FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 2002
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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
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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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ---------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Part II.
Other Information 12
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
2002 2001
----------------- ------------------
ASSETS
Land and buildings on operating leases, net $ 18,591,232 $ 18,782,001
Net investment in direct financing leases 6,365,194 6,443,181
Real estate held for sale 1,447,423 2,746,974
Investment in joint ventures 4,567,325 2,389,323
Cash and cash equivalents 1,478,518 993,402
Certificates of deposit -- 218,217
Receivables, less allowance for doubtful accounts
of $321,527 and $487,127, respectively 16,158 186,780
Accrued rental income 1,619,066 1,558,306
Other assets 134,502 133,544
----------------- ------------------
$ 34,219,418 $ 33,451,728
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 3,690 $ 9,153
Real estate taxes payable 15,666 54,185
Distributions payable 875,006 875,006
Due to related parties 23,469 16,701
Rents paid in advance and security deposits 72,709 66,213
----------------- ------------------
Total liabilities 990,540 1,021,258
Minority interests 509,056 509,377
Partners' capital 32,719,822 31,921,093
----------------- ------------------
$ 34,219,418 $ 33,451,728
================= ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------------- ------------- -------------- -------------
Revenues:
Rental income from operating leases $ 621,086 $ 572,017 $ 1,209,707 $1,125,191
Earned income from direct financing leases 314,175 204,332 525,141 397,678
Interest and other income 49,159 12,412 49,249 40,729
------------- ------------- -------------- -------------
984,420 788,761 1,784,097 1,563,598
------------- ------------- -------------- -------------
Expenses:
General operating and administrative 69,130 86,201 153,214 227,272
Property expenses 25,092 92,478 32,624 132,085
Management fees to related party 13,133 8,026 23,934 16,539
State and other taxes 10,078 5,313 31,779 29,869
Depreciation 94,879 95,002 190,769 190,005
Provision for write-down of assets -- 61,588 -- 105,537
------------- ------------- -------------- -------------
212,312 348,608 432,320 701,307
------------- ------------- -------------- -------------
Income Before Minority Interests in Income of Consolidated
Joint Ventures and Equity in Earnings of Unconsolidated
Joint Ventures 772,108 440,153 1,351,777 862,291
Minority Interests in Income of Consolidated
Joint Ventures (16,999 ) (16,376 ) (33,441 ) (33,128 )
Equity in Earnings of Unconsolidated Joint Ventures 584,639 (50,171 ) 641,858 (44,215 )
------------- ------------- -------------- -------------
Income from Continuing Operations 1,339,748 373,606 1,960,194 784,948
------------- ------------- -------------- -------------
Discontinued Operations (Note 4):
Income from discontinued operations, net 77,278 74,925 146,401 145,838
Gain on disposal of discontinued operations, net 442,146 -- 442,146 --
------------- ------------- -------------- -------------
519,424 74,925 588,547 145,838
------------- ------------- -------------- -------------
Net Income $1,859,172 $ 448,531 $ 2,548,741 $ 930,786
============= ============= ============== =============
Income Per Limited Partner Unit
Continuing Operations $ 0.33 $ 0.09 $ 0.49 $ 0.20
Discontinued Operations 0.13 0.02 0.15 0.03
------------- ------------- -------------- -------------
Total $ 0.46 $ 0.11 $ 0.64 $ 0.23
============= ============= ============== =============
Weighted Average Number of Limited Partner
Units Outstanding 4,000,000 4,000,000 4,000,000 4,000,000
============= ============= ============== =============
See accompanying notes to condensed financial statements.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
2002 2001
-------------------- ------------------
General partners:
Beginning balance $ 242,465 $ 242,465
Net income -- --
-------------------- ------------------
242,465 242,465
-------------------- ------------------
Limited partners:
Beginning balance 31,678,628 33,451,336
Net income 2,548,741 1,727,316
Distributions ($0.44 and $0.88 per
limited partner unit, respectively) (1,750,012 ) (3,500,024 )
-------------------- ------------------
32,477,357 31,678,628
-------------------- ------------------
Total partners' capital $ 32,719,822 $ 31,921,093
==================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2002 2001
--------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 2,162,728 $ 1,597,124
--------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 1,734,373 --
Investment in joint ventures (1,839,798 ) --
Redemption of certificates of deposit 211,587 208,640
--------------- ---------------
Net cash provided by investing activities 106,162 208,640
--------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,750,012 ) (1,750,012 )
Distributions to holders of minority interests (33,762 ) (30,847 )
--------------- ---------------
Net cash used in financing activities (1,783,774 ) (1,780,859 )
--------------- ---------------
Net Increase in Cash and Cash Equivalents 485,116 24,905
Cash and Cash Equivalents at Beginning of Period 993,402 1,006,620
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 1,478,518 $ 1,031,525
=============== ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 875,006 $ 875,006
=============== ===============
See accompanying notes to condensed financial statements.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 2002 may not be indicative of
the results that may be expected for the year ending December 31, 2002.
