UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20016
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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes___ No X --
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 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.
As of December 31, 1999, the Partnership owned 36 Properties directly
and owned 13 Properties indirectly through joint venture or tenancy in common
arrangements. During 2000, the Partnership sold its Property in Lancaster, New
York and during 2001, the Partnership reinvested a portion of the net sales
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 a Florida limited partnership and an affiliate of
the General Partners, to purchase and hold one Property. In addition, during
2001, the Partnership and its joint venture partner liquidated Peoria Joint
Venture and the Partnership received its pro rata share of the liquidation
proceeds. During the year ended December 31, 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., which
is a Florida limited partnership and an affiliate of the General Partners. In
addition, during 2002, the Partnership sold its Properties in San Marcos, Texas
and Ft. Pierce, Florida. Also during 2002, CNL Restaurant Investments III, in
which the Partnership owns a 50% interest, and Ashland Joint Venture, in which
the Partnership owns a 10.51% interest, sold their respective Properties in
Greensboro, North Carolina and Ashland, New Hampshire. The Partnership used the
proceeds from the sale of the Property in San Marcos, Texas and the return of
capital for its pro-rata share of the net sales proceeds relating to the
Property in Greensboro, North Carolina to acquire a Property in Houston, Texas.
Ashland Joint Venture used the proceeds from the sale of the Property in
Ashland, New Hampshire to reinvest in a Property in San Antonio, Texas. The
Partnership intends to use the net sales proceeds from the sale of the Property
in Ft. Pierce, Florida to invest in an additional Property. As of December 31,
2002, the Partnership owned 47 Properties, including interests in ten Properties
owned by joint ventures in which the Partnership is a co-venturer and three
Properties owned with affiliates as tenants-in-common. The Properties are, in
general, leased on a triple-net basis with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities.
The Partnership holds its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. The Partnership has no obligation to sell all or any portion of a
Property at any particular time, except as may be required under property
purchase options granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. 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 2020. 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 $28,800 to $218,200. Generally, the leases provide
for percentage rent, based on sales in excess of a specified amount. In
addition, a majority of the leases provide that, commencing in specified lease
years (ranging from the 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 37 of the Partnership's 47 Properties also have been
granted options to purchase Properties at the Property's then fair market value
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.
The leases generally provide that, in the event the Partnership wishes
to sell the Property subject to that lease, the Partnership first must offer the
lessee the right to purchase the Property on the same terms and conditions, and
for the same price, as any offer which the Partnership has received for the sale
of the Property.
During 2002, the Partnership reinvested the net sales proceeds it
received from the liquidation of Peoria Joint Venture in a Property in Austin,
Texas, with CNL Income Fund XVIII, Ltd., as tenants-in-common. In June 2002, the
Partnership reinvested the net sales proceeds from the sale of the Property in
San Marcos, Texas and the return of capital received from CNL Restaurant
Investments III in a Property in Houston, Texas. In addition, in June 2002,
Ashland Joint Venture, in which the Partnership owns a 10.51% interest, sold its
Property in Ashland, New Hampshire and reinvested the net sales proceeds in a
Property in San Antonio, Texas. The lease terms for these Properties are
substantially the same as the Partnership's other leases, as described above.
Major Tenants
During 2002, three lessees (or groups of affiliated tenants) of the
Partnership and its consolidated joint venture, (i) Golden Corral Corporation,
(ii) 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."), and (iii) Carrols Corporation and Texas
Taco Cabana, LP (which are affiliated entities under common control)
(hereinafter referred to as ("Carrols Corp.") each contributed more than 10% of
the Partnership's total rental revenues (including rental revenues from the
Partnership's consolidated joint venture and the Partnership's share of rental
revenues from Properties owned by unconsolidated joint ventures and Properties
owned with affiliates of the General Partners as tenants-in-common). As of
December 31, 2002, Golden Corral Corporation was the lessee under leases
relating to six restaurants, Jack in the Box Inc. was the lessee under leases
relating to five restaurants and Carrols Corp. was the lessee under leases
related 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 revenues in 2003. 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 revenues during 2002
(including rental revenues from the Partnership's consolidated joint venture and
the Partnership's share of rental revenues from Properties owned by
unconsolidated joint ventures and Properties owned with affiliates of the
General Partners as tenants-in-common). In 2003, it is anticipated that these
four Restaurant Chains each will continue to account for more than 10% of the
total rental revenues 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. As of December 31, 2002, 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 the following joint venture and
tenancy in common arrangements as of December 31, 2002:
Entity Name Year Ownership Partners Property
CNL Restaurant Investments III 1992 50.00 % CNL Income Fund IX, Ltd. Dover, NH
Metrairie, LA
Lafayette, LA
Nashua, NH
Pontiac, IL
Allegan Real Estate Joint 1992 88.26% A Third Party Partner Allegan, MI
Venture
Ashland Joint Venture 1992 10.51% CNL Income Fund IX, Ltd. San Antonio, TX
CNL Income Fund XI, Ltd.
Williston Real Estate Joint 1993 40.95% CNL Income Fund XII, Ltd. Williston, FL
Venture
CNL Income Fund IV, Ltd., CNL 1996 13.00% CNL Income Fund IV, Ltd. Clinton, NC
Income Fund VI, Ltd., CNL Income Fund VI, Ltd.
CNL Income Fund X, Ltd. CNL Income Fund XV, Ltd.
and CNL Income Fund XV,
Ltd., Tenants in Common
CNL Income Fund III, Ltd., 1997 6.69% CNL Income Fund III, Ltd. Miami, FL
CNL Income Fund VII, CNL Income Fund VII, Ltd.
Ltd., CNL Income Fund X, CNL Income Fund XIII, Ltd.
Ltd. and CNL Income Fund
XIII, Ltd., Tenants in
Common
Ocean Shores Joint Venture 1999 69.06% CNL Income Fund XVII, Ltd. Ocean Shores, WA
CNL VIII, X, XII Kokomo 2001 10.00% CNL Income Fund VIII, Ltd. Kokomo, IN
Joint Venture CNL Income Fund XII, Ltd.
CNL Income Fund X, Ltd. and 2002 81.65% CNL Income Fund XVIII, Ltd. Austin, TX
CNL Income Fund XVIII,
Ltd., Tenants in Common
CNL Restaurant Investments III was formed to hold six Properties;
however, all other joint ventures or tenancies in common were formed to hold one
Property. During 2002, CNL Restaurant Investments III sold its Property in
Greensboro, North Carolina and returned the pro rata share of the net sales
proceeds to the Partnership as a return of capital. Each CNL Income Fund is an
affiliate of the General Partners and is a limited partnership organized
pursuant to the laws of the state of Florida. The Partnership has management
control of Allegan Joint Venture and shares management control equally with the
affiliates of the General Partners for the other joint ventures.
The joint venture and tenancy in common arrangements provide for the
Partnership and its partners to share in all costs and benefits in proportion to
each partner's percentage interest in the business entity. The Partnership and
its partners are also jointly and severally liable for all debts, obligations
and other liabilities of the joint venture or tenancy in common. Net cash flow
from operations is distributed to each joint venture or tenancy in common
partner in accordance with its respective percentage interest in the business
entity.
The joint venture agreement for CNL Restaurant Investments III 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
and CNL VIII, X, XII Kokomo Joint Venture has an initial term of 30 years. Each
of the other joint ventures has an initial term of 20 years and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of either joint venturer or by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property owned by the joint venture and mutual
agreement of the Partnership and its joint venture partner to dissolve the joint
venture. Any liquidation proceeds, after paying joint venture debts and
liabilities and funding reserves for contingent liabilities, will be distributed
first to the joint venture partners with positive capital account balances in
proportion to such balances until such balances equal zero, and thereafter in
proportion to each joint venture partner's percentage interest in the joint
venture.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer to assign its joint venture or tenancy in
common interest without first offering it for sale to its partner, either upon
such terms and conditions as to which the parties may agree or, in the event the
parties cannot agree, on the same terms and conditions as any offer from a third
party to purchase such joint venture or tenancy in common interest.
During 2002, the Partnership reinvested the majority of the 2001
liquidation proceeds from Peoria Joint Venture in a Property in Austin, Texas,
as tenants-in-common, with CNL Income Fund XVIII, Ltd., which is a Florida
limited partnership and an affiliate of the General Partners. In addition,
during 2002, CNL Restaurant Investments III sold its Property in Greensboro,
North Carolina. The Partnership received a return of capital from CNL Restaurant
Investments III, and used these proceeds to acquire a Property in Houston,
Texas. Ashland Joint Venture sold its Property in Ashland, New Hampshire and
reinvested the net sales proceeds in a Property in San Antonio, Texas.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Certain Management Services
RAI Restaurants, Inc. (formerly known as CNL Restaurants XVIII, Inc.),
an affiliate of the General Partners, provides certain services relating to
management of the Partnership and its Properties pursuant to a management
agreement with the Partnership. CNL APF Partners, LP assigned its rights in, and
its obligations under, the management agreement with the Partnership to RAI
Restaurants, Inc. ("Advisor") effective January 1, 2002. All of the terms and
conditions of the management agreement, including the payment of fees, remained
unchanged. Under this agreement, the Advisor is responsible for collecting
rental payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices, and
providing information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership had agreed to pay the Advisor an
annual fee of one percent of the sum of gross rental revenues from Properties
wholly owned by the Partnership plus the Partnership's allocable share of gross
revenues of joint ventures in which the Partnership is a co-venturer, but not in
excess of competitive fees for comparable services. Under the management
agreement, the management fee is subordinated to receipt by the Limited Partners
of an aggregate, ten percent, cumulative, noncompounded annual return on their
adjusted capital contributions (the "10% Preferred Return"), calculated in
accordance with the Partnership's limited partnership agreement (the
"Partnership Agreement").
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL American Properties Fund, Inc.
