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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20017
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 Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801
(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 ($10 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 3,500,000 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 $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund IX, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on April 16, 1990. 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 March 20, 1991, the Partnership offered
for sale up to $35,000,000 in limited partnership interests (the "Units")
(3,500,000 Units each at $10 per Unit) pursuant to a registration statement on
Form S-11 under the Securities Act of 1933, as amended. The offering terminated
on September 6, 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
$30,800,000, and were used to acquire 41 Properties, including 13 Properties
owned by joint ventures in which the Partnership is a co-venturer, and to
establish a working capital reserve for Partnership purposes.
As of December 31, 1999, the Partnership owned 25 Properties directly
and 16 Properties indirectly through joint venture or tenancy in common
arrangements. During the year ended December 31, 2000, the Partnership sold its
Properties in Williamsville, New York and in Bluffton and Alliance, Ohio, and
used a portion of these net sales proceeds to invest in a Property in
Libertyville, Illinois, with an affiliate of the General Partners, as
tenants-in-common. During the year ended December 31, 2001, the Partnership sold
its Properties in Bedford, Indiana, Copley Township, Ohio and the Property in
Dublin, California, which was held with an affiliate of the General Partners as
tenants-in-common, and reinvested the majority of these sales proceeds in a
Property in Blaine, Minnesota and in a Property in Waldorf, Maryland with
affiliates of the General Partners as tenants-in-common. During 2002, the
Partnership sold its Properties in Greenville, South Carolina; Farragut,
Tennessee, and Libertyville, Illinois, which was held with an affiliate of the
General Partners as tenant-in-common. The Partnership also sold the Shoney's
portion of the dual-brand Property in Huntsville, Alabama; the Partnership still
owns the Captain D's portion. The Partnership reinvested the net sales proceeds
from the sales of the Properties in Greenville, South Carolina and Huntsville,
Alabama, along with a portion of the net sales proceeds from the 2001 sale of
the Property in Copley Township, Ohio in a Property in Dallas, Texas and a
Property in Jackson, Michigan. The Partnership reinvested the liquidating
distribution from the sale of the Property in Libertyville, Illinois in a
Property in Buffalo Grove, Illinois, with an affiliate of the General Partners,
as tenants-in-common. The Partnership intends to reinvest the sales proceeds
from the sale of the Property in Farragut, Tennessee in an additional Property.
In addition, CNL Restaurant Investments III, in which the Partnership owns a 50%
interest, sold its Property in Greensboro, North Carolina; Ashland Joint
Venture, in which the Partnership owns a 27.33% interest, sold its Property in
Ashland, New Hampshire; and CNL Restaurant Investments II, in which the
Partnership owns a 45.2% interest, sold its Properties in Columbus, Ohio and
Pontiac, Michigan. Ashland Joint Venture reinvested the majority of its net
sales proceeds in a Property in San Antonio, Texas. CNL Restaurant Investments
II reinvested the net sales proceeds from the sale of the Property in Columbus,
Ohio in a Property in Dallas, Texas and distributed the net sales proceeds from
the sale of the Property in Pontiac, Michigan to the Partnership as a return of
capital. The Partnership used this return of capital to acquire an interest in
Katy Joint Venture, with CNL Income Fund XVII, Ltd., a Florida limited
partnership, and an affiliate of the General Partners. CNL Restaurant
Investments III distributed the net sales proceeds from the sale of the Property
in Greensboro, North Carolina to the Partnership as a return of capital. The
Partnership intends to use the return of capital to meet working capital needs.
As of December 31, 2002, the Partnership owned 21 Properties directly and 16
Properties indirectly through joint venture or tenancy in common arrangements.
In February 2003, the Partnership sold the Property in Grand Prairie, Texas, to
a third party and intends to reinvest these proceeds in an additional Property.
The Partnership holds its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. The Partnership has no obligation to sell all or any portion of a
Property at any particular time, except as may be required under property
purchase options granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership, the
joint ventures in which the Partnership is a co-venturer and the Properties
owned with affiliates of the General Partners as tenants-in-common, generally
provide for initial terms ranging from 14 to 20 years (the average being 16
years), and expire between 2005 and 2021. 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 $57,600 to $246,400. In addition, generally 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 24 of the Partnership's 37 Properties also have been
granted options to purchase Properties at the Property's then fair market value
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.
The leases generally provide that, in the event the Partnership wishes
to sell the Property subject to that lease, the Partnership first must offer the
lessee the right to purchase the Property on the same terms and conditions, and
for the same price, as any offer which the Partnership has received for the sale
of the Property.
During 2002, the Partnership reinvested the net sales proceeds from the
sales of the Properties in Huntsville, Alabama and Greenville, South Carolina in
Properties in Dallas, Texas and Jackson, Michigan. The Partnership also
reinvested the liquidating distribution it received from the sale of the
Property in Libertyville, Illinois in a Property in Buffalo Grove, Illinois, as
tenants-in-common, with CNL Income Fund VIII, Ltd., a Florida limited
partnership and affiliate of the General Partners. In addition, CNL Restaurant
Investments III, in which the Partnership owns a 50% interest, sold its Property
in Greensboro, North Carolina; Ashland Joint Venture, in which the Partnership
owns a 27.33% interest, sold its Property in Ashland, New Hampshire and
reinvested the net sales proceeds in a Property in San Antonio, Texas; and CNL
Restaurant Investments II, in which the Partnership owns a 45.2% interest, sold
its Properties in Columbus, Ohio and Pontiac, Michigan and reinvested the net
sales proceeds from the Columbus, Ohio sale in a Property in Dallas, Texas. The
lease terms for each of these Properties are substantially the same as the
Partnership's other leases.
During 2002, the tenant of the Property in North Baltimore, Ohio
terminated its lease, in accordance with its lease agreement, when a partial
right of way taking reduced road access to the restaurant. The General Partners
are currently seeking either a new tenant or a purchaser for the vacant
Property.
In December 2002, the Partnership entered into an agreement to sell the
Property in Grand Prairie, Texas. In February 2003, the Partnership sold this
Property
Major Tenants
During 2002, four of the Partnership's lessees (or group of affiliated
lessees), (i) Carrols Corporation and Texas Taco Cabana, LP (which are
affiliated entities under common control) (hereinafter referred to as Carrols
Corp.), (ii) Flagstar Enterprises, Inc., (iii) Burger King Corporation and BK
Acquisition, Inc. (which are affiliated entities under common control)
(hereinafter referred to as Burger King Corp.) and (iv) Golden Corral
Corporation, each contributed more than ten percent of the Partnership's total
rental revenues and mortgage interest income (including the Partnership's share
of rental revenues from joint ventures and Properties owned as
tenants-in-common). As of December 31, 2002, Carrols Corp. was the lessee under
leases relating to nine restaurants, Flagstar Enterprises, Inc. was the lessee
under leases relating to three restaurants, Burger King Corp. was the lessee
under leases relating to the nine restaurants and Golden Corral Corporation was
the lessee under leases relating to three restaurants. It is anticipated that,
based on the minimum rental payments required by the leases, Carrols Corp.
Burger King Corp. and Golden Corral Corporation will each continue to contribute
more than ten percent of the Partnership's rental revenues in 2003. In addition,
four Restaurant Chains, Burger King, Hardee's, Shoney's, and Golden Corral
Family Steakhouse Restaurants ("Golden Corral"), each accounted for more than
ten percent of the Partnership's rental revenues and mortgage interest during
2002 (including the Partnership's share of the rental revenues from joint
ventures and Properties owned as tenants-in-common). In 2003, it is anticipated
that these four Restaurant Chains each will continue to account for more than
ten percent of the total rental revenues to which the Partnership is entitled
under the terms of its leases. Any failure of these lessees or Restaurant Chains
could materially affect the Partnership's income if the Partnership is not able
to re-lease the Properties in a timely manner. As of December 31, 2002, Carrols
Corp. leased Properties with an aggregate carrying value in excess of 20% of the
total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into the following joint venture and
tenancy in common arrangements as of December 31, 2002:
Entity Name Year Ownership Partners Property
CNL Restaurant Investments II 1991 45.20% CNL Income Fund VII, Ltd. San Antonio, TX
CNL Income Fund VIII, Ltd. Raceland, LA
Dallas, TX
Hastings, MN
Newcastle, IN
CNL Restaurant Investments III 1992 50.00% CNL Income Fund X, Ltd. Dover, NH
Metrairie, LA
Lafayette, LA
Nashua, NH
Pontiac, IL
Ashland Joint Venture 1992 27.33% CNL Income Fund X, Ltd. San Antonio, TX
CNL Income Fund XI, Ltd.
CNL Income Fund III, Ltd. and 1997 67.00% CNL Income Fund III, Ltd. Englewood, CO
CNL Income Fund IX, Ltd.
Tenants in Common
CNL Income Fund VII, Ltd. and 1999 29.00% CNL Income Fund VII, Ltd. Montgomery, AL
CNL Income Fund IX, Ltd.
Tenants in Common
CNL Income Fund VI, Ltd., CNL 2001 15.00% CNL Income Fund VI, Ltd. Waldorf, MD
Income Fund IX, Ltd., CNL Income Fund XVII, Ltd.
and CNL Income Fund
XVII, Ltd. Tenants in
Common
Katy Joint Venture 2002 60.00% CNL Income Fund XVII, Ltd. Katy, TX
CNL Income Fund VIII, Ltd., 2002 34.00% CNL Income Fund VIII, Ltd. Buffalo Grove, IL
and CNL Income Fund IX,
Ltd. Tenants in Common
CNL Restaurant Investments II and CNL Restaurant Investments III were
each formed to hold six Properties, however, 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 shares management
control equally with the affiliates of the General Partners
The joint venture and tenancy in common arrangements provide for the
Partnership and its joint venture or tenancy in common partners to share in all
costs and benefits in proportion to each partner's percentage interest in the
business entity. The Partnership and its partners are also jointly and severally
liable for all debts, obligations and other liabilities of the joint venture or
tenancy in common. Net cash flow from operations is distributed to each joint
venture or tenancy in common partner in accordance with its respective
percentage interest in the business entity.
CNL Restaurant Investments II's and CNL Restaurant Investments III's
joint venture agreements do not provide a fixed term, but continue in existence
until terminated by any of the joint venturers. Ashland Joint Venture has an
initial term of 14 years and Katy 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 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 partner 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.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer to assign its joint venture or tenancy in
common interest without first offering it for sale to its partner, 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.
During 2002, CNL Restaurant Investments III sold its Property in
Greensboro, North Carolina; Ashland Joint Venture sold its Property in Ashland,
New Hampshire and reinvested the net sales proceeds in a Property in San
Antonio, Texas; and CNL Restaurant Investments II sold its Properties in
Columbus, Ohio and Pontiac, Michigan and reinvested a portion of the net sales
proceeds in a Property in Dallas, Texas. The Partnership received a return of
capital from both CNL Restaurant Investments II and CNL Restaurant Investments
III, and used these proceeds to acquire an interest in Katy Joint Venture, with
CNL Income Fund XVII, Ltd., a Florida limited partnership, and an affiliate of
the General Partners. In addition, during 2002, the Partnership and CNL Income
Fund VIII, Ltd., as tenants-in-common, sold the Property in Libertyville,
Illinois and reinvested the liquidating distribution from the sale to acquire an
IHOP Property in Buffalo Grove, Illinois, as a new tenancy in common arrangement
with the same affiliate. The Partnership owns a 34% interest in this Property.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the Property if the proceeds are reinvested in an additional Property.
Certain Management Services
RAI Restaurants, Inc. (formerly known as CNL Restaurants XVIII, Inc.),
an affiliate of the General Partners, provides certain services relating to
management of the Partnership and its Properties pursuant to a management
agreement with the Partnership. CNL APF Partners, LP assigned its rights in, and
its obligations under, the management agreement with the Partnership to RAI
Restaurants, Inc. ("Advisor") effective January 1, 2002. All of the terms and
conditions of the management agreement, including the payment of fees, remained
unchanged. Under this agreement, the Advisor is responsible for collecting
rental payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices, and
providing information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership had agreed to pay the Advisor an
annual fee of one percent of the sum of gross rental revenues from Properties
wholly owned by the Partnership plus the Partnership's allocable share of gross
revenues of joint ventures in which the Partnership is a co-venturer, but not in
excess of competitive fees for comparable services. Under the management
agreement, the management fee is subordinated to receipt by the Limited Partners
of an aggregate, ten percent, cumulative, noncompounded annual return on their
adjusted capital contributions (the "10% Preferred Return"), calculated in
accordance with the Partnership's limited partnership agreement (the
"Partnership Agreement").
