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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, 2001
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 0-20016
CNL INCOME FUND X, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3004139
(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]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 4,000,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund X, 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 September 9, 1991, the Partnership
offered for sale up to $40,000,000 of limited partnership interests (the
"Units") (4,000,000 Units at $10 per Unit) pursuant to a registration statement
on Form S-11 under the Securities Act of 1933, as amended, effective March 20,
1991. The offering terminated on March 18, 1992, at which date the maximum
offering proceeds of $40,000,000 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
$35,200,000, and were used to acquire 47 Properties, including interests in nine
Properties owned by joint ventures in which the Partnership is a co-venturer,
and to establish a working capital reserve for Partnership purposes.
During the year ended December 31, 1995, the Partnership sold its
Property in Denver, Colorado, and reinvested the majority of the net sales
proceeds in a Shoney's in Fort Myers Beach, Florida. During the year ended
December 31, 1996, the Partnership reinvested the remaining net sales proceeds
in a Golden Corral Property located in Clinton, North Carolina, with affiliates
of the General Partners as tenants-in-common. During the year ended December 31,
1997, the Partnership sold its Property in Fremont, California, and reinvested
the majority of the net sales proceeds in a Boston Market in Homewood, Alabama.
In addition, during 1997, the Partnership used approximately $130,400 that had
been previously reserved for working capital purposes to invest in a Chevy's
Fresh Mex Property located in Miami, Florida, with affiliates of the General
Partners as tenants-in-common. During the year ended December 31, 1998, the
Partnership sold its Properties in Sacramento, California and Billings, Montana.
During 1998, the Partnership reinvested the proceeds from the Sacramento,
California sale in a Property in San Marcos, Texas. During the year ended
December 31, 1999, the Partnership sold its Properties in Amherst, New York and
Fort Myers Beach, Florida. During 1999, the Partnership reinvested the proceeds
from the Amherst, New York sale in a Property in Fremont, Nebraska. During
January 1999, the Partnership reinvested the net sales proceeds from the sale of
its Property in Billings, Montana in a joint venture arrangement, Ocean Shores
Joint Venture, to purchase and hold one Property. In addition, during 1999, the
Partnership reinvested the majority of the net sales proceeds from the Fort
Myers Beach, Florida sale in a joint venture arrangement, Peoria Joint Venture,
with CNL Income Fund II, Ltd., an affiliate of the General Partners to purchase
and hold one Property. During 2000, the Partnership sold its Property in
Lancaster, New York. During 2001, the Partnership reinvested a portion of the
net sales proceeds from the sale of its Property in Lancaster, New York in a
joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with CNL
Income Fund VIII, Ltd. and CNL Income Fund XII, Ltd., affiliates of the General
Partners, to purchase and hold one Property. In addition, during 2001, the
Partnership and the joint venture partner liquidated Peoria Joint Venture and
the Partnership received its pro rata share of the liquidation proceeds.
As a result of the above transactions, as of December 31, 2001, the
Partnership owned 48 Properties. The Partnership owned 35 Properties directly
and held interests in 11 Properties owned by joint ventures in which the
Partnership is a co-venturer and two Properties owned with affiliates of the
General Partners as tenants-in-common. In January 2002, the Partnership
reinvested the majority of the liquidation proceeds from Peoria Joint Venture in
a Property in Austin, Texas, as tenants-in-common, with CNL Income Fund XVIII,
Ltd., a Florida limited partnership and an affiliate of the General Partners.
The Partnership generally leases the Properties on a triple-net basis with the
lessees responsible for all repairs and maintenance, property taxes, insurance
and utilities.
The Partnership will hold 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 will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. The Partnership has no obligation to sell all or any portion of a
Property at any particular time, except as may be required under property
purchase options granted to certain lessees.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc.("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had mutually
agreed to terminate the Agreement and Plan of Merger entered into in March 1999.
The agreement to terminate the Agreement and Plan of Merger was based, in large
part, on the General Partners' concern that, in light of market conditions
relating to publicly traded real estate investment trusts, the value of the
transaction had diminished. As a result of such diminishment, the General
Partners ability to unequivocally recommend voting for the transaction, in the
exercise of their fiduciary duties, had become questionable. The General
Partners are continuing to evaluate strategic alternatives for the Partnership,
including alternatives to provide liquidity to the Limited Partners.
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. Generally, the leases of the Properties owned by the
Partnership, the joint ventures in which the Partnership is a co-venturer and
the Properties owned as tenants-in-common with affiliates of the General
Partners provide for initial terms ranging from 10 to 20 years (the average
being 17 years) and expire between 2006 and 2019. The leases are generally on a
triple-net basis, with the lessee 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 $29,400 to $225,800. The majority of the leases
provide for percentage rent, based on sales in excess of a specified amount. In
addition, a majority of the leases provide that, commencing in specified lease
years (ranging from the second 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 five
five-year renewal options subject to the same terms and conditions as the
initial lease. Lessees of 36 of the Partnership's 48 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 also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
In December 2000, the Partnership sold its Property in Lancaster, New
York and during 2001 reinvested the net sales proceeds in a joint venture
arrangement, CNL VIII, X, XII Kokomo Joint Venture with CNL Income Fund VIII,
Ltd. and CNL Income Fund XII, Ltd., each a Florida limited partnership and an
affiliate of the General Partners, to purchase and hold one restaurant Property.
The lease terms for this Property are substantially the same as the
Partnership's other leases.
In August 1999, the leases relating to the Long John Silver's
Properties in Alamogordo and Las Cruces, New Mexico were amended to provide rent
deferrals. All other lease terms remained unchanged. As of March 15, 2002, the
Partnership has continued to receive rental payments relating to these
Properties. The General Partners do not believe that the rent deferrals will
have a material adverse effect of the results of operations of the Partnership.
In January 2002, the Partnership reinvested the majority of the
liquidation proceeds it received from Peoria Joint Venture in a Property in
Austin, Texas, with CNL Income Fund XVIII, Ltd., as tenants-in-common, as
described below in "Joint Venture and Tenancy in Common Arrangements." The lease
term for this Property is substantially the same as the Partnership's other
leases.
Major Tenants
During 2001, three lessees (or groups of affiliated tenants) of the
Partnership and its consolidated joint venture, (i) Burger King Corporation and
BK Acquisition, Inc. (which are affiliated entities under common control of
Diageo, PLC) (hereinafter referred to as "Diageo, PLC"), (ii) Golden Corral
Corporation and (iii) Jack in the Box Inc. and Jack in the Box Eastern Division,
L.P. (which are affiliated entities under common control of Jack in the Box
Inc.) (hereinafter referred to as "Jack in the Box Inc."), each contributed more
than 10% of the Partnership's total rental and earned income (including rental
and earned income from the Partnership's consolidated joint venture and the
Partnership's share of rental and earned income from ten Properties owned by
unconsolidated joint ventures and two Properties owned with affiliates of the
General Partners as tenants-in-common). As of December 31, 2001, Diageo, PLC was
the lessee under leases relating to seven restaurants, Golden Corral Corporation
was the lessee under leases relating to six restaurants and Jack in the Box Inc.
was the lessee under leases relating to six restaurants. It is anticipated that
based on the minimum rental payments required by the leases, these three lessees
each will continue to contribute more than 10% of the Partnership's total rental
and earned income in 2002. In addition, four Restaurant Chains, Golden Corral
Family Steakhouse Restaurants ("Golden Corral"), Hardee's, Burger King, and Jack
in the Box, each accounted for more than 10% of the Partnership's total rental
and earned income during 2001 (including rental and earned income from the
Partnership's consolidated joint venture and the Partnership's share of rental
and earned income from ten Properties owned by unconsolidated joint ventures and
two Properties owned with affiliates of the General Partners as
tenants-in-common). In 2002, it is anticipated that these four Restaurant Chains
each will continue to account for more than 10% of the total rental and earned
income to which the Partnership is entitled under the terms of the leases. Any
failure of these lessees or Restaurant Chains could have a material adverse
affect on the Partnership's income if the Partnership is not able to re-lease
the Properties in a timely manner. No single tenant or groups of affiliated
tenants lease 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 a joint venture arrangement, Allegan
Real Estate Joint Venture, with an unaffiliated entity to purchase and hold one
Property. In addition, the Partnership has entered into five separate joint
venture arrangements: CNL Restaurant Investments III, with CNL Income Fund IX,
Ltd., to purchase and hold six Properties; Ashland Joint Venture, with CNL
Income Fund IX, Ltd. and CNL Income Fund XI, Ltd., to purchase and hold one
Property; Williston Real Estate Joint Venture, with CNL Income Fund XII, Ltd.,
to purchase and hold one Property; Ocean Shores Joint Venture, with CNL Income
Fund XVII, Ltd., to purchase and hold one restaurant Property. Each of the CNL
Income Funds is an affiliate of the General Partners and is a limited
partnership organized pursuant to the laws of the state of Florida.
The joint venture arrangements provide for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint ventures in accordance with their respective percentage interests in the
joint ventures. The Partnership has an 88.26% interest in Allegan Real Estate
Joint Venture, a 50% interest in CNL Restaurant Investments III, a 10.51%
interest in Ashland Joint Venture, a 40.95% interest in Williston Real Estate
Joint Venture, and a 69.06% interest in Ocean Shores Joint Venture. The
Partnership and its joint venture partners are also jointly and severally liable
for all debts, obligations and other liabilities of the joint ventures.
In addition, in April 2001, the Partnership entered into a joint
venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with CNL Income Fund
VIII, Ltd. and CNL Income Fund XII, Ltd., affiliates of the General Partners, to
purchase and hold one restaurant Property. The joint venture arrangement
provides for the Partnership and its joint venture partners to share in all
costs and benefits associated with the joint venture in proportion to each
partner's percentage interest in the joint venture. The Partnership and its
joint venture partners are also jointly and severally liable for all debts,
obligations and other liabilities of the joint venture. The Partnership has a
10% interest in the profits and losses of this joint venture. Each of the
affiliates is a limited partnership organized pursuant to the laws of the state
of Florida.
In August 2001, Peoria Joint Venture, in which the Partnership owned a
52% interest, sold its Property to a third party. The Partnership and the joint
venture partner liquidated Peoria Joint Venture and the Partnership received its
pro rata share of the liquidation proceeds from the joint venture.
CNL Restaurant Investments III's joint venture agreement does not
provide for a fixed term, but continues in existence until terminated by either
of the joint venturers. Ashland Joint Venture has an initial term of 14 years,
CNL VIII, X, XII Kokomo Joint Venture has an initial term of 30 years, and
Allegan Real Estate Joint Venture and Williston Real Estate Joint Venture each
have an initial term of 20 years. After the expiration of the initial term, each
of the joint ventures continues in existence from year to year unless terminated
at the option of any of the joint venturers or by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property owned by the joint venture and mutual
agreement of the Partnership and its joint venture partners to dissolve the
joint venture.
The Partnership has management control of Allegan Real Estate Joint
Venture and shares management control equally with affiliates of the General
Partners for CNL Restaurant Investments III, Williston Real Estate Joint
Venture, Ashland Joint Venture, Ocean Shores Joint Venture and CNL VIII, X, XII
Kokomo Joint Venture. The joint venture agreements restrict each venturer's
ability to sell, transfer or assign its joint venture interest without first
offering it for sale to its joint venture partners, either upon such terms and
conditions as to which the venturers may agree or, in the event the venturers
cannot agree, on the same terms and conditions as any offer from a third party
to purchase such joint venture interest.
Net cash flow from operations of CNL Restaurant Investments III,
Allegan Real Estate Joint Venture, Ashland Joint Venture, Williston Real Estate
Joint Venture, Ocean Shores Joint Venture and CNL VIII, X, XII Kokomo Joint
Venture is distributed 50%, 88.26%, 10.51%, 40.95%, 69.06% and 10%,
respectively, to the Partnership and the balance is distributed to each of the
other joint venture partners in accordance with their respective percentage
interest in 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.
In addition to the above joint venture arrangements, the Partnership
entered into an agreement to hold a Property in Clinton, North Carolina, as
tenants-in-common with CNL Income Fund IV, Ltd., CNL Income Fund VI, Ltd. and
CNL Income Fund XV, Ltd. In addition, the Partnership entered into an agreement
to hold a Property in Miami, Florida, as tenants-in-common, with CNL Income Fund
III, Ltd., CNL Income Fund VII, Ltd., and CNL Income Fund XIII, Ltd. The
agreements provide for the Partnership and the other parties to share in the
profits and losses of the Properties in proportion to each party's percentage
interest. The Partnership owns a 13% and 6.69% interest, respectively in these
Properties. 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 tenancy in common agreement restricts each party's ability to sell,
transfer, or assign its interest in the tenancy in common's Property without
first offering it for sale to the remaining party.
