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, 2002
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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes___ No X -
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 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.
As of December 31, 1999, the Partnership owned 37 Properties, either
directly or indirectly through joint venture or tenancy in common arrangements.
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. 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
2001 prepaid principal relating to a promissory note, in a Denny's Property
located in Ontario, Oregon. During the year ended December 31, 2002, the
Partnership sold its Property in Baseball City, Florida and reinvested the
majority of the net sales proceeds in a Taco Cabana Property located in Denton,
Texas. In 2002, CNL Restaurant Investments II, in which the Partnership owns a
36.8% interest, sold its Property in Columbus, Ohio and used the majority of the
proceeds from the sale to acquire a Taco Cabana property in Dallas, Texas. In
addition in 2002, CNL Restaurant Investments II sold its property in Pontiac,
Michigan and the Partnership reinvested the return of capital for its pro-rata
share of the uninvested net sales proceeds relating to the Property in Pontiac,
Michigan in a Texas Roadhouse Property in Kenosha, Wisconsin, as
tenants-in-common, with an affiliate of the general partners and a Florida
limited partnership. In addition in 2002, the Partnership reinvested the 2002
prepaid principal relating to a promissory note in a Boston Market Property
located in Eden Prairie, Minnesota. Finally in 2002, the Partnership, as tenants
in common, with an affiliate of the General Partners and a Florida limited
partnership, in which the Partnership owns a 66% interest, sold its Property in
Libertyville, Illinois, and reinvested the liquidating distribution from the
sale to acquire an IHOP property in Buffalo Grove, Illinois, in a new tenancy in
common, with an affiliate of the General Partners and a Florida limited
partnership.
As of December 31, 2002, the Partnership owned 39 Properties. The 39
Properties included interests in nine Properties owned by joint ventures in
which the Partnership is a co-venturer and four Properties owned with affiliates
as tenants-in-common. 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 holds its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners consider factors such as potential capital
appreciation, net cash flow and federal income 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.
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 9 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 31 of the Partnership's 39 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 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 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 2001 prepaid principal relating to a promissory note, in a
Denny's Property located in Ontario, Oregon. During 2002, the Partnership also
sold its Property in Baseball City, Florida and reinvested the majority of the
net sales proceeds in a Taco Cabana Property located in Denton, Texas. In
addition in 2002, the Partnership reinvested the 2002 prepaid principal relating
to a promissory note in a Boston Market Property located in Eden Prairie,
Minnesota. The lease terms for these Properties are substantially the same as
the Partnership's other leases.
In 2002, CNL Restaurant Investments II, in which the Partnership owns a
36.8% interest, sold its Property in Columbus, Ohio and used the majority of the
proceeds from the sale to acquire a Taco Cabana property in Dallas, Texas. In
addition in 2002, CNL Restaurant Investments II sold its property in Pontiac,
Michigan and the Partnership reinvested the return of capital for its pro-rata
share of the net sales proceeds in a Texas Roadhouse Property in Kenosha,
Wisconsin, as tenants-in-common, with an affiliate of the general partners and a
Florida limited partnership. The lease terms for these Properties are
substantially the same as the Partnership's other leases.
In 2002, the Partnership and an affiliate of the general partners,
which is a Florida limited partnership, as tenants in common in which the
Partnership owns a 66% interest, sold its Property in Libertyville, Illinois,
and reinvested the liquidating distribution from the sale to acquire an IHOP
property in Buffalo Grove, Illinois, as a new tenants-in-common arrangement,
with the same affiliate. The lease terms for this Property are substantially the
same as the Partnership's other leases.
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. A workout plan has not been approved since all parties
involved have not been able to agree on a workout plan. As of March 10, 2003,
the Partnership has continued receiving 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 will 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 2002, two lessees (or groups of affiliated lessees) of the
Partnership and its consolidated joint venture, Golden Corral Corporation and
the affiliated entities under common control, Carrols Corporation and Texas Taco
Cabana (hereinafter referred to as "Carrols Corporation"), 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 unconsolidated joint ventures and Properties owned with affiliates of
the General Partners as tenants-in-common). As of December 31, 2002, Golden
Corral Corporation was the lessee under leases relating to five restaurants, and
Carrols Corporation was the lessee under leases relating to seven restaurants.
It is anticipated that, based on the minimum rental payments required by the
leases, these two lessees (or groups of affiliated lessees) each will continue
to contribute more than ten percent of the Partnership's total rental revenues
and mortgage interest income in 2003. 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 revenues
and mortgage interest income in 2002 (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 of the General Partners as tenants-in-common). In 2003, it
is anticipated that these two 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 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 the following joint venture and
tenancy in common arrangements as of December 31, 2002:
Entity Name Year Ownership Partners Property
Woodway Joint Venture 1991 87.68 % Various Third Party Partners Waco, TX
Asheville Joint Venture 1991 85.54% CNL Income Fund VI, Ltd. Asheville, NC
CNL Restaurant Investments II 1991 36.80% CNL Income Fund VII, Ltd. Dallas, TX
CNL Income Fund IX, Ltd. Hastings, MN
New Castle, IN
Raceland, LA
San Antonio, TX
Bossier City Joint Venture 1999 34.00% CNL Income Fund XII, Ltd. Bossier City, LA
CNL Income Fund XIV, Ltd.
CNL VIII, X, XII Kokomo Joint 2001 10.00% CNL Income Fund X, Ltd. Kokomo, IN
Venture CNL Income Fund XII, Ltd.
CNL Income Fund VIII, Ltd. 2001 17.00% CNL Income Fund XVI, Ltd. Walker, LA
and CNL Income Fund XVI,
Ltd., Tenants in Common
CNL Income Fund VIII, Ltd. 2001 19.30% CNL Income Fund XVIII, Ltd. Denver, CO
and CNL Income Fund
XVIII, Ltd., Tenants in
Common
CNL Income Fund VIII, Ltd. 2002 10.00% CNL Income Fund XVII, Ltd. Kenosha, WI
and CNL Income Fund
XVII, Ltd., Tenants in
Common
CNL Income Fund VIII, Ltd. 2002 66.00% CNL Income Fund IX, Ltd. Buffalo Grove, IL
and CNL Income Fund IX,
Ltd., Tenants in Common
CNL Restaurant Investments II was formed to hold six Properties;
however, it currently holds only five. All other joint ventures or tenancies in
common were formed to hold one Property. Each CNL Income Fund is an affiliate of
the General Partners and is a limited partnership organized pursuant to the laws
of the state of Florida. The Partnership has management control of Woodway Joint
Venture, and shares management control equally with the affiliates of the
General Partners for the other joint ventures.
The joint venture and tenancy in common arrangements provide for the
Partnership and its joint venture or tenancy in common partners to share in all
costs and benefits in proportion to each partner's percentage interest in the
business entity. The Partnership and its partners are also jointly and severally
liable for all debts, obligations and other liabilities of the joint venture or
tenancy in common. Net cash flow from operations is distributed to each joint
venture or tenancy in common partner in accordance with its respective
percentage interest in the business entity.
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, continues in existence from year to year unless terminated at the option
of either joint venturer or by an event of dissolution. Events of dissolution
include the bankruptcy, insolvency or termination of any joint venturer, sale of
the Property owned by the joint venture and mutual agreement of the Partnership
and its joint venture partners to dissolve the joint venture. Any liquidation
proceeds, after paying joint venture debts and liabilities and funding reserves
for contingent liabilities, will be distributed first to the joint venture
partners with positive capital account balances in proportion to such balances
until such balances equal zero, and thereafter in proportion to each joint
venture partner's percentage interest in the joint venture. CNL 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 joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer or assign its joint venture or tenancy in
common interest without first offering it for sale to its partners, either upon
such terms and conditions as to which the parties may agree or, in the event the
parties cannot agree, on the same terms and conditions as any offer from a third
party to purchase such joint venture or tenancy in common interest.
In 2002, CNL Restaurant Investments II sold its Property in Columbus,
Ohio and used the majority of the proceeds from the sale to acquire a Taco
Cabana property in Dallas, Texas. In addition in 2002, CNL Restaurant
Investments II sold its property in Pontiac, Michigan and the Partnership
reinvested the return of capital for its pro-rata share of the net sales
proceeds relating to the Property in Pontiac, Michigan in a Texas Roadhouse
Property in Kenosha, Wisconsin, as tenants-in-common.
In addition in 2002, the Partnership and an affiliate of the General
Partners, which is a Florida limited partnership, as tenants in common, sold its
Property in Libertyville, Illinois, and reinvested the liquidating distribution
from the sale to acquire an IHOP property in Buffalo Grove, Illinois, as a new
tenants-in-common arrangement, with the same affiliate.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Certain Management Services
RAI Restaurants, Inc. (formerly known as CNL Restaurants XVIII, Inc.),
an affiliate of the General Partners, provided certain services relating to
management of the Partnership and its Properties pursuant to a management
agreement with the Partnership. CNL APF Partners, LP assigned its rights in, and
its obligations under, the management agreement with the Partnership to RAI
Restaurants, Inc. ("Advisor") effective January 1, 2002. All of the terms and
conditions of the management agreement, including the payment of fees, remained
unchanged. Under this agreement, the Advisor is responsible for collecting
rental payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices, and
providing information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross 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 property
management agreement, the property management fee is subordinated to receipt by
the Limited Partners of an aggregate, ten percent, cumulative, noncompounded
annual return on their adjusted capital contributions (the "10% Preferred
Return"), calculated in accordance with the Partnership's limited partnership
agreement (the "Partnership Agreement"). In any year in which the Limited
Partners have not received the 10% Preferred Return, no property management fee
will be paid.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
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 American Properties Fund, Inc.,
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, 2002, the Partnership owned 39 Properties. Of the 39
Properties, 26 are owned by the Partnership in fee simple, nine are owned
through joint venture arrangements, and four 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, owned directly and indirectly,
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,
directly and indirectly, as of December 31, 2002 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 3
Illinois 2
Indiana 2
Louisiana 3
Michigan 2
Minnesota 2
New York 2
North Carolina 1
Ohio 7
Oregon 1
Tennessee 2
Texas 8
Virginia 1
Wisconsin 1
--------------
TOTAL PROPERTIES 39
==============
Buildings. Each of the Properties owned by the Partnership, directly
and indirectly, 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, 2002, 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, 2002, 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 $25,620,634 and
$14,617,254, respectively.