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL American Properties Fund,
Inc., the parent company of the Advisor perform certain services for the
Partnership. In addition, the General Partners have available to them the
resources and expertise of the officers and employees of CNL Financial Group,
Inc., a diversified real estate company, and its affiliates, who may also
perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2002, the Partnership owned 37 Properties. Of the 37
Properties, 21 are owned by the Partnership in fee simple, 12 are owned through
joint venture arrangements and four are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 21,400
to 115,100 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,
either directly or indirectly through joint venture or tenancy in common
arrangements, as of December 31, 2002 by state. More detailed information
regarding the location of the Properties is contained in the Schedule of Real
Estate and Accumulated Depreciation for the year ended December 31, 2002.
State Number of Properties
Alabama 4
Colorado 1
Florida 1
Georgia 2
Illinois 2
Indiana 1
Louisiana 3
Maryland 1
Michigan 1
Minnesota 2
Mississippi 1
New Hampshire 2
New York 1
North Carolina 2
Ohio 3
Tennessee 1
Texas 9
-----
TOTAL PROPERTIES 37
=====
Buildings. Each of the Properties owned by the Partnership, either
directly or indirectly through joint venture or tenancy in common arrangements,
includes a building that is one of a Restaurant Chain's approved designs. The
buildings generally are rectangular and are constructed from various
combinations of stucco, steel, wood, brick and tile. Building sizes range from
approximately 2,100 to 10,600 square feet. All buildings on Properties are
freestanding and surrounded by paved parking areas. Buildings are suitable for
conversion to various uses, although modifications may be required prior to use
for other than restaurant operations. As of December 31, 2002, the Partnership
had no plans for renovation of the Properties. Depreciation expense is computed
for buildings and improvements using the straight line method using a
depreciable life of 40 years for federal income tax purposes.
As of December 31, 2002, the aggregate cost of the Properties owned by
the Partnership and joint ventures (including Properties owned through tenancy
in common arrangements) for federal income tax purposes was $18,878,784 and
$19,312,602, respectively.
The following table lists the Properties owned by the Partnership,
either directly or indirectly through joint venture or tenancy in common
arrangements, as of December 31, 2002 by Restaurant Chain
Restaurant Chain Number of Properties(1)
Baker's Square 1
Bennigan's 1
Burger King 15
Captain D's 1
Denny's 2
Golden Corral 3
Hardee's 4
IHOP 3
Johnnies 1
Shoney's 2
Taco Cabana 4
-----
TOTAL PROPERTIES 37
=====
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance.
As of December 31, 2002, 2001, 2000, 1999 and 1998, the Properties were
92%, 95%, 100%, 98%, and 98%, occupied, respectively. The following is a
schedule of the average rent per Property for the years ended December 31:
2002 2001 2000 1999 1998
------------- ------------- --------------- -------------- --------------
Rental Revenues (1)(2) $ 2,883,076 $ 2,805,847 $ 3,104,235 $ 3,168,448 $ 3,473,845
Properties (2) 34 37 40 42 41
Average Rent per
Property $ 84,796 $ 75,834 $ 77,606 $ 75,439 $ 84,728
(1) Rental revenues includes the Partnership's share of rental revenues
from the Properties owned through joint venture arrangements and the
Properties owned through tenancy in common arrangements.
(2) Excludes Properties that were vacant at December 31, and that did not
generate rental revenues during the year ended December 31.
The following is a schedule of lease expirations for leases in place as
of December 31, 2002, one of which sold in February 2003 for the next ten years
and thereafter.
Percentage of
Expiration Number Annual Rental Gross Annual
Year of Leases Revenues Rental Income
------------- ------------- ----------------- --------------
2003 -- -- --
2004 -- -- --
2005 6 $ 500,106 18.50%
2006 8 626,400 23.17%
2007 -- -- --
2008 -- -- --
2009 -- -- --
2010 -- -- --
2011 9 725,840 26.84%
2012 -- -- --
Thereafter 11 851,659 31.49%
------ ------------------ -----------
Total (1) 34 $ 2,704,005 100.00%
====== ================== ===========
(1) Excludes three Properties which were vacant at December 31, 2002, one
of which was sold in February 2003.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2002 (see Item 1. Business -
Major Tenants) are substantially the same as those described in Item 1. Business
- - Leases.
Carrols Corp leases five Burger King restaurants and four Taco Cabana
restaurants. The initial term of each lease ranges from 12 to 20 years (expiring
between 2011 and 2020) and the average minimum base annual rent is approximately
$101,800 (ranging from approximately $85,700 to $138,100).
Flagstar Enterprises, Inc. leases three Hardee's restaurants. The
initial term of each lease is 20 years (expiring in 2011) and the average
minimum base annual rent is approximately $70,400 (ranging from approximately
$57,600 to $85,400).
Burger King Corp. leases nine Burger King restaurants with an initial
term of 14 years (expiring between 2005 and 2006) and the average minimum base
annual rent is approximately $101,200 (ranging from approximately $79,400 to
$134,100).
Golden Corral Corporation leases three Golden Corral restaurants with
an initial term of 15 years (expiring in 2005 and 2014) and the average minimum
base annual rent is approximately $168,500 (ranging from approximately $157,500
to $176,400).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective Properties, is party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 10, 2003, there were 3,396 holders of record of the
Units. There is no public trading market for the Units, and it is not
anticipated that a public market for the Units will develop. During 2002,
Limited Partners who wished to sell their Units may have offered the Units for
sale pursuant to the Partnership's distribution reinvestment plan (the "Plan"),
and Limited Partners who wished to have their distributions used to acquire
additional Units (to the extent Units were available for purchase), may have
done so pursuant to such Plan. The General Partners have the right to prohibit
transfers of Units. From inception through December 31, 2002, the price for any
Unit transferred pursuant to the Plan was $9.50 per Unit. The price paid for any
Unit transferred other than pursuant to the Plan was subject to negotiation by
the purchaser and the selling Limited Partner. The Partnership will not redeem
or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2002 and 2001 other than
pursuant to the Plan, net of commissions.
2002 (1) 2001 (1)
----------------------------------- ------------------------------------
High Low Average High Low Average
--------- -------- ---------- ---------- --------- ----------
First Quarter $ 9.00 $ 6.00 $ 6.81 $ 8.06 $ 6.36 $ 7.22
Second Quarter 7.30 6.80 7.08 7.23 6.62 6.86
Third Quarter 7.80 7.14 7.44 7.29 6.00 6.70
Fourth Quarter 10.62 7.28 8.59 6.14 6.14 6.14
(1) A total of 17,811 and 12,230 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2002 and 2001,
respectively.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 2002 and 2001, the Partnership
declared cash distributions in the aggregate amounts of $3,150,004 to the
Limited Partners. Distributions of $787,501 were declared at the close of each
of the Partnership's calendar quarters during 2002 and 2001 to the Limited
Partners. No amounts distributed to the Limited Partners for the years ended
December 31, 2002 and 2001, are required to be or have been treated by the
Partnership as a return of capital for purposes of calculating the Limited
Partners' return on their adjusted capital contributions. No distributions have
been made to the General Partners to date. These amounts include monthly
distributions made in arrears for the Limited Partners electing to receive such
distributions on this basis.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
(b) Not applicable.
Item 6. Selected Financial Data
The following selected financial data should be read in conjunction
with the financial statements and related notes in Item 8. hereof.
2002 2001 2000 1999 1998
----------------- --------------- --------------- --------------- -------------
Year ended December 31:
Continuing Operations (5):
Revenues $ 1,967,240 $ 2,069,145 $ 2,391,502 $ 2,341,846 $2,595,206
Equity in earnings of joint
ventures 1,199,146 753,457 674,930 606,337 596,166
Income from continuing
operations (1) (2) 2,550,412 2,021,348 1,767,845 2,274,697 2,133,668
Discontinued Operations (5):
Revenues (1) 91,459 92,796 107,825 134,514 176,913
Income (Loss) from
discontinued operations (3)(4) 178,553 (29,442 ) 82,935 110,370 153,030
Net income 2,728,965 1,991,906 1,850,780 2,385,067 2,286,698
Net income (loss) per Unit:
Continuing operations $ 0.73 $ 0.58 $ 0.51 $ 0.65 $ 0.61
Discontinued operations 0.05 (0.01 ) 0.02 0.03 0.04
----------------- --------------- --------------- --------------- -------------
Total $ 0.78 $ 0.57 $ 0.53 $ 0.68 $ 0.65
================= =============== =============== =============== =============
Cash distribution declared $ 3,150,004 $ 3,150,004 $ 3,150,004 $ 3,150,004 $3,220,004
Cash distributions declared per
Unit 0.90 0.90 0.90 0.90 0.92
At December 31:
Total assets $ 26,450,142 $26,859,177 $ 28,132,613 $ 29,443,276 $30,099,078
Total partners' capital 25,570,620 25,991,659 27,149,757 28,448,981 29,213,918
(1) Income from continuing operations includes $381,828, $400,799, and
$582,375, for the years ended December 31, 2002, 2001, and 1998,
respectively, from provisions for write-down of assets.
(2) Income from continuing operations includes $456,143, $298,795, and
$75,997 for the years ended December 31, 2002, 2001, and 1999,
respectively, from gains on sale of assets and $730,668 for the year
ended December 31, 2000 from loss on sale of assets.
(3) Income from discontinued operations includes $58,459 and $62,126, for
the years ended December 31, 2002 and 2001, respectively, from
provisions for write-down of assets.
(4) Income from discontinued operations includes $185,632 from gain on sale
of assets for the year ended December 31, 2002.
(5) Certain items in prior years' financial statement have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on total net income. The results of operations relating
to properties that were either disposed of or were classified as held
for sale as of December 31, 2002 are reported as discontinued
operations. The results of operations relating to properties that were
identified for sale as of December 31, 2001 but sold subsequently are
reported as continuing operations.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on April 16, 1990, 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, to be leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are generally triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. The leases of
the Properties provide for minimum base annual rental amounts (payable in
monthly installments) ranging from approximately $57,600 to $246,400. Generally,
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. As of
December 31, 2000, the Partnership owned 23 Properties directly and 17
Properties indirectly through joint venture or tenancy in common arrangements.
As of December 31, 2001, the Partnership owned 21 Properties directly and 17
Properties indirectly through joint venture or tenancy in common arrangements.
As of December 31, 2002, the Partnership owned 21 Properties directly and 16
Properties indirectly through joint venture or tenancy in common arrangements.
Capital Resources
Cash from operating activities was $2,656,608, $2,835,733, and
$2,844,067, for the years ended December 31, 2002, 2001, and 2000, respectively.
The decrease in cash from operating activities during 2002 and 2001, as compared
to the previous year was a result of changes in income and expenses and changes
in the Partnership's working capital.
Other sources and uses of cash included the following during the years
ended December 31, 2002, 2001, and 2000.
During 2000, the Partnership sold its Property in Williamsville, New
York, to a third party and received net sales proceeds of $693,350, resulting in
a loss of $27,391. In August 2000, the Partnership reinvested a portion of the
net sales proceeds in a Property in Libertyville, Illinois, with CNL Income Fund
VIII, Ltd. ("CNL VIII"), a Florida limited partnership and an affiliate of the
General Partners, as tenants-in-common. The Partnership and the affiliate
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. The
Partnership owned a 34% interest in the Property. In September 2002, the
Partnership and CNL VIII sold this Property to a third party and received net
sales proceeds of approximately $1,630,400, resulting in a gain of approximately
$199,300 to the tenancy in common. In September 2002, the Partnership used the
liquidating distribution from the sale of this Property to acquire an IHOP
Property in Buffalo Grove, Illinois, as a new tenancy in common arrangement with
the same affiliate. As of December 31, 2002, the Partnership had contributed
approximately $540,200 for a 34% interest in the profits and losses of this
Property.
During 2000, the Partnership sold its Properties in Bluffton and
Alliance, Ohio, for a total of $500,000, resulting in a loss of $703,277. The
Partnership accepted two promissory notes in the aggregate amount of $500,000,
collateralized by a mortgage on the respective Property. The promissory notes
bear an interest rate of nine percent per annum and are being collected in 96
monthly installments of principal and interest, with balloon payments of
$184,652 and $123,102, respectively, due in December 2008. The mortgage note
receivable balance relating to these Properties at December 31, 2002 and 2001
was $464,352 and $482,406, respectively, including accrued interest of $3,572
and $3,711, respectively.