In addition, in January 2002, the Partnership reinvested the majority
of the liquidation proceeds from Peoria Joint Venture, as described above, in a
Property in Austin, Texas, as tenants-in-common, with CNL Income Fund XVIII,
Ltd., a Florida limited partnership and an affiliate of the General Partners.
The Partnership entered into a long-term, triple-net lease with terms
substantially the same as its other leases.
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 a
Property if the proceeds are reinvested in an additional Property.
Certain Management Services
CNL APF Partners, LP, 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,
CNL APF Partners, LP (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, 10%, 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").
During 2000, CNL Fund Advisors, Inc. assigned its rights in, and its
obligations under, the management agreement with the Partnership to CNL APF
Partners, LP. All of the terms and conditions of the management agreement,
including the payment of fees, as described above, remain unchanged.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of APF, the parent company of the
Advisor, perform certain services for the Partnership. In addition, the General
Partners have available to them the resources and expertise of the officers and
employees of CNL Financial Group, Inc., a diversified real estate company, and
its affiliates, who may also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2001, the Partnership owned 48 Properties. Of the 48
Properties, 35 are owned by the Partnership in fee simple, 11 are owned through
joint venture arrangements and two are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 15,700
to 200,900 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 as of
December 31, 2001 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation for the year ended December 31, 2001.
State Number of Properties
Alabama 2
Florida 5
Idaho 1
Illinois 1
Indiana 1
Louisiana 2
Michigan 2
Missouri 1
Montana 5
Nebraska 1
New Hampshire 3
New Mexico 3
New York 1
North Carolina 4
Ohio 3
Pennsylvania 1
South Carolina 1
Tennessee 3
Texas 7
Washington 1
------
TOTAL PROPERTIES 48
======
Buildings. Each of the Properties owned by the Partnership 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
1,800 to 10,700 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, 2001, 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, 2001, the aggregate cost of the Properties owned by
the Partnership (including its consolidated joint venture) and the
unconsolidated joint ventures (including Properties owned through tenancy in
common arrangements) for federal income tax purposes was $28,408,360 and
$14,108,346, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.
Restaurant Chain Number of Properties
Burger King 13
Chevy's Fresh Mex 1
Denny's 3
Golden Corral 6
Hardee's 7
Jack in the Box 6
Long John Silver's 2
Perkins 1
Pizza Hut 5
Shoney's 2
Other 2
-----
TOTAL PROPERTIES 48
=====
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish restaurant buildings,
premises, signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
At December 31, 2001, 2000, 1999, 1998, and 1997, the Properties were
97%, 97%, 96%, 96%, and 100% occupied, respectively. The following is a schedule
of the average rent per Property for the years ended December 31:
2001 2000 1999 1998 1997
-------------- ------------- -------------- ------------- -------------
Rental Revenues (1)(2) $ 3,345,782 $3,462,549 $3,490,765 $3,163,838 $3,823,808
Properties (2) 47 47 47 47 49
Average Rent Per Property $ 71,187 $ 73,671 $ 74,272 $ 67,316 $ 78,037
(1) Rental income includes the Partnership's share of rental income from
the Properties owned through joint venture arrangements and the
Properties owned through tenancy in common arrangements. Rental
revenues have been adjusted, as applicable, for any amounts for which
the Partnership has established an allowance for doubtful accounts.
(2) Excludes Properties that were vacant at December 31, which did not
generate any rental revenues during the year ended December 31.
The following is a schedule of lease expirations for leases in place as
of December 31, 2001, for the next ten years and thereafter.
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
- -------------------- -------------- ----------------- ------------------
2002 -- $ -- --
2003 -- -- --
2004 -- -- --
2005 -- -- --
2006 10 645,012 16.86%
2007 3 538,740 14.08%
2008 -- -- --
2009 4 416,353 10.88%
2010 1 107,505 2.81%
2011 5 525,469 13.73%
Thereafter 24 1,593,817 41.64%
--------- ---------------- -----------------
Total (1) 47 $ 3,826,896 100.00%
========= ================ =================
(1) Excludes one Property which was vacant at December 31, 2001.
Leases with Major Tenants. The terms of the leases with the
Partnership's major tenants as of December 31, 2001 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Diageo, PLC leases seven Burger King restaurants. The initial term of
each lease is 14 years (expiring in 2006) and the average minimum base rent is
approximately $107,000 (ranging from approximately $73,800 to $134,100).
Golden Corral Corporation leases six Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2007 and 2016) and the
average minimum base rent is approximately $164,658 (ranging from approximately
$88,047 to $225,800).
Jack in the Box Inc. leases six Jack in the Box restaurants. The
initial term of each lease is between 18 and 20 years (expiring between 2009 and
2016) and the average minimum base rent is approximately $80,374 (ranging from
approximately $63,000 to $92,600).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective Properties, is party to, or
subject to, any material 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 15, 2002, there were 3,491 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 1999,
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, 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 2001 and 2000 other than
pursuant to the Plan, net of commissions.
2001 (1) 2000 (1)
---------------------------------- ----------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- -------- -----------
First Quarter $7.56 $ 7.10 $ 7.34 $7.64 $7.41 $ 7.54
Second Quarter 7.36 7.36 7.36 7.85 7.85 7.85
Third Quarter 7.54 4.65 7.19 8.26 6.42 7.52
Fourth Quarter 8.00 6.30 7.67 8.00 6.30 7.43
(1) A total of 16,779 and 15,966 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2001 and 2000,
respectively.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the partnership agreement.
For the years ended December 31, 2001 and 2000, the Partnership
declared cash distributions of $3,600,004 to the Limited Partners. Distributions
of $900,001 were declared to the Limited Partners at the close of each of the
Partnership's calendar quarters during 2001 and 2000. These amounts include
monthly distributions made in arrears for the Limited Partners electing to
receive such distributions on this basis. No amounts distributed to partners for
the years ended December 31, 2001 and 2000 are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the Limited Partners' return on their adjusted capital contributions. No
distributions have been made to the General Partners to date.
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
2001 2000 1999 1998 1997
--------------- -------------- -------------- --------------- --------------
Year ended December 31:
Revenues (1) $2,845,686 $3,388,786 $3,437,012 $3,627,060 $3,842,060
Net income (2) 1,732,654 2,465,788 2,269,401 1,878,858 3,531,381
Cash distributions
declared (3) 3,600,004 3,600,004 3,600,004 3,680,004 3,600,003
Net income per Unit (2) 0.43 0.62 0.56 0.46 0.87
Cash distributions
declared per Unit (3) 0.90 0.90 0.90 0.92 0.90
At December 31:
Total assets $30,087,645 $32,124,183 $33,248,120 $34,480,865 $36,289,727
Partners' capital 29,020,728 30,888,078 32,022,294 33,352,897 35,154,043
(1) Revenues include equity in earnings (loss) of unconsolidated joint
ventures and minority interest in income of the consolidated joint
venture.
(2) Net income for the years ended December 31, 2000, 1999, 1998, and 1997,
includes $50,755, $32,499, $218,960, and $132,238, respectively, from
gains on sale of assets. Net income for the years ended December 31,
2001, 2000, 1999 and 1998, includes $391,186, $289,453, $377,266 and
$1,001,846, respectively, from provision for write-down of assets.
(3) Distributions for the year ended December 31, 1998 include a special
distribution to the Limited Partners of $80,000 which represented
cumulative excess operating reserves.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on April 16, 1990, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, to be leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are generally triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 2001, the Partnership owned 35 Properties directly and held interests in 13
Properties either through joint venture or tenancy in common arrangements.
Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 2001, 2000, and 1999, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $3,127,850, $3,298,666,
and $3,182,882, for the years ended December 31, 2001, 2000, and 1999,
respectively. The decrease in cash from operations during 2001 as compared to
2000, and the increase during 2000 as compared to 1999, was primarily a result
of changes in income and expenses as described in "Results of Operations" below
and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
years ended December 31, 2001, 2000, and 1999.
In January 1999, the Partnership reinvested the majority of the net
sales proceeds from the 1998 sale of the Property in Billings, Montana plus
remaining net proceeds from other sales of properties in a joint venture
arrangement, Ocean Shores Joint Venture, with an affiliate of the General
Partners, to purchase and hold one restaurant property. The Partnership owns a
69.06% interest in the profits and losses of the joint venture. The Partnership
distributed amounts sufficient to enable the Limited Partners to pay federal and
state income taxes, if any (at a level reasonably assumed by the General
Partners), resulting from the sale.
In March 1999, the Partnership sold its Property in Amherst, New York
to a third party and received net sales proceeds of $1,150,000. The Partnership
had recorded a provision for impairment in the carrying value relating to this
Property of $93,328 at December 31, 1998 due to the tenant filing for
bankruptcy. The provision represented the difference between the carrying value
of the Property at December 31, 1998 and the general partners' estimated net
realizable value for the Property. During 1999, the Partnership recorded a gain
relating to the sale of this Property of $74,640, resulting in an aggregate net
loss of approximately $18,700. In March 1999, the Partnership reinvested the net
sales proceeds plus additional funds, totaling approximately $1,257,200 in a
Golden Corral Property in Fremont, Nebraska. The Partnership distributed amounts
sufficient to enable the Limited Partners to pay federal and state income taxes,
if any (at a level reasonably assumed by the General Partners), resulting from
the sale.
In addition, in August 1999, the Partnership sold its Property in Fort
Myers Beach, Florida for $931,725, resulting in a loss of $42,141. In November
1999, the Partnership reinvested the majority of these proceeds in a joint
venture arrangement, Peoria Joint Venture, with CNL Income Fund II, Ltd., a
Florida limited partnership and an affiliate of the General Partners, to
purchase and hold one restaurant Property. The Partnership contributed
approximately $825,700 and had a 52% interest in the profits and losses of the
joint venture as of December 31, 1999. The Partnership distributed amounts
sufficient to enable the Limited Partners to pay federal and state income taxes,
if any (at a level reasonably assumed by the General Partners) resulting from
the sale.
In December 2000, the Partnership sold its Property in Lancaster, New
York to a third party and received net sales proceeds of $749,675. The
Partnership had recorded a provision for write-down of assets relating to this
Property of $387,202 at December 31, 1998 due to the tenant filing for
bankruptcy. The provision represented the difference between the carrying value
of the Property at December 31, 1998 and the general partners' estimated net
realizable value for the Property. During 2000, the Partnership recorded a gain
relating to the sale of this Property of $50,755, resulting in an aggregate net
loss of approximately $336,400. The Partnership distributed amounts sufficient
to enable the Limited Partners to pay federal and state income taxes, if any (at
a level reasonably assumed by the General Partners), resulting from the sale. In
April 2001, the Partnership reinvested a portion of the proceeds from the sale
of this Property in a joint venture arrangement, CNL VIII, X, XII Kokomo Joint
Venture, with CNL Income Fund VIII, Ltd. and CNL Income Fund XII, Ltd., each of
which is a Florida limited partnership pursuant to the laws of the state of
Florida and an affiliate of the General Partners, to purchase and hold one
restaurant Property. The joint venture acquired this Property from CNL BB Corp.,
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 joint venture. The Partnership contributed approximately
$211,200 and had a 10% interest in the profits and losses of the joint venture
as of December 31, 2001.
In addition, during 2000, the Partnership entered into a promissory
note with the corporate General Partner for a loan in the amount of $125,000 in
connection with the operations of the Partnership. The note was
uncollateralized, non-interest bearing and due on demand. As of December 31,
2000, the Partnership had repaid the loan in full to the corporate General
Partner. No such promissory notes were entered into during the years ended
December 31, 2001 and 1999.
In August 2001, Peoria Joint Venture, in which the Partnership owned a
52% interest, sold its Property to a third party for approximately $1,786,900
resulting in a gain of approximately $136,700. As a result, the Partnership
received approximately $899,500 representing its pro-rata share of the
liquidation proceeds received by the joint venture. In September 2001, Peoria
Joint Venture was dissolved in accordance with the joint venture agreement. No
gain or loss on the dissolution of the joint venture was recorded. In January
2002, the Partnership reinvested the majority of the liquidation proceeds in a
Property in Austin, Texas, as tenants-in-common with CNL Income Fund XVIII,
Ltd., a Florida limited partnership and an affiliate of the General Partners.
None of the Properties owned by the Partnership, or the joint ventures
or tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Under its partnership agreement, the Partnership is
prohibited from borrowing for any purpose; provided, however, that the General
Partners or their affiliates are entitled to reimbursement, at cost, for actual
expenses incurred by the General Partners or their affiliates on behalf of the
Partnership. Affiliates of the General Partners from time to time incur certain
operating expenses on behalf of the Partnership for which the Partnership
reimburses the affiliates without interest.
