying notes to condensed financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------------- --------------- --------------- ---------------
Revenues:
Rental income from operating leases $ 476,024 $ 486,912 $ 983,983 $ 979,653
Earned income from direct financing leases 146,359 154,994 296,014 341,916
Interest and other income 23,912 61,448 51,827 174,703
-------------- --------------- --------------- ---------------
646,295 703,354 1,331,824 1,496,272
-------------- --------------- --------------- ---------------
Expenses:
General operating and administrative 69,222 82,649 148,859 212,024
Property expenses 11,173 9,346 16,919 29,821
State and other taxes -- 42 30,446 51,700
Depreciation 87,824 77,920 173,780 155,840
Provision for write-down of assets -- 88,144 -- 299,479
-------------- --------------- --------------- ---------------
168,219 258,101 370,004 748,864
-------------- --------------- --------------- ---------------
Income Before Gain on Sale of Assets, Minority
Interest in Income of Consolidated Joint Venture
and Equity in Earnings of Unconsolidated Joint
Ventures 478,076 445,253 961,820 747,408
Gain on Sale of Assets -- 28,301 -- 28,301
Minority Interest in Income of Consolidated
Joint Venture (6,382 ) (3,240 ) (6,382 ) (6,554 )
Equity in Earnings of Unconsolidated Joint Ventures 198,391 90,268 299,961 177,769
-------------- --------------- --------------- ---------------
Income from Continuing Operations 670,085 560,582 1,255,399 946,924
-------------- --------------- --------------- ---------------
Discontinued Operations (Note 6):
Income from discontinued operations, net 17,375 32,808 55,809 52,550
Gain on disposal of discontinued operations, net 279,813 -- 279,813 --
-------------- --------------- --------------- ---------------
297,188 32,808 335,622 52,550
-------------- --------------- --------------- ---------------
Net Income $ 967,273 $ 593,390 $ 1,591,021 $ 999,474
============== =============== =============== ===============
Income Per Limited Partner Unit
Continuing operations $ 0.02 $ 0.02 $ 0.04 $ 0.03
Discontinued operations 0.01 -- 0.01 --
-------------- --------------- --------------- ---------------
Total $ 0.03 $ 0.02 $ 0.05 $ 0.03
============== =============== =============== ===============
Weighted Average Number of Limited Partner
Units Outstanding 35,000,000 35,000,000 35,000,000 35,000,000
============== =============== =============== ===============
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
2002 2001
-------------------- -----------------
General partners:
Beginning balance $ 286,349 $ 286,349
Net income -- --
-------------------- -----------------
286,349 286,349
-------------------- -----------------
Limited partners:
Beginning balance 29,652,727 30,466,185
Net income 1,591,021 2,336,546
Distributions ($0.045 and $0.09 per
limited partner unit, respectively (1,575,002 ) (3,150,004 )
-------------------- -----------------
29,668,746 29,652,727
-------------------- -----------------
Total partners' capital $ 29,955,095 $ 29,939,076
==================== =================
See accompanying notes to condensed financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2002 2001
--------------- --------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 1,660,488 $ 1,705,948
--------------- --------------
Cash Flows from Investing Activities:
Additions to land and buildings on operating
leases (1,800,478 ) --
Proceeds from sale of assets 1,184,559 877,000
Investment in joint ventures (3,823 ) (443,490 )
Return of capital from joint venture 265,926 --
Liquidating distribution from joint venture -- 236,740
Collections on mortgage notes receivable 917,857 26,366
Redemption of certificate of deposit -- 461,394
Increase in restricted cash (29,479 ) --
--------------- --------------
Net cash provided by investing activities 534,562 1,158,010
--------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,575,002 ) (1,575,002 )
Distributions to holder of minority interest (7,309 ) (7,202 )
--------------- --------------
Net cash used in financing activities (1,582,311 ) (1,582,204 )
--------------- --------------
Net Increase in Cash and Cash Equivalents 612,739 1,281,754
Cash and Cash Equivalents at Beginning of Period 2,085,133 1,226,635
--------------- --------------
Cash and Cash Equivalents at End of Period $ 2,697,872 $ 2,508,389
=============== ==============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
period $ 787,501 $ 787,501
=============== ==============
See accompanying notes to condensed financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 2002 may not be indicative of
the results that may be expected for the year ending December 31, 2002.