Amounts as of December 31, 2001, included in the financial statements,
have been derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XI, Ltd. (the "Partnership") for the year ended December
31, 2001.
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 the equity in the
Partnership's consolidated joint ventures. All significant intercompany
accounts and transactions have been eliminated.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
2. Reclassification:
Certain items in the prior year's financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on total partners' capital or net income.
3. Investment in Joint Ventures:
In June 2002, the Partnership invested in two properties in Universal
City and Schertz, Texas, as two separate tenants-in-common arrangements
with CNL Income Fund VI, Ltd., a Florida limited partnership and
affiliate of the general partners. The Partnership acquired both
properties from CNL Funding 2001-A, LP, an affiliate of the general
partners (see Note 5). The Partnership and CNL Income Fund VI, Ltd.
entered into agreements whereby each co-tenant will share in the
profits and losses of each property in proportion to its applicable
percentage interest. As of June 30, 2002, the Partnership contributed
approximately $897,200 and $942,500 for an 85.8% and a 90.5% interest,
respectively, in these properties.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
3. Investment in Joint Ventures - Continued:
In June 2002, Ashland Joint Venture, in which the Partnership has a
62.16% interest, sold its Burger King property in Ashland, New
Hampshire to the tenant and received net sales proceeds of
approximately $1,472,900, resulting in a gain of approximately
$500,900. The financial results relating to this property are reflected
as Discontinued Operations below. The Joint Venture reinvested in June
2002 the majority of the net sales proceeds from the sale of this
property in a property in San Antonio, Texas. The Joint Venture
acquired the property from CNL Funding 2001-A, LP an affiliate of the
general partners for an approximate cost of $1,343,000 (see Note 5).
Ashland Joint Venture, Des Moines Real Estate Joint Venture, Portsmouth
Joint Venture, each owned and leased one property to an operator of
national fast-food restaurants. In addition, the Partnership and
affiliates, as tenants-in-common in three separate tenants-in-common
arrangements, each owned and leased one property to an operator of
national fast-food restaurants. The following presents the combined,
condensed financial information for the unconsolidated joint ventures
and the properties held as tenants-in-common with affiliates at:
June 30, December 31,
2002 2001
-------------- ---------------
Land and buildings on operating leases, net $ 5,606,536 $ 2,209,218
Net investment in direct financing lease 311,170 313,339
Real estate held for sale -- 983,074
Cash 68,298 15,352
Restricted cash 120,308 --
Receivables less, allowance for doubtful
accounts 6,431 7,383
Accrued rental income 124,091 7,543
Other assets 4,160 115,767
Liabilities 110 29,240
Partners' capital 6,240,884 3,622,436
Quarter Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------ ------------- -------------- ---------------
Revenues $ 399,018 $ 78,400 $ 486,950 $ 118,242
Expenses (25,531 ) (134,448 ) (44,421 ) (156,433 )
------------ ------------- -------------- ---------------
Income (loss) from continuing operations 373,487 (56,048 ) 442,529 (38,191 )
------------ ------------- -------------- ---------------
Discontinued operations:
Revenues 25,026 30,474 51,147 60,948
Expenses (15,492 ) (14,457 ) (24,220 ) (24,708 )
Gain on disposal of assets 500,912 -- 500,912 --
------------ ------------- -------------- ---------------
510,446 16,017 527,839 36,240
------------ ------------- -------------- ---------------
Net Income (Loss) $ 883,933 $ (40,031 ) $ 970,368 $ (1,951 )
============ ============= ============== ===============
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
3. Investment in Joint Ventures - Continued:
The Partnership recognized income of $641,858 and a loss of $44,215
during the six months ended June 30, 2002 and 2001, respectively, from
these joint ventures, of which income of $584,639 and a loss of $50,171
were recorded during the quarters ended June 30, 2002 and 2001,
respectively.