During 2001, the Partnership sold its Properties in Bedford, Indiana
and Copley Township, Ohio, each to a third party and received total net sales
proceeds of approximately $1,986,200 resulting in a net gain of approximately
$298,800. During 2001, the Partnership reinvested these net sales proceeds in a
Property in Blaine, Minnesota. The Property was acquired from an affiliate of
the General Partners. The affiliate had purchased and temporarily held title to
the Property in order to facilitate the acquisition of the Property by the
Partnership. The purchase price paid by the partnership represented the costs
incurred by the affiliate to acquire the Property.
In addition, during 2001, the Partnership and CNL Income Fund VI, Ltd.,
an affiliate of the General Partners and a Florida limited partnership, as
tenants-in-common, sold the Property in Dublin, California, and received net
sales proceeds of approximately $1,699,600, resulting in a gain, to the
tenancy-in-common, of approximately $158,100. The Partnership owned a 25%
interest in this Property. The Partnership received approximately $424,600 as a
liquidating distribution for its pro-rata share of the net sales proceeds.
During 2001, the Partnership reinvested these proceeds in a Property in Waldorf,
Louisiana, as tenants-in-common, with CNL Income Fund VI, Ltd., and CNL Income
Fund XVII, Ltd., each of which is an affiliate of the General Partners and a
Florida limited partnership. The Partnership contributed approximately $342,000
for a 15% interest in the profits and losses of the Property.
During 2002, the Partnership sold its Properties in Greenville, South
Carolina and Huntsville, Alabama, each to a third party and received total net
sales proceeds of approximately $1,928,300, resulting in a net gain of
approximately $456,100. These Properties had been identified for sale as of
December 31, 2001. The Partnership reinvested these sales proceeds in a Taco
Cabana Property in Dallas, Texas and a Burger King Property in Jackson,
Michigan. During 2002, the Partnership also sold its Property in Farragut,
Tennessee to a third party and received net sales proceeds of approximately
$886,300, resulting in a gain on disposal of discontinued operations of
approximately $185,632. This Property was identified for sale during 2002. The
Partnership intends to use these proceeds to reinvest in an additional Property.
During 2002, CNL Restaurant Investments III, in which the Partnership
owns a 50% interest, sold its Property in Greensboro, North Carolina, to the
tenant 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. During
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. As of December 31,
2002, the Partnership had contributed approximately $625,000 for a 60% interest
in this joint venture.
During 2002, Ashland Joint Venture, in which the Partnership owns a
27.33% interest, sold its Property in Ashland, New Hampshire to the tenant and
received net sales proceeds of approximately $1,472,900, resulting in a gain to
the joint venture of approximately $500,900. During 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. The Partnership received
approximately $6,000 as a return of capital from the remaining net sales
proceeds. The Partnership intends to use this return of capital for working
capital needs.
In June 2002, CNL Restaurant Investments II, in which the Partnership
owns a 45.2% interest, sold its Property in Columbus, Ohio to the tenant 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.
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 sold its Property in Pontiac, Michigan to the tenant 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.
The Burger King and IHOP Properties acquired during 2002 were acquired
from CNL Net Lease Investors, L.P. ("NLI"), a California Limited Partnership.
During 2002, and prior to the Partnership's acquisition of these Properties, CNL
Financial LP Holding, LP ("CFN"), a Delaware limited partnership, and CNL Net
Lease Investors GP Corp. ("GP Corp"), a Delaware corporation, 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 in Jackson, Michigan and Buffalo Grove, Illinois at CFN's cost
and did not pay any additional compensation to CFN for the acquisition of the
Property. Each CNL entity is an affiliate of the Partnership's General Partners.
None of the Properties owned by the Partnership, or the joint ventures
or tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Under its partnership agreement, the Partnership is
prohibited from borrowing for any purpose; provided, however, that the General
Partners or their affiliates are entitled to reimbursement, at cost, for actual
expenses incurred by the General Partners or their affiliates on behalf of the
Partnership. Affiliates of the General Partners from time to time incur certain
operating expenses on behalf of the Partnership for which the Partnership
reimburses the affiliates without interest.
In December 2002, the Partnership entered into an agreement to sell the
Property in Grand Prairie, Texas. In February 2003, the Partnership sold this
Property to a third party and received sales proceeds of approximately $286,500,
resulting in a loss of approximately $58,500, which the Partnership recorded as
of December 31, 2002.
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
reinvestment in additional Properties, paying Partnership expenses, or making
distributions to the partners. At December 31, 2002, the Partnership had
$1,913,142 invested in such short-term investments as compared to $1,247,551 at
December 31, 2001. The increase in cash and cash equivalents at December 31,
2002, as compared to December 31, 2001, was primarily due to the fact that the
Partnership had not reinvested the sales proceeds it received from the sale of
the Property in Farragut, Tennessee. As of December 31, 2002, the average
interest rate earned on the rental income deposited in demand deposit accounts
at commercial banks was approximately one percent annually. The funds remaining
at December 31, 2002 after the payment of distributions and other liabilities
will be used to invest in an additional Property and to meet the Partnership's
working capital needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate net 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.
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
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 purpose, 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, 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 $3,150,004, for each of the years ended
December 31, 2002, 2001, and 2000, respectively. This represents a distribution
of $0.90 per Unit for each of the years ended December 31, 2002, 2001, and 2000,
respectively. No distributions were made to the General Partners during the
years ended December 31, 2002, 2001, and 2000. No amounts distributed to the
Limited Partners for the years ended December 31, 2002, 2001, or 2000, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the Limited Partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the Limited Partners on a quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the general
partners were not allocated any net income during the years ended December 31,
2002, 2001 and 2000.
As of December 31, 2002 and 2001, the Partnership owed $16,426 and
$5,878, respectively, to affiliates for operating expenses and accounting and
administrative services. As of March 10, 2003, the Partnership had reimbursed
the affiliates these amounts. Other liabilities, including distributions
payable, were $863,096 at December 31, 2002, as compared to $861,640 at December
31, 2001. The General Partners believe the Partnership has sufficient cash on
hand to meet current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for using either the direct financing or the operating
method. FAS 13 requires management to estimate the economic life of the leased
property, the residual value of the leased property and the present value of
minimum lease payments to be received from the tenant. In addition, management
assumes that all payments to be received under its leases are collectible.
Changes in management's estimates or assumption regarding collectibility of
lease payments could result in a change in accounting for the lease at the
inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews the Partnership's Properties and investments in
unconsolidated entities periodically for impairment at least once a year or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The assessment is based on the carrying amount
of the Property or investment at the date it is tested for recoverability
compared to the sum of the estimated future cash flows expected to result from
its operation and sale through the expected holding period. If an impairment is
indicated, the asset is adjusted to its estimated fair value.
When the Partnership makes the decision to sell or commits to a plan to
sell a Property within one year, its operating results are reported as
discontinued operations.
Results of Operations
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Total rental revenues were $1,841,581 during the year ended December
31, 2002, as compared to $1,897,733 during the same period of 2001. The decrease
in rental revenues during 2002 was partially due to the 2001 and 2002 sales of
several Properties. The decrease was partially offset by the fact that between
December 2001 and September 2002 the Partnership reinvested a portion of these
sales proceeds in three additional Properties.
Rental revenues during 2002 were also lower because the tenant of the
Property in Wildwood, Florida, ceased making rental payments and vacated the
Property in April 2001. In July 2001, the Partnership and the tenant terminated
the lease and the Partnership stopped recording rental revenues. In addition,
during 2002, the tenant of the Property in North Baltimore, Ohio terminated the
lease, as permitted in the lease agreement, when a partial right of way taking
reduced road access to the restaurant. 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, until the Partnership is able to re-lease or sell
them.
During 2001, the Partnership collected and recognized as income $63,485
in lease termination income, 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.
The Partnership also earned $37,146 in contingent rental income during
the year ended December 31, 2002, as compared to $19,780 during the same period
of 2001. Contingent rental income was higher during 2002, as a result of an
increase in gross sales of certain restaurant Properties requiring the payment
of contingent rental income. The Partnership also earned $88,513 in interest and
other income during the year ended December 31, 2002, as compared to $88,147
during the same period of 2001.
The Partnership also earned $1,199,146 in income attributable to net
income earned by joint ventures in which the Partnership is a co-venturer during
the year ended December 31, 2002, as compared to $753,457 during the same period
of 2001. Net income earned by joint ventures was higher during 2002 partially
because CNL Restaurant Investments III Joint Venture, in which the Partnership
owns a 50% interest, Ashland Joint Venture, in which the Partnership owns a
27.33% interest, and the Partnership and CNL VIII, as tenants-in-common, in
which the Partnership owns a 34% interest, each sold one Property, 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 $1,330,172
to the joint ventures. During 2002, the majority of these net sales proceeds
were reinvested, either by the joint ventures or Partnership in other
Properties, as described above.
During 2002, four of the Partnership's lessees, Carrols Corp., Flagstar
Enterprises, Inc., Burger King Corp, and Golden Corral Corporation, each
contributed more than ten percent of the Partnership's total rental revenues and
mortgage interest income (including the Partnership's share of rental revenues
from joint ventures and Properties owned as tenants-in-common). As of December
31, 2002, Carrols Corp. was the lessee under leases relating to nine
restaurants, Flagstar Enterprises, Inc. was the lessee under leases relating to
three restaurants, Burger King Corp. was the lessee under leases relating to the
nine restaurants and Golden Corral Corporation was the lessee under leases
relating to three restaurants. It is anticipated that, based on the minimum
rental payments required by the leases, Carrols Corp. Burger King Corp. and
Golden Corral Corporation will each continue to contribute more than ten percent
of the Partnership's rental revenues in 2003. In addition, four Restaurant
Chains, Burger King, Hardee's, Shoney's, and Golden Corral, each accounted for
more than ten percent of the Partnership's rental revenues and mortgage interest
during 2002 (including the Partnership's share of the rental revenues from joint
ventures and Properties owned as tenants-in-common). In 2003, it is anticipated
that these four Restaurant Chains each will continue to account for more than
ten percent of the total rental revenues to which the Partnership is entitled
under the terms of its leases. Any failure of these lessees or Restaurant Chains
could materially affect the Partnership's income if the Partnership is not able
to re-lease the Properties in a timely manner.
Operating expenses including depreciation and amortization expense and
provision for write-down of assets, were $1,072,117 during the year ended
December 31, 2002, as compared to $1,100,049 during the same period of 2001.
Operating expenses were higher during 2001 partially because the Partnership
recorded a provision for write-down of assets of approximately $400,800 relating
to the vacant Property in Wildwood, Florida. During 2002, the Partnership
recorded an additional provision for write-down of assets of approximately
$381,800 relating to the Properties in Wildwood, Florida and North Baltimore,
Ohio. The tenants vacated the Properties and ceased payment of rents under the
terms of their respective lease agreements, as described above. The provisions
represented the difference between the net carrying value of each Property and
their estimated fair values. The decrease in operating expenses during 2002 was
also partially due to a decrease in the costs incurred for administrative
expenses for servicing the Partnership and its Properties. During the years
ended December 31, 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 North Baltimore, Ohio. The
Partnership will continue to incur these expenses until the Properties are
re-leased or sold.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
In connection with the sales of the Properties in Huntsville, Alabama
and Greenville, South Carolina, the Partnership recognized a net gain of
approximately $456,100 during 2002. These Properties were identified for sale as
of December 31, 2001. In connection with the sales, during 2001, of the
Properties in Bedford, Indiana and Copley Township, Ohio, the Partnership
recognized a gain of approximately $298,800.
During the year ended December 31, 2002, the Partnership identified two
Properties, one in Farragut, Tennessee and one in Grand Prairie, Texas, that met
the criteria of this standard and were classified as Discontinued Operations in
the accompanying financial statements. In December 2002, the Partnership sold
the Property in Farragut, Tennessee and received net sales proceeds of
approximately $886,300, resulting in a gain on disposal of discontinued
operations of approximately $185,600. In connection with the anticipated sale of
the Property in Grand Prairie, Texas, the Partnership recorded a provision for
write-down of assets of approximately $58,500 during the year ended December 31,
2002. The Partnership had also recorded a provision for write-down of assets
relating to this Property during the year ended December 31, 2001, when the
tenant of this Property experience financial difficulties, filed for bankruptcy
and rejected the lease relating to the Property. The provisions represented the
difference between the Property's net carrying value and its estimated fair
value. In February 2003, the Partnership sold this Property. The Partnership
intends to reinvest the net sales proceeds from these two sales in additional
Properties.