Amounts as of December 31, 2001, included in the financial statements,
have been derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund VIII, Ltd. (the "Partnership") for the year ended December
31, 2001.
The Partnership accounts for its approximate 88% 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.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
2. Reclassification:
Certain items in the prior year's financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on total partners' capital or net income.
3. Land and Buildings on Operating Leases:
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 received in 2001 relating to
a promissory note, in a Denny's Property located in Ontario, Oregon, at
an approximate cost of $654,400.
In June 2002, the Partnership reinvested the majority of the net sales
proceeds it received from the sale of the Property in Baseball City,
Florida (see note 6), in a Taco Cabana Property located in Denton,
Texas, at an approximate cost of approximately $1,147,600.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
4. Investment in Joint Ventures:
In June 2002, CNL Restaurant Investments II, in which the Partnership
owns a 36.8% interest, sold its property in Columbus, Ohio to the
tenant for a sales price of approximately $1,219,600 resulting in a
gain of approximately $448,300. In addition in June 2002, this joint
venture sold its property in Pontiac, Michigan to the tenant for a
sales price of approximately $725,000 resulting in a loss of $189,800.
The joint venture used the proceeds from the sale of the property in
Columbus, Ohio to acquire a property in Dallas, Texas at an approximate
cost of $1,147,400. The joint venture acquired this property from CNL
Funding 2001-A, LP, an affiliate of the general partners (see Note 7).
As of June 30, 2002, the Partnership had received approximately
$265,900 representing a return of capital for its pro-rata share of the
uninvested net sales proceeds relating to the Property in Pontiac,
Michigan. In July 2002, the Partnership reinvested a portion of the
return of capital in a Property in Kenosha, Wisconsin as
tenants-in-common with an affiliate of the general partners (see note
10).
In June 2002, the Partnership and CNL Income Fund IX, Ltd., as
tenants-in-common, entered into an agreement with an unrelated third
party to sell the property in Libertyville, Illinois, in which the
Partnership owns a 34% interest. CNL Income Fund IX, Ltd. is an
affiliate of the general partners. As a result of the contract, the
tenancy-in-common reclassified the assets relating to this property
from land and building on operating leases, and accrued rental income
to real estate held for sale. The property was recorded at the lower of
its carrying amount or fair value less cost to sell. In addition, the
Partnership and CNL Income Fund IX, Ltd. stopped recording depreciation
and accrued rental income once the property was placed up for sale.
The financial results relating to the properties in Columbus, Ohio;
Pontiac, Michigan; and Libertyville, Illinois are reflected as
Discontinued Operations below.
As of June 30, 2002, Asheville Joint Venture, CNL VIII, X, XII Kokomo
Joint Venture and Bossier City Joint Venture each owns and leases one
property, and CNL Restaurant Investments II owns and leases five
properties, to operators of national fast-food or family-style
restaurants. In addition, the Partnership and affiliates, as three
separate tenancy-in common arrangements, each owned and leased one
property to an operator of national fast-food or family-style
restaurants. The following presents the combined, condensed financial
information for the unconsolidated joint ventures and the properties
held as tenants-in-common with affiliates at:
June 30, December 31,
2002 2001
------------------ -----------------
Land and buildings on operating leases, net $ 11,418,508 $ 10,448,870
Real estate held for sale 1,428,777 3,134,176
Cash 21,976 38,224
Restricted cash 60,265 --
Receivables 1,644 9,601
Accrued rental income 158,451 124,469
Other assets 124 796
Liabilities 10,253 4,452
Partners' capital 13,079,492 13,751,684
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
4. Investment in Joint Ventures:
Quarter Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------- ------------- ------------- ---------------
Revenues $ 313,843 $ 207,599 $ 617,866 $ 422,386
Expenses (66,616 ) (52,044 ) (136,022 ) (88,978 )
Loss on sale of assets -- -- -- (61,864 )
------------- ------------- ------------- ---------------
Income from continuing operations 247,227 155,555 481,844 271,544
Discontinued operations:
Revenues 81,296 95,033 175,737 190,201
Expenses (13,508 ) (20,535 ) (34,962 ) (41,096 )
Gain on disposal of assets 258,505 -- 258,505 --
------------- ------------- ------------- ---------------
326,293 74,498 399,280 149,105
------------- ------------- ------------- ---------------
Net income $ 573,520 $ 230,053 $ 881,124 $ 420,649
============= ============= ============= ===============
The Partnership recognized income of $299,961 and $177,769 during the
six months ended June 30, 2002 and 2001, respectively, of which
$198,391 and $90,268 were earned during the quarters ended June 30,
2002 and 2001, respectively, from these joint ventures and
tenants-in-common arrangements.
