UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-19139
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, 2000, the Partnership owned 36 Properties, either
directly or indirectly through joint venture or tenancy in common arrangements.
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, 2003, 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 taxes. Certain lessees also have
been granted options to purchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property purchase options
granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
joint ventures in which the Partnership is a co-venturer and the Properties
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.
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. As of March 12,
2004, 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 would 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 March 2004, the Partnership entered into an agreement to provide
temporary and partial rent relief to a tenant who is experiencing liquidity
difficulties. The Partnership anticipates lowering rent over the next twelve
months on the one lease the tenant has with the Partnership will provide the
necessary relief to the tenant. Rental payment terms go back to the original
terms starting with the thirteenth month. The deferred rent is due in equal
monthly payments beginning January 2005 and continuing for 60 months thereafter.
The General Partners do not believe that this temporary decline in cash flows
will have a material adverse effect on the operating results of the Partnership.
Major Tenants
During 2003, 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 total rental revenues (including total 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, 2003, 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 in 2004. In addition, two Restaurant
Chains, Golden Corral Buffet and Grill ("Golden Corral") and Burger King, each
accounted for more than ten percent of total rental revenues in 2003 (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 2004, it is anticipated that these two Restaurant Chains
each will continue to account for more than ten percent of total rental revenues
to which the Partnership is entitled under the terms of the leases. Any failure
of these lessees or Restaurant Chains will materially affect the Partnership's
results of operations 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, 2003:
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. CNL Kokomo, IN
Venture 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 but management control is shared 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
Property or 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 Property or 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 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.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Certain Management Services
RAI Restaurants, Inc. (the "Advisor"), an affiliate of the General
Partners, provides certain services relating to management of the Partnership
and its Properties pursuant to a management agreement with the Partnership.
Under this agreement, the Advisor is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices, and providing
information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross 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.
During 2003, CNL Capital Management, Inc., ("CCM"), a wholly owned
subsidiary of CNL Financial Group, Inc., began providing certain strategic
advisory services to the General Partners relative to the Partnership's
business. CCM is not reimbursed for these services by the Partnership. CCM also
began providing some accounting and portfolio management services to the
Partnership during 2003, through a subcontract with the Advisor.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation, the officers and employees of CNL Restaurant Properties, Inc.
(formerly CNL American Properties Fund, Inc.), the parent company of the
Advisor, and the officers and employees of CCM perform certain services for the
Partnership. In addition, the General Partners have available to them the
resources and expertise of the officers and employees of CNL Financial Group,
Inc., a diversified real estate company, and its affiliates, who may also
perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2003, the Partnership owned 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.
Description of Properties
Land. The Partnership's Property sites, owned directly and indirectly,
range from approximately 17,400 to 128,500 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, 2003 by state.
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, 2003, the
Partnership had no plans for renovation of the Properties. Depreciation expense
is computed for buildings and improvements using the straight line method using
a depreciable life of 40 years for federal income tax purposes.
As of December 31, 2003, the aggregate cost of the Properties owned by
the Partnership (including its consolidated joint venture) and the
unconsolidated joint ventures (including the Properties owned through tenancy in
common arrangements), for federal income tax purposes was $25,620,634 and
$15,995,853, respectively.
The following table lists the Properties owned by the Partnership,
directly and indirectly, as of December 31, 2003 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
Restaurant Chains. The leases are generally on a long-term "triple net" basis,
meaning that the tenant is responsible for repairs, maintenance, property taxes,
utilities and insurance.
The following is a schedule of the average rent and occupancy rate per
Property for each of the years ended December 31:
2003 2002 2001 2000 1999
------------- ------------- --------------- -------------- ---------------
Rental Revenues (1) $ 3,463,663 $ 3,226,476 $ 3,364,048 $ 3,361,651 $ 3,527,515
Properties 39 39 37 36 37
Average Rent per Property $ 88,812 $ 82,730 $ 90,920 $ 93,379 $ 95,338
Occupancy Rate 100% 100% 100% 100% 100%
(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, 2003 for each year for the next ten years and thereafter.
Percentage of
Expiration Number of Annual Rental Gross Annual
Year Leases Revenues Rental Income
-------------------- -------------- ------------------- --------------------
2004 -- $ -- --
2005 8 793,464 22.08%
2006 1 118,124 3.29%
2007 -- -- --
2008 -- -- --
2009 1 142,910 3.98%
2010 7 713,240 19.85%
2011 10 863,922 24.04%
2012 -- -- --
2013 -- -- --
Thereafter 12 962,251 26.76%
-------------- ------------------- --------------------
Totals 39 $ 3,593,911 100.00%
============== =================== ====================
Leases with Major Tenants. The terms of the leases with the
Partnership's major tenants as of December 31, 2003 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases 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 between 2011 and 2020) 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 nor any affiliate of
the Partnership, 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 12, 2004, there were 3,377 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. During 2003, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), may have done so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units. From
inception through December 31, 2003, the price paid for any Unit transferred
pursuant to the Plan was $.95 per Unit. The price paid for any Unit transferred
other than pursuant to the Plan was subject to negotiation by the purchaser and
the selling Limited Partner. The Partnership will not redeem or repurchase
Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2003 and 2002 other than
pursuant to the Plan, net of commissions.
2003 (1) 2002 (1)
---------------------------------- ----------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- --------- ----------
First Quarter $0.76 $ 0.65 $ 0.72 $0.78 $ 0.65 $ 0.70
Second Quarter 0.95 0.73 0.89 0.95 0.95 0.95
Third Quarter 0.95 0.77 0.88 0.95 0.72 0.89
Fourth Quarter 0.95 0.76 0.90 0.87 0.78 0.83
(1) A total of 264,614 and 371,760 Units were transferred other than
pursuant to the Plan for the years ended December 31, 2003 and 2002,
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, 2003 and 2002, the Partnership
declared cash distributions of $3,150,004 and $3,325,004, 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, 2003 and 2002 are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the Limited Partners' return on their adjusted capital contributions. No
distributions have been made to the General Partners to date. 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 2003 2002
--------------------------------- ----------------- -----------------
March 31 $ 787,501 $ 787,501
June 30 787,501 787,501
September 30 787,501 787,501
December 31 787,501 962,501
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners.
(b) Not applicable.