In addition, during the year ended December 31, 2002, three of the
joint ventures and a tenancy in common in which the Partnership is a co-partner,
identified and sold five Properties that also met the criteria of this standard,
resulting in a net gain on disposal of assets of approximately $1,330,200 to the
joint ventures and tenancy in common. The Partnership recorded its pro-rata
share of this gain as equity in earnings of joint ventures. The majority of the
net sales proceeds from these five sales were reinvested in additional
Properties and a portion of the net sales proceeds was returned to the
Partnership as a return of capital. The financial results of these five
Properties were classified as Discontinued Operations in the condensed joint
venture financial information presented in the footnotes to the accompanying
financial statements. The Partnership's pro-rata share of these amounts is
included in equity in earnings of joint ventures in the accompanying financial
statements
Comparison of year ended December 31, 2001 to year ended December 31, 2000
Total rental revenues were $1,897,733 during the year ended December
31, 2001, as compared to $2,268,511 during the same period of 2000. The decrease
in rental revenues during 2001 was partially due to the sales of several
Properties in 2001 and 2000. During 2001, the tenant of the Property in
Wildwood, Florida, ceased making rental payments and vacated the Property in
April 2001, as described above. Rental revenues were higher during 2000 because
the Partnership collected and recognized, as income, past due rental and other
amounts relating to the Properties in Bluffton and Alliance, Ohio. These two
Properties were sold during 2000.
The Partnership also earned $19,780, in contingent rental income during
the year ended December 31, 2001, as compared to $65,269 during the same period
of 2000. Contingent rental income was lower during 2001 because of a decrease in
gross sales of certain restaurant Properties requiring the payment of contingent
rental income. The Partnership also earned $88,147 in interest and other income
during the year ended December 31, 2001, as compared to $57,722 during the same
period of 2000. Interest and other income were higher during 2001 because the
Partnership earned interest from the two mortgage note receivables relating to
the 2000 sales of the Properties in Bluffton and Alliance, Ohio.
The Partnership earned $753,457 in income attributable to net income
earned by joint ventures during the year ended December 31, 2001, as compared to
$674,930 during the same period of 2000. Net income earned by joint ventures was
higher during 2001 partially because the Partnership acquired an interest in a
Property in Libertyville, Illinois, as tenants-in-common with affiliates of the
General Partners in August 2000. In addition, 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 resulting in a gain,
to the tenancy in common of approximately $158,100. 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.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $1,100,049, during the year ended
December 31, 2001, as compared to $567,919 during the same period of 2000.
Operating expenses were higher during 2001 because the Partnership recorded a
provision for write-down of assets of approximately $400,800 relating to the
Property in Wildwood, Florida. 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 net carrying value of the
Property at December 31, 2001 and its estimated fair value. In addition, during
2001 and 2000 the Partnership incurred Property expenses such as real estate
taxes, insurance, repairs and maintenance and legal fees relating to the vacant
Property.
Operating expenses were also higher during 2001 due to an increase in
the costs incurred for administrative expenses for servicing the Partnership and
its Properties and due to higher state taxes in a state in which the Partnership
conducts business.
During 2000, the Partnership incurred $32,540 in transaction costs
related to the General Partners retaining financial and legal advisors to assist
them in evaluating and negotiating the proposed merger with APF. On March 1,
2000, the merger discussions were terminated.
In connection with the sales of the Properties in Bluffton and
Alliance, Ohio the Partnership recognized a loss of $730,668 during the year
ended December 31, 2000.
The restaurant industry has been relatively resilient during this
volatile time with steady performance during 2002. However, the industry remains
in a state of cautious optimism. Restaurant operators expect their business to
be better in 2003, according to a nationwide survey conducted by the National
Restaurant Association, but are concerned by the budget deficits being
experienced by many states and the potential of new taxes on the industry to
alleviate the situation.
The Partnership's leases as of December 31, 2002, in general, are
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
the 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, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be considered by a company if that company is subject to a majority risk of loss
from the variable interest entity's activities or entitled to receive a majority
of the entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. Consolidation of variable
interests entities will provide more complete information about the resources,
obligations, risks and opportunities of the consolidated company. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003, and to older entities in the first
fiscal year or interim period beginning after June 15, 2003. Management believes
adoption of this standard may result in either consolidation or additional
disclosure requirements with respect to the Partnership's unconsolidated joint
ventures or Properties held with affiliates of the General Partners as
tenants-in-common, which are currently accounted for under the equity method.
However, such consolidation is not expected to significantly impact the
Partnership's results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
The Partnership accepted two promissory notes in conjunction with the
sale of two Properties. The General Partners believe that the estimated fair
value of the mortgage notes at December 31, 2002, approximated the outstanding
principal amount. The Partnership is exposed to equity loss in the event of
adverse changes in interest rates. The following table presents the expected
cash flows of principal that are sensitive to these changes.
Mortgage Note
Fixed Rate
------------------
2003 $ 19,620
2004 21,370
2005 23,521
2006 25,759
2007 27,348
Thereafter 343,162
----------------
$ 460,780
================
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 21
Financial Statements:
Balance Sheets 22
Statements of Income 23
Statements of Partners' Capital 24
Statements of Cash Flows 25-26
Notes to Financial Statements 27-41
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund IX, 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 IX, Ltd. (a Florida limited
partnership) at December 31, 2002 and 2001, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2002 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under item 15(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
January 31, 2003, except for Note 13, for which the date is February 28, 2003
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2002 2001
--------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 13,436,040 $ 13,102,325
Net investment in direct financing leases 2,444,483 2,807,303
Real estate held for sale 286,256 1,062,405
Investment in joint ventures 7,337,667 7,324,599
Mortgage notes receivable 464,352 482,406
Cash and cash equivalents 1,913,142 1,247,551
Receivables, less allowance for doubtful accounts of
$15,296 in 2001 31,471 32,171
Due from related parties 6,265 4,872
Accrued rental income 505,561 785,025
Other assets 24,905 10,520
--------------------- -------------------
$ 26,450,142 $ 26,859,177
===================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 25,394 $ 7,190
Real estate taxes payable 7,978 7,853
Distributions payable 787,501 787,501
Due to related parties 16,426 5,878
Rents paid in advance and deposits 42,223 59,096
--------------------- -----------------------
Total liabilities 879,522 867,518
Commitments (Note 12)
Partners' capital 25,570,620 25,991,659
--------------------- -----------------------
$ 26,450,142 $ 26,859,177
===================== =======================
See accompanying notes to financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year ended December 31,
2002 2001 2000
--------------- ---------------- ---------------
Revenues:
Rental income from operating leases $ 1,533,555 $ 1,507,209 $ 1,761,432
Earned income from direct financing leases 308,026 390,524 507,079
Contingent rental income 37,146 19,780 65,269
Lease termination income -- 63,485 --
Interest and other income 88,513 88,147 57,722
--------------- ---------------- ---------------
1,967,240 2,069,145 2,391,502
--------------- ---------------- ---------------
Expenses:
General operating and administrative 257,230 302,960 178,800
Property expenses 81,801 68,616 45,515
State and other taxes 43,648 35,739 22,725
Depreciation and amortization 307,610 291,935 288,339
Provision for write-down of loss of assets 381,828 400,799 --
Transaction costs -- -- 32,540
--------------- ---------------- ---------------
1,072,117 1,100,049 567,919
--------------- ---------------- ---------------
Income Before Gain (Loss) on Sale of Assets and Equity in
Earnings of Joint Ventures 895,123 969,096 1,823,583
Gain (Loss) on Sale of Assets 456,143 298,795 (730,668 )
Equity in Earnings of Joint Ventures 1,199,146 753,457 674,930
--------------- ---------------- ---------------
Income from Continuing Operations 2,550,412 2,021,348 1,767,845
--------------- ---------------- ---------------
Discontinued Operations (Note 5):
Income (loss) from discontinued operations (7,079 ) (29,442 ) 82,935
Gain on disposal of discontinued operations 185,632 -- --
--------------- ---------------- ---------------
178,553 (29,442 ) 82,935
--------------- ---------------- ---------------
Net Income $ 2,728,965 $ 1,991,906 $ 1,850,780
=============== ================ ===============
Income (Loss) Per Limited Partner Unit
Continuing Operations $ 0.73 $ 0.58 $ 0.51
Discontinued Operations 0.05 (0.01 ) 0.02
--------------- ---------------- ---------------
Total $ 0.78 $ 0.57 $ 0.53
=============== ================ ===============
Weighted Average Number of Limited Partner Units
Outstanding 3,500,000 3,500,000 3,500,000
=============== ================ ===============
See accompanying notes to financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2002, 2001 and 2000
General Partners Limited Partners
----------------------------- -----------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs
------------- ------------ ------------- ------------- ------------ ------------
Balance, December 31, 1999 $ 1,000 $ 237,417 $ 35,000,000 $ (26,210,595 ) $ 23,611,159 $ (4,190,000 )
Distributions to limited
partners ($0.90 per limited
partner unit) -- -- -- (3,150,004 ) -- --
Net income -- -- -- -- 1,850,780 --
------------ ----------- ------------- -------------- -------------- -------------
Balance, December 31, 2000 1,000 237,417 35,000,000 (29,360,599 ) 25,461,939 (4,190,000 )
Distributions to limited
partners ($0.90 per limited
partner unit) -- -- -- (3,150,004 ) -- --
Net income -- -- -- -- 1,991,906 --
------------ ----------- ------------- -------------- -------------- -------------
Balance, December 31, 2001 1,000 237,417 35,000,000 (32,510,603 ) 27,453,845 (4,190,000 )
Distributions to limited
partners ($0.90 per limited
partner unit) -- -- -- (3,150,004 ) -- --
Net income -- -- -- -- 2,728,965 --
------------ ----------- ------------- -------------- -------------- -------------
Balance, December 31, 2002 $ 1,000 $ 237,417 $ 35,000,000 $ (35,660,607 ) $ 30,182,810 $ (4,190,000 )
============ =========== ============= ============== ============== =============
See accompanying notes to financial statements.
Total
--------------
$ 28,448,981
(3,150,004 )
1,850,780
--------------
27,149,757
(3,150,004 )
1,991,906
--------------
25,991,659
(3,150,004 )
2,728,965
--------------
$ 25,570,620
==============
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2002 2001 2000
--------------- --------------- --------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows Provided by Operating Activities:
Net income $ 2,728,965 $ 1,991,906 $ 1,850,780
--------------- --------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 321,943 313,377 310,696
Amortization of investment in direct financing
leases 80,601 71,154 69,297
Amortization -- 1,375 1,500
Equity in earnings of joint ventures, net of
distributions (331,747 ) 118,290 138,268
Loss (gain) on sale of assets (641,775 ) (298,795 ) 730,668
Provision for write-down of assets 440,287 462,925 --
Decrease (increase) in receivables 700 279,491 (205,220 )
Decrease (increase) in interest receivable 139 127 (3,838 )
Decrease (increase) in due from related parties (1,393 ) 3,963 (8,835 )
Decrease (increase) in accrued rental income 61,269 (4,216 ) (27,263 )
Decrease (increase) in other assets (14,385 ) 11,474 (547 )
Increase (decrease) in accounts payable and
real estate taxes payable 18,329 (25,854 ) (74,358 )
Increase (decrease) in due to related parties 10,548 (94,968 ) 38,780
Increase (decrease) in rents paid in advance
and deposits (16,873 ) 5,484 24,139
--------------- --------------- --------------
Total adjustments (72,357 ) 843,827 993,287
--------------- --------------- --------------
Net Cash Provided by Operating Activities 2,656,608 2,835,733 2,844,067
--------------- --------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 2,814,625 1,986,253 693,350
Additions to real estate properties with
operating leases (1,992,232 ) (1,357,599 ) --
Collections on mortgage notes receivable 17,915 21,305 --
Investment in joint ventures (1,165,235 ) (342,075 ) (494,581 )
Return of capital from joint venture 929,590 -- --
Liquidating distribution from joint venture 554,324 424,600 --
--------------- --------------- --------------
Net cash provided by investing activities 1,158,987 732,484 198,769
--------------- --------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,150,004 ) (3,150,004 ) (3,150,004 )
-------------- --------------- --------------
Net cash used in financing activities (3,150,004 ) (3,150,004 ) (3,150,004 )
--------------- --------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents 665,591 418,213 (107,168 )
Cash and Cash Equivalents at Beginning of Year 1,247,551 829,338 936,506
--------------- --------------- --------------
Cash and Cash Equivalents at End of Year $ 1,913,142 $ 1,247,551 $ 829,338
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31:
2002 2001 2000
------------ ------------- ------------
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Mortgage notes accepted in exchange for sale of assets $ -- $ -- $ 500,000
============ ============= ============
Distributions declared and unpaid at December 31 $ 787,501 $ 787,501 $ 787,501
============ ============= ============
See accompanying notes to financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund IX, 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% 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 generally - The Partnership records real estate
property acquisitions of land and buildings at cost, including
acquisition and closing costs. Real estate properties are leased to
third parties generally on a triple-net basis, whereby the tenant is
responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance and repairs.