5. Mortgage Notes Receivable:
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. During the six months ended June 30, 2002, the borrower
repaid the outstanding principal in the amount of approximately
$917,900. This amount was applied to the outstanding principal balance.
6. Discontinued Operations:
In May 2002, the Partnership sold its property in Baseball City,
Florida to the tenant and received net sales proceeds of approximately
$1,184,600 resulting in a gain on disposal of discontinued operations
of approximately $279,800.
The financial results for this property are reflected as Discontinued
Operations in the accompanying financial statements. The operating
results of discontinued operations are as follows:
Quarter Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------- -------------- ------------- --------------
Rental revenues $ 17,375 $ 32,808 $ 56,189 $ 52,550
Expenses -- -- (380 ) --
Gain on disposal of assets 279,813 -- 279,813 --
------------- -------------- ------------- --------------
Income from discontinued operations $ 297,188 $ 32,808 $ 335,622 $ 52,550
============= ============== ============= ==============
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
7. Related Party Transaction:
In June 2002, the Partnership acquired a property in Denton, Texas,
from CNL Funding 2001-A, LP, for a purchase price of approximately
$1,147,600 (see Note 3). In addition, in June 2002, CNL Restaurant
Investments II Joint Venture also acquired a property in Dallas, Texas,
from CNL Funding 2001-A, LP, for a purchase price of approximately
$1,147,400 (see Note 4). CNL Funding 2001-A, LP is an affiliate of the
general partners. CNL Funding 2001-A, LP had purchased and temporarily
held title to the properties in order to facilitate the acquisition of
the properties by the Partnership and the Joint Venture. The purchase
price paid by the Partnership and the Joint Venture represented the
costs incurred by CNL Funding 2001-A, LP to acquire and carry the
properties, including closing costs.
8. Concentration of Credit Risk:
The following schedule presents total rental revenues and mortgage
interest income from individual lessees, each representing more than
ten percent of the Partnership's total rental revenues and mortgage
interest income (including the Partnership's share of total rental
revenues from the unconsolidated joint ventures and the property held
as tenants-in-common with affiliates of the general partners), for each
of the six months ended June 30:
2002 2001
--------------- ---------------
Golden Corral Corporation $ 300,546 $ 338,876
Carrols Corporation 197,672 195,069
Steak and Ale of Illinois, Inc. and Steak
and Ale of Colorado, Inc. 165,242 N/A
Burger King Corporation N/A 168,792
In addition, the following schedule presents total rental revenues and
mortgage interest income from individual restaurant chains, each
representing more than ten percent of the Partnership's total rental
revenues and mortgage interest income (including the Partnership's
share of total rental revenues from the unconsolidated joint ventures
and the property held as tenants-in-common with affiliates of the
general partners) for each of the six months ended June 30:
2002 2001
--------------- ---------------
Burger King $ 417,543 $ 430,778
Golden Corral Family Steakhouse
Restaurants 300,546 338,876
Bennigan's 165,242 N/A
The information denoted by N/A indicates that for the period presented,
the tenant did not represent more than ten percent of the Partnership's
total rental revenues 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 will significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
9. Commitment:
In June 2002, the Partnership and CNL Income Fund IX, Ltd. entered into
an agreement with an unrelated third party to sell the property in
Libertyville, Illinois. The Partnership owns a 66% interest in this
property, as tenants-in-common, with CNL Income Fund IX, Ltd., a
Florida limited partnership and an affiliate of the general partners.
