UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21560
CNL INCOME FUND XI, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3078854
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($10 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 4,000,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund XI, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 20, 1991. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on March 18, 1992, 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 12, 1992. The offering terminated on September 28, 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 39 Properties, including interests in four
Properties owned by joint ventures in which the Partnership is a co-venturer,
and to establish a working capital reserve for Partnership purposes. During the
year ended December 31, 1996, the Partnership sold its Property in Philadelphia,
Pennsylvania. During January 1997, the Partnership reinvested the net sales
proceeds from the sale of the Property in Philadelphia, Pennsylvania in a
Black-eyed Pea Property located in Corpus Christi, Texas with an affiliate of
the General Partners as tenants-in-common. During 1998, the Partnership sold its
Property in Nashua, New Hampshire. In January 1999, the Partnership reinvested a
portion of the net sales proceeds from the sale of the Property in Nashua, New
Hampshire in a Burger King Property in Yelm, Washington. In February 1999, the
Partnership invested a portion of the remaining net sales proceeds from the sale
of the Property in Nashua, New Hampshire in a joint venture arrangement,
Portsmouth Joint Venture, with an affiliate of the General Partners. In October
1999, the Partnership invested the remaining net sales proceeds from the sale of
the Property in Nashua, New Hampshire in an IHOP Property in Round Rock, Texas
with an affiliate of the General Partners as tenants-in-common. During the year
ended December 31, 2001, the Partnership sold its Property in Sebring, Florida
and the Property in Round Rock, Texas which was held as tenants-in-common with
an affiliate of the General Partners, and reinvested the majority of these net
sales proceeds in a Property in Houston, Texas. As a result of these
transactions, as of December 31, 2001, the Partnership owned 40 Properties. The
40 Properties include five Properties owned by joint ventures in which the
Partnership is a co-venturer and one Property owned with affiliates of the
General Partners as tenants-in-common. The Partnership leases the Properties
generally on a triple-net basis with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. The Partnership has no obligation to sell all or any portion of a
Property at any particular time, except as may be required under property
purchase options granted to certain lessees.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had mutually
agreed to terminate the Agreement and Plan of Merger. The agreement to terminate
the Agreement and Plan of Merger was based, in large part, on the General
Partners' concern that, in light of market conditions relating to publicly
traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General Partners ability to
unequivocally recommend voting for the transaction, in the exercise of their
fiduciary duties, had become questionable.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership, the
joint ventures in which the Partnership is a co-venturer and the property owned
with an affiliate of the General Partners as tenants-in-common provide for
initial terms ranging from 14 to 20 years (the average being 18 years) and
expire between 2006 and 2020. The leases are generally on a triple-net basis,
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities. The leases of the Properties provide for minimum base
annual rental payments (payable in monthly installments) ranging from
approximately $45,600 to $209,100. The majority of the leases provide for
percentage rent, based on sales in excess of a specified amount. In addition,
some of the leases provide that, commencing in specified lease years (generally
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 28 of the Partnership's 40 Properties also have been
granted options to purchase Properties at the Property's then fair market value
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
During 2001, the Partnership reinvested the majority of the net sales
proceeds it received from the sales of the Property in Sebring, Florida, and the
Property in Round Rock, Texas, which was held as tenants-in-common with an
affiliate of the General Partners, in a Taco Cabana Property, located in
Houston, Texas. The lease terms for these Properties are substantially the same
as the Partnership's other leases, as described above.
Major Tenants
During 2001, three lessees (or groups of affiliated lessees) of the
Partnership and its consolidated joint ventures, (i) Golden Corral Corporation,
(ii) Jack in the Box Inc. and Jack in the Box Eastern, L.P. (which are
affiliated entities under common control) (hereinafter referred to as "Jack in
the Box Inc.") and (iii) Burger King Corporation and BK Acquisition, Inc. (which
are affiliated entities under common control) (hereinafter referred to as
"Burger King Corporation"), each contributed more than 10% of the Partnership's
total rental and earned income (including rental and earned income from the
Partnership's consolidated joint ventures, the Partnership's share of rental and
earned income from three Properties owned by unconsolidated joint ventures and a
Property owned with an affiliate of the General Partners as tenants-in-common).
As of December 31, 2001, Golden Corral Corporation was the lessee under leases
relating to three restaurants, Jack in the Box Inc. was the lessee under leases
relating to eight restaurants, and Burger King Corporation was the lessee under
leases relating to seven restaurants. It is anticipated that, based on the
minimum rental payments required by the leases, these three lessees (or groups
of affiliated lessees) each will continue to contribute more than 10% of the
Partnership's total rental and earned income in 2002. In addition, four
Restaurant Chains, Golden Corral Family Steakhouse Restaurants ("Golden
Corral"), Jack in the Box, Burger King, and Denny's, each accounted for more
than 10% of the Partnership's total rental and earned income during 2001
(including rental and earned income from the Partnership's consolidated joint
ventures, the Partnership's share of rental and earned income from three
Properties owned by unconsolidated joint ventures and one Property owned with an
affiliate of the General Partners as tenants-in-common). In 2002, it is
anticipated that these four Restaurant Chains each will continue to account for
more than 10% of the Partnership's total rental income to which the Partnership
is entitled under the terms of the leases. Any failure of these lessees or
Restaurant Chains could materially affect the Partnership's income if the
Partnership is not able to re-lease the Properties in a timely manner. No single
tenant or group 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 two separate joint venture arrangements with
unaffiliated entities: Denver Joint Venture, which holds one Property, and
CNL/Airport Joint Venture which holds one Property. In addition, the Partnership
has the following separate joint venture arrangements with affiliated entities:
Ashland Joint Venture with CNL Income Fund IX, Ltd. and CNL Income Fund X, Ltd.,
which holds one Property; Des Moines Real Estate Joint Venture with CNL Income
Fund VII, Ltd. and CNL Income Fund XII, Ltd., which holds one Property; and
Portsmouth Joint Venture with CNL Income Fund XVIII, Ltd., which also holds one
Property. All are affiliates of the General Partners and limited partnerships
organized pursuant to the laws of the State of Florida.
The joint venture arrangements provide for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint ventures in accordance with their respective percentage interests in the
joint ventures. The Partnership has an 85% interest in Denver Joint Venture, a
77.33% interest in CNL/Airport Joint Venture, a 62.16% interest in Ashland Joint
Venture, a 76.6% interest in Des Moines Real Estate Joint Venture and a 42.8%
interest in Portsmouth Joint Venture. The Partnership and its joint venture
partners are also jointly and severally liable for all debts, obligations and
other liabilities of the joint ventures.
CNL/Airport Joint Venture, Denver Joint Venture, Portsmouth Joint
Venture, and Des Moines Real Estate Joint Venture each have an initial term of
20 years and Ashland Joint Venture has an initial term of 30 years and, after
the expiration of the initial term, the joint ventures continue in existence
from year to year unless terminated at the option of any of the co-venturers or
by an event of dissolution. Events of dissolution include the bankruptcy,
insolvency or termination of any joint venturer, sale of the Property owned by
the joint venture and mutual agreement of the Partnership and its joint venture
partners to dissolve the joint venture.
The Partnership has management control of CNL/Airport Joint Venture and
Denver Joint Venture and shares management control equally with affiliates of
the General Partners for Ashland Joint Venture, Des Moines Real Estate Joint
Venture and Portsmouth Joint Venture. The joint venture agreements restrict each
venturer's ability to sell, transfer or assign its joint venture interest
without first offering it for sale to its joint venture partners, either upon
such terms and conditions as to which the venturers may agree or, in the event
the venturers cannot agree, on the same terms and conditions as any offer from a
third party to purchase such joint venture interest.
Net cash flow from operations of CNL/Airport Joint Venture, Denver
Joint Venture, Ashland Joint Venture, Des Moines Real Estate Joint Venture and
Portsmouth Joint Venture is distributed 77.33%, 85%, 62.16%, 76.6% and 42.8%,
respectively, to the Partnership and the balance is distributed to each of the
joint venture partners in accordance with its respective percentage interest in
the joint venture. Any liquidation proceeds, after paying joint venture debts
and liabilities and funding reserves for contingent liabilities, will be
distributed first to the joint venture partners with positive capital account
balances in proportion to such balances until such balances equal zero, and
thereafter in proportion to each joint venture partner's percentage interest in
the joint venture.
In addition to the above joint venture agreements, the Partnership
entered into an agreement to hold a Black-eyed Pea Property as
tenants-in-common, with CNL Income Fund XVII, Ltd., an affiliate of the General
Partners. The agreement provides for the Partnership and the affiliate to share
in the profits and losses of the Property in proportion to each co-tenant's
percentage interest. The Partnership owns a 72.58% interest in this Property.
The affiliate is a limited partnership organized pursuant to the laws of the
State of Florida. The tenancy in common agreement restricts each co-tenant's
ability to sell, transfer, or assign its interest in the tenancy in common's
Property without first offering it for sale to the remaining co-tenant.
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
CNL APF Partners, LP, an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL APF Partners, LP (the "Advisor") is responsible for collecting rental
payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices and
providing information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross rental revenues from Properties
wholly owned by the Partnership plus the Partnership's allocable share of gross
revenues of joint ventures in which the Partnership is a co-venturer, but not in
excess of competitive fees for comparable services.
During 2000, CNL Fund Advisors, Inc. assigned its rights in, and its
obligations under, the management agreement with the Partnership to CNL APF
Partners, LP. All of the terms and conditions of the management, including the
payment of fees, as described, remain unchanged.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of APF, the parent company of CNL APF
Partners, LP, perform certain services for the Partnership. In addition, the
General Partners have available to them the resources and expertise of the
officers and employees of CNL Financial Group, Inc., a diversified real estate
company, and its affiliates, who may also perform certain services for the
Partnership.