The following table lists the Properties owned by the Partnership,
directly and indirectly, as of December 31, 2002 by Restaurant Chain.
Restaurant Chain Number of Properties
Bennigan's 2
Boston Market 1
Burger King 10
Denny's 2
Golden Corral 5
Hardee's 4
IHOP 2
Jack in the Box 3
KFC 2
Perkins 1
Pizza Hut 1
Shoney's 1
Taco Cabana 2
Texas Roadhouse 1
Wendy's 1
Other 1
--------------
TOTAL PROPERTIES 39
==============
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 substantially all 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.
At December 31, 2002, 2001, 2000, 1999, and 1998, 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:
2002 2001 2000 1999 1998
------------- ------------- --------------- -------------- ---------------
Rental Revenues (1) $ 3,226,476 $ 3,364,048 $ 3,361,651 $ 3,527,515 $ 3,443,094
Properties 39 37 36 37 36
Average Rent per Property
$ 82,730 $ 90,920 $ 93,379 $ 95,338 $ 95,642
(1) Rental revenues include the Partnership's share of rental revenues from
the Properties owned through joint venture and tenancy in common
arrangements
The following is a schedule of lease expirations for leases in place as
of December 31, 2002 for each year for the next ten years and thereafter.
Percentage of
Expiration Number Annual Rental Gross Annual
Year of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2003 -- $ -- --
2004 -- -- --
2005 8 793,457 22.09%
2006 1 118,124 3.29%
2007 -- -- --
2008 -- -- --
2009 1 142,910 3.98%
2010 7 713,240 19.86%
2011 10 862,160 24.00%
2012 -- -- --
Thereafter 12 961,849 26.78%
---------- ------------- -------------
Totals 39 $ 3,591,740 100.00%
========== ============= =============
Leases with Major Tenants. The terms of the leases with the
Partnership's major tenants as of December 31, 2002 (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
$174,500 (ranging from approximately $145,500 to $218,200).
Carrols Corporation and Texas Taco Cabana, LP, as a group of affiliated
lessees, lease five Burger King and two Texas Taco Cabana restaurants. The
initial term is 20 years for five restaurants and 19 years for two restaurants
(expiring in 2011 and 2020, respectively) and the average minimum base annual
rent is approximately $98,000 (ranging from approximately $86,300 to $117,900).
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 10, 2003, there were 3,394 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 2002, 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, 2002, 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 2002 and 2001 other than
pursuant to the Plan, net of commissions.
2002 (1) 2001 (1)
---------------------------------- ----------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- --------- ----------
First Quarter $0.78 $ 0.65 $ 0.70 $0.80 $ 0.71 $ 0.75
Second Quarter 0.95 0.95 0.95 0.95 0.72 0.80
Third Quarter 0.95 0.72 0.89 0.95 0.66 0.75
Fourth Quarter 0.87 0.78 0.83 0.95 0.62 0.77
(1) A total of 371,760 and 551,448 Units were transferred other than
pursuant to the Plan for the years ended December 31, 2002 and 2001,
respectively.
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 the years ended December 31, 2002 and 2001, the Partnership
declared cash distributions of $3,325,004 and $3,150,004, respectively, to the
Limited Partners. During the quarter ended December 31, 2002, the Partnership
declared a special distribution to the Limited Partners of $175,000 which
represented cumulative excess operating reserves. This special distribution was
effectively a return of a portion of the Limited Partners' investment, although
in accordance with the partnership agreement, $175,000, was applied toward the
Limited Partners' 10% Preferred Return. No amounts distributed to partners for
the years ended December 31, 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. No
distributions have been made to the General Partners to date. As indicated in
the chart below, these distributions were declared at the close of each of the
Partnership's calendar quarters. These amounts include monthly distributions
made in arrears for the Limited Partners electing to receive such distributions
on this basis.
Quarter Ended 2002 2001
-------------------------- -------------- -----------------
March 31 $ 787,501 $ 787,501
June 30 787,501 787,501
September 30 787,501 787,501
December 31 962,501 787,501
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
2002 2001 2000 1999 1998
-------------- ------------- ------------- ------------ --------------
Year ended December 31:
Continuing Operations (3):
Revenues $ 2,874,812 $ 2,904,044 $ 3,129,562 $3,147,881 $3,266,188
Equity in earnings
unnconsolidated
joint ventures 649,791 390,505 319,184 276,012 276,721
Income from continuing
operations (1) 2,762,035 2,246,518 3,493,610 2,719,884 3,192,397
Discontinued Operations (3):
Revenues 55,304 90,028 93,561 90,180 96,515
Income from discontinued
operations (2) 335,117 90,028 93,561 90,180 96,515
Net income 3,097,152 2,336,546 3,587,171 2,810,064 3,288,912
Net income per Unit:
Continuing operations $ 0.078 $ 0.064 $ 0.099 $ 0.077 $ 0.091
Discontinued
operations 0.010 0.003 0.003 0.003 0.003
-------------- ------------- ------------- ------------ --------------
Total $ 0.088 $ 0.067 $ 0.102 $ 0.080 $ 0.094
============== ============= ============= ============ ==============
Cash distributions declared (4) $ 3,325,004 $ 3,150,004 $ 3,150,004 $3,150,004 $ 3,850,003
Cash distributions declared per Unit (4) 0.095 0.090 0.090 0.090 0.110
At December 31:
Total assets $ 30,941,865 $30,977,243 $31,827,394 $31,479,495 $32,071,119
Total partners' capital 29,711,224 29,939,076 30,752,534 30,315,367 30,655,307
(1) Income from continuing operations for the year ended December 31, 2001
includes $299,479 from provision for write-down of assets. Income from
continuing operations 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.
(2) Income from discontinued operations for the year ended December 31,
2002 includes gain on sale of assets of $279,813.
(3) Certain items in prior years' financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on net income. The results of operations relating to
properties that were either disposed of or were classified as held for
sale as of December 31, 2002 are reported as discontinued operations.
The results of operations relating to properties that were identified
for sale as of December 31, 2001 but sold subsequently are reported as
continuing operations.
(4) Distributions for the year ended December 31, 2002 and 1998, include
special distributions to the Limited Partners for a total of $175,000
and $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. The
leases provide for minimum base annual rental amounts (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, some of the leases provide that, commencing in specified
lease years (generally the sixth lease year), the annual base rent required
under the terms of the lease will increase.
As of December 31, 2002, 2001 and 2000, the Partnership owned 26, 24
and 25 Properties directly, respectively. In addition, the Partnership owned 11
Properties indirectly through joint venture or tenancy in common arrangements as
of December 31, 2000, and 13 Properties as of December 31, 2002 and 2001.
Capital Resources
For the years ended December 31, 2002, 2001 and 2000, cash from
operating activities was $3,350,597, $3,196,595 and $3,349,897, respectively.
The increase in cash from operating activities during 2002, as compared to 2001,
and the decrease in cash from operating activities during 2001, as compared to
2000, resulted from changes in the Partnership's working capital and changes in
income and expenses.
Other sources and uses of cash included the following during the years
ended December 31, 2002, 2001 and 2000.
In July 2000, the Partnership sold its Properties in Brooksville,
Bayonet Point and Sun City, Florida, to a third party 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 majority of
these sales proceeds 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 addition, in August 2000,
the Partnership also used a portion of these net sales proceeds 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. During 2002, the Partnership and the
affiliate, as tenants-in-common, sold this Property and reinvested the
liquidating distribution in another Property, as described below.
In September 2000, the Partnership sold its property in Jacksonville,
Florida, and received net sales proceeds of approximately $420,000, resulting in
a gain of approximately $127,900. In October 2000, the Partnership reinvested
these sales proceeds in a Property in Hialeah, Florida at an approximate cost of
$472,300.
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, and recorded
a loss of approximately $61,900. 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 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, 2002, 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 and July 2001, the Partnership reinvested a
portion of these sales proceeds in two additional Properties, Walker, Louisiana
and Denver, Colorado, as two separate tenancy in common arrangements with
Florida limited partnerships and affiliates of the General Partners. As of
December 31, 2002, the Partnership had contributed approximately $232,300 for a
17% interest, and approximately $422,500 for a 19.30% interest, respectively, to
these tenancies in common.
In September 2001, the borrower of two promissory notes accepted in
1999 in connection with the sale of two of the Partnership's Properties, prepaid
the total outstanding principal balance of approximately $441,500.
In January 2002, the Partnership reinvested the other 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, 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. A workout plan has not been approved since all parties
involved have not been able to agree on a workout plan. As of March 10, 2003,
the Partnership has continued receiving 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 will 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.
In May 2002, the borrower, relating to a promissory note accepted in
1996 in connection with the sale of one of the Partnership's Properties, repaid
the outstanding principal of approximately $917,900. In September 2002, the
Partnership reinvested the prepaid principal in a Property located in Eden
Prairie, Minnesota, at an approximate cost of $1,093,900. The Property was
acquired from CNL Net Lease Investors, L.P. ("NLI"). During 2002, and prior to
the Partnership's acquisition of this property, CNL Financial LP Holding, LP
("CFN") and CNL Net Lease Investors GP Corp. ("GP Corp") purchased the limited
partner's interest and general partner's interest, respectively, of NLI. Prior
to this transaction, an affiliate of the Partnership's General Partners owned a
0.1% interest in NLI and served as a general partner of NLI. The original
general partners of NLI waived their rights to benefit from this transaction.
The acquisition price paid by CFN for the limited partner's interest was based
on the portfolio acquisition price. The Partnership acquired the property at
CFN's cost and did not pay any additional compensation to CFN for the
acquisition of the property. Each CNL entity is an affiliate of the
Partnership's General Partners.
In May 2002, the Partnership also 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, in which the Partnership owns a
36.8% interest, sold its Property in Columbus, Ohio to the tenant and received
net sales proceeds of approximately $1,215,700, 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. The General Partners believe that these
transactions, or a portion thereof, relating to the sales and the reinvestment
of the net sales proceeds, will qualify as a like-kind transaction for federal
income tax purpose.
