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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, 2003
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20017
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, 2000, the Partnership owned 22 Properties directly
and 17 Properties indirectly through joint venture or tenancy in common
arrangements. During the year ended December 31, 2001, the Partnership sold its
Properties in Bedford, Indiana and 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 and Farragut,
Tennessee, and the Property in Libertyville, Illinois, which was held with an
affiliate of the General Partners as tenants-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 used the return of capital to meet working
capital needs. During 2003, the Partnership sold its Property in Grand Prairie,
Texas and intends to use the proceeds to pay liabilities of the Partnership or
to invest them in an additional Property. As of December 31, 2003, the
Partnership owned 20 Properties directly and 16 Properties indirectly through
joint venture or tenancy in common arrangements. In February 2004, the
Partnership sold its Property in Wildwood, Florida and intends to use the
proceeds to invest in an additional Property or to pay liabilities of the
Partnership.
The Partnership holds its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners consider factors such as potential capital
appreciation, net cash flow and federal income taxes. Certain lessees also have
been granted options to purchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property purchase options
granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership, 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
successive five-year renewal options subject to the same terms and conditions as
the initial lease. Lessees of 24 of the Partnership's 36 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 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 February 2004, the Partnership sold its Property in Wildwood,
Florida.
Major Tenants
During 2003, three 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) Burger King Corporation and BK Acquisition, Inc. (which are
affiliated entities under common control) (hereinafter referred to as Burger
King Corp.) and (iii) Golden Corral Corporation, each contributed more than ten
percent of total rental revenues and mortgage interest income (including the
Partnership's share of total rental revenues from joint ventures and Properties
owned as tenants-in-common). As of December 31, 2003, Carrols Corp. was the
lessee under leases relating to nine 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 total rental revenues in 2004. In
addition, two Restaurant Chains, Burger King, and Golden Corral Buffet and Grill
("Golden Corral"), each accounted for more than ten percent of total rental
revenues and mortgage interest during 2003 (including the Partnership's share of
the total rental revenues from joint ventures and Properties owned as
tenants-in-common). In 2004, it is anticipated that these two Restaurant Chains
each will continue to account for more than ten percent of the total rental
revenues to which the Partnership is entitled under the terms of its leases. Any
failure of these lessees or Restaurant Chains will materially affect the
Partnership's operating results if the Partnership is not able to re-lease the
Properties in a timely manner. As of December 31, 2003, 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, 2003:
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
entity or the Property. 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 entity or the Property.
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 or assign its 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 a portion of these proceeds to acquire an interest in Katy Joint
Venture, with CNL Income Fund XVII, Ltd. 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. (the "Advisor") an affiliate of the General
Partners, provides certain services relating to management of the Partnership
and its Properties pursuant to a management agreement with the Partnership.
Under this agreement, the Advisor is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices, and providing
information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross 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.
During 2003, CNL Capital Management, Inc., ("CCM"), a wholly owned
subsidiary of CNL Financial Group, Inc., began providing certain strategic
advisory services to the General Partners relative to the Partnership's
business. CCM is not reimbursed for these services by the Partnership. CCM also
began providing some accounting and portfolio management services to the
Partnership during 2003, through a subcontract with the Advisor.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation, the officers and employees of CNL Restaurant Properties, Inc.
(formerly CNL American Properties Fund, Inc.), the parent company of the
Advisor, and the officers and employees of CCM perform certain services for the
Partnership. In addition, the General Partners have available to them the
resources and expertise of the officers and employees of CNL Financial Group,
Inc., a diversified real estate company, and its affiliates, who may also
perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2003, the Partnership owned 36 Properties. Of the 36
Properties, 20 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.
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, 2003 by state.
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 8
-------------------------
TOTAL PROPERTIES 36
=========================
Buildings. Each of the Properties includes a building that is one of a
Restaurant Chain's approved designs. The buildings generally are rectangular and
are constructed from various combinations of stucco, steel, wood, brick and
tile. Building sizes range from approximately 2,100 to 10,600 square feet. All
buildings on Properties are freestanding and surrounded by paved parking areas.
Buildings are suitable for conversion to various uses, although modifications
may be required prior to use for other than restaurant operations. As of
December 31, 2003, the Partnership had no plans for renovation of the
Properties. Depreciation expense is computed for buildings and improvements
using the straight line method using a depreciable life of 40 years for federal
income tax purposes.
As of December 31, 2003, the aggregate cost of the Properties owned by
the Partnership and joint ventures (including Properties owned through tenancy
in common arrangements) for federal income tax purposes was $18,379,440 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, 2003 by Restaurant Chain.
Restaurant Chain Number of Properties
Baker's Square 1
Bennigan's 1
Burger King 15
Captain D's 1
Denny's 1
Golden Corral 3
Hardee's 4
IHOP 3
Johnnies 1
Shoney's 2
Taco Cabana 4
-----
TOTAL PROPERTIES 36
=====
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
Restaurant Chains. The leases are generally on a long-term "triple net" basis,
meaning that the tenant is responsible for repairs, maintenance, property taxes,
utilities and insurance.
The following is a schedule of the average rent per Property and
occupancy rate for the years ended December 31:
2003 2002 2001 2000 1999
------------- ------------- --------------- -------------- --------------
Rental Revenues (1)(2) $ 2,779,323 $ 2,883,076 $ 2,805,847 $ 3,104,235 $3,168,448
Properties (2) 34 34 37 40 42
Average Rent per
Property $ 81,745 $ 84,796 $ 75,834 $ 77,606 $ 75,439
Occupancy rate 94% 92% 95% 100% 98%
(1) Rental revenues include 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, 2003, for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
Year of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2004 -- -- --
2005 6 $ 472,993 17.19%
2006 8 564,535 20.52%
2007 -- -- --
2008 -- -- --
2009 -- -- --
2010 -- -- --
2011 9 738,397 26.84%
2012 -- -- --
2013 -- -- --
Thereafter 11 974,978 35.45%
---------- ------------------ -------------
Total (1) 34 $ 2,750,903 100.00%
========== ================== =============
(1) Excludes two Properties which were vacant at December 31, 2003, one of
which was sold in February 2004.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2003 (see Item 1. Business -
Major Tenants) are substantially the same as those described in Item 1. Business
- - Leases.
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).
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 $73,800 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, nor any affiliate of
the Partnership, nor any of their respective Properties, is party to, or subject
to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 12, 2004, there were 3,368 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. During 2003, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), may have done so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units. From
inception through December 31, 2003, the price 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 2003 and 2002 other than
pursuant to the Plan, net of commissions.
2003 (1) 2002 (1)
------------------------------------- -----------------------------------
High Low Average High Low Average
--------- -------- ----------- --------- --------- ----------
First Quarter $ 9.49 $ 5.35 $ 8.65 $ 9.00 $ 6.00 $ 6.81
Second Quarter 9.50 5.35 8.20 7.30 6.80 7.08
Third Quarter 9.50 6.68 8.89 7.80 7.14 7.44
Fourth Quarter 9.50 8.20 8.68 10.62 7.28 8.59
(1) A total of 47,983 and 17,811 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2003 and 2002,
respectively.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed the partners pursuant to the provisions of the
Partnership Agreement.
For each of the years ended December 31, 2003 and 2002, the Partnership
declared cash distributions 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 2003 and 2002 to the Limited Partners. No amounts distributed to
the Limited Partners for the years ended December 31, 2003 and 2002, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the Limited Partners' return on their adjusted
capital contributions. No distributions have been made to the General Partners
to date. 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.
