FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended March 31, 2004
------------------------------------
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
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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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ---------------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
---------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act):Yes_____ No X
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 6-7
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 7
Item 4. Controls and Procedures 7-8
Part II.
Other Information 9-10
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
March 31, December 31,
2004 2003
--------------- -----------------
ASSETS
Real estate with operating leases, net $ 13,469,364 $ 13,544,970
Net investment in direct financing leases 7,573,663 7,666,525
Real estate held for sale 938,167 938,167
Investment in joint ventures 3,911,202 3,960,989
Cash and cash equivalents 1,450,310 1,457,105
Receivables -- 20,513
Due from related parties -- 619
Accrued rental income, less allowance for doubtful accounts of
$4,694 and $4,841, respectively 1,155,135 1,174,958
Other assets 82,577 86,000
--------------- -----------------
$ 28,580,418 $ 28,849,846
=============== =================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 32,713 $ 6,802
Real estate taxes payable 9,886 13,589
Distributions payable 900,001 900,001
Due to related parties 37,578 14,269
Rents paid in advance and deposits 167,610 162,548
--------------- -----------------
Total liabilities 1,147,788 1,097,209
Minority interest 60,617 61,095
Partners' capital 27,372,013 27,691,542
--------------- -----------------
$ 28,580,418 $ 28,849,846
=============== =================
See accompanying notes to condensed financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
2004 2003
--------------- --------------
Revenues:
Rental income from operating leases $ 478,203 $ 471,147
Earned income from direct financing leases 204,209 213,459
Contingent rental income 8,342 5,221
Interest and other income 79 212
--------------- --------------
690,833 690,039
--------------- --------------
Expenses:
General operating and administrative 99,313 83,449
Property related 142 2,709
State and other taxes 39,470 42,768
Depreciation and amortization 77,356 76,710
--------------- --------------
216,281 205,636
--------------- --------------
Income before minority interest and equity in earnings of
unconsolidated joint ventures 474,552 484,403
Minority interest (1,927 ) (2,081)
Equity in earnings of unconsolidated joint ventures 76,090 74,890
--------------- --------------
Income from continuing operations 548,715 557,212
--------------- --------------
Discontinued operations:
Income from discontinued operations 31,757 24,630
--------------- --------------
Net income $ 580,472 $ 581,842
=============== ==============
Income per limited partner unit:
Continuing operations $ 0.14 $ 0.14
Discontinued operations 0.01 0.01
-------------- ---------------
$ 0.15 $ 0.15
=============== ==============
Weighted average number of limited partner
units outstanding 4,000,000 4,000,000
=============== ==============
See accompanying notes to condensed financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
2004 2003
------------------- ------------------
General partners:
Beginning balance $ 252,935 $ 252,935
Net income -- --
------------------- ------------------
252,935 252,935
------------------- ------------------
Limited partners:
Beginning balance 27,438,607 28,194,941
Net income 580,472 2,843,670
Distributions ($0.23 and $0.90 per limited partner
unit, respectively) (900,001 ) (3,600,004 )
------------------- ------------------
27,119,078 27,438,607
------------------- ------------------
Total partners' capital $ 27,372,013 $ 27,691,542
=================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
2004 2003
-------------- ---------------
Net cash provided by operating activities $ 895,611 $ 869,471
-------------- ---------------
Cash flows from financing activities:
Distributions to limited partners (900,001) (900,001)
Distributions to holder of minority interest (2,405) (3,324)
-------------- ---------------
Net cash used in financing activities (902,406) (903,325)
-------------- ---------------
Net decrease in cash and cash equivalents (6,795) (33,854)
Cash and cash equivalents at beginning of quarter 1,457,105 1,287,619
-------------- ---------------
Cash and cash equivalents at end of quarter $ 1,450,310 $ 1,253,765
============== ===============
Supplemental schedule of non-cash financing activities:
Distributions declared and unpaid at end of
quarter $ 900,001 $ 900,001
============== ===============
See accompanying notes to condensed financial statements.
CNL INCOME FUND X, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 2004 and 2003
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the general partners, necessary for a fair
statement of the results for the interim periods presented. Operating
results for the quarter ended March 31, 2004, may not be indicative of
the results that may be expected for the year ending December 31, 2004.
Amounts as of December 31, 2003, included in the financial statements,
have been derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund X, Ltd. (the "Partnership") for the year ended December 31,
2003.
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 joint venture. All significant intercompany accounts
and transactions have been eliminated.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January
2003) ("FIN 46R"), "Consolidation of Variable Interest Entities"
requiring existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries. Application of FIN 46R is
required in financial statements of public entities that have interests
in variable interest entities for periods ending after March 15, 2004.
The Partnership has adopted FIN 46R as of March 31, 2004. The
Partnership was not the primary beneficiary of a variable interest
entity at the time of adoption of FIN 46R, therefore the adoption had
no effect on the balance sheet, partners' capital or net income.
2. Reclassification
Certain items in the prior year's financial statements have been
reclassified to conform to 2004 presentation. These reclassifications
had no effect on total partners' capital or net income.