Item 6. Selected Financial Data
2003 2002 2001 2000 1999
-------------- ------------- ------------- ------------ --------------
Year ended December 31:
Continuing Operations (3):
Revenues $ 2,944,694 $ 2,874,812 $ 2,900,511 $3,133,186 $3,147,881
Equity in earnings
unnconsolidated
joint ventures 441,781 649,791 390,505 319,184 276,012
Income from continuing
operations (1) 2,432,626 2,762,035 2,242,985 3,497,144 2,719,884
Discontinued Operations (3):
Revenues -- 55,304 93,561 90,027 90,180
Income from discontinued
operations and gain on
disposal of discontinued
operations (2) -- 335,117 93,561 90,027 90,180
Net income 2,432,626 3,097,152 2,336,546 3,587,171 2,810,064
Net income per Unit:
Continuing operations $ 0.070 $ 0.078 $ 0.064 $ 0.099 $ 0.077
Discontinued
operations -- 0.010 0.003 0.003 0.003
-------------- ------------- ------------- ------------ --------------
Total $ 0.070 $ 0.088 $ 0.067 $ 0.102 $ 0.080
============== ============= ============= ============ ==============
Cash distributions declared (4) $ 3,150,004 $ 3,325,004 $ 3,150,004 $3,150,004 $3,150,004
Cash distributions declared per Unit 0.090 0.095 0.090 0.090 0.090
At December 31:
Total assets $ 30,124,338 $30,941,865 $30,977,243 $31,827,394 $31,479,495
Total partners' capital 28,993,846 29,711,224 29,939,076 30,752,534 30,315,367
(1) Income from continuing operations for the years ended December 31, 2003
and 2001 includes $208,137 and $299,479, respectively, from provisions
for write-down of assets. Income from continuing operations for the
year ended December 31, 2001 and 2000, includes $28,301 and $612,693,
respectively, from gain on sale of assets.
(2) The year ended December 31, 2002 includes a gain on disposal of
discontinued operations of $279,813.
(3) Certain items in prior years' financial data have been reclassified to
conform to 2003 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, 2003 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, include special
distributions to the Limited Partners for a total of $175,000 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
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.
The Partnership owned 26 Properties directly as of December 31, 2003
and 2002 and 13 Properties indirectly through joint venture or tenancy in common
arrangements as of December 31, 2003 and 2002. The Partnership owned 24
Properties directly and 13 Properties indirectly through joint venture or
tenancy in common arrangements as of December 31, 2001.
Capital Resources
For the years ended December 31, 2003, 2002, and 2001, cash from
operating activities was $3,472,940, $3,350,597, and $3,196,595, respectively.
The increase in cash from operating activities during the year ended December
31, 2003, as compared to the previous year, was a result of changes in the
Partnership's working capital, such as the timing of transactions relating to
the collection of receivables and the payment of expenses, and changes in income
and expenses, such as changes in rental revenues and changes in operating and
Property related expenses. The increase in cash from operating activities in
2002, as compared to the previous year, was a result of changes in the
Partnership's working capital, such as the timing of transactions relating to
the collection of receivables and the payment of expenses, and changes in income
and expenses, such as changes in rental revenues and changes in operating and
Property related expenses.
Other sources and uses of cash included the following during the years
ended December 31, 2003, 2002, and 2001.
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 $211,200 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. The joint venture acquired
a 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.
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
$232,300 and $422,500 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.
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. As of March 12,
2004, 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 would 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.
In addition in June 2002, 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 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 $188,300 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. 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.
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 Partners, 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.
In March 2004, the Partnership entered into an agreement to provide
temporary and partial rent relief to a tenant who is experiencing liquidity
difficulties. The Partnership anticipates lowering rent over the next twelve
months on the one lease the tenant has with the Partnership will provide the
necessary relief to the tenant. Rental payment terms go back to the original
terms starting with the thirteenth month. The deferred rent is due in equal
monthly payments beginning January 2005 and continuing for 60 months thereafter.
The General Partners do not believe that this temporary decline in cash flows
will have a material adverse effect on the operating results of the Partnership.
None of the Properties owned by the Partnership, or the joint venture
or tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Subject to certain restrictions on borrowing, however, the
Partnership may borrow funds but will not encumber any of the Properties in
connection with any such borrowing. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners. The Partnership will not
borrow under arrangements that would make the Limited Partners liable to
creditors of the Partnership. The General Partners further have represented that
they will use their reasonable efforts to structure any borrowing so that it
will not constitute "acquisition indebtedness" for federal income tax purposes
and also will limit the Partnership's outstanding indebtedness to three percent
of the aggregate adjusted tax basis of its Properties. In addition, the
Partnership will not borrow unless it first obtains an opinion of counsel that
such borrowing will not constitute acquisition indebtedness. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
At December 31, 2003, the Partnership had $1,701,023 in cash and cash
equivalents, as compared to $1,571,487 at December 31, 2002. At December 31,
2003, these funds were held in demand deposit accounts at commercial banks,
money market accounts and certificates of deposit with less than a 90-day
maturity date. As of December 31, 2003, the average interest rate earned on the
rental income deposited was less than one percent annually. The funds remaining
at December 31, 2003, after the payment of distributions and other liabilities
will be used to fund additional construction costs 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 $3,150,004, $3,325,004 and $3,150,004
for the years ended December 31, 2003, 2002, and 2001, respectively. This
represents distributions of $0.09, $0.10, and $0.09 per Unit for the years ended
December 31, 2003, 2002, and 2001, respectively. 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, 2003, 2002 and 2001 are required to be or have been treated
by the Partnership as a return of capital for purposes of calculating the
Limited Partners' return on their adjusted capital contributions. The
Partnership intends to continue to make distributions of cash available for
distribution to the Limited Partners on a quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2003, 2002 and 2001.
As of December 31, 2003 and 2002, the Partnership owed $12,655 and
$14,333, respectively, to affiliates for such amounts as operating expenses and
accounting and administrative services. As of March 12, 2004, the Partnership
had reimbursed the affiliates all such amounts. In addition, as of December 31,
2003, 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, decreased to
$960,307 at December 31, 2003, from $1,056,503 at December 31, 2002. The
decrease was primarily a result of the payment of a special distribution to the
limited partners during the year ended December 31, 2003, which was accrued at
December 31, 2002. The decrease was partially offset by an increase in rents
paid in advance and deposits at December 31, 2003. The special distribution of
$175,000 represented accumulated, excess operating reserves. The General
Partners believe that the Partnership has sufficient cash on hand to meet its
current working capital needs.
Off-Balance Sheet Transactions
The Partnership holds interests in various unconsolidated joint venture
and tenancy in common arrangements that are accounted for using the equity
method. The General Partners do not believe that any such interest would
constitute an off-balance sheet arrangement requiring any additional disclosures
under the provisions of the Sarbanes-Oxley Act of 2002.
Contractual Obligations, Contingent Liabilities, and Commitments
The Partnership has no contractual obligations, contingent liabilities,
or commitments as of December 31, 2003.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of 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.
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 of an
asset may not be recoverable. The assessment is based on the carrying amount of
the Property or investment at the date it is tested for recoverability compared
to the sum of the estimated future cash flows expected to result from its
operation and sale through the expected holding period. If an impairment is
indicated, the asset is adjusted to its estimated fair value.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144, "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("FAS 144"). Accordingly, when the Partnership
makes the decision to sell or commits to a plan to sell a Property, within one
year, its operating results are reported as discontinued operations.
Results of Operations
Comparison of the year ended December 31, 2003 to the year ended December 31,
2002
Rental revenues from continuing operations were $2,862,634 for the year
ended December 31, 2003 as compared to $2,719,772 in the same period in 2002.