4. Discontinued Operations:
In June 2002, the Partnership sold its Burger King properties in
Columbus, Ohio and East Detroit, Michigan to the tenant and received
net sales proceeds of approximately $1,734,400, resulting in a gain of
approximately $442,100. In addition, as of June 30, 2002, the
Partnership was negotiating two separate agreements to sell the
properties in Highlands, California and Kent, Ohio.
As a result, the Partnership reclassified the assets relating to these
properties from direct financing leases, and from land and building on
operating leases, to real estate held for sale. The properties were
recorded at the lower of their carrying amounts or fair value less cost
to sell. The Partnership stopped recording depreciation and accrued
rental income once the properties were placed up for sale. The
financial results for these properties are reflected as Discontinued
Operations in the accompanying financial statements.
The operating results of discontinued operations are as follows:
Quarter Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------- -------------- ------------- --------------
Rental revenues $ 85,415 $ 86,610 $ 165,614 169,167
Expenses (8,137 ) (11,685 ) (19,213 ) (23,329 )
Gain on disposal of assets 442,146 -- 442,146 --
------------- -------------- ------------- --------------
Income from discontinued operations $ 519,424 $ 74,925 $ 588,547 145,838
============= ============== ============= ==============
5. Related Party Transactions:
In June 2002, the Partnership and CNL Income Fund VI, Ltd. acquired two
properties in Universal City and Schertz, Texas, each Property as a
separate tenants-in-common arrangement, from CNL Funding 2001-A, LP,
for a total purchase price of approximately $2,087,200 (see Note 3). In
addition, in June 2002, Ashland Joint Venture acquired a property in
San Antonio, Texas, from CNL Funding 2001-A, LP, for a purchase price
of approximately $1,343,000 (see Note 3). CNL Funding 2001-A, LP is 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 and the joint venture represented the costs
incurred by CNL Funding 2001-A, LP to acquire and carry the properties,
including closing costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XI, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 20, 1991 to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, 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 leases
are, in general, triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance, and utilities. As of June 30, 2001,
the Partnership owned 34 Properties directly and seven Properties indirectly,
through joint venture or tenancy in common arrangements. As of June 30, 2002,
the Partnership owned 32 Properties directly and eight Properties indirectly,
through joint venture or tenancy in common arrangements.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 2002 and 2001 was cash from operating activities (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses). Cash from operating activities
was $2,162,728 and $1,597,124 for the six months ended June 30, 2002 and 2001,
respectively. The increase in cash from operating activities for the six months
ended June 30, 2002 was primarily a result of changes in working capital and
changes in income and expenses as described in "Results of Operations" below.
Other sources and uses of capital included the following during the six
months ended June 30, 2002.