2003 2002 2001 2000 1999
----------------- --------------- --------------- --------------- -------------
Year ended December 31:
Continuing Operations (5):
Revenues $ 1,939,207 $ 1,947,240 $ 2,064,725 $ 2,253,222 $2,202,314
Equity in earnings of
unconsolidated joint ventures 694,916 1,199,146 753,457 674,930 606,337
Income from continuing
operations (1) (2) 1,894,591 2,896,894 2,440,164 1,629,739 2,135,165
Discontinued Operations (5):
Revenues -- 111,459 97,216 246,105 274,046
Income (loss) from and gain on
disposal of
discontinued
operations (3)(4) (32,096 ) (167,929 ) (448,258 ) 221,041 249,902
Net income 1,862,495 2,728,965 1,991,906 1,850,780 2,385,067
Income (loss) per Unit:
Continuing operations $ 0.54 $ 0.83 $ 0.70 $ 0.47 $ 0.61
Discontinued operations (0.01 ) (0.05 ) (0.13 ) 0.06 0.07
----------------- --------------- --------------- --------------- -------------
$ 0.53 $ 0.78 $ 0.57 $ 0.53 $ 0.68
================= =============== =============== =============== =============
Cash distribution declared $ 3,150,004 $ 3,150,004 $ 3,150,004 $ 3,150,004 $3,150,004
Cash distributions declared per
Unit 0.90 0.90 0.90 0.90 0.90
At December 31:
Total assets $ 25,181,752 $26,450,142 $26,859,177 $ 28,132,613 $29,443,276
Total partners' capital 24,283,111 25,570,620 25,991,659 27,149,757 28,448,981
(1) Income from continuing operations includes $60,219 for the year ended
December 31, 2002, 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 (loss) from and gain on disposal of discontinued operations
includes $380,068 and $462,925, for the years ended December 31, 2002
and 2001, respectively, from provisions for write-down of assets.
(4) Income (loss) from and gain on disposal of discontinued operations
includes $288 and $185,632 from gain on disposal of discontinued
operations for the years ended December 31, 2003 and 2002,
respectively.
(5) Certain items in the prior years' financial data have been reclassified
to conform to the 2003 presentation. This reclassification had no
effect on net income. The results of operations relating to properties
that were identified for sale as of December 31, 2001 but sold
subsequently are reported as continuing operations. The results of
operations relating to properties that were either identified for sale
and disposed of subsequent to January 1, 2002 or were classified as
held for sale as of December 31, 2003 are reported as discontinued
operations for all periods presented.
Item 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
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, 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. As of December 31, 2003, the Partnership owned 20 Properties
directly and 16 Properties indirectly through joint venture or tenancy in common
arrangements.
Capital Resources
Cash from operating activities was $ 2,432,498, $2,656,608, and
$2,835,733, for the years ended December 31, 2003, 2002, and 2001, respectively.
The decrease in cash from operating activities during 2003, as compared to the
previous year, was a result of changes in income and expenses, such as changes
in rental revenues and changes in operating and Property related expenses. The
decrease in cash from operating activities during 2002, as compared to 2001, was
a result of changes in income and expenses, such as changes in rental revenues
and changes in operating and Property related expenses, and changes in the
Partnership's working capital, such as the timing of transactions relating to
the collection of receivables and the payment of expenses.
Other sources and uses of cash included the following during the years
ended December 31, 2003, 2002, and 2001.
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, 2003 and 2002
was $442,550 and $464,352, respectively, including accrued interest of $2,051
and $3,572, respectively. In January 2004, the Partnership received a balloon
payment of approximately $175,800 relating to the mortgage note receivable from
the sale of the property in Alliance, Ohio. This amount represented, and was
applied to the outstanding principal balance.
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 and carry 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,
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 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 either pay liabilities or 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 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. The Partnership 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 Taco Cabana 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 and carry 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.
In September 2002, the Partnership and CNL Income Fund VIII, Ltd., as
tenants-in-common, sold the Property in Libertyville, Illinois to a third party
and received net sales proceeds of approximately $1,630,400, resulting in a gain
of approximately $199,300 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. The Partnership contributed approximately
$540,200 for a 34% interest in the profits and losses of this Property.
During 2003, the Partnership sold its Property in Grand Prairie, Texas,
to a third party and received net sales proceeds of approximately $286,500,
resulting in a gain on disposal of discontinued operations of approximately
$300. The Partnership had recorded provisions for write-down of assets in
previous years relating to this asset. The Partnership intends to use these
proceeds to pay liabilities of the Partnership or to invest in an additional
Property.
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.
At December 31, 2003, the Partnership had $1,502,461 invested in cash
and cash equivalents, as compared to $1,913,142 at December 31, 2002. At
December 31, 2003, these funds were held in demand deposit accounts at
commercial banks and money market accounts. As of December 31, 2003, the average
interest rate earned on the rental income deposited in demand deposit accounts
at commercial banks was less than one percent annually. The funds remaining at
December 31, 2003, after the payment of distributions and other liabilities will
be used to invest in an additional Property and to meet the Partnership's
working capital needs.
In December 2003, the Partnership entered into an agreement to sell the
Property in Wildwood, Florida. In February 2004, the Partnership sold this
Property to a third party and received approximately $526,400 in net sales
proceeds, resulting in a gain on disposal of discontinued operations of
approximately $12,100. The Partnership intends to either reinvest these proceeds
in an additional Property or to pay liabilities of the Partnership.
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, and for the year ended
December 31, 2003, a portion of the sales proceeds from the 2002 sale of the
Property in Farragut, Tennessee, the Partnership declared distributions to the
Limited Partners of $3,150,004, for each of the years ended December 31, 2003,
2002, and 2001, respectively. This represents a distribution of $0.90 per Unit
for each of the years ended December 31, 2003, 2002, and 2001, respectively. No
distributions were made to the General Partners during the years ended December
31, 2003, 2002, and 2001. No amounts distributed to the Limited Partners for the
years ended December 31, 2003, 2002, or 2001, are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the Limited Partners' return on their adjusted capital contributions. The
Partnership intends to continue to make distributions of cash available for
distribution to the Limited Partners on a quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the general
partners were not allocated any net income during the years ended December 31,
2003, 2002, and 2001.
As of December 31, 2003 and 2002, the Partnership owed $12,465 and
$16,426, respectively, to affiliates for operating expenses and accounting and
administrative services. As of March 12, 2004, the Partnership had reimbursed
the affiliates these amounts. Other liabilities, including distributions
payable, were $886,176 at December 31, 2003, as compared to $863,096 at December
31, 2002. The General Partners believe the Partnership has sufficient cash on
hand to meet current working capital needs.
Off-Balance Sheet Transactions
The Partnership holds interests in various unconsolidated joint venture
and tenancy in common arrangements that are accounted for using the equity
method. The General Partners do not believe that any such interest would
constitute an off-balance sheet arrangement requiring any additional disclosures
under the provisions of the Sarbanes-Oxley Act of 2002.
Contractual Obligations, Contingent Liabilities, and Commitments
In December 2003, the Partnership entered into an agreement to sell the
Property in Wildwood, Florida. The Partnership sold this Property in February
2004.
The Partnership has no contractual obligations or contingent
liabilities as of December 31, 2003.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Financial Accounting Standards 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.
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 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.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Accordingly, when the Partnership makes the
decision to sell or commits to a plan to sell a Property within one year, its
operating results are reported as discontinued operations.
Results of Operations
Comparison of year ended December 31, 2003 to year ended December 31, 2002
Rental revenues from continuing operations were $1,825,743 during the
year ended December 31, 2003, as compared to $1,841,581 during the same period
of 2002. The decrease in rental revenues from continuing operations was
partially due to the tenant of the Property in North Baltimore, Ohio terminating
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 a replacement tenant for this Property. The lost revenues resulting from
the vacant Property will continue to have an adverse effect on the results of
operations of the Partnership, until the Partnership is able to re-lease it. The
decrease in revenues from continuing operations during the year ended December
31, 2003, was also the result of the Partnership's sale of two Properties during
2002. This decrease was offset by the reinvestment of the sales proceeds in two
additional Properties in June and September 2002.
The Partnership also earned $66,361 in contingent rental income during
the year ended December 31, 2003, as compared to $37,146 during the same period
of 2002. The increase in contingent rental income during the year ended December
31, 2003, was primarily due to an increase in the reported gross sales of the
restaurants with leases that require the payment of contingent rental income.