In addition in June 2002, CNL Restaurant Investments II sold its
property in Pontiac, Michigan to the tenant and received net sales proceeds of
approximately $722,600 resulting in a loss of $189,800. The tenant exercised its
option to purchase the Property under the terms of the lease. The Partnership
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 August 2002, the Partnership reinvested a portion of the
return of capital to acquire 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, at an approximate cost of
$1,883,000 from a third party. The Partnership and the affiliate of the General
Partners entered into an agreement whereby each co-tenant will share in the
profits and losses of each property in proportion to its applicable percentage
interest. As of December 2002, the Partnership contributed approximately
$188,300 for a 10% interest in this property.
In September 2002, the Partnership, as tenants-in-common with CNL
Income Fund IX, Ltd., an affiliate of the General Partners, sold its property in
Libertyville, Illinois, to a third party and received net sales proceeds of
approximately $1,630,400 resulting in a gain of approximately $199,300. The
Partnership owned a 66% interest in this Property. The Partnership and the
affiliate of the General Partner, under a new tenancy in common arrangement,
used the liquidating distribution from the sale of the Property to acquire a
property in Buffalo Grove, Illinois at an approximate cost of $1,588,800. The
Property was acquired from NLI During 2002, and prior to the Partnership's
acquisition of this property, CFN and GP Corp purchased the limited partner's
interest and General Partner's interest, respectively, of NLI. Prior to this
transaction, an affiliate of the Partnership's General Partners owned a 0.1%
interest in NLI and served as a General Partner of NLI. The original general
partners of NLI waived their rights to benefit from this transaction. The
acquisition price paid by CFN for the limited partner's interest was based on
the portfolio acquisition price. The Partnership acquired the Property at CFN's
cost and did not pay any additional compensation to CFN for the acquisition of
the Property. Each CNL entity is an affiliate of the Partnership's General
Partners.
None of the Properties owned by the Partnership or the joint ventures,
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 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 use of such funds to pay Partnership
expenses, or to make distributions to partners. At December 31, 2002, the
Partnership had $1,571,487 invested in such short-term investments as compared
to $2,085,133 at December 31, 2001. The decrease in cash and cash equivalents at
December 31, 2002, as compared to December 31, 2001, was primarily due to the
reinvestment of the remaining net sales proceeds from the 2001 sale of one of
the Partnership's Properties and the prepaid principal received in 2001, in an
additional Property. As of December 31, 2002, the average interest rate earned
by the Partnership on the rental income deposited in demand deposit accounts at
commercial banks was approximately 1.08% annually. The funds remaining at
December 31, 2002, after payment of distributions and other liabilities, will be
used to invest in an additional Property, and to meet the Partnership's working
capital needs.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate net cash
flow in excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Due to low operating expenses and ongoing cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because all leases of the Partnership's Properties are
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 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 $3,325,004 for the year ended December
31, 2002, and $3,150,004 for each of the years ended December 31, 2001 and 2000.
This represents distributions of $0.10 per Unit for the year ended December 31,
2002, and $0.09 per Unit for each of the years ended December 31, 2001 and 2000.
During the quarter ended December 31, 2002, the Partnership declared a special
distribution to the Limited Partners of $175,000, which represented cumulative
excess operating reserves. This special distribution was effectively a return of
a portion of the Limited Partners' investment, although in accordance with the
partnership agreement, the total amount was applied toward the Limited Partners'
10% Preferred Return. No amounts distributed to the Limited Partners for the
years ended December 31, 2002, 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. 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, 2002, 2001 and 2000.
As of December 31, 2002 and 2001, the Partnership owed $14,333 and
$20,432, 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,
2002, 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, including distributions payable, increased to
$1,056,503 at December 31, 2002, from $855,851 at December 31, 2001, primarily
as a result of accruing a special distribution of $175,000 which represented
cumulative excess operating reserves. 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 assumptions 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 the Partnership's Properties and investments in
unconsolidated entities periodically for impairment at least once a year or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The assessment is based on the carrying amount
of the Property or investment at the date it is tested for recoverability
compared to the sum of the estimated future cash flows expected to result from
its operation and sale through the expected holding period. If an impairment is
indicated, the asset is adjusted to its estimated fair value.
When the Partnership makes the decision to sell or commits to a plan to
sell a Property, its operating results are reported as discontinued operations.
Results of Operations
Comparison of the year ended December 31, 2002 to the year ended December 31,
2001
Total rental revenues were $2,719,772 for the year ended December 31,
2002 as compared to $2,552,879 in the same period in 2001. The increase in
rental revenues during 2002, as compared to the same period in 2001, was
primarily due to the fact that in 2002 the Partnership reinvested the net
proceeds from the 2001 and 2002 sales of Statesville, North Carolina and
Baseball City, Florida and the prepaid principal received in 2001 and 2002, in
three Properties located in Ontario, Oregon; Denton, Texas; and Eden Prairie,
Minnesota. The increase in rental revenues during 2002 was partially offset by
the sale of a Property in 2001.
During 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. In September 2001, the
Partnership entered into a new lease with a new tenant for this Property for
which rental payments 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.
During the years ended December 31, 2002 and 2001, the Partnership also
earned $88,664 and $80,176, respectively, in contingent rental income.
During the years ended December 31, 2002 and 2001, the Partnership
earned $649,791 and $390,505, respectively, attributable to the net income
earned by unconsolidated joint ventures. The increase in operating results
reported by unconsolidated joint ventures during 2002, as compared to the same
period in 2001, was partially due to the fact that the Partnership, as
tenants-in-common with CNL Income Fund IX, Ltd., an affiliate of the General
Partners, sold its property in Libertyville, Illinois, to a third party and
received net sales proceeds of approximately $1,630,400 resulting in a gain of
approximately $199,300. The Partnership owned a 66% interest in this property.
The Partnership recognized its pro-rata share of the net gain resulting from
this sale.
In addition, CNL Restaurant Investment II, in which the Partnership
owns a 36.8% interest, sold its property in Columbus, Ohio to the tenant and
received net sales proceeds of approximately $1,215,700 resulting in a gain of
approximately $448,300. CNL Restaurant Investments II, also sold its property in
Pontiac, Michigan to the tenant and received net sales proceeds of approximately
$722,600 resulting in a loss of $189,800. The Partnership recognized its
pro-rata share of the net gain resulting from these sales.
Net operating results reported by unconsolidated joint ventures also
increased during 2002, because in 2002 and 2001, the Partnership invested in a
joint venture and in four Properties, each as a separate tenants-in-common
arrangement, with Florida limited partnerships and affiliates of the General
Partners. In addition, net operating results reported by unconsolidated joint
ventures were lower in 2001 because Middleburg Joint Venture sold its Property
and recognized a loss of approximately $61,900.
During 2002, two lessees (or groups of affiliated lessees) of the
Partnership and its consolidated joint venture, Golden Corral Corporation, and
the affiliated entities under common control, Carrols Corporation and Texas Taco
Cabana (hereinafter referred to as "Carrols Corporation"), 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 unconsolidated joint ventures and Properties owned with affiliates of
the General Partners as tenants-in-common). As of December 31, 2002, Golden
Corral Corporation was the lessee under leases relating to five restaurants, and
Carrols Corporation was the lessee under leases relating to seven restaurants.
It is anticipated that, based on the minimum rental payments required by the
leases, these two lessees (or groups of affiliated lessees) each will continue
to contribute more than ten percent of the Partnership's total rental revenues
and mortgage interest income in 2003. 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 revenues
and mortgage interest income in 2002 (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 of the General Partners as tenants-in-common). In 2003, it
is anticipated that these two 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 could materially
affect the Partnership's income if the Partnership is not able to re-lease the
Properties in a timely manner.
During the years ended December 31, 2002 and 2001, the Partnership also
earned $66,376 and $270,989, respectively, in interest and other income,
respectively. The decrease in interest and other income during 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 proceeds were reinvested in 2002 in a Property in Eden Prairie,
Minnesota. During 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. No such income was received during 2002.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $749,704 and $1,063,333 for the years
ended December 31, 2002 and 2001, respectively. Operating expenses were higher
during 2001, primarily as a result of the recording of 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 because the tenants
ceased operations and vacated the Properties. The provisions represented the
difference between the carrying value of the Properties, and their estimated
fair value. The Partnership also incurred expenses such as, real estate taxes,
legal, and repairs and maintenance, relating to the Property in North Fort
Myers, Florida during 2001. In September 2001, the Partnership entered into a
new lease with a new tenant for the Property in North Fort Myers, Florida, and
the new tenant is responsible for the property expenses. The decrease in
operating expenses was partially offset by legal expenses incurred in 2002
relating to the filing for bankruptcy of a tenant, Brandon Fast Food Services,
Inc. As of March 10, 2003, 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 will 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 addition, the decrease in operating expenses during 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 2002 was partially offset by an increase in depreciation expense
due to the purchase of three 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.
The decrease in operating expenses during 2002 was partially offset by
higher property expenses in 2002 because the Partnership elected to reimburse
the tenant of several Golden Corral for certain renovation costs.
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 estimated 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.
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.
During 2002, the Partnership identified and sold the Property in
Baseball City, Florida, which met the criteria of this standard. In May 2002,
the Partnership received net proceeds relating to the sale of this Property of
approximately $1,184,600, resulting in a gain of approximately $279,800. The
financial results of this Property were classified as Discontinued Operations in
the accompanying financial statements. The majority of the net sales proceeds
from the sale of this Property were reinvested in a Property in Denton, Texas.
During 2002, CNL Restaurant Investments II, in which the Partnership
owns a 36.8% interest, identified and sold two Properties in Columbus, Ohio and
Pontiac, Michigan, which met the criteria of this standard. In June 2002, the
joint venture sold its property in Columbus, Ohio to the tenant and received net
sales proceeds of approximately $1,215,700 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 and received net sales proceeds of approximately
$722,600 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. The Partnership 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 August 2002, the Partnership reinvested a
portion of the return of capital in a Property in Kenosha, Wisconsin as
tenants-in-common with a Florida limited partnership and an affiliate of the
General Partners.