Item 2. Properties
As of December 31, 2001, the Partnership owned 40 Properties. Of the 40
Properties, 34 are owned by the Partnership in fee simple, five are owned
through joint venture arrangements and one is owned through a tenancy in common
arrangement. 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 17,900
to 329,100 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation.
State Number of Properties
Alabama 2
Arizona 1
California 1
Colorado 2
Connecticut 2
Florida 1
Kansas 1
Louisiana 1
Massachusetts 1
Michigan 1
Mississippi 1
New Hampshire 1
New Mexico 2
North Carolina 2
Ohio 4
Oklahoma 2
South Carolina 2
Texas 9
Virginia 2
Washington 2
--------------
TOTAL PROPERTIES 40
==============
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
2,100 to 11,400 square feet. All buildings on Properties are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations. As of December 31, 2001, the Partnership had no plans for
renovation of the Properties. Depreciation expense is computed for buildings and
improvements using the straight line method using depreciable lives of 40 years
for federal income tax purposes.
As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership (including its consolidated joint venture) and the
unconsolidated joint ventures (including the Property owned through a tenancy in
common arrangement) for federal income tax purposes was $32,775,826 and
$4,422,794, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.
Restaurant Chain Number of Properties
Black-eyed Pea 1
Burger King 12
Denny's 6
Golden Corral 3
Gooney Bird's Sports Grill 1
Hardee's 4
Jack in the Box 8
KFC 1
Sagebrush Restaurant 1
Taco Bell 1
Other 2
--------------
TOTAL PROPERTIES 40
==============
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish buildings, premises,
signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
At December 31, 2001, 2000, 1999, 1998, and 1997, all of the Properties
were occupied. The following is a schedule of the average rent per Property for
each of the years ended with December 31:
2001 2000 1999 1998 1997
-------------- ------------- ------------- -------------- -------------
Rental Revenues (1) $ 3,747,614 $ 3,914,520 $ 4,087,385 $ 4,064,778 $ 4,071,074
Properties 40 41 41 38 39
Average Rent per Property $ 93,690 $ 95,476 $ 99,692 $ 106,968 $ 104,387
(1) Rental income includes the Partnership's share of rental income from
the Properties owned through joint venture arrangements and the
Properties owned through tenancy in common arrangements. Rental
revenues have been adjusted, as applicable, for any amounts for which
the Partnership has established a provision for doubtful accounts.
The following is a schedule of lease expirations for leases in place as
of December 31, 2001 for next the ten years and thereafter.
Percentage of
Expiration Number Annual Rental Gross Annual
Year of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2002 -- -- --
2003 -- -- --
2004 -- -- --
2005 -- -- --
2006 7 587,590 15.10%
2007 3 498,758 12.82%
2008 -- -- --
2009 -- -- --
2010 9 845,066 21.71%
2011 2 95,353 2.45%
Thereafter 19 1,865,093 47.92%
---------- ------------- -------------
Total 40 $ 3,891,860 100.00%
========== ============= =============
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2001 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases three Golden Corral restaurants with
an initial terms of 15 years (expiring in 2007) and average minimum base annual
rent of approximately $166,300 (ranging from approximately $157,300 to
$172,400).
Jack in the Box Inc. leases eight Jack in the Box restaurants with an
initial term of 18 years (expiring in 2010) and the average minimum base annual
rent is approximately $96,300 (ranging from approximately $70,000 to $113,800).
Burger King Corporation leases seven Burger King restaurants with an
initial term of 14 years (expiring in 2006) and average minimum base annual rent
of approximately $90,500 (ranging from approximately $73,200 to $121,900).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective Properties, is party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 15, 2002 there were 3,198 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 2001,
Limited Partners who wished to sell their Units may have offered the Units for
sale pursuant to the Partnership's distribution reinvestment plan (the "Plan"),
and Limited Partners who wished to have their distributions used to acquire
additional Units (to the extent Units were available for purchase) may have done
so pursuant to such Plan. The General Partners have the right to prohibit
transfers of Units. From inception through December 31, 2001, the price paid for
any Unit transferred pursuant to the Plan was $9.50 per Unit. The price paid for
any Unit transferred other than pursuant to the Plan was subject to negotiation
by the purchaser and the selling Limited Partner. The Partnership will not
redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2001 and 2000, other than
pursuant to the Plan, net of commissions.
2001 (1) 2000 (1)
---------------------------------- -----------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- --------- ----------
First Quarter $7.33 $ 6.85 $ 7.09 (2) (2) (2)
Second Quarter 9.50 6.45 7.49 $9.00 $ 6.57 $ 8.11
Third Quarter 9.50 6.65 7.85 8.33 7.24 8.07
Fourth Quarter 9.50 6.40 8.78 7.35 7.33 7.34
(1) A total of 35,160 and 17,956 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2001 and 2000,
respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 2001 and 2000, the Partnership
declared cash distributions of $3,500,024 to the Limited Partners. Distributions
of $875,006 were declared at the close of each of the Partnership's calendar
quarters during 2001 and 2000 to the Limited Partners. No amounts distributed to
partners for the years ended December 31, 2001 and 2000 are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the Limited Partners' return on their adjusted capital
contributions. No distributions have been made to the General Partners to date.
As indicated in the chart below, these distributions were declared at the close
of each of the Partnership's calendar quarters. These amounts include monthly
distributions made in arrears for the Limited Partners electing to receive such
distributions on this basis.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
(b) Not applicable.
Item 6. Selected Financial Data
2001 2000 1999 1998 1997
-------------- --------------- -------------- -------------- ---------------
Year ended December 31:
Revenues (1) $3,346,849 $3,924,546 $4,037,268 $4,067,454 $3,998,538
Net income (2) 1,727,316 3,094,463 3,141,774 3,809,404 3,295,079
Cash distributions
declared (3) 3,500,024 3,500,024 3,500,024 3,660,024 3,500,024
Net income per Unit
(2) 0.43 0.77 0.78 0.94 0.82
Cash distributions
declared per Unit (3) 0.88 0.88 0.88 0.92 0.88
At December 31:
Total assets $33,451,728 $35,227,373 $35,792,092 $36,103,592 $35,785,538
Partners' capital 31,921,093 33,693,801 34,099,362 34,457,612 34,308,232
(1) Revenues include equity in earnings of unconsolidated joint ventures
and minority interest in income of consolidated joint ventures.
(2) Net income for the years ended December 31, 2001 and 1998, includes
$8,604 and $461,861, respectively, from gains on sale of assets. Net
income for the years ended December 31, 2001 and 2000 include $654,393
and $60,490 for provisions for write-down of assets.
(3) Distributions for the year ended December 31, 1998, include special
distributions to the Limited Partners of $40,000 and $120,000 declared
during the quarters ended March 31, and December 31, respectively,
which represented cumulative excess operating reserves.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on August 20, 1991, 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, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are triple-net leases, with the lessees generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 2001, the Partnership owned 40 Properties, either directly or through joint
venture or tenancy in common arrangements.
Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 2001, 2000, and 1999, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $3,267,699, $3,417,750,
and $3,747,973, for the years ended December 31, 2001, 2000, and 1999,
respectively. The decrease during 2001 and 2000, as compared to the previous
year, was primarily a result of changes in the Partnership's working capital and
changes in income and expenses, as described in "Results of Operations."
Other sources and uses of capital included the following during the
years ended December 31, 2001, 2000, and 1999.
In January 1999, the Partnership reinvested a portion of the net sales
proceeds it received from the sale in October 1998 of the property in Nashua,
New Hampshire in a Burger King property located in Yelm, Washington, at an
approximate cost of $1,032,000. In addition, in February 1999, the Partnership
reinvested approximately $247,000 of the remaining net sales proceeds from the
sale of the Property in Nashua, New Hampshire in a joint venture arrangement,
Portsmouth Joint Venture, to purchase and hold one property. The Partnership's
co-venture partner is CNL Income Fund XVIII, Ltd., a Florida limited partnership
and an affiliate of the General Partners. The Partnership had a 42.8% interest
in the profits and losses of the joint venture as of December 31, 2001.
In October 1999, the Partnership invested approximately $320,200 in an
IHOP Property located in Round Rock, Texas with CNL Income Fund VI, Ltd., a
Florida limited partnership and affiliate of the General Partners, as
tenants-in-common. In connection therewith, the Partnership and its affiliate
entered into an agreement whereby each co-venturer will share in the profits and
losses of the Property in proportion to its applicable percentage interest. In
October 2001, the Partnership and CNL Income Fund VI, Ltd., as
tenants-in-common, sold this property for a sales price of approximately
$1,539,000 and received net sales proceeds of approximately $1,510,700,
resulting in a gain, to the tenancy-in-common, of approximately $123,900. The
Partnership owned a 23% interest in this Property and received approximately
$345,000 as a liquidating distribution for its pro-rata share of the net sales
proceeds.
In November 2001, the Partnership sold its property in Sebring, Florida
to the tenant and received net sales proceeds of approximately $1,029,000,
resulting in a gain of $8,604. In December 2001, the Partnership reinvested
approximately $1,376,800 of the net sales proceeds received from the sale of the
Property in Sebring, Florida and from the liquidation proceeds received from the
sale of the Property in Round Rock, Texas, held with an affiliate as
tenants-in-common, as described above, in a Property in Houston, Texas. The
Partnership acquired this Property from 2001-A, LP, an affiliate of the general
partners. The affiliate had purchased and temporarily held title to the Property
in order to facilitate the acquisition of the Property by the Partnership. The
purchase price paid by the partnership represented the costs incurred by the
affiliate to acquire the Property, including closing costs. The General Partners
believe a portion of the transaction relating to the sale of this Property and
the reinvestment of the net sales proceeds in an additional Property will
qualify as a like-kind exchange transaction for federal income tax purposes.
However, the Partnership distributed amounts sufficient to enable the limited
partners to pay federal and state income taxes, if any (at a level reasonably
assumed by the General Partners) resulting from the sale.