The increase in rental revenues during 2003, as compared to the same period in
2002, was the result of the 2002 acquisition of three Properties located in
Ontario, Oregon, Denton, Texas, and Eden Prairie, Minnesota using proceeds from
the 2001 and 2002 sales of Properties in Statesville, North Carolina and
Baseball City, Florida, respectively, and the proceeds received from the
collection of promissory notes during 2001 and 2002 in connection with
Properties sold in previous years.
In February 2002, Brandon Fast Food Services, Inc., the tenant of the
Property in Brandon, Florida, filed for bankruptcy. As of March 12, 2004, the
Partnership has continued to receive rental payments relating to this lease.
While the tenant has neither rejected nor affirmed the lease, 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
re-lease the Property in a timely manner.
During the years ended December 31, 2003 and 2002, the Partnership also
earned $71,888 and $88,664, respectively, in contingent rental income.
During the years ended December 31, 2003 and 2002, the Partnership
earned $441,781 and $649,791, respectively, attributable to the net income
earned by unconsolidated joint ventures. Net income earned by unconsolidated
joint ventures was higher during the year ended December 31, 2002, because CNL
Restaurant Investments II, in which the Partnership owns a 36.8% interest, sold
its Property in Columbus, Ohio, in June 2002, to the tenant resulting in a gain
of approximately $448,300. CNL Restaurant Investments II also sold, in June
2002, its Property in Pontiac, Michigan to the tenant resulting in a loss of
approximately $189,800. The Partnership recognized its pro-rata share of the net
gain resulting from these sales.
Net income earned by unconsolidated joint ventures was also higher
during the year ended December 31, 2002, because the Partnership, as
tenants-in-common with CNL Income Fund IX, Ltd., an affiliate of the general
partners and a Florida limited partnership, sold its Property in Libertyville,
Illinois, in September 2002, to a third party 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 gain from this sale, as
described below.
The decrease in net income earned by unconsolidated joint ventures
during the year ended December 31, 2003 was partially offset because, in 2002,
the Partnership invested in two Properties, one in Kenosha, Wisconsin and the
other in Buffalo Grove, Illinois; each as a separate tenancy in common
arrangement with an affiliate of the General Partners and a Florida limited
partnership. The Partnership acquired these Properties using a portion of the
return of capital received from CNL Restaurant Investments II from its sale of
the Property in Pontiac, Michigan, and a portion of the net proceeds received
from the sale of the Partnership's Property in Libertyville, Illinois, which the
Partnership held as a tenancy in common.
During 2003, 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 of percent of total rental revenues (including rental revenues from the
Partnership's consolidated joint venture and the Partnership's share of total
rental revenues from Properties owned by unconsolidated joint ventures and
Properties owned with affiliates of the General Partners as tenants-in-common).
As of December 31, 2003, 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
total rental revenues in 2004. In addition, two Restaurant Chains, Golden Corral
Buffet and Grill ("Golden Corral") and Burger King, each accounted for more than
ten percent of total rental revenues in 2003 (including rental revenues from the
Partnership's consolidated joint venture and the Partnership's share of total
rental revenues from Properties owned by unconsolidated joint ventures and
Properties owned with affiliates of the General Partners as tenants-in-common).
In 2004, it is anticipated that these two Restaurant Chains each will continue
to account for more than ten percent of total rental revenues to which the
Partnership is entitled under the terms of the leases. Any failure of these
lessees or Restaurant Chains will materially affect the Partnership's operating
results if the Partnership is not able to re-lease the Properties in a timely
manner.
During the years ended December 31, 2003 and 2002, the Partnership also
earned $10,172 and $66,376, respectively, in interest and other income,
respectively. The decrease in interest and other income during the year ended
December 31, 2003, was primarily due to a reduction in interest income as a
result of the collection, during 2002, of the principal balance on a mortgage
note of approximately $917,900. The proceeds were reinvested in 2002 in a
Property in Eden Prairie, Minnesota.
Operating expenses, including depreciation expense and provision for
the write-down of assets, were $941,193 and $749,704 for the years ended
December 31, 2003 and 2002, respectively. The increase in operating expenses
during 2003, as compared to 2002, was primarily the result of the Partnership
recording a provision for write-down of assets of approximately $208,000
relating to the Property in Brandon, Florida. The provision represented the
difference between the Property's net carrying value and it estimated fair
value. The tenant of this Property, Brandon Fast Food Services, Inc., filed for
bankruptcy in February 2002, as described above. Also, depreciation expense
increased due to the acquisition of three Properties in 2002, and state tax
expense relating to several states in which the Partnership conducts business
also increased. The increase in these operating expenses was partially offset by
a decrease in the costs incurred for administrative expenses for servicing the
Partnership and its Properties.
Property expenses were also higher during the year ended December 31,
2002, as compared to 2003, because the Partnership elected to reimburse the
tenant of several Golden Corral Properties for certain renovation costs. During
the year ended December 31, 2003, the Partnership incurred expenses such as real
estate taxes and legal fees relating to the Property in Brandon, Florida.
During the year ended December 31, 2002, the Partnership identified and
sold the Property in Baseball City, Florida, the results of which are classified
as discontinued operations in the accompanying financial statements. In May
2002, the Partnership sold this Property resulting in a gain of approximately
$279,800. The Partnership recognized net rental income (rental revenues less
Property related expenses) of $55,304 during the year ended December 31, 2002
relating to this Property.
In October 2003, CNL Restaurant Investments II, in which the
Partnership owns a 36.80% interest, entered into negotiations with a third party
to sell the property in San Antonio, Texas. As a result, the joint venture
reclassified the assets relating to this property from land and building on
operating leases to real estate held for sale. The property was recorded at the
lower of its carrying amount or fair value less cost to sell. In addition, the
joint venture stopped recording depreciation upon identifying the property as
held for sale.
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. 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 San Antonio, Texas;
Columbus, Ohio; Pontiac, Michigan; and Libertyville, Illinois, were reported as
Discontinued Operations in the combined 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, 2002 to the year ended December 31,
2001
Rental revenues from continuing operations were $2,719,772 for the year
ended December 31, 2002 as compared to $2,554,596 in the same period in 2001.
The increase in rental revenues from continuing operations 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.
Also, 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 from continuing
operations in future periods will remain at reduced amounts. However, the
General Partners do not anticipate that any decrease in rental revenues from
continuing operations 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 $74,926, 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, was because 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 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. 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 both 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 the years ended December 31, 2002 and 2001, the Partnership also
earned $66,376 and $270,989, respectively, in interest and other income. 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 expense and provision for
write-down of assets, were $749,704 and $1,063,334 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.
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 financing 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 restaurant properties for certain renovation costs.
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 partnership identified this property for sale during
2002.
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.
The General Partners continuously evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the Limited
Partners.