In addition, during 2002, the Partnership, as tenants-in common with
CNL Income Fund IX, Ltd., an affiliate of the general partners, identified and
sold the Property in Libertyville, Illinois, to a third party and received net
sales proceeds of approximately $1,630,400 resulting in a gain of approximately
$199,300. The Partnership owned a 66% interest in this property. The Partnership
and CNL IX, as a new tenancy in common arrangement, used the liquidating
distribution from the sale of the property to acquire a property in Buffalo
Grove, Illinois.
The financial results of the Properties in Columbus, Ohio; Pontiac,
Michigan; and Libertyville, Illinois were reported as Discontinued Operations in
the condensed financial information for the unconsolidated joint ventures and
the properties held as tenants-in-common presented in the footnotes to the
accompanying financial statements.
Comparison of the year ended December 31, 2001 to the year ended December 31,
2000
Total rental revenues were $2,552,879 for the year ended December 31,
2001 as compared to $2,755,294 in the same period in 2000. The decrease in
rental revenues during 2001, as compared to the same period in 2000, was
partially the result of the Partnership selling several Properties during both
years. The decrease in rental revenues was partially offset by an increase in
rental revenues resulting from the Partnership reinvesting a portion of the net
sales proceeds in two Properties in Deerfield, Illinois and Hialeah, Florida.
Rental revenues are expected to remain at reduced amounts while equity in
earnings of joint ventures is expected to increase since 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
tenancies in common.
Rental revenues also decreased during 2001, because during 2001, the
tenant of the Property in North Fort Myers, Florida, vacated the Property and
ceased making rental payments. As a result, the Partnership stopped recording
rental revenues 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.
During the years ended December 31, 2001 and 2000, the Partnership also
earned $80,176 and $102,566, respectively, in contingent rental income. The
decrease in contingent rental income during 2001, as compared to the same period
in 2000, was primarily attributable to a decrease in gross sales for certain
restaurant Properties requiring the payment of contingent rental income.
During the years ended December 31, 2001 and 2000, the Partnership
earned $390,505 and $319,184, respectively, attributable to net income earned by
unconsolidated joint ventures. The increase in net income earned by
unconsolidated joint ventures during 2001, as compared to the same period in
2000, was primarily due to the fact that the Partnership invested 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. The sale in 2001 of the Property owned by Middleburg
Joint Venture partially offset the increase in net income earned by the
unconsolidated joint ventures. In conjunction with the sale of the Property,
Middleburg Joint Venture recognized a loss of approximately $61,900 in March
2001.
During the years ended December 31, 2001 and 2000, the Partnership also
earned $270,989 and $271,702 in interest and other income. Interest income
during 2001 was lower because the Partnership collected $441,500, representing
the outstanding principal balance of a mortgage note. The decrease in interest
income was primarily offset by the fact that during 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. The proceeds were used
to pay liabilities of the Partnership.
Operating expenses, including depreciation expense and provisions for
write-down of assets, were $1,063,333 and $554,511 for the years ended December
31, 2001 and 2000, respectively. During 2001, the Partnership recorded a
provision for write-down of assets in the amount of $181,815 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 and its estimated fair value at
December 31, 2001. In addition, during 2001, the Partnership recorded a
provision for write-down of assets of $117,664 relating to the property located
in Statesville, North Carolina. The tenant of the Property defaulted under the
terms of its lease, discontinued operations and vacated the Property. The
provision represented the difference between the carrying value of the property
and its estimated fair value. The Partnership sold this Property in May 2001.
The increase in operating expenses during 2001, as compared to 2000,
was partially attributable to an increase in the costs incurred for
administrative expenses for servicing the Partnership and its Properties, and to
higher state taxes in some states in which the Partnership conducts business. 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 has re-leased this Property, and the new tenant is responsible
for such expenses since December 2001.
During 2000, the Partnership incurred $32,424 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.
As a result of the sales of the Properties, described above, the
Partnership recorded a total gain of $28,301 and $612,693 during 2001 and 2000.
The Partnership's leases as of December 31, 2002, are generally
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Inflation, overall, has had a minimal effect on
results of operations of the Partnership. Continued inflation 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 has been relatively resilient during this
volatile time with steady performance during 2002. However, the industry remains
in a state of cautious optimism. Restaurant operators expect their business to
be better in 2003, according to a nationwide survey conducted by the National
Restaurant Association, but are concerned by the budget deficits being
experienced by many states and the potential of new taxes on the industry to
alleviate the situation.
In January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be considered by a company if that company is subject to a majority risk of loss
from the variable interest entity's activities or entitled to receive a majority
of the entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. Consolidation of variable
interests entities will provide more complete information about the resources,
obligations, risks and opportunities of the consolidated company. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003, and to older entities in the first
fiscal year or interim period beginning after June 15, 2003. Management believes
adoption of this standard may result in either consolidation or additional
disclosure requirements with respect to the Partnership's unconsolidated joint
ventures or Properties held with affiliates of the General Partners as
tenants-in-common, which are currently accounted for under the equity method.
However, such consolidation is not expected to significantly impact the
Partnership's results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 21
Financial Statements:
Balance Sheets 22
Statements of Income 23
Statements of Partners' Capital 24
Statements of Cash Flows 25-26
Notes to Financial Statements 27-41
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, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 15(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
January 31, 2003
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2002 2001
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 18,256,782 $ 15,726,970
Net investment in direct financing leases 4,559,231 4,722,393
Real estate held for sale -- 926,538
Investment in joint ventures 4,609,998 4,601,808
Mortgage notes receivable -- 926,080
Cash and cash equivalents 1,571,487 2,085,133
Certificates of deposit 382,249 378,889
Receivables, less allowance for doubtful accounts of
$9,084 and $1,114, respectively 75,583 88,175
Due from related parties 6,637 52,641
Accrued rental income 1,392,675 1,398,742
Other assets 87,223 69,874
------------------- -------------------
$ 30,941,865 $ 30,977,243
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 3,622 $ 5,600
Escrowed real estate taxes payable 3,207 10,654
Distributions payable 962,501 787,501
Due to related parties 69,383 75,482
Rents paid in advance and security deposits 87,173 52,096
------------------- -------------------
Total liabilities 1,125,886 931,333
Minority interest 104,755 106,834
Partners' capital 29,711,224 29,939,076
------------------- -------------------
$ 30,941,865 $ 30,977,243
=================== ===================
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2002 2001 2000
------------------ --------------- ---------------
Revenues:
Rental income from operating leases $ 2,131,424 $ 1,906,835 $ 1,932,684
Earned income from direct financing leases 588,348 646,044 822,610
Contingent rental income 88,664 80,176 102,566
Interest and other income 66,376 270,989 271,702
------------------ --------------- ---------------
2,874,812 2,904,044 3,129,562
------------------ --------------- ---------------
Expenses:
General operating and administrative 268,405 335,950 176,544
Property expenses 86,336 50,966 23,963
State and other taxes 30,446 54,965 18,228
Depreciation 364,517 321,973 303,352
Provision for write-down of assets -- 299,479 --
Transaction costs -- -- 32,424
------------------ --------------- ---------------
749,704 1,063,333 554,511
------------------ --------------- ---------------
Income Before Gain on Sale of Assets, Minority
Interest in Income of Consolidated Joint Venture
and Equity in Earnings of Unconsolidated Joint
Ventures 2,125,108 1,840,711 2,575,051
Gain on Sale of Assets -- 28,301 612,693
Minority Interest in Income of Consolidated
Joint Venture (12,864 ) (12,999 ) (13,318 )
Equity in Earnings of Unconsolidated Joint
Ventures 649,791 390,505 319,184
------------------ --------------- ---------------
Income from Continuing Operations 2,762,035 2,246,518 3,493,610
------------------ --------------- ---------------
Discontinued Operations (Note 6)
Income from discontinued operations 55,304 90,028 93,561
Gain on disposal of discontinued operations 279,813 -- --
------------------ --------------- ---------------
335,117 90,028 93,561
------------------ --------------- ---------------
Net Income $ 3,097,152 $ 2,336,546 $ 3,587,171
================== =============== ===============
Income Per Limited Partner Unit
Continuing Operations $ 0.078 $ 0.064 $ 0.099
Discontinued Operations 0.010 0.003 0.003
------------------ --------------- ---------------
Total $ 0.088 $ 0.067 $ 0.102
================== =============== ===============
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, 2002, 2001, and 2000
General Partners Limited Partners
----------------------------- -----------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs
-------------- ------------- ------------- --------------- -------------- --------------
Balance, December 31, 1999 $ 1,000 $ 285,349 $ 35,000,000 $ (29,334,648 ) $ 28,378,666 $ (4,015,000 )
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 (4,015,000 )
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 (4,015,000 )
Distributions to limited
partners ($0.095 per
limited partner unit) -- -- -- (3,325,004 ) -- --
Net income -- -- -- -- 3,097,152 --
------------- ------------- -------------- --------------- -------------- --------------
Balance, December 31, 2002 $ 1,000 $ 285,349 $ 35,000,000 $ (38,959,660 ) $ 37,399,535 $ (4,015,000 )
============= ============= ============== =============== ============== ==============
Total
-------------
$30,315,367
(3,150,004 )
3,587,171
- --------------
30,752,534
(3,150,004 )
2,336,546
- --------------
29,939,076
(3,325,004 )
3,097,152
- --------------
$29,711,224
==============
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2002 2001 2000
--------------- --------------- --------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Net Income $ 3,097,152 $ 2,336,546 $ 3,587,171
--------------- --------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 364,517 321,973 303,352
Provision for write-down of assets -- 299,479 --
Minority interest in income of
consolidated joint venture 12,864 12,999 13,318
Equity in earnings of unconsolidated joint
ventures, net of distributions (108,898 ) 103,020 82,374
Gain on sale of assets (279,813 ) (28,301 ) (612,693 )
Decrease (increase) in receivables 25,546 18,894 (3,581 )
Increase (decrease) in due from related parties 46,004 (22,631 ) (30,010 )
Amortization of investment in direct
financing leases 187,666 181,500 171,457
Increase (decrease) in accrued rental income 3,355 (960 ) (61,481 )
Decrease (increase) in other assets (17,349 ) 9,085 (10,803 )
Decrease in accounts payable,
accrued expenses, and escrowed real
estate taxes payable (9,425 ) (30,540 ) (76,533 )
Increase (decrease) in due to related
parties (6,099 ) 16,081 (61,926 )
Increase (decrease) in rents paid in
advance and security deposits 35,077 (20,550 ) 49,252
--------------- --------------- --------------
Total adjustments 253,445 860,049 (237,274 )
--------------- --------------- --------------
Net Cash Provided by Operating Activities 3,350,597 3,196,595 3,349,897
Cash Flows from Investing Activities:
Proceeds from sale of real estate properties 1,184,559 877,000 3,822,716
Additions to real estate properties with
operating leases (2,894,329 ) -- (2,925,217 )
Return of capital from joint venture 265,926 -- --
Liquidating distribution from joint venture 1,076,041 236,665 --
Investment in joint venture (1,241,259 ) (865,942 ) (960,068 )
Collections on mortgage notes receivable 917,857 494,206 48,701
Investment in certificates of deposit (376,202 ) (368,111 ) (450,000 )
Redemption of certificates of deposit 368,111 452,772 --
--------------- --------------- --------------
Net cash provided by (used in) investing
activities (699,296 ) 826,590 (463,868 )
--------------- --------------- --------------
Cash flows from Financing Activities:
Distributions to limited partners (3,150,004 ) (3,150,004 ) (3,150,004 )
Distributions to holder of minority interest (14,943 ) (14,683 ) (13,379 )
--------------- --------------- --------------
Net cash used in financing activities (3,164,947 ) (3,164,687 ) (3,163,383 )
--------------- --------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents (513,646 ) 858,498 (277,354 )
Cash and Cash Equivalents at Beginning of Year 2,085,133 1,226,635 1,503,989
--------------- --------------- --------------
Cash and Cash Equivalents at End of Year $ 1,571,487 $ 2,085,133 $ 1,226,635
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2002 2001 2000
--------------- --------------- --------------
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid at
December 31 $ 962,501 $ 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, 2002, 2001, and 2000
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 real
estate property acquisitions at cost. The properties are leased to
third parties generally on a triple-net basis, whereby the tenant is
generally responsible for all operating expenses relating to the
property, including property taxes, insurance, maintenance and repairs.