10. Subsequent Event:
In July 2002, the Partnership reinvested approximately $88,300 of the
return of capital received from CNL Restaurants Investments II Joint
Venture (see note 4) to acquire a 10% interest in a Property in
Kenosha, Wisconsin as a tenant-in-common arrangement with CNL Income
Fund XVII, Ltd., a Florida limited partnership and an affiliate of the
general partners.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund VIII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 18, 1989 to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
are triple-net leases, with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of June 30, 2001, the
Partnership owned 25 Properties directly and twelve Properties indirectly,
through joint venture or tenancy in common arrangements. As of June 30, 2002,
the Partnership owned 24 Properties directly and twelve Properties indirectly,
through joint venture or tenancy in common arrangements.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 2002 and 2001 was cash from operating activities (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses). Cash from operating activities
was $1,660,488 and $1,705,948 for the six months ended June 30, 2002 and 2001,
respectively. The increase in cash from operating activities for the six months
ended June 30, 2002, was primarily a result of changes in the Partnership's
working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 2002.
In 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 received in 2001 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. As of June 30, 2002, the Partnership has continued receiving rental
payments relating to this lease. While the tenant has neither rejected nor
affirmed the one lease it has with the Partnership relating to the Property in
Brandon, Florida, there can be no assurance that the lease will not be rejected
in the future. The lost revenues that would result if the tenant rejects this
lease could have an adverse effect on the results of operations of the
Partnership if the Partnership is unable to lease the Property in a timely
manner.
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. In May 2002, the
borrower repaid the outstanding principal in the amount of approximately
$917,900. This amount was applied to the outstanding principal balance. The
Partnership intends to reinvest these proceeds in an additional income producing
Property.
In May 2002, the Partnership sold its property in Baseball City,
Florida to the tenant and received net sales proceeds of approximately
$1,184,600 resulting in a gain on disposal of discontinued operations of
approximately $279,800. In June 2002, the Partnership reinvested the majority of
the net sales proceeds, it received from the sale of this Property in a Taco
Cabana Property located in Denton, Texas, at an approximate cost of $1,147,600.
In June 2002, CNL Restaurant Investments II Joint Venture, in which the
Partnership owns a 36.8% interest, sold its Property in Columbus, Ohio to the
tenant for a sales price of approximately $1,219,600 resulting in a gain of
approximately $448,300. The joint venture used the proceeds from the sale of the
property in Columbus, Ohio to acquire a property in Dallas, Texas at an
approximate cost of $1,147,400. The Partnership acquired the Property in Denton,
Texas and the joint venture acquired the property in Dallas, Texas from CNL
Funding 2001-A, LP, a Delaware limited partnership and an affiliate of the
general partners. CNL Funding 2001-A, LP had purchased and temporarily held
title to the Properties in order to facilitate the acquisition of the Properties
by the Partnership and the Joint Venture. The purchase price paid by the
Partnership and the Joint Venture represented the costs incurred by CNL Funding
2001-A, LP to acquire the Properties, including closing costs. The general
partners believe that these transactions, or a portion thereof, relating to the
sales and the reinvestment of the net sales proceeds, described above, will
qualify as a like-kind transaction for federal income tax purpose. The
Partnership anticipates its distributions will be sufficient to enable the
limited partners to pay federal and state income taxes, if any (at a level
reasonably assumed by the general partners), resulting from the transaction.
In addition in June 2002, CNL Restaurant Investments II Joint Venture
sold its property in Pontiac, Michigan to the tenant for a sales price of
approximately $725,000 resulting in a loss of $189,800. As of June 30, 2002, the
Partnership had received approximately $265,900 representing a return of capital
for its pro-rata share of the uninvested net sales proceeds relating to the
Property in Pontiac, Michigan. In July 2002, the Partnership reinvested
approximately $88,300 of the return of capital to acquire a 10% interest in a
Property in Kenosha, Wisconsin, as tenants-in-common, with CNL Income Fund XVII,
Ltd., a Florida limited partnership and an affiliate of the general partners.
