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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 2002
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _____________________ to _____________________
Commission file number
0-20017
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CNL Income Fund IX, Ltd.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3004138
- ----------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ----------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
Part II
Other Information 14
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
2002 2001
------------------- -------------------
ASSETS
Land and buildings on operating leases, net $ 13,964,781 $ 14,060,856
Net investment in direct financing leases 2,766,732 2,807,303
Investment in joint ventures 7,400,780 7,324,599
Mortgage notes receivable 473,407 482,406
Cash and cash equivalents 1,162,778 1,247,551
Receivables, less allowance for doubtful accounts
of $15,296 in 2002 and 2001 346 32,171
Due from related parties 6,575 4,872
Accrued rental income 743,937 888,899
Other assets 21,100 10,520
------------------- -------------------
$ 26,540,436 $ 26,859,177
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 3,550 $ 7,190
Real estate taxes payable 20,015 7,853
Distributions payable 787,501 787,501
Due to related parties 16,401 5,878
Rents paid in advance and deposits 21,475 59,096
------------------- -------------------
Total liabilities 848,942 867,518
Commitment (Note 6)
Partners' capital 25,691,494 25,991,659
------------------- -------------------
$ 26,540,436 $ 26,859,177
=================== ===================
See accompanying notes to condensed financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------------- -------------- -------------- ---------------
Revenues:
Rental income from operating leases $ 391,398 $ 427,471 $ 803,324 $ 828,942
Earned income from direct financing leases 81,798 84,593 164,198 207,907
Interest and other income 14,203 20,386 25,729 109,339
------------- -------------- -------------- ---------------
487,399 532,450 993,251 1,146,188
------------- -------------- -------------- ---------------
Expenses:
General operating and administrative 65,149 82,867 140,623 208,800
Property expenses 25,814 41,422 41,060 69,626
State and other taxes 11,064 2,038 43,438 35,750
Depreciation and amortization 80,410 76,474 162,813 152,948
Provision for write-down of assets 321,609 250,852 321,609 400,800
------------- -------------- -------------- ---------------
504,046 453,653 709,543 867,924
------------- -------------- -------------- ---------------
Income (Loss) Before Gain on Sale of Assets and
Equity in Earnings of Joint Ventures (16,647 ) 78,797 283,708 278,264
Gain on Sale of Assets 224,412 -- 224,412 --
Equity in Earnings of Joint Ventures 605,482 219,479 766,717 389,632
------------- -------------- -------------- ---------------
Net Income $ 813,247 $ 298,276 $ 1,274,837 $ 667,896
============= ============== ============== ===============
Net Income Per Limited Partner Unit $ 0.23 $ 0.09 $ 0.36 $ 0.19
============= ============== ============== ===============
Weighted Average Number of Limited Partner
Units Outstanding 3,500,000 3,500,000 3,500,000 3,500,000
============= ============== ============== ===============
See accompanying notes to condensed financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
2002 2001
-------------------- ------------------
General partners:
Beginning balance $ 238,417 $ 238,417
Net income -- --
-------------------- ------------------
238,417 238,417
-------------------- ------------------
Limited partners:
Beginning balance 25,753,242 26,911,340
Net income 1,274,837 1,991,906
Distributions ($0.45 and $0.90 per limited partner
unit, respectively) (1,575,002 ) (3,150,004 )
-------------------- ------------------
25,453,077 25,753,242
-------------------- ------------------
Total partners' capital $ 25,691,494 $ 25,991,659
==================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2002 2001
---------------- ----------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 1,230,877 $ 1,631,931
---------------- ----------------
Cash Flows from Investing Activities:
Additions to land and buildings (1,030,804 ) --
Proceeds from sale of assets 976,797 --
Increase in restricted cash -- (424,600 )
Investment in joint ventures (625,044 ) --
Return of capital from joint ventures 929,590 --
Liquidating distribution from joint venture -- 424,600
Collections on mortgage notes receivable 8,813 13,298
---------------- ----------------
Net cash provided by investing activities 259,352 13,298
---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,575,002 ) (1,575,002 )
---------------- ----------------
Net cash used in financing activities (1,575,002 ) (1,575,002 )
---------------- ----------------
Net Increase (Decrease) in Cash and Cash Equivalents (84,773 ) 70,227
Cash and Cash Equivalents at Beginning of Quarter 1,247,551 829,338
---------------- ----------------
Cash and Cash Equivalents at End of Quarter $ 1,162,778 $ 899,565
================ ================
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 787,501 $ 787,501
================ ================
See accompanying notes to condensed financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 2002, may not be indicative
of the results that may be expected for the year ending December 31,
2002. Amounts as of December 31, 2001, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund IX, Ltd. (the "Partnership") for the year ended December
31, 2001.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
2. Reclassification:
Certain items in the prior year's financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on total partners' capital or net income.