During the years ended December 31, 2002, 2001, and 2000, tenants paid
directly to real estate taxing authorities approximately $477,000,
$433,000, and $411,500, respectively, in real estate taxes in
accordance with the terms of their triple net leases with the
Partnership.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The Partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
direct financing or the operating method. Such methods are described
below:
Direct financing method - Leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset). Unearned income is deferred and amortized
to income over the lease terms so as to produce a constant
periodic rate of return on the Partnership's investment in the
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.
Operating method - Real estate property leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
Substantially all leases are for 14 to 25 years and provide for minimum
and contingent rentals. 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.
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 estimated fair value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is recorded to increase the
allowance for doubtful accounts. If amounts are subsequently determined
to be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its 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.
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 Walker, Louisiana; a
property in Denver, Colorado; a property in Kenosha, Wisconsin; and a
property in Buffalo Grove, Illinois 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 represent a reduction
of Partnership equity and a reduction in the basis of each partner's
investment.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
Use of Estimates - The General Partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior year's financial
statements have been reclassified to conform to 2002 presentation,
including a change in presentation of the statement of cash flows from
the direct to the indirect method. These reclassifications had no
effect on partner's capital, net income or cash flows.
Statement of Financial Accounting Standards No. 144 ("FAS 144") -
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its estimated fair
value. If an impairment is recognized, the adjusted carrying amount of
a long-lived asset is its new cost basis. The statement also requires
that the results of operations of a component of an entity that either
has been disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
FASB Interpretation No. 46 ("FIN 46") - In January 2003, FASB issued
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting
guidance that addresses when a company should include the assets,
liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with
variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be considered by a company if
that company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. Consolidation of
variable interests entities will provide more complete information
about the resources, obligations, risks and opportunities of the
consolidated company. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31,
2003, and to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Management believes adoption of this
standard may result in either consolidation or additional disclosure
requirements with respect to the Partnership's unconsolidated joint
ventures or properties held with affiliates of the general partners as
tenants-in-common, which are currently accounted for under the equity
method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
2. Real Estate Properties with Operating Leases:
--------------------------------------------
Real estate properties with operating leases consisted of the following
at December 31:
2002 2001
-------------------- --------------------
Land $ 9,988,909 $ 8,953,287
Buildings 10,928,236 9,069,529
-------------------- --------------------
20,917,145 18,022,816
Less accumulated depreciation (2,660,363 ) (2,295,846 )
-------------------- --------------------
$ 18,256,782 $ 15,726,970
==================== ====================
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 September 2000, the Partnership sold its property in Jacksonville,
Florida and received net sales proceeds of approximately $420,000,
resulting in a gain of approximately $127,900. In October 2000, the
Partnership reinvested these sales proceeds in a Property in Hialeah,
Florida at an approximate cost of $472,300.
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 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 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, in a Property located in Denton, Texas, at an approximate cost
of approximately $1,147,600. The property was acquired from CNL Funding
2001-A, LP, an affiliate of the general partners.
In September 2002, the Partnership reinvested the prepaid principal
received in May 2002 relating to a promissory note, in a Property
located in Eden Prairie, Minnesota, at an approximate cost of
$1,093,900. The property was acquired from CNL Net Lease Investors,
L.P., an affiliate of the general partners.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
2. Real Estate Properties with Operating Leases - Continued:
--------------------------------------------------------
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2002:
2003 $ 2,320,788
2004 2,334,917
2005 2,208,681
2006 1,742,117
2007 1,700,145
Thereafter 9,618,929
----------------
$ 19,925,577
================
3. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2002 2001
----------------- ---------------
Minimum lease payments
receivable $ 6,215,952 $ 6,930,618
Estimated residual values 1,700,249 1,700,249
Less unearned income (3,356,970 ) (3,908,474 )
----------------- ---------------
Net investment in direct
financing leases $ 4,559,231 $ 4,722,393
================= ===============
In July 2000 and May 2001, the Partnership sold two and one properties,
respectively, for which the building portion had been classified as a
direct financing lease. Accordingly, 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.
At June 30, 2001, the Partnership established a provision for
write-down of assets of $88,144 for its property in North Fort Myers,
Florida, because the tenant ceased operations and vacated this
property. The provision represented the difference between the carrying
value of the property and its estimated fair value at June 30, 2001.
During July 2001, this lease was terminated. As a result, the
Partnership reclassified the lease from direct financing leases to real
estate properties with operating leases. No loss on the
reclassification of the direct financing lease was recorded.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
3. Net Investment in Direct Financing Leases - Continued:
-----------------------------------------------------
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2002:
2003 $ 772,901
2004 772,901
2005 772,901
2006 799,228
2007 812,347
Thereafter 2,285,674
----------------
$ 6,215,952
================
4. Investment in Joint Ventures:
----------------------------
The Partnership has an 85.54%, a 36.8%, a 34%, and a 10% interest in
the profits and losses of Asheville Joint Venture, CNL Restaurant
Investments II, Bossier City Joint Venture, and CNL VIII, X, XII Kokomo
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, Bossier City Joint Venture,
and CNL VIII, X, XII Kokomo Joint Venture each owns and leases one
property, and CNL Restaurant Investments II owns and leases five
properties, to an operator of national fast-food or family-style
restaurants. In addition, the Partnership owns properties in Walker,
Louisiana; Denver, Colorado; Kenosha, Wisconsin; and Buffalo Grove,
Illinois as tenants-in-common with affiliates of the General Partners.
As of December 31, 2002, the Partnership owned a 17%, 19.3%, 10%, and
66% interest, respectively, in these properties, as four separate
tenancy-in common arrangements.
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., an affiliate of the general partners. In September 2002, the
tenancy in common sold its property in Libertyville, Illinois, to a
third party and received net sales proceeds of approximately $1,630,400
resulting in a gain of approximately $199,300. The Partnership owned a
66% interest in this property. The Partnership and CNL IX, as a new
tenancy in common arrangement, used the liquidating distribution from
the sale of the property to acquire a property in Buffalo Grove,
Illinois at an approximate cost of $1,588,800. The property was
acquired from CNL Net Lease Investors, L.P., an affiliate of the
general partners. As of December 31, 2002, 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, and
recorded a loss of approximately $61,900. The Partnership dissolved the
joint venture and did not recognize any gain or 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.
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 affiliates of
the general partners. The Partnership acquired this interest from CNL
BB Corp., an affiliate of the general partners. As of December 31,
2002,
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
----------------------------------------
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, 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, 2002, the Partnership had
contributed approximately $232,300 for a 17% interest in this 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,
2002, the Partnership had contributed approximately $422,500 for a
19.30% interest in the profits and losses of this property. The
Partnership accounts for its investment in these properties under the
equity method since the agreement requires the consent of all partners
on all key decisions affecting the operations of the underlying
properties.
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 and received net sales proceeds of approximately $1,215,700
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 and received net sales proceeds of approximately $722,600
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. The Partnership 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 August 2002, the Partnership
reinvested a portion of the return of capital in a Property in Kenosha,
Wisconsin as tenants-in-common with CNL Income Fund XVII, Ltd. ("CNL
XVII"), a Florida limited partnership and an affiliate of the general
partners, at an approximate cost of $1,883,000 from a third party. The
Partnership and CNL XVII entered into an agreement whereby each
co-tenant will share in the profits and losses of each property in
proportion to its applicable percentage interest. As of December 31,
2002, the Partnership contributed approximately $188,300 for a 10%
interest in this property.
The financial results relating to the properties in Columbus, Ohio;
Pontiac, Michigan; and Libertyville, Illinois are reflected as
Discontinued Operations below.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
----------------------------------------
The following presents the combined, condensed financial information
for the unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates at:
December 31,
2002 2001
----------------- ---------------
Real estate properties with operating
leases, net $ 13,743,163 $10,448,870
Net investment in direct financing
Lease 985,387 --
Real estate held for sale -- 3,134,176
Cash 26,033 38,224
Receivables -- 10,397
Accrued rental income 200,487 124,469
Liabilities 16,475 4,452
Partners' capital 14,938,595 13,751,684
Year Ended December 31,
2002 2001 2000
---------------- -------------- ----------------
Rental revenues $ 1,444,857 $ 997,803 $ 852,201
Expenses (297,738 ) (223,476 ) (158,609 )
---------------- -------------- ----------------
Income from continuing operations 1,147,119 774,327 693,592
---------------- -------------- ----------------
Discontinued operations:
Income from discontinued operations 173,750 297,399 210,251
Gain on disposal of assets 457,786 -- --
---------------- -------------- ----------------
631,536 297,399 210,251
---------------- -------------- ----------------
Net Income $ 1,778,655 $ 1,071,726 $ 903,843
================ ============== ================
The Partnership recognized income totaling $649,791, $390,505, and
$319,184, for the years ended December 31, 2002, 2001 and 2000,
respectively, from these joint ventures.