The Partnership also earned $694,916 in income attributable to net
income earned by joint ventures in which the Partnership is a co-venturer during
the year ended December 31, 2003, as compared to $1,199,146 during the same
period of 2002. 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 Partnership received a portion of these
sales proceeds as a return of capital. The joint ventures of the Partnership
reinvested the majority of these net sales proceeds in other Properties during
2002.
During 2003, three of the Partnership's lessees, Carrols Corp., Burger
King Corp., and Golden Corral Corporation, each contributed more than ten
percent of total rental revenues and mortgage interest income (including the
Partnership's share of total rental revenues from joint ventures and Properties
owned as tenants-in-common). As of December 31, 2003, Carrols Corp. was the
lessee under leases relating to nine 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 total rental revenues in 2004. In
addition, two Restaurant Chains, Burger King, and Golden Corral, each accounted
for more than ten percent of total rental revenues and mortgage interest during
2003 (including the Partnership's share of the total rental revenues from joint
ventures and Properties owned as tenants-in-common). In 2004, it is anticipated
that these two Restaurant Chains each will continue to account for more than ten
percent of the total rental revenues to which the Partnership is entitled under
the terms of its leases. Any failure of these lessees or Restaurant Chains will
materially affect the Partnership's operating results if the Partnership is not
able to re-lease the Properties in a timely manner.
The Partnership earned $47,103 in interest and other income during the
year ended December 31, 2003, as compared to $68,513 during the same period of
2002. Interest and other income was higher during 2002 because the Partnership
collected and recognized as income approximately $16,800 relating to a
right-of-way taking for a parcel of land on the Millbrook, Alabama Property.
Operating expenses including depreciation and amortization expense and
provision for write-down of assets, were $739,532 during the year ended December
31, 2003, as compared to $705,635 during the same period of 2002. Operating
expenses were higher during the year ended December 31, 2003, because the
Partnership incurred Property expenses such as legal fees, real estate taxes,
insurance and repairs and maintenance relating to the vacant Property in North
Baltimore, Ohio. The Partnership will continue to incur these expenses until the
Property is re-leased. In addition, the increase in operating expenses 2003 was
partially due to an increase in state tax expense relating to several states in
which the Partnership conducts business. The increase in operating expenses was
partially offset by the fact that during 2002, the Partnership elected to
reimburse the tenant of the Property in Brownsville, Texas for certain
renovation costs. During the year ended December 31, 2002, the Partnership
recorded a provision for write-down of assets of approximately $60,200 relating
to the vacant Property in North Baltimore, Ohio. The tenant vacated the
Property, as described above. The provision represented the difference between
the net carrying value of the Property and its estimated fair value.
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. Because these Properties were identified for
sale as of December 31, 2001, prior to the January 2002 implementation of
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", the results of operations relating
to these Properties were included as Income from Continuing Operations in the
accompanying financial statements.
During the year ended December 31, 2002, the Partnership identified for
sale two Properties that were classified as Discontinued Operations in the
accompanying financial statements. In addition, in July 2003, the Partnership
identified for sale its Property in Wildwood, Florida. As a result, the
Partnership reclassified the asset 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. The Partnership
recognized a net rental loss (Property related expenses and provisions for
write-down of assets in excess of rental revenues) of $32,384 and $353,561
during the years ended December 31, 2003 and 2002, respectively. The net rental
loss during the year ended December 31, 2002, was a result of the Partnership
recording provisions for write-down of assets of approximately $321,600 and
$58,500 relating to the vacant Properties in Wildwood, Florida and Grand
Prairie, Texas, respectively. The provisions represented the difference between
each Property's net carrying value and its estimated fair value. The Partnership
sold its Property in Farragut, Tennessee in December 2002 and recorded a gain on
disposal of discontinued operations of approximately $185,600. In February 2003,
the Partnership sold the Property located in Grand Prairie, Texas, and recorded
a gain on disposal of discontinued operations of approximately $300. In February
2004, the Partnership sold the Property in Wildwood, Florida to a third party,
resulting in a gain on disposal of discontinued operations of approximately
$12,100.
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 that were classified as Discontinued Operations in the
condensed financial information for the joint ventures presented in the
footnotes to the accompanying financial statements. The sales resulted in a net
gain on disposal of discontinued operations 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. In addition, in October 2003, CNL Restaurant
Investments II identified for sale its property in San Antonio, Texas and
reclassified the asset 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. As of March 12, 2004, the sale
had not occurred. The financial results of these Properties were classified as
Discontinued Operations in the condensed financial information for the joint
ventures 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 unconsolidated joint ventures in the accompanying financial
statements.
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Rental revenues from continuing operations were $1,841,581 during the
year ended December 31, 2002, as compared to $1,881,955 during the same period
of 2001. The decrease in rental revenues from continuing operations 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 from continuing operations during 2002 were also
lower because 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, as described above.
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 $30,503 during the same period
of 2001. Contingent rental income was higher during 2002, as a result of an
increase in reported gross sales of certain restaurant Properties requiring the
payment of contingent rental income. The Partnership also earned $68,513 in
interest and other income during the year ended December 31, 2002, as compared
to $88,782 during the same period of 2001. The decrease in interest and other
income during 2002 was primarily a result of lower interest rates during 2002 as
compared to 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 three of the joint ventures and a tenancy in common in which the
Partnership is a co-venturer, sold five Properties, resulting in a net gain of
$1,330,172 to the joint ventures and the tenancy in common, as described above.
During 2002, the majority of these net sales proceeds were reinvested, either by
the joint ventures or Partnership in other Properties, as described above.
Operating expenses including depreciation and amortization expense and
provision for write-down of assets, were $705,635 during the year ended December
31, 2002, as compared to $676,813 during the same period of 2001. Operating
expenses were higher during 2002 partially because the Partnership recorded a
provision for write-down of assets of approximately $60,200 relating to the
vacant Property North Baltimore, Ohio, as described above. 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 Property in North Baltimore, Ohio. The Partnership will continue to incur
these expenses until the Property is re-leased. The increase in operating
expenses during 2002 was partially offset by a decrease in the costs incurred
for administrative expenses for servicing the Partnership and its Properties.
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. Because these Properties were identified for
sale as of December 31, 2001, prior to the January 2002 implementation of
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets", the results of operations relating
to these Properties were included as Income from Continuing Operations in the
accompanying financial statements. In connection with the sales of the
Properties in Bedford, Indiana and Copley Township, Ohio, the Partnership
recognized a net gain of approximately $298,800 during 2001.
During the year ended December 31, 2002, the Partnership identified for
sale two Properties that were classified as Discontinued Operations in the
accompanying financial statements. In addition, in July 2003, the Partnership
identified for sale its Property in Wildwood, Florida. As a result, the
Partnership reclassified the asset 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 February 2004,
the Partnership sold the Property located in Wildwood, Florida, as described
above. The Partnership recognized a net rental loss (Property related expenses
and provisions for write-down of assets in excess of rental revenues) of
$353,561 and $448,258 during the years ended December 31, 2002 and 2001,
respectively. The net rental loss during the year ended December 31, 2002, was a
result of the Partnership recording provisions for write-down of assets, as
described above. The net rental loss during the year ended December 31, 2001,
was a result of the Partnership recording provisions for write-down of assets of
approximately $400,800 and $62,100 relating to the vacant Properties in
Wildwood, Florida and Grand Prairie, Texas, respectively. The provisions
represented the difference between each Property's net carrying value and its
estimated fair value. The Partnership sold its Property in Farragut, Tennessee
in December 2002 and recorded a gain on disposal of discontinued operations of
approximately $185,600. In February 2003, the Partnership sold the Property
located in Grand Prairie, Texas, as described above.
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 that were classified as Discontinued Operations in the
condensed financial information for the joint ventures presented in the
footnotes to the accompanying financial statements, as described above. In
addition, in October 2003, CNL Restaurant Investments II identified for sale its
property in San Antonio, Texas, as described above. The financial results of
these Properties were classified as Discontinued Operations in the condensed
financial information for the joint ventures 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.