The Partnership's leases as of December 31, 2003, are generally
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Inflation, overall, has had a minimal effect on
results of operations of the Partnership. Continued inflation may cause capital
appreciation of the Partnership's Properties. Inflation and changing prices,
however, also may have an adverse impact on the sales of the restaurants and on
potential capital appreciation of the Properties.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting guidance
that addresses when a company should include the assets, liabilities and
activities of another entity in its financial statements. To improve financial
reporting by companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that company is
subject to a majority risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. Prior to FIN 46, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. In December 2003, the FASB issued FASB Interpretation No. 46R
("FIN 46R"), to clarify some of the provisions of FIN 46. Under FIN 46R, special
effective date provisions apply to entities that have fully or partially applied
FIN 46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public entities, other than small
business issuers, for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. The Partnership
did not fully or partially apply FIN 46 prior to the issuance of FIN 46R. Also,
the Partnership does not have interests in structures commonly referred to as
special-purpose entities. Therefore, application of FIN 46R is required in the
Partnership's financial statements for periods ending after March 15, 2004. The
General Partners believe adoption of this standard may result in either
consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint ventures, which are currently accounted for under the
equity method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 22
Financial Statements:
Balance Sheets 23
Statements of Income 24
Statements of Partners' Capital 25
Statements of Cash Flows 26-27
Notes to Financial Statements 28-40
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, 2003 and 2002, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 15(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
March 24, 2004
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2003 2002
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 17,855,185 $ 18,256,782
Net investment in direct financing leases 4,351,840 4,559,231
Investment in joint ventures 4,547,753 4,609,998
Cash and cash equivalents 1,701,023 1,571,487
Certificates of deposit 385,718 382,249
Receivables, less allowance for doubtful accounts of
$15,033 and $9,084, respectively 44,739 75,583
Due from related parties -- 6,637
Accrued rental income 1,147,151 1,392,675
Other assets 90,929 87,223
------------------- -------------------
$ 30,124,338 $ 30,941,865
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 9,181 $ 3,622
Escrowed real estate taxes payable 10,743 3,207
Distributions payable 787,501 962,501
Due to related parties 67,705 69,383
Rents paid in advance and security deposits 152,882 87,173
------------------- -------------------
Total liabilities 1,028,012 1,125,886
Minority interest 102,480 104,755
Partners' capital 28,993,846 29,711,224
------------------- -------------------
$ 30,124,338 $ 30,941,865
=================== ===================
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2003 2002 2001
------------------ --------------- ---------------
Revenues:
Rental income from operating leases $ 2,297,124 $ 2,131,424 $ 1,906,926
Earned income from direct financing leases 565,510 588,348 647,670
Contingent rental income 71,888 88,664 74,926
Interest and other income 10,172 66,376 270,989
------------------ --------------- ---------------
2,944,694 2,874,812 2,900,511
------------------ --------------- ---------------
Expenses:
General operating and administrative 254,157 283,375 342,862
Property related 31,565 71,366 44,054
State and other taxes 45,737 30,446 54,965
Depreciation 401,597 364,517 321,973
Provision for write-down of assets 208,137 -- 299,479
------------------ --------------- ---------------
941,193 749,704 1,063,333
------------------ --------------- ---------------
Income before gain on sale of assets, minority
interest and equity in earnings of unconsolidated
joint ventures 2,003,501 2,125,108 1,837,178
Gain on sale of assets -- -- 28,301
Minority interest (12,656 ) (12,864 ) (12,999 )
Equity in earnings of unconsolidated joint
ventures 441,781 649,791 390,505
------------------ --------------- ---------------
Income from continuing operations 2,432,626 2,762,035 2,242,985
------------------ --------------- ---------------
Discontinued Operations
Income from discontinued operations 55,304 93,561
Gain on disposal of discontinued operations -- 279,813 --
------------------ --------------- ---------------
-- 335,117 93,561
------------------ --------------- ---------------
Net income $ 2,432,626 $ 3,097,152 $ 2,336,546
================== =============== ===============
Income per limited partner unit
Continuing operations $ 0.070 $ 0.078 $ 0.064
Discontinued operations -- 0.010 0.003
------------------ --------------- ---------------
Total $ 0.070 $ 0.088 $ 0.067
================== =============== ===============
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, 2003, 2002, and 2001
General Partners Limited Partners
------------------------------------ -----------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
----------------- ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2000 $ 1,000 $ 285,349 $ 35,000,000 $ (32,484,652 ) $ 31,965,837
Distributions to limited
partners ($0.090 per
limited partner unit) -- -- -- (3,150,004 ) --
Net income -- -- -- -- 2,336,546
----------------- ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2001 1,000 285,349 35,000,000 (35,634,656 ) 34,302,383
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
Distributions to limited
partners ($0.090 per
limited partner unit) -- -- -- (3,150,004 ) --
Net income -- -- -- -- 2,432,626
----------------- ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2003 $ 1,000 $ 285,349 $ 35,000,000 $ (42,109,664) $ 39,832,161
================= ================ ================= ================ =================
See accompanying notes to financial statements.
- --------------
Syndication
Costs Total
- -------------- --------------
$ (4,015,000 ) $30,752,534
-- (3,150,004 )
-- 2,336,546
- -------------- --------------
(4,015,000 ) 29,939,076
-- (3,325,004 )
-- 3,097,152
- -------------- --------------
(4,015,000 ) 29,711,224
-- (3,150,004 )
-- 2,432,626
- -------------- --------------
$ (4,015,000 ) $28,993,846
============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2003 2002 2001
--------------- --------------- --------------
Cash Flows from Operating Activities:
Net Income $ 2,432,626 $ 3,097,152 $ 2,336,546
--------------- --------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 401,597 364,517 321,973
Provision for write-down of assets 208,137 -- 299,479
Minority interest 12,656 12,864 12,999
Equity in earnings of unconsolidated joint
ventures, net of distributions 62,245 (108,898 ) 103,020
Gain on sale of assets -- (279,813 ) (28,301 )
Decrease in receivables 30,844 25,546 18,894
Decrease (increase) in due from related 6,637 46,004 (22,631 )
parties
Amortization of investment in direct
financing leases 207,391 187,666 181,500
Decrease (increase) in accrued rental 37,387 3,355 (960 )
income
Decrease (increase) in other assets (3,706) (17,349 ) 9,085
Increase (decrease) in accounts payable
and accrued expenses and escrowed real 13,095 (9,425 ) (30,540 )
estate taxes payable
Increase (decrease) in due to related
parties (1,678) (6,099 ) 16,081
Increase (decrease) in rents paid in
advance and security deposits 65,709 35,077 (20,550 )
--------------- --------------- --------------
Total adjustments 1,040,314 253,445 860,049
--------------- --------------- --------------
Net Cash Provided by Operating Activities 3,472,940 3,350,597 3,196,595
Cash Flows from Investing Activities:
Proceeds from sale of real estate properties -- 1,184,559 877,000
Additions to real estate properties with
operating leases -- (2,894,329 ) --
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 )
Collections on mortgage notes receivable -- 917,857 494,206
Net (increase) decrease in certificates of
deposit (3,469) (8,091 ) 84,661
--------------- --------------- --------------
Net cash provided by (used in) investing
activities (3,469) (699,296 ) 826,590
--------------- --------------- --------------
Cash flows from Financing Activities:
Distributions to limited partners (3,325,004) (3,150,004 ) (3,150,004 )
Distributions to holder of minority interest (14,931) (14,943 ) (14,683 )
--------------- --------------- --------------
Net cash used in financing activities (3,339,935) (3,164,947 ) (3,164,687 )
--------------- --------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents 129,536 (513,646 ) 858,498
Cash and Cash Equivalents at Beginning of Year 1,571,487 2,085,133 1,226,635
--------------- --------------- --------------
Cash and Cash Equivalents at End of Year $ 1,701,023 $ 1,571,487 $ 2,085,133
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2003 2002 2001
--------------- --------------- --------------
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid at
December 31 $ 787,501 $ 962,501 $ 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, 2003, 2002, and 2001
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, 2003, 2002, and 2001, tenants paid,
or are expected to pay directly to real estate taxing authorities
approximately $463,000, $477,000, and $433,000, respectively, in
estimated real estate taxes in accordance with the terms of their
leases.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The Partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
operating or the direct financing methods.