In June 2002, the Partnership sold its Burger King properties in
Columbus, Ohio and East Detroit, Michigan, to the tenant and received net sales
proceeds of approximately $1,734,400, resulting in a gain of approximately
$442,100. The Partnership reinvested in June 2002 the majority of the net sales
proceeds from the sale of these Properties in two Properties in Universal City
and Schertz, Texas, each Property as a separate tenants-in-common arrangement
with CNL Income Fund VI, Ltd., a Florida limited partnership and affiliate of
the general partners. The Partnership and CNL Income Fund VI, Ltd. entered into
agreements whereby each co-tenant will share in the profits and losses of each
property in proportion to its applicable percentage interest. As of June 30,
2002, the Partnership contributed approximately $897,200 and $942,500 for an
85.8% and a 90.5% interest, respectively, in these properties. In addition, in
June 2002, Ashland Joint Venture, in which the Partnership has a 62.16%
interest, sold its Burger King property in Ashland, New Hampshire to the tenant
and received net sales proceeds of approximately $1,472,900, resulting in a gain
of approximately $500,900. The Joint Venture reinvested in June 2002 the
majority of the net sales proceeds from the sale of this Property in a Property
in San Antonio, Texas.
The Partnership acquired these properties from CNL Funding 2001-A, LP,
a Delaware limited partnership and an affiliate of the general partners. CNL
Funding 2001-A, LP had purchased and temporarily held title to the Properties in
order to facilitate the acquisition of the Properties by the Partnership. The
purchase prices paid by the Partnership represented the costs incurred by CNL
Funding 2001-A, LP to acquire the Properties, including closing costs. The
general partners believe that the transactions, or a portion thereof, relating
to the sales of the Properties and the reinvestment of the proceeds will qualify
as like-kind exchange transactions for federal income tax purposes. The
Partnership anticipates that its distributions will be 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 transactions.
Currently, rental income from the Partnership's Properties and net
sales proceeds held by the Partnership 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 the partners. At June 30, 2002,
the Partnership had $1,478,518 invested in such short-term investments, as
compared to $993,402 at December 31, 2001. The increase in cash and cash
equivalents at June 30, 2002, as compared to December 31, 2001 was primarily
attributable to the fact that the Partnership received payment of past due rents
as described below in "Results of Operations." The funds remaining at June 30,
2002, after payment of distributions and other liabilities, will be used to meet
the Partnership's working capital and other needs.
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.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations, the Partnership
declared distributions to limited partners of $1,750,012 for each of the six
months ended June 30, 2002 and 2001 ($875,006 for each of the quarters ended
June 30, 2002 and 2001). This represents distributions of $0.44 per unit for
each of the six months ended June 30, 2002 and 2001 ($0.22 per unit for each
applicable quarter). No distributions were made to the general partners for the
six months ended June 30, 2002 and 2001. No amounts distributed to the limited
partners for the six months ended June 30, 2002 and 2001 are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the limited partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the limited partners on a quarterly basis.
Total liabilities of the Partnership, including distributions payable,
decreased to $990,540 at June 30, 2002 from $1,021,258 at December 31, 2001,
primarily as a result of a decrease in real estate taxes payable at June 30,
2002, as compared to December 31, 2001. The general partners believe that the
Partnership has sufficient cash on hand to meet its current working capital
needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues were $1,734,848 for the six months ended June 30,
2002, as compared to $1,522,869 for the six months ended June 30, 2001, of which
$935,261 and $776,349 were earned during the second quarter of 2002 and 2001,
respectively. Rental revenues were lower during the quarter and six months ended
June 30, 2001, as compared to the same period in 2002, due to the fact that
Phoenix Restaurant Group, Inc. and its Subsidiaries (collectively referred to as
"PRG"), the tenant of two Denny's Properties, experienced financial difficulties
and ceased paying rent in 2001. As a result, the Partnership stopped recognizing
rental revenues 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. Since the bankruptcy filing, the
tenant resumed paying rent. The Partnership received from PRG the rent payments
relating to these Properties from the bankruptcy date through May, 2002. During
May 2002, PRG assigned its leases to two new tenants. All other lease terms
remained unchanged and are substantially the same as the Partnership's other
leases. As a result of the assignment relating to the Property in Abilene,
Texas, the Partnership collected from one of the new tenants $158,000 in past
due rents which were reserved in 2001.