Currently, rental income from the Partnership's Properties and net
sales proceeds from the sale of Properties are invested in money market accounts
or other short-term highly liquid investments such as demand deposit accounts at
commercial banks, money market accounts and certificates of deposit with less
than a 90-day maturity date, pending the Partnership's use of such funds to pay
Partnership expenses, to make distributions to partners or to reinvest in
additional Properties. At December 31, 2001, the Partnership had $1,565,888,
invested in such short-term investments as compared to $1,361,652 at December
31, 2000. The increase in cash and cash equivalents during 2001 was partially
attributable to the fact that the Partnership received as a return of capital,
its pro rata share of the liquidation proceeds from the dissolution of Peoria
Joint Venture, as described above. The increase in cash and cash equivalents was
offset by the fact that the Partnership used a portion of the net proceeds
received from the 2000 sale of its Property in Lancaster, New York to invest in
CNL VIII, X, XII Kokomo Joint Venture, as described above. As of December 31,
2001, the average interest rate earned on the rental income deposited in demand
deposit accounts at commercial banks was approximately 2.1% annually. The funds
remaining at December 31, 2001, after payment of distributions and other
liabilities, will be used to invest in an additional Property and to meet the
Partnership's working capital needs.
In September 2001, the Partnership entered into an agreement with an
unrelated third party to sell its Property in North Richland Hills, Texas and in
February 2002, the Partnership entered into an agreement with an unrelated third
party to sell its Property in San Marcos, Texas. As of March 15, 2002, the sales
had not occurred.
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 cash flow
in excess of operating expenses.
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 General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based on current and anticipated future cash from operations, the
Partnership declared distributions to the Limited Partners of $3,600,004, for
the years ended December 31, 2001, 2000 and 1999. This represents distributions
of $0.90 per Unit for the years ended December 31, 2001, 2000 and 1999. No
distributions were made to the General Partners during the years ended December
31, 2001, 2000 and 1999, respectively. No amounts distributed to the Limited
Partners for the years ended December 31, 2001, 2000, and 1999, are required to
be or have been treated by the Partnership as a return of capital for purposes
of calculating the Limited Partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis.
During 2000, the general partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the general
partners' capital account as of December 31, 1999. Accordingly, the general
partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2001 and 2000.
As of December 31, 2001 and 2000, the Partnership owed $5,539 and
$147,099, respectively, to affiliates for accounting and administrative
services. As of March 15, 2002, the Partnership had reimbursed the affiliates of
all such amounts. Other liabilities, including distributions payable, decreased
to $997,122 at December 31, 2001, from $1,024,908 at December 31, 2000,
primarily as a result of a decrease in accounts payable and deferred rental
income at December 31, 2001, as compared to December 31, 2000. The decrease was
partially offset by an increase of rents paid in advance as of December 31,
2001. The General Partners believe that the Partnership has sufficient cash on
hand to meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for using either the direct financing or the operating
method. FAS 13 requires management to estimate the economic life of the leased
property, the residual value of the leased property and the present value of
minimum lease payments to be received from the tenant. In addition, management
assumes that all payments to be received under its leases are collectible.
Changes in management's estimates or assumption regarding collectibility of
lease payments could result in a change in accounting for the lease at the
inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews its Properties and investments in unconsolidated
entities periodically (no less than once per year) for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through operations. Management determines whether
impairment in value has occurred by comparing the estimated future undiscounted
cash flows, including the residual value of the Property, with the carrying cost
of the individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
Results of Operations
During 1999, the Partnership and its consolidated joint venture,
Allegan Real Estate Joint Venture, owned and leased 39 wholly owned Properties
(including two Properties sold in 1999) and during 2000 and 2001, the
Partnership and its consolidated joint venture, owned and leased 36 wholly owned
Properties (including one Property which was sold in August 2001 and one
Property which was sold in December 2000). In addition, during 2001, 2000, and
1999, the Partnership was a co-venturer in four separate joint ventures that
each owned and leased one Property and one joint venture which owned and leased
six Properties. During 2001, the Partnership was a co-venturer in one additional
joint venture that owned and leased one Property. In addition, during 2001, 2000
and 1999, the Partnership owned and leased two Properties with affiliates as
tenants-in-common. As of December 31, 2001, the Partnership owned, either
directly or through joint venture arrangements, 48 Properties which are
generally subject to long-term, triple-net leases. The leases of the Properties
provide for minimum base annual rental amounts (payable in monthly installments)
ranging from approximately $29,400 to $225,800. The majority of the leases
provide for percentage rent based on sales in excess of a specified amount. In
addition, a majority of the leases provide that, commencing in specified lease
years (ranging from the second to the sixth lease year), the annual base rent
required under the terms of the lease will increase. For further description of
the Partnership's leases and Properties, see Item 1. Business - Leases and Item
2. Properties, respectively.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership and its consolidated joint venture, earned $2,859,338 , $2,849,565,
and $2,918,175, respectively, in rental income from operating leases and earned
income from direct financing leases. The decrease in rental and earned income
during 2000, as compared to 1999, was due to a decrease of approximately $99,900
as the result of the sale of several Properties during 1999. In addition, rental
and earned income were lower in 2000, as compared to 1999, due to the fact that
in September 1999, the tenant of the Property in Ft. Pierce, Florida vacated the
Property and ceased making rental payments to the Partnership, resulting in a
decrease in rental and earned income of approximately $40,500 during 2000. The
General Partners are currently seeking either a new tenant or purchaser for this
Property. The lost revenues resulting from this vacated Property could have an
adverse affect on the results of operations of the partnership if the
Partnership is unable to re-lease or sell this property in a timely manner. This
decrease was partially offset by an increase of approximately $48,800 during
2000 due to the reinvestment of the majority of the net sales proceeds in
additional Properties, as described in "Capital Resources."
The decrease in rental and earned income during 2000 was partially
offset by an increase of approximately $71,900, as a result of the fact that in
January 2000, the Partnership entered into a new lease with a new tenant to
operate the location as a Kinko's Copies. In connection therewith, the
Partnership agreed to remove the old building so the tenant could construct a
new building. As a result, the Partnership recorded a loss representing the
undepreciated cost of the building as of December 31, 1999. In October 1998,
Boston Chicken, Inc., the tenant of the Boston Market Property in Homewood,
Alabama, filed for bankruptcy and rejected the lease relating to this Property
and ceased making payments to the Partnership.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership also earned $51,376, $65,717, and $96,541, respectively, in
contingent rental income. The decrease in contingent rental income during 2001
and 2000 each as compared to the previous year was primarily attributable to a
decrease in gross sales relating to certain restaurant properties whose leases
require the payment of contingent rent.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership also earned $32,588, $30,303, and $48,935, respectively, in interest
and other income. The decrease in interest and other income during 2000 as
compared to 1999, was primarily attributable to the fact that during 1999, the
Partnership earned interest on the net sales proceeds relating to the sales of
several Properties, pending the reinvestment of the net sales proceeds in
additional Properties.
During the year ended December 31, 2001, three lessees (or groups of
affiliated tenants) of the Partnership and its consolidated joint venture, (i)
Burger King Corporation and BK Acquisition, Inc. (which are affiliated entities
under common control of Diageo, PLC) (hereinafter referred to as "Diageo, PLC"),
(ii) Golden Corral Corporation and (iii) Jack in the Box Inc. and Jack in the
Box Eastern Division, L.P. (which are affiliated entities under common control
of Jack in the Box Inc.) (hereinafter referred to as "Jack in the Box Inc."),
each contributed more than 10% of the Partnership's total rental and earned
income (including rental and earned income from the Partnership's consolidated
joint venture and the Partnership's share of rental and earned income from ten
Properties owned by unconsolidated joint ventures and two Properties owned with
affiliates of the General Partners as tenants-in-common). As of December 31,
2001, Diageo, PLC was the lessee under leases relating to seven restaurants,
Golden Corral Corporation was the lessee under leases relating to six
restaurants and Jack in the Box Inc. was the lessee under leases relating to six
restaurants. It is anticipated that based on the minimum rental payments
required by the leases, these three lessees will continue to contribute more
than 10% of the Partnership's total rental and earned income during 2002. In
addition, during the year ended December 31, 2001, four Restaurant Chains,
Golden Corral, Hardee's, Burger King, and Jack in the Box, each accounted for
more than 10% of the Partnership's total rental and earned income (including
rental and earned income from the Partnership's consolidated joint venture and
the Partnership's share of rental and earned income from ten Properties owned by
unconsolidated joint ventures and two Properties owned with affiliates as
tenants-in-common). In 2002, it is anticipated that these four Restaurant Chains
will continue to account for more than 10% of the Partnership's total rental and
earned income to which the Partnership is entitled under the terms of the
leases. Any failure of these lessees or Restaurant Chains could materially
affect the Partnership's income if the Partnership is not able to re-lease the
Properties in a timely manner.
Operating expenses, including depreciation and amortization expense and
provisions for write-down of assets were $1,113,032, $971,575, and $1,198,900,
for the years ended December 31, 2001, 2000, and 1999, respectively. The
increase in operating expenses during 2001 as compared to 2000 was primarily
attributable to an increase in the costs incurred for administrative expenses
for servicing the Partnership and its Properties, as permitted by the
Partnership agreement. The increase in operating expenses during 2001 was also
partially attributable to the Partnership recording a provision for write-down
of assets related to two Properties, as described below. The increase in
operating expenses during 2001 was partially offset by, and the decrease during
2000, as compared to 1999, was primarily due to, the fact that the Partnership
incurred $38,333 and $195,746 during 2000 and 1999, respectively, in transaction
costs related to the General Partners retaining financial and legal advisors to
assist them in evaluating and negotiating the proposed and terminated merger
with APF, as described in "Termination of Merger." No such transaction costs
were incurred during the year ended December 31, 2001.
The decrease in operating expenses during 2000, as compared to 1999 was
partially due to the fact that during 1999 the Partnership recorded legal
expenses, real estate taxes, insurance and maintenance relating to the
Properties in Lancaster, New York and Homewood, Alabama due to the fact that the
tenants of these Properties filed for bankruptcy, and the Property in Ft.
Pierce, Florida, due to the tenant vacating the Property. In January 2000, the
Partnership re-leased the Property in Homewood, Alabama to a new tenant who is
responsible for such expenses in the future, based on the terms of the lease
agreement. The increase in operating expenses during 2001 was partially offset
by the fact that in December 2000, the Partnership sold the Property in
Lancaster, New York for which the Partnership had previously incurred such
expenses. The Partnership expects to continue to incur such expenses relating to
the remaining vacant Property in Ft. Pierce, Florida, until a replacement tenant
or purchaser is located. The Partnership is currently seeking either a
replacement tenant or purchaser for this Property.
In January 2000, the Partnership entered into a new lease with a new
tenant for the Property in Homewood, Alabama. In connection therewith, the
Partnership agreed to remove the old building from the Property so the new
tenant can construct a new building. Therefore, at December 31, 1999, the
Partnership recorded a provision for write-down of assets of $357,760,
representing the undepreciated cost of the old building. During the year ended
December 31, 2000, the building was demolished and the total undepreciated cost
of the building of $629,785, for which the Partnership had recorded provisions
in prior years, was removed. No gain or loss on demolition relating to the
building was recorded in 2000. During the years ended December 31, 2001 and
2000, the Partnership recorded a provision for write-down of assets in the
amount of $306,659 and $287,275, respectively, relating to the Property in Ft.
Pierce, Florida due to the fact that the tenant vacated the Property and ceased
making rental payments to the Partnership. The provision represented the
difference between the carrying value of the Property at December 31, 2001 and
2000, and the General Partners' estimated net realizable value of the Property
for each year. In addition, during the year ended December 31, 2001, the
Partnership established a provision for write-down of assets in the amount of
$84,527 related to the Property in North Richland Hills, Texas. The provision
represented the difference between the carrying value of the Property at
December 31, 2001 and the anticipated sales price for the Property.
As a result of the sale of the Property in Lancaster, New York, the
Partnership recorded a gain of $50,755 during the year ended December 31, 2000.
As a result of the sale of the Properties in Amherst, New York and Fort Myers
Beach, Florida, the Partnership recorded a gain of $74,640 and a loss of
$42,141, respectively, during the year ended December 31, 1999. For additional
information on the sales of these Properties, see "Capital Resources."
For the year ended December 31, 2001, the Partnership recorded a loss
of $88,921, and for the years ended December 31, 2000 and 1999, the Partnership
earned $449,576 and $380,616, respectively, attributable to net income earned by
unconsolidated joint ventures in which the Partnership is a co-venturer. The
decrease in net income earned by these joint ventures during 2001, as compared
to 2000, was due to the fact that the tenant of the Property owned by Ocean
Shores Joint Venture, in which the Partnership owns a 69.06% interest,
experienced financial difficulties, ceased operations and vacated the Property.
As a result, during 2001 the joint venture established an allowance for doubtful
accounts of approximately $91,300 for past due rental amounts in accordance with
the joint venture's policy. No such allowance was established during the years
ended December 31, 2000 and 1999. The joint venture will continue to pursue
collection of past due amounts. The joint venture will not record rental income
relating to this Property until it locates a new tenant or purchaser for this
Property. The joint venture is beginning the process of seeking a new tenant or
purchaser for this Property. In addition, during 2001, the joint venture
established a provision for write-down of assets in the amount of $781,749. The
provision represented the difference between the carrying value of the Property
and the joint venture partners' estimated net realizable value for the Property.