Operating method - 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.
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.
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
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
Substantially all leases are for 9 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. 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
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
Rents Paid in Advance - Rents paid in advance by lessees for future
periods are deferred upon receipt and are recognized as revenues during
the period in which the rental income is earned.
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 2003 presentation.
These reclassifications had no effect on partner's capital, net income
or cash flows.
Statement of Financial Accounting Standards No. 144 - Effective January
1, 2002, the Partnership adopted Statement of Financial Accounting
Standards No. 144 ("FAS 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 - In January 2003, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and
strengthen existing accounting guidance that addresses when a company
should include the assets, liabilities and activities of another entity
in its financial statements. To improve financial reporting by
companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. In December 2003,
the FASB issued FASB Interpretation No. 46R ("FIN 46R"), to clarify
some of the provisions of FIN 46. Under FIN 46R, special effective date
provisions apply to entities that have fully or partially applied FIN
46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests
in structures that are commonly referred to as special-purpose entities
for periods ending after December 15, 2003. Application by public
entities, other than small business issuers, for all other types of
variable interest entities is required in financial statements for
periods ending after March 15, 2004. The Partnership did not fully or
partially apply FIN 46 prior to the issuance of FIN 46R. Also, the
Partnership does not have interests in structures commonly referred to
as special-purpose entities. Therefore, application of FIN 46R is
required in the Partnership's financial statements for periods ending
after March 15, 2004. The General Partners believe adoption of this
standard may result in either consolidation or
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
additional disclosure requirements of the Partnership's unconsolidated
joint ventures, which are currently accounted for under the equity
method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
2. Real Estate Properties with Operating Leases
Real estate properties with operating leases consisted of the following
at December 31:
2003 2002
-------------------- --------------------
Land $ 9,988,909 $ 9,988,909
Buildings 10,928,236 10,928,236
-------------------- --------------------
20,917,145 20,917,145
Less accumulated depreciation (3,061,960 ) (2,660,363 )
-------------------- --------------------
$ 17,855,185 $ 18,256,782
==================== ====================
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.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2003:
2004 $ 2,334,917
2005 2,208,681
2006 1,742,117
2007 1,700,145
2008 1,702,575
Thereafter 7,916,354
----------------
$ 17,604,789
================
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
3. Net Investment in Direct Financing Leases
The following lists the components of the net investment in direct
financing leases at December 31:
2003 2002
----------------- -----------------
Minimum lease payments
receivable $ 5,443,051 $ 6,215,952
Estimated residual values 1,700,249 1,700,249
Less unearned income (2,791,460 ) (3,356,970 )
----------------- -----------------
Net investment in direct
financing leases $ 4,351,840 $ 4,559,231
================= =================
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2003:
2004 $ 772,901
2005 772,901
2006 799,228
2007 812,347
2008 812,347
Thereafter 1,473,327
----------------
$ 5,443,051
================
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 one property, and
CNL Restaurant Investments II owns five properties. 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, 2003, the
Partnership owned a 17%, 19.3%, 10%, and 66% interest, respectively, in
these properties, as four separate tenancy-in common arrangements.
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.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
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 $188,300 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. 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.
In September 2002, the Partnership, with CNL Income Fund IX, Ltd., an
affiliate of the general partner, 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 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.
In October 2003, CNL Restaurant Investments II, in which the
Partnership owns a 36.80% interest, entered into negotiations with a
third party to sell the property in San Antonio, Texas. As a result,
the joint venture reclassified the assets relating to this property
from land and building on operating leases to real estate held for
sale. The property was recorded at the lower of its carrying amount or
fair value less cost to sell. The joint venture stopped recording
depreciation upon identifying the property as held for sale.
The financial results relating to the properties in Columbus, Ohio,
Pontiac, Michigan, Libertyville, Illinois, and San Antonio, Texas are
reflected as discontinued operations below.
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,
2003 2002
-------------------- -----------------
Real estate properties with operating leases, net $ 12,702,163 $ 13,003,195
Net investment in direct financing leases 967,656 985,387
Real estate held for sale 724,380 739,968
Cash 75,287 26,033
Accrued rental income 298,654 200,487
Liabilities 60,958 16,475
Partners' capital 14,707,182 14,938,595
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
Years ended December 31,
2003 2002 2001
------------- -------------- ---------------
Rental revenues $1,639,138 $ 1,349,581 $ 902,538
Expenses (308,261 ) (276,951 ) (202,644 )
------------- -------------- ---------------
Income from continuing operations 1,330,877 1,072,630 699,894
------------- --------------- ---------------
Discontinued operations
Revenues 95,286 303,068 475,246
Expenses (15,988 ) (54,829 ) (103,414 )
Gain on disposal of assets -- 457,786 --
------------- -------------- ---------------
79,298 706,025 371,832
------------- -------------- ---------------
Net income $1,410,175 $ 1,778,655 $ 1,071,726
============= ============== ===============
The Partnership recognized income totaling $441,781, $649,791, and
$390,505, for the years ended December 31, 2003, 2001 and 2001,
respectively, from these joint ventures.
5. Mortgage Note Receivable
In connection with the 1996 sale of its property in Orlando, Florida,
the Partnership accepted a promissory note in the principal sum of
$1,388,568, representing the gross sales price of 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.
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,
2003 2002 2001
--------------- ------------ -------------
Rental revenues $ -- $ 55,304 $ 93,561
--------------- ------------ -------------
Income from discontinued operations $ -- $ 55,304 $ 93,561
=============== ============ =============
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
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% 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% 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% 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, 2003, 2002 and 2001.