In June 2002, the Partnership and CNL Income Fund IX, Ltd. entered into
an agreement with an unrelated third party to sell the property in Libertyville,
Illinois. The Partnership owns a 66% interest in this property, as
tenants-in-common, with CNL Income Fund IX, Ltd., a Florida limited partnership
and an affiliate of the general partners. As of August 8, 2002 the sale had not
occurred.
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 June 30, 2002, the Partnership had $2,697,872
invested in such short-term investments, as compared to $2,085,133 at December
31, 2001. The increase in cash and cash equivalents at June 30, 2002, as
compared to December 31, 2001, was primarily due to the fact that in May 2002,
the Partnership received a payment of approximately $917,900 for the outstanding
principal relating to a mortgage note, as described above. The funds remaining
at June 30, 2002, after payment of distributions and other liabilities, will be
used to invest in an additional Property, held as tenants-in-common, and to meet
the Partnership's working capital needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of 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 limited partners of $1,575,002 for each of the six months ended
June 30, 2002 and 2001 ($787,501 for each of the quarters ended June 30, 2002
and 2001). This represents distributions for each applicable six months of
$0.045 per unit ($0.023 per unit for each applicable quarter). No distributions
were made to the general partners for the quarters and six months ended June 30,
2002 and 2001. No amounts distributed to the limited partners for the six months
ended June 30, 2002 and 2001 are required to be or have been treated by the
Partnership as a return of capital for purposes of calculating the limited
partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution to
the limited partners on a quarterly basis.
Total liabilities of the Partnership, including distributions payable,
decreased to $913,191 at June 30, 2002, from $931,333 at December 31, 2001,
primarily as a result of a decrease in rents paid in advance and deposits. The
general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues were $1,279,997 for the six months ended June 30,
2002, as compared to $1,321,569 for the six months ended June 30, 2001, of which
$622,383 and $641,906 were earned during the second quarter of 2002 and 2001,
respectively. The decrease in rental revenues during the quarter and six months
ended June 30, 2002, as compared to the same periods in 2001, was partially due
to the sale of a Property in 2001. The decrease in rental revenues was partially
offset due to the fact that in 2002 the Partnership reinvested in a Property in
Ontario, Oregon and Denton, Texas, as described above in "Capital Resources."
During the quarter and six months ended June 30, 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 revenues relating to this Property. The lease was terminated in
July 2001. The decrease during the quarter and six months ended June 30, 2002
was partially offset by the fact that 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. The Partnership re-leased this Property to the new
tenant with terms substantially the same as the Partnership's other leases.
Rents due under the new lease are lower than rents due under the previous lease;
therefore, the Partnership expects that rental revenues in future periods will
remain at reduced amounts. However, the general partners do not anticipate that
any decrease in rental revenues relating to the new lease will have a material
adverse affect on the Partnership's financial position or results of operations.
The decrease in rental revenues during the quarter and six months ended
June 30, 2002, was also partially due to the fact that the tenant of several
Golden Corral Properties exercised the lease option to a contingent rent
reduction to be invested in Property renovations. This decrease in contingent
rent was partially offset by an increase in gross sales of certain restaurant
properties, the leases of which require the payment of contingent rental income.
During the six months ended June 30, 2002 and 2001, the Partnership
earned $51,827 and $174,703 respectively, in interest and other income, of which
$23,912 and $61,448 were earned during the quarters ended June 30, 2002 and
2001, respectively. The decrease in interest and other income during the quarter
and six months ended June 30, 2002, was partially due to a reduction in interest
income as a result of the prepayment of principal on two mortgage notes of
approximately $441,500 during 2001, and the prepayment of principal on a third
mortgage note of approximately $917,900 during 2002. The decrease in interest
and other income during the six months ended June 30, 2002, was also partially
due to the fact that during the six months ended June 30, 2001, the Partnership
received and recorded as income additional amounts relating to 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 which was sold in 2000.