No such provision was recorded during the years ended December 31, 2000 and
1999.
The decrease in net income earned from joint ventures during 2001 was
partially offset by the fact that in April 2001, the Partnership used a portion
of the net sales proceeds received from the 2000 sale of its Property in
Lancaster, New York to invest in a joint venture arrangement, CNL VIII, X, XII
Kokomo Joint Venture, with CNL Income Fund VIII, Ltd. and CNL Income Fund XII,
Ltd. to purchase and hold one restaurant Property. Each of the CNL Income Funds
is a Florida limited partnership pursuant to the laws of the state of Florida,
and an affiliate of the general partners. In addition, the decrease in net
income during 2001 was partially offset by the fact that in August 2001, Peoria
Joint Venture, in which the Partnership owned a 52% interest, sold its Property
to a third party for $1,786,900 resulting in a gain of approximately $136,700.
The Partnership dissolved the joint venture in accordance with the joint venture
agreement and did not record a gain or loss on the dissolution. The Partnership
received $899,500 representing its pro rata share of the liquidation proceeds
from the joint venture, as described in "Capital Resources." The increase in net
income earned by unconsolidated joint ventures during 2000 as compared to the
1999, was primarily attributable to the fact that the Partnership invested in
Ocean Shores Joint Venture in January 1999 and Peoria Joint Venture in December
1999, as described above in "Capital Resources."
The restaurant industry, as a whole, has been one of the many
industries affected by the general slowdown in the economy. The General Partners
remain confident in the overall performance of the fast-food and family style
restaurants, the concepts that comprise the majority of the Partnership's
portfolio. Industry data shows that these restaurant concepts continue to
outperform and remain more stable than higher-end restaurants, which have been
more adversely affected by the slowing economy.
The Partnership's leases as of December 31, 2001, are generally
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Inflation, overall, has had a minimal effect on
results of operations of the Partnership. Continued inflation also 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 December 1999, the Securities and Exchange Commission released SAB
101, which provides the staff's view in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 requires the
Partnership to defer recognition of certain percentage rental income until
certain defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
partnership's result of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combination" (FAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). 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 assets exceeds its fair
value. If an impairment is recognized, the adjusted carrying amount of a
long-lived asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the Partnership's recording of impairment losses as this Statement
retain the fundamental provisions of FAS No. 121 "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be disposed of."
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long term, "triple net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had mutually
agreed to terminate the Agreement and Plan of Merger entered into in March 1999.
The agreement to terminate the Agreement and Plan of Merger was based, in large
part, on the General Partners' concern that, in light of market conditions
relating to publicly traded real estate investment trusts, the value of the
transaction had diminished. As a result of such diminishment, the General
Partners' ability to unequivocally recommend voting for the transaction, in the
exercise of their fiduciary duties, had become questionable. The General
Partners are continuing to evaluate strategic alternatives for the Partnership,
including alternatives to provide liquidity to the limited partners.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 19
Financial Statements:
Balance Sheets 20
Statements of Income 21
Statements of Partners' Capital 22
Statements of Cash Flows 23-24
Notes to Financial Statements 25-42
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund X, 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 X, Ltd. (a Florida limited
partnership) at December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001 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 14(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.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 8, 2002
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------- --------------------
ASSETS
Land and buildings on operating leases, net $ 14,458,854 $ 15,078,329
Net investment in direct financing leases 8,911,232 9,164,968
Investment in joint ventures 3,664,241 4,929,505
Cash and cash equivalents 1,565,888 1,361,652
Receivables, less allowance for doubtful accounts of
$24,814 and $284,513, respectively
29,930 48,978
Due from related party 360 13,063
Accrued rental income, less allowance for
doubtful accounts of $4,841 and $3,388,
respectively 1,369,931 1,431,637
Other assets 87,209 96,051
------------------- --------------------
$ 30,087,645 $ 32,124,183
=================== ====================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 11,105 $ 35,472
Escrowed real estate taxes payable 8,256 10,114
Distributions payable 900,001 900,001
Due to related parties 5,539 147,099
Rents paid in advance 77,760 71,418
Deferred rental income -- 7,903
------------------- --------------------
Total liabilities 1,002,661 1,172,007
Minority interest 64,256 64,098
Commitment (Note 11)
Partners' capital 29,020,728 30,888,078
------------------- --------------------
$ 30,087,645 $ 32,124,183
=================== ====================
See accompanying notes to financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
----------------- ---------------- -----------------
Revenues:
Rental income from operating leases $ 1,893,271 $ 1,868,756 $ 1,771,827
Earned income from direct financing leases 966,067 980,809 1,146,348
Contingent rental income 51,376 65,717 96,541
Interest and other income 32,588 30,303 48,935
----------------- ---------------- -----------------
2,943,302 2,945,585 3,063,651
----------------- ---------------- -----------------
Expenses:
General operating and administrative 308,138 206,381 182,554
Professional services 63,711 44,002 64,806
Real estate taxes 10,760 54,513 39,219
State and other taxes 36,829 22,580 15,457
Depreciation and amortization 302,408 318,491 325,062
Provision for write-down of assets 391,186 287,275 376,056
Transaction costs -- 38,333 195,746
----------------- ---------------- -----------------
1,113,032 971,575 1,198,900
----------------- ---------------- -----------------
Income Before Gain on Sale of Assets Minority Interest in
Income of Consolidated Joint Venture and Equity in
Earnings (Loss) of Unconsolidated Joint Ventures 1,830,270 1,974,010 1,864,751
Gain on Sale of Assets -- 50,755 32,499
Minority Interest in Income of Consolidated
Joint Venture (8,695 ) (8,553 ) (8,465 )
Equity in Earnings (Loss) of Unconsolidated Joint Ventures (88,921 ) 449,576 380,616
----------------- ---------------- -----------------
Net Income $ 1,732,654 $ 2,465,788 $ 2,269,401
================= ================ =================
Allocation of Net Income
General partners $ -- $ -- $ 23,210
Limited partners 1,732,654 2,465,788 2,246,191
----------------- ---------------- -----------------
$ 1,732,654 $ 2,465,788 $2,269,401
================= ================ =================
Net Income Per Limited Partner Unit $ 0.43 $ 0.62 $ 0.56
================= ================ =================
Weighted Average Number of Limited Partner Units
Outstanding 4,000,000 4,000,000 4,000,000
================= ================ =================
See accompanying notes to financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001, 2000 and 1999
General Partners Limited Partners
------------------------------------- ---------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------ ----------------- ----------------- ----------------- ------------------ -
Balance, December 31, 1998 $ 1,000 $ 228,725 $ 40,000,000 $ (24,643,143 ) $ 22,556,315
Distributions to limited
partners ($0.90 per
limited partner unit) -- -- -- (3,600,004 ) --
Net income -- 23,210 -- -- 2,246,191
------------------ ----------------- ----------------- ----------------- ------------------ -
Balance, December 31, 1999 1,000 251,935 40,000,000 (28,243,147 ) 24,802,506
Distributions to limited
partners ($0.90 per
limited partner unit) -- -- -- (3,600,004 ) --
Net income -- -- -- -- 2,465,788
------------------ ----------------- ----------------- ----------------- ------------------ -
Balance, December 31, 2000 1,000 251,935 40,000,000 (31,843,151 ) 27,268,294
Distributions to limited
partners ($0.90 per
limited partner unit) -- -- -- (3,600,004 ) --
Net income -- -- -- -- 1,732,654
------------------ ----------------- ----------------- ----------------- ------------------ -
Balance, December 31, 2001 $ 1,000 $ 251,935 $ 40,000,000 $ (35,443,155 ) $ 29,000,948
================== ================= ================= ================= ================== =
See accompanying notes to financial statements.
- -----------------------------------
Syndication
Costs Total
- --------------- ------------------
$ (4,790,000) $ 33,352,897
-- (3,600,004 )
-- 2,269,401
- --------------- ------------------
(4,790,000) 32,022,294
-- (3,600,004 )
-- 2,465,788
- --------------- ------------------
(4,790,000) 30,888,078
-- (3,600,004 )
-- 1,732,654
- --------------- ------------------
$ (4,790,000) $ 29,020,728
=============== ==================
See accompanying notes to financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
---------------- ---------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 3,182,685 $ 3,130,836 $ 3,049,409
Distributions from unconsolidated
joint venture 488,092 509,280 440,831
Cash paid for expenses (564,409) (365,756) (355,273)
Interest received 21,482 24,306 47,915
---------------- ---------------- ---------------
Net cash provided by operating activities 3,127,850 3,298,666 3,182,882
---------------- ---------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of assets -- 749,675 2,081,725
Additions to land and buildings on operating
leases -- -- (1,257,217)
Liquidating distribution from joint venture 899,452 -- --
Investment in joint ventures (211,201) -- (1,628,095)
Decrease in restricted cash -- -- 359,990
Payment of lease costs (3,324) (44,273) --
---------------- ---------------- ---------------
Net cash provided by (used in)
Investing activities 684,927 705,402 (443,597)
---------------- ---------------- ---------------
Cash Flows from Financing Activities:
Proceeds from loan from corporate general
partners -- 125,000 --
Repayment of loan from corporate general
partners -- (125,000) --
Distributions to limited partners (3,600,004) (3,600,004) (3,600,004)
Distributions to holder of minority interest (8,537) (9,506) (8,159)
---------------- ---------------- ---------------
Net cash used in financing activities (3,608,541) (3,609,510) (3,608,163)
---------------- ---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents 204,236 394,558 (868,878)
Cash and Cash Equivalents at Beginning of Year 1,361,652 967,094 1,835,972
---------------- ---------------- ---------------
Cash and Cash Equivalents at End of Year $ 1,565,888 $ 1,361,652 $ 967,094
================ ================ ===============
See accompanying notes to financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2001 2000 1999
--------------- ---------------- ----------------
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income $ 1,732,654 $ 2,465,788 $ 2,269,401
--------------- ---------------- ----------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 297,383 317,491 325,062
Amortization 5,025 1,000 --
Minority interest in income of consolidated joint
venture 8,695 8,553 8,465
Equity in earnings of unconsolidated joint
ventures, net of distributions 577,013 59,704 60,215
Gain on sale of assets -- (50,755) (32,499)
Provision for write-down of assets 391,186 289,453 377,266
Decrease (increase) in receivables 19,048 51,974 (18,439)
Decrease (increase) in due from related party 12,703 (3,635) --
Decrease in net investment in direct financing 253,736 226,323 209,710
leases
Increase in accrued rental income (7,388) (80,655) (99,597)
Decrease (increase) in other assets 7,141 2,189 (14,254)
Increase (decrease) in accounts payable and
escrowed real estate taxes payable (26,225) (74,006) 99,203
Increase (decrease) in due to related parties (141,560) 77,555 30,129
Increase (decrease) in rents paid in advance and
deposits 6,342 7,687 (31,780)
Decrease in deferred rental income (7,903) -- --
--------------- ---------------- ----------------
Total adjustments 1,395,196 832,878 913,481
--------------- ---------------- ----------------
Net Cash Provided by Operating Activities $ 3,127,850 $ 3,298,666 $ 3,182,882
=============== ================ ================
Supplemental Schedule of Non-Cash Financing Activities:
Distributions declared and unpaid at December 31 $ 900,001 $ 900,001 $ 900,001
=============== ================ ================
See accompanying notes to financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund X, 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 the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated 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. The leases are accounted for
using either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The 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) (see Note 4). 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 net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. In contrast, deferred
rental income represents the aggregate amount of scheduled
rental payments to date (including rental payments due during
construction and prior to the property being placed in
service) in excess of income recognized on a straight-line
basis over the lease term commencing on the date the property
is placed in service. Whenever a tenant defaults under the
terms of its lease, or events or changes in circumstance
indicate that the tenant will not lease the property through
the end of the lease term, the Partnership either reserves or
reverses the cumulative accrued rental income balance.
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. Although the general partners have made their best
estimate of these factors based on current conditions, it is reasonably
possible that changes could occur in the near term which could
adversely affect the general partners' estimate of net cash flows
expected to be generated from its properties and the need for asset
impairment write-downs. If an impairment is indicated, the assets are
adjusted to their fair value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
although the Partnership continues to pursue collection of such
amounts. If amounts are subsequently determined to be uncollectible,
the corresponding receivable and allowance for doubtful accounts are
decreased accordingly.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
Investment in Joint Ventures - The Partnership accounts for its 88.26%
interest in Allegan Real Estate Joint Venture using the consolidation
method. Minority interest represents the minority joint venture
partner's proportionate share of the equity in the Partnership's
consolidated joint venture. All significant intercompany accounts and
transactions have been eliminated.