During the years ended December 31, 2002, 2001, and 2000, tenants paid
directly to real estate taxing authorities $261,700, $257,100, and
$277,600, respectively, in real estate taxes in accordance with the
terms of their triple net leases with the Partnership.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
direct financing or the operating methods. Such methods are described
below:
Direct financing method - Leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset). Unearned income is deferred and amortized
to income over the lease terms so as to produce a constant
periodic rate of return on the Partnership's investment in the
leases. For the leases classified as direct financing leases,
the building portions of the property leases are accounted for
as direct financing leases while a majority of the land
portion of these leases are operating leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
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 IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
Substantially all leases are for 14 to 20 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 as 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 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 the fair value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is made 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's investments in four
joint ventures and properties in Englewood, Colorado; Waldorf,
Maryland; Montgomery, Alabama and Buffalo Grove, Illinois for which the
properties are held as tenants-in-common with affiliates, are accounted
for using the equity method since each joint venture agreement requires
the consent of all partners on all key decisions affecting the
operations of the underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value. Cash accounts
maintained on behalf of the Partnership in demand deposits at
commercial banks and money market funds may exceed federally insured
levels; however, the Partnership has not experienced any losses in such
accounts.
Lease Costs - Other assets include lease costs associated with
negotiating a new lease and are amortized over the term of the new
lease using the straight-line method.
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 IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2002 presentation,
including a change in presentation of the statement of cash flows from
the direct to the indirect method. These reclassifications had no
effect on total partners' capital, net income or cash flows.
Statement of Financial Accounting Standards No. 144 ("FAS 144") -
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
FASB Interpretation No. 46 ("FIN 46") - In January 2003, FASB issued
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting
guidance that addresses when a company should include the assets,
liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with
variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be considered by a company if
that company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. Consolidation of
variable interests entities will provide more complete information
about the resources, obligations, risks and opportunities of the
consolidated company. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31,
2003, and to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Management believes adoption of this
standard may result in either consolidation or additional disclosure
requirements with respect to the Partnership's unconsolidated joint
ventures or properties held with affiliates of the general partners as
tenants-in-common, which are currently accounted for under the equity
method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
2. Real Estate Properties with Operating Leases:
Real estate properties with operating leases consisted of the following
at December 31:
2002 2001
--------------- --------------
Land $ 6,555,203 $ 6,510,989
Buildings 8,964,617 8,704,947
--------------- --------------
15,519,820 15,215,936
Less accumulated depreciation (2,083,780) (2,113,611)
--------------- --------------
$ 13,436,040 $ 13,102,325
=============== ==============
During 2001, the Partnership sold its property in Bedford, Indiana, for
which the building was classified as a direct financing lease, to the
tenant, in accordance with the purchase option under the lease
agreement. In November 2001, the Partnership sold its property in
Copley Township, Ohio to a third party. The Partnership received net
sales proceeds of approximately $1,986,200, from these two sales,
resulting in a total gain of approximately $298,800. In December 2001,
the Partnership reinvested these net sales proceeds in a property in
Blaine, Minnesota. This property was acquired from CNL Funding 2001-A,
LP, an affiliate of the general partners.
During the year ended December 31, 2001, the Partnership recorded a
provision for write-down of assets of approximately $150,000 relating
to the property in Wildwood, Florida. The tenant of this property
vacated the property and ceased restaurant operations. During the year
ended December 31, 2002, the Partnership recorded an additional
provision for write-down of assets of approximately $321,600. The total
provision represented the difference between the net carrying value of
the property at December 31, 2002 and its estimated fair.
During 2002, the Partnership sold its properties in Greenville, South
Carolina, and Huntsville, Alabama, each to a third party and received
net sales proceeds of approximately $1,928,300, resulting in a gain of
approximately $456,100. These properties had been identified for sale
as of December 31, 2001. During 2002, the Partnership reinvested these
net sales proceeds in a property in Dallas, Texas and a property in
Jackson, Michigan, at an approximate total cost of $1,992,200. The
Partnership acquired each of these properties from affiliates of the
general partners.
During 2002, the tenant of the property in North Baltimore, Ohio
terminated its lease, as permitted in the lease agreement, when a
partial right of way taking reduced road access to the restaurant. As a
result, the Partnership reclassified the related asset from net
investment in direct financing leases to real estate properties with
operating leases and recorded a provision for write-down of assets of
approximately $60,200. The provision represented the difference between
the net carrying value of the property at December 31, 2002 and its
estimated fair value.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
2. Real Estate Properties with Operating Leases - Continued:
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2002:
2003 $ 1,588,353
2004 1,589,838
2005 1,600,353
2006 1,176,467
2007 960,999
Thereafter 6,935,898
-----------------
$ 13,851,908
=================
3. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
2002 2001
-------------- --------------
Minimum lease payments receivable $ 3,238,857 $ 4,182,420
Estimated residual values 1,016,893 1,093,932
Less unearned income (1,811,267) (2,469,049)
-------------- --------------
Net investment in direct financing leases $ 2,444,483 $ 2,807,303
============== ==============
During the year ended December 31, 2001, the Partnership recorded a
provision of approximately $250,900 for an impairment in the carrying
value of the property in Wildwood, Florida, due to the tenant vacating
the property and ceasing operations. The provision represented the
difference between the net carrying value of the property and its
estimated fair value. In July 2001, the Partnership and the tenant
terminated its lease. As a result, the Partnership reclassified the
building portion of the asset from net investment in direct financing
leases to land and buildings on operating leases. No loss on
termination of direct financing lease was recorded.
In July 2001, the Partnership sold its property in Bedford, Indiana,
for which the building portion had been classified as a direct
financing lease. In connection therewith, the gross investment (minimum
lease payments receivable and the estimated residual value) and
unearned income relating to the building were removed from the accounts
and the gain from the sale of the property was reflected in income.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
3. Net Investment in Direct Financing Leases - Continued:
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at December 31, 2002:
2003 $ 349,478
2004 349,478
2005 349,478
2006 357,921
2007 385,159
Thereafter 1,447,343
-----------------
$ 3,238,857
=================
4. Investment in Joint Ventures:
The Partnership has a 45.2%, 50%, and 27.33% interest in the profits
and losses of CNL Restaurant Investments II, CNL Restaurant Investments
III, and Ashland Joint Venture, respectively. The remaining interests
in these joint ventures are held by affiliates of the Partnership which
have the same general partners. The Partnership also owns a 67%
interest and a 29% interest in a property in Englewood, Colorado, and
Montgomery, Alabama, each as tenants-in-common with an affiliate of the
general partners.
In June 2001, the Partnership and CNL Income Fund VI, Ltd., as
tenants-in-common, sold the IHOP property in Dublin, California for
approximately $1,743,300, resulting in a gain, to the tenancy in
common, of approximately $158,100. The Partnership owned a 25% interest
in this property. The Partnership received approximately $424,600 as a
liquidating distribution for its pro-rata share of the net sales
proceeds received by the tenancy in common. In July 2001, the
Partnership reinvested these proceeds in a property in Waldorf,
Maryland as tenants-in-common with CNL Income Fund VI, Ltd. and CNL
Income Fund XVII, Ltd., each of which is an affiliate of the general
partners. As of December 31, 2002, the Partnership had contributed
approximately $342,100 for a 15% interest in the property. The
Partnership and the affiliate 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.
In September 2002, the Partnership and CNL Income Fund VIII, Ltd., as
tenants-in-common, sold the property in Libertyville, Illinois a third
party and received net sales proceeds of approximately $1,630,400
resulting in a gain, to the tenancy in common, of approximately
$199,300. The Partnership owned a 34% interest in this property. The
Partnership received approximately $554, 300 as a liquidating
distribution for its pro-rata share of the net sales proceeds. In
September 2002, the Partnership reinvested these proceeds in a property
in Buffalo Grove, Illinois, as a new tenancy in common with CNL Income
Fund
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
VIII, Ltd. As of December 31, 2002, the Partnership had contributed
approximately $540,200 for a 34% interest in this property. The
property was acquired from CNL Net Lease Investors, L.P., an affiliate
of the general partners. The Partnership and the affiliate 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.
In May 2002, CNL Restaurant Investments III sold its Burger King
property in Greensboro, North Carolina, to the tenant 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 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. 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 December 31, 2002, the
Partnership had contributed approximately $625,000 for a 60% interest
in this joint venture.
In June 2002, Ashland Joint Venture sold its Burger King property in
Ashland, New Hampshire to the tenant 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. The
Partnership received approximately $6,000 as a return of capital from
the remaining net sales proceeds.
In June 2002, CNL Restaurant Investments II, in which the Partnership
owns a 45.2% interest, sold its property in Columbus, Ohio to the
tenant 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. The joint venture acquired
this property from CNL Funding 2001-A, LP, an affiliate of the general
partners. 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 sold its property in Pontiac,
Michigan to the tenant 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.
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 Restaurant Investments II and CNL Restaurant Investments III 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:
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
December 31, December 31,
2002 2001
--------------------- --------------------
Real estate properties with operating $ 14,485,948 $ 10,649,307
leases, net
Net investment in direct financing
leases 2,810,584 1,856,650
Real estate held for sale -- 4,986,544
Cash 16,192 50,255
Receivables 518 12,385
Accrued rental income 261,781 85,477
Other assets 27,711 24,302
Liabilities 7,146 2,033
Partners' capital 17,595,588 17,662,887
Year Ended December 31,
2002 2001 2000
---------------- ---------------- ------------------
Revenues $ 1,760,740 $ 1,421,037 $ 1,440,910
Expenses (335,652 ) (267,865 ) (282,452 )
---------------- ---------------- ------------------
Income from continuing operations 1,425,088 1,153,172 1,158,458
---------------- ---------------- ------------------
Discontinued operations:
Revenues 292,527 600,733 492,479
Expenses (50,042 ) (146,618 ) (130,774 )
Gain on disposal of assets 1,330,172 -- --
---------------- ---------------- ------------------
1,572,657 454,115 361,705
---------------- ---------------- ------------------
Net Income $ 2,997,745 $ 1,607,287 $ 1,520,163
================ ================ ==================
The Partnership recognized income of $1,199,146, $753,457, and $674,930
during the year ended December 31, 2002, 2001, and 2000, respectively,
from these joint ventures and the properties held as tenants-in-common
with affiliates.
5. Discontinued Operations:
During 2002, the Partnership entered into two separate agreements, each
with a third party to sell its properties in Farragut, Tennessee and
Grand Prairie, Texas. In December 2002, the Partnership sold the
property in Farragut, Tennessee and received net sales proceeds of
approximately $886,300, resulting in a gain on disposal of discontinued
operations of approximately $185,600. The Partnership reclassified the
asset relating to the Grand Prairie, Texas property from real estate
properties with operating leases to real estate held for sale. The
reclassified asset was recorded at the lower of its carrying amount or
fair value, less cost to sell. In addition, the Partnership stopped
recording depreciation once the property was identified for sale. In
connection with the anticipated sale of this property, the Partnership
recorded a provision for write-down of assets of approximately $58,500
during the year ended December 31, 2002.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
5. Discontinued Operations - Continued:
In February 2003, the Partnership sold this property. The financial
results for these properties are reflected as Discontinued Operations
in the accompanying financial statements.
The operating results of the discontinued operations for the above
properties are as follows:
Year Ended December 31,
2002 2001 2000
----------------- ---------------- ------------------
Rental revenues $ 91,459 $ 92,796 $ 107,825
Expenses (40,079 ) (60,112 ) (24,890 )
Provision for write-down of
assets (58,459 ) (62,126 ) --
Gain (loss) on disposal of assets 185,632 -- --
----------------- ---------------- ------------------
Income (loss) from discontinued
operations $ 178,553 $ (29,442 ) $ 82,935
================= ================ ==================
6. Mortgage Notes Receivable:
In connection with the sale of its properties in Bluffton and Alliance,
Ohio during 2000, the Partnership accepted promissory notes in the
principal sum of $300,000 and $200,000, respectively, collateralized by
a mortgage on the respective property. The promissory notes bear
interest at a rate of nine percent per annum and are being collected in
96 equal monthly installments (which include principal and interest) of
$3,043 and $2,029 with balloon payments of a $184,652 and $123,102, due
in December 2008.