During the six months ended June 30, 2002 and 2001, the Partnership
recognized income of $299,961 and $177,769, respectively, attributable to net
operating results by unconsolidated joint ventures, of which income of $198,391
and $90,268 were reported during the quarters ended June 30, 2002 and 2001,
respectively. The increase in operating results reported by joint ventures
during the quarter and six months ended June 30, 2002, as compared to the same
periods in 2001, was primarily due to the fact that CNL Restaurant Investment
II, Ltd., in which the Partnership owns a 36.8% interest, sold its property in
Columbus, Ohio to the tenant for a sales price of approximately $1,219,600
resulting in a gain of approximately $448,300. In addition, in June 2002, CNL
Restaurant Investments II, Ltd. sold its property in Pontiac, Michigan to the
tenant for a sales price of approximately $725,000 resulting in a loss of
$189,800. The Partnership recognized its pro-rata share of the net gain
resulting from these sales, as described below. Net operating results reported
by joint ventures also increased during the six months ended June 30, 2002, as
compared to the same period in 2001, partially due to the fact that in 2001 the
Partnership invested in a joint venture and in two Properties, each as a
separate tenants-in-common arrangement, with Florida limited partnerships and
affiliates of the general partners. Net operating results reported by
unconsolidated joint ventures during the six months ended June 30, 2001 were
lower, when compared to the same period in 2002, due to the sale of the Property
owned by Middleburg Joint Venture in March 2001. In connection with this sale,
the Joint Venture recognized a loss of approximately $61,900.
In June 2002, the Partnership and CNL Income Fund IX, Ltd., as
tenants-in-common, entered into an agreement with an unrelated third party to
sell the Property in Libertyville, Illinois, in which the Partnership owns a 34%
interest, as described below.
During the six months ended June 30, 2002, three lessees of the
Partnership and its consolidated joint venture, (i) Golden Corral Corporation,
(ii) Carrols Corporation and (iii) Steak and Ale of Illinois, Inc. and Steak and
Ale of Colorado, Inc. (which are affiliated entities under common control of
Metromedia Restaurant Group), each contributed more than ten percent of the
Partnership's total rental revenues and mortgage interest income (including
rental revenues from the Partnership's consolidated joint venture and the
Partnership's share of rental revenues from Properties owned by joint ventures
and Properties owned with affiliates as tenants-in-common). It is anticipated
that, based on the minimum annual rental payments required by the leases, these
three lessees will continue to contribute more than ten percent of the
Partnership's total rental revenues and mortgage interest income. In addition,
during the six months ended June 30, 2002, three Restaurant Chains, Burger King,
Golden Corral Family Steakhouse Restaurants and Bennigan's, each accounted for
more than ten percent of the Partnership's total rental revenues and mortgage
interest income (including rental revenues from the Partnership's consolidated
joint venture and the Partnership's share of rental revenues from Properties
owned by unconsolidated joint ventures and Properties owned with affiliates as
tenants-in-common). It is anticipated that these three Restaurant Chains each
will continue to account for more than ten percent of the Partnership's total
rental revenues and mortgage interest income to which the Partnership is
entitled under the terms of the leases. Any failure of these lessees or
Restaurant Chains will materially affect the Partnership's income if the
Partnership is not able to re-lease the Property in a timely manner.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets were $370,004 and $748,864, for the six
months ended June 30, 2002 and 2001, respectively, of which $168,219 and
$258,101 were incurred during the quarters ended June 30, 2002 and 2001,
respectively. Operating expenses were higher during the six months ended June
30, 2001, due to the fact that the Partnership recorded provisions for
write-down of assets in the amounts of $181,815 and $117,664, relating to the
Properties in North Fort Myers, Florida, and Statesville, North Carolina, due to
the tenants ceasing operations and vacating the Properties. The provisions
represented the difference between the carrying value of the Properties, and
their fair value at June 30, 2001. The Partnership also incurred real estate
taxes relating to the Property in North Fort Myers, Florida. In December 2001,
the Partnership entered into a new lease with a new tenant, for the Property in
North Fort Myers, Florida, as described above, and the new tenant is responsible
for the property expenses. The Property in Statesville, North Carolina was sold
in May 2001 and the Partnership received net sales proceeds of approximately
$877,000, resulting in a gain of approximately $28,300.