("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, 2002, the Partnership owned 47 Properties. Of the 47
Properties, 34 are owned by the Partnership in fee simple, 10 are owned
indirectly through joint venture arrangements and three are owned indirectly
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, either directly or
indirectly, by the Partnership as of December 31, 2002 by state. More detailed
information regarding the location of the Properties is contained in the
Schedule of Real Estate and Accumulated Depreciation for the year ended December
31, 2002.
State Number of Properties
Alabama 2
Florida 4
Idaho 1
Illinois 1
Indiana 1
Louisiana 2
Michigan 2
Missouri 1
Montana 5
Nebraska 1
New Hampshire 2
New Mexico 3
New York 1
North Carolina 3
Ohio 3
Pennsylvania 1
South Carolina 1
Tennessee 3
Texas 9
Washington 1
------
TOTAL PROPERTIES 47
======
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, 2002, the Partnership had no plans for
renovation of the Properties. Depreciation expense is computed for buildings and
improvements using the straight line method using a depreciable life of 40 years
for federal income tax purposes.
As of December 31, 2002, the aggregate cost of the Properties owned by
the Partnership (including its consolidated joint venture) and the
unconsolidated joint ventures (including Properties owned through tenancy in
common arrangements) for federal income tax purposes was $27,602,038 and
$14,363,028, respectively.
The following table lists the Properties owned, either directly or
indirectly, by the Partnership as of December 31, 2002 by Restaurant Chain.
Restaurant Chain Number of Properties
Burger King 11
Chevy's Fresh Mex 1
Denny's 3
Golden Corral 6
Hardee's 7
Jack in the Box 5
Long John Silver's 2
Pizza Hut 5
Shoney's 2
Taco Cabana 3
Other 2
-----
TOTAL PROPERTIES 47
=====
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.
At December 31, 2002, 2001, 2000, 1999 and 1998, the Properties were
98%, 97%, 97%, 96% and 96% occupied, respectively. The following is a schedule
of the average rent per Property for the years ended December 31:
2002 2001 2000 1999 1998
-------------- ------------- -------------- ------------- -------------
Rental Revenues (1)(2) $ 3,453,753 $ 3,345,782 $3,462,549 $3,490,765 $3,163,838
Properties (2) 46 47 47 47 47
Average Rent Per Property $ 75,082 $ 71,187 $ 73,671 $ 74,272 $ 67,316
(1) Rental revenues 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.
(2) Excludes Properties that were vacant at December 31, which did not
generate rental revenues.
The following is a schedule of lease expirations for leases in place as
of December 31, 2002 for the next ten years and thereafter.
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
- -------------------- -------------- ----------------- ------------------
2003 -- $ -- --
2004 -- -- --
2005 -- -- --
2006 8 601,486 17.31%
2007 3 538,740 15.50%
2008 -- -- --
2009 4 416,429 11.98%
2010 1 107,505 3.09%
2011 5 326,081 9.38%
2012 20 1,252,757 36.05%
Thereafter 5 232,336 6.69%
--------- ---------------- -----------------
Total (1) 46 $ 3,475,334 100.00%
========= ================ =================
(1) Excludes one Property which was vacant at December 31, 2002.
Leases with Major Tenants. The terms of the leases with the
Partnership's major tenants as of December 31, 2002 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
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 $163,400 (ranging from approximately
$88,000 to $218,200).
Jack in the Box Inc. leases five Jack in the Box restaurants. The
initial term of each lease is 18 years (expiring between 2009 and 2012) and the
average minimum base rent is approximately $100,000 (ranging from approximately
$74,800 to $120,200).
Carrols Corp. leases three Burger King restaurants and three Taco
Cabana restaurants. The initial term of each lease is 18 to 20 years (expiring
between 2011 and 2020) and the average minimum base rent is approximately
$107,500 (ranging from approximately $83,100 to $138,000).
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 10, 2003, there were 3,481 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. During 2002, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase) may have done so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units. From
inception, the price for any Unit transferred pursuant to the Plan was $9.50 per
Unit. The price paid for any Unit transferred other than pursuant to the Plan
was subject to negotiation by the purchaser and the selling Limited Partner. The
Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2002 and 2001 other than
pursuant to the Plan, net of commissions.
2002 (1) 2001 (1)
---------------------------------- ----------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- -------- -----------
First Quarter $7.99 $ 6.02 $ 7.31 $7.56 $ 7.10 $ 7.34
Second Quarter 7.40 7.32 7.36 7.36 7.36 7.36
Third Quarter 9.50 6.02 8.08 7.54 4.65 7.19
Fourth Quarter 8.65 7.94 8.30 8.00 6.30 7.67
(1) A total of 22,690 and 16,779 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2002 and 2001,
respectively.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the partnership agreement.
For the years ended December 31, 2002 and 2001, 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 2002 and 2001. 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, 2002 and 2001 are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the Limited Partners' return on their adjusted capital contributions. No
distributions have been made to the General Partners to date.
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
2002 2001 2000 1999 1998
------------- ------------- ------------- ------------- -------------
Year ended December 31:
Continuing Operations (4):
Revenues $ 2,936,741 $ 2,839,278 $ 2,841,757 $ 2,918,317 $ 3,280,564
Equity (loss) in
earnings joint ventures 578,394 (88,921 ) 449,576 380,616 292,013
Income from continuing
operations (1) 2,843,823 1,989,536 2,677,118 2,164,516 1,988,795
Discontinued Operations (4):
Revenues 56,677 104,024 103,828 146,544 63,785
Income (loss) from
discontinued
operations (3) 183,329 (256,882 ) (211,330 ) 104,885 (109,937)
Net income 3,027,152 1,732,654 2,465,788 2,269,401 1,878,858
Net income (loss) per unit:
Continuing operations $ 0.71 $ 0.48 $ 0.67 $ 0.54 $ 0.49
Discontinued operations 0.05 (0.05 ) (0.05 ) 0.03 (0.02)
------------- ------------- ------------- ------------- -------------
Total $ 0.76 $ 0.43 $ 0.62 $ 0.57 $ 0.47
============= ============= ============= ============= =============
Cash distributions declared (2) $ 3,600,004 $ 3,600,004 $ 3,600,0040 $ 3,600,004 $ 3,680,004
Cash distributions declared
per unit (2) 0.90 0.90 0.90 0.90 0.92
At December 31:
Total assets $ 29,592,357 $ 30,087,645 $ 32,124,183 $ 33,248,120 $ 34,480,865
Total partners' capital 28,447,876 29,020,728 30,888,078 32,022,294 33,352,897
(1) Income from continuing operations for the years ended December 31,
2000, 1999 and 1998, includes $50,755, $32,499 and $218,960,
respectively, from gains on sale of assets. Income from continuing
operations for the years ended December 31, 2001, 1999 and 1998,
includes $84,527, $377,266 and $1,307,585, respectively, from provision
for write-down of assets.
(2) 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.
(3) Income from discontinued operations for the years ended December 31,
2001, 2000 and 1998 includes $306,659, $287,275 and $151,828 from
provisions for write-down of assets.
(4) Certain items in the prior years' financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on net income. The results of operations relating to
Properties that were either disposed of or were classified as held for
sale as of December 31, 2002 are reported as discontinued operations.
The results of operations relating to Properties that were identified
for sale as of December 31, 2001 but sold subsequently are reported as
continuing operations.
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. The leases of
the Properties provide for minimum base annual rental amounts (payable in
monthly installments) ranging from approximately $28,800 to $218,200. Generally,
the leases provide for percentage rent based on sales in excess of a specified
amount. In addition, a majority of the leases provide that, commencing in
specified lease years (ranging from the third to the sixth lease year), the
annual base rent required under the terms of the lease will increase. As of
December 31, 2001 and 2000, the Partnership owned 35 Properties directly and 13
Properties indirectly through joint venture or tenancy in common arrangements.
As of December 31, 2002, the Partnership owned 34 Properties directly and 13
Properties indirectly through joint venture or tenancy in common arrangements.
Capital Resources
Cash from operating activities was $3,465,982, $3,127,850, and
$3,298,666, for the years ended December 31, 2002, 2001, and 2000, respectively.
Cash from operating activities during 2002, as compared to 2001, remained flat.
The decrease in cash from operating activities during 2001, as compared to the
previous year, was a result of changes in income and expenses and changes in the
Partnership's working capital.
Other sources and uses of cash included the following during the years
ended December 31, 2002, 2001, and 2000.
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 in 1998 due to the tenant filing for bankruptcy. The
provision represented the difference between the carrying value of the Property
and its estimated fair value. 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. 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, 2002.
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, 2002 and 2001.
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., which is a Florida limited partnership and an affiliate of the General
Partners. As of December 31, 2002, the Partnership had contributed $915,171 for
an 81.65% interest in this Property. The Partnership acquired the Property from
CNL Funding 2001-A, LP, a Delaware limited partnership and an affiliate of the
General Partners. CNL Funding 2001-A, LP had purchased and temporarily held
title to the Property in order to facilitate the acquisition of the Property by
the tenancy in common. The purchase price paid by the tenancy in common
represented the costs incurred by CNL Funding 2001-A, LP to acquire and carry
the Property.