3. Land and Buildings on Operating Leases:
In May 2002, the Partnership sold its property in Greenville, South
Carolina, to an unrelated third party for approximately $997,800 and
received net sales proceeds of approximately $976,800, resulting in a
gain of approximately $224,400. This property had been identified for
sale as of December 31, 2001. In June 2002, the Partnership reinvested
these net sales proceeds in a property in Dallas, Texas at an
approximate cost of $1,030,800. The Partnership acquired this property
from CNL Funding 2001-A, LP, an affiliate of the general partners (see
Note 5).
During the six months ended June 30, 2002, the Partnership established
a provision for write-down of assets of $321,609 relating to its
property in Wildwood, Florida. During 2001, the Partnership and the
tenant terminated the lease relating to this property. The provision
represented the difference between the carrying value of the property
and its fair value.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
4. Investment in Joint Ventures:
In May 2002, CNL Restaurant Investments III Joint Venture, in which the
Partnership owns a 50% interest, sold its Burger King property in
Greensboro, North Carolina, to the tenant for approximately $1,145,500
and received net sales proceeds of approximately $1,143,500, resulting
in a gain to the joint venture of approximately $371,500. The
Partnership received approximately $571,700 as a return of capital from
the joint venture. In June 2002, the Partnership reinvested the
majority of these net sales proceeds in a joint venture arrangement,
Katy Joint Venture, with CNL Income Fund XVII, Ltd., an affiliate of
the general partners. Katy Joint Venture acquired a property in Katy,
Texas from CNL Funding 2001-A, LP, an affiliate of the general partners
at an approximate cost of $1,041,700 (see Note 5). The Partnership and
CNL Income Fund XVII, Ltd. entered into an agreement whereby each
co-venturer will share in the profits and losses of the property in
proportion to its applicable percentage interest. As of June 30, 2002,
the Partnership had contributed approximately $625,000 for a 60%
interest in this joint venture.
In June 2002, Ashland Joint Venture, in which the Partnership owns a
27.33% interest, sold its Burger King property in Ashland, New
Hampshire to the tenant for approximately $1,477,500 and received net
sales proceeds of approximately $1,472,900, resulting in a gain to the
joint venture of approximately $500,900. In June 2002, the joint
venture reinvested the majority of the net sales proceeds from the sale
of this property in a property in San Antonio, Texas. The joint venture
acquired the property from CNL Funding 2001-A, LP, an affiliate of the
general partners for an approximate cost of $1,343,000 (see Note 5).
The Partnership received approximately $6,000 as a return of capital
from the remaining net sales proceeds.
In June 2002, CNL Restaurant Investments II Joint Venture, in which the
Partnership owns a 45.2% interest, sold its property in Columbus, Ohio
to the tenant for approximately $1,219,600 and received net sales
proceeds of approximately $1,215,700 resulting in a gain to the joint
venture of approximately $448,300. The joint venture used the majority
of the net sales proceeds from this sale to acquire a property in
Dallas, Texas at an approximate cost of $1,147,400. The joint venture
acquired this property from CNL Funding 2001-A, LP, an affiliate of the
general partners (see Note 5). The Partnership received approximately
$27,600 as a return of capital from the remaining net sales proceeds.
In addition, in June 2002, CNL Restaurant Investments II Joint Venture
sold its property in Pontiac, Michigan to the tenant for approximately
$725,000 and received net sales proceeds of approximately $722,600
resulting in a loss to the joint venture of approximately $189,800. The
Partnership received approximately $326,200 as a return of capital from
the net sales proceeds.