The General Partners continuously evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the Limited
Partners.
The Partnership's leases as of December 31, 2003, 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, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting guidance
that addresses when a company should include the assets, liabilities and
activities of another entity in its financial statements. To improve financial
reporting by companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that company is
subject to a majority risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. Prior to FIN 46, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. In December 2003, the FASB issued FASB Interpretation No. 46R
("FIN 46R"), to clarify some of the provisions of FIN 46. Under FIN 46R, special
effective date provisions apply to entities that have fully or partially applied
FIN 46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public entities, other than small
business issuers, for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. The Partnership
did not fully or partially apply FIN 46 prior to the issuance of FIN 46R. Also,
the Partnership does not have interests in structures commonly referred to as
special-purpose entities. Therefore, application of FIN 46R is required in the
Partnership's financial statements for periods ending after March 15, 2004. The
General Partners believe adoption of this standard may result in either
consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint ventures, which are currently accounted for under the
equity method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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, 2003, 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 mortgage notes with fixed rates that are sensitive to these
changes. In January 2004, the Partnership received a balloon payment of
approximately $175,800 relating to the mortgage note receivable from the 2000
sale of the Property in Alliance, Ohio. This amount represented, and was
applied, to the outstanding principal balance.
Principal
------------------
2004 $ 188,625
2005 14,113
2006 15,456
2007 16,926
2008 19,897
Thereafter 185,482
----------------
$ 440,499
================
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, 2003 and 2002, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under item 15(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
March 24, 2004
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2003 2002
--------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 12,602,859 $ 12,914,715
Net investment in direct financing leases 2,360,084 2,444,483
Real estate held for sale 514,293 807,581
Investment in joint ventures 7,229,491 7,337,667
Mortgage notes receivable 442,550 464,352
Cash and cash equivalents 1,502,461 1,913,142
Receivables 36,055 31,471
Due from related parties -- 6,265
Accrued rental income 464,175 505,561
Other assets 29,784 24,905
--------------------- -------------------
$ 25,181,752 $ 26,450,142
===================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 10,506 $ 25,394
Real estate taxes payable 8,231 7,978
Distributions payable 787,501 787,501
Due to related parties 12,465 16,426
Rents paid in advance and deposits 79,938 42,223
--------------------- -----------------------
Total liabilities 898,641 879,522
Commitments (Note 12)
Partners' capital 24,283,111 25,570,620
--------------------- -----------------------
$ 25,181,752 $ 26,450,142
===================== =======================
See accompanying notes to financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year ended December 31,
2003 2002 2001
--------------- ---------------- ---------------
Revenues:
Rental income from operating leases $ 1,560,665 $ 1,533,555 $ 1,505,656
Earned income from direct financing leases 265,078 308,026 376,299
Contingent rental income 66,361 37,146 30,503
Lease termination income -- -- 63,485
Interest and other income 47,103 68,513 88,782
--------------- ---------------- ---------------
1,939,207 1,947,240 2,064,725
--------------- ---------------- ---------------
Expenses:
General operating and administrative 248,153 257,230 337,190
Property related 118,046 54,672 23,192
State and other taxes 61,477 43,648 35,739
Depreciation and amortization 311,856 289,866 280,692
Provision for write-down of assets -- 60,219 --
--------------- ---------------- ---------------
739,532 705,635 676,813
--------------- ---------------- ---------------
Income before gain on sale of assets and equity in earnings
of unconsolidated joint ventures 1,199,675 1,241,605 1,387,912
Gain on sale of assets -- 456,143 298,795
Equity in earnings of unconsolidated joint ventures 694,916 1,199,146 753,457
--------------- ---------------- ---------------
Income from continuing operations 1,894,591 2,896,894 2,440,164
--------------- ---------------- ---------------
Discontinued operations:
Loss from discontinued operations (32,384 ) (353,561 ) (448,258 )
Gain on disposal of discontinued operations 288 185,632 --
--------------- ---------------- ---------------
(32,096 ) (167,929 ) (448,258 )
--------------- ---------------- ---------------
Net income $ 1,862,495 $ 2,728,965 $ 1,991,906
=============== ================ ===============
Income (loss) per limited partner unit
Continuing operations $ 0.54 $ 0.83 $ 0.70
Discontinued operations (0.01 ) (0.05 ) (0.13 )
--------------- ---------------- ---------------
$ 0.53 $ 0.78 $ 0.57
=============== ================ ===============
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, 2003, 2002 and 2001
General Partners Limited Partners
--------------------------------- ----------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
--------------- --------------- ---------------- ---------------- ----------------
Balance, December 31, 2000 $ 1,000 $ 237,417 $ 35,000,000 $ (29,360,599 ) $ 25,461,939
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
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
Distributions to limited
partners ($0.90 per limited
partner unit) -- -- -- (3,150,004 ) --
Net income -- -- -- -- 1,862,495
--------------- --------------- ---------------- ---------------- ----------------
Balance, December 31, 2003 $ 1,000 $ 237,417 $ 35,000,000 $ (38,810,611 ) $ 32,045,305
=============== =============== ================ ================ ================
See accompanying notes to financial statements.
- --------------
Syndication
Costs Total
- -------------- --------------
$ (4,190,000 ) $ 27,149,757
-- (3,150,004 )
-- 1,991,906
- -------------- --------------
(4,190,000 ) 25,991,659
-- (3,150,004 )
-- 2,728,965
- -------------- --------------
(4,190,000 ) 25,570,620
-- (3,150,004 )
-- 1,862,495
- -------------- --------------
$ (4,190,000 ) $ 24,283,111
============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2003 2002 2001
--------------- --------------- --------------
Cash Flows Provided by Operating Activities:
Net income $ 1,862,495 $ 2,728,965 $ 1,991,906
--------------- --------------- --------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 318,888 321,943 313,377
Amortization of investment in direct financing
leases 84,399 80,601 71,154
Amortization -- -- 1,375
Equity in earnings of unconsolidated joint
ventures, net of distributions 108,176 (331,747 ) 118,290
Gain on sale of assets (288 ) (641,775 ) (298,795 )
Provision for write-down of assets -- 440,287 462,925
Decrease (increase) in receivables (4,584 ) 700 279,491
Decrease in interest receivable 1,521 139 127
Decrease (increase) in due from related parties 6,265 (1,393 ) 3,963
Decrease (increase) in accrued rental income 41,386 61,269 (4,216 )
Decrease (increase) in other assets (4,879 ) (14,385 ) 11,474
Increase (decrease) in accounts payable and
accrued expenses and real estate taxes
payable (14,635 ) 18,329 (25,854 )
Increase (decrease) in due to related parties (3,961 ) 10,548 (94,968 )
Increase (decrease) in rents paid in advance
and deposits 37,715 (16,873 ) 5,484
--------------- --------------- --------------
Total adjustments 570,003 (72,357 ) 843,827
--------------- --------------- --------------
Net cash provided by operating activities 2,432,498 2,656,608 2,835,733
--------------- --------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 286,544 2,814,625 1,986,253
Additions to real estate properties with operating
leases -- (1,992,232 ) (1,357,599 )
Collections on mortgage notes receivable 20,281 17,915 21,305
Investment in joint ventures -- (1,165,235 ) (342,075 )
Return of capital from joint venture -- 929,590 --
Liquidating distribution from joint venture -- 554,324 424,600
--------------- --------------- --------------
Net cash provided by investing activities 306,825 1,158,987 732,484
--------------- --------------- --------------
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 (410,681 ) 665,591 418,213
Cash and cash equivalents at beginning of year 1,913,142 1,247,551 829,338
--------------- --------------- --------------
Cash and cash equivalents at end of year $ 1,502,461 $ 1,913,142 $ 1,247,551
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2003 2002 2001
------------ ------------- ------------
Supplemental Schedule of Non-Cash Financing Activities:
Distributions declared and unpaid at December 31 $ 787,501 $ 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, 2003, 2002, and 2001
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 Accounting - 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, 2003, 2002, and 2001, tenants paid,
or are expected to pay, directly to real estate taxing authorities
approximately $311,000, $261,700, and $257,100, respectively, in
estimated real estate taxes in accordance with the terms of their
leases.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
operating or the direct financing methods.