5. Mortgage Notes Receivable:
-------------------------
In 1996, the Partnership had accepted two promissory notes in the
principal sum totaling $460,000 in connection with the sale of two of
its properties in Jacksonville, Florida. The promissory notes, which
were collateralized by mortgages on the properties, bore interest at a
rate of 10% per annum. During the year ended December 31, 2001, the
borrower repaid the total outstanding principal balance of
approximately $441,500.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
5. Mortgage Notes Receivable - Continued:
-------------------------------------
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 the
property. The promissory note bore interest at a rate of 10.75% per
annum, was collateralized by a mortgage on the property and was being
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. In 1999, the borrower repaid a portion of the
principal in the amount of $272,500. In 2002, the borrower repaid
approximately $917,900 which represented the remaining outstanding
principal balance.
The mortgage notes receivable consisted of the following at December
31:
2002 2001
------------ ------------
Principal balance $ -- $ 917,857
Accrued interest receivable -- 8,223
------------ ------------
$ -- $ 926,080
============ ============
The General Partners believe that the estimated fair value of mortgage
notes receivable at December 31, 2001, 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.
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:
Year Ended December 31,
2002 2001 2000
--------------- ------------ -------------
Rental revenues $ 55,304 $ 90,028 $ 93,561
Gain on disposal of assets 279,813 -- --
--------------- ------------ -------------
Income from discontinued operations $ 335,117 $ 90,028 $ 93,561
=============== ============ =============
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
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; however, the one
percent of net cash flow to be distributed to the General Partners was
subordinated to receipt by the limited partners of an aggregate, ten
percent, cumulative, noncompounded annual return on their adjusted
capital contributions (the "10% Preferred Return").
From inception through December 31, 1999, generally, net sales proceeds
from the sale of properties not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their 10% Preferred
Return, plus the return of their adjusted capital contributions. The
General Partners then received, to the extent previously subordinated
and unpaid, a one percent interest in all prior distributions of net
cash flow and a return of their capital contributions. Any remaining
sales proceeds were distributed 95 percent to the limited partners and
five percent to the General Partners. Any gain from the sale of a
property not in liquidation of the Partnership was, in general,
allocated in the same manner as net sales proceeds are distributable.
Any loss from the sale of a property 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 for the years
ended December 31, 2002, 2001 and 2000.
During the year ended December 31, 2002, the Partnership declared
distributions to the Limited Partners of $3,325,004. During each of the
years ended December 31, 2001 and 2000, the Partnership declared
distributions to the limited partners of $3,150,004. During the quarter
ended December 31, 2002, the Partnership declared a special
distribution to the Limited Partners of $175,000, which represented
cumulative excess operating reserves. This special distribution was
effectively a return of a portion of the limited partners' investment,
although in accordance with the partnership agreement, $175,000 was
applied toward the limited partners' 10% Preferred Return. 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, 2002, 2001, and 2000
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:
2002 2001 2000
-------------- -------------- ---------------
Net income for financial reporting purposes $3,097,152 $ 2,336,546 $ 3,587,171
Effect of timing differences relating to
depreciation (23,691 ) (57,394 ) (99,400 )
Provision for write-down of assets -- 299,479 --
Direct financing leases recorded as operating
leases for tax reporting purposes 299,623 181,500 171,457
Effect of timing differences relating to
allowance for doubtful accounts 7,970 211,991 (5,305 )
Accrued rental income 3,355 (212,295 ) (61,481 )
Rents paid in advance 24,899 (32,217 ) 49,252
Effect of timing differences relating to gains on
real estate property sales (256,869 ) 60,643 (597,936 )
Deduction of transaction costs for tax reporting
purposes -- -- (206,488 )
Effect of timing differences relating to equity
in earnings of unconsolidated joint ventures (163,230 ) 15,396 14,929
Effect of timing differences relating to minority
interest income of consolidated joint venture (103,783 ) (481 ) 1,113
-------------- -------------- ---------------
Net income for federal income tax purposes $ 2,885,426 $ 2,803,168 $ 2,853,312
============== ============== ===============
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
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 Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, a wholly owned subsidiary of CNL American
Properties Fund, Inc. ("APF") served as the Partnership's advisor until
January 1, 2002, when it assigned its rights and obligations under a
management agreement to RAI Restaurants, Inc. (formerly known as CNL
Restaurants XVIII, Inc.). RAI Restaurants, Inc. ("the Advisor") is a
wholly owned subsidiary of APF. The individual general partners are
stockholders and directors of APF.
The Advisor provides 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, 2002, 2001 and 2000.
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, 2002, 2001 and 2000.
During the years ended December 31, 2002, 2001, and 2000, the
Partnership's advisor and its affiliates provided accounting and
administrative services. The Partnership incurred $184,100 $201,158,
and $95,548, for the years ended December 31, 2002, 2001, and 2000,
respectively, for such services.
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.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
9. Related Party Transactions - Continued:
--------------------------------------
In June 2002, the Partnership acquired a property in Denton, Texas,
from CNL Funding 2001-A, LP, for approximately $1,147,600. In addition,
in June 2002, CNL Restaurant Investments II also acquired a property in
Dallas, Texas, from CNL Funding 2001-A, LP, for approximately
$1,147,400. CNL Funding 2001-A, LP, an affiliate of the general
partners, 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.
In September 2002, the Partnership acquired a property, in Eden
Prairie, Minnesota, from CNL Net Lease Investors, L.P. ("NLI"), at an
approximate cost of $1,093,900. In addition, the Partnership and CNL
IX, as tenants-in-common, acquired from NLI a property in Buffalo
Grove, Illinois at an approximate cost of $1,588,800. During 2002, and
prior to the Partnership's acquisition of these properties, CNL
Financial LP Holding, LP ("CFN") and CNL Net Lease Investors GP Corp.
("GP Corp") purchased the limited partner's interest and general
partner's interest, respectively, of NLI. Prior to this transaction, an
affiliate of the Partnership's general partners owned a 0.1% interest
in NLI and served as a general partner of NLI. The original general
partners of NLI waived their rights to benefit from this transaction.
The acquisition price paid by CFN for the limited partner's interest
was based on the portfolio acquisition price. The Partnership acquired
the properties at CFN's cost and did not pay any additional
compensation to CFN for the acquisition of the properties. Each CNL
entity is an affiliate of the Partnership's general partners.
The due to related parties consisted of the following at December 31:
2002 2001
----------------- ----------------
Due to Advisor and its Affiliates:
Accounting and administrative services $ 14,333 $ 5,357
Deferred, subordinated real estate
disposition fee 55,050 55,050
Other -- 15,075
----------------- ----------------
$ 69,383 $ 75,482
================= ================
10. 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 rental revenues and mortgage interest income (including
the Partnership's share of rental revenues from the unconsolidated
joint ventures and the properties held as tenants-in-common with
affiliates of the General Partners), for each of the years ended
December 31:
2002 2001 2000
--------------- --------------- ---------------
Golden Corral Corporation $ 710,351 $ 703,279 $ 694,735
Carrols Corporation and Texas Taco
Cabana, LP 512,513 421,048 422,375
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
10. Concentration of Credit Risk - Continued:
----------------------------------------
In addition, the following schedule presents total rental revenues and
mortgage interest income from individual restaurant chains, each
representing more than ten percent of rental revenues and mortgage
interest income (including the Partnership's share of rental revenues
from the unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates of the General Partners), for each of
the years ended December 31:
2002 2001 2000
--------------- --------------- ---------------
Golden Corral Family
Steakhouse Restaurants $ 710,351 $ 680,395 $ 722,115
Burger King 793,019 581,888 882,922
Shoney's N/A N/A 363,946
The information denoted by N/A indicates that for each period presented
the chains 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 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.
11. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2002 and
2001:
2002 Quarter First Second Third Fourth Year
---------------------------------------- ----------- ------------ ------------ ------------ ------------
Continuing Operations (1):
Revenues $ 686,012 $ 646,295 $ 752,864 $ 789,641 $2,874,812
Equity in earnings of
consolidated joint ventures 101,570 198,391 239,385 110,445 649,791
Income from continuing
operations 582,275 670,488 782,544 726,728 2,762,035
Discontinued Operations (1):
Revenues 38,332 16,972 -- -- 55,304
Income from discontinued
operations 38,332 296,785 -- -- 335,117
Net Income 620,607 967,273 782,544 726,728 3,097,152
Net Income per limited partner unit:
Continuing operations $ 0.017 $ 0.020 $ 0.022 $ 0.020 $ 0.079
Discontinued operations 0.001 0.008 -- -- 0.009
----------- ------------ ------------ ------------ ------------
Total $ 0.018 $ 0.028 $ 0.022 $ 0.020 $ 0.088
=========== ============ ============ ============ ============
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
11. Selected Quarterly Financial Data - Continued:
---------------------------------------------
2001 Quarter First Second Third Fourth Year
---------------------------------------- ---------- ------------- ------------ ----------- -------------
Continuing Operations (1):
Revenues $792,918 $ 703,354 $ 688,378 $719,394 $2,904,044
Equity in earnings of
unconsolidated joint ventures 87,501 90,268 107,815 104,921 390,505
Income from continuing
operations 386,342 560,582 648,757 650,837 2,246,518
Discontinued Operations (1):
Revenues 19,742 32,808 20,582 16,896 90,028
Income from discontinued
operations 19,742 32,808 20,582 16,896 90,028
Net Income 406,084 593,390 669,339 667,733 2,336,546
Net Income per limited partner unit:
Continuing operations $ 0.011 $ 0.016 $ 0.018 $ 0.019 $ 0.064
Discontinued operations 0.001 0.001 0.001 -- 0.003
---------- ------------- ------------ ----------- -------------
Total $ 0.012 $ 0.017 $ 0.019 $ 0.019 $ 0.067
========== ============= ============ =========== =============
(1) Certain items in the quarterly financial data have been
reclassified to conform to the 2002 presentation. These
reclassifications had no effect on net income. The results of
operations relating to properties that were either disposed of
or were classified as held for sale as of December 31, 2002 are
reported as discontinued operations for all periods presented.