In April 2002, the Partnership sold its Property in San Marcos, Texas
to a third party and received net sales proceeds of approximately $1,161,100,
resulting in a gain on disposal of discontinued operations of approximately
$169,400. In May 2002, CNL Restaurant Investments III, in which the Partnership
owns a 50% interest, sold its Property in Greensboro, North Carolina to the
tenant and received net sales proceeds of approximately $1,143,500, resulting in
a gain to the joint venture of approximately $371,500. The Partnership received
approximately $571,700 as a return of capital from the joint venture. In
addition, in June 2002, Ashland Joint Venture, in which the Partnership owns a
10.51% interest, sold its Property in Ashland, New Hampshire to the tenant and
received net sales proceeds of $1,472,900, resulting in a gain to the joint
venture of approximately $500,900. The Partnership reinvested the majority of
the net sales proceeds from the sale of the Property in San Marcos, Texas and a
portion of the return of capital received from CNL Restaurant Investments III in
a Property in Houston, Texas at an approximate cost of $1,281,500. Ashland Joint
Venture used the majority of the proceeds to invest in a Property in San
Antonio, Texas at an approximate cost of $1,343,000. The Partnership and joint
venture acquired these Properties from CNL Funding 2001-A, LP, a Delaware
limited partnership and an affiliate of the General Partners. CNL Funding
2001-A, LP had purchased and temporarily held title to the Properties in order
to facilitate the acquisition of the Properties by the Partnership and joint
venture. The purchase price paid by the Partnership and joint venture
represented the costs incurred by CNL Funding 2001-A, LP to acquire and carry
the Properties. In December 2002, the Partnership sold its Property in Ft.
Pierce, Florida to a third party and received net sales proceeds of
approximately $329,200, resulting in a loss on disposal of discontinued
operations of approximately $2,200. The Partnership had recorded provisions for
write-down of assets totaling $593,934 in previous years. The Partnership
intends to reinvest the sales proceeds in an additional Property.
None of the Properties owned by the Partnership, or the joint ventures
or tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Under its partnership agreement, the Partnership is
prohibited from borrowing for any purpose; provided, however, that the General
Partners or their affiliates are entitled to reimbursement, at cost, for actual
expenses incurred by the General Partners or their affiliates on behalf of the
Partnership. Affiliates of the General Partners from time to time incur certain
operating expenses on behalf of the Partnership for which the Partnership
reimburses the affiliates without interest.
Currently, rental income from the Partnership's Properties and any 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, 2002, the Partnership had $1,287,619
invested in such short-term investments as compared to $1,565,888 at December
31, 2001. The decrease in cash and cash equivalents during 2002 was primarily
attributable to the fact that in 2002, the Partnership reinvested its pro rata
share of the liquidation proceeds from the 2001 dissolution of Peoria Joint
Venture. The decrease in cash and cash equivalents was partially offset because
as of December 31, 2002, the Partnership had not reinvested the sales proceeds
received from the sale of the Property in Ft. Pierce, Florida. As of December
31, 2002, the average interest rate earned on the rental income deposited in
demand deposit accounts at commercial banks was approximately one percent
annually. The funds remaining at December 31, 2002, after payment of
distributions and other liabilities, will be used to invest in an additional
Property and to meet the Partnership's working capital needs.
Short-Term Liquidity
The Partnership's 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.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Due to low operating expenses and ongoing cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because all leases of the Partnership's Properties are
on a triple-net basis, it is not anticipated that a permanent reserve for
maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purpose, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
The Partnership generally distributes cash from operating activities
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, 2002, 2001 and 2000. This represents distributions
of $0.90 per Unit for the years ended December 31, 2002, 2001 and 2000. No
distributions were made to the General Partners during the years ended December
31, 2002, 2001 and 2000, respectively. No amounts distributed to the Limited
Partners for the years ended December 31, 2002, 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. 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, 2002, 2001 and 2000.
As of December 31, 2002 and 2001, the Partnership owed $17,330 and
$5,539, respectively, to affiliates for accounting and administrative services.
As of March 15, 2003, the Partnership had reimbursed the affiliates for these
amounts. Other liabilities, including distributions payable, increased to
$1,064,171 at December 31, 2002, from $997,122 at December 31, 2001, primarily
as a result of an increase in rents paid in advance and deposits. 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 assumptions regarding collectibility of
lease payments could result in a change in accounting for the lease at the
inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews the Partnership's Properties and investments in
unconsolidated entities periodically for impairment at least once a year or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The assessment is based on the carrying amount
of the Property or investment at the date it is tested for recoverability
compared to the sum of the estimated future cash flows expected to result from
its operation and sale through the expected holding period. If an impairment is
indicated, the asset is adjusted to its estimated fair value.
When the Partnership makes the decision to sell or commits to a plan to
sell a Property within one year, its operating results are reported as
discontinued operations.
Results of Operations
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Total rental revenues were $2,841,093 during the year ended December
31, 2002 as compared to $2,755,476 for the same period of 2001. The increase in
rental revenues during 2002 was due to the acquisition of a Property in Houston,
Texas. Although this Property replaced a Property that was sold, the rental
revenues and expenses related to disposed Properties are reported as
discontinued operations in the financial statements as required by a newly
adopted accounting pronouncement, as described below.
The Partnership also earned $89,619 in contingent rental income for the
year ended December 31, 2002 as compared to $51,376 for the same period of 2001.
Contingent rental income was higher during 2002 because the Partnership deferred
the recognition of certain percentage rental income during 2001, until the
tenants' gross sales met certain thresholds in 2002.
During the year ended December 31, 2002, the Partnership also earned
$6,029 as compared to $32,426 for the same period of 2001 in interest and other
income. Interest and other income were lower during 2002 due to a decrease in
the average cash balance as a result of the reinvestment of sales proceeds
received in 2001 and due to a decline in interest rates.
For the years ended December 31, 2002 and 2001, the Partnership
recorded income of $578,394 and a loss of $88,921, respectively, attributable to
the net operating results reported by unconsolidated joint ventures in which the
Partnership is a co-venturer. The income recognized during 2002, as compared to
the losses for the same period of 2001, was primarily attributable to net gains
of $872,385 recognized by joint ventures on sales of Properties in 2002. In May
2002, CNL Restaurant Investments III, in which the Partnership owns a 50%
interest, sold its Property in Greensboro, North Carolina to the tenant. In
addition, in June 2002, Ashland Joint Venture, in which the Partnership owns a
10.51% interest, sold its Property in Ashland, New Hampshire to the tenant.
The increase in net income earned from joint ventures during 2002 was
also due to 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., each of
which is an affiliate of the General Partners, to purchase and hold one
restaurant Property. Net income earned from the joint ventures also increased
because, in January 2002, the Partnership used the majority of the liquidation
proceeds received from the 2001 dissolution of Peoria Joint Venture to invest in
a Property in Austin, Texas with CNL Income Fund XVIII, Ltd., an affiliate of
the General Partners, as tenants-in-common. The net losses experienced by joint
ventures in 2001 was mainly due to the fact that, during 2001, 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 stopped
recording rental revenue and also recorded a provision for write-down of assets
of approximately $781,700. The provision represented the difference between the
carrying value of the Property and its fair value. The joint venture will not
record rental revenues relating to this Property until it locates a new tenant
for this Property. The joint venture is seeking a new tenant for this Property.
During the year ended December 31, 2002, three lessees (or groups of
affiliated tenants) of the Partnership and its consolidated joint venture, (i)
Golden Corral Corporation, (ii) 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."), and (iii)
Carrols Corporation and Texas Taco Cabana, LP (which are affiliated entities
under common control) (hereinafter referred to as ("Carrols Corp.") each
contributed more than 10% of the Partnership's total rental revenues (including
rental revenues from the Partnership's consolidated joint venture and the
Partnership's share of rental revenues from Properties owned by unconsolidated
joint ventures and Properties owned with affiliates of the General Partners as
tenants-in-common). As of December 31, 2002, Golden Corral Corporation was the
lessee under leases relating to six restaurants, Jack in the Box Inc. was the
lessee under leases relating to five restaurants and Carrols Corp. was the
lessee under leases related 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 revenues
during 2003. In addition, during the year ended December 31, 2002, 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 revenues
(including rental revenues from the Partnership's consolidated joint venture and
the Partnership's share of rental revenues from Properties owned by
unconsolidated joint ventures and Properties owned with affiliates as
tenants-in-common). In 2003, it is anticipated that these four Restaurant Chains
will continue to account for more than 10% of the Partnership's total rental
revenues 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
provision for write-down of assets, were $663,050 for the year ended December
31, 2002 as compared to $752,126 for the same period of 2001. Operating expenses
were higher during 2001, as compared to the same period of 2002, because the
Partnership recorded a provision for write-down of assets in the amount of
$84,527 in connection with the anticipated sale of the Property in North
Richland Hills, Texas. The contract for the sale of this Property was
subsequently terminated. In addition, the Partnership incurred higher
administrative expenses for servicing the Partnership and its Properties during
2001. The decrease in operating expenses during 2002, as compared to 2001, was
partially offset by an increase in depreciation expense as a result of the
acquisition of the Property in Houston, Texas.
In July 2002, the Partnership entered into a contract with the tenant
to sell the Property in Allegan, Michigan. The contract for the sale of this
Property was subsequently terminated.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
During 2002, the Partnership identified and sold two Properties that
met the criteria of this standard and were classified as Discontinued Operations
in the accompanying financial statements. The Partnership sold its Property in
San Marcos, Texas, resulting in a gain of approximately $169,400. In addition,
the Partnership sold its Property in Ft. Pierce, Florida, resulting in a loss of
approximately $2,200. The Partnership had recorded provisions for write-down of
assets of $306,659 and $287,275 in 2001 and 2000, respectively, relating to the
Property in Ft. Pierce, Florida because the tenant vacated the Property and
ceased payment of rents to the Partnership in 1999. The provisions represented
the difference between the carrying value of the property and its estimated fair
value. The Partnership reinvested the proceeds from the sale of one Property in
an additional Property and intends to reinvest the proceeds from the other
Property during 2003.
In addition, during the 2002, CNL Restaurant Investments III and
Ashland Joint Venture each identified and sold a Property that met the criteria
of this standard. The joint ventures recognized gains of $872,385 from the sales
of the Properties in Greensboro, North Carolina and Ashland, New Hampshire. The
financial results of these Properties are reflected as Discontinued Operations
in the condensed joint venture financial information presented in the footnotes
to the accompanying financial statements. The tenants exercised their option to
purchase the Properties under the terms of their respective leases and the
proceeds from the sales were reinvested in additional Properties.