The mortgage notes receivable consisted of the following at December
31:
2002 2001
------------- ------------
Principal balance $ 460,780 $ 478,695
Accrued interest receivable 3,572 3,711
------------- ------------
$ 464,352 $ 482,406
============= ============
The general partners believe that the estimated fair values of mortgage
notes receivable at December 31, 2002, approximate the outstanding
principal amount based on estimated current rates at which similar
loans would be made to borrowers with similar credit and for similar
maturities.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
7. Allocations and Distributions:
From inception through December 31, 1999, generally, all net income and
net losses of the Partnership, excluding gains and losses from the sale
of properties, were allocated 99% to the limited partners and one
percent to the general partners. From inception through December 31,
1999, distributions of net cash flow were made 99% to the limited
partners and one percent to the general partners. However, the one
percent of net cash flow to be distributed to the general partners was
subordinated to receipt by the limited partners of an aggregate, ten
percent, cumulative, noncompounded annual return on their adjusted
capital contributions (the "10% Preferred Return").
From inception through December 31, 1999, generally, net sales proceeds
from the sale of properties, not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their 10% Preferred
Return, plus the return of their adjusted capital contributions. The
general partners then received, to the extent previously subordinated
and unpaid, a one percent interest in all prior distributions of net
cash flow and a return of their capital contributions. Any remaining
sales proceeds were distributed 95% 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, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts; and
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
accounts balances, in proportion to such balances, up to amounts
sufficient to reduce such positive balances to zero, and (v)
thereafter, any funds remaining shall then be distributed 95 percent to
the limited partners and five percent to the general partners.
Effective January 1, 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partner in
succeeding years. Accordingly, the general partners were not allocated
any net income during the years ended December 31, 2002, 2001 and 2000.
During each of the years ended December 31, 2002, 2001, and 2000, the
Partnership declared distributions to the limited partners of
$3,150,004. No distributions have been made to the general partners to
date.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
8. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2002 2001 2000
--------------- ------------------ ----------------
Net income for financial reporting purposes $ 2,728,965 $ 1,991,906 $ 1,850,780
Effect timing differences relating to
depreciation 12,896 2,178 (36,818 )
Provision for write-down of assets 440,287 462,925 --
Effect timing differences relating to allowance
for doubtful accounts (15,296 ) (67,300 ) 26,700
Direct financing leases recorded as operating
leases for tax reporting purposes 80,601 71,154 69,297
Effect timing differences relating to
gains/losses on sales of real estate (148,916 ) 40,172 (30,636 )
Effect timing differences relating to equity in
earnings of joint ventures (392,715 ) (57,919 ) (18,522 )
Deduction of transaction costs for tax reporting
purposes -- -- (200,150 )
Accrued rental income 61,269 (4,216 ) (27,263 )
Rents paid in advance (16,873 ) 5,484 24,139
--------------- ------------------ ----------------
Net income for federal income tax purposes $ 2,750,218 $ 2,444,384 $ 1,657,527
=============== ================== ================
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
9. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, a wholly owned subsidiary of CNL American
Properties Fund, Inc. ("APF") served as the Partnership's advisor until
January 1, 2002, when it assigned its rights and obligations under a
management agreement to RAI Restaurants, Inc. (formerly known as CNL
Restaurants XVIII, Inc.). RAI Restaurants, Inc. ("the Advisor") is a
wholly owned subsidiary of APF. The individual general partners are
stockholders and directors of APF.
The Advisor provides services pursuant to a management agreement with
the Partnership. In connection therewith, the Partnership 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 are incurred and are payable only after
the limited partners receive their 10% Preferred Return. Due to the
fact that these fees are noncumulative, if the limited partners have
not received their 10% Preferred Return in any particular year, no
management fees will be due or payable for such year. As a result of
such threshold no management fees were incurred during the years ended
December 31, 2002, 2001 and 2000.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the limited partners of their aggregate 10%
Preferred Return, plus their adjusted capital contributions. No
deferred, subordinated real estate disposition fees have been incurred
since inception.
During the years ended December 31, 2002, 2001, and 2000, the Advisor
and its affiliate provided accounting and administrative services. The
Partnership incurred $175,724, $198,105 and $88,741, for the years
ended December 31, 2002, 2001, and 2000, respectively, for such
services.
In December 2001, the Partnership acquired a property located in
Blaine, Minnesota from CNL Funding 2001-A, LP, an affiliate of the
general partners. CNL Funding 2001-A, LP had purchased and temporarily
held title to the property in order to facilitate the acquisition of
the property by the Partnership. The purchase price paid by the
Partnership represented the costs incurred by CNL Funding 2001-A, LP to
acquire and carry the property, including closing costs.
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, 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.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
9. Related Party Transactions - Continued:
In September 2002, the Partnership acquired a property in Jackson,
Michigan from CNL Net Lease Investors, L.P. ("NLI"). In addition, in
September 2002, the Partnership and CNL VIII acquired a property in
Buffalo Grove, Illinois from NLI. 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 in Jackson, Michigan and Buffalo Grove, Illinois 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 amount due to related parties at December 31, 2002 and 2001,
totaled $16,426 and $5,878, respectively.
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 the Partnership's total rental revenues and mortgage
interest income (including the Partnership's share of rental revenues
from joint ventures and properties held as tenants-in-common with
affiliates) for each of the years ended December 31:
2002 2001 2000
--------------- ------------- --------------
Golden Corral Corp. $ 534,672 $ 537,236 $ 548,289
Burger King Corp. 525,778 643,939 637,301
Carrols Corp. and Texas Taco
Cabana, LP (under common
control of Carrols Corp.) 488,457 318,060 320,890
Flagstar Enterprises, Inc. 289,914 361,770 363,872
In addition, the following schedule presents total rental revenues and
mortgage interest income from individual restaurant chains, each
representing more than ten percent of the Partnership's total rental
revenues and mortgage interest income (including the Partnership's
share of rental revenues from joint ventures and properties held as
tenants-in-common with affiliate) for each of the years ended December
31:
2002 2001 2000
----------------- ------------- --------------
Burger King $ 978,433 $ 1,062,392 $ 1,062,122
Golden Corral Family
Steakhouse Restaurant 534,672 537,236 548,289
Hardee's 357,105 429,975 433,587
Shoney's 312,009 391,170 505,821
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
10. Concentration of Credit Risk - Continued:
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
11. Selected Quarterly Financial Data:
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2002 and
2001.
2002 Quarter First Second Third Fourth Year
---------------------------------- ------------- ------------- -------------- ------------- ------------
Continuing Operations (1):
Revenues $ 482,615 $ 464,162 $ 531,987 $ 488,476 $1,967,240
Equity in earnings of joint
ventures 161,236 605,482 258,544 173,884 1,199,146
Income from continuing
operating 445,231 798,867 862,440 443,874 2,550,412
Discontinued operations (1):
Revenues 23,237 23,237 24,005 20,980 91,459
Income from discontinued
operations 16,359 14,380 12,575 135,239 178,553
Net Income 461,590 813,247 875,015 579,113 2,728,965
Net Income per limited partner
unit:
Continuing operations $ 0.13 $ 0.23 $ 0.25 $ 0.12 $ 0.73
Discontinued operations -- -- -- 0.05 0.05
------------- ------------- -------------- ------------- ------------
Total $ 0.13 $ 0.23 $ 0.25 $ 0.17 $ 0.78
============= ============= ============== ============= ============
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
11. Selected Quarterly Financial Data - Continued:
2001 Quarter First Second Third Fourth Year
-------------------------------- ------------- -------------- -------------- -------------- ------------
Continuing Operations (1):
Revenues $ 600,490 $ 499,220 $ 489,560 $ 479,875 $2,069,145
Equity in earnings of
joint ventures 170,153 219,479 180,658 183,167 753,457
Income from continuing
operations 362,337 302,702 538,651 817,658 2,021,348
Discontinued operations (1):
Revenues 13,248 33,230 23,239 23,079 92,796
Income from discontinued
operations 7,283 (4,426 ) (49,133 ) 16,834 (29,442 )
Net Income 369,620 298,276 489,518 834,492 1,991,906
Net Income (Loss) per limited
partner unit:
Continuing operations $ 0.11 $ 0.09 $ 0.15 $ 0.23 $ 0.58
Discontinued operations -- -- (0.01 ) -- (0.01 )
------------- -------------- -------------- -------------- ------------
Total $ 0.11 $ 0.09 $ 0.14 $ 0.23 $ 0.57
============= ============== ============== ============== ============
(1) Certain items in the quarterly financial data have been reclassified to
conform to the 2002 presentation. This reclassification had no effect
on total net income. The results of operations relating to properties
that were either disposed of or were classified as held for sale as of
December 31, 2002 are reported as discontinued operations for all
periods presented. The results of operations relating to properties
that were identified for sale as of December 31, 2001 but sold
subsequently are reported as continuing operations.
12. Commitment:
In December 2002, the Partnership entered into an agreement with a
third party to sell the Denny's property in Grand Prairie, Texas.
13. Subsequent Event:
In February 2003, the Partnership sold the Property in Grand Prairie,
Texas to a third party and received sales proceeds of approximately
$286,500, resulting in a loss of approximately $58,500, which the
Partnership recorded as of December 31, 2002.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL American Properties Fund, Inc. ("APF"), CNL Fund
Advisors, Inc., CNL Financial Group, Inc. and their affiliates, all of which are
affiliates of the General Partners.
James M. Seneff, Jr., age 56. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of APF, a public, unlisted real
estate investment trust, since 1994. Mr. Seneff served as Chief Executive
Officer of APF from 1994 through August 1999, and has served as co-Chief
Executive Officer of APF since December 2000. Mr. Seneff served as Chairman of
the Board and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, until it merged with a wholly-owned subsidiary of APF in
September 1999, and in June 2000, was re-elected to those positions of CNL Fund
Advisors, Inc. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the
parent company of CNL Financial Group, Inc. (formerly CNL Group, Inc.), a
diversified real estate company, and has served as a Director, Chairman of the
Board and Chief Executive Officer of CNL Financial Group, Inc. since its
formation in 1980. CNL Financial Group, Inc. is the parent company, either
directly or indirectly through subsidiaries, of CNL Real Estate Services, Inc.,
CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp., all
of which are engaged in the business of real estate finance. Mr. Seneff also
serves as a Director, Chairman of the Board and Chief Executive Officer of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust,
as well as, CNL Hospitality Corp., its advisor. In addition, he serves as a
Director, Chairman of the Board and Chief Executive Officer of CNL Retirement
Properties, Inc., a public, unlisted real estate investment trust and its
advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has also served as a
Director, Chairman of the Board and Chief Executive Officer of Commercial Net
Lease Realty, Inc., a public real estate investment trust that is listed on the
New York Stock Exchange. Mr. Seneff has also served as a Director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a Director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNL Bank, an independent,
state-chartered commercial bank. Mr. Seneff previously served on the Florida
State Commission on Ethics and is a former member and past Chairman of the State
of Florida Investment Advisory Council, which recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration, Florida's principal investment advisory and
money management agency, oversees the investment of more than $60 billion of
retirement funds. Mr. Seneff received his degree in Business Administration from
Florida State University in 1968.
Robert A. Bourne, age 55. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne is a
Director of APF. Mr. Bourne served as President of APF from 1994 through
February 1999. He also served as Treasurer from February 1999 through August
1999 and from May 1994 through December 1994. He also served in various
executive positions with CNL Fund Advisors, Inc. prior to its merger with a
wholly-owned subsidiary of APF including, President from 1994 through September
1997, and Director from 1994 through August 1999. Mr. Bourne serves as President
and Treasurer of CNL Financial Group, Inc.; Director, Vice Chairman of the
Board, and Treasurer , and from 1997 until June 2002 served as President, of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
as well as, Director, Vice Chairman of the Board, and Treasurer, and from 1997
until June 2002 served as President, of CNL Hospitality Corp., its advisor. In
addition, Mr. Bourne serves as Director, Vice Chairman of the Board, and
Treasurer, and from 1997 until June 2002 served as President, of CNL Retirement
Properties, Inc., a public, unlisted real estate investment trust; as well as, a
Director, Vice Chairman of the Board, and Treasurer, and from 1997 until June
2002 served as President, of its advisor, CNL Retirement Corp. Mr. Bourne also
serves as a Director of CNL Bank. He has served as a Director since 1992, Vice
Chairman of the Board since February 1996, Secretary and Treasurer from February
1996 through 1997, and President from July 1992 through February 1996, of
Commercial Net Lease Realty, Inc., a public real estate investment trust listed
on the New York Stock Exchange. Mr. Bourne also serves as Director, President
and Treasurer for various affiliates of CNL Financial Group, Inc. including, CNL
Investment Company, CNL Securities Corp. and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans. Mr. Bourne began his career as
a certified public accountant employed by Coopers & Lybrand, Certified Public
Accountants, from 1971 through 1978, where he attained the position of Tax
Manager in 1975. Mr. Bourne graduated from Florida State University in 1970
where he received a B.A. in Accounting, with honors.