Operating method - 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.
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.
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, 2003, 2002, and 2001
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. Cash equivalents
are stated at cost plus accrued interest, which approximates market
value. Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs represent a reduction
of Partnership equity and a reduction in the basis of each partner's
investment.
Rents Paid in Advance - Rents paid in advance by lessees for future
periods are deferred upon receipt and are recognized as revenues during
the period in which the rental income is earned.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
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 2003 presentation.
These reclassifications had no effect on total partners' capital, net
income or cash flows.
Statement of Financial Accounting Standards No. 144 - Effective January
1, 2002, the Partnership adopted Statement of Financial Accounting
Standards No. 144 "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 - In January 2003, the Financial Accounting
Standards Board ("FASB") issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and
strengthen existing accounting guidance that addresses when a company
should include the assets, liabilities and activities of another entity
in its financial statements. To improve financial reporting by
companies involved with variable interest entities, FIN 46 requires
that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. In December 2003,
the FASB issued FASB Interpretation No. 46R ("FIN 46R"), to clarify
some of the provisions of FIN 46. Under FIN 46R, special effective date
provisions apply to entities that have fully or partially applied FIN
46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests
in structures that are commonly referred to as special-purpose entities
for periods ending after December 15, 2003. Application by public
entities, other than small business issuers, for all other types of
variable interest entities is required in financial statements for
periods ending after March 15, 2004. The Partnership did not fully or
partially apply FIN 46 prior to the issuance of FIN 46R. Also, the
Partnership does not have interests in structures commonly referred to
as special-purpose entities. Therefore, application of FIN 46R is
required in the Partnership's financial statements for periods ending
after March 15, 2004. The General Partners believe adoption of this
standard may result in either consolidation or additional disclosure
requirements of the Partnership's unconsolidated joint ventures, which
are currently accounted for under the equity method. However, such
consolidation is not expected to significantly impact the Partnership's
results of operations.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
2. Real Estate Properties with Operating Leases
Real estate properties with operating leases consisted of the following
at December 31:
2003 2002
------------------- --------------------
Land $ 6,295,592 $ 6,295,592
Buildings 8,673,916 8,673,916
------------------- --------------------
14,969,508 14,969,508
Less accumulated depreciation (2,366,649) (2,054,793)
------------------- --------------------
$ 12,602,859 $ 12,914,715
=================== ====================
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 and its estimated fair value.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2003:
2004 $ 1,589,838
2005 1,600,353
2006 1,176,467
2007 960,999
2008 962,544
Thereafter 5,973,354
-------------------------
$ 12,263,555
=========================
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
3. Net Investment in Direct Financing Leases
The following lists the components of the net investment in direct
financing leases at December 31:
2003 2002
----------------- ------------------
Minimum lease payments receivable $ 2,889,380 $ 3,238,857
Estimated residual values 1,016,893 1,016,893
Less unearned income (1,546,189) (1,811,267)
----------------- ------------------
Net investment in direct financing leases $ 2,360,084 $ 2,444,483
================= ==================
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at December 31, 2003:
2004 $ 349,478
2005 349,478
2006 357,921
2007 385,159
2008 385,159
Thereafter 1,062,185
-----------------
$ 2,889,380
=================
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 Partnership also owns
a 67%, a 29%, and a 15% interest in a property in Englewood, Colorado,
a property in Montgomery, Alabama, and a property in Waldorf, Maryland,
each as tenants-in-common.
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 VIII, Ltd. The Partnership 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 their applicable percentage interest.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
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. The Partnership 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. In October 2003, CNL Restaurant
Investments II identified for sale its property in San Antonio, Texas
and reclassified the asset 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.
All remaining interests in these joint ventures and the properties held
as tenants-in-common are held by affiliates of the Partnership which
have the same general partners.
The financial results relating to the properties in Greensboro, North
Carolina; Ashland, New Hampshire; Columbus, Ohio; Pontiac, Michigan;
Libertyville, Illinois; and San Antonio, Texas are reflected as
Discontinued Operations in the condensed financial information below.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
CNL Restaurant Investments II and CNL Restaurant Investments III each
own five properties. Ashland Joint Venture and Katy Joint Venture each
own one property. The Partnership and affiliates, as tenants-in-common,
own four properties. The following presents the combined, condensed
financial information for the joint ventures and the properties held as
tenants-in-common with affiliates at:
December 31, December 31,
2003 2002
--------------------- --------------------
Real estate properties with operating $ 13,450,348 $ 13,745,980
leases, net
Net investment in direct financing
leases 2,757,970 2,810,584
Real estate held for sale 724,380 739,968
Cash 96,215 16,192
Receivables 518 518
Accrued rental income 359,966 261,781
Other assets 42,889 27,711
Liabilities 59,337 7,146
Partners' capital 17,372,949 17,595,588
Year Ended December 31,
2003 2002 2001
---------------- ---------------- ------------------
Revenues $ 1,942,372 $ 1,665,465 $ 1,325,771
Expenses (346,604 ) (314,865 ) (247,033 )
---------------- ---------------- ------------------
Income from continuing operations 1,595,768 1,350,600 1,078,738
---------------- ---------------- ------------------
Discontinued operations:
Revenues 95,286 387,802 695,999
Expenses (15,988 ) (70,829 ) (167,450 )
Gain on disposal of discontinued
operations -- 1,330,172 --
---------------- ---------------- ------------------
79,298 1,647,145 528,549
---------------- ---------------- ------------------
Net income $ 1,675,066 $ 2,997,745 $ 1,607,287
================ ================ ==================
The Partnership recognized income of $694,916, $1,199,146, and
$753,457, during the years ended December 31, 2003, 2002, and 2001,
respectively, from these joint ventures and the properties held as
tenants-in-common with affiliates.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
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. In February 2003, the Partnership
sold the other property and received net sales proceeds of
approximately $286,500, resulting in a gain on disposal of discontinued
operations of approximately $300. The Partnership had recorded
provisions for write-down of assets relating to this property in
previous years, including approximately $58,500 and $62,100 during the
years ended December 31, 2002 and 2001, respectively. In July 2003, the
Partnership identified for sale its vacant property in Wildwood,
Florida and reclassified the asset 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. The Partnership recorded provisions for write-down of
assets in previous years relating to this property, including
approximately $321,600 and $400,800 during the years ended December 31,
2002 and 2001, respectively. The tenant vacated this property in 2001
and ceased payment of rents under the terms of the lease agreement. The
provisions represented the difference between the net carrying value of
the property and its estimated fair value. The financial results for
these properties are reflected as Discontinued Operations in the
accompanying financial statements.
The operating results of the discontinued operations for these
properties are as follows:
Year Ended December 31,
2003 2002 2001
---------------- --------------- -----------------
Rental revenues $ -- $ 91,459 $ 97,216
Other income -- 20,000 --
Expenses (32,384 ) (84,952 ) (82,549 )
Provision for write-down of
assets -- (380,068 ) (462,925 )
---------------- --------------- -----------------
Loss from discontinued operations $ (32,384 ) (353,561 ) (448,258 )
================ =============== =================
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 $184,652 and $123,102,
respectively, due in December 2008.
The mortgage notes receivable consisted of the following at December
31:
2003 2002
----------------- ------------------
Principal balance $ 440,499 $ 460,780
Accrued interest receivable 2,051 3,572
----------------- ------------------
$ 442,550 $ 464,352
================= ==================
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
6. Mortgage Notes Receivable - Continued
The general partners believe that the estimated fair values of mortgage
notes receivable at December 31, 2003, 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.
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, 2003, 2002, and
2001.