Comparison of year ended December 31, 2001 to year ended December 31, 2000
Total rental revenues were $2,755,476 during the year ended December
31, 2001 as compared to $2,745,737 for the same period of 2000. The Partnership
also earned $51,376 in contingent rental income for the year ended December 31,
2001 as compared to $65,717 for the same period of 2000. The decrease in
contingent rental income was primarily attributable to a decrease in gross sales
relating to certain restaurant properties whose leases require the payment of
contingent rent.
During the year ended December 31, 2001, the Partnership also earned
$32,426 as compared to $30,303 for the same period of 2000 in interest and other
income.
For the year ended December 31, 2001, the Partnership incurred a loss
of $88,921 as compared to income of $449,576 during the same period of 2000,
attributable to the net operating results reported by unconsolidated joint
ventures in which the Partnership is a co-venturer. The decrease in net
operating results earned by 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 stopped recording rental revenues. In addition, during
2001, the joint venture established a provision for write-down of assets in the
amount of $781,741, as described above. The provision represented the difference
between the carrying value of the Property and its estimated fair value.
The decrease in net income earned from joint ventures during 2001 was
partially offset because 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, during 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.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $752,126 for the year ended December
31, 2001 as compared to $656,417 for the same period of 2000. 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. The increase during 2001 was also partially
attributable to the Partnership recording a provision for write-down of assets
in the amount of $84,527 related to the Property in North Richland Hills, Texas,
as described above, and due to an increase in state taxes in a state in which
the Partnership conducts business. The increase in operating expenses during
2001 was partially offset by the fact during 2000, the Partnership had recorded
legal expenses, real estate taxes, insurance and maintenance relating to the
Property in Lancaster, New York. The Partnership sold this Property in December
2000.
During 2000, the Partnership incurred $38,333 in transaction costs
related to the General Partners retaining financial an legal advisors to assist
them in evaluating and negotiating a proposed merger with APF. The merger
negotiations were terminated in March 2001.
As a result of the sale of the Property in Lancaster, New York, the
Partnership recorded a gain of $50,755 during 2000.
The restaurant industry has been relatively resilient during this
volatile time with steady performance during 2002. However, the industry remains
in a state of cautious optimism. Restaurant operators expect their business to
be better in 2003, according to a nationwide survey conducted by the National
Restaurant Association, but are concerned by the budget deficits being
experienced by many states and the potential of new taxes on the industry to
alleviate the situation.
The Partnership's leases as of December 31, 2002, 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 January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be considered by a company if that company is subject to a majority risk of loss
from the variable interest entity's activities or entitled to receive a majority
of the entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. Consolidation of variable
interests entities will provide more complete information about the resources,
obligations, risks and opportunities of the consolidated company. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003, and to older entities in the first
fiscal year or interim period beginning after June 15, 2003. Management believes
adoption of this standard may result in either consolidation or additional
disclosure requirements with respect to the Partnership's unconsolidated joint
ventures or Properties held with affiliates of the General Partners as
tenants-in-common, which are currently accounted for under the equity method.
However, such consolidation is not expected to significantly impact the
Partnership's results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
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 25-37
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, 2002 and 2001, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2002 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under item 15(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
January 31, 2003
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2002 2001
------------------- --------------------
ASSETS
Real estate properties with operating leases, net $ 14,133,871 $ 13,146,542
Net investment in direct financing leases 8,592,987 8,911,232
Real estate held for sale -- 1,341,459
Investment in joint ventures 4,117,921 3,664,241
Cash and cash equivalents 1,287,619 1,565,888
Receivables, less allowance for doubtful accounts of $24,814
in 2001 47,784 30,290
Accrued rental income, less allowance for
doubtful accounts of $4,841 in 2002 and 2001 1,319,652 1,340,884
Other assets 92,523 87,109
------------------- --------------------
$ 29,592,357 $ 30,087,645
=================== ====================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable 4,532 $ 11,105
Real estate taxes payable 12,836 8,256
Distributions payable 900,001 900,001
Due to related parties 17,330 5,539
Rents paid in advance and deposits 146,802 77,760
------------------- --------------------
Total liabilities 1,081,501 1,002,661
Minority interest 62,980 64,256
Partners' capital 28,447,876 29,020,728
------------------- --------------------
$ 29,592,357 $ 30,087,645
=================== ====================
See accompanying notes to financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2002 2001 2000
----------------- ---------------- -----------------
Revenues:
Rental income from operating leases $ 1,886,775 $ 1,789,409 $ 1,764,928
Earned income from direct financing leases 954,318 966,067 980,809
Contingent rental income 89,619 51,376 65,717
Interest and other income 6,029 32,426 30,303
----------------- ---------------- -----------------
2,936,741 2,839,278 2,841,757
----------------- ---------------- -----------------
Expenses:
General operating and administrative 296,519 319,606 196,884
Property expenses 36,259 41,422 83,063
State and other taxes 31,076 36,829 22,580
Depreciation and amortization 299,196 269,742 315,557
Provision for write-down of assets -- 84,527 --
Transaction costs -- -- 38,333
----------------- ---------------- -----------------
663,050 752,126 656,417
----------------- ---------------- -----------------
Income Before Gain on Sale of Assets, Minority Interest in
Income of Consolidated Joint Venture and Equity in
Earnings (Loss) of Unconsolidated Joint Ventures 2,273,691 2,087,152 2,185,340
Gain on Sale of Assets -- -- 50,755
Minority Interest in Income of Consolidated
Joint Venture (8,262 ) (8,695 ) (8,553 )
Equity in Earnings (Loss) of Unconsolidated Joint Ventures 578,394 (88,921 ) 449,576
----------------- ---------------- -----------------
Income from Continuing Operations 2,843,823 1,989,536 2,677,118
Discontinued Operations (Note 5)
Income (loss) from discontinued operations 16,139 (256,882 ) (211,330 )
Gain on disposal of discontinued operations 167,190 -- --
----------------- ---------------- -----------------
183,329 (256,882 ) (211,330 )
----------------- ---------------- -----------------
Net Income $ 3,027,152 $ 1,732,654 $ 2,465,788
================= ================ =================
Net Income (Loss) Per Limited Partner Unit
Continuing Operations $ 0.71 $ 0.50 $ 0.67
Discontinued Operations 0.05 (0.07 ) (0.05 )
----------------- ---------------- -----------------
Total $ 0.76 $ 0.43 $ 0.62
================= ================ =================
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, 2002, 2001 and 2000
General Partners Limited Partners
---------------------------- ------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs
-------------- ------------ ------------- ------------- --------------- -------------
Balance, December 31, 1999 $ 1,000 $ 251,935 $ 40,000,000 $ (28,243,147 ) $ 24,802,506 $ (4,790,000)
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 (4,790,000)
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 (4,790,000)
Distributions to limited
partners ($0.90 per
limited partner unit) -- -- -- (3,600,004 ) -- --
Net income -- -- -- -- 3,027,152 --
------------- -------------- -------------- ---------------- --------------- -------------
Balance, December 31, 2002 $ 1,000 $ 251,935 $ 40,000,000 $ (39,043,159 ) $ 32,028,100 $ (4,790,000)
============= ============== ============== ================ =============== =============
Total
- ------------------
$ 32,022,294
(3,600,004 )
2,465,788
- --------------
30,888,078
(3,600,004 )
1,732,654
- --------------
29,020,728
(3,600,004 )
3,027,152
- --------------
$ 28,447,876
==============
See accompanying notes to financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2002 2001 2000
--------------- ---------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Net income $ 3,027,152 $ 1,732,654 $ 2,465,788
--------------- ---------------- ---------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 315,589 297,383 317,491
Amortization of net investment in direct financing
lease 318,245 253,736 226,323
Amortization 5,055 5,025 1,000
Minority interest in income of consolidated
joint venture 8,262 8,695 8,553
Equity in earnings of unconsolidated joint
ventures, net of distributions (110,209) 577,013 59,704
Gain on sale of assets (167,189) -- (50,755)
Provision for write-down of assets -- 391,186 289,453
Decrease (increase) in receivables (17,803) 19,048 51,974
Decrease (increase) in due from related party 309 12,703 (3,635)
Decrease (increase) in accrued rental income 18,100 (7,388) (80,655)
Decrease (increase) in other assets (10,369) 7,141 2,189
Decrease in accounts payable and real estate
taxes payable (1,993) (26,225) (74,006)
Increase (decrease) in due to related parties 11,791 (141,560) 77,555
Increase in rents paid in advance and deposits 69,042 6,342 7,687
Decrease in deferred rental income -- (7,903) --
--------------- ---------------- ---------------
Total adjustments 438,830 1,395,196 832,878
--------------- ---------------- ---------------
Net Cash Provided by Operating Activities $ 3,465,982 $ 3,127,850 $ 3,298,666
=============== ================ ===============
Cash Flows from Investing Activities:
Proceeds from sale of real estate properties 1,490,229 -- 749,675
Additions to real estate properties with operating
leases (1,281,467) -- --
Liquidating distribution from joint venture -- 899,452 --
Investment in joint ventures (915,171) (211,201) --
Return of capital from joint venture 571,700 -- --
Payment of lease costs -- (3,324) (44,273)
--------------- ---------------- ---------------
Net cash provided by (used in) investing activities (134,709) 684,927 705,402
--------------- ---------------- ---------------
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 (9,538) (8,537) (9,506)
--------------- ---------------- ---------------
Net cash used in financing activities (3,609,542) (3,608,541) (3,609,510)
--------------- ---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (278,269) 204,236 394,558
Cash and Cash Equivalents at Beginning of Year 1,565,888 1,361,652 967,094
--------------- ---------------- ---------------
Cash and Cash Equivalents at End of Year $ 1,287,619 $ 1,565,888 $ 1,361,652
=============== ================ ===============
See accompanying notes to financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2002 2001 2000
--------------- ---------------- ----------------
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, 2002, 2001, and 2000
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 property
acquisitions of real estate properties at cost, including acquisition
and closing costs. Real estate properties 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. During
the years ended December 31, 2002, 2001 and 2000, tenants paid directly
to real estate taxing authorities approximately $392,300, $409,200 and
$423,600, respectively, in real estate taxes in accordance with the
terms of their triple net leases with the Partnership.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
direct financing or the operating methods. Such methods are described
below:
Direct financing method - Leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset). Unearned income is deferred and amortized
to income over the lease terms so as to produce a constant
periodic rate of return on the Partnership's net investment in
the leases. For the leases classified as direct financing
leases, the building portions of the property leases are
accounted for as direct financing leases while a majority of
the land portion of these leases are operating leases.