Curtis B. McWilliams, age 47. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as Chief
Executive Officer from September 1999 through December 2000. Prior to the
acquisition of CNL Fund Advisors, Inc., Mr. McWilliams served as President of
APF from February 1999 until September 1999. From February 1998 to February
1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL
Financial Group, Inc. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc., a
corporation engaged in the business of real estate financing, from April 1997
until the acquisition of such entities by wholly-owned subsidiaries of APF in
September 1999. From September 1983 through March 1997, Mr. McWilliams was
employed by Merrill Lynch & Co. The majority of his career at Merrill Lynch &
Co. was in the Investment Banking division where he served as a Managing
Director. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.
Steven D. Shackelford, age 39. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors, Inc. from September 1996 to September 1999. From March
1995 to July 1996, Mr. Shackelford was a senior manager in the national office
of Price Waterhouse LLP where he was responsible for advising foreign clients
seeking to raise capital and a public listing in the United States. From August
1992 to March 1995, he was a manager in the Paris, France office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and senior from 1986 to 1992 in the Orlando, Florida office of Price
Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business Administration degree from Florida State
University and is a certified public accountant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2002.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 10, 2003, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 10, 2003, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
The Partnership does not have any equity compensation plans.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2002, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2002
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and
operating expenses the lower of cost or 90% of the administra-tive services:
prevailing rate at which comparable $175,724
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 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, 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 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.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2002
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee payable disposition fee, payable upon sale
to affiliates of one or more Properties, in an
amount equal to the lesser of (i)
one-half of a competitive real
estate commission, or (ii) three
percent of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the sale
of a Property or Properties and
shall be subordinated to certain
minimum returns to the Limited
Partners. However, if the net sales
proceeds are reinvested in a
replacement Property, no such real
estate disposition fee will be
incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales proceeds distributions of such net sales
from a sale or sales not in proceeds, subordinated to certain
liquidation of the Partnership minimum returns to the Limited
Partners.
Amount Incurred
Type of Compensation For the Year
And Recipient Method of Computation Ended December 31, 2002
- --------------------------------- -------------------------------------- ------------------------------
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net loss,
gain and loss, in proportion to such
balances, up to amounts sufficient
to reduce such balances to zero; and
(iii) thereafter, 95% to the Limited
Partners and 5% to the General
Partners.
In June 2002, the Partnership, Ashland Joint Venture, CNL Restaurants II Joint
Venture, and Katy Joint Venture each acquired a Property from CNL Funding
2001-A, LP, an affiliate of the General Partners for an aggregate cost of
approximately $4,563,000. 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. In September 2002, the Partnership
acquired a property in Jackson, Michigan from CNL Net Lease Investors, L.P.
("NLI") for an aggregate cost of approximately $961,400. In addition, in
September 2002, the Partnership and CNL VIII acquired a property in Buffalo
Grove, Illinois from NLI for an aggregate cost of approximately $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 in Jackson, Michigan and Buffalo Grove,
Illinois at CFN's cost and did not pay any additional compensation to CFN for
the acquisition of the properties. Each CNL entity is an affiliate of the
Partnership's general partners.
Item 14. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate General Partner have evaluated the
Partnership's disclosure controls and procedures within 90 days prior to the
filing of this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
Subsequent to the above evaluation, there were no significant changes
in internal controls or other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2002 and 2001
Statements of Income for the years ended December 31, 2002,
2001, and 2000
Statements of Partners' Capital for the years ended December
31, 2002, 2001, and 2000
Statements of Cash Flows for the years ended December 31,
2002, 2001, and 2000
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II -Valuation and Qualifying Accounts for the years
ended December 31, 2002, 2001 and 2000
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2002
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2002
Schedule IV - Mortgage Loans on Real Estate at December 31,
2002
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund 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. (Included
as Exhibit 10.5 to Form 10-Q filed with the Securities
and Exchange Commission on August 14, 2002, and
incorporated herein by reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period October
1, 2002 through December 31, 2002.
(c) Not applicable.
(d) Other Financial Information
The Partnership is required to file audited financial information of
its tenant, Carrols Corporation, as a result of this tenant leasing
more than 20% of the Partnership's total assets for the year ended
December 31, 2002. Carrols Corporation is a public company and as of
the date hereof, had not filed their Form 10-K; therefore, the
financial statements are not available to the Partnership to include in
this filing. The Partnership will file this financial information under
cover of a Form 10-K/A as soon as it is available.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 24th day of
March, 2003.
CNL INCOME FUND IX, LTD.
By:CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE, President
By:ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
By:JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert A. Bourne President, Treasurer and Director March 24, 2003
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 24, 2003
James M. Seneff, Jr. (Principal Executive Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund IX, Ltd. (the
"registrant"), certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior
to the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions): a. all significant
deficiencies in the design or operation of internal controls which
could adversely affect the registrant's ability to record, process,
summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls;
and
b. any fraud, whether or not material, that involves
management or other employees who have a significant role
in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 24, 2003
/s/ James M. Seneff, Jr.
- --------------------------
James M. Seneff, Jr.
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Bourne, President and Treasurer of CNL Realty Corporation,
the corporate general partner of CNL Income Fund IX, Ltd. (the "registrant")
certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 24, 2003
/s/ Robert A. Bourne
- -------------------------
Robert A. Bourne
President and Treasurer
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2002, 2001, and 2000
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
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
2000 Allowance for
doubtful
accounts (a) $ 55,896 $ -- $ 44,281 (b) $ -- $ 17,581 $ 82,596
============== =============== ================ ============= ============ ============
2001 Allowance for
doubtful
accounts (a) $ 82,596 $ 46,688 $ 99,179 (b) $ 213,167 (c) $ -- $ 15,296
============== =============== ================ ============= ============ ============
2002 Allowance for
doubtful
accounts (a) $ 15,296 $ -- $ -- $ 15,296 (c) $ -- $ --
============== =============== ================ ============= ============ ============
(a) Deducted from receivables and accrued rental income on the balance
sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
Initial Cost Acquisition
------------------------ -------------------
Encum- Buildings andImprove- Carrying
brances Land Improvements ments Costs
-------------- ----------- ------------ --------- --------
Properties the Parnership has
Invested in Under
Operating Leases:
Baker's Square Restaurant:
Blaine, Minnesota (g) - $567,339 $790,259 - -
Burger King Restaurants:
Shelby, North Carolina (i- 289,663 554,268 - -
Maple Heights, Ohio - 430,563 454,823 - -
Suwanee, Georgia - 437,659 - - -
Watertown, New York - 360,181 529,594 - -
Carrboro, North Carolina -h) (j) 406,768 523,067 - -
Jackson, Michigan (l) - 419,375 542,055 - -
Capt D's Restaurant
Huntsville, Alabama - 248,976 279,748 - -
Denny's Restaurants:
North Baltimore, Ohio (m)- 133,187 282,219 - -
Golden Corral Family
Steakhouse Restaurants:
Brownsville, Texas - 518,605 988,611 - -
Tyler, Texas - 652,103 982,353 - -
Albany, Georgia - 564,576 1,076,633 - -
Johnnies Restaurant:
Wildwood, Florida (k) - 420,416 451,506 - -
Shoney's Restaurants:
Windcrest, Texas - 445,983 670,370 - -
Grenada, Mississippi - 335,001 454,723 - -
Taco Cabana Restaurants:
Dallas, Texas (n) - 485,612 545,192 - -
----------- ------------ --------- --------
$6,716,007 $9,125,421 - -
=========== ============ ========= ========
Properties of Joint Venture in
Which the Partnership has
a 45.2% Interest and has
Invested in Under
Operating Leases:
Taco Cabana Restaurant:
Dallas, Texas (o) - 633,492 513,931 - -
Burger King Restaurants:
San Antonio, Texas - 350,479 623,615 - -
Raceland, Louisiana - 174,019 986,879 - -
New Castle, Indiana - 264,239 662,265 - -
Hastings, Minnesota - 155,553 657,159 - -
----------- ------------ --------- --------
$1,577,782 $3,443,849 - -
=========== ============ ========= ========
Properties of Joint Venture in
Which the Partnership has
a 50% Interest and has
Invested in Under
Operating Leases:
Burger King Restaurants:
Metairie, Louisiana - 429,883 342,455 - -
Lafayette, Louisiana- 350,932 773,129 - -
Nashua, New Hampshir- 514,815 838,536 - -
Pontiac, Illinois - 203,095 719,226 - -
Dover, New Hampshire- 406,259 998,023 - -
----------- ------------ --------- --------
$1,904,984 $3,671,369 - -
=========== ============ ========= ========
Property of Joint Venture in Which
the Parntership has a 27.33%
Interest and has Invested in
Under an Operating Lease:
Taco Cabana Restaurant:
San Antonio, Texas (-) $695,797 $647,181 - -
=========== ============ ========= ========
Property of Joint Venture in Which
the Parntership has a 60%
Interest and has Invested in
Under an Operating Lease:
Taco Cabana Restaurant:
Katy, Texas (r) - 623,066 418,676 - -
=========== ============ ========= ========
Property in Which the Partnership
has a 67% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Englewood, Colorado - $552,590 - - -
=========== ============ ========= ========
Property in Which the Partnership
has a 29% Interest as
Tenants -in-Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Montgomery, Alabama - $584,126 - - -
=========== ============ ========= ========
Property in Which the Partnership
has a 15.00% Interest as
Tenants -in-Common and has
Invested in Under an Operating
Lease:
Bennigan's Restaurant:
Waldorf, Maryland - $968,984 $1,311,515 - -
=========== ============ ========= ========
Property in Which the Partnership
has a 34% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
IHOP Restaurant:
Buffalo Grove, Illin-is (q) $598,976 - - -
=========== ============ ========= ========
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurant:
Suwanee, Georgia - - $330,541 - -
Hardee's Restaurants:
Millbrook, Alabama - 125,703 541,865 - -
Greenville, Tennessee - 127,449 402,926 - -
Wooster, Ohio - 137,427 537,227 - -
Auburn, Alabama - 85,890 364,269 - -
----------- ------------ --------- --------
$476,469 $2,176,828 - -
=========== ============ ========= ========
Property in Which the Partnership
has a 67% Interest as Tenants-
in-Common and has Invested
In Under a Direct Financing Lease:
IHOP Restaurant:
Englewood, Colorado - - $1,008,839 - -
=========== ============ ========= ========
Property in Which the Partnership
has a 29% Interest as Tenants-
in-Common and has Invested
In Under a Direct Financing Lease:
IHOP Restaurant:
Montgomery, Alabama - - $933,873 - -
=========== ============ ========= ========
Property in Which the Partnership
has a 34% Interest as
Tenants -in-Common and has
Invested in a Direct Financing
Lease:
IHOP Restaurant:
Buffalo Grove, Illin-is (q) - $989,820 - -
=========== ============ ========= ========
Life on Which
Depreciation in
Carried at Close of Period (c) Date Latest Income
- ---------------------------------------
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation structionAcquired Computed
- ------------- ----------- ----------- ----------- ------ ------ ------------
$567,339 $790,259 $1,357,598 $28,537 1970 12/01 (b)
289,663 554,268 843,931 107,228 1985 05/91 (i)
430,563 454,823 885,386 175,533 1980 06/91 (b)
437,659 (f) 437,659 (d) 1991 11/91 (d)
360,181 529,594 889,775 196,603 1986 11/91 (b)
406,768 523,067 929,835 101,192 1983 12/96 (i)
419,375 542,056 961,431 8,091 1994 09/02 (b)
248,977 279,748 528,725 100,963 1989 10/91 (b)
133,187 282,219 415,406 6,108 1986 11/91 (m)
518,605 988,611 1,507,216 380,277 1990 06/91 (b)
652,103 982,353 1,634,456 377,870 1990 06/91 (b)
564,576 1,076,633 1,641,209 136,702 1998 03/99 (b)
259,611 290,701 550,312 28,986 1991 08/91 (k)
445,983 670,370 1,116,353 254,496 1991 08/91 (b)
335,001 454,723 789,724 170,594 1991 09/91 (b)
485,612 545,192 1,030,804 10,600 1997 06/02 (b)
- ------------- ----------- ----------- -----------
$6,555,203 $8,964,617 $15,519,820 $2,083,780
============= =========== =========== ===========
633,492 513,931 1,147,423 9,993 1992 06/02 (b)
350,479 623,615 974,094 234,126 1986 09/91 (b)
174,019 986,879 1,160,898 370,507 1988 09/91 (b)
264,239 662,265 926,504 248,637 1988 09/91 (b)
155,553 657,159 812,712 246,720 1990 09/91 (b)
- ------------- ----------- ----------- -----------
$1,577,782 $3,443,849 $5,021,631 $1,109,983
============= =========== =========== ===========
429,883 342,455 772,338 122,815 1990 03/92 (b)
350,932 773,129 1,124,061 277,267 1989 03/92 (b)
514,815 838,536 1,353,351 300,725 1987 03/92 (b)
203,095 719,226 922,321 257,936 1988 03/92 (b)
406,259 998,023 1,404,282 357,921 1987 03/92 (b)
- ------------- ----------- ----------- -----------
$1,904,984 $3,671,369 $5,576,353 $1,316,663
============= =========== =========== ===========
$695,797 $647,181 $1,342,978 $12,584 1994 06/02 (b)
============= =========== =========== ===========
623,066 418,676 1,041,742 8,141 1994 06/02 (b)
============= =========== =========== ===========
$552,590 (f) $552,590 (d) 1996 07/97 (d)
============= ===========
$584,126 (f) $584,126 (d) 1998 11/99 (d)
============= ===========
$968,984 $1,311,515 $2,280,499 $65,576 2001 07/01 (b)
============= =========== =========== ===========
$598,976 (f) $598,976 (d) 1987 09/02 (d)
============= ===========
- (f) (f) (d) 1991 11/91 (d)
(f) (f) (f) (e) 1991 10/91 (e)
(f) (f) (f) (e) 1991 10/91 (e)
(f) (f) (f) (e) 1991 10/91 (e)
(f) (f) (f) (e) 1991 10/91 (e)
- -------------
-
=============
- (f) (f) (d) 1996 07/97 (d)
=============
- (f) (f) (d) 1998 11/99 (d)
=============
$989,820 (f) (f) (d) 1987 09/02 (d)
=============
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION
December 31, 2002
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 2001, 2000, and 1999 have been adjusted to
reflect the reclassification of properties accounted for as
discontinued operations.