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. Subject to certain restrictions on borrowing, however, the
Partnership may borrow funds but will not encumber any of the Properties in
connection with any such borrowing. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners. The Partnership will not
borrow under arrangements that would make the Limited Partners liable to
creditors of the Partnership. The General Partners further have represented that
they will use their reasonable efforts to structure any borrowing so that it
will not constitute "acquisition indebtedness" for federal income tax purposes
and also will limit the Partnership's outstanding indebtedness to three percent
of the aggregate adjusted tax basis of its Properties. Affiliates of the General
Partners from time to time incur certain operating expenses on behalf of the
Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties and net
sales proceeds from the sale of Properties pending reinvestment in additional
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 or
to make distributions to partners. At December 31, 2001, the Partnership had
$993,402 invested in such short-term investments as compared to $1,006,620 at
December 31, 2000. As of December 31, 2001, the average interest rate earned by
the Partnership on the rental income deposited in demand deposit accounts at
commercial banks was approximately 3.7% annually. The funds remaining at
December 31, 2001, will be used to pay distributions and other liabilities of
the Partnership.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because all leases of the Partnership's Properties are
generally 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 purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based on cash from operations, and for the years ended December
31, 2001 and 2000, anticipated future cash from operations, the Partnership
declared distributions to the Limited Partners of $3,500,024 for each of the
years ended December 31, 2001, 2000, and 1999, respectively. This represents
distributions of $0.88 per Unit for each of the years ended December 31, 2001,
2000, and 1999, respectively. No amounts distributed to the Limited Partners for
the years ended December 31, 2001, 2000, and 1999 are required to be or have
been treated by the Partnership as a return of capital for purposes of
calculating the Limited Partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the general
partners were not allocated any net income and did not receive any distributions
during the year ended December 31, 2001 and 2000.
As of December 31, 2001 and 2000, the Partnership owed $16,701 and
$22,502, respectively, to affiliates for operating expenses, accounting and
administrative services, and management fees. As of March 15, 2002, the
Partnership had reimbursed the affiliates all such amounts. Other liabilities,
including distributions payable, increased to $1,004,557 at December 31, 2001,
from $1,001,263 at December 31, 2000. Total liabilities at December 31, 2001, to
the extent they exceed cash and cash equivalents, will be paid from anticipated
future cash from operations, or in the event the general partners elect to make
additional capital contributions or loans, from the future general partners'
contributions or loans.
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 as using either the direct financing or the operating
method. FAS 13 requires management to estimate the economic life of the leased
property, the residual value of the leased property and the present value of
minimum lease payments to be received from the tenant. In addition, management
assumes that all payments to be received under its leases are collectible.
Changes in management's estimates or assumption regarding collectibility of
lease payments could result in a change in accounting for the lease at the
inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews its Properties and investments in unconsolidated
entities periodically (no less than once per year) for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through operations. Management determines whether
impairment in value has occurred by comparing the estimated future undiscounted
cash flows, including the residual value of the Property, with the carrying cost
of the individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
Results of Operations
During the years ended December 31, 1999, 2000 and 2001, the
Partnership and its consolidated joint ventures, owned and leased 36 wholly
owned Properties (including one Property which was sold in November 2001).
During 2001, the Partnership also owned and leased one additional Property. In
addition, during 1999, 2000, and 2001, the Partnership and its consolidated
joint ventures were a co-venturer in two separate joint ventures that each owned
and leased one Property, and the Partnership owned and leased one Property with
an affiliate as tenants-in-common. In addition, during 1999 and 2000, the
Partnership and its consolidated joint ventures owned and leased one additional
Property, in each respective year, with an affiliate of the General Partners, as
tenants-in-common (including one Property which was sold in 2001). In addition,
during 2001, the Partnership was a co-venturer in one additional joint venture
that owned and lease one Property. As of December 31, 2001, the Partnership
owned, either directly or through joint venture arrangements, 40 Properties
which are, in general, subject to long-term, triple-net leases. The leases of
the Properties provide for minimum base annual rental amounts (payable in
monthly installments) ranging from approximately $45,600 to $209,100. The
majority of the leases provide for percentage rent based on sales in excess of a
specified amount. In addition, some of the leases provide that, commencing in
specified lease years (generally the sixth lease year), the annual base rent
required under the terms of the lease will increase. For further description of
the Partnership's leases and Properties, see Item 1. Business - Leases and Item
2. Properties, respectively.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership and its consolidated joint ventures earned $3,247,590, $3,430,576,
and $3,522,254, respectively, in rental income from operating leases and earned
income from direct financing leases. The decrease in rental and earned income
during 2001 and 2000, each as compared to the previous year, was partially
attributable to the fact that Phoenix Restaurant Group, Inc. and its
Subsidiaries (collectively referred to as "PRG"), the tenant of Denny's two
Properties, experienced financial difficulties and ceased paying rent, as a
result, the Partnership stopped recording rental and earned income from the
Properties in Avon, Colorado and Abilene, Texas, in accordance with the
Partnership's revenue recognition policy. In October 2001, PRG filed for Chapter
11 bankruptcy protection. In the two weeks prior to the filing, PRG closed 40
operating Black-eyed Pea units as well as 25 operating Denny's units. With these
reductions, PRG now operates 44 Denny's units and 48 Black-eyed Pea Units. Since
future store closings may occur, the General Partners will continue to evaluate
the three Properties in the Partnership's portfolio, which includes a Property
held with an affiliate, as tenants-in-common. As of March 15, 2002, PRG had
neither rejected nor affirmed the leases related to these Properties. The
Partnership does not anticipate it will recognize any rental income relating to
these Properties until such time as the Partnership executes new leases or until
the Properties are sold and the proceeds from such sales are reinvested in
additional Properties. The lost revenues resulting from these Properties could
have an adverse effect on the results of operations of the Partnership if the
Partnership is not able to re-lease or sell these Properties in a timely manner.
The Partnership will be seeking new tenants or purchasers for these Properties
once the leases are rejected.
The decrease in rental and earned income during 2001, as compared to
2000, was partially attributable to the fact that the Property in Sebring,
Florida was sold in 2001, as described above in "Capital Resources." The
decrease in rental and earned income during 2001, as compared to 2000 was
partially offset by an increase in rental and earned income, during 2001, as a
result of the Partnership reinvesting the majority of the net sales proceeds,
from the sale of the Property in Sebring, Florida, in a Property in Houston,
Texas, as described in "Capital Resources."
For the years ended December 31, 2001, 2000 and 1999, the Partnership
also earned $254,318, $216,339, and $237,751, respectively, in contingent rental
income. The decrease in contingent rental income during 2000, as compared to
1999, was due to the fact that during 2000, the tenants relating to two
Properties ceased making payments on contingent rental income of approximately
$21,000. The increase in contingent rental income during 2001, as compared to
2000, was primarily due to the fact that during 2001, the Partnership collected
and recognized as income this past due contingent rental income.
For the years ended December 31, 2001, 2000 and 1999, the Partnership
recorded a loss of $147,538 and income of $256,056, and $259,676, respectively,
attributable to net income earned by unconsolidated joint ventures in which the
Partnership is a co-venturer. Net income earned by joint ventures decreased
during 2001, as compared to 2000, due to the fact that of the Partnership and an
affiliate of the General Partners, as tenants-in-common, of the Property in
Corpus Christi, Texas, in which the Partnership owns an approximate 73%
interest, stopped recording rental and earned income in accordance with the
Partnership's revenue recognition policy. PRG, the tenant of the Property,
experienced financial difficulties, as described above. In addition, the
Partnership and the affiliate, as tenants-in-common of this Property, recorded a
provision for write-down of assets of $356,719, including $114,329 in previously
accrued rental income relating to this Property. The accrued rental income was
the accumulated amount of non-cash accounting adjustments previously recorded in
order to recognize future scheduled rent increases as income evenly over the
term of the lease. The provision represented the difference between the carrying
value of the property, including the accumulated accrued rental income, and the
general partners' estimated net realizable value of the property. In addition,
the Partnership and the affiliate, as tenants-in-common, incurred approximately
$58,400 in real estate taxes during the 2001 relating to the Property in Corpus
Christi, Texas. The tenant is still responsible for payment of these real estate
taxes under the terms of the lease. The Partnership and an affiliate, as
tenants-in-common, will pursue collection of these amounts. During 2001, the
Partnership and the affiliate, as tenants-in-common, recorded a provision for
write-down of assets in the amount of $242,390 relating to the Property in
Corpus Christi, Texas.
The decrease in net income earned by joint ventures during 2001, as
compared to 2000, was partially offset by the fact that in October 2001, the
Partnership and CNL Income Fund VI, Ltd., as tenants-in-common, sold the
Property in Round Rock, Texas, in which the Partnership owned a 23% interest.
The tenancy in common recognized a gain of approximately $123,900 during 2001,
as described above in "Capital Resources."
During the year ended December 31, 2001, three lessees (or groups of
affiliated lessees) of the Partnership and its consolidated joint ventures,
Golden Corral Corporation, Jack in the Box Inc., and Burger King Corporation,
each contributed more than ten percent of the Partnership's total rental income
(including rental and earned income from the Partnership's consolidated joint
ventures, the Partnership's share of rental and earned income from Properties
owned by unconsolidated joint ventures and a Property owned with affiliates of
the General Partners as tenants-in-common). As of December 31, 2001, Golden
Corral Corporation was the lessee under leases relating to three restaurants,
Jack in the Box Inc. was the lessee under leases relating to eight restaurants,
and Burger King Corporation was the lessee under leases relating to seven
restaurants. It is anticipated that, based on the minimum rental payments
required by the leases, these three tenants each will continue to contribute
more than ten percent of the Partnership's total rental and earned income during
2002. In addition, during the year ended December 31, 2001, four Restaurant
Chains, Golden Corral, Jack in the Box, Burger King, and Denny's, each accounted
for more than ten percent of the Partnership's total rental and earned income
(including rental and earned income from the Partnership's consolidated joint
ventures and the Partnership's share of rental and earned income from Properties
owned by unconsolidated joint ventures and a Property owned with affiliates of
the General Partners as tenants-in-common). In 2002, it is anticipated that
these Restaurant Chains each will continue to account for more than ten percent
of the total rental and earned income to which the Partnership is entitled under
the terms of its leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income if the Partnership is not able to
re-lease the Properties in a timely manner.