Operating method - Property leases accounted for using the
operating method are recorded at cost, revenue is recognized
as rentals are earned and depreciation is charged to
operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date.
Substantially all leases are for 15 to 20 years and provide for minimum
and contingent rentals. 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, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
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.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is made to increase the
allowance for doubtful accounts, 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.
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 five joint ventures and the properties
in Clinton, North Carolina, Miami, Florida and Austin, Texas, 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 lease costs incurred in negotiating
new leases and 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, 2002, 2001, and 2000
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 represent a reduction
of Partnership equity and a reduction in the basis of each partner's
investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2002 presentation,
including a change in presentation of the statement of cash flows from
the direct to the indirect method. These reclassifications had no
effect on total partners' capital, net income or cash flows.
Statement of Financial Accounting Standards No. 144 ("FAS 144") -
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
FASB Interpretation No. 46 ("FIN 46") - In January 2003, FASB issued
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting
guidance that addresses when a company should include the assets,
liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with
variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be considered by a company if
that company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. Consolidation of
variable interests entities will provide more complete information
about the resources, obligations, risks and opportunities of the
consolidated company. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31,
2003, and to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Management believes adoption of this
standard may result in either consolidation or additional disclosure
requirements with respect to the Partnership's unconsolidated joint
ventures or properties held with affiliates of the general partners as
tenants-in-common, which are currently accounted for under the equity
method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
2. Real Estate Properties with Operating Leases:
--------------------------------------------
Real estate properties with operating leases consisted of the following
at December 31:
2002 2001
------------------- ------------------
Land $ 8,305,217 $ 7,575,420
Building 8,141,147 7,589,475
------------------
-------------------
16,446,364 15,164,895
Less accumulated depreciation (2,312,493 ) (2,018,353 )
------------------- ------------------
$ 14,133,871 $ 13,146,542
=================== ==================
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. The provision represented the difference between the
carrying value of the property at December 31, 2001 and the estimated
fair value of the property. The contract for the sale of this property
was subsequently terminated.
In June 2002, the Partnership reinvested the majority of the proceeds
from the sale of the property in San Marcos, Texas and a portion of the
return of capital received from CNL Restaurant Investments III from the
sale of its property in Greensboro, North Carolina in a property in
Houston, Texas at an approximate cost of $1,281,500. The Partnership
acquired this property from CNL Funding 2001-A, LP, an affiliate of the
general partners.
The following is a schedule of the future minimum lease payments to be
received on non-cancellable operating leases at December 31, 2002:
2003 $ 1,999,864
2004 2,049,212
2005 2,063,061
2006 2,029,101
2007 1,378,700
Thereafter 6,230,203
----------------
$ 15,750,141
================
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
3. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2002 2001
----------------- ----------------
Minimum lease payments receivable $ 11,279,784 $12,503,573
Estimated residual values 3,229,175 3,229,175
Less unearned income (5,915,972 ) (6,821,516 )
----------------- ----------------
Net investment in direct financing leases $ 8,592,987 $ 8,911,232
================= ================
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at December 31, 2002:
2003 $ 1,268,229
2004 1,279,012
2005 1,280,347
2006 1,280,667
2007 1,323,570
Thereafter 4,847,959
----------------
$ 11,279,784
================
4. Investment in Joint Ventures:
----------------------------
The Partnership has a 50%, a 10.51%, a 40.95%, a 69.06%, a 13% 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.
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. The joint venture acquired
this property from CNL BB Corp., an affiliate of the general partners.
As of December 31, 2002, the Partnership had contributed approximately
$211,200 and owned a 10% interest in the profits and losses of 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. The Partnership received approximately
$899,500 representing its pro rata share of the liquidation proceeds.
In January 2002, the Partnership reinvested a portion of the
liquidation proceeds in a property in Austin, Texas, as
tenants-in-common, with CNL Income Fund XVIII, Ltd., an affiliate of
the general partners. The Partnership acquired this property from CNL
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
----------------------------------------
Funding 2001-A, LP, an affiliate of the general partners. The
Partnership and CNL Income Fund XVIII, Ltd. entered into an agreement
whereby each co-venturer will share in the profits and losses of the
property in proportion to its applicable percentage interest. As of
December 31, 2002, the Partnership had contributed $915,171 for an
81.65% interest in this property.
During the year ended December 2001, Ocean Shores Joint Venture
recorded a provision for write-down of assets in the amount of
$781,741, relating to its Burger King property in Ocean Shores,
Washington, because 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 its estimated fair value.
In May 2002, CNL Restaurant Investments III, in which the Partnership
owns a 50% interest, sold its property in Greensboro, North Carolina to
the tenant and received net sales proceeds of $1,143,500, resulting in
a gain to the joint venture of approximately $371,500. The Partnership
received approximately $571,700 as a return of capital from the joint
venture. In addition, in June 2002, Ashland Joint Venture, in which the
Partnership owns a 10.51% interest, sold its property in Ashland, New
Hampshire to the tenant and received net sales proceeds of $1,472,900,
resulting in a gain of approximately $500,900. Ashland Joint Venture
used the majority of the proceeds to invest in a property in San
Antonio, Texas at an approximate cost of $1,343,000. The Partnership
and joint venture acquired these properties from CNL Funding 2001-A,
LP, an affiliate of the general partners. The financial results
relating to the properties in Greensboro, North Carolina and Ashland,
New Hampshire are reflected as Discontinued Operations in the condensed
financial information below.
CNL Restaurant Investments III owns and leases five 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 three 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:
December 31, December 31,
2002 2001
--------------- ---------------
Real estate properties with operating leases, net $ 11,473,750 $ 9,345,940
Net investment in direct financing leases 633,362 640,381
Real estate held for sale -- 1,760,504
Cash 31,871 31,907
Receivables 20,476 74,611
Accrued rental income 79,333 79,333
Other assets 27,511 24,639
Liabilities 11,670 7,593
Partners' Capital 12,254,633 11,949,722
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
----------------------------------------
Years Ended December 31,
2002 2001 2000
--------------- -------------- ---------------
Continuing Operations:
Revenues $ 1,315,445 $ 1,169,218 $
1,187,855
Expenses (333,027 ) (269,115 ) (212,468 )
Provision for write-down of assets -- (781,741 ) --
--------------- -------------- ---------------
Income from Continuing Operations 982,418 118,362 975,387
--------------- -------------- ---------------
Discontinued Operations:
Revenues 83,519 220,753 216,226
Expenses (16,707 ) (54,907 ) (64,773 )
Gain on disposal of real estate properties 872,385 -- --
--------------- -------------- ---------------
939,197 165,846 151,453
--------------- -------------- ---------------
Net Income $ 1,921,615 $ 284,208 $ 1,126,840
=============== ============== ===============
The Partnership recognized income of $578,394, a loss of $88,921 and
income of $449,576 for the years ended December 31, 2002, 2001 and
2000, respectively, from these joint ventures.
5. Discontinued Operations:
-----------------------
In April 2002, the Partnership sold its property in San Marcos, Texas
to a third party and received net sales proceeds of approximately
$1,161,100, resulting in a gain of approximately $169,400. In December
2002, the Partnership sold its property in Ft. Pierce, Florida to a
third party and received net sales proceeds of approximately $329,200,
resulting in a loss of approximately $2,200. The Partnership had
recorded provisions for write-down of assets totaling $593,934 in
previous years because the tenant vacated the property and the
Partnership had not been able to re-lease the property. The provision
represented the difference between the carrying value of the property
and its estimated fair value. The financial results of these properties
are reflected as Discontinued Operations in the accompanying financial
statements.
The operating results of the discontinued operations for the above
properties are as follows:
Year Ended December 31,
2002 2001 2000
-------------- ------------- --------------
Rental revenues $ 56,677 $ 104,024 $ 103,829
Expenses (40,538 ) (54,247 ) (27,884 )
Provision for write-down of assets - (306,659 ) (287,275 )
Gain on sale of assets 167,190 -- --
-------------- ------------- --------------
Income (Loss) from discontinued
operations $ 183,329 $( 256,882 ) (211,330 )
============== ============= ==============
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
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. However, the one percent of
net cash flow to be distributed to the general partners was
subordinated to receipt by the limited partners of an aggregate, 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.
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, 2002, 2001 and 2000.