Accumulated
Cost Depreciation
---------------- -----------------
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1999 $ 15,332,108 $ 1,706,721
Dispositions (722,068 ) (30,514 )
Provision for loss (27,392 ) --
Depreciation expense -- 286,839
---------------- -----------------
Balance, December 31, 2000 14,582,648 1,963,046
Acquisition 1,357,598 --
Dispositions (1,175,816 ) (139,995 )
Reclassified to operating lease 451,506 --
Depreciation expense -- 290,560
---------------- -----------------
Balance, December 31, 2001 15,215,936 2,113,611
Acquisitions 1,992,232 --
Dispositions (1,648,958 ) (337,441 )
Provision for loss (321,609 ) --
Reclassified to operating lease 282,219 --
Depreciation expense -- 307,610
---------------- -----------------
Balance, December 31, 2002 $ 15,519,820 $ 2,083,780
================ =================
Property of Joint Venture in Which the Partnership
has a 45.2% Interest and has Invested in Under
an Operating Lease:
Balance, December, 31, 1999 $ 3,874,208 $ 806,998
Depreciation expense -- 97,664
---------------- -----------------
Balance, December 31, 2000 3,874,208 904,662
Depreciation expense -- 97,664
---------------- -----------------
Balance, December 31, 2001 3,874,208 1,002,326
Acquisitions 1,147,423 --
Depreciation expense -- 107,657
---------------- -----------------
Balance, December 31, 2002 $ 5,021,631 $ 1,109,983
================ =================
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
Accumulated
Cost Depreciation
---------------- ----------------
Properties of Joint Venture in Which the
Partnership has a 50% Interest and has Invested
in Under Operating Leases:
Balance, December 31, 1999 $ 5,576,353 $ 949,526
Depreciation expense -- 122,379
---------------- ----------------
Balance, December 31, 2000 5,576,353 1,071,905
Depreciation expense -- 122,379
---------------- ----------------
Balance, December 31, 2001 5,576,353 1,194,284
Depreciation expense -- 122,379
---------------- ----------------
Balance, December 31, 2002 $ 5,576,353 $ 1,316,663
================ ================
Property of Joint Venture in Which the
Partnership has a 27.33% Interest and has
Invested in Under an Operating Lease:
Balance, December 31, 2001 (s) $ -- $ --
Acquisition 1,342,978 --
Depreciation expense -- 12,584
---------------- ----------------
Balance, December 31, 2002 $ 1,342,978 $ 12,584
================ ================
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
Accumulated
Cost Depreciation
----------------- -----------------
Property in Which the Partnership has a 67%
Interest as Tenants-in-Common and has Invested
in Under an Operating Lease:
Balance, December 31, 1999 $ 552,590 $ --
Depreciation expense (d) -- --
----------------- -----------------
Balance, December 31, 2000 552,590 --
Depreciation expense (d) -- --
----------------- -----------------
Balance, December 31, 2001 552,590 --
Depreciation expense (d) -- --
----------------- -----------------
Balance, December 31, 2002 $ 552,590 $ --
================= =================
Property in Which the Partnership has a 29%
Interest as Tenants-in-Common and has Invested in
Under an Operating Lease:
Balance, December 31, 1999 $ -- $ --
Acquisition 584,126 --
Depreciation expense (d) -- --
----------------- -----------------
Balance, December 31, 2000 584,126 --
Depreciation expense (d) -- --
----------------- -----------------
Balance, December 31, 2001 584,126 --
Depreciation expense (d) -- --
----------------- -----------------
Balance, December 31, 2002 $ 584,126 $ --
================= =================
Property in Which the Partnership has a 34%
Interest as Tenants-in-Common and has Invested in
Under an Operating Lease:
Balance, December 31, 2001 (j) $ -- $ --
Acquisition (q) 598,976 --
Depreciation expense (d) -- --
----------------- -----------------
Balance, December 31, 2002 $ 598,976 $
--
================= =================
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
Accumulated
Cost Depreciation
----------------- -----------------
Property in Which the Partnership has a 15.00%
Interest as Tenants-in-Common and has Invested
in Under an Operating Lease:
Balance, December 31, 2000 $ -- $ --
Acquisition 2,280,499 --
Depreciation expense -- 21,859
----------------- -----------------
Balance, December 31, 2001
2,280,499 21,859
Depreciation expense -- 43,717
----------------- -----------------
Balance, December 31, 2002 $ 2,280,499 $ 65,576
================= =================
Property of Joint Venture in Which the Partnership
has a 60.00% Interest and has Invested in Under
an Operating Lease
Balance, December 31, 2001 $ -- $ --
Acquisition 1,041,742 --
Depreciation expense -- 8,141
----------------- -----------------
Balance, December 31, 2002 $ 1,041,742 $ 8,141
================= =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2002, the aggregate cost of the Properties owned by
the Partnership and joint ventures for federal income tax purposes was
$18,878,784 and $19,312,602, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
(d) The portion of the lease relating to the building has been recorded as
a direct financing lease. The cost of the building has been included in
net investment in direct financing leases; therefore, depreciation is
not applicable.
(e) The lease for the 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) During the year ended December 31, 2001, the Partnership purchased a
real estate Property from CNL Funding 2001-A, LP, an affiliate of the
General Partners, for an aggregate cost of approximately $1,357,600.
(h) This Property was exchanged for a Burger King Property previously owned
and located in Woodmere, Ohio, during 1996.
(i) Effective August 1, 1998, the lease for this Property was amended,
resulting in the reclassification of the building portion of the lease
to an operating lease. The building was recorded at net book value as
of August 1, 1998, and is being depreciated over its remaining
estimated life of approximately 22 years.
(j) During the year ended December 31, 2000, the Partnership and an
affiliate of the General Partners, as tenants-in-common, purchased a
real estate Property from CNL BB Corp., an affiliate of the General
Partners, for an aggregate cost of approximately $1,454,600. In
September 2002, the Partnership and the affiliate sold this Property.
As a result, the assets relating to the Property were reclassified from
real estate with operating leases to real estate held for sale.
(k) Effective July 16, 2001, the lease for this Property was terminated,
resulting in the reclassification of the building portion of the lease
to an operating lease. The building was recorded at net book value as
of July 16, 2001, and is being depreciated over its remaining estimated
life of approximately 20 years.
(l) During the year ended December 31, 2002, the Partnership purchased a
real estate Property from CNL Net Lease Investors, LP, an affiliate of
the General Partners, for an aggregate cost of approximately $961,400.
(m) Effective August 1, 2002, the lease for this Property was amended,
resulting in the reclassification of the building portion of the lease
to an operating lease. The building was recorded at net book value as
of August 1, 2002, and is being depreciated over its remaining
estimated life of approximately 19 years.
(n) During the year ended December 31, 2002, the Partnership purchased a
real estate Property from CNL Funding 2001-A, LP, an affiliate of the
General Partners, for an aggregate cost of approximately $1,030,800.
(o) During the year ended December 31, 2002, CNL Restaurant Investments II,
in which the Partnership owns a 45.2% interest, purchased a real estate
Property from CNL Funding 2001-A, LP, an affiliate of the General
Partners, for an aggregate cost of approximately $1,147,400.
(p) During the year ended December 31, 2002, Ashland Joint Venture, in
which the Partnership owns 27.33% interest, purchased a real estate
Property from CNL Funding 2001-A, LP, an affiliate of the General
Partners, for an aggregate cost of approximately $1,343,000.
(q) During the year ended December 31, 2002, the Partnership and an
affiliate purchased a real estate Property from CNL Net Lease
Investors, LP, an affiliate of the General Partners, for an aggregate
cost of approximately $1,588,800.
(r) During the year ended December 31, 2002, Katy Joint Venture, in which
the Partnership owns a 60% purchased a real estate Property from CNL
Funding 2001-A, LP, an affiliate of the General Partners, for an
aggregate cost of approximately $1,041,800.
(s) In June 2002, Ashland Joint Venture, in which the Partnership owns a
27.33% interest, sold its Property in Ashland, New Hampshire. As a
result, the joint venture reclassified the assets relating to this
Property from real estate with operating leases to real estate held for
sale.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2002
Principal
Amount
of Loans
Subject to
Carrying Delinquent
Final Periodic Face Amount of Principal or
Interest Maturity Payment Prior Amount of Mortgages Description
Rate Date Terms Liens Mortgages (1) Interest
----------- ------------------ --------- ------- ------------ --------------- --------------
Denny's-
Alliance, OH
First Mortgage 9.00% December 2008 (2) $ -- $ 200,000 $ 185,741 $ --
======== ============ =============== ==============
Denny's-
Bluffton, OH
First Mortgage 9.00% December 2008 (3) $ -- $ 300,000 $ 278,611 $ --
======== ============ =============== ==============
(1) Carrying amount consists of outstanding principal plus accrued
interest. The tax carrying value of the notes are $464,352.
(2) Monthly payments of principal and interest at an annual rate of
9.00% with a balloon payment at maturity of $123,102.
(3) Monthly payments of principal and interest at an annual rate of
9.00%, with a balloon payment at maturity of $184,652.
(4) The changes in the carrying amounts are summarized as follows:
2002 2001 2000
--------------- ---------------- ----------------
Balance at beginning of period $ 482,406 $ 503,838 $ --
New mortgage loans -- -- 500,000
Interest earned 42,802 44,496 3,838
Collection of principal and interest (60,856 ) (65,928 ) --
--------------- ---------------- ----------------
Balance at end of period $ 464,352 $ 482,406 $ 503,838
=============== ================ ================
EXHIBIT INDEX
Exhibit Number
(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. (Included as Exhibit 10.5 to
Form 10-Q filed with the Securities and Exchange Commission
on August 14, 2002, and incorporated herein by reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
EXHIBIT 99.1
EXHIBIT 99.2