In addition, for the years ended December 31, 2001, 2000, and 1999, the
Partnership earned $58,939, $89,181, and $84,648, respectively, in interest and
other income. The decrease in interest and other income during 2001, as compared
to 2000, was primarily attributable to a reduction in interest earned on the net
sales proceeds received from the sale of Properties, due to reinvestment in
additional Properties, as described above in "Capital Resources."
Operating expenses, including depreciation and amortization expense,
and provisions for write-down of assets, were $1,628,137, $830,083, and
$895,494, for the years ended December 31, 2001, 2000, and 1999, respectively.
During 2001 and 2000, as a result of the PRG bankruptcy, as described above, the
Partnership recorded provisions for write-down of assets in the amount of
$610,444 and $60,490, respectively, including previously accrued rental income,
relating to the Properties in Abilene, Texas and Avon, Colorado. The accrued
rental income was the accumulated amount of non-cash accounting adjustments
previously recorded in order to recognize future scheduled rent increases as
income evenly over the term of the lease. The provisions represented the
difference between the carrying value of the Properties, including the
accumulated accrued rental income, and the General Partners' estimated net
realizable value of the Properties at December 31, 2001.
In addition, as of March 2001, the Partnership recorded a provision for
write-down of assets of $43,949 in previously accrued rental income relating to
the property located in Sebring, Florida. The accrued rental income was the
accumulated amount of non-cash accounting adjustments previously recorded in
order to recognize future scheduled rent increases as income evenly over the
term of the lease. The provision represented the difference between the carrying
value of the property, including the accumulated accrued rental income, and the
estimated net sales proceeds from the anticipated sale of the Property. The
Partnership sold this Property in November 2001, as described above in "Capital
Resources."
The increase in operating expenses during 2001, as compared to 2000,
was partially attributable to the Partnership recording a provision for doubtful
accounts of approximately $34,400 for past due rental amounts relating to the
Properties in Avon, Colorado and Abilene, Texas, leased to PRG. The General
Partners will continue to pursue collection of past due rental amounts relating
to these Properties. In addition, the Partnership incurred approximately
$111,300 in real estate taxes during 2001 relating to these two Properties. The
tenant, PRG, is still responsible for payment of real estate taxes under the
terms of its leases. The Partnership will pursue collection of these real estate
taxes. Operating expenses also increased during 2001 due to an increase in the
costs incurred for administrative expenses for servicing the Partnership and its
Properties, as permitted by the Partnership agreement.
The increase in operating expenses during 2001, as compared to 2000,
was partially offset by, and the decrease in 2000, as compared to the 1999, was
partially due to, the transaction costs the Partnership incurred in 2000 and
1999, respectively, related to the General Partners retaining financial and
legal advisors to assist them in evaluating and negotiating the proposed merger
with CNL American Properties Fund, Inc. ("APF"). On March 1, 2000, the General
Partners and APF mutually agreed to terminate the merger. No such expenses were
incurred during 2001.
As a result of the sale of the Property in Sebring, Florida, as
described above in "Capital Resources," the Partnership recognized a gain of
$8,604 for the year ended December 31, 2001. No Properties were sold during the
years ended December 31, 2000 and 1999.
The restaurant industry, as a whole, has been one of the many
industries affected by the general slowdown in the economy. While the
Partnership has experienced some losses due to the financial difficulties of a
limited number of restaurant operators, the General Partners remain confident in
the overall performance of the fast-food and family style restaurants, the
concepts that comprise the Partnership's portfolio. Industry data shows that
these restaurant concepts continue to outperform and remain more stable than
higher-end restaurants, those that have been more adversely affected by the
slowing economy.
The Partnership's leases as of December 31, 2001, are generally
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in based 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 may cause capital
appreciation of the Partnership's Properties. Inflation and changing prices,
however, also may have an adverse impact on the sales of the restaurants and on
potential capital appreciation of the Properties.
In December 1999, the Securities and Exchange Commission released SAB
101, which provides the staff's view in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 requires the
Partnership to defer recognition of certain percentage rental income until
certain defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
Partnership results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" (FAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement requires
that a long-lived asset be tested for recoverability whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable. The
carrying amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. The assessment is based on the carrying amount of the
asset at the date it is tested for recoverability. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds its fair
value. If an impairment is recognized, the adjusted carrying amount of a
long-lived asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this Statement
retained the fundamental provisions of FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March 1,
2000, the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 17
Financial Statements:
Balance Sheets 18
Statements of Income 19
Statements of Partners' Capital 20
Statements of Cash Flows 21-22
Notes to Financial Statements 23-38
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund XI, 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 XI, Ltd. (a Florida limited
partnership) at December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under item 14(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 8, 2002
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------- ---------------------
ASSETS
Land and buildings on operating leases, net $ 20,948,632 $ 21,168,411
Net investment in direct financing leases, net 6,941,611 7,247,865
Investment in joint ventures 2,389,323 3,072,991
Cash and cash equivalents 993,402 1,006,620
Certificates of deposit 218,217 512,521
Receivables, less allowance for doubtful accounts of
$487,127 and $139,456, respectively 186,780 228,988
Accrued rental income, less allowance for
doubtful accounts of $60,490 in 2000 1,640,219 1,854,804
Other assets 133,544 135,173
------------------- ---------------------
$ 33,451,728 $ 35,227,373
=================== =====================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 9,153 $ 37,812
Accrued and escrowed real estate taxes
payable 54,185 8,667
Distributions payable 875,006 875,006
Due to related parties 16,701 22,502
Rents paid in advance and deposits 66,213 79,778
------------------- ---------------------
Total liabilities 1,021,258 1,023,765
Minority interest 509,377 509,807
Partners' capital 31,921,093 33,693,801
------------------- ---------------------
$ 33,451,728 $ 35,227,373
=================== =====================
See accompanying notes to financial statements.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
----------------- --------------- ---------------
Revenues:
Rental income from operating leases $ 2,385,761 $ 2,517,422 $ 2,575,492
Earned income from direct financing leases 861,829 913,154 946,762
Contingent rental income 254,318 216,339 237,751
Interest and other income 58,939 89,181 84,648
---------------
----------------- ---------------
3,560,847 3,736,096 3,844,653
----------------- --------------- ---------------
Expenses:
General operating and administrative 291,520 175,737 161,584
Provision for doubtful accounts 34,443 -- --
Professional services 47,898 49,636 35,021
Management fees to related parties 36,076 39,227 39,836
Real estate taxes 111,317 -- --
State and other taxes 29,022 50,596 31,728
Depreciation 423,468 426,596 426,584
Provision for write-down of assets 654,393 60,490 --
Transaction costs -- 27,801 200,741
----------------- --------------- ---------------
1,628,137 830,083 895,494
----------------- --------------- ---------------
Income Before Gain on Sale of Assets, Minority Interest in
Income of Consolidated Joint Ventures, and Equity in
Earnings (Loss) of Unconsolidated Joint Ventures 1,932,710 2,906,013 2,949,159
Gain on Sale of Assets 8,604 -- --
Minority Interest in Income of Consolidated
Joint Ventures (66,460 ) (67,606 ) (67,061 )
Equity in Earnings (Loss) of Unconsolidated Joint
Ventures (147,538 ) 256,056 259,676
----------------- --------------- ---------------
Net Income $ 1,727,316 $ 3,094,463 $ 3,141,774
================= =============== ===============
Allocation of Net Income
General partners $ -- $ -- $ 31,418
Limited partners 1,727,316 3,094,463 3,110,356
----------------- --------------- ---------------
$ 1,727,316 $ 3,094,463 $ 3,141,774
================= =============== ===============
Net Income Per Limited Partner Unit $ 0.43 $ 0.77 $ 0.78
================= =============== ===============
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 XI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001, 2000, and 1999
General Partners Limited Partners
------------------------------------- ------------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 1998 $ 1,000 $ 210,047 $ 40,000,000 $ (22,215,134 ) $ 21,251,699
Distributions to limited
partners ($0.88 per
limited partner unit) -- -- -- (3,500,024 ) --
Net income -- 31,418 -- -- 3,110,356
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 1999 1,000 241,465 40,000,000 (25,715,158 ) 24,362,055
Distributions to limited
partners ($0.88 per
limited partner unit) -- -- -- (3,500,024 ) --
Net income -- -- -- -- 3,094,463
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2000 1,000 241,465 40,000,000 (29,215,182 ) 27,456,518
Distributions to limited
partners ($0.88 per
limited partner unit) -- -- -- (3,500,024 ) --
Net income -- -- -- -- 1,727,316
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2001 $ 1,000 $ 241,465 $ 40,000,000 $ (32,715,206 ) $ 29,183,834
================== ================ ================= ================ =================
See accompanying notes to financial statements.