The results of operations relating to properties that were
identified for sale as of December 31, 2001 but sold
subsequently are reported as continuing operations.
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 American Properties Fund, Inc. ("APF"), 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 56. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of APF, a public, unlisted real
estate investment trust, since 1994. Mr. Seneff served as Chief Executive
Officer of APF from 1994 through August 1999, and has served as co-Chief
Executive Officer of APF since December 2000. Mr. Seneff served as Chairman of
the Board and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, until it merged with a wholly-owned subsidiary of APF in
September 1999, and in June 2000, was re-elected to those positions of CNL Fund
Advisors, Inc. 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., all
of which are engaged in the business of real estate finance. 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, an independent,
state-chartered commercial bank. Mr. Seneff previously served on the Florida
State Commission on Ethics and is a former member and past Chairman of the State
of Florida Investment Advisory Council, which recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration, Florida's principal investment advisory and
money management agency, oversees the investment of 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 55. 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 a
Director 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 CNL Fund Advisors, Inc. prior to its merger with a
wholly-owned subsidiary of 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.; Director, Vice Chairman of the
Board, and Treasurer , and from 1997 until June 2002 served as President, of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
as well as, Director, Vice Chairman of the Board, and Treasurer, and from 1997
until June 2002 served as President, of CNL Hospitality Corp., its advisor. In
addition, Mr. Bourne serves as Director, Vice Chairman of the Board, and
Treasurer, and from 1997 until June 2002 served as President, of CNL Retirement
Properties, Inc., a public, unlisted real estate investment trust; as well as, a
Director, Vice Chairman of the Board, and Treasurer, and from 1997 until June
2002 served as President, 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 47. 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 CNL Fund Advisors, Inc., 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. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc., a
corporation engaged in the business of real estate financing, from April 1997
until the acquisition of such entities by wholly-owned subsidiaries of 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 39. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors, Inc. from September 1996 to September 1999. From March
1995 to July 1996, Mr. Shackelford was a senior manager in the national office
of Price Waterhouse LLP where he was responsible for advising foreign clients
seeking to raise capital and a public listing in the United States. From August
1992 to March 1995, he was a manager in the Paris, France office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and senior from 1986 to 1992 in the Orlando, Florida office of Price
Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business Administration degree from Florida State
University and is a certified public accountant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2002.
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 10, 2003, 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 10, 2003, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
The Partnership does not have any equity compensation plans.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2002, 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, 2002
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and administra-
operating expenses the lower of cost or 90% of the tive services: $184,100
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, 2002
- --------------------------------- -------------------------------------- ------------------------------
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, 2002
- --------------------------------- -------------------------------------- ------------------------------
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 June 2002, the Partnership acquired a property in Denton, Texas,
from CNL Funding 2001-A, LP, for approximately $1,147,600. In addition, in June
2002, CNL Restaurant Investments II also acquired a property in Dallas, Texas,
from CNL Funding 2001-A, LP, for approximately $1,147,400. CNL Funding 2001-A,
LP, an affiliate of the general partners, 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.
In September 2002, the Partnership acquired a property, in Eden
Prairie, Minnesota, from CNL Net Lease Investors, L.P. ("NLI"), at an of
approximate cost of $1,093,900. In addition, the Partnership and CNL IX, as
tenants-in-common, acquired from NLI a property in Buffalo Grove, Illinois at an
approximate cost of $1,588,800. During 2002, and prior to the Partnership's
acquisition of these properties, CNL Financial LP Holding, LP ("CFN") and CNL
Net Lease Investors GP Corp. ("GP Corp") purchased the limited partner's
interest and general partner's interest, respectively, of NLI. Prior to this
transaction, an affiliate of the Partnership's general partners owned a 0.1%
interest in NLI and served as a general partner of NLI. The original general
partners of NLI waived their rights to benefit from this transaction. The
acquisition price paid by CFN for the limited partner's interest was based on
the portfolio acquisition price. The Partnership acquired the properties at
CFN's cost and did not pay any additional compensation to CFN for the
acquisition of the properties. Each CNL entity is an affiliate of the
Partnership's general partners.
Item 14. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate General Partner have evaluated the
Partnership's disclosure controls and procedures within 90 days prior to the
filing of this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
Subsequent to the above evaluation, there were no significant changes
in internal controls or other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2002 and 2001
Statements of Income for the years ended December 31, 2002, 2001, and 2000
Statements of Partners' Capital for the years ended December 31, 2002, 2001, and 2000
Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000
Notes to Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002
Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002
Schedule IV - Mortgage Loans on Real Estate at December 31, 2002
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.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included
as Exhibit 10.5 to Form 10-Q filed with the Securities
and Exchange Commission on August 14, 2002, and
incorporated herein by reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period October
1, 2002 through December 31, 2002.
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 24th day of
March, 2003.
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 24, 2003
- ------------------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 24, 2003
- ------------------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund VIII, Ltd. (the
"registrant"), certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 24, 2003
/s/ James M. Seneff, Jr.
- ---------------------------
James M. Seneff, Jr.
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Bourne, President and Treasurer of CNL Realty Corporation,
the corporate general partner of CNL Income Fund VIII, Ltd. (the "registrant")
certify that:
1. I have reviewed this annual report on Form 10KQ of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 24, 2003
/s/ Robert A. Bourne
Robert A. Bourne
- ----------------------------
President and Treasurer
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
Costs Capitalized
Subsequent To
Initial Cost Acquisition
--------------------- -----------------
Encum- Buildings anImprove- Carrying
brances Land Improvementsments Costs
--------- ---------- ---------- --------- ------
Properties the Partnership
has Invested in Under
Operating Leases:
Bennigan's Restaurant:
Deerfield, Illinois - $1,296,452 - $1,156,526 -
Boston Market Restaurant:
Eden Prairie, Minnesota-(m) 293,917 799,934 - -
Burger King Restaurants:
Brandon, Florida - 478,467 - - -
New City, New York - 372,977 - 557,832 -
Mansfield, Ohio - 377,395 - 496,524 -
Syracuse, New York - 363,431 - 485,920 -
New Philadelphia, Ohio - 310,920 - 523,967 -
Denny's Restaurant:
Tiffin, Ohio - 143,592 335,971 - -
Ontario, Oregon - 215,796 432,093 - -
Golden Corral Family
Steakhouse Restaurants:
College Station, Te-as 517,623 - 877,505 -
Houston, Texas - 663,999 - 1,129,910 -
Beaumont, Texas - 552,646 - 893,054 -
Grand Prairie, Texa- 681,824 - 914,235 -
Hardee's Restaurant:
Jefferson, Ohio - 150,587 - - -
Jack in the Box Restaurants:
Waco, Texas - 412,942 - - -
Mesa, Arizona - 609,921 - - -
KFC Restaurant:
Norton Shores, Michigan- 177,897 - - -
O'Sullivan's Irish American
Restaurant:
North Fort Myers, Flori-a 398,423 425,676 - -
Perkins Restaurant:
Memphis, Tennessee - 431,065 - - -
Pizza Hut Restaurant:
Hialeah, Florida - 284,269 193,004 - -
Shoney's Restaurants:
Memphis, Tennessee - 368,290 601,660 - -
Taco Cabana
Denton, Texas (n) - 520,875 626,680 - -
Wendy's Old Fashioned
Hamburger Restaurant:
Midlothian, Virgini- 365,601 - 477,745 -
---------- ---------- --------- ------
$9,988,909 $3,415,018 $7,513,218 -
========== ========== ========= ======
Properties of Joint Venture in Which
the Partnership has a 85.54%
Interest and has Invested in
Under an Operating Leases:
Burger King Restaurant:
Asheville, North Car-lina $438,695 $450,432 $ - $ -
========== ========== ========= ======
Properties of Joint Venture in Which
the Partnership has a 36.8%
Interest and has Invested in
Under an Operating Leases:
Burger King Restaurants:
San Antonio, Texas - $350,479 $623,615 - -
Raceland, Louisiana - 174,019 986,879 - -
New Castle, Indiana - 264,239 662,265 - -
Hastings, Minnesota - 155,553 657,159 - -
Taco Cabana Restaurant:
Dallas, Texas (l) - 633,492 513,931 - -
---------- ---------- --------- ------
$1,577,782 $3,443,849 $ - $ -
========== ========== ========= ======
Property of Joint Venture in Which
the Partnership has a 34%
Interest and has Invested in
Under an Operating Lease:
IHOP Restaurant
Bossier City, Louisiana $453,016 $866,192 $ - $ -
========== ========== ========= ======
Property of Joint Venture in Which
the Partnership has a 10.00%
Interest and has Invested in
Under an Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Kokomo, Indiana (-) $644,163 $1,397,579 $ - $ -
========== ========== ========= ======
Property in Which the Partner-
ship has a 17.00% Interest as
Tenants-in-Common and