During the years ended December 31, 2002, 2001 and 2000, 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, 2002, 2001, and 2000
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:
2002 2001 2000
-------------- -------------- --------------
Net income for financial reporting purposes $ 3,027,152 $ 1,732,654 $ 2,465,788
Effect of timing differences relating to
depreciation (126,906) (159,214) (159,851)
Direct financing leases recorded as operating
leases for tax reporting purposes 308,494 253,735 226,323
Effect of timing differences relating to equity
in earnings of unconsolidated joint ventures 41,104 635,668 (47,498)
Effect of timing differences relating to gain on
sale of real estate properties (562,039) -- (308,959)
Provision for write-down of assets -- 391,186 287,275
Effect of timing differences relating to
allowance for doubtful accounts (24,814) (259,699) 161,599
Accrued rental income 43,062 (32,350) (78,478)
Deferred rental income (24,962) (1,645) --
Rents paid in advance 68,542 25,046 7,687
Effect of timing differences relating to minority
interest of consolidated joint venture (634) 1,089 1,108
Deduction of transaction costs for tax reporting
purposes -- -- (219,525)
Other -- -- 9,432
-------------- -------------- --------------
Net income for federal income tax purposes $ 2,748,999 $ 2,586,470 $ 2,344,901
============== ============== ==============
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
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, a wholly owned subsidiary of CNL American
Properties Fund, Inc. ("APF") served as the Partnership's advisor until
January 1, 2002, when it assigned its rights and obligations under a
management agreement to RAI Restaurants, Inc. (formerly known as CNL
Restaurants XVIII, Inc.). RAI Restaurants, Inc. ("the Advisor") is a
wholly owned subsidiary of APF. The individual general partners are
stockholders and directors of APF.
The Advisor provides services pursuant to a management agreement with
the Partnership. In connection therewith, the Partnership 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, 2002, 2001, and 2000.
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.
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. CNL Income Fund VIII, Ltd. and CNL Income Fund
XII, Ltd. are 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.
In January 2002, the Partnership and CNL Income Fund XVIII, Ltd., as
tenants-in-common, acquired a property, in Austin, Texas, for a
purchase price of approximately $1,120,800. In addition, in June 2002,
the Partnership acquired a property in Houston, Texas for a purchase
price of approximately $1,281,500 and, in a separate transaction,
Ashland Joint Venture acquired a property in San Antonio, Texas for an
approximate cost of $1,343,000. The Partnership acquired these
Properties from CNL Funding 2001-A, LP, an affiliate of the general
partners. CNL Funding 2001-A, LP had purchased and temporarily held
title to the properties in order to facilitate the acquisition of the
properties by the Partnership and the joint ventures. The respective
purchase prices paid by the Partnership and the joint ventures
represented the costs incurred by CNL Funding 2001-A, LP to acquire and
carry the properties.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
8. Related Party Transactions - Continued:
--------------------------------------
During the years ended December 31, 2002, 2001, and 2000, the
Partnership's advisor and its affiliates provided accounting and
administrative services. The Partnership incurred $209,751, $204,843
and $100,929 for the years ended December 31, 2002, 2001, and 2000,
respectively, for such services.
The amounts due to related parties at December 31, 2002 and 2001,
totaled $17,330 and $5,539, respectively.
9. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental revenues from individual
lessees, or affiliated groups of lessees, each representing more than
10% of the Partnership's total rental revenues (including the
Partnership's share of total rental revenues 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:
2002 2001 2000
--------------- --------------- ---------------
Golden Corral Corporation $ 743,095 $ 702,567 $ 707,882
Jack in the Box Inc. (and Jack in
the Box Eastern Division, L.P.
in 2002 and 2001) 450,222 506,446 517,974
Carrols Corp. 412,820 N/A N/A
Burger King Corporation N/A 339,808 N/A
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than 10% of the
Partnership's total rental revenues (including the Partnership's share
of total rental revenues 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:
2002 2001 2000
---------------- ---------------- ---------------
Golden Corral Family
Steakhouse Restaurant $ 743,095 $ 702,567 $ 707,882
Burger King 678,506 741,334 791,749
Jack in the Box 450,222 506,446 517,974
Hardee's 378,031 384,914 390,528
The information denoted by N/A indicates that for each period
presented, the tenant did not represent more than 10% of the
Partnership's total rental revenues.
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, 2002, 2001, and 2000
10. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2002 and
2001:
2002 Quarter First Second Third Fourth Year
------------------------------- ----------- ------------- ------------ ------------- ---------------
Continuing Operations (1):
Revenues $ 719,282 $ 687,982 $ 758,148 $ 771,329 $ 2,936,741
Equity in earnings of joint
ventures 82,433 329,671 89,270 77,020 578,394
Income from discontinued
operations 611,433 851,693 686,325 694,372 2,843,823
Discontinued operations (1):
Revenues 24,242 32,435 -- -- 56,677
Income (Loss) from
discontinued operations 15,533 185,995 (9,245 ) (8,954) 83,329
Net Income $ 626,966 $ 1,037,688 $ 677,080 $ 685,418 $ 3,027,152
Net Income (Loss) per limited partner unit:
Continuing operations $ 0.15 $ 0.21 $ 0.16 $ 0.19 $ 0.71
Discontinued operations 0.01 0.05 0.01 (0.02 ) 0.05
----------- ------------- ------------ ------------- ---------------
Total $ 0.16 $ 0.26 $ 0.17 $ 0.17 $ 0.76
=========== ============= ============ ============= ===============
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
10. Selected Quarterly Financial Data - Continued:
---------------------------------------------
2001 Quarter First Second Third Fourth Year
------------------------------- ----------- ------------- ------------ ------------- ---------------
Continuing Operations (1):
Revenues $ 713,590 $ 700,901 $ 698,255 $ 726,532 $ 2,839,278
Equity (loss) in earnings
of joint ventures 109,541 96,846 (379,183 ) 83,875 (88,921 )
Income from continuing
operations 575,334 638,502 113,820 661,880 1,989,536
Discontinued Operations (1):
Revenues 26,119 25,957 25,957 25,991 104,024
Income (loss) from
discontinued operations 12,751 12,126 (295,244 ) 13,485 (256,882 )
Net Income (Loss) $ 588,085 $ 650,628 $(181,424 ) $ 675,365 $ 1,732,654
Net Income (Loss) per limited partner unit:
Continuing operations $ 0.14 $ 0.15 $ 0.03 $ 0.16 $ 0.48
Discontinued operations 0.01 0.01 (0.08 ) 0.01 (0.05 )
----------- ------------- ------------ ------------- ---------------
Total $ 0.15 $ 0.16 $ (0.05 ) $ 0.17 $ 0.43
=========== ============= ============ ============= ===============
(1) Certain items in the prior years' financial statements have been
reclassified to conform to 2002 presentation. These
reclassifications had no effect on net income. The results of
operations relating to properties that were either disposed of
or that were classified as held for sale as of December 31, 2002
are reported as discontinued operations. The results of
operations relating to properties that were identified for sale
as of December 31, 2001 but sold subsequently are reported as
continuing operations.
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 7-9
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 SHEET
2001
------------------
ASSETS
Land and building, net $ 387,104
Net investment in direct financing lease --
Cash 596
Receivables, less allowance for doubtful
accounts of $91,258 in 2001 --
Accrued rental income --
Other assets 284
------------------
$ 387,984
==================
LIABILITIES AND PARTNERS' CAPITAL
Partners' capital 387,984
------------------
$ 387,984
==================
See accompanying notes to financial statements.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
STATEMENTS OF OPERATIONS
Year Ended December 31,
2001 2000
---------------- ---------------
(unaudited)
Revenues:
Rental income from operating leases $ 33,503 $ 40,887
Earned income from direct financing leases -- 79,393
Interest and other income -- 535
---------------- ---------------
33,503 120,815
---------------- ---------------
Expenses:
General operating and administrative 1,695 1,508
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
---------------- ---------------
Net (Loss) Income $ (766,610 ) $ 118,909
================ ===============
Allocation of Net (Loss)Income
CNL Income Fund X, Ltd. $ (529,421 ) $ 82,119
CNL Income Fund XVII, Ltd. (237,189 ) 36,790
---------------- ---------------
$ (766,610 ) $ 118,909
================ ===============
See accompanying notes to financial statements.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001 and 2000
CNL Income Fund X, Ltd. CNL Income Fund XVII, Ltd.
--------------------------------------------- ---------------------------------------------
Accumulated Accumulated
Contributions Distributions Earnings Contributions Distributions Earnings
------------- -------------- ------------- ------------- ------------- --------------
Balance, December 31, 1999
(unaudited) $ 802,432 $ (70,190 ) $ 76,291 $ 359,485 $ (31,447 ) $ 34,180
Contributions from joint
venture partners (12 ) -- -- 12 -- --
Distributions to joint venture -- (69,414 ) -- -- (31,098 ) --
Net income -- -- 82,119 -- -- 36,790
------------- -------------- -------------- ------------- ------------- -------------
Balance, December 31, 2000
(unaudited) 802,420 (139,604 ) 158,410 359,497 (62,545 ) 70,970
Distributions to joint venture -- (23,863 ) -- -- (10,691 ) --
Net loss -- -- (529,421 ) -- -- (237,189 )
------------- -------------- -------------- ------------- ------------- -------------
Balance, December 31, 2001 $ 802,420 $ (163,467 ) $ (371,011 ) $ 359,497 $ (73,236 ) $ (166,219 )
============= ============== ============== ============= ============= =============
Total
--------------
$ 1,170,751
--
(100,512 )
118,909
- --------------
1,189,148
(34,554 )
(766,610 )
- --------------
$ 387,984
==============
See accompanying notes to financial statements.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
2001 2000
--------------- ---------------
(unaudited)
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 27,997 $ 111,703
Cash paid for expenses (2,356 ) (1,992 )
--------------- ---------------
Net cash provided by operating activities 25,641 109,711
--------------- ---------------
Cash Flows from Investing Activities:
Net cash used in investing activities -- --
--------------- ---------------
Cash Flows from Financing Activities:
Distributions to CNL Income Fund X, Ltd. (23,863 ) (69,414 )
Distributions to CNL Income Fund XVII,
Ltd. (10,691 ) (31,098 )
--------------- ---------------
Net cash used in financing activities (34,554 ) (100,512
--------------- ---------------
Net Increase (Decrease) in Cash (8,913 ) 9,199
Cash at Beginning of Year 9,509 310
--------------- ---------------
Cash at End of Year $ 596 $ 9,509
=============== ===============
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31,
2001 2000
--------------- --------------
(unaudited)
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net (Loss) Income $(766,610 ) $ 118,909
--------------- --------------
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
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 )
Decrease (increase) in other assets (37 ) 52
(Increase) decrease in accounts
payable -- (138 )
--------------- --------------
Total adjustments 792,251 (9,198 )
--------------- --------------
Net Cash Provided by Operating Activities $ 25,641 $ 109,711
=============== ==============
See accompanying notes to financial statements.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001and 2000
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.