- ------------
Syndication
Costs Total
- ------------- --------------
$ (4,790,000 ) $34,457,612
-- (3,500,024 )
-- 3,141,774
- ------------- --------------
(4,790,000 ) 34,099,362
-- (3,500,024 )
-- 3,094,463
- ------------- --------------
(4,790,000 ) 33,693,801
-- (3,500,024 )
-- 1,727,316
- ------------- --------------
$ (4,790,000 ) $31,921,093
============= ==============
See accompanying notes to financial statements.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
---------------- --------------- ----------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 3,533,186 $ 3,574,593 $ 3,724,492
Distributions from unconsolidated joint
ventures 190,754 260,367 271,442
Cash paid for expenses (506,852 ) (476,893 ) (322,962 )
Interest received 50,611 59,683 75,001
---------------- --------------- ---------------
Net cash provided by operating
Activities 3,267,699 3,417,750 3,747,973
---------------- --------------- ---------------
Cash Flows from Investing Activities:
Additions to assets on operating leases (1,376,792 ) -- (337,806 )
Investment in direct financing leases -- -- (694,610 )
Proceeds from sale of land and buildings 1,029,000 -- --
Investment in joint ventures -- -- (567,455 )
Liquidating distribution from joint venture 345,376 -- --
Decrease in restricted cash -- -- 1,630,296
Investment in certificates of deposit (211,587 ) (500,000 ) --
Redemption of certificates of deposit 500,000 -- --
---------------- --------------- ---------------
Net cash provided by (used in) investing
activities 285,997 (500,000 ) 30,425
---------------- --------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,500,024 ) (3,500,024 ) (3,620,024 )
Distributions to holders of minority interest (66,890 ) (67,606 ) (61,114 )
---------------- --------------- ---------------
Net cash used in financing activities (3,566,914 ) (3,567,630 ) (3,681,138 )
---------------- --------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (13,218 ) (649,880 ) 97,260
Cash and Cash Equivalents at Beginning of Year 1,006,620 1,656,500 1,559,240
---------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 993,402 $ 1,006,620 $ 1,656,500
================ =============== ===============
See accompanying notes to financial statements.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31,
2001 2000 1999
--------------- --------------- --------------
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
Net Income $ 1,727,316 $ 3,094,463 $ 3,141,774
--------------- --------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 423,468 426,596 426,584
Provision for doubtful accounts 34,443 -- --
Provision for write-down of assets 654,393 60,490 --
Gain on sale of assets (8,604 ) -- --
Minority interests in income of
consolidated joint ventures 66,460 67,606 67,061
Equity in earnings and loss of
unconsolidated joint ventures, net of
distributions 338,292 4,311 11,766
Decrease (increase) in receivables 13,656 (66,009 ) (32,549 )
Decrease in net investment in direct
financing leases 1,629 124,176 108,855
Decrease (increase) in accrued rental
income (90,221 ) 14,711 (134,541 )
Decrease (increase) in other assets 109,374 966 (1,780 )
Increase (decrease) in accounts payable
and accrued expenses 16,859 (88,358 ) 105,238
Increase (decrease) in due to related
parties (5,801 ) (48,098 ) 45,154
Increase (decrease) in rents paid in
advance and deposits (13,565 ) (22,702 ) 10,411
--------------- --------------- --------------
Total adjustments 1,540,383 323,287 606,199
--------------- --------------- --------------
Net Cash Provided by Operating Activities $ 3,267,699 $ 3,417,750 $ 3,747,973
=============== =============== ==============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Distributions declared and unpaid at
December 31 $ 875,006 $ 875,006 $ 875,006
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund XI, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The leases accounted for using the direct
financing method are recorded at their net investment (which at the
inception of the lease generally represents the cost of the asset)
(Note 4). Unearned income is deferred and amortized to income over the
lease terms so as to produce a constant periodic rate of return on the
Partnership's net investment in the leases.
Operating method - Land and building leases accounted for using the
operating method are recorded at cost, revenue is recognized as rentals
are earned and depreciation is charged to operations as incurred.
Buildings are depreciated on the straight-line method over their
estimated useful lives of 30 years. When scheduled rentals vary during
the lease term, income is recognized on a straight-line basis so as to
produce a constant periodic rent over the lease term commencing on the
date the property is placed in service.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date. Whenever a tenant defaults under the terms of its
lease, or events or changes in circumstance indicate that the tenant
will not lease the property through the end of the lease term, the
Partnership either reserves or reverses the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, the assets are
adjusted to the fair value. Although the general partners have made
their best estimate of these factors based on current conditions, it is
reasonably possible that changes could occur in the near term which
could adversely affect the general partners' estimate of net cash flows
expected to be generated from its properties and the need for asset
impairment write-downs.
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
and accrued rental income, 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 85%
interest in Denver Joint Venture and its 77.33% interest in CNL/Airport
Joint Venture using the consolidation method. Minority interests
represent the minority joint venture partners' proportionate share of
equity in the Partnership's consolidated joint ventures. All
significant intercompany accounts and transactions have been
eliminated.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
The Partnership's investments in Ashland Joint Venture, Des Moines Real
Estate Joint Venture and Portsmouth Joint Venture and the property in
Corpus Christi, Texas for which the property is held as
tenants-in-common, 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.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment. See "Income Taxes"
footnote for a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant 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.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Reclassification - Certain items in the prior year's financial
statements have been reclassified to conform to 2001 presentation.
These reclassifications had no effect on total partners' capital or net
income.
Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Partnership
to defer recognition of certain percentage rental income until certain
defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material
impact on the Partnership results of operations.
Statement of Financial Accounting Standards No. 141 ("FAS 141") and
Statement of Financial Accounting Standards No. 142("FAS 142") - In
July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No.141 "Business Combinations" and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets." The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the
Partnership as of December 31, 2001.
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 partnership's recording of impairment losses as this
Statement retained the fundamental provisions of FAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of."
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
2. Leases:
------
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." Some of the leases are
classified as operating leases and some of the leases have been
classified as direct financing leases. For the leases classified as
direct financing leases, the building portions of the property leases
are accounted for as direct financing leases while the land portions of
the majority of these leases are operating leases. Substantially all
leases are for 14 to 20 years and provide for minimum and contingent
rentals. In addition, the tenant generally pays all property taxes and
assessments, fully maintains the interior and exterior of the building
and carries insurance coverage for public liability, property damage,
fire and extended coverage. The lease options generally allow tenants
to renew the leases for two to five successive five-year periods
subject to the same terms and conditions as the initial lease. Most
leases also allow the tenant to purchase the property at fair market
value after a specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at
December 31:
2001 2000
-------------------- --------------------
Land $ 12,213,285 $ 11,945,232
Buildings 12,381,117 12,666,144
-------------------- --------------------
24,594,402 24,611,376
Less accumulated depreciation (3,645,770 ) (3,442,965 )
-------------------- --------------------
$ 20,948,632 $ 21,168,411
==================== ====================
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
As of December 31, 2000, the Partnership recorded a provision for
write-down of assets of $34,475 in previously accrued rental income
relating to the property in Avon, Colorado. The tenant of this property
was experiencing financial difficulties. The accrued rental income was
the accumulated amount of non-cash accounting adjustments previously
recorded in order to recognize future scheduled rent increases as
income evenly over the term of the lease. The provision represented the
difference between the carrying value of the property, including the
accumulated accrued rental income, at December 31, 2000 and the general
partners' estimated net realizable value for the property. In 2001, the
Partnership recorded a provision for write-down of assets in the amount
of $363,461 relating to the property in Avon, Colorado due to the fact
that on October 31, 2001, Phoenix Restaurant Group, Inc. and its
Subsidiaries (collectively referred to as "PRG"), a tenant of the
Partnership, filed for Chapter 11 bankruptcy protection. The provision
represented the difference between the carrying value of the property,
including the accumulated accrued rental income, at December 31, 2001
and the general partners' current estimate of net realizable value for
this property.
At March 2001, the Partnership recorded a provision for write-down of
assets of $43,949 in previously accrued rental income relating to the
property located in Sebring, Florida. The accrued rental income was the
accumulated amount of non-cash accounting adjustments previously
recorded in order to recognize future scheduled rent increases as
income evenly over the term of the lease. The provision represented the
difference between the carrying value of the property, including the
accumulated accrued rental income, and the estimated net sales proceeds
from the anticipated sale of the Property. In November 2001, the
Partnership sold this property to the tenant and received net sales
proceeds of approximately $1,029,000, resulting in a gain of $8,604. In
December 2001, the Partnership reinvested approximately $1,376,800 of
the net sales proceeds received from the sale of this Property and from
the liquidation proceeds received from the sale of the Property in
Round Rock, Texas, in a Property in Houston, Texas. The Partnership
acquired the Property from 2001-A, LP, an affiliate of the general
partners (see Note 8).
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2001:
2002 $2,507,024
2003 2,653,341
2004 2,672,255
2005 2,682,898
2006 2,436,289
Thereafter 10,833,034
-----------------
$23,784,841
=================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2001 2000
-------------- ---------------
Minimum lease payments
receivable $ 12,288,893 $ 13,388,037
Estimated residual values 2,305,921 2,439,551
Less unearned income (7,653,203 ) (8,579,723 )
-------------- ---------------
Net investment in direct
financing leases $ 6,941,611 $ 7,247,865
============== ===============
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Net Investment in Direct Financing Leases - Continued:
-----------------------------------------------------
As of December 31, 2000, the Partnership recorded a provision for
write-down of assets of $26,015 in previously accrued rental income
relating to the property in Abilene, Texas. The tenant of this property
was experiencing financial difficulties. The accrued rental income was
the accumulated amount of non-cash accounting adjustments previously
recorded in order to recognize future scheduled rent increases as
income evenly over the term of the lease. The provision represented the
difference between the carrying value of the property, including the
accumulated accrued rental income, at December 31, 2000 and the general
partners' estimated net realizable value for the property. During 2001,
the Partnership established a provision for write-down of assets in the
amount of $246,982 for its property in Abilene, Texas due to the fact
that on October 31, 2001, PRG, a tenant of the Partnership, filed for
Chapter 11 bankruptcy protection (see Note 3). The provision
represented the difference between the carrying value of the net
investment in the direct financing lease, including the accumulated
accrued rental income, and the general partners' estimated net
realizable value of the investment in the direct financing lease at
December 31, 2001.