has Invested in Under an
Operating Lease:
Jack in the Box Restaurants:
Walker, Louisiana - $517,354 $861,245 $ - $ -
========== ========== ========= ======
Property in Which the Partner-
ship has a 19.30% Interest as
Tenants-in-Common and
has Invested in Under an
Operating Lease:
Bennigan's Restaurants:
Denver, Colorado - $802,413 $1,398,252 $ - $ -
========== ========== ========= ======
Property of Joint Venture in Which
the Partnership has a 10.00%
Interest and has Invested in
Under an Operating Lease:
Texas Roadhouse Restaurant:
Kenosha, Wisconsin - $645,886 $1,237,163 - -
========== ========== ========= ======
Property in Which the Partner-
ship has a 66% Interest as
Tenants-in-Common and
has Invested in Under an
Operating Lease:
IHOP Restaurant:
Buffalo Grove, Illinois-(k) $598,976 - - -
========== ========== ========= ======
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurants:
Brandon, Florida - $ - - $483,107 $ -
Hardee's Restaurants:
Brunswick, Ohio - 116,199 457,907 - -
Grafton, Ohio - 66,092 411,798 - -
Jefferson, Ohio - - 443,444 - -
Lexington, Ohio - 124,707 433,264 - -
Jack in the Box Restaurants:
Waco, Texas - - - 406,745 -
Mesa, Arizona - - 561,477 - -
KFC Restaurants:
Grand Rapids, Michig-n 169,175 620,623 - -
Norton Shores, Michi-an - 509,228 - -
Perkins Restaurant:
Memphis, Tennessee - - - 594,154 -
---------- ---------- --------- ------
$476,173 $3,437,741 $1,484,006 $ -
========== ========== ========= ======
Property in Which the Partner-
ship has a 66% Interest as
Tenants-in-Common and
has Invested in Under a
Direct Financing Lease:
IHOP Restaurant:
Buffalo Grove, Illinois-(k) $ - $991,278 $ - $ -
========== ========== ========= ======
Life on Which
Net Cost Basis at Which Depreciation in
Carried at Close of Period (c) Date Latest Income
- -----------------------------------
Buildings and Accumulatedof Con- Date Statement is
Land Improvements Total DepreciatiostructioAcquired Computed
- ----------- ---------- ----------- --------- ------- --------- -----------
$1,296,452 $1,156,526 $2,452,978 $93,165 2000 07/00 (b)
293,917 799,934 1,093,851 8,510 1996 09/02 (b)
478,467 (f) 478,467 - 1991 10/90 (d)
372,977 557,832 930,809 108,872 1977 03/91 (h)
377,395 496,524 873,919 96,906 1989 03/91 (h)
363,431 485,920 849,351 94,836 1987 03/91 (h)
310,920 523,967 834,887 102,262 1989 03/91 (h)
143,592 335,971 479,563 111,085 1990 03/91 (g)
215,796 432,093 647,889 14,403 1978 01/02 (b)
517,623 877,505 1,395,128 359,817 1990 09/90 (b)
663,999 1,129,910 1,793,909 452,377 1990 10/90 (b)
552,646 893,054 1,445,700 374,431 1990 11/90 (b)
681,824 914,235 1,596,059 374,126 1990 11/90 (b)
150,587 (f) 150,587 - 1990 11/90 (d)
412,942 (f) 412,942 - 1991 11/90 (d)
609,921 (f) 609,921 - 1991 02/92 (d)
177,897 (f) 177,897 - 1990 03/91 (d)
398,423 425,676 824,099 28,029 1991 09/95 (i)
431,065 (f) 431,065 - 1990 11/90 (d)
284,269 193,004 477,273 14,475 2000 10/00 (b)
368,290 601,660 969,950 228,411 1991 08/91 (b)
520,875 626,680 1,147,555 12,185 1992 06/02 (b)
365,601 477,745 843,346 186,473 1991 03/91 (b)
- ----------- ---------- ----------- ---------
$9,988,909 $10,928,236$20,917,145 $2,660,363
=========== ========== =========== =========
$438,695 $450,432 $889,127 $177,004 1986 03/91 (b)
=========== ========== =========== =========
$350,479 $623,615 $974,094 $234,126 1986 09/91 (b)
174,019 986,879 1,160,898 370,508 1988 09/91 (b)
264,239 662,265 926,504 248,637 1988 09/91 (b)
155,553 657,159 812,712 246,721 1990 09/91 (b)
633,492 513,931 1,147,423 9,993 1992 06/02 (b)
- ----------- ---------- ----------- ---------
$1,577,782 $3,443,849 $5,021,631 $1,109,985
=========== ========== =========== =========
$453,016 $866,192 $1,319,208 $91,164 1998 11/99 (b)
=========== ========== =========== =========
$644,163 $1,397,579 $2,041,742 $81,525 2000 4/01 (b)
=========== ========== =========== =========
$517,354 $861,245 $1,378,599 $43,062 2001 6/01 (b)
=========== ========== =========== =========
$802,413 $1,398,252 $2,200,665 $69,912 2001 7/01 (b)
=========== ========== =========== =========
$645,886 $1,237,163 $1,883,049 $17,182 2002 08/02 (b)
=========== ========== =========== =========
$598,976 (f) $598,976 - 1987 09/02 (d)
=========== ========== =========== =========
$ - (f) (f) (d) 1991 10/90 (d)
(f) (f) (f) (e) 1990 11/90 (e)
(f) (f) (f) (e) 1990 11/90 (e)
- (f) (f) (d) 1990 11/90 (d)
(f) (f) (f) (e) 1990 11/90 (e)
- (f) (f) (d) 1991 11/90 (d)
- (f) (f) (d) 1991 02/92 (d)
(f) (f) (f) (e) 1990 02/91 (e)
- (f) (f) (d) 1990 03/91 (d)
- (f) (f) (d) 1990 11/90 (d)
- -----------
$ -
===========
$ - (f) (f) (d) 1987 09/02 (d)
===========
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 1999, 2000 and 2001 have been adjusted to
reflect the reclassification of properties accounted for as
discontinued operations.
Accumulated
Cost Depreciation
---------------- -------------------
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 1999 $ 17,059,975 $ 1,985,698
Dispositions (2,130,827 ) (315,177 )
Acquisitions 2,925,217 --
Depreciation expense -- 303,352
---------------- -------------------
Balance, December 31, 2000 17,854,365 1,973,873
Reclassified to operating lease(i) 425,676 --
Dispositions (257,225 ) --
Depreciation expense -- 321,973
---------------- -----------------
Balance, December 31, 2001 18,022,816 2,295,846
Acquisitions 2,894,329 --
Depreciation expense -- 364,517
---------------- -----------------
Balance, December 31, 2002 $ 20,917,145 $ 2,660,363
================ =================
Property of Joint Venture in Which the Partnership has an 85.54%
Interest and has Invested in Under an Operating Lease:
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
Depreciation expense -- 15,014
---------------- -----------------
Balance, December 31, 2002 $ 889,127 $ 177,004
================ =================
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
Accumulated
Cost Depreciation
---------------- -----------------
Property of Joint Venture in Which the Partnership has
36.8% Interest and has Invested in Under Operating
Leases:
Balance, December 31, 1999 $ 3,874,208 $ 806,998
Depreciation expense -- 97,664
---------------- -----------------
Balance, December 31, 2000 3,874,208 904,662
Depreciation expense -- 97,664
---------------- -----------------
Balance, December 31, 2001 3,874,208 1,002,326
Acquisition (l) 1,147,423 --
Depreciation expense -- 107,659
---------------- -----------------
Balance, December 31, 2002 $ 5,021,631 $ 1,109,985
================ =================
Property of Joint Venture in Which the Partnership has
a 34% Interest and has Invested in Under an
Operating Lease
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
Depreciation expense -- 28,874
---------------- -----------------
Balance, December 31, 2002 $ 1,319,208 $ 91,164
================ =================
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 (j) 2,112,011 --
Depreciation expense -- 36,696
---------------- -----------------
Balance, December 31, 2001 2,112,011 36,696
Reimbursement of construction costs (j) (70,269 ) (1,759 )
Depreciation expense -- 46,588
---------------- -----------------
Balance, December 31, 2002 $ 2,041,742 $ 81,525
================ =================
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
Accumulated
Cost Depreciation
---------------- -----------------
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
Acquisition 12,194 --
Depreciation expense -- 28,708
---------------- -----------------
Balance, December 31, 2002 $ 1,378,599 $ 43,062
================ =================
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
Acquisition 11,793 --
Depreciation expense -- 46,608
---------------- -----------------
$ 2,200,665 $ 69,912
================ =================
Property in Which the Partnership has a 10% Interest
and has Invested in Under an Operating Lease
Balance, December 31, 2001 $ -- $ --
Acquisition 1,883,049 --
Depreciation expense -- 17,182
---------------- -----------------
Balance, December 31, 2002 $ 1,883,049 $ 17,182
================ =================
Property in Which the Partnership has a 66% Interest
and has Invested in Under an Operating Lease
Balance, December 31, 2001 $ -- $ --
Acquisition (k) 598,976 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2002 $ 598,976 $ --
================ =================
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2002, 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
$25,620,634 and $14,617,254, 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.
(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) 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.
(h) 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.
(i) 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.
(j) 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. During the year ended December 31,
2002, the Partnership received reimbursements from the developer upon
final construction costs reconciliation. In connection therewith, the
land and building values were adjusted accordingly.
(k) During the year ended December 31, 2002, the Partnership and an
affiliate of the General Partners, as tenant-in-common, purchased land
and building from CNL Net Lease Investors, LP, an affiliate of the
General Partners, for an aggregate cost of approximately $1,588,800.
The portion of the lease relating to the building has been recorded as
a direct financing lease.
(l) During the year ended December 31, 2002, the Partnership and
affiliates, purchased land and building from CNL Funding 2001-A, LP, an
affiliate of the General Partners, for an aggregate cost of
approximately $1,147,400.
(m) During the year ended December 31, 2002, the Partnership and
affiliates, purchased land and building from CNL Net Lease Investors,
LP, an affiliate of the General Partners, for an aggregate cost of
approximately $1,093,900.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
(n) During the year ended December 31, 2002, the Partnership and
affiliates, purchased land and building from CNL Funding 2001-A, LP, an
affiliate of the General Partners, for an aggregate cost of
approximately $1,147,600
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2002
All notes receivable have been fully collected since the borrowers prepaid all
outstanding principal balances in 2002 and 2001. The changes in the carrying
amounts are summarized as follows:
2002 2001 2000
------------- ------------- --------------
Balance at beginning of
period $ 926,080 $1,424,436 $1,473,571
Interest earned 34,910 131,931 150,897
Collection of principal and
interest (960,990 ) (630,287 ) (200,032 )
------------- ------------- --------------
Balance at end of period $ -- $ 926,080 $1,424,436
============= ============= ==============
EXHIBIT INDEX
Exhibit Number
(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. (Included
as Exhibit 10.5 to Form 10-Q filed with the
Securities and Exchange Commission on August 14,
2002, and incorporated herein by reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
EXHIBIT 99.1
EXHIBIT 99.2