The Partnership's investments in CNL Restaurant Investments III,
Williston Real Estate Joint Venture, Ashland Joint Venture, Ocean
Shores Joint Venture and CNL VIII, X, XII Kokomo Joint Venture, and the
properties in Clinton, North Carolina, and Miami, Florida, for which
each property is held as tenants-in-common with affiliates, are
accounted for using the equity method since each joint venture
agreement requires the consent of all partners on all key decisions
affecting the operations of the underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts.
Lease Costs - Other assets include brokerage fees and lease incentive
costs incurred in negotiating new leases for the Partnership's
properties which are amortized over the terms of the new leases using
the straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
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 are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment. See "Income Taxes"
footnote for a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes.
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 2001 presentation.
These reclassifications had no effect on partners' capital or net
income.
Staff Accounting Bulleting No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Partnership
to defer recognition of certain percentage rental income until certain
defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material
impact on the partnership's result of operations.
Statement of Financial Accounting Standard No. 141 ("FAS 141") and
Statement of Financial Accounting Standard No. 142 ("FAS 142") - In
July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" (FAS
141) and Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" (FAS 142). The Partnership has reviewed
both statements and has determined that both FAS 141 and FAS 142 do not
apply to the Partnership as of December 31, 2001.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
Statement of Financial Accounting Standard No. 144 - In October 2001,
the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets" (FAS 144). 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 adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this
Statement retained the fundamental provisions of FAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of."
2. Leases:
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." Some of the leases have been
classified as operating leases and some of the leases have been
classified as direct financing leases. For the leases classified as
direct financing leases, the building portions of the Property leases
are accounted for as direct financing leases while the land portions of
the majority of these leases are operating leases. Substantially all
leases are for 15 to 25 years and provide for minimum and contingent
rentals. In addition, the tenant generally pays all property taxes and
assessments, fully maintains the interior and exterior of the building
and carries insurance coverage for public liability, property damage,
fire and extended coverage. The lease options generally allow tenants
to renew the leases for two to five 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.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
2001 2000
------------------- ------------------
Land $ 8,190,740 $ 8,345,548
Building 8,456,224 8,623,508
------------------- ------------------
16,646,964 16,969,056
Less accumulated depreciation (2,188,110) (1,890,727 )
------------------- ------------------
$ 14,458,854 $ 15,078,329
=================== ==================
In January 2000, the Partnership entered into a new lease with a new
tenant for the Property in Homewood, Alabama. In connection therewith,
the Partnership agreed to remove the old building from the property so
the new tenant could construct a new building. Therefore, at December
31, 1999, the Partnership recorded an impairment for $357,760,
representing the undepreciated cost of the old building. As of December
31, 2000, the building was demolished and the total undepreciated cost
of the old building was removed from the accounts. Because the
Partnership had recorded provisions in prior years, no loss on
demolition of the building was recognized in 2000.
In December 2000, the Partnership sold its property in Lancaster, New
York and received net sales proceeds of $749,675 resulting in a total
gain of $50,755. During the year ended December 31, 2000, the
Partnership recorded a provision for write-down of assets in the amount
of $287,275, relating to the property in Ft. Pierce, Florida. The
tenant of this property vacated the property and discontinued payment
of rents to the Partnership. Due to the fact that the Partnership had
not been able to successfully re-lease this property, the Partnership
increased the allowance by $306,659 during 2001. The provision
represented the difference between the carrying value of the property
at December 31, 2001 and general partners' the estimated net realizable
value of the property.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases:
In September 2001, the Partnership entered into an agreement with a
third party to sell its property in North Richland Hills, Texas. The
Partnership established a provision for write-down of assets in the
amount of $84,527 (see Note 11). The provision represented the
difference between the carrying value of the property at December 31,
2001 and the anticipated sales price for the property.
The following is a schedule of the future minimum lease payments to be
received on non-cancellable operating leases at December 31, 2001:
2002 $1,946,843
2003 1,955,623
2004 2,011,708
2005 2,025,557
2006 1,991,597
Thereafter 6,786,358
----------------
$16,717,686
================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales. These
amounts do not include minimum lease payments that will become due when
the property under development is completed.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
2001 2000
----------------- ----------------
Minimum lease payments receivable $12,503,573 $ 13,727,040
Estimated residual values 3,229,175 3,229,175
Less unearned income (6,821,516 ) (7,791,247 )
----------------- ----------------
Net investment in direct financing leases $ 8,911,232 $ 9,164,968
================= ================
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at December 31, 2001:
2002 $1,253,453
2003 1,264,963
2004 1,275,746
2005 1,277,081
2006 1,277,402
Thereafter 6,154,928
----------------
$12,503,573
================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
5. Investment in Joint Ventures:
The Partnership has a 50%, a 10.51%, a 40.95%, a 13%, a 69.06%, and a
6.69% interest in the profits and losses of CNL Restaurant Investments
III, Ashland Joint Venture, Williston Real Estate Joint Venture, Ocean
Shores Joint Venture, and a property in Clinton, North Carolina, and a
property in Miami, Florida, held as tenants-in-common with affiliates
of the general partners. The remaining interests in these joint
ventures are held by affiliates of the Partnership which have the same
general partners.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
In November 1999, the Partnership entered into a joint venture
arrangement, Peoria Joint Venture, with CNL Income Fund II, Ltd., an
affiliate of the general partners, to own and lease one restaurant
property. The Partnership had contributed approximately $825,700 to the
joint venture. In August 2001, Peoria Joint Venture, in which the
Partnership owned a 52% interest, sold its property to a third party
for approximately $1,786,900 resulting in a gain of approximately
$136,700. The Partnership and the joint venture partner dissolved the
joint venture in accordance with the joint venture agreement and did
not recognize a gain or loss on the dissolution. As a result, the
Partnership received approximately $899,500 representing its pro rata
share of the liquidation proceeds received from the joint venture.
In April 2001, the Partnership used a portion of the sales proceeds
from the 2000 sale of its property in Lancaster, New York to invest in
a joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture,
with CNL Income Fund VIII, Ltd. and CNL Income Fund XII, Ltd. to
purchase and hold one restaurant property. Each of the CNL Income Funds
is an affiliate of the general partners and a Florida limited
partnership pursuant to the laws of the state of Florida. The joint
venture acquired this property from CNL BB Corp., an affiliate of the
general partners (see Note 8). As of December 31, 2001, the Partnership
had contributed approximately $211,200 and owned a 10% interest in the
profits and losses of the joint venture.
During the year ended December 2001, Ocean Shores Joint Venture
recorded a provision for write-down of assets in the amount of
$738,349, relating to its Burger King property in Ocean Shores,
Washington, due to the fact that the tenant vacated the property and
ceased payment of rents under the terms of its lease agreement. The
provision represented the difference between the carrying value of the
property at December 31, 2001 and the joint venture partners' estimated
net realizable value for the property.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
CNL Restaurant Investments III owns and leases six properties to an
operator of national fast-food restaurants. Ashland Joint Venture,
Williston Real Estate Joint Venture, Ocean Shores Joint Venture, CNL
VIII, X, XII Kokomo Joint Venture and the Partnership and affiliates as
tenants-in-common in two separate tenancy-in-common arrangements, each
own and lease one property to an operator of national fast-food or
family-style restaurants. The following presents the joint ventures'
combined, condensed financial information at December 31:
2001 2000
-------------- -------------------
Land and buildings on operating
leases, net $ 11,106,444 $ 9,693,530
Net investment in direct financing
leases 640,381 2,546,467
Cash 31,907 57,379
Receivables, less allowance for
doubtful accounts 74,611 3,100
Accrued rental income 79,333 120,282
Other assets 24,639 33,863
Liabilities 7,593 7,375
Partners' capital 11,949,722 12,447,246
Revenues 1,346,578 1,404,081
Provision for write-down of assets 781,749 --
Gain on sale of assets 136,665 --
Net income 284,208 1,126,840
The Partnership recognized a loss of $88,921 and income totaling
$449,576 and $380,616 for the years ended December 31, 2001, 2000, and
1999, respectively, from these joint ventures.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
6. Allocations and Distributions:
From inception through December 31, 1999, 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; provided, however, that 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,
10%, cumulative, noncompounded annual return on their adjusted capital
contributions (the "10% Preferred Return").
From inception through December 31, 1999, generally, net sales proceeds
from the sale of properties not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their 10% Preferred
Return, plus the return of their adjusted capital contributions.
The general partners then received, to the extent previously
subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds were distributed 95% to the
limited partners and five percent to the general partners. Any gain
from the sale of a property not in liquidation of the Partnership was,
in general, allocated in the same manner as net sales proceeds are
distributable. Any loss from the sale of a property was, in general,
allocated first, on a pro rata basis, to partners with positive
balances in their capital accounts; and thereafter, 95% to the limited
partners and 5% 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% to the
limited partners and 5% to the general partners.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
6. Allocations and Distributions - Continued:
Effective January 1, 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the years
ended December 31, 2001 and 2000.
During the years ended December 31, 2001, 2000 and 1999, the
Partnership declared distributions to the limited partners of
$3,600,004. No distributions have been made to the general partners to
date.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. 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:
2001 2000 1999
-------------- -------------- --------------
Net income for financial reporting purposes $ 1,732,654 $ 2,465,788 $ 2,269,401
Depreciation for tax reporting purposes in excess
of depreciation for financial reporting
purposes (159,214) (159,851) (171,877)
Direct financing leases recorded as operating
leases for tax reporting purposes 253,735 226,323 209,517
Equity in earnings of unconsolidated joint
ventures for tax reporting purposes in excess of
(less than)equity in earnings of unconsolidated
equity in earnings of unconsolidated joint
ventures for financial reporting purposes 635,668 (47,498) 20,342
Gain on sale of assets for financial reporting
purposes (less than) in excess of gain for
tax reporting purposes -- (308,959) 138,449
Provision for write-down of assets 391,186 287,275 376,056
Allowance for doubtful accounts (259,699) 161,599 (113,896)
Accrued rental income (32,350) (78,478) (98,387)
Deferred rental income (1,645) -- --
Rents paid in advance 25,046 7,687 (31,780)
Minority interest in timing differences of
consolidated joint venture 1,089 1,108 1,846
Capitalization (Deduction) of transaction costs
for tax reporting purposes -- (219,525) 195,746
Other -- 9,432 --
-------------- -------------- --------------
Net income for federal income tax purposes $ 2,586,470 $ 2,344,901 $ 2,795,417
============== ============== ==============
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. 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 (the "Advisor") is a wholly owned subsidiary
of CNL American Properties Fund, Inc. ("APF"). CNL Fund Advisors, Inc.,
a majority owned subsidiary of CNL Financial Group, Inc. until it
merged with and into APF effective September 1, 1999, served as the
Partnership's advisor until it assigned its rights and obligations
under a management agreement with the Partnership to the Advisor
effective July 1, 2000. The individual general partners are
stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with
the Partnership. In connection therewith, the Partnership has agreed to
pay the Advisor an annual, noncumulative, subordinated management fee
of one percent of the sum of gross revenues from properties wholly
owned by the Partnership and the Partnership's allocable share of gross
revenues from joint ventures, but not in excess of competitive fees for
comparable services. These fees will be incurred and will be payable
only after the limited partners receive their 10% Preferred Return. Due
to the fact that these fees are noncumulative, if the limited partners
do not receive 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, 2001, 2000, and 1999.
The Advisor is are 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 3% 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. In addition, the real estate disposition fee is
subordinated to the 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.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. Related Party Transactions - Continued:
During 2001, the Partnership, CNL Income Fund VIII, Ltd., and CNL
Income Fund XII, Ltd. invested in a joint venture arrangement, CNL
VIII, X, XII Kokomo Joint Venture to acquire a Golden Corral property
from CNL BB Corp., an affiliate of the general partners for a purchase
price of $2,112,011 (see Note 5). CNL Income Fund VIII, Ltd., and CNL
Income Fund XII, Ltd. are each Florida limited partnerships and
affiliates of the general partners. CNL BB Corp. had purchased and
temporarily held title to this property in order to facilitate the
acquisition of the property by the joint venture. The purchase price
paid by the joint venture represents the costs incurred by CNL BB Corp.
to acquire and carry the property, including closing costs.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership's advisor and its affiliates provided accounting and
administrative services to the Partnership on a day-to-day basis
including services relating to the proposed and terminated merger. The
Partnership incurred $204,843, $100,929, and $129,209, for the years
ended December 31, 2001, 2000, and 1999, respectively, for such
services.
The amounts due to related parties at December 31, 2001 and 2000,
totaled $5,539 and $147,099, respectively.
9. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, or affiliated groups of lessees, each representing
more than 10% of the Partnership's total rental and earned income
(including the Partnership's share of total rental and earned income
from unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates of the general partners) for each of
the years ended December 31:
2001 2000 1999
--------------- --------------- ---------------
Golden Corral Corporation $702,567 $ 707,882 $ 686,144
Jack in the Box Inc. (and Jack in
the Box Eastern Division, L.P.
in 2001) 506,446 517,974 514,747
Burger King Corporation 339,808 N/A N/A
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
9. Concentration of Credit Risk - Continued:
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
10% of the Partnership's total rental and earned income (including the
Partnership's share of total rental and earned income from
unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates of the general partners) for each of
the years ended December 31:
2001 2000 1999
---------------- ---------------- ---------------
Burger King $ 741,334 $ 791,749 $ 797,192
Golden Corral Family
Steakhouse Restaurant 702,567 707,882 686,144
Jack in the Box 506,446 517,974 514,747
Hardee's 384,914 390,528 395,902
Shoney's N/A N/A 398,103
The information denoted by N/A indicates that for each period
presented, the tenant and the chains did not represent more than 10% of
the Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
10. Selected Quarterly Financial Data:
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2001 and
2000:
2001 Quarter First Second Third Fourth Year
---------------------- ---------------- -------------- --------------- ------------- ---------------
Revenues (1)(2) $ 847,014 $ 821,561 $ 342,894 $ 834,217 $ 2,845,686
Net income (loss) 588,085 650,628 (181,424 ) 675,365 1,732,654
Net income (loss)
per limited
partner unit 0.15 0.16 (0.05 ) 0.17 0.43
2000 Quarter First Second Third Fourth Year
---------------------- ---------------- -------------- --------------- ------------- ---------------
Revenues (1)(2) $ 806,164 $ 840,735 $ 873,727 $ 868,160 $ 3,388,786
Net Income 271,897 642,974 718,302 832,615 2,465,788
Net income per
limited partner
unit 0.07 0.16 0.18 0.21 0.62
(1) Revenues include equity in earning of unconsolidated joint ventures and
minority interest in income of the consolidated joint venture.
(2) Revenues have been adjusted to reclassify any reversals of accrued
rental income to provisions for write-down of assets. This
reclassification had no effect on total net income.
11. Commitment:
In September 2001, the Partnership entered into an agreement with an
unrelated third party to sell the property in North Richland Hills,
Texas. During the year ended December 31, 2001, the Partnership
established a provision for write-down of assets related to the
anticipated sale of this property (see Note 3).
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
12. Subsequent Event:
In January 2002, the Partnership reinvested a portion of the
liquidation proceeds from the 2001 liquidation of Peoria Joint Venture
in a property in Austin, Texas, as tenants-in-common, with CNL Income
Fund XVIII, Ltd., a Florida limited partnership and an affiliate of the
general partners. The Partnership entered into a long-term, triple-net
lease with terms substantially the same as its other leases.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 1
Financial Statements:
Balance Sheets 2
Statements of Income 3
Statements of Partners' Capital 4
Statements of Cash Flows 5-6
Notes to Financial Statements 7-10
Report of Independent Certified Public Accountants
To the Partners
CNL Ocean Shores Joint Venture
In our opinion, the accompanying balance sheet and the related statements of
operations, of partners' capital and of cash flows present fairly, in all
material respects, the financial position of CNL Ocean Shores Joint Venture (a
Florida limited partnership) at December 31, 2001, and the results of its
operations and its cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of America. These
financial statements are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audit 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 audit provides a
reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 8, 2002
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------ ------------------
(unaudited)
ASSETS
Land and building, net $ 387,104 $ 351,015
Net investment in direct financing lease -- 792,921
Cash 596 9,509
Receivables, less allowance for doubtful
accounts of $91,258 in 2001 -- 1,001
Accrued rental income -- 34,455
Other assets 284 247
------------------ ------------------
$ 387,984 $ 1,189,148
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Partners' capital 387,984 1,189,148
------------------ ------------------
$ 387,984 $ 1,189,148
================== ==================
See accompanying notes to financial statements.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
STATEMENTS OF OPERATIONS
January 29, 1999
(Date of
Inception)
through December
Year Ended December 31, 31,
2001 2000 1999
---------------- --------------- ----------------
(unaudited) (unaudited)
Revenues:
Rental income from operating leases $ 33,503 $ 40,887 $ 37,496
Earned income from direct financing leases -- 79,393 74,486
Interest and other income -- 535 --
---------------- --------------- ----------------
33,503 120,815 111,982
---------------- --------------- ----------------
Expenses:
General operating and administrative 1,695 1,508 1,511
Provision for doubtful accounts 931 -- --
Professional services 624 398 --
Depreciation and amortization 15,122 -- --
Provision for write-down of assets 781,741 -- --
---------------- --------------- ----------------
800,113 1,906 1,511
---------------- --------------- ----------------
Net (Loss) Income $ (766,610 ) $ 118,909 $ 110,471
================ =============== ================
Allocation of Net (Loss)Income
CNL Income Fund X, Ltd. $ (529,421 ) $ 82,119 $ 76,291
CNL Income Fund XVII, Ltd. (237,189 ) 36,790 34,180
---------------- --------------- ----------------
$ (766,610 ) $ 118,909 $ 110,471
================ =============== ================
See accompanying notes to financial statements.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001, 2000, and the Period January 29, 1999 (Date
of Inception) through December 31, 1999
CNL Income Fund X, Ltd. CNL Income Fund XVII, Ltd.
-------------------------------------------------------- -------------------------------------
Accumulated
Contributions Distributions Earnings Contributions Distributions
------------------ --------------- ----------------- ---------------- -----------------
Balance, January 29, 1999
(Date of Inception) $ -- $ -- $ -- $ -- $ --
Contributions from joint
venture partners 802,432 -- -- 359,485 --
Distributions to joint venture
partners -- (70,190 ) -- -- (31,447 )
Net income -- -- 76,291 -- --
------------------ --------------- ----------------- ---------------- -----------------
Balance, December 31, 1999
(unaudited) 802,432 (70,190 ) 76,291 359,485 (31,447 )
Contributions from joint
venture partners (12 ) -- -- 12 --
Distributions to joint venture -- (69,414 ) -- -- (31,098 )
Net income -- -- 82,119 -- --
------------------ --------------- ----------------- ---------------- -----------------
Balance, December 31, 2000
(unaudited) 802,420 (139,604 ) 158,410 359,497 (62,545 )
Distributions to joint venture -- (23,863 ) -- -- (10,691 )
Net loss -- -- (529,421 ) -- --
------------------ --------------- ----------------- ---------------- -----------------
Balance, December 31, 2001 $ 802,420 $ (163,467 ) $ (371,011 ) $ 359,497 $ (73,236 )
================== =============== ================= ================ =================
See accompanying notes to financial statements.
- ---------------
Accumulated
Earnings Total
-------------- --------------
$ -- $ --
-- 1,161,917
-- (101,637 )
34,180 110,471
-------------- --------------
34,180 1,170,751
-- --
-- (100,512 )
36,790 118,909
-------------- --------------
70,970 1,189,148
-- (34,554 )
(237,189 ) (766,610 )
-------------- --------------
$ (166,219 ) $ 387,984
============== ==============
See accompanying notes to financial statements.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
January 29, 1999
(Date of
Inception)
through December
Years Ended December 31, 31,
2001 2000 1999
--------------- --------------- ---------------
(unaudited) (unaudited)
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 27,997 $ 111,703 $ 103,619
Cash paid for expenses (2,356 ) (1,992 ) (1,672 )
--------------- --------------- ---------------
Net cash provided by operating activities 25,641 109,711 101,947
--------------- --------------- ---------------
Cash Flows from Investing Activities:
Additions to land and buildings on
operating leases -- -- (351,015 )
Investment in direct financing lease -- -- (810,902 )
--------------- --------------- ---------------
Net cash used in investing activities -- -- (1,161,917 )
--------------- --------------- ---------------
Cash Flows from Financing Activities:
Contribution from CNL Income Fund X,
Ltd. -- -- 802,432
Contributions from CNL Income Fund
XVII, Ltd. -- -- 359,485
Distributions to CNL Income Fund X, Ltd. (23,863 ) (69,414 ) (70,190 )
Distributions to CNL Income Fund XVII,
Ltd. (10,691 ) (31,098 ) (31,447 )
--------------- --------------- ---------------
Net cash used in financing activities (34,554 ) (100,512 ) 1,060,280
--------------- --------------- ---------------
Net Increase (Decrease) in Cash (8,913 ) 9,199 310
Cash at Beginning of Year 9,509 310 --
--------------- --------------- ---------------
Cash at End of Year $ 596 $ 9,509 $ 310
=============== =============== ===============
See accompanying notes to financial statements.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
January 29, 1999
(Date of
Inception)
through December
Years Ended December 31, 31,
2001 2000 1999
--------------- --------------- --------------
(unaudited) (unaudited)
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net (Loss) Income $(766,610 ) $ 118,909 $ 110,471
--------------- --------------- --------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 15,122 -- --
Decrease in net investment in
direct financing leases 3,361 9,763 8,218
Provision for write-down of assets 781,741 -- --
Decrease (increase) in receivables 70 (1,001 ) --
Provision for doubtful accounts 931 -- --
Increase in accrued rental income (8,937 ) (17,874 ) (16,581 )
Decrease (increase) in other assets (37 ) 52 (299 )
(Increase) decrease in accounts
payable -- (138 ) 138
--------------- --------------- --------------
Total adjustments 792,251 (9,198 ) (8,524 )
--------------- --------------- --------------
Net Cash Provided by Operating Activities $ 25,641 $ 109,711 $ 101,947
=============== =============== ==============
See accompanying notes to financial statements.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Ocean Shores Joint Venture
(the "Joint Venture") is a Florida limited partnership that was
organized for the purpose of acquiring a real property located in Ocean
Shores, Washington to be leased primarily to an operator of a national
or regional fast-food and family-style restaurant chain. The partners
of the joint venture are CNL Income Fund X, Ltd. and CNL Income Fund
XVII, Ltd. (the "Co-Venturers"), which are limited partnerships
organized pursuant to the laws of the state of Florida. CNL Income Fund
X, Ltd. holds a 69.06% interest in the Joint Venture and CNL Income
Fund XVII, Ltd. holds a 30.94% interest. The Joint Venture has an
initial term of twenty years unless terminated at the option of either
Co-Venturer after an event of dissolution. Events of dissolution
include bankruptcy, insolvency or termination of any co-venturer, sale
of the property and mutual agreement of the Co-Venturers to dissolve
the joint venture. During the year ended December 2001, the tenant
vacated the property and ceased payment of rents under the terms of its
lease agreement. The general partners are currently seeking a
replacement tenant or purchaser for this property.
The joint venture arrangement provides for the Co-Venturers to share in
all costs and benefits in proportion to each partners' percentage
interest. The Co-Venturers share management control equally. The joint
venture agreement restricts each Co-Venturer's ability to sell,
transfer or assign its joint venture interest without first offering it
for sale to its joint venture partner, either upon such terms and
conditions as to which the Co-Venturers, may agree or, in the event the
Co-Venturers cannot agree, on the same terms and conditions as any
offer from a third party to purchase such joint venture interest. In a
dissolution, liquidation proceeds, after paying joint venture debts and
liabilities and funding reserves for contingent liabilities, are
distributed first to the Co-Venturers with positive capital account
balances in proportion to such balances until such balances equal zero,
and thereafter, in proportion to each Co-Venturer's percentage interest
in the joint venture.
The Co-Venturers' general partners 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 of the Co-Venturers
have responsibility for managing the day-to-day operations of the joint
venture.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Real Estate and Lease Accounting - The Joint Venture recorded the
acquisition of the land and building at cost, including acquisition and
closing costs. The land and building was leased to an unrelated third
party on a triple-net basis, whereby the tenant was responsible for all
operating expenses relating to the property, including property taxes,
insurance, maintenance and repairs. The lease was accounted for using
the direct financing method for the building portion and the operating
method for the land portion. Such methods are described below:
Direct financing method - The 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 joint venture's net investment
in the leases.
Operating method - The leases accounted for using the
operating method are recorded at cost and revenue is
recognized as rentals are earned. When scheduled rentals vary
during the lease term, income is recognized on a straight-line
basis so as to produce a constant periodic rent over the lease
term commencing on the date the property is placed in service.
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date. Whenever a tenant defaults
under the terms of its lease or events or changes in
circumstances indicate that the tenant will not lease the
property through the end of the lease term, the joint venture
records a charge to reduce the carrying value to its current
value.
During 2001, the tenant of this property experienced financial
difficulties, vacated the property and ceased payment of rents under
the terms of the lease agreement. As a result, during 2001, the Joint
Venture reclassified the building portion of the property from net
investment in direct financing lease to land and building. The Joint
Venture recorded the reclassified asset at fair value, which was less
than cost, through the recording of a provision for write-down of
assets in the amount of $781,741.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
although the Partnership continues to pursue collection of such
amounts. If amounts are subsequently determined to be uncollectible,
the corresponding receivable and the allowance for doubtful accounts
are decreased accordingly. During 2001, the Joint Venture recorded a
$91,258 allowance for doubtful accounts.