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at December 31, 2001:
2002 $1,076,088
2003 1,096,192
2004 1,096,192
2005 1,096,192
2006 1,096,192
Thereafter 6,828,037
----------------
$12,288,893
================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
5. Investment in Joint Ventures:
----------------------------
The Partnership has a 62.16%, 76.6% and a 42.8% interest in the profits
and losses of Ashland Joint Venture, Des Moines Real Estate Joint
Venture and Portsmouth Joint Venture, respectively. The remaining
interests in these joint ventures are held by affiliates of the
Partnership which have the same General Partners. In addition, the
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
Partnership owns a Black-eyed Pea property in Corpus Christi, Texas, as
tenants-in-common with CNL Income Fund XVII, Ltd., a Florida limited
partnership and affiliate of the General Partners. As of December 31,
2001, the Partnership owned a 72.58% interest in this property.
In October 1999, the Partnership used a portion of the net sales
proceeds from the 1998 sale of the property in Nashua, New Hampshire to
invest in a property in Round Rock, Texas, with CNL Income Fund VI,
Ltd., a Florida limited partnership and affiliate of the General
Partners as tenants-in-common. As of December 31, 2000, the Partnership
had contributed approximately $320,200 for a 23% interest in the
property. In October 2001, the Partnership and CNL Income Fund VI,
Ltd., as tenants-in-common, sold this property for a sales price of
approximately $1,539,000 and received net sales proceeds of
approximately $1,510,700, resulting in a gain, to the
tenancy-in-common, of approximately $123,900. The Partnership received
approximately $345,000 as a liquidating distribution for its pro-rata
share of the net sales proceeds.
Ashland Joint Venture, Des Moines Real Estate Joint Venture, Portsmouth
Joint Venture and the Partnership and affiliates, as tenants-in-common
in one separate tenant-in-common arrangement, each own and lease one
property to an operator of national fast-food restaurants. The
following presents the joint ventures' combined, condensed financial
information at December 31:
2001 2000
----------------- -----------------
Land and buildings on operating
leases, net $ 3,192,292 $ 4,878,318
Net investment in direct financing
lease 313,339 317,357
Cash 15,352 7,282
Receivables, less allowance for
doubtful accounts, net 7,383 68,094
Accrued rental income 7,543 234,524
Other assets 115,767 8,799
Liabilities 29,240 786
Partners' capital 3,622,436 5,513,588
Revenues 341,877 597,784
Provision for write-down of assets 242,390 --
Gain on sale of assets 123,892 --
Net income (loss) (20,327 ) 470,408
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
The Partnership recognized a loss totaling $147,538 and income totaling
$256,056 and $259,676, for the years ended December 31, 2001, 2000, and
1999, respectively, from these joint ventures.
6. Allocations and Distributions:
-----------------------------
From inception through December 31, 1999, generally, all net income and
net losses of the Partnership, excluding gains and losses from the sale
of properties, were allocated 99 percent 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 percent to the
limited partners and one percent to the general partners; provided,
however, that the one percent of net cash flow to be distributed to the
general partners was subordinated to receipt by the limited partners of
an aggregate, ten percent, cumulative, noncompounded annual return on
their invested capital contributions (the "Limited Partners' 10%
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 Limited Partners'
10% 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 percent
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 percent to the
limited partners and five percent to the general partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after allocations of net income, gains
and/or losses, to distribute to the partners with positive capital
accounts balances, in proportion to such balances, up to amounts
sufficient to reduce such positive balances to zero, and (v)
thereafter, any funds remaining shall then be distributed 95 percent to
the limited partners and five percent to the general partners.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
6. Allocations and Distributions - Continued:
-----------------------------------------
Effective January 1, 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the years
ended December 31, 2001 and 2000.
During each of the years ended December 31, 2001, 2000, and 1999, the
Partnership declared distributions to the limited partners of
$3,500,024, respectively. No distributions have been made to the
general partners to date.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2001 2000 1999
-------------- -------------- ---------------
Net income for financial reporting purposes $ 1,727,316 $ 3,094,463 $ 3,141,774
Depreciation for tax reporting purposes in excess
of depreciation for financial reporting
purposes (69,778 ) (68,371 ) (67,657 )
Gain on sale of assets for financial reporting
purposes less than gain for tax reporting
purposes 51,426 -- 429,196
Direct financing leases recorded as operating
leases for tax reporting purposes 138,491 124,176 108,856
Equity in earnings of unconsolidated joint
ventures for financial reporting purposes
less
than (in excess of) equity in earnings of
unconsolidated joint ventures for tax 433,308 9,949 (5,731 )
reporting purposes
Capitalization (deduction) of transaction costs
for -- (221,629 ) 200,741
tax reporting purposes
Accrued rental income (119,338 ) (135,691 ) (134,541 )
Rents paid in advance (13,565 ) (22,702 ) 10,411
Allowance for doubtful accounts 347,670 127,810 5,826
Provision for write-down of assets 654,393 60,490 --
Minority interests in timing differences of
consolidated joint ventures 5,385 11,888 8,663
-------------- -------------- ---------------
Net income for federal income tax purposes $ 3,155,308 $ 2,980,383 $ 3,697,538
============== ============== ===============
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc. CNL
APF Partners, LP (the "Advisor") is a wholly owned subsidiary of CNL
American Properties Fund, Inc. ("APF"). CNL Fund Advisors, Inc., a
majority owned subsidiary of CNL Financial Group, Inc. until it merged
with and into APF effective September 1, 1999, served as the
Partnership's advisor until it assigned its rights and obligations
under a management agreement with the Partnership to the Advisor
effective July 1, 2000. The individual general partners are
stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with
the partnership. In connection therewith, the Partnership agreed to pay
certain Advisor management fees 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.
The management fee, which will not exceed fees which are competitive
for similar services in the same geographic area, may or may not be
taken, in whole or in part as to any year, in the sole discretion of
the Affiliate. The Partnership incurred management fees of $36,076,
$39,227, and $39,836, for the years ended December 31, 2001, 2000, and
1999, respectively.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the sales proceeds are reinvested in a replacement property, no such
real estate disposition fees will be incurred until such replacement
property is sold and the net sales proceeds are distributed. The
payment of the real estate disposition fee is subordinated to the
receipt by the limited partners of their aggregate 10% Preferred
Return, plus their adjusted capital contributions. No deferred,
subordinated real estate disposition fees have been incurred since
inception.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. Related Party Transactions - Continued:
--------------------------------------
During the years ended December 31, 2001, 2000, and 1999, the Advisor
and it affiliates provided accounting and administrative services to
the Partnership on a day-to-day basis, including services during 2000
and 1999 relating to the proposed and terminated merger. The
Partnership incurred $219,365, $101,316, and $130,332, for the years
ended December 31, 2001, 2000, and 1999, respectively, for such
services.
In December 2001, the Partnership acquired a property located in
Houston, Texas from CNL Funding 2001-A, LP, for a purchase price of
approximately $1,376,800 (see Note 3). CNL Funding 2001-A, LP is 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. The purchase price paid by the Partnership represented
the costs incurred by CNL Funding 2001-A, LP to acquire and carry the
properties, including closing costs.
The due to related parties at December 31, 2001 and 2000, totaled
$16,701 and $22,502, respectively.
9. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned income (including the
Partnership's share of rental and earned income from the unconsolidated
joint ventures and the properties held as tenants-in-common with
affiliates of the General Partners), for each of the years ended
December 31:
2001 2000 1999
--------------- --------------- ---------------
Jack in the Box Inc. and Jack in
the Box Eastern Division,
L.P. $768,070 $ 768,032 $ 768,032
Burger King Corporation and
BK Acquisition, Inc. 621,123 604,484 621,726
Golden Corral Corporation 600,548 580,241 570,815
Advantica Restaurant Group,
Inc. N/A 465,892 470,022
Phoenix Restaurant Group, Inc. N/A N/A 530,465
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
9. Concentration of Credit Risk - Continued:
----------------------------------------
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of total rental and earned income
from the unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates of the General Partners), for each of
the years ended December 31:
2001 2000 1999
-------------- ----------------- -----------------
Burger King $1,148,827 $1,128,752 $1,144,865
Golden Corral Family
Steakhouse Restaurants 600,548 580,241 570,815
Jack in the Box 588,204 768,032 768,032
Denny's 492,804 642,085 889,658
The information denoted by N/A indicates that for each period
presented, the tenants did not represent more than ten percent of the
Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
Properties in a timely manner.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
10. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2001 and
2000.
2001 Quarter First Second Third Fourth Year
------------------------ --------------- -------------- -------------- ---------------- ---------------
Revenue (1) $ 849,271 $ 808,826 $ 680,671 $ 1,008,081 $ 3,346,849
Net income 482,255 448,531 (63,130 ) 859,660 1,727,316
Net income per
limited partner
unit 0.12 0.11 (0.02 ) 0.22 0.43
2000 Quarter First Second Third Fourth Year
------------------------ --------------- -------------- -------------- ---------------- ---------------
Revenue (1) $1,000,668 $ 998,396 $958,207 $ 967,275 $ 3,924,546
Net income 679,557 617,036 769,298 1,028,572 3,094,463
Net income per
limited partner
unit 0.17 0.15 0.19 0.26 0.77
(1) Revenues include equity in earnings of unconsolidated joint ventures
and minority interest in income of consolidated joint ventures.
(2) Revenues have been adjusted to reclassify any reversals of accrued
rental income to provisions for write-down of assets. This
reclassification had no effect on total net income.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Financial Group, Inc.
and their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 55. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL American Properties Fund,
Inc. ("APF"), a public, unlisted real estate investment trust, since 1994. Mr.
Seneff served as Chief Executive Officer of APF from 1994 through August 1999,
and has served as Co-Chief Executive Officer of APF since December 2000. Mr.