During each of the years ended December 31, 2003, 2002, and 2001, 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
Years Ended December 31, 2003, 2002, and 2001
8. Income Taxes
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2003 2002 2001
--------------- ------------------ ----------------
Net income for financial reporting purposes $ 1,862,495 $ 2,728,965 $ 1,991,906
Effect of timing differences relating to 22,398 12,896 2,178
depreciation
Provision for write-down of assets -- 440,287 462,925
Effect of timing differences relating to allowance
for doubtful accounts -- (15,296 ) (67,300 )
Direct financing leases recorded as operating
leases for tax reporting purposes 84,399 80,601 71,154
Effect of timing differences relating to
gains/losses on sales of real estate
on sales of real estate (140,127 ) (148,916) 40,172
Effect of timing differences relating to equity in
earnings of joint ventures 19,624 (392,715 ) (57,919 )
Accrued rental income 41,386 61,269 (4,216 )
Rents paid in advance 37,715 (16,873 ) 5,484
Other (314 ) -- --
--------------- ------------------ ----------------
Net income for federal income tax purposes $ 1,927,576 $ 2,750,218 $ 2,444,384
=============== ================== ================
9. Related Party Transactions
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, a wholly owned subsidiary of CNL Restaurant
Properties, Inc. (formerly known as CNL American Properties Fund, Inc.)
served as the Partnership's advisor until January 1, 2002, when it
assigned its rights and obligations under a management agreement to RAI
Restaurants, Inc. (the "Advisor"). The Advisor is a wholly owned
subsidiary of CNL Restaurant Properties, Inc. ("CNL-RP"). The
individual general partners are stockholders and directors of CNL-RP.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
9. Related Party Transactions - Continued
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, 2003, 2002, and 2001.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the limited partners of their aggregate 10%
Preferred Return, plus their adjusted capital contributions. No
deferred, subordinated real estate disposition fees have been incurred
since inception.
During the years ended December 31, 2003, 2002, and 2001, the
Partnership's affiliates provided accounting and administrative
services. The Partnership incurred $138,534, $175,724, and $198,105 for
the years ended December 31, 2003, 2002, and 2001, respectively, for
such services.
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. 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"). 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, 2003 and 2002,
totaled $12,465 and $16,426, respectively.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
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 total rental revenues and mortgage interest income
(including the Partnership's share of total rental revenues from joint
ventures and properties held as tenants-in-common with affiliates) for
each of the years ended December 31:
2003 2002 2001
--------------- ------------- --------------
Carrols Corp. and Texas Taco
Cabana, LP (under common
control of Carrols Corp.) $ 741,297 $ 488,457 $ 318,060
Golden Corral Corp. 520,144 534,672 537,236
Burger King Corp. 442,134 525,778 643,939
Flagstar Enterprises, Inc. N/A 289,914 361,770
In addition, the following schedule presents total rental revenues and
mortgage interest income from individual restaurant chains, each
representing more than ten percent of total rental revenues and
mortgage interest income (including the Partnership's share of total
rental revenues from joint ventures and properties held as
tenants-in-common with affiliate) for each of the years ended December
31:
2003 2002 2001
----------------- ------------- --------------
Burger King $ 1,027,378 $ 978,433 $ 1,062,392
Golden Corral Buffet and
Grill 520,144 534,672 537,236
Hardee's N/A 357,105 429,975
Shoney's N/A 312,009 391,170
The information denoted by N/A indicates that for each period
presented, the lessee and the chains did not represent more than ten
percent of the Partnership's total rental income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains will significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
11. Selected Quarterly Financial Data
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2003 and
2002.
2003 Quarter First Second Third Fourth Year
---------------------------------- ------------- ------------- -------------- ------------- ------------
Continuing Operations (1):
Revenues $ 490,589 $ 467,512 $ 466,459 $ 514,647 $1,939,207
Equity in earnings of
unconsolidated joint
ventures 163,767 174,248 176,604 180,297 694,916
Income from continuing
operations 436,087 487,457 460,885 510,162 1,894,591
Discontinued operations (1):
Revenues -- -- -- -- --
Loss from and gain on
disposal of
discontinued
operations (11,092 ) (8,271 ) (5,964 ) (6,769 ) (32,096 )
Net income 424,995 479,186 454,921 503,393 1,862,495
Income (loss) per limited
partner unit:
Continuing operations $ 0.12 $ 0.14 $ 0.13 $ 0.15 $ 0.54
Discontinued operations -- -- -- (0.01 ) (0.01 )
------------- ------------- -------------- ------------- ------------
$ 0.12 $ 0.14 $ 0.13 $ 0.14 $ 0.53
============= ============= ============== ============= ============
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
11. Selected Quarterly Financial Data - Continued
2002 Quarter First Second Third Fourth Year
---------------------------------- ------------- ------------- -------------- ------------- ------------
Continuing Operations (1):
Revenues $ 482,615 $ 477,848 $ 498,301 $ 488,476 $1,947,240
Equity in earnings of
unconsolidated joint 161,236 605,482 258,544 173,884 1,199,146
ventures
Income from continuing
operations 456,208 1,136,357 851,659 452,670 2,896,894
Discontinued operations (1):
Revenues 23,237 23,237 24,005 40,980 111,459
Income (loss) from and gain
on disposal of
discontinued operations 5,382 (323,110 ) 23,356 126,443 (167,929 )
Net income 461,590 813,247 875,015 579,113 2,728,965
Income (loss) per limited
partner unit:
Continuing operations $ 0.13 $ 0.32 $ 0.24 $ 0.14 $ 0.83
Discontinued operations -- (0.09 ) 0.01 0.03 (0.05 )
------------- ------------- -------------- ------------- ------------
$ 0.13 $ 0.23 $ 0.25 $ 0.17 $ 0.78
============= ============= ============== ============= ============
(1) Certain items in the quarterly financial data have been reclassified to
conform to the 2003 presentation. This reclassification had no effect
on net income. The results of operations relating to properties that
were identified for sale as of December 31, 2001 but sold subsequently
are reported as continuing operations. The results of operations
relating to properties that were either identified for sale and
disposed of subsequent to January 1, 2002 or were classified as held
for sale as of December 31, 2003 are reported as discontinued
operations for all periods presented.
12. Commitment
In December 2003, the Partnership entered into an agreement with a
third party to sell the property in Wildwood, Florida.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
13. Subsequent Events
In January 2004, the Partnership received a balloon payment of
approximately $175,800 relating to the mortgage note receivable from
the 2000 sale of the property in Alliance, Ohio. This amount
represented, and was applied, to the outstanding principal balance.
In February 2004, the Partnership sold its property in Wildwood,
Florida and received net sales proceeds of approximately $526,400,
resulting in a gain on disposal of discontinued operations of
approximately $12,100. The Partnership had recorded provisions for
write-down of assets in previous years relating to this property.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL-RP, CCM, CNL Financial Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 57. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL-RP, a public, unlisted real
estate investment trust since 1994. Mr. Seneff served as Chief Executive Officer
of CNL-RP from 1994 through August 1999 and as Co-Chief Executive Officer from
December 2000 through September 2003. Mr. Seneff served as Chairman of the Board
and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, from its inception in 1990 until it merged with a
wholly-owned subsidiary of CNL-RP in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. CNL Fund Advisors,
Inc., formerly CNL Institutional Advisors, Inc., is a registered investment
advisor. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the parent
company of CNL Financial Group, Inc., a diversified real estate company, and has
served as a Director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since 1973. CNL Financial Group, Inc. is and is the parent
company, either directly or indirectly through subsidiaries, of CNL Real Estate
Services, Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL
Securities Corp., all of which are engaged in the business of real estate
finance. Mr. Seneff also serves as a Director and Chairman of the Board of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
and served as Chief Executive Officer of CNL Hospitality Properties, Inc. from
its inception in 1997 until 2003 and served as Co-Chief Executive Officer from
February 2003 until May 1, 2003. Mr. Seneff has served as Chairman of the Board
of CNL Hospitality Corp., the advisor to CNL Hospitality Properties, Inc., since
its inception in 1997. Mr. Seneff also served as Chief Executive Officer from
its inception in 1997 through February 2003, and currently serves as Co-Chief
Executive Officer of CNL Hospitality Corp. Mr. Seneff has served as Director and
Chairman of the Board of CNL Retirement Corp. since 1997 and served as Chief
Executive Officer of CNL Retirement Corp. from 1997 through 2003. CNL Retirement
Corp. is the advisor to CNL Retirement Properties, Inc., a public, unlisted real
estate investment trust. Mr. Seneff has also served as Director and Chairman of
the Board of Commercial Net Lease Realty, Inc., a public real estate investment
trust that is listed on the New York Stock Exchange, since 1992 and served as
Chief Executive Officer of Commercial Net Lease Realty, Inc. from 1992 through
February 2004. Mr. Seneff has served as a Director, Chairman of the Board, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff has
served as Chairman of the Board and Chief Executive Officer of CNL Commercial
Finance, Inc. since 2000. Mr. Seneff also serves as Chairman of the Board of
CNLBank, an independent, state-chartered commercial bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of the
Florida state retirement plan. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 56. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne has
served as a Director and Vice Chairman of the Board of CNL-RP since 1994. Mr.