During the years ended December 31, 2003, 2002, and 2001, the
Partnership declared distributions to the limited partners of
$3,150,004, $3,325,004, and $3,150,004, respectively. 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
Years Ended December 31, 2003, 2002, and 2001
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:
2003 2002 2001
-------------- -------------- ---------------
Net income for financial reporting purposes $ 2,432,626 $ 3,097,152 $ 2,336,546
Effect of timing differences relating to
depreciation (2,728) (23,691 ) (57,394 )
Provision for write-down of assets 208,137 -- 299,479
Direct financing leases recorded as operating
leases for tax reporting purposes 207,391 299,623 181,500
Effect of timing differences relating to
allowance for doubtful accounts 5,949 7,970 211,991
Accrued rental income 37,387 3,355 (212,295 )
Rents paid in advance 65,709 24,899 (32,217 )
Effect of timing differences relating to gains on
real estate property sales -- (256,869 ) 60,643
Effect of timing differences relating to equity
in earnings of unconsolidated joint ventures 2,817 (163,230 ) 15,396
Effect of timing differences relating to minority
interest income of consolidated joint venture (1,026) (103,783 ) (481 )
Other (370) -- --
-------------- -------------- ---------------
Net income for federal income tax purposes $ 2,955,892 $ 2,885,426 $ 2,803,168
============== ============== ===============
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
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 Restaurant
Properties, Inc. (formerly CNL American Properties Fund, Inc.) served
as the Partnership's advisor until January 1, 2002, when it assigned
its rights and obligations under a management agreement to RAI
Restaurants, Inc ("the Advisor"). The Advisor is a wholly owned
subsidiary of CNL Restaurant Properties, Inc. ("CNL-RP"). The
individual general partners are stockholders and directors of CNL-RP.
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, 2003, 2002 and 2001.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the limited partners of their aggregate 10%
Preferred Return, plus their adjusted capital contributions. No
deferred, subordinated real estate disposition fees were incurred for
the years ended December 31, 2003, 2002 and 2001.
During the years ended December 31, 2003, 2002, and 2001, the
Partnership's advisor and its affiliates provided accounting and
administrative services. The Partnership incurred $143,519, $184,100,
and $201,158, for the years ended December 31, 2003, 2002, and 2001,
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
Years Ended December 31, 2003, 2002, and 2001
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:
2003 2002
----------------- ----------------
Due to Advisor and its Affiliates:
Accounting and administrative services $ 12,655 $ 14,333
Deferred, subordinated real estate
disposition fee 55,050 55,050
----------------- ----------------
$ 67,705 $ 69,383
================= ================
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:
2003 2002 2001
--------------- --------------- ---------------
Golden Corral Corporation $ 705,715 $ 710,351 $ 703,279
Carrols Corporation and Texas Taco
Cabana, LP 578,826 512,513 421,048
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
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:
2003 2002 2001
--------------- --------------- ---------------
Golden Corral Buffet and Grill $ 705,715 $ 710,351 $ 680,395
Burger King 688,063 793,019 581,888
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, 2003 and
2002:
2003 Quarter First Second Third Fourth Year
---------------------------------------- ----------- ------------ ------------ ------------ ------------
Continuing Operations (1):
Revenues $ 717,958 $ 725,653 $ 727,756 $ 773,327 $2,944,694
Equity in earnings of
unconsolidated joint ventures 110,515 109,088 109,926 112,252 441,781
Income from continuing
operations 585,273 661,157 674,687 511,509 2,432,626
Discontinued Operations (1):
Revenues -- -- -- -- --
Income from discontinued
operations -- -- -- -- --
Net Income 585,273 661,157 674,687 511,509 2,432,626
Income per limited partner unit:
Continuing operations $ 0.017 $ 0.019 $ 0.019 $ 0.015 $ 0.070
Discontinued operations -- -- -- -- --
----------- ------------ ------------ ------------ ------------
Total $ 0.017 $ 0.019 $ 0.019 $ 0.015 $ 0.070
=========== ============ ============ ============ ============
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
11. Selected Quarterly Financial Data - Continued
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
unconsolidated 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 and gain
on disposal of discontinued
operations 38,332 296,785 -- -- 335,117
Net Income 620,607 967,273 782,544 726,728 3,097,152
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
=========== ============ ============ ============ ============
(1) Certain items in the quarterly financial data have been
reclassified to conform to the 2003 presentation. This
reclassification had no effect on net income. 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. The results of operations relating to
properties that were either identified for sale and disposed of
subsequent to January 1, 2002 or were classified as held for sale
as of December 31, 2003 are reported as discontinued operations
for all periods presented.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL-RP, CCM, CNL Financial Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 57. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL-RP, a public, unlisted real
estate investment trust since 1994. Mr. Seneff served as Chief Executive Officer
of CNL-RP from 1994 through August 1999 and as Co-Chief Executive Officer from
December 2000 through September 2003. Mr. Seneff served as Chairman of the Board
and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, from its inception in 1990 until it merged with a
wholly-owned subsidiary of CNL-RP in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. CNL Fund Advisors,
Inc., formerly CNL Institutional Advisors, Inc., is a registered investment
advisor. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the parent
company of CNL Financial Group, Inc., a diversified real estate company, and has
served as a Director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since 1973. CNL Financial Group, Inc. is and is the parent
company, either directly or indirectly through subsidiaries, of CNL Real Estate
Services, Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL
Securities Corp., all of which are engaged in the business of real estate
finance. Mr. Seneff also serves as a Director and Chairman of the Board of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
and served as Chief Executive Officer of CNL Hospitality Properties, Inc. from
its inception in 1997 until 2003 and served as Co-Chief Executive Officer from
February 2003 until May 1, 2003. Mr. Seneff has served as Chairman of the Board
of CNL Hospitality Corp., the advisor to CNL Hospitality Properties, Inc., since
its inception in 1997. Mr. Seneff also served as Chief Executive Officer from
its inception in 1997 through February 2003, and currently serves as Co-Chief
Executive Officer of CNL Hospitality Corp. Mr. Seneff has served as Director and
Chairman of the Board of CNL Retirement Corp. since 1997 and served as Chief
Executive Officer of CNL Retirement Corp. from 1997 through 2003. CNL Retirement
Corp. is the advisor to CNL Retirement Properties, Inc., a public, unlisted real
estate investment trust. Mr. Seneff has also served as Director and Chairman of
the Board of Commercial Net Lease Realty, Inc., a public real estate investment
trust that is listed on the New York Stock Exchange, since 1992 and served as
Chief Executive Officer of Commercial Net Lease Realty, Inc. from 1992 through
February 2004. Mr. Seneff Has served as a Director, Chairman of the Board, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff has
served as Chairman of the Board and Chief Executive Officer of CNL Commercial
Finance, Inc. since 2000. Mr. Seneff also serves as Chairman of the Board of
CNLBank, an independent, state-chartered commercial bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of the
Florida state retirement plan. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 56. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne has
served as a Director and Vice Chairman of the Board of CNL-RP since 1994. Mr.
Bourne also served as President of CNL-RP from 1994 through February 1999 and
served as Treasurer from February 1999 through August 1999 and from May 1994
through December 1994. Mr. Bourne served in various executive positions with CNL
Fund Advisors, Inc. prior to its merger with a wholly-owned subsidiary of CNL-RP
including, President from 1994 through September 1997, and Director from 1994
through August 1999. Mr. Bourne serves as President and Treasurer of CNL
Financial Group, Inc. Mr. Bourne serves as Director, Vice Chairman of the Board
and Treasurer and from 1997 until June 2002 served as President of CNL
Hospitality Properties, Inc. and as Director, President and Treasurer of CNL
Hospitality Corp. Mr. Bourne also serves as Director and Treasurer of CNL
Retirement Properties, Inc. and as Director and Treasurer of CNL Retirement
Corp. Mr. Bourne serves as a Director of CNLBank. Mr. Bourne has also served as
a Director since 1992, Vice Chairman of the Board since February 1996, Secretary
and Treasurer from February 1996 through 1997, and President from July 1992
through February 1996, of Commercial Net Lease Realty, Inc. Mr. Bourne serves as
Director, President and Treasurer for various affiliates of CNL Financial Group,
Inc. including, CNL Investment Company, CNL Securities Corp. and CNL
Institutional Advisors, Inc. Mr. Bourne began his career as a certified public
accountant employed by Coopers & Lybrand, Certified Public Accountants, from
1971 through 1978, where he attained the position of Tax Manager in 1975. Mr.