In June 2002, the Partnership and CNL Income Fund VIII, Ltd. entered
into an agreement with an unrelated third party to sell the Baker's
Square property in Libertyville, Illinois. The Partnership owns a 34%
interest in this property. CNL Income Fund VIII, Ltd. is an affiliate
of the general partners. As a result of the contract, the Partnership
and CNL Income Fund VIII, Ltd. stopped recording depreciation and
accrued rental income once the property was placed up for sale.
The financial results relating to the properties in Greensboro, North
Carolina; Ashland, New Hampshire; Columbus, Ohio; Pontiac, Michigan;
and Libertyville, Illinois are reflected as Discontinued Operations in
the condensed financial information below.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
4. Investment in Joint Ventures - Continued:
CNL Restaurant Investments II Joint Venture and CNL Restaurant
Investments III Joint Venture each own and lease five properties to
operators of national fast-food and family-style restaurants. Ashland
Joint Venture and Katy Joint Venture each own and lease one property to
operators of national fast-food and family-style restaurants. The
Partnership and affiliates, as tenants-in-common, own and lease four
properties to operators of national fast-food and family-style
restaurants. The following presents the combined, condensed financial
information for the joint ventures and the properties held as
tenants-in-common with affiliates at:
June 30, December 31,
2002 2001
-------------- ---------------
Land and buildings on operating leases, net $14,044,859 $ 10,649,307
Net investment in direct financing leases 1,841,339 1,856,650
Real estate held for sale 1,428,778 4,986,544
Cash 31,168 50,255
Restricted cash 180,573 --
Receivables less, allowance for doubtful
accounts 4,233 12,385
Accrued rental income 220,251 85,477
Other assets 13,734 24,302
Liabilities 9,501 2,033
Partners' capital 17,755,434 17,662,887
Quarter Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------ ------------- -------------- ---------------
Revenues $ 383,544 $ 364,554 $ 753,935 $ 721,787
Expenses (73,209 ) (64,665 ) (158,821 ) (144,831 )
Gain on sale of assets -- 158,119 -- 158,119
------------ ------------- -------------- ---------------
Income from continuing operations 310,335 458,008 595,114 735,075
------------ ------------- -------------- ---------------
Discontinued operations:
Revenues 118,263 149,133 262,450 298,400
Expenses (28,960 ) (40,410 ) (64,560 ) (76,639 )
Gain on disposal of assets 1,130,890 -- 1,130,890 --
------------ ------------- -------------- ---------------
1,220,193 108,723 1,328,780 221,761
------------ ------------- -------------- ---------------
Net Income $1,530,528 $ 566,731 $1,923,894 $ 956,836
============ ============= ============== ===============
The Partnership recognized income of $766,717 and $389,632 during the
six months ended June 30, 2002 and 2001, respectively, of which
$605,482 and $219,479 were earned during the quarters ended June 30,
2002 and 2001, respectively, from these joint ventures and
tenants-in-common.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
5. Related Party Transactions:
In June 2002, the Partnership, Ashland Joint Venture, CNL Restaurants
II Joint Venture, and Katy Joint Venture each acquired a property from
CNL Funding 2001-A, LP (see Notes 3 and 4). CNL Funding 2001-A, LP is
an affiliate of the general partners. CNL Funding 2001-A, LP had
purchased and temporarily held title to the properties in order to
facilitate the acquisition of the properties by the Partnership and the
joint ventures. The purchase price paid by the Partnership and the
joint ventures represented the costs incurred by CNL Funding 2001-A, LP
to acquire the properties, including closing costs.