Seneff served as Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors, Inc., formerly the Partnership's advisor, until it merged with a
wholly-owned subsidiary of APF in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc., a diversified real estate company, and has served as a Director,
Chairman of the Board and Chief Executive Officer of CNL Financial Group, Inc.
since its formation in 1980. CNL Financial Group, Inc. is the parent company,
either directly or indirectly through subsidiaries, of CNL Real Estate Services,
Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp.
Mr. Seneff also serves as a Director, Chairman of the Board and Chief Executive
Officer of CNL Hospitality Properties, Inc., a public, unlisted real estate
investment trust, as well as, CNL Hospitality Corp., its advisor. In addition,
he serves as a Director, Chairman of the Board and Chief Executive Officer of
CNL Retirement Properties, Inc., a public, unlisted real estate investment trust
and its advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has also served as
a Director, Chairman of the Board and Chief Executive Officer of Commercial Net
Lease Realty, Inc., a public real estate investment trust that is listed on the
New York Stock Exchange. Mr. Seneff has also served as a Director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a Director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNL Bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 54. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne is
Director of the Board of Directors of APF. Mr. Bourne served as President of APF
from 1994 through February 1999. He also served as Treasurer from February 1999
through August 1999 and from May 1994 through December 1994. He also served in
various executive positions with CNL Fund Advisors, Inc. prior to its merger
with a wholly-owned subsidiary of APF including, President from 1994 through
September 1997, and Director from 1994 through August 1999. Mr. Bourne serves as
President and Treasurer of CNL Financial Group, Inc.; Director, Vice Chairman of
the Board, President and Treasurer of CNL Hospitality Properties, Inc., a
public, unlisted real estate investment trust; as well as, Director, Vice
Chairman of the Board, President and Treasurer of CNL Hospitality Corp., its
advisor. In addition, Mr. Bourne serves as Director, Vice Chairman of the Board,
President and Treasurer of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust; as well as, a Director, Vice Chairman of the
Board, President and Treasurer of its advisor, CNL Retirement Corp. Mr. Bourne
also serves as a Director of CNL Bank. He has served as a Director since 1992,
Vice Chairman of the Board since February 1996, Secretary and Treasurer from
February 1996 through 1997, and President from July 1992 through February 1996,
of Commercial Net Lease Realty, Inc., a public real estate investment trust
listed on the New York Stock Exchange. Mr. Bourne also serves as Director,
President and Treasurer for various affiliates of CNL Financial Group, Inc.
including, CNL Investment Company, CNL Securities Corp. and CNL Institutional
Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified Public Accountants, from 1971 through 1978, where he attained the
position of Tax Manager in 1975. Mr. Bourne graduated from Florida State
University in 1970 where he received a B.A. in Accounting, with honors.
Curtis B. McWilliams, age 46. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as Chief
Executive Officer from September 1999 through December 2000. Prior to the
acquisition of CNL Fund Advisors, Inc., Mr. McWilliams served as President of
APF from February 1999 until September 1999. From February 1998 to February
1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL
Financial Group, Inc. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc. from April
1997 until the acquisition of such entities by wholly-owned subsidiaries of APF
in September 1999. From September 1983 through March 1997, Mr. McWilliams was
employed by Merrill Lynch & Co. The majority of his career at Merrill Lynch &
Co. was in the Investment Banking division where he served as a Managing
Director. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.
Steven D. Shackelford, age 38. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors, Inc. from September 1996 to September 1999. From March
1995 to July 1996, Mr. Shackelford was a senior manager in the national office
of Price Waterhouse LLP where he was responsible for advising foreign clients
seeking to raise capital and a public listing in the United States. From August
1992 to March 1995, he was a manager in the Paris, France office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and senior from 1986 to 1992 in the Orlando, Florida office of Price
Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business Administration degree from Florida State
University and is a certified public accountant.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of March 15, 2002, the beneficial
ownership interest of each person known to the Registrant to be a beneficial
owner of more than five percent of the Units.
Name and Address of Number of Percent
Title of Class Beneficial Owner Units of Class
----------------------------------- ---------------------------------- -------------- -------------
Units of Limited Partnership Public School Retirement 210,290 5.26
Interest System of the City of St. Louis
1 Firstar Plaza
Ste. 2510
St. Louis, MO 63101
The following table sets forth, as of March 15, 2002, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2001, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and administra-
operating expenses the lower of cost or 90% of the tive services: $219,365
prevailing rate at which comparable
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, management fee to One percent of the sum of gross $36,076
affiliates revenues from Properties wholly
owned by the Partnership plus the
Partnership's allocable share gross
revenues of joint ventures in which the
Partnership is co-venturer. The
management fee, which will not exceed
competitive fees for comparable fees for
comparable services in the same
geographic area, may or may not be taken,
in whole or in part as to any year, in
the sole discretion of affiliates.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee payable disposition fee, payable upon sale
to affiliates of one or more Properties, in an
amount equal to the lesser of (i)
one-half of a competitive real estate
commission, or (ii) three percent of the
sales price of such Property or
Properties. Payment of such fee shall be
made only if affiliates of the General
Partners provide a substantial amount of
services in connection with the sale of a
Property or Properties and shall be
subordinated to certain minimum returns
to the Limited Partners. However, if the
net sales are reinvested in a replacement
Property, no such real estate disposition
fee will be incurred until such
replacement Property is sold and the net
sales proceeds are distributed.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales proceeds distributions of such net sales
from a sale or sales not in proceeds, subordinated to certain
liquidation of the Partnership minimum returns to the Limited
Partners.
Amount Incurred
Type of Compensation For the Year
And Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order or
priority: (i) first, to pay all debts and
liabilities of the Partnership and to
establish reserves; (ii) second, to
Partners with positive capital account
balances, determined after the allocation
of net income, net loss, gain and loss,
in proportion to such balances, up to
amounts sufficient to reduce such
balances to zero; and (iii) thereafter,
95% to the Limited Partners and 5% to the
General Partners.
In December 2001, the Partnership acquired a property located in Houston, Texas
from CNL Funding 2001-A, LP, for a purchase price of approximately $1,376,800
(see Note 3). CNL Funding 2001-A, LP is 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. The purchase price paid by the Partnership
represented the costs incurred by CNL Funding 2001-A, LP to acquire and carry
the Properties, including closing costs.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2001 and 2000
Statements of Income for the years ended December 31, 2001,
2000, and 1999
Statements of Partners' Capital for the years ended December
31, 2001, 2000, and 1999
Statements of Cash Flows for the years ended December 31,2001,
2000, and 1999
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for December
31, 2001, 2000, and 1999
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2001
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2001
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XI, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XI, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XI, Ltd. (Included as Exhibit 4.2
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, and incorporated herein
by reference.)
10.1 Management Agreement between CNL Income Fund XI, Ltd.
and CNL Investment Company (Included as Exhibit 10.1
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, and incorporated herein
by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996,
and incorporated herein by reference.)
10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 to Form 10-Q filed with the Securities
and Exchange Commission on August 13, 2001, and
incorporated herein by reference.)
(b) The Registrant filed no reports on Form 8-K during
the period October 1, 2001 through December 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
March, 2002.