Cash - Cash accounts are maintained on behalf of the joint venture at
commercial banks.
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. See "Income
Taxes" footnote for a reconciliation of net income for financial
reporting purposes to net income for federal income tax purposes.
Use of Estimates - The general partners of the joint venture 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.
Statement of Financial Accounting Standards No. 144 ("FAS 144") - In
October 2001, the Financial Accounting Standards Board issued 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 adoption of FAS 144 did not have any
effect on the joint venture's recording of impairment losses as this
Statement retained the fundamental provisions of FAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of."
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
2. Land and Buildings:
------------------
Land and building consist of the following at December 31:
2001 2000
----------------- -----------------
(unaudited)
Land $ 120,916 $ 351,015
Buildings 281,310 --
----------------- -----------------
402,226 351,015
Less accumulated depreciation 15,122 --
----------------- -----------------
$ 387,104 $ 351,015
================= =================
3. 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:
2001 2000 1999
-------------- -------------- --------------
(unaudited) (unaudited)
Net income for financial reporting purposes $ (766,610) $ 118,909 $ 110,471
Depreciation for tax reporting purposes in excess
of depreciation for financial reporting
purposes (5,132) (20,255) (19,411)
Direct financing leases recorded as operating
leases for tax reporting purposes 3,360 9,763 8,218
Provision for write-down of assets 781,741 -- --
Allowance for doubtful accounts 91,258 -- --
Accrued rental income (8,937) (17,874) (16,581)
Other (200) (200) (183)
-------------- -------------- --------------
Net income for federal income tax purposes $ 95,480 $ 90,343 $ 82,514
============== ============== ==============
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Financial Group, Inc.
and their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 55. 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 American Properties Fund,
Inc. ("APF"), a public, unlisted real estate investment trust, since 1994. Mr.
Seneff served as Chief Executive Officer of APF from 1994 through August 1999,
and has served as Co-Chief Executive Officer of APF since December 2000. Mr.
Seneff served as Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors, Inc., formerly the Partnership's advisor, until it merged with a
wholly-owned subsidiary of APF in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc., a diversified real estate company, and has served as a Director,
Chairman of the Board and Chief Executive Officer of CNL Financial Group, Inc.
since its formation in 1980. CNL Financial Group, Inc. is the parent company,
either directly or indirectly through subsidiaries, of CNL Real Estate Services,
Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp.
Mr. Seneff also serves as a Director, Chairman of the Board and Chief Executive
Officer of CNL Hospitality Properties, Inc., a public, unlisted real estate
investment trust, as well as, CNL Hospitality Corp., its advisor. In addition,
he serves as a Director, Chairman of the Board and Chief Executive Officer of
CNL Retirement Properties, Inc., a public, unlisted real estate investment trust
and its advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has also served as
a Director, Chairman of the Board and Chief Executive Officer of Commercial Net
Lease Realty, Inc., a public real estate investment trust that is listed on the
New York Stock Exchange. Mr. Seneff has also served as a Director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a Director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNL Bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 54. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne is
Director of the Board of Directors of APF. Mr. Bourne served as President of APF
from 1994 through February 1999. He also served as Treasurer from February 1999
through August 1999 and from May 1994 through December 1994. He also served in
various executive positions with CNL Fund Advisors, Inc. prior to its merger
with a wholly-owned subsidiary of APF including, President from 1994 through
September 1997, and Director from 1994 through August 1999. Mr. Bourne serves as
President and Treasurer of CNL Financial Group, Inc.; Director, Vice Chairman of
the Board, President and Treasurer of CNL Hospitality Properties, Inc., a
public, unlisted real estate investment trust; as well as, Director, Vice
Chairman of the Board, President and Treasurer of CNL Hospitality Corp., its
advisor. In addition, Mr. Bourne serves as Director, Vice Chairman of the Board,
President and Treasurer of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust; as well as, a Director, Vice Chairman of the
Board, President and Treasurer of its advisor, CNL Retirement Corp. Mr. Bourne
also serves as a Director of CNL Bank. He has served as a Director since 1992,
Vice Chairman of the Board since February 1996, Secretary and Treasurer from
February 1996 through 1997, and President from July 1992 through February 1996,
of Commercial Net Lease Realty, Inc., a public real estate investment trust
listed on the New York Stock Exchange. Mr. Bourne also serves as Director,
President and Treasurer for various affiliates of CNL Financial Group, Inc.
including, CNL Investment Company, CNL Securities Corp. and CNL Institutional
Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified Public Accountants, from 1971 through 1978, where he attained the
position of Tax Manager in 1975. Mr. Bourne graduated from Florida State
University in 1970 where he received a B.A. in Accounting, with honors.
Curtis B. McWilliams, age 46. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as Chief
Executive Officer from September 1999 through December 2000. Prior to the
acquisition of CNL Fund Advisors, Inc., Mr. McWilliams served as President of
APF from February 1999 until September 1999. From February 1998 to February
1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL
Financial Group, Inc. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc. from April
1997 until the acquisition of such entities by wholly-owned subsidiaries of APF
in September 1999. From September 1983 through March 1997, Mr. McWilliams was
employed by Merrill Lynch & Co. The majority of his career at Merrill Lynch &
Co. was in the Investment Banking division where he served as a Managing
Director. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.
Steven D. Shackelford, age 38. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors, Inc. from September 1996 to September 1999. From March
1995 to July 1996, Mr. Shackelford was a senior manager in the national office
of Price Waterhouse LLP where he was responsible for advising foreign clients
seeking to raise capital and a public listing in the United States. From August
1992 to March 1995, he was a manager in the Paris, France office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and senior from 1986 to 1992 in the Orlando, Florida office of Price
Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business Administration degree from Florida State
University and is a certified public accountant.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 15, 2002, no person was known to the Registrant to be a
beneficial owner of more than 5% of the Units.
The following table sets forth, as of March 15, 2002, 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.
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, 2001, 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, 2001
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and
operating expenses the lower of cost or 90% of the administra-tive services:
prevailing rate at which comparable $204,843
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, 2001
- --------------------------------- -------------------------------------- ------------------------------
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) 3% 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 5% of Partnership distributions
Partnership net sales proceeds of such net sales proceeds,
from a sale or sales not in subordinated to certain minimum
liquidation of the Partnership returns to the Limited Partners.
Amount Incurred
Type of Compensation For the Year
And Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
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.
The Partnership entered into a joint venture arrangement with CNL Income Fund
VIII, Ltd., and CNL Income Fund XII, Ltd., affiliates of the General Partners to
acquire a Golden Corral Property from CNL BB Corp., an affiliate of the General
Partners, for a purchase price of $2,112,011. CNL BB Corp. had purchased and
temporarily held title to this Property in order to facilitate the acquisition
of the Property by the Partnership. The purchase price paid by the Partnership
represents the costs incurred by CNL BB Corp. to acquire and carry the Property,
including closing costs.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements - CNL Income Fund X, Ltd.
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2001 and 2000
Statements of Income for the years ended December 31, 2001,
2000, and 1999
Statements of Partners' Capital for the years ended December
31, 2001, 2000, and 1999
Statements of Cash Flows for the years ended December 31,
2001, 2000, and 1999
Notes to Financial Statements
2. Financial Statements - CNL Ocean Shores Joint Venture
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2001 and 2000
Statements of Operations for the years ended December 31,
2001, 2000, and 1999
Statements of Partners' Capital for the years ended December
31, 2001, 2000, and 1999
Statements of Cash Flows for the years ended December 31,
2001, 2000, and 1999
Notes to Financial Statements
3. Financial Statement Schedules
Schedule II -Valuation and Qualifying Accounts for the years
ended December 31, 2001, 2000, and 1999
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2001
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2001
All other Schedules are omitted as the required information
is inapplicable or is presented in the financial
statements or notes thereto.
4. Exhibits
3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund X, Ltd. (Included as Exhibit 3.2 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 X, Ltd. (Included as Exhibit 3.2 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 X, Ltd. (Included as Exhibit 3.3 to
Post-Effective Amendment No. 4 to Registration
Statement No. 33-35049 on Form S-11 and incorporated
herein by reference.)
10.1 Management Agreement between CNL Income Fund X, 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 and
Exchange Commission on August 13, 2001, and
incorporated herein by reference.)
(b) The Registrant filed no reports on Form 8-K during the period October
1, 2001 through December 31, 2001.
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 20th day of
March, 2002.
CNL INCOME FUND X, 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 20, 2002
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 20, 2002
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000, and 1999
Additions Deductions
--------------------------------- -------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
1999 Allowance for
doubtful
accounts (a) $ 506,231 $ -- $ 138,445 (b) $ 482,523 (c) $ 38,029 $ 124,124
============== =============== ================ ============= ============ ============
2000 Allowance for
doubtful
accounts (a) $ 124,124 $ -- $ 182,864 (b) $ 1,989 (c) $ 17,098 $ 287,901
============== =============== ================ ============= ============ ============
2001 Allowance for
doubtful
accounts (a) $ 287,901 $ -- $ 86,387 (b) $ 343,554 (c) $ 1,079 $ 29,655
============== =============== ================ ============= ============ ============
(a) Deducted from receivables and accrued rental income on the balance sheet.