In addition, the decrease in operating expenses during the six months
ended June 30, 2002 was due to lower administrative expenses incurred for
servicing the Partnership and its Properties and due to a decrease in state
taxes. The decrease in operating expenses during the six months ended June 30,
2002, was partially offset by an increase in depreciation expense due to the
purchase of two Properties during 2002 and the fact that during 2001, the
Partnership reclassified the lease relating to the Property in North Fort Myers,
Florida from direct financial leases to operating leases as a result of the
tenant vacating the Property.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
In May 2002, the Partnership sold its Burger King property in Baseball
City, Florida, to the tenant resulting in a gain of approximately $279,800, as
described above in "Capital Resources." The Partnership recognized net rental
income (rental income relating to this Property less Property related expenses)
of $55,809 and $52,550 during the six months ended June 30, 2002 and 2001,
respectively, of which $17,375 and $32,808 were earned during the quarters ended
June 30, 2002 and 2001, respectively. The amounts were reported as Discontinued
Operations in the financial statements.
In June 2002, CNL Restaurant Investments II, in which the Partnership
owns a 36.8% interest, sold its property in Columbus, Ohio to the tenant for a
sales price of approximately $1,219,600 resulting in a gain of approximately
$448,300. This joint venture also sold in June 2002 its property in Pontiac,
Michigan to the tenant for a sales price of approximately $725,000 resulting in
a loss of $189,800, as discussed above in "Capital Resources." In addition in
June 2002, the Partnership and CNL Income Fund IX, Ltd., as tenants-in-common,
entered into an agreement with an unrelated third party to sell the property in
Libertyville, Illinois, in which the Partnership owns a 66% interest. The
Partnership expects to use the proceeds from the expected sale to reinvest in an
additional Property. In accordance with Statement of Financial Accounting
Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets", the tenancy-in-common reclassified the assets relating to the Property
in Libertyville, Illinois from land and building on operating leases, and
accrued rental income to real estate held for sale. The property was recorded at
the lower of its carrying amount or fair value less cost to sell. During the
quarter and six months ended June 30, 2002, the tenancy-in-common suspended the
recording of depreciation and accrued rental income upon placing the property up
for sale. In connection with the Properties in Columbus, Ohio; Pontiac,
Michigan; and Libertyville, Illinois, net rental income (rental revenues less
Property related expenses) of $140,775 and $149,105 were recognized during the
six months ended June 30, 2002 and 2001, respectively, of which $67,788 and
$74,498 were earned during the quarters ended June 30, 2002 and 2001,
respectively. The Partnership's pro-rata share of these amounts are included in
equity in earnings of unconsolidated joint ventures in the accompanying
financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund 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.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Filed
herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended June 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 12th day of August, 2002.
CNL INCOME FUND VIII, LTD.
By:CNL REALTY CORPORATION
General Partner
By:/s/ James M. Seneff, Jr.
------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Robert A. Bourne
-------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund VIII, Ltd. (the
"Partnership"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Partnership's Quarterly
Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The
undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
Date: August 12, 2002 /s/ James M. Seneff, Jr.
-----------------------------
Name: James M. Seneff, Jr.
Title: Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Robert A. Bourne, the President and Treasurer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund VIII, Ltd. (the
"Partnership"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Partnership's Quarterly
Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The
undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
Date: August 12, 2002 /s/ Robert A. Bourne
-------------------------------
Name: Robert A. Bourne
Title: President and Treasurer
EXHIBIT INDEX
Exhibit Number
3.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund 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.)
10.5 Assignment of Management Agreement from CNL APF Partners, LP to
CNL Restaurants XVIII, Inc. (Filed herewith.)
EXHIBIT 10.5