6. Commitments:
In October 2001, the Partnership entered into an agreement with an
unrelated third party to sell the Shoney's property in Huntsville,
Alabama. In addition, in June 2002, the Partnership and CNL VIII, Ltd.
entered into an agreement to sell the Baker's Square property in
Libertyville, Illinois. The Partnership owns a 34% interest in this
property.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund IX, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on April 16, 1990, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
generally are triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of June 30, 2001,
the Partnership owned 23 Properties directly and 16 Properties indirectly
through joint venture and tenancy in common arrangements. As of June 30, 2002,
the Partnership owned 22 Properties directly and 16 Properties indirectly
through joint venture or tenancy in common arrangements.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 2002 and 2001 was cash from operating activities (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses). Cash from operating activities
was $1,230,877 and $1,631,931, for the six months ended June 30, 2002 and 2001,
respectively. The decrease in cash from operating activities for the six months
ended June 30, 2002, as compared to the same period of 2001, was primarily a
result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 2002.
In May 2002, the Partnership sold its Property in Greenville, South
Carolina, to an unrelated third party for approximately $997,800 and received
net sales proceeds of approximately $976,800, resulting in a gain of
approximately $224,400. This Property had been identified for sale as of
December 31, 2001. In June 2002, the Partnership reinvested these net sales
proceeds in a Taco Cabana Property in Dallas, Texas at an approximate cost of
$1,030,800.
In May 2002, CNL Restaurant Investments III Joint Venture, in which the
Partnership owns a 50% interest, sold its Property in Greensboro, North
Carolina, to the tenant for approximately $1,145,500 and received net sales
proceeds of approximately $1,143,500, resulting in a gain to the joint venture
of approximately $371,500. The Partnership received approximately $569,800 as a
return of capital from the joint venture. In June 2002, the Partnership
reinvested the majority of these net sales proceeds in a joint venture
arrangement, Katy Joint Venture, with CNL Income Fund XVII, Ltd., a Florida
limited partnership and an affiliate of the general partners. Katy Joint Venture
acquired a Taco Cabana Property in Katy, Texas at an approximate cost of
$1,041,700. As of June 30, 2002, the Partnership had contributed approximately
$625,000 for a 60% interest in this joint venture.
In June 2002, Ashland Joint Venture, in which the Partnership owns a
27.33% interest, sold its Property in Ashland, New Hampshire to the tenant for
approximately $1,477,500 and received net sales proceeds of approximately
$1,472,900, resulting in a gain to the joint venture of approximately $500,900.
In June 2002, the joint venture reinvested the majority of the net sales
proceeds from the sale of this Property in a Taco Cabana Property in San
Antonio, Texas at an approximate cost of $1,343,000. The Partnership received
approximately $6,000 as a return of capital from the remaining net sales
proceeds.
In June 2002, CNL Restaurant Investments II Joint Venture, in which the
Partnership owns a 45.2% interest, sold its Property in Columbus, Ohio to the
tenant for approximately $1,219,600 and received net sales proceeds of
approximately $1,215,700 resulting in a gain to the joint venture of
approximately $448,300. The joint venture used the majority of the net sales
proceeds from this sale to acquire a Taco Cabana Property in Dallas, Texas at an
approximate cost of $1,147,400. The Partnership received approximately $27,600
as a return of capital from the remaining net sales proceeds. In addition, in
June 2002, CNL Restaurant Investments II Joint Venture sold its Property in
Pontiac, Michigan to the tenant for approximately $725,000 and received net
sales proceeds of approximately $722,600 resulting in a loss to the joint
venture of approximately $189,800. The Partnership received approximately
$326,200 as a return of capital from the net sales proceeds.
Each of the Taco Cabana Properties was acquired 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 ventures. The purchase prices paid by the Partnership
and the joint ventures represented the costs incurred by CNL Funding 2001-A, LP
to acquire the Properties, including closing costs. The Partnership anticipates
that its distributions will be sufficient to enable the limited partners to pay
federal and state income taxes, if any (at a level reasonably assumed by the
general partners), resulting from the above transactions.