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.
CNL OCEAN SHORES JOINT VENTURE
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001and 2000
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. 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.
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
-------------- --------------
(unaudited)
Net income for financial reporting purposes $ (766,610) $ 118,909
Depreciation for tax reporting purposes in excess
of depreciation for financial reporting
purposes (5,132) (20,255)
Direct financing leases recorded as operating
leases for tax reporting purposes 3,360 9,763
Provision for write-down of assets 781,741 --
Allowance for doubtful accounts 91,258 --
Accrued rental income (8,937) (17,874)
Other (200) (200)
-------------- --------------
Net income for federal income tax purposes $ 95,480 $ 90,343
============== ==============
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL American Properties Fund, Inc. ("APF"), CNL Fund
Advisors, Inc., CNL Financial Group, Inc. and their affiliates, all of which are
affiliates of the General Partners.
James M. Seneff, Jr., age 56. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of APF, a public, unlisted real
estate investment trust, since 1994. Mr. Seneff served as Chief Executive
Officer of APF from 1994 through August 1999, and has served as co-Chief
Executive Officer of APF since December 2000. Mr. Seneff served as Chairman of
the Board and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, until it merged with a wholly-owned subsidiary of APF in
September 1999, and in June 2000, was re-elected to those positions of CNL Fund
Advisors, Inc. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the
parent company of CNL Financial Group, Inc. (formerly CNL Group, Inc.), a
diversified real estate company, and has served as a Director, Chairman of the
Board and Chief Executive Officer of CNL Financial Group, Inc. since its
formation in 1980. CNL Financial Group, Inc. is the parent company, either
directly or indirectly through subsidiaries, of CNL Real Estate Services, Inc.,
CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp., all
of which are engaged in the business of real estate finance. Mr. Seneff also
serves as a Director, Chairman of the Board and Chief Executive Officer of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust,
as well as, CNL Hospitality Corp., its advisor. In addition, he serves as a
Director, Chairman of the Board and Chief Executive Officer of CNL Retirement
Properties, Inc., a public, unlisted real estate investment trust and its
advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has also served as a
Director, Chairman of the Board and Chief Executive Officer of Commercial Net
Lease Realty, Inc., a public real estate investment trust that is listed on the
New York Stock Exchange. Mr. Seneff has also served as a Director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a Director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNL Bank, an independent,
state-chartered commercial bank. Mr. Seneff previously served on the Florida
State Commission on Ethics and is a former member and past Chairman of the State
of Florida Investment Advisory Council, which recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration, Florida's principal investment advisory and
money management agency, oversees the investment of more than $60 billion of
retirement funds. Mr. Seneff received his degree in Business Administration from
Florida State University in 1968.
Robert A. Bourne, age 55. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne is a
Director of APF. Mr. Bourne served as President of APF from 1994 through
February 1999. He also served as Treasurer from February 1999 through August
1999 and from May 1994 through December 1994. He also served in various
executive positions with CNL Fund Advisors, Inc. prior to its merger with a
wholly-owned subsidiary of APF including, President from 1994 through September
1997, and Director from 1994 through August 1999. Mr. Bourne serves as President
and Treasurer of CNL Financial Group, Inc.; Director, Vice Chairman of the
Board, and Treasurer , and from 1997 until June 2002 served as President, of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
as well as, Director, Vice Chairman of the Board, and Treasurer, and from 1997
until June 2002 served as President, of CNL Hospitality Corp., its advisor. In
addition, Mr. Bourne serves as Director, Vice Chairman of the Board, and
Treasurer, and from 1997 until June 2002 served as President, of CNL Retirement
Properties, Inc., a public, unlisted real estate investment trust; as well as, a
Director, Vice Chairman of the Board, and Treasurer, and from 1997 until June
2002 served as President, of its advisor, CNL Retirement Corp. Mr. Bourne also
serves as a Director of CNL Bank. He has served as a Director since 1992, Vice
Chairman of the Board since February 1996, Secretary and Treasurer from February
1996 through 1997, and President from July 1992 through February 1996, of
Commercial Net Lease Realty, Inc., a public real estate investment trust listed
on the New York Stock Exchange. Mr. Bourne also serves as Director, President
and Treasurer for various affiliates of CNL Financial Group, Inc. including, CNL
Investment Company, CNL Securities Corp. and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans. Mr. Bourne began his career as
a certified public accountant employed by Coopers & Lybrand, Certified Public
Accountants, from 1971 through 1978, where he attained the position of Tax
Manager in 1975. Mr. Bourne graduated from Florida State University in 1970
where he received a B.A. in Accounting, with honors.
Curtis B. McWilliams, age 47. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as Chief
Executive Officer from September 1999 through December 2000. Prior to the
acquisition of CNL Fund Advisors, Inc., Mr. McWilliams served as President of
APF from February 1999 until September 1999. From February 1998 to February
1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL
Financial Group, Inc. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc., a
corporation engaged in the business of real estate financing, from April 1997
until the acquisition of such entities by wholly-owned subsidiaries of APF in
September 1999. From September 1983 through March 1997, Mr. McWilliams was
employed by Merrill Lynch & Co. The majority of his career at Merrill Lynch &
Co. was in the Investment Banking division where he served as a Managing
Director. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.
Steven D. Shackelford, age 39. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors, Inc. from September 1996 to September 1999. From March
1995 to July 1996, Mr. Shackelford was a senior manager in the national office
of Price Waterhouse LLP where he was responsible for advising foreign clients
seeking to raise capital and a public listing in the United States. From August
1992 to March 1995, he was a manager in the Paris, France office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and senior from 1986 to 1992 in the Orlando, Florida office of Price
Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business Administration degree from Florida State
University and is a certified public accountant.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2002.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 10, 2003, no person was known to the Registrant to be a
beneficial owner of more than 5% of the Units.
The following table sets forth, as of March 10, 2003, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
The Partnership has no equity compensation plans.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2002, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2002
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and
operating expenses the lower of cost or 90% of the administra-tive services:
prevailing rate at which comparable $209,751
services could have been obtained in
the same geographic area.
Affiliates of the General Partners
from time to time incur certain
operating expenses on behalf of the
Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual, subordinated manage- One percent of the sum of gross $-0-
ment fee to affiliates operating revenues from Properties
wholly owned by the Partnership plus the
Partnership's allocable share of gross
revenues of joint ventures in which the
Partnership is a co-venturer,
subordinated to certain minimum returns
to the Limited Partners. The management
fee will not exceed competitive fees for
comparable services. Due to the fact that
these fees are noncumulative, if the
Limited Partners have not received their
10% Preferred Return in any particular
year, no management fees will be due or
payable for such year.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2002
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee payable disposition fee, payable upon sale
to affiliates of one or more Properties, in an
amount equal to the lesser of (i)
one-half of a competitive real estate
commission, or (ii) 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 of
Partnership net sales such net sales proceeds, subordinated
proceeds from a sale or sales to certain minimum returns to the
not in liquidation of the Limited Partners.
Partnership.
Amount Incurred
Type of Compensation For the Year
And Recipient Method of Computation Ended December 31, 2002
- --------------------------------- -------------------------------------- ------------------------------
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order or
priority: (i) first, to pay all debts and
liabilities of the Partnership and to
establish reserves; (ii) second, to
Partners with positive capital account
balances, determined after the allocation
of net income, net loss, gain and loss,
in proportion to such balances, up to
amounts sufficient to reduce such
balances to zero; and (iii) thereafter,
95% to the Limited Partners and 5% to the
General Partners.
During 2002, the Partnership entered into a tenancy in common arrangement with
CNL Income Fund XVIII, Ltd., an affiliate of the general partners, to acquire a
Taco Cabana property in Austin, Texas from CNL Funding 2001-A, LP. for a
purchase price of approximately $1,120,800. Ashland Joint Venture also acquired
a Taco Cabana property in San Antonio, Texas from CNL Funding 2001-A, LP, an
affiliate of the general partners at an approximate cost of $1,343,000. CNL
Funding 2001-A, LP had purchased and temporarily held title to these properties
in order to facilitate the acquisition of the properties by the Partnership and
joint venture. The purchase prices paid by the Partnership and joint venture
represent the costs incurred by CNL Funding 2001-A, LP to acquire and carry each
property.
Item 14. Controls and Procedures
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures within 90 days prior to the
filing of this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
Subsequent to the above evaluation, there were no significant changes
in internal controls or other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements - CNL Income Fund X, Ltd.
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2002 and 2001
Statements of Income for the years ended December 31, 2002, 2001, and 2000
Statements of Partners' Capital for the years ended December 31, 2002, 2001, and 2000
Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000
Notes to Financial Statements
2. Financial Statements - CNL Ocean Shores Joint Venture
Report of Independent Certified Public Accountants
Balance Sheet at December 31, 2001
Statements of Operations for the years ended December 31, 2001 and 2000
Statements of Partners' Capital for the years ended December 31, 2001 and 2000
Statements of Cash Flows for the years ended December 31, 2001 and 2000
Notes to Financial Statements
3. Financial Statement Schedules
Schedule II -Valuation and Qualifying Accounts for the years
ended December 31, 2002, 2001, and 2000
Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002
Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002
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.)
**10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included
as Exhibit 10.5 to Form 10-Q filed with the
Securities and Exchange Commission on August 13,
2002, and incorporated herein by reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period October
1, 2002 through December 31, 2002.