Bourne also served as President of CNL-RP from 1994 through February 1999 and
served as Treasurer from February 1999 through August 1999 and from May 1994
through December 1994. Mr. Bourne served in various executive positions with CNL
Fund Advisors, Inc. prior to its merger with a wholly-owned subsidiary of CNL-RP
including, President from 1994 through September 1997, and Director from 1994
through August 1999. Mr. Bourne serves as President and Treasurer of CNL
Financial Group, Inc. Mr. Bourne serves as Director, Vice Chairman of the Board
and Treasurer and from 1997 until June 2002 served as President of CNL
Hospitality Properties, Inc. and as Director, President and Treasurer of CNL
Hospitality Corp. Mr. Bourne also serves as Director and Treasurer of CNL
Retirement Properties, Inc. and as Director and Treasurer of CNL Retirement
Corp. Mr. Bourne serves as a Director of CNLBank. Mr. Bourne has also served as
a Director since 1992, Vice Chairman of the Board since February 1996, Secretary
and Treasurer from February 1996 through 1997, and President from July 1992
through February 1996, of Commercial Net Lease Realty, Inc. Mr. Bourne serves as
Director, President and Treasurer for various affiliates of CNL Financial Group,
Inc. including, CNL Investment Company, CNL Securities Corp. and CNL
Institutional Advisors, Inc. Mr. Bourne began his career as a certified public
accountant employed by Coopers & Lybrand, Certified Public Accountants, from
1971 through 1978, where he attained the position of Tax Manager in 1975. Mr.
Bourne graduated from Florida State University in 1970 where he received a B.A.
in Accounting, with honors.
Curtis B. McWilliams, age 48. Mr. McWilliams has served as President of
CNL-RP since May 2001 and as Chief Executive Officer of CNL-RP since September
2003. Mr. McWilliams served as Co-Chief Executive Officer of CNL-RP from
December 2000 through September 2003 and served as Chief Executive Officer from
September 1999 through December 2000. Mr. McWilliams also served as President
and Chief Executive Officer of CNL Franchise Network Corp., a wholly owned
subsidiary of CNL-RP since August 2002 and served as President of CNL-RP from
February 1999 until September 1999 and as Executive Vice President of CNL-RP
from 1997 through February 1999. Mr. McWilliams served as an Executive Vice
President of CNL Financial Group, Inc. from the time he joined the company in
April 1997 until September 1999. Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and CNL Financial Services, Inc., a corporation engaged in the
business of real estate financing, from April 1997 until the acquisition of such
entities by wholly owned subsidiaries of CNL-RP in September 1999. From
September 1983 through March 1997, Mr. McWilliams was employed by Merrill Lynch
& Co. The majority of his career at Merrill Lynch & Co. was in the Investment
Banking division where he served as a Managing Director. Mr. McWilliams received
a B.S.E. in Chemical Engineering from Princeton University in 1977 and a Master
of Business Administration degree with a concentration in finance from the
University of Chicago in 1983.
Steven D. Shackelford, age 40. Mr. Shackelford was promoted to
Executive Vice President and Chief Operating Officer of CNL-RP in September
2003. Mr. Shackelford has also served as Chief Financial Officer since January
1997. He served as Senior Vice President of CNL-RP from January 1997 through
July 2000, when he was promoted to Executive Vice President. Mr. Shackelford has
also served as Secretary and Treasurer of CNL-RP since September 1999. He also
served as Chief Financial Officer of CNL Fund Advisors, Inc. from September 1996
to September 1999. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse LLP where he was responsible
for advising foreign clients seeking to raise capital and a public listing in
the United States. From August 1992 to March 1995, he was a manager in the
Paris, France office of Price Waterhouse, serving several multi-national
clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor
of Arts degree in Accounting, with honors, and a Master of Business
Administration degree from Florida State University and is a certified public
accountant.
Thomas Arasi, age 46. Mr. Arasi has served as President of CCM since it
was formed in July 2003 to provide strategic advisory services to the General
Partners. He has served in various consulting capacities to CNL Hospitality Corp
and other CNL affiliates since January 2003. Since November 2001 he has been an
independent consultant working for a variety of operating and investment
companies in the hospitality industry. Until October 2001, Mr. Arasi was
President & Chief Executive Officer, and a member of the Board of Directors of
Lodgian, Inc., a New York Stock Exchange traded company, one of the largest
independent hotel owner/operators in North America, with hotel properties under
most brand names including Marriott, Courtyard by Marriott, Fairfield Inn by
Marriott, Crowne Plaza, Holiday Inn, Hilton, and Radisson. From June 1997
through November 2000, Mr. Arasi was a member of the Management Committee and
held several top operating positions with Bass Hotels & Resorts, one of the
leading international owners, operators and franchisors of hotels, most recently
serving as President, Bass Hotels & Resort--The Americas. Mr. Arasi was formerly
President of Tishman Hotel Corporation, Vice President of Salomon Brothers,
Inc., in New York, Tokyo and Los Angeles and held positions with Sheraton,
Westin and HVS International. Mr. Arasi graduated from Cornell University in
January 1981, where he received a Bachelor's degree in Hotel and Restaurant
Administration.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2003.
Code of Business Conduct
The Partnership does not have employees and, accordingly, has not
adopted a code of business conduct applicable exclusively to the Partnership.
However, employees of the General Partners or their affiliates, including the
individual General Partners, are bound by the Code of Business Conduct adopted
November 11, 2003 by CNL Holdings, Inc. Separately, the employees of the Advisor
are bound by the similar Code of Business Conduct adopted by CNL Restaurant
Properties, Inc. Each of these codes of business conduct will be made available
to any person who writes the Partnership requesting a copy.
Audit Committee Financial Expert
Due to its organization as a limited partnership, the Partnership does
not have an audit committee that is responsible for supervising the
Partnership's relationship with its independent auditors. For the Partnership,
this role is performed by the General Partners. Based on his previous service as
the principal financial officer of companies with businesses similar to that of
the Partnership, Robert A. Bourne, one of the General Partners, has the
requisite experience to be considered an "audit committee financial expert" as
defined in the rules under the Securities Exchange Act of 1934, if the
Partnership had an audit committee. As a General Partner, Mr. Bourne is not
independent of the Partnership.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
As of March 12, 2004, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 12, 2004, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
The Partnership does not have any equity compensation plans.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2003, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and
operating expenses the lower of cost or 90% of the administrative services:
prevailing rate at which comparable $138,534
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, 2003
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee payable disposition fee, payable upon sale
to affiliates of one or more Properties, in an
amount equal to the lesser of (i)
one-half of a competitive real estate
commission, or (ii) three percent of the
sales price of such Property or
Properties. Payment of such fee shall be
made only if affiliates of the General
Partners provide a substantial amount of
services in connection with the sale of a
Property or Properties and shall be
subordinated to certain minimum returns
to the Limited Partners. However, if the
net sales 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, 2003
- --------------------------------- -------------------------------------- ------------------------------
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order or
priority: (i) first, to pay all debts and
liabilities of the Partnership and to
establish reserves; (ii) second, to
Partners with positive capital account
balances, determined after the allocation
of net income, net loss, gain and loss,
in proportion to such balances, up to
amounts sufficient to reduce such
balances to zero; and (iii) thereafter,
95% to the Limited Partners and 5% to the
General Partners.