Bourne graduated from Florida State University in 1970 where he received a B.A.
in Accounting, with honors.
Curtis B. McWilliams, age 48. Mr. McWilliams has served as President of
CNL-RP since May 2001 and as Chief Executive Officer of CNL-RP since September
2003. Mr. McWilliams served as Co-Chief Executive Officer of CNL-RP from
December 2000 through September 2003 and served as Chief Executive Officer from
September 1999 through December 2000. Mr. McWilliams also served as President
and Chief Executive Officer of CNL Franchise Network Corp., a wholly owned
subsidiary of CNL-RP since August 2002 and served as President of CNL-RP from
February 1999 until September 1999 and as Executive Vice President of CNL-RP
from 1997 through February 1999. Mr. McWilliams served as an Executive Vice
President of CNL Financial Group, Inc. from the time he joined the company in
April 1997 until September 1999. Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and CNL Financial Services, Inc., a corporation engaged in the
business of real estate financing, from April 1997 until the acquisition of such
entities by wholly owned subsidiaries of CNL-RP in September 1999. From
September 1983 through March 1997, Mr. McWilliams was employed by Merrill Lynch
& Co. The majority of his career at Merrill Lynch & Co. was in the Investment
Banking division where he served as a Managing Director. Mr. McWilliams received
a B.S.E. in Chemical Engineering from Princeton University in 1977 and a Master
of Business Administration degree with a concentration in finance from the
University of Chicago in 1983.
Steven D. Shackelford, age 40. Mr. Shackelford was promoted to
Executive Vice President and Chief Operating Officer of CNL-RP in September
2003. Mr. Shackelford has also served as Chief Financial Officer since January
1997. He served as Senior Vice President of CNL-RP from January 1997 through
July 2000, when he was promoted to Executive Vice President. Mr. Shackelford has
also served as Secretary and Treasurer of CNL-RP since September 1999. He also
served as Chief Financial Officer of CNL Fund Advisors, Inc. from September 1996
to September 1999. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse LLP where he was responsible
for advising foreign clients seeking to raise capital and a public listing in
the United States. From August 1992 to March 1995, he was a manager in the
Paris, France office of Price Waterhouse, serving several multi-national
clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor
of Arts degree in Accounting, with honors, and a Master of Business
Administration degree from Florida State University and is a certified public
accountant.
Thomas Arasi, age 46. Mr. Arasi has served as President of CCM since it
was formed in July 2003 to provide strategic advisory services to the General
Partners. He has served in various consulting capacities to CNL Hospitality Corp
and other CNL affiliates since January 2003. Since November 2001 he has been an
independent consultant working for a variety of operating and investment
companies in the hospitality industry. Until October 2001, Mr. Arasi was
President & Chief Executive Officer, and a member of the Board of Directors of
Lodgian, Inc., a New York Stock Exchange traded company, one of the largest
independent hotel owner/operators in North America, with hotel properties under
most brand names including Marriott, Courtyard by Marriott, Fairfield Inn by
Marriott, Crowne Plaza, Holiday Inn, Hilton, and Radisson. From June 1997
through November 2000, Mr. Arasi was a member of the Management Committee and
held several top operating positions with Bass Hotels & Resorts, one of the
leading international owners, operators and franchisors of hotels, most recently
serving as President, Bass Hotels & Resort--The Americas. Mr. Arasi was formerly
President of Tishman Hotel Corporation, Vice President of Salomon Brothers,
Inc., in New York, Tokyo and Los Angeles and held positions with Sheraton,
Westin and HVS International. Mr. Arasi graduated from Cornell University in
January 1981, where he received a Bachelor's degree in Hotel and Restaurant
Administration.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2003.
Code of Business Conduct
The Partnership does not have employees and, accordingly, has not
adopted a code of business conduct applicable exclusively to the Partnership.
However, employees of the General Partners or their affiliates, including the
individual General Partners, are bound by the Code of Business Conduct adopted
November 11, 2003 by CNL Holdings, Inc. Separately, the employees of the Advisor
are bound by the similar Code of Business Conduct adopted by CNL Restaurant
Properties, Inc. Each of these codes of business conduct will be made available
to any person who writes the Partnership requesting a copy.
Audit Committee Financial Expert
Due to its organization as a limited partnership, the Partnership does
not have an audit committee that is responsible for supervising the
Partnership's relationship with its independent auditors. For the Partnership,
this role is performed by the General Partners. Based on his previous service as
the principal financial officer of companies with businesses similar to that of
the Partnership, Robert A. Bourne, one of the General Partners, has the
requisite experience to be considered an "audit committee financial expert" as
defined in the rules under the Securities Exchange Act of 1934, if the
Partnership had an audit committee. As a General Partner, Mr. Bourne is not
independent of the Partnership.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
As of March 12, 2004, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 12, 2004, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
The Partnership does not have any equity compensation plans.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2003, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and administra-
operating expenses the lower of cost or 90% of the tive services: $143,519
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, 2003
- --------------------------------- -------------------------------------- ------------------------------
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, 2003
- --------------------------------- -------------------------------------- ------------------------------
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.
Item 14. Principal Accountant Fees and Services
The following table outlines the only fees paid or accrued by the
Partnership for the audit and other services provided by the Partnership's
independent certified public accountants, PricewaterhouseCoopers LLP, for the
years ended December 31:
2003 2002
--------------- ----------------
Audit Fees (1) $ 12,584 $ 9,800
Tax Fees (2) 7,919 6,990
--------------- ----------------
Total $ 20,503 $ 16,790
=============== ================
(1) Audit services of PricewaterhouseCoopers LLP for 2003 and 2002
consisted of the examination of the financial statements of the
Partnership and quarterly review of financial statements.
(2) Tax Fees relates to tax consulting and compliance services.
Each of the non-audit services described above was approved by the
General Partners. Due to its organization as a limited partnership, the
Partnership does not have an audit committee.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2003 and 2002
Statements of Income for the years ended December 31, 2003, 2002,
and 2001
Statements of Partners' Capital for the years ended December 31,
2003, 2002, and 2001
Statements of Cash Flows for the years ended December 31, 2003,
2002, and 2001
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years ended
December 31, 2003, 2002, 2001
Schedule III - Real Estate and Accumulated Depreciation at December
31, 2003
Notes to Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2003
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.)
31.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
32.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
(b) The Registrant filed no reports on Form 8-K during the period October 1,
2003 through December 31, 2003.
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, 2004.