3. Discontinued Operations
During 2003, the Partnership identified for sale a property in Romulus,
Michigan that is classified as discontinued operations in the
accompanying financial statements.
The operating results of this property are reflected as discontinued
operations as follows:
Quarter Ended March 31,
2004 2003
-------------- --------------
Rental revenues $ 32,007 $ 24,630
Expenses (250) --
-------------- --------------
Income from discontinued operations $ 31,757 $ 24,630
============== ==============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund X, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on April 16, 1990, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed, which are leased primarily to operators of national and regional
fast-food and family-style restaurant chains (collectively, the "Properties").
The leases generally are triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of March
31, 2003 and 2004, the Partnership owned 34 Properties directly and 13
Properties indirectly through joint venture or tenancy in common arrangements.
Capital Resources
Net cash provided by operating activities was $895,611 and $869,471
for the quarters ended March 31, 2004 and 2003, respectively.
At March 31, 2004, the Partnership had $1,450,310 in cash and cash
equivalents as compared to $1,457,105 at December 31, 2003. At March 31, 2004,
these funds were held in demand deposit accounts at a commercial bank. The funds
remaining at March 31, 2004, 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
flows 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.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations the Partnership
declared distributions to limited partners of $900,001 for each of the quarters
ended March 31, 2004 and 2003. This represents distributions for each applicable
quarter of $0.23 per unit. No distributions were made to the general partners
for the quarters ended March 31, 2004 and 2003. No amounts distributed to the
limited partners for the quarters ended March 31, 2004 and 2003 are required to
be or have been treated by the Partnership as a return of capital for purposes
of calculating the limited partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the limited partners on a quarterly basis.
Total liabilities, including distributions payable, were $1,147,788 at
March 31, 2004, as compared to $1,097,209 at December 31, 2003. The increase in
liabilities was primarily due to an increase in accounts payable and accrued
expenses and amounts due to related parties. The general partners believe that
the Partnership has sufficient cash on hand to meet its current working capital
needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Rental revenues from continuing operations were $682,412 during the
quarter ended March 31, 2004, as compared to $684,606 during the same period of
2003. Rental revenues from continuing operations remained relatively constant,
because there was no change in the leased property portfolio.
The Partnership earned $8,342 of contingent rental income during the
quarter ended March 31, 2004, as compared to $5,221 during the same period of
2003. The increase in contingent rental income was attributable to an increase
in the reported sales of certain restaurant Properties, the leases of which
require the payment of contingent rent.
In December 2003, Waving Leaves, Inc., the tenant of the Property in
Ravenna, Ohio filed for Chapter 11 bankruptcy protection and rejected the one
lease it has with the Partnership. As of May 3, 2004, the Partnership has
received from the guarantor all rental payments relating to this lease. The lost
revenues that would result if the guarantor were to cease making rental payments
would have an adverse effect on the results of operations of the Partnership if
the Partnership were not able to re-lease the Property in a timely manner.
The Partnership earned $76,090 attributable to net income earned by
unconsolidated joint ventures during the quarter ended March 31, 2004, as
compared to $74,890 during the same period of 2003. During the quarter ended
March 31, 2003, CNL Ocean Shores Joint Venture, in which the Partnership owned a
69.06% interest, did not record rental revenues because the tenant of the
Property owned by this joint venture executed a termination of the tenant's
lease rights and the tenant surrendered the premises. In September 2003, the
joint venture sold this Property and in October 2003, the joint venture was
liquidated.
Operating expenses, including depreciation and amortization expense,
were $216,281 during the quarter ended March 31, 2004, as compared to $205,636
during the same period of 2003. The increase in operating expenses during the
quarter ended March 31, 2004, was primarily due to the Partnership incurring
additional general operating and administrative expenses, including legal fees.
The Partnership recognized income from discontinued operations (rental
revenues less property related expenses) of $31,757 during the quarter ended
March 31, 2004, as compared to $24,630 during the same period of 2003 relating
to the Property in Romulus, Michigan. As of May 3, 2004, the Partnership had not
sold the Property.
The general partners continuously evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the limited
partners.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January 2003) ("FIN
46R"), "Consolidation of Variable Interest Entities" requiring existing
unconsolidated variable interest entities to be consolidated by their primary
beneficiaries. Application of FIN 46R is required in financial statements of
public entities that have interests in variable interest entities for periods
ending after March 15, 2004. The Partnership has adopted FIN 46R as of March 31,
2004. The Partnership was not the primary beneficiary of a variable interest
entity at the time of adoption of FIN 46R, therefore the adoption had no effect
on the balance sheet, partners' capital or net income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
------------------
Item 2. Changes in Securities. Inapplicable.
----------------------
Item 3. Default upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
----------------------------------------------------
Item 5. Other Information. Inapplicable.
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund X, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-35049 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund X, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-35049 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund 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.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
March 31, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 11th day of May, 2004.
CNL INCOME FUND X, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
---------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit Number
(c) Exhibits
3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund X, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-35049 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund X, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-35049 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund 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.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2