Item 14. Principal Accountant Fees and Services
The following table outlines the only fees paid or accrued by the
Partnership for the audit and other services provided by the Partnership's
independent certified public accountants, PricewaterhouseCoopers LLP, for the
years ended December 31:
2003 2002
--------------------- ---------------------
Audit Fees (1) $ 13,926 $ 10,800
Tax Fees (2) 7,901 6,999
--------------------- ---------------------
Total $ 21,827 $ 17,799
===================== =====================
(1) Audit services of PricewaterhouseCoopers LLP for 2003 and 2002
consisted of the examination of the financial statements of the
Partnership and quarterly review of financial statements.
(2) Tax Fees relates to tax consulting and compliance services.
Each of the non-audit services described above was approved by the
General Partners. Due to its organization as a limited partnership, the
Partnership does not have an audit committee.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2003 and 2002
Statements of Income for the years ended December 31, 2003, 2002,
and 2001
Statements of Partners' Capital for the years ended December 31,
2003, 2002, and 2001
Statements of Cash Flows for the years ended December 31, 2003,
2002, and 2001
Notes to Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at December
31, 2003
Notes to Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2003
Schedule IV - Mortgage Loans on Real Estate at December 31, 2003
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or notes
thereto.
3. Exhibits
3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund 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.)
31.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
31.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
32.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period October 1,
2003 through December 31, 2003.
(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, 2003.
Carrols Corporation is a reporting company and as of the date hereof, had
not filed its 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 23rd day of
March, 2004.
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 23, 2004
- ------------------------------------ (Principal Financial and Accounting
Robert A. Bourne (Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 23, 2004
- ------------------------------------ (Principal Executive Officer)
James M. Seneff, Jr.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
Costs Capitalized
Subsequent to Net Cost Basis at Which
Initial Cost Acquisition Carried at Close of Period (c)
-------------------------- --------------------- ------------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
--------------- ------------ ------------- ---------- --------- ------------ ------------- --------
Properties the Parnership has
Invested in Under
Operating Leases:
Baker's Square Restaurant:
Blaine, Minnesota (g) - $567,339 $790,259 - - $567,339 $790,259 $1,357,598
Burger King Restaurants:
Shelby, North Carolina (i) - 289,663 554,268 - - 289,663 554,268 843,931
Maple Heights, Ohio - 430,563 454,823 - - 430,563 454,823 885,386
Suwanee, Georgia - 437,659 - - - 437,659 (f) 437,659
Watertown, New York - 360,181 529,594 - - 360,181 529,594 889,775
Carrboro, North Carolina (h- 406,768 523,067 - - 406,768 523,067 929,835
Jackson, Michigan (k) - 419,375 542,055 - - 419,375 542,056 961,431
Capt D's Restaurant:
Huntsville, Alabama - 248,976 279,748 - - 248,977 279,748 528,725
Denny's Restaurants:
North Baltimore, Ohio (l) - 133,187 282,219 - - 133,187 282,219 415,406
Golden Corral Buffet and
Grill Restaurants:
Brownsville, Texas - 518,605 988,611 - - 518,605 988,611 1,507,216
Tyler, Texas - 652,103 982,353 - - 652,103 982,353 1,634,456
Albany, Georgia - 564,576 1,076,633 - - 564,576 1,076,633 1,641,209
Shoney's Restaurants:
Windcrest, Texas - 445,983 670,370 - - 445,983 670,370 1,116,353
Grenada, Mississippi - 335,001 454,723 - - 335,001 454,723 789,724
Taco Cabana Restaurant:
Dallas, Texas (j) - 485,612 545,192 - - 485,612 545,192 1,030,804
------------ ------------- ---------- ----- ------------ ------------- -------------
$6,295,591 $8,673,915 - - $6,295,592 $8,673,916 $14,969,508
============ ============= ========== ===== ============ ============= =============
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurant:
Suwanee, Georgia - - $330,542 - - (f) (f) (f)
Hardee's Restaurants:
Millbrook, Alabama - 125,703 541,865 - - (f) (f) (f)
Greenville, Tennessee - 127,449 402,926 - - (f) (f) (f)
Wooster, Ohio - 137,427 537,227 - - (f) (f) (f)
Auburn, Alabama - 85,890 364,269 - - (f) (f) (f)
------------ ------------- ---------- ----- ------------
$476,469 $2,176,829 - - -
============ ============= ========== ===== ============
Life on Which
Depreciation in
- ----- Date Latest Income
Accumulated of Con- Date Statement is
Depreciation structionAcquired Computed
- ----- ------------ ------- -------- -------------
$54,876 1970 12/01 (b)
131,504 1985 05/91 (i)
190,688 1980 06/91 (b)
(d) 1991 11/91 (d)
214,255 1986 11/91 (b)
124,100 1983 12/96 (i)
32,367 1994 09/02 (b)
110,287 1989 10/91 (b)
20,773 1986 11/91 (l)
413,229 1990 06/91 (b)
410,618 1990 06/91 (b)
172,594 1998 03/99 (b)
276,840 1991 08/91 (b)
185,750 1991 09/91 (b)
28,768 1997 06/02 (b)
------------
$2,366,649
============
(d) 1991 11/91 (d)
(e) 1991 10/91 (e)
(e) 1991 10/91 (e)
(e) 1991 10/91 (e)
(e) 1991 10/91 (e)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION
December 31, 2003
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 2003, 2002, and 2001 have been adjusted to
reflect the reclassification of properties accounted for as
discontinued operations.
Accumulated
Cost Depreciation
---------------- -----------------
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 2000 $ 14,162,233 $ 1,963,046
Acquisition (g) 1,357,598 --
Dispositions (1,175,816 ) (139,995 )
Depreciation expense -- 279,317
---------------- -----------------
Balance, December 31, 2001 14,344,015 2,102,368
Acquisitions (j), (k) 1,992,232 --
Dispositions (1,648,958 ) (337,441 )
Reclassified to operating lease 282,219 --
Depreciation expense -- 289,866
---------------- -----------------
Balance, December 31, 2002 14,969,508 2,054,793
Depreciation expense -- 311,856
---------------- -----------------
Balance, December 31, 2003 $ 14,969,508 $ 2,366,649
================ =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2003, the aggregate cost of the Partnership's wholly
owned Properties was $18,379,440 for federal income tax purposes. All
of the leases are treated as operating leases for federal income tax
purposes.
(d) The portion of the lease relating to the building has been recorded as
a direct financing lease. The cost of the building has been included in
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.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2003
(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, 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.
(k) 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.
(l) 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 the remaining
estimated life of approximately 19 years.
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
December 31, 2003
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 $ 175,803 $ --
============ =============== =============== ==============
Denny's-
Bluffton, OH
First Mortgage 9.00% December 2008 (3) $ -- $ 300,000 $ 266,747 $ --
============ =============== =============== ==============
(1) Carrying amount consists of outstanding principal plus accrued
interest. The tax carrying value of the notes are $442,550.
(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:
2003 2002 2001
--------------- ---------------- ----------------
Balance at beginning of period $ 464,352 $ 482,406 $ 503,838
Interest earned 41,084 42,802 44,496
Collection of principal and interest (62,886 ) (60,856 ) (65,928 )
--------------- ---------------- ----------------
Balance at end of period $ 442,550 $ 464,352 $ 482,406
=============== ================ ================
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.)
31.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to Rule 13a-14 as Adopted Pursuant to Section 302
of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2