CNL INCOME FUND XI, 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 26, 2002
- ------------------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 26, 2002
- ------------------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000, and 1999
Additions Deductions
----------------------------- ------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning of Costs and Other Uncollec- be Col- at End
Year Description Year Expenses Accounts tible lectible of Year
- ---------- ----------------- ---------------- ------------- -------------- ------------- ------------- ------------
1999 Allowance for
doubtful
accounts (a) $ 5,820 $ -- $ 11,646 (b) $ 62 (c) $ 5,758 $ 11,646
================ ============= ============== ============= ============= ============
2000 Allowance for
doubtful
accounts (a) $ 11,646 $ -- $ 222,143 (b) $ -- $ 33,843 $ 199,946
================ ============= ============== ============= ============= ============
2001 Allowance for
doubtful
accounts (a) $ 199,946 $ 105,501 $ 256,516 (b) $ 62,085 (c) $ 12,751 $ 487,127
================ ============= ============== ============= ============= ============
(a) Deducted from receivables and accrued rental income on the
balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
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:
Amesbury, Massachusetts - $359,458 $791,913 - -
Bloomfield, Connecticut - 266,685 555,656 - -
East Detroit, Michigan - 305,813 508,386 - -
Gonzales, Louisiana - 362,073 575,454 - -
Denver, Colorado - 438,756 - - -
Columbus, Ohio - 399,679 363,795 - -
Dayton, Ohio - 472,964 441,860 - -
Lawrence, Kansas - 321,505 411,353 - -
Roswell, New Mexico - 205,379 461,219 - -
Danbury, Connecticut (h) - 220,496 498,434 - -
Yelm, Washington - 337,806 - - -
Casa Del Rio Restaurant:
Wadsworth, Ohio - 187,368 - - -
Denny's Restaurants:
Orlando, Florida - 627,065 - - -
Abilene, Texas - 274,220 - - -
Avon, Colorado - 755,815 - 569,297 -
Ocean Springs, Mississippi - 303,267 - - -
Golden Corral Family
Steakhouse Restaurants:
McAllen, Texas - 649,484 947,085 - -
Midwest City, Oklahoma - 506,420 975,640 - -
Oklahoma City, Oklahoma- 650,655 975,170 - -
Hardee's Restaurants:
Dothan, Alabama - 275,791 - - -
Huntersville, North Carolin- 308,894 - - -
North Augusta, South Caroli-a 201,056 - - -
Jack in the Box Restaurants:
Houston, Texas - 475,618 447,374 - -
Houston, Texas - 350,115 607,530 - -
Houston, Texas - 362,591 582,149 - -
Kingswood, Texas - 373,894 544,539 - -
Rockwall, Texas - 348,497 652,932 - -
Sacramento, California - 500,623 524,823 - -
Show Low, Arizona - 185,602 503,343 - -
KFC Restaurant:
Deming, New Mexico - 150,455 - - -
Sagebrush Reataurant:
Lynchburg, Virginia - 359,532 - - -
Other:
Houston, Texas (i) - 843,699 533,093 - -
------------ ------------ ------------ -------
$12,381,275 $11,901,748 $569,297 -
============ ============ ============ =======
Property of Joint Venture in
Which the Partnership has a
76.6% Interest and has
Invested in Under an
Operating Lease:
Jack in the Box Restaurant:
Des Moines, Washington - $322,726 $791,658 - -
============ ============ ============ =======
Property of Joint Venture in
Which the Partnership has a
62.16% Interest and has
Invested in Under an
Operating Lease:
Burger King Restaurant:
Ashland, New Hampshire - $293,478 $997,104 - -
============ ============ ============ =======
Property in Which the
Partnership has a 72.58%
Interest as Tenants-in-Common
and has Invested in Under an
Operating Lease:
Black-eyed Pea Restaurant:
Corpus Christi, Texas - $715,052 $726,005 - -
============ ============ ============ =======
Property of Joint Venture in
Which the Partnership has a
42.8% Interest and has
Invested in Under an
Operating Lease:
Taco Bell Restaurant
Portsmouth, Virginia - $254,045 - - -
============ ============ ============ =======
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Burger King Restaurants:
Denver, Colorado - - - $403,692 -
Yelm, Washington - - 694,610 - -
Casa Del Rio Restaurant:
Wadsworth, Ohio - - 264,861 - -
Denny's Restaurants:
Orlando, Florida - - - 696,187 -
Abilene, Texas - - - 534,519 -
Kent, Ohio - 101,488 421,645 - -
Cullman, Alabama - 191,016 577,043 - -
Ocean Springs, Mississippi - - 324,225 - -
Gooney Birds Sports Grill:
Laurens, South Carolina (g)- 170,905 537,361 - -
Hardee's Restaurants:
Dothan, Alabama - - 407,368 - -
Huntersville, North Carolin- - 465,665 - -
North Augusta, South Caroli-a - 457,712 - -
Old Fort, North Carolina - 100,413 457,747 - -
KFC Restaurant:
Deming, New Mexico - - - 389,033 -
Sagebrush Restaurant:
Lynchburg, Virginia - - 648,972 - -
------------ ------------ -------
------------
$563,822 $5,257,209 $2,023,431 -
============ ============ ============ =======
Property of Joint Venture in
Which the Partnership has a
42.8% Interest and has
Invested in Under a Direct
Financing Lease:
Taco Bell Restaurant:
Portsmouth, Virginia - - $323,725 - -
============ ============ ============ =======
Net Cost Basis at Which Life on Which
Carried at Close of Period (c) Depreciation in
- ----------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation structionAcquired Computed
- ------------- ------------ ------------ ----------- ------- ------- -------------
$359,458 $791,913 $1,151,371 $251,026 1982 06/92 (b)
266,685 555,656 822,341 176,135 1990 06/92 (b)
305,813 508,386 814,199 161,151 1987 06/92 (b)
362,073 575,454 937,527 182,411 1989 06/92 (b)
438,756 (f) 438,756 - 1992 06/92 (d)
399,679 363,795 763,474 113,192 1982 09/92 (b)
472,964 441,860 914,824 136,351 1987 09/92 (b)
321,505 411,353 732,858 126,937 1982 09/92 (b)
205,379 461,219 666,598 142,325 1986 09/92 (b)
220,496 498,434 718,930 68,236 1983 09/98 (b)
337,806 (f) 337,806 - 1997 01/99 (d)
187,368 (f) 187,368 - 1992 09/92 (d)
627,065 (f) 627,065 - 1992 06/92 (d)
274,220 (f) 274,220 - 1992 07/92 (d)
587,825 479,369 1,067,194 168,033 1993 09/92 (b)
303,267 (f) 303,267 - 1992 09/92 (d)
649,484 947,085 1,596,569 301,164 1992 06/92 (b)
506,420 975,640 1,482,060 310,244 1992 06/92 (b)
650,655 975,170 1,625,825 312,856 1992 05/92 (b)
275,791 (f) 275,791 - 1992 09/92 (d)
308,894 (f) 308,894 - 1992 09/92 (d)
201,056 (f) 201,056 - 1992 09/92 (d)
475,618 447,374 922,992 138,216 1992 09/92 (b)
350,115 607,530 957,645 187,696 1992 09/92 (b)
362,591 582,149 944,740 179,855 1992 09/92 (b)
373,894 544,539 918,433 168,235 1992 09/92 (b)
348,497 652,932 1,001,429 201,723 1992 09/92 (b)
500,623 524,823 1,025,446 162,144 1992 09/92 (b)
185,602 503,343 688,945 155,508 1992 09/92 (b)
150,455 (f) 150,455 - 1993 09/92 (d)
359,532 (f) 359,532 - 1992 09/92 (d)
843,699 533,093 1,376,792 2,332 1998 12/01 (b)
- ------------- ------------ ------------ -----------
$12,213,285 $12,381,117 $24,594,402 $3,645,770
============= ============ ============ ===========
$322,726 $791,658 $1,114,384 $243,062 1992 10/92 (b)
============= ============ ============ ===========
$293,478 $997,104 $1,290,582 $307,506 1987 10/92 (b)
============= ============ ============ ===========
$584,525 $614,142 $1,198,667 $114,818 1992 01/97 (b)
============= ============ ============ ===========
$254,045 (f) $254,045 (d) 1997 02/99 (d)
============= ============
- (f) (f) (d) 1992 06/92 (d)
- (f) (f) (d) 1997 01/99 (d)
- (f) (f) (d) 1992 09/92 (d)
- (f) (f) (d) 1992 06/92 (d)
- (f) (f) (d) 1992 07/92 (d)
(f) (f) (f) (e) 1987 07/92 (e)
(f) (f) (f) (e) 1992 09/92 (e)
- (f) (f) (d) 1992 09/92 (d)
(f) (f) (f) (e) 1992 09/92 (e)
- (f) (f) (d) 1992 09/92 (d)
- (f) (f) (d) 1992 09/92 (d)
- (f) (f) (d) 1992 09/92 (d)
(f) (f) (f) (e) 1992 09/92 (e)
- (f) (f) (d) 1993 09/92 (d)
- (f) (f) (d) 1992 09/92 (d)
- -------------
-
=============
(f) (f) (f) (d) 1997 02/99 (d)
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(a) Transactions in real estate and accumulated depreciation during 2001,
2000 and 1999, are summarized as follows:
Accumulated
Cost Depreciation
---------------- -------------------
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1998 $ 24,273,570 $ 2,589,785
Acquisitions 337,806 --
Depreciation expense -- 426,584
---------------- -------------------
Balance, December 31, 1999 24,611,376 3,016,369
Depreciation expense -- 426,596
---------------- -----------------
Balance, December 31, 2000 24,611,376 3,442,965
Disposition (1,135,848 ) (220,663 )
Acquisition 1,376,792 --
Provision for write-down of assets (257,918 ) --
Depreciation -- 423,468
---------------- -----------------
Balance, December 31, 2001 $ 24,594,402 $ 3,645,770
================ =================
Property of Joint Venture in Which the Partnership has a 76.6%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 1,114,384 $ 163,895
Depreciation expense -- 26,389
---------------- -----------------
Balance, December 31, 1999 1,114,384 190,284
Depreciation expense -- 26,389
---------------- -----------------
Balance, December 31, 2000 1,114,384 216,673
Depreciation expense -- 26,389
---------------- -----------------
Balance, December 31, 2001 $ 1,114,384 $ 243,062
================ =================
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -------------------
Property of Joint Venture in Which the Partnership has 62.16%
Interest and has Invested in Under Operating Leases:
Balance, December 31, 1998 $ 1,290,582 $ 207,798
Depreciation expense -- 33,236
---------------- -----------------
Balance, December 31, 1999 1,290,582 241,034
Depreciation expense -- 33,236
---------------- -----------------
Balance, December 31, 2000 1,290,582 274,270
Depreciation expense -- 33,236
---------------- -----------------
Balance, December 31, 2001 $ 1,290,582 $ 307,506
================ =================
Property in Which the Partnership has a 72.58% Interest as
Tenants-in-Common and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 1,441,057 $ 46,649
Depreciation expense -- 24,201
---------------- -----------------
Balance, December 31, 1999 1,441,057 70,850
Depreciation expense -- 24,201
---------------- -----------------
Balance, December 31, 2000 1,441,057 95,051
Provision for write-down of assets (242,390 ) --
Depreciation expense -- 19,767
---------------- -----------------
Balance, December 31, 2001 $ 1,198,667 $ 114,818
================ =================
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -----------------
Property in Which the Partnership has a 23% Interest as
Tenants-in-Common and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisitions 1,392,037 --
Depreciation expense -- 4,247
---------------- -----------------
Balance, December 31, 1999 1,392,037 4,247
Depreciation expense -- 23,546
---------------- -----------------
Balance, December 31, 2000 1,392,037 27,793
Dispositions (1,392,037 ) (45,454 )
Depreciation expense -- 17,661
---------------- -----------------
Balance, December 31, 2001 $ -- $ --
================= ================
Property of Joint Venture in Which the Partnership has a 42.8%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisitions 254,045 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 1999 254,045 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2000 254,045 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2001 $ 254,045 $ --
================ =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and its consolidated joint ventures, and the
unconsolidated joint ventures for federal income tax purposes was
$32,775,826 and $4,422,794, respectively. All of the leases are treated
as operating leases for federal income tax purposes.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
(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) The restaurant on this Property was converted from a Denny's restaurant
to a Hardee's restaurant during 1994.
(h) This Property was exchanged for a Burger King Property previously owned
and located in Columbus, Ohio during 1998.
(i) During the year ended December 31, 2001, the Partnership purchased land
and building from 2001-A, LP, an affiliate of the General Partners, for
an aggregate cost of approximately $1,376,800.