**previously filed
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 27th day of
March, 2003.
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 27, 2003
- ------------------------------------ (Principal Financial and Accounting
Officer)
Robert A. Bourne
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 27, 2003
- ------------------------------------ (Principal Executive Officer)
James M. Seneff, Jr.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund X, Ltd. (the
"registrant"), certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a.designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b.evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation Date");
and
c.presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a.all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b.any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 27, 2003
/s/ James M. Seneff, Jr.
- ---------------------------
James M. Seneff, Jr.
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Bourne, President and Treasurer of CNL Realty Corporation,
the corporate general partner of CNL Income Fund X, Ltd. (the "registrant")
certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 27, 2003
/s/ Robert A. Bourne
- ---------------------------
Robert A. Bourne
President and Treasurer
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2002, 2001, and 2000
Additions Deductions
--------------------------------- -------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
2000 Allowance for
doubtful
accounts (a) $ 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
============== =============== ================ ============= ============ ============
2002 Allowance for
doubtful
accounts (a) $ 29,655 $ -- $ -- $ -- $ 24,814 $ 4,841
============== =============== ================ ============= ============ ============
(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, 2002
Costs Capitalized
Subsequent To
Initial Cost Acquisition
----------------------------- --------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
----------- ---------------- ------------ ----------- -------
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurants:
Hendersonville, North Carol-na 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 Carolina- 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 - - -
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 - - -
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, Texas-(l) 528,465 - 404,786 -
Pelham, Alabama 410,448 - 427,317 -
Taco Cabana Restaurant:
Houston, Texas - 729,796 551,672 - -
Other:
Homewood, Alabama - 597,907 - - -
Greenville, North Carolina - 323,573 515,134 - -
---------------- -------
------------ -----------
$8,569,941 $4,804,920 $3,336,227 -
================ ============ =========== =======
Properties of Joint Venture in
Which the Partnership has a
50% Interest and has Invested
in Under Operating Leases:
Burger King Restaurants:
Metairie, Louisiana - 429,883 342,455 - -
Lafayette, Louisiana - 350,932 773,129 - -
Nashua, New Hampshire - 514,815 838,536 - -
Pontiac, Illinois - 203,095 719,226 - -
Dover, New Hampshire - 406,259 998,023 - -
---------------- -------
------------ -----------
$1,904,984 $3,671,369 - -
================ ============ =========== =======
Property of Joint Venture
in Which the Partnership
has a 10.51% Interest and has
Invested in Under an
Operating Lease:
Taco Cabana Restaurant:
San Antonio, Texas (o) - $695,797 $647,181 - -
================ ============ =========== =======
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 Carolina- $138,382 $676,588 - -
================ ============ =========== =======
Property in Which the Parner-
ship 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 (-) $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 (m) - $644,163 $1,397,579 - -
================ ============ =========== =======
Property in Which the Parner-
ship has a 81.65% Interest
as Tenants-in-Common and
has Invested in Under an
Operating Lease:
Taco Cabana Restaurant:
Austin, Texas (n) - $486,896 $633,950 - -
================ ============ =========== =======
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, Pennsylvan-a 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 Depreciation structionAcquired Computed
- -------------- ------------ ------------- ----------- ------- --------- ------------
222,632 568,573 791,205 107,916 1986 11/91 (j)
383,359 554,084 937,443 105,166 1986 11/91 (j)
160,896 273,700 434,596 87,184 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 1,699,221 411,875 1992 12/91 (b)
711,354 1,124,040 1,835,394 403,436 1992 12/91 (b)
580,655 920,521 1,501,176 326,848 1992 05/92 (b)
203,166 1,054,051 1,257,217 131,949 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)
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)
99,879 224,614 324,493 80,205 1976 03/91 (b)
101,690 (f) 101,690 - 1985 03/91 (d)
71,989 161,211 233,200 57,565 1979 03/91 (b)
109,937 255,060 364,997 91,076 1985 03/91 (b)
513,032 404,786 917,818 150,339 1992 12/91 (b)
410,448 427,317 837,765 156,644 1992 01/92 (b)
729,796 551,672 1,281,468 10,726 1999 06/02 (b)
348,616 - 348,616 - 1997 10/97 (b)
323,573 515,134 838,707 191,564 1987 11/91 (b)
- -------------- ------------ ------------- -----------
$8,305,217 $8,141,147 $16,446,364 $2,312,493
============== ============ ============= ===========
429,883 342,455 772,338 122,815 1990 03/92 (b)
350,932 773,129 1,124,061 277,267 1989 03/92 (b)
514,815 838,536 1,353,351 300,725 1987 03/92 (b)
203,095 719,226 922,321 257,936 1988 03/92 (b)
406,259 998,023 1,404,282 357,919 1987 03/92 (b)
- --------------
- -------------- ------------ ------------- -----------
$1,904,984 $3,671,369 $5,576,353 $1,316,662
============== ============ ============= ===========
$695,797 $647,181 $1,342,978 $12,582 1994 06/02 (b)
============== ============ ============= ===========
$138,382 $676,588 $814,970 $156,486 1996 01/96 (b)
============== ============ ============= ===========
$976,357 $974,016 $1,950,373 $162,427 1995 12/97 (b)
============== ============ ============= ===========
$120,916 $281,310 $402,226 $24,924 1998 01/99 (i)
============== ============ ============= ===========
$644,163 $1,397,579 $2,041,742 $81,525 2000 04/01 (b)
============== ============ ============= ===========
$846,896 $633,950 $1,120,846 $21,132 1997 01/02 (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, 2002
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 1999, 2000 and 2001 have been adjusted to
reflect the reclassification of properties accounted for as
discontinued operations.
Accumulated
Cost Depreciation
----------------- ----------------
Properties the Partnership has Invested in
Under Operating Leases:
Balance, December, 31, 1999 $ 16,564,272 $ 1,485,137
Provision for write-down of assets (287,275 ) --
Disposition (790,010 ) (81,658 )
Depreciation expense -- 317,491
----------------- ----------------
Balance, December, 31 2000 15,486,987 1,720,970
Provision for write-down of assets (322,092 ) --
Depreciation expense -- 297,383
----------------- ----------------
Balance, December 31, 2001 15,164,895 2,018,353
Acquisition 1,281,469 --
Depreciation expense -- 294,140
----------------- ----------------
Balance, December 31, 2002 $ 16,446,364 $ 2,312,493
================= ================
Properties of Joint Venture in Which the Partnership has a 50%
Interest and has Invested in Under Operating Leases:
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
Dispositions (988,909 ) (216,896 )
Depreciation expense -- 127,797
----------------- ----------------
Balance, December 31, 2002 $ 5,576,353 $ 1,316,662
================= ================
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
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, 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
Disposition (1,290,582 ) (318,587 )
Acquisition 1,342,978 --
Depreciation expense -- 23,662
----------------- ----------------
Balance, December 31, 2002 $ 1,342,978 $ 12,582
================= ================
Property of Joint Venture in Which the Partnership has a 69.06%
Interest and has Invested in Under an Operating Lease:
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
Depreciation expense -- 9,801
----------------- ----------------
Balance, December 31, 2002 $ 402,226 $ 24,924
================= ================
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
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 -- 36,697
---------------- ----------------
Balance, December 31, 2001 2,112,011 36,697
Reimbursement of construction cost (m) (70,269 ) (1,759 )
Depreciation expense -- 46,587
---------------- ----------------
Balance, December 31, 2002 $ 2,041,742 $ 81,525
================ ================
Property in Which the Partnership has a 13% Interest as
Tenants-in- Common and has Invested in Under an Operating
Lease:
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
Depreciation expense -- 22,553
---------------- ----------------
Balance, December 31, 2002 $ 814,970 $ 156,486
================ ================
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, 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
Depreciation expense -- 32,468
---------------- ----------------
Balance, December 31, 2002 $ 1,950,373 $ 162,427
================ ================
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
Accumulated
Cost Depreciation
----------------- -----------------
Property in Which the Partnership has a 81.65% Interest as
Tenants-in-Common and has Invested in Under an Operating
Leases:
Balance, December 31, 2001 $ -- $ --
Acquisition (n) 1,120,846 --
Depreciation expense -- 21,132
----------------- -----------------
Balance, December 31, 2002 $ 1,120,846 $ 21,132
================= =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2002, the aggregate cost of the Properties owned by
the Partnership and its consolidated joint venture, and the
unconsolidated joint ventures for federal income tax purposes was
$27,602,038 and $14,363,028, 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.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2002
(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 Ocean Shores, Washington was
reduced to its estimated fair 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 estimated fair 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, 2002,
including the provision for write-down of assets.
(l) The undepreciated cost of the Property in North Richland Hills, Texas
was reduced to its estimated fair 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 estimated fair 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, 2002, including the
provision for write-down of assets.
(m) During the year ended December 31, 2002, the Partnership received
reimbursement from the developer upon final construction costs
reconciliation. In connection therewith, the land and building values
were adjusted accordingly.
(n) During the year ended December 31, 2002, the Partnership and an
affiliate as tenant-in-common, purchased a real estate property from
CNL Funding 2001-A, LP, an affiliate of the General Partners, for an
aggregate cost of approximately $1,120,800.
(o) During the year ended December 31, 2002, the joint venture purchased a
real estate property from CNL Funding 2001-A, LP, an affiliate of the
General Partners, for an aggregate cost of approximately $1,343,000.
EXHIBIT INDEX
Exhibit Number
(a) 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.)
10.5 Assignment of Management Agreement from CNL APF Partners, LP
to CNL Restaurants XVIII, Inc. (Included as Exhibit 10.5 to
Form 10-Q filed with the Securities and Exchange Commission
on August 13, 2002, and incorporated herein by reference.)
99.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(Filed herewith.)
EXHIBIT 99.1
EXHIBIT 99.2