In October 2001, the Partnership entered into an agreement with an
unrelated third party to sell the Shoney's Property in Huntsville, Alabama. In
addition, in June 2002, the Partnership and CNL VIII, Ltd. entered into an
agreement to sell the Baker's Square Property in Libertyville, Illinois. The
Partnership owns a 34% interest in this Property. As of July 31, 2002, neither
sale had occurred.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments such as
demand deposit accounts at commercial banks, money market accounts and
certificates of deposit with less than a 90-day maturity date, pending the
Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At June 30, 2002, the Partnership had $1,162,778
invested in such short-term investments, as compared to $1,247,551 at December
31, 2001. The funds remaining at June 30, 2002, after payment of distributions
and other liabilities, will be used to meet the Partnership's working capital
needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who meet specified
financial standards minimizes the Partnership's operating expenses. The general
partners believe that the leases will continue to generate cash flow in excess
of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations, the Partnership
declared distributions to the limited partners of $1,575,002 for each of the six
months ended June 30, 2002 and 2001 ($787,501 for each of the quarters ended
June 30, 2002 and 2001). This represents distributions of $0.45 per unit for
each of the six months ended June 30, 2002 and 2001 ($0.23 per unit for each
applicable quarter). No distributions were made to the general partners for the
quarters and six months ended June 30, 2002 and 2001. No amounts distributed to
the limited partners for the six months ended June 30, 2002 and 2001 are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the limited partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the limited partners on a quarterly basis.
Total liabilities of the Partnership, including distributions payable,
were $848,942 at June 30, 2002, as compared to $867,518 at December 31, 2001.
The decrease in liabilities was primarily a result of a decrease in rents paid
in advance and deposits at June 30, 2002, as compared to December 31, 2001. This
decrease in liabilities was partially offset by an increase in real estate taxes
payable and amounts due to related parties at June 30, 2002, as compared to
December 31, 2001. The general partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues were $967,522 for the six months ended June 30,
2002, as compared to $1,036,849 in the same period of 2001, of which $473,196
and $512,064 were earned during the second quarter of 2002 and 2001,
respectively. The decrease in rental revenues during the quarter and six months
ended June 30, 2002, as compared to the same periods of 2001, was partially due
to the 2001 and 2002 sales of several Properties. The decrease was partially
offset by the fact that in December 2001 and June 2002 the Partnership
reinvested a portion of these sales proceeds in additional Properties.
In addition, the decrease in rental revenues during the six months
ended June 30, 2002, as compared to the same period of 2001, was partially due
to the fact that in April 2001, the tenant of the Property in Wildwood, Florida,
ceased making rental payments and vacated the Property. In July 2001, the
Partnership and the tenant terminated the lease relating to this Property. As a
result, the Partnership stopped recording rental revenue. In 2001, Phoenix
Restaurant Group, Inc. ("PRG"), the tenant of the Property in Grand Prairie,
Texas, experienced financial difficulties and ceased making rental payments to
the Partnership. As a result, during 2001, the Partnership also stopped
recording rental revenues relating to this Property. In October 2001, PRG filed
for bankruptcy and rejected the lease relating to this Property. The Partnership
will not recognize any rental revenues from these Properties until the
Properties are re-leased or sold and the proceeds are reinvested in additional
Properties. The general partners are currently seeking replacement tenants for
these Properties. The lost revenues resulting from the vacant Properties will
have an adverse effect on the results of operations of the Partnership, if the
Partnership is not able to re-lease or sell them in a timely manner.
The decrease in rental revenues during the quarters and six months
ended June 30, 2002, as compared to the same periods of 2001, was also partially
due to the fact that the tenant for the Property in Brownsville, Texas exercised
its lease option for a contingent rent reduction to be applied towards Property
renovations.
During the six months ended June 30, 2002 and 2001, the Partnership
earned $766,717 and $389,632, respectively, attributable to net income earned by
joint ventures, $605,482 and $219,479 of which was earned during the quarters
ended June 30, 2002 and 2001, respectively. The increase in net income earned by
joint ventures during the quarter and six months ended June 30, 2002, as
compared to the same periods of 2001, was partially due to the fact that CNL
Restaurant Investments III Joint Venture, in which the Partnership owns a 50%
interest, and Ashland Joint Venture, in which the Partnership owns a 27.33%
interest, each sold one Property to the tenants, as described below, and CNL
Restaurant Investments II Joint Venture, in which the Partnership owns a 45.2%
interest, sold two Properties. These sales resulted in a net gain of $1,138,890
to the joint ventures, as described below.