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, 2004
- ------------------------------------ (Principal Financial and Accounting
Robert A. Bourne (Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 24, 2004
- ------------------------------------ (Principal Executive Officer)
James M. Seneff, Jr.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2003, 2002, and 2001
Additions Deductions
--------------------------------- ------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---------- ----------------- -------------- --------------- ---------------- ------------ ------------ ------------
2001 Allowance for
doubtful
accounts (a) $ 459 $ -- $ 58,221 (b) $ -- (c) $ 57,564 $ 1,114
============== =============== ================ ============ ============ ============
2002 Allowance for
doubtful
accounts (a) $ 1,114 $ -- $ 9,394 (b) $ 1,114 (c) $ 310 $ 9,084
============== =============== ================ ============ ============ ============
2003 Allowance for
doubtful
accounts (a) $ 9,084 $ -- $ 7,564 (b) $ 1,082 (c) $ 533 $ 15,033
============== =============== ================ ============ ============ ============
(a) Deducted from receivables.
(b) Reduction of rental, earned and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
Costs Capitalized
Subsequent To Net Cost Basis at Which
Initial Cost Acquisition Carried at Close of Period (c)
--------------------- ----------------- ----------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
--------- ---------- ---------- --------- ------ ---------- ----------- ----------
Properties the Partnership
has Invested in Under
Operating Leases:
Bennigan's Restaurant:
Deerfield, Illinois - $1,296,452 - $1,156,526 - $1,296,452 $1,156,526 $2,452,978
Boston Market Restaurant:
Eden Prairie, Minnesota-(j) 293,917 799,934 - - 293,917 799,934 1,093,851
Burger King Restaurants:
Brandon, Florida - 478,467 - - - 478,467 (f) 478,467
New City, New York - 372,977 - 557,832 - 372,977 557,832 930,809
Mansfield, Ohio - 377,395 - 496,524 - 377,395 496,524 873,919
Syracuse, New York - 363,431 - 485,920 - 363,431 485,920 849,351
New Philadelphia, Ohio - 310,920 - 523,967 - 310,920 523,967 834,887
Denny's Restaurant:
Tiffin, Ohio - 143,592 335,971 - - 143,592 335,971 479,563
Ontario, Oregon - 215,796 432,093 - - 215,796 432,093 647,889
Golden Corral Family
Steakhouse Restaurants:
College Station, Te-as 517,623 - 877,505 - 517,623 877,505 1,395,128
Houston, Texas - 663,999 - 1,129,910 - 663,999 1,129,910 1,793,909
Beaumont, Texas - 552,646 - 893,054 - 552,646 893,054 1,445,700
Grand Prairie, Texa- 681,824 - 914,235 - 681,824 914,235 1,596,059
Hardee's Restaurant:
Jefferson, Ohio - 150,587 - - - 150,587 (f) 150,587
Jack in the Box Restaurants:
Waco, Texas - 412,942 - - - 412,942 (f) 412,942
Mesa, Arizona - 609,921 - - - 609,921 (f) 609,921
KFC Restaurant:
Norton Shores, Michigan- 177,897 - - - 177,897 (f) 177,897
O'Sullivan's Irish American
Restaurant:
North Fort Myers, Flori-a 398,423 425,676 - - 398,423 425,676 824,099
Perkins Restaurant:
Memphis, Tennessee - 431,065 - - - 431,065 (f) 431,065
Pizza Hut Restaurant:
Hialeah, Florida - 284,269 193,004 - - 284,269 193,004 477,273
Shoney's Restaurants:
Memphis, Tennessee - 368,290 601,660 - - 368,290 601,660 969,950
Taco Cabana
Denton, Texas (k) - 520,875 626,680 - - 520,875 626,680 1,147,555
Wendy's Old Fashioned
Hamburger Restaurant:
Midlothian, Virgini- 365,601 - 477,745 - 365,601 477,745 843,346
---------- ---------- --------- ------ ---------- ----------- ----------
$9,988,909 $3,415,018 $7,513,218 - $9,988,909 $10,928,236 $20,917,145
========== ========== ========= ====== ========== =========== ==========
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurants:
Brandon, Florida - $ - - $483,107 $ - $ - (f) (f)
Hardee's Restaurants:
Brunswick, Ohio - 116,199 457,907 - - (f) (f) (f)
Grafton, Ohio - 66,092 411,798 - - (f) (f) (f)
Jefferson, Ohio - - 443,444 - - - (f) (f)
Lexington, Ohio - 124,707 433,264 - - (f) (f) (f)
Jack in the Box Restaurants:
Waco, Texas - - - 406,745 - - (f) (f)
Mesa, Arizona - - 561,477 - - - (f) (f)
KFC Restaurants:
Grand Rapids, Michig-n 169,175 620,623 - - (f) (f) (f)
Norton Shores, Michi-an - 509,228 - - - (f) (f)
Perkins Restaurant:
Memphis, Tennessee - - - 594,154 - - (f) (f)
---------- ---------- --------- ------ ----------
$476,173 $3,437,741 $1,484,006 $ - $ -
========== ========== ========= ====== ==========
Life of Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
---------- ------- -------- ----------
$131,721 2000 07/00 (b)
45,391 1996 09/02 (b)
- 1991 10/90 (d)
133,520 1977 03/91 (h)
118,842 1989 03/91 (h)
116,304 1987 03/91 (h)
125,410 1989 03/91 (h)
123,433 1990 03/91 (g)
28,803 1978 01/02 (b)
389,073 1990 09/90 (b)
490,045 1990 10/90 (b)
404,203 1990 11/90 (b)
404,606 1990 11/90 (b)
- 1990 11/90 (d)
- 1991 11/90 (d)
- 1991 02/92 (d)
- 1990 03/91 (d)
45,765 1991 09/95 (i)
- 1990 11/90 (d)
20,907 2000 10/00 (b)
248,463 1991 08/91 (b)
33,077 1992 06/02 (b)
202,397 1991 03/91 (b)
----------
$3,061,960
==========
(d) 1991 10/90 (d)
(e) 1990 11/90 (e)
(e) 1990 11/90 (e)
(d) 1990 11/90 (d)
(e) 1990 11/90 (e)
(d) 1991 11/90 (d)
(d) 1991 02/92 (d)
(e) 1990 02/91 (e)
(d) 1990 03/91 (d)
(d) 1990 11/90 (d)
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 2003, 2002, and 2001, have been adjusted to
reflect the reclassification of properties accounted for as
discontinued operations.
Accumulated
Cost Depreciation
---------------- -------------------
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 2000 $ 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
Depreciation expense -- 401,597
---------------- -----------------
Balance, December 31, 2003 $ 20,917,145 $ 3,061,960
================ =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2003, the aggregate cost of the wholly owned
Properties and the Property owned by the consolidated joint venture was
$15,995,853 for federal income tax purposes. All of the leases are
treated as operating leases for federal income tax purposes.
(d) The portion of the lease relating to the building has been recorded as
a direct financing lease. The cost of the building has been included in
the net investment in direct financing 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.
CNL INCOME FUND VIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2003
(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, 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.
(k) 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.
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.)
31.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2