(b) Reduction of rental, earned and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
Costs Capitalized
Subsequent To
Initial Cost Acquisition
---------------------------- --------------------
Encum- Buildings andImprove- Carrying
brances Land Improvements ments Costs
----------- --------------- ----------- ----------- -------
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurants:
Hendersonville, North Caro-ina 222,632 568,573 - -
Irondequoit, New York - 383,359 554,084 - -
Denny's Restaurants:
Fremont, Ohio - 160,896 - 273,700 -
Romulus, Michigan - 285,842 - - -
Spartanburg, South Carolin- 287,959 - - -
Golden Corral Family
Steakhouse Restaurants:
Austin, Texas - 592,837 - 1,106,384 -
Austin, Texas - 711,354 - 1,124,040 -
Las Cruces, New Mexico- 580,655 920,521 - -
Freemont, Nebraska 203,166 1,054,051 - -
Hardee's Restaurants:
Pace, Florida - 174,850 - - -
Jacksonville, Florida - 326,972 - - -
Centerville, Tennnessee - 130,494 - - -
Jack in the Box Restaurants:
Desloge, Missouri - 276,701 - - -
San Antonio, Texas - 327,322 - - -
San Marcos, Texas - 427,386 - 592,943 -
Missouri City, Texas - 348,646 - - -
Pasadena, Texas - 202,393 - - -
Long John Silver's Restaurants:
Alamogordo, New Mexico - 157,401 - - -
Las Cruces, New Mexico - 222,778 - - -
Perkins Restaurant:
Ft. Pierce, Florida (k) - 487,751 - 567,922 -
Pizza Hut Restaurants:
Bozeman, Montana - 99,879 224,614 - -
Sidney, Montana 101,690 - - -
Livingston, Montana - 71,989 161,211 - -
Laurel, Montana 109,937 255,060 - -
Shoney's Restaurants:
North Richland Hills, Texa- (m) 528,465 - 404,786 -
Pelham, Alabama 410,448 - 427,317 -
Other:
Homewood, Alabama - 597,907 - - -
Greenville, North Carolina- 323,573 515,134 - -
--------------- ---------- ----------- -------
$8,755,282 $4,253,248 $4,497,092 -
=============== =========== =========== =======
Properties of Joint Venture in
Which the Partnership has a
50% Interest and has Invested
in Under Operating Leases:
Burger King Restaurants:
Greensboro, North Carolina- $338,800 $650,109 - -
Metairie, Louisiana - 429,883 342,455 - -
Lafayette, Louisiana - 350,932 773,129 - -
Nashua, New Hampshire - 514,815 838,536 - -
Pontiac, Illinois - 203,095 719,226 - -
Dover, New Hampshire - 406,259 998,023 - -
--------------- -------
----------- -----------
$2,243,784 $4,321,478 - -
=============== =========== =========== =======
Property of Joint Venture in
Which the Partnership has a
10.51% Interest and has
Invested in Under an
Operating Lease:
Burger King Restaurant:
Ashland, New Hampshire - $293,478 $997,104 - -
=============== =========== =========== =======
Property in Which the
Partnership has a 13%
Interest as Tenants-
in-Common and has Invested
in Under an Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Clinton, North Carolin- $138,382 $676,588 - -
=============== =========== =========== =======
Property in Which the Parnership
has a 6.69% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Chevy's Fresh Mex
Miami, Florida - $976,357 $974,016 - -
=============== =========== =========== =======
Property of Joint Venture in
Which the Partnership has a
69.06% Interest and has
Invested in Under an Operating
Lease:
Burger King Restaurant:
Ocean Shores, Washington -l) $351,015 $789,560 - -
=============== =========== =========== =======
Property of Joint Venture in
Which the Partnership has a
10% Interest and has Invested
in Under an Operating Lease:
Golden Corral Restaurant:
Kokomo, Indiana - $644,163 $1,467,848 - -
=============== =========== =========== =======
Properties the Partnership
has Invested in Under
Direct Financing Leases:
Burger King Restaurants:
Ashland Ohio - $190,695 $724,348 - -
Allegan, Michigan - 91,238 - 418,782 -
New Bethlehem, Pennsylva-ia 135,929 452,507 - -
Denny's Restaurants:
Romulus, Michigan - - 752,829 - -
Spartanburg,
South Carolina - - 529,410 - -
Hardee's Restaurants:
Pace, Florida - - 467,272 - -
Jacksonville, Florida - - 405,985 - -
Hohenwald, Tennessee - 49,201 376,415 - -
Ravenna, Ohio - 114,244 496,032 - -
Morristown, Tennessee - 131,289 456,925 - -
Centerville, Tennessee - - 348,032 - -
Jack in the Box Restaurants:
Desloge, Missouri - - 630,981 - -
San Antonio, Texas - - - 206,031 -
Nampa, Idaho - 151,574 584,533 - -
Missouri City, Texas - - 619,686 - -
Pasadena, Texas - - 575,429 - -
Long John Silver's Restaurants:
Alamogordo, New Mexico - - 275,270 20,204 -
Las Cruces, New Mexico - - 318,378 57,828 -
Pizza Hut Restaurants:
Glasgow, Montana - 57,482 266,726 - -
Sidney, Montana - - 291,238 - -
--------------- ----------- -----------
$921,652 $8,571,996 $702,845 -
=============== =========== =========== -------
Property of Joint Venture in
Which the Partnership has
a 40.95% Interest and has
Invested in Under Direct
Financing Lease:
Hardee's Restaurant:
Williston, Florida - $150,143 - $499,071 -
=============== =========== =========== =======
Life on Which
Net Cost Basis at Which Depreciation in
Carried at Close of Period (c) Date Latest Income
- -----------------------------------------
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total DepreciationstructionAcquired Computed
- ------------- ------------ ------------ ---------- ------- --------- ------------
(b)
222,632 568,573 791,205 83,482 1986 11/91 (j)
383,359 554,084 937,443 81,355 1986 11/91 (j)
160,896 273,700 434,596 78,061 1992 12/91 (g)
285,842 (f) 285,842 - 1992 02/92 (d)
287,959 (f) 287,959 - 1992 03/92 (d)
592,837 1,106,384 1,699,221 361,217 1992 12/91 (b)
711,354 1,124,040 1,835,394 360,104 1992 12/91 (b)
580,655 920,521 1,501,176 296,164 1992 05/92 (b)
203,166 1,054,051 1,257,217 96,814 1998 03/99 (b)
174,850 (f) 174,850 - 1992 01/92 (d)
326,972 (f) 326,972 - 1990 02/92 (d)
130,494 (f) 130,494 - 1991 02/92 (d)
276,701 (f) 276,701 - 1991 12/91 (d)
327,322 (f) 327,322 - 1992 02/92 (d)
427,386 592,943 1,020,329 55,923 1998 10/98 (b)
348,646 (f) 348,646 - 1991 04/92 (d)
202,393 (f) 202,393 - 1991 04/92 (d)
157,401 (f) 157,401 - 1977 03/92 (d)
222,778 (f) 222,778 - 1975 03/92 (d)
187,933 273,806 461,739 113,835 1992 01/92 (h)
99,879 224,614 324,493 72,718 1976 03/91 (b)
101,690 (f) 101,690 - 1985 03/91 (d)
71,989 161,211 233,200 52,191 1979 03/91 (b)
109,937 255,060 364,997 82,574 1985 03/91 (b)
513,032 404,786 917,818 136,882 1992 12/91 (b)
410,448 427,317 837,765 142,400 1992 01/92 (b)
348,616 - 348,616 - 1997 10/97 (b)
323,573 515,134 838,707 174,392 1987 11/91 (b)
- ------------- ------------ ------------ ----------
$8,190,740 $8,456,224 $16,646,964 $2,188,112
============= ============ ============ ==========
$338,800 $650,109 $988,909 $211,478 1990 03/92 (b)
429,883 342,455 772,338 111,399 1990 03/92 (b)
350,932 773,129 1,124,061 251,496 1989 03/92 (b)
514,815 838,536 1,353,351 272,773 1987 03/92 (b)
203,095 719,226 922,321 233,962 1988 03/92 (b)
406,259 998,023 1,404,282 324,653 1987 03/92 (b)
- -------------
- ------------- ------------ ------------ ----------
$2,243,784 $4,321,478 $6,565,262 $1,405,761
============= ============ ============ ==========
$293,478 $997,104 $1,290,582 $307,507 1987 10/92 (b)
============= ============ ============ ==========
$138,382 $676,588 $814,970 $133,933 1996 01/96 (b)
============= ============ ============ ==========
$976,357 $974,016 $1,950,373 $129,959 1995 12/97 (b)
============= ============ ============ ==========
$120,916 $281,310 $402,226 $15,123 1998 01/99 (i)
============= ============ ============ ==========
$644,163 $1,467,848 $2,112,011 $36,697 2000 04/01 (b)
============= ============ ============ ==========
(f) (f) (f) - 1988 11/91 (e)
(f) (f) (f) - 1992 04/92 (e)
(f) (f) (f) - 1991 04/92 (e)
- (f) (f) - 1992 02/92 (d)
- (f) (f) - 1992 03/92 (d)
- (f) (f) - 1992 01/92 (d)
- (f) (f) - 1990 02/92 (d)
(f) (f) (f) - 1991 02/92 (e)
(f) (f) (f) - 1991 04/92 (e)
(f) (f) (f) - 1991 04/92 (e)
- (f) (f) - 1991 02/92 (d)
- (f) (f) - 1991 12/91 (d)
- (f) (f) - 1992 12/91 (d)
(f) (f) (f) - 1991 12/92 (e)
- (f) (f) - 1991 04/92 (d)
- (f) (f) - 1991 04/92 (d)
- (f) (f) - 1977 03/92 (d)
- (f) (f) - 1975 03/92 (d)
(f) (f) (f) - 1985 03/91 (e)
- (f) (f) - 1985 03/91 (d)
(f) (f) (f) - 1993 12/92 (e)
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION
December 31, 2001
(a) Transactions in real estate and accumulated depreciation during 2001,
2000, and 1999, are summarized as follows:
Accumulated
Cost Depreciation
----------------- ----------------
Properties the Partnership has Invested in
Under Operating Leases:
Balance, December 31, 1998 $ 17,422,071 $ 1,329,832
Acquisition 1,850,160 --
Provision for write-down of assets (357,760 ) --
Disposition (868,130 ) --
Depreciation expense -- 325,062
----------------- ----------------
Balance, December, 31, 1999 18,046,341 1,654,894
Provision for write-down of assets (287,275 ) --
Disposition (790,010 ) (81,658 )
Depreciation expense -- 317,491
----------------- ----------------
Balance, December, 31 2000 16,969,056 1,890,727
Provision for write-down of assets (322,092 ) --
Depreciation expense -- 297,383
----------------- ----------------
Balance, December 31, 2001 $ 16,646,964 $ 2,188,110
================= ================
Properties of Joint Venture in Which the
Partnership has a 50% Interest and has
Invested in Under Operating Leases:
Balance, December 31, 1998 $ 6,565,262 $ 973,614
Depreciation expense -- 144,049
----------------- ----------------
Balance, December 31, 1999 6,565,262 1,117,663
Depreciation expense -- 144,049
----------------- ----------------
Balance, December 31, 2000 6,565,262 1,261,712
Depreciation expense -- 144,049
----------------- ----------------
Balance, December 31, 2001 $ 6,565,262 $ 1,405,761
================ ===============
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
----------------- ----------------
Property of Joint Venture in Which the
Partnership has a 10.51% Interest
and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 1,290,582 $ 207,799
Depreciation expense -- 33,236
----------------- ----------------
Balance, December 31, 1999 1,290,582 241,035
Depreciation expense -- 33,236
----------------- ----------------
Balance, December 31, 2000 1,290,582 274,271
Depreciation expense -- 33,236
----------------- ----------------
Balance, December 31, 2001 $ 1,290,582 $ 307,507
================= ================
Property of Joint Venture in Which the
Partnership has a 69.06% Interest
and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 351,015 --
Depreciation expense (d) -- --
----------------- ----------------
Balance, December 31, 1999 351,015 --
Depreciation expense (d) -- --
----------------- ----------------
Balance, December 31, 2000 351,015 --
Reclassified to operating lease 789,560 --
Provision for write-down of assets (738,349 ) --
Depreciation expense -- 15,123
----------------- ----------------
Balance, December 31, 2001 $ 402,226 $ 15,123
================= ================
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
----------------- ----------------
Property of Joint Venture in Which the
Partnership has a 10% Interest and
has Invested in Under Operating
Leases:
Balance, December 31, 2000 $ -- $ --
Acquisition 2,112,011 --
Depreciation expense (d) -- 36,697
----------------- ----------------
Balance, December 31, 2001 $ 2,112,011 $ 36,697
================= ================
Property in Which the Partnership has
a 13% Interest as Tenants-in-
Common and has Invested in Under
an Operating Lease:
Balance, December 31, 1998 $ 814,970 $ 66,274
Depreciation expense -- 22,553
----------------- ----------------
Balance, December 31, 1999 814,970 88,827
Depreciation expense -- 22,553
----------------- ----------------
Balance, December 31, 2000 814,970 111,380
Depreciation expense -- 22,553
----------------- ----------------
Balance, December 31, 2001 $ 814,970 $ 133,933
================= ================
Property in Which the Partnership has
a 6.69% Interest as Tenants-in-
Common and has Invested in
Under an Operating Lease:
Balance, December 31, 1998 $ 1,950,373 $ 32,556
Depreciation expense -- 32,467
----------------- ----------------
Balance, December 31, 1999 1,950,373 65,023
Depreciation expense -- 32,468
----------------- ----------------
Balance, December 31, 2000 1,950,373 97,491
Depreciation expense -- 32,468
----------------- ----------------
Balance, December 31, 2001 $ 1,950,373 $ 129,959
================= ================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
(c) As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures for federal income tax purposes was
$20,408,360 and $14,108,347, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
(d) The portion of the lease relating to the building has been recorded as
a direct financing lease. The cost of the building has been included in
net investment in direct financing leases; therefore, depreciation is
not applicable.
(e) The lease for the land and building has been recorded as a direct
financing lease. The cost of the land and building has been included in
net investment in direct financing leases; therefore, depreciation is
not applicable.
(f) Certain components of the lease relating to land and building have been
recorded as a direct financing lease. Accordingly, costs relating to
these components of this lease are not shown.
(g) Effective January 1, 1994, 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 and
depreciated over its remaining estimated life of approximately 28
years.
(h) Effective March 1, 1996, 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 and
depreciated over its remaining estimated life of approximately 26
years.
(i) Effective April 26, 2001, the tenant vacated the Property and ceased
restaurant operations, resulting in the reclassification of the
building portion of the lease to an operating lease. The building was
recorded at net book value and depreciated over its remaining estimated
life of approximately 28 years.
(j) 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 and
depreciated over its remaining estimated life of approximately 23
years.
(k) The undepreciated cost of the Property in Ft. Pierce, Florida was
reduced to its estimated net realizable value due to an impairment in
value. The Partnership recognized the impairment by recording a
provision for write-down of assets in the amount of $306,659 and
$287,275 at December 31, 2001 and 2000, respectively. The provision at
December 31, 2001 and 2000 represented the difference between the
Property's carrying value and the net realizable value of the Property.
The cost of the Property presented on this schedule is the net amount
at which the Property was carried at December 31, 2001, including the
provision for write-down of assets.
(l) The undepreciated cost of the Property in Ocean Shores, Washington was
reduced to its estimated net realizable value due to an impairment in
value. The Partnership recognized the impairment by recording a
provision for write-down of assets in the amount of $738,349 at
December 31, 2001. The provision at December 31, 2001 represented the
difference between the Property's carrying value and the net realizable
value of the Property. The cost of the Property presented on this
schedule is the net amount at which the Property was carried at
December 31, 2001, including the provision for write-down of assets.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
(m) The undepreciated cost of the Property in North Richland Hills, Texas
was reduced to its estimated net realizable value due to an impairment
in value. The Partnership recognized the impairment by recording a
provision for write-down of assets in the amount of $15,433 at December
31, 2001. The impairment at December 31, 2001 represented the
difference between the Property's carrying value and the net realizable
value of the Property. The cost of the Property presented on this
schedule is the net amount at which the Property was carried at
December 31, 2001, including the provision for write-down of assets.