In June 2001, the Partnership and CNL Income Fund VI, Ltd., as
tenants-in-common, sold the Property in Dublin, California, in which the
Partnership owned a 25% interest. The Partnership received its pro-rata share of
the net sales proceeds from the sale as a liquidating distribution. In July
2001, the Partnership reinvested a portion of the liquidating distribution in an
additional Property, as tenants-in-common with CNL Income Fund VI, Ltd. and CNL
Income Fund XVII, Ltd. Each of the CNL Income Funds is a Florida limited
partnership and an affiliate of the general partners.
During the six months ended June 30, 2002 and 2001, the Partnership
earned $25,729 and $109,339, respectively, in interest and other income, $14,203
and $20,386 of which was earned during the quarters ended June 30, 2002 and
2001, respectively. Interest and other income was higher during the six months
ended June 30, 2001 as compared to the same period of 2002, primarily due to the
fact that during the six months ended June 30, 2001, the Partnership collected
and recognized as income approximately $63,500 from the tenant of two Properties
that were sold during 2000, in consideration for the Partnership releasing the
tenant from its obligations under the terms of its lease. No such amounts were
collected during the six months ended June 30, 2002.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $709,543 and $867,924 for the six
months ended June 30, 2002 and 2001, respectively. The decrease in operating
expenses during the six months ended June 30, 2002, as compared to the same
period of 2001, was partially due to the fact that during the quarter and six
months ended June 30, 2001, the Partnership recorded a provision for write-down
of assets of $250,852 and $400,800, respectively, relating to the vacant
Property in Wildwood, Florida. During the quarter and six months ended June 30,
2002, the Partnership recorded an additional provision for write-down of assets
of $321,609 relating to this Property. In 2001, the tenant vacated this Property
and ceased payment of rents under the terms of its lease agreement, as described
above. The provision represented the difference between the carrying value of
the Property and its fair value.
The decrease in operating expenses during the quarter and six months
ended June 30, 2002, as compared to the same period of 2001, was also partially
attributable to a decrease in the costs incurred for administrative expenses for
servicing the Partnership and its Properties. In addition, during the quarters
and six months ended June 30, 2002 and 2001, the Partnership incurred Property
expenses such as real estate taxes, insurance and repairs and maintenance
relating to the vacant Properties in Wildwood, Florida and Grand Prairie, Texas,
as described above. The Partnership will continue to incur these expenses until
the Properties are re-leased or the Properties are sold and the proceeds from
such sales are reinvested in additional Properties.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
As a result of the sale of the Property in Greenville, South Carolina,
the Partnership recognized a gain of $224,412 during the quarter and six months
ended June 30, 2002. This Property was identified for sale as of December 31,
2001.
In May 2002, CNL Restaurant Investments III Joint Venture, in which the
Partnership owns a 50% interest, sold its Property in Greensboro, North
Carolina, to the tenant for approximately $1,145,500 and received net sales
proceeds of approximately $1,143,500, resulting in a gain to the joint venture
of approximately $371,500. The Partnership received approximately $569,800 as a
return of capital from the joint venture. In June 2002, the Partnership
reinvested the majority of these net sales proceeds in a joint venture
arrangement, Katy Joint Venture, as described above in "Capital Resources". In
addition, in June 2002, Ashland Joint Venture, in which the Partnership owns a
27.33% interest, sold its Property in Ashland, New Hampshire to the tenant for
approximately $1,477,500 and received net sales proceeds of approximately
$1,472,900, resulting in a gain to the joint venture of approximately $500,900.
In June 2002, the joint venture reinvested the majority of the net sales
proceeds from the sale of this Property in a Taco Cabana Property in San
Antonio, Texas and returned the remaining net sales proceeds to the Partnership
as a return of capital, as described above in "Capital Resources". In addition,
in June 2002, CNL Restaurant Investments II Joint Venture, in which the
Partnership owns a 45.2% interest, sold its Property in Columbus, Ohio to the
tenant for approximately $1,219,600 and received net sales proceeds of
approximately $1,215,700 resulting in a gain to the joint venture of
approximately $448,300. The joint venture used the majority of the net sales
proceeds from this sale to acquire a Taco Cabana Property in Dallas, Texas and
returned the remaining net sales proceeds to the Partnership as a return of
capital, as described above in "Capital Resources". In addition, in June 2002,
CNL Restaurant Investments II Joint Venture sold its Property in Pontiac,
Michigan to the tenant for approximately $725,000 and received net sales
proceeds of approximately $722,600 resulting in a loss to the joint venture of
approximately $189,800. The Partnership received approximately $326,200 as a
return of capital from the net sales proceeds.
In addition, in June 2002, the Partnership and CNL Income Fund VIII,
Ltd. entered into an agreement with an unrelated third party to sell the Baker's
Square Property in Libertyville, Illinois. The Partnership owns a 34% interest
in this Property. The Partnership expects to use the proceeds from the sale to
reinvest in an additional Property. In accordance with Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets," the tenancy in common reclassified this asset to real estate
held for sale. The tenancy in common recorded the reclassified asset at the
lower of its carrying amount or fair value, less cost to sell. In addition,
during the six months ended June 30, 2002, the tenancy in common stopped
recording depreciation and accrued rental income once the Property was
identified for sale.
Total net rental income (rental revenues less Property related
expenses) for the Properties in Greensboro, North Carolina; Ashland, New
Hampshire; Columbus, Ohio; Pontiac, Michigan; and Libertyville, Illinois were
$197,890 and $221,761 during the six months ended June 30, 2002 and 2001,
respectively, of which $89,303 and $108,723 was earned during the quarters ended
June 30, 2002 and 2001, respectively. In addition, as a result of the above
sales, CNL Restaurant Investments II Joint Venture, CNL Restaurant Investments
III Joint Venture and Ashland Joint Venture recognized a total gain on disposal
of assets of $1,130,890 during the quarter and six months ended June 30, 2002.
The Partnership's pro-rata share of these amounts is included in equity in
earnings of joint ventures in the accompanying financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
No material changes in the Partnership's market risk occurred from
December 31, 2001 through June 30, 2002. Information regarding the Partnership's
market risk at December 31, 2001 is included in its Annual Report on Form 10-K
for the year ended December 31, 2001.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund IX, Ltd. (Included as Exhibit
3.1 to Registration Statement No. 33-35049 on Form
S-11 and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund IX, Ltd. (Included as Exhibit
3.1 to Registration Statement No. 33-35049 on Form
S-11 and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund IX, Ltd. (Included
as Exhibit 4.6 to Post-Effective Amendment No. 1
to Registration Statement No. 33-35049 on Form
S-11 and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund IX,
Ltd. and CNL Investment Company (Included as
Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on March 17,
1998, 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 Exchange Commission on August 9, 2001,
and incorporated herein by reference.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Filed
herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended June 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 12th day of August, 2002.
CNL INCOME FUND IX, LTD.
By:CNL REALTY CORPORATION
General Partner
By:/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund IX, Ltd. (the
"Partnership"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Partnership's Quarterly
Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The
undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
Date: August 12, 2002 /s/ James M. Seneff, Jr.
--------------------------------
Name: James M. Seneff, Jr.
Title: Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Robert A. Bourne, the President and Treasurer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund IX, Ltd. (the
"Partnership"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Partnership's Quarterly
Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The
undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
Date: August 12, 2002 /s/ Robert A. Bourne
-----------------------------
Name: Robert A. Bourne
Title: President and Treasurer
EXHIBIT INDEX
Exhibit Number
3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund IX, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-35049 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund IX, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-35049 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership of
CNL Income Fund IX, Ltd. (Included as Exhibit 4.6 to
Post-Effective Amendment No. 1 to Registration Statement
No. 33-35049 on Form S-11 and incorporated herein by
reference.)
10.1 Management Agreement between CNL Income Fund IX, Ltd. and
CNL Investment Company (Included as Exhibit 10.1 to Form
10-K filed with the Securities and Exchange Commission on
March 17, 1998, 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 Exchange Commission on
August 9, 2001, and incorporated herein by reference.)
10.5 Assignment of Management Agreement from CNL APF Partners,
LP to CNL Restaurants XVIII, Inc. (Filed herewith.)
EXHIBIT 10.5