The increase in rental revenues during the quarter and six months ended
June 30, 2002, as compared to the same periods in 2001, was partially due to the
acquisition of a Property in Houston, Texas in December 2001 with the majority
of the net sales proceeds received from the sale of the Property in Sebring,
Florida.
The increase in rental revenues during the six months ended June 30,
2002, as compared to the same period in 2001, was partially offset by the fact
that the Partnership provided a rent reduction of $16,500 to the tenant of the
Property in Yelm, Washington. The Partnership does not anticipate that the rent
reduction will have an adverse effect on the financial position of the
Partnership.
The increase in rental revenues during the quarter and six months ended
June 30, 2002, was also partially offset by the fact that the tenant for the
Properties in Oklahoma City, Oklahoma and McAllen, Texas exercised its lease
option for a contingent rent reduction to be applied towards Property
renovations.
During the six months ended June 30, 2002 and 2001, the Partnership
recognized income of $641,858 and a loss of $44,215, respectively, attributable
to net operating results reported by unconsolidated joint ventures, of which
income of $584,639 and a loss of $50,171 were reported during the quarters ended
June 30, 2002 and 2001, respectively. Net operating results reported by joint
ventures were lower during the six months ended June 30, 2001, as compared to
the same period in 2002, due to the fact that PRG, the tenant of Corpus Christi,
Texas, experienced financial difficulties and ceased paying rent in 2001. As a
result, the Partnership and an affiliate of the general partners, as
tenants-in-common, in which the Partnership owns an approximate 73% interest,
stopped recording rental revenues in accordance with the Partnership's revenue
recognition policy. Net operating results reported by joint ventures were also
lower during the quarter and six months ended June 30, 2001, as compared to the
same periods in 2002, due to the fact that the Partnership incurred Property
related expenses such as, legal fees, insurance and real estate taxes relating
this Property. In October 2001, PRG filed for Chapter 11 bankruptcy protection,
as described above. Since the bankruptcy filing, the tenant resumed paying rent.
The Partnership and the affiliate, as tenants-in-common, received from PRG the
rent payments relating to this Property from the bankruptcy date through April,
2002. During April 2002, PRG assigned its lease to a new tenant, an affiliate of
the general partners. All other lease terms remained unchanged and are
substantially the same as the Partnership's other leases. As a result of the
assignment relating to this Property, the Partnership collected from the new
tenant $309,700 in past due rents which were reserved in 2002 and 2001. The
Partnership and the affiliate, as tenants-in-common of this Property, recorded
during the six months ended June 30, 2001 a provision for write-down of assets
of approximately $55,700 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
and its fair value.
The increase in net income earned by unconsolidated joint ventures
during the quarter and six months ended June 30, 2002, as compared to the same
period in 2001, was partially due to the fact that in June 2002, Ashland Joint
Venture, in which the Partnership owns a 62.16% interest, sold its Property in
Ashland, New Hampshire, to the tenant and recognized a gain of approximately
$500,900, as described below.
The increase in net income earned by unconsolidated joint ventures
during the quarter and six months ended June 30, 2002 was also partially due to
the fact that in June 2002, the Partnership invested in two Properties in
Universal City and Schertz, Texas, each Property as a separate tenants-in-common
arrangement with CNL Income Fund VI, Ltd., a Florida limited partnership and
affiliate of the general partners.
During the six months ended June 30, 2002 and 2001, the Partnership and
its consolidated joint ventures earned $49,249 and $40,729, respectively, in
interest and other income, of which $49,159 and $12,412 were earned during the
quarters ended June 30, 2002 and 2001, respectively. The increase in interest
and other income during the quarter and six months ended June 30, 2002 was due
to the fact that the Partnership collected $29,800 in previously reserved
reimbursable charges relating to the Property in Abilene, Texas, as described
above. The increase in interest and other income during the six months ended
June 30, 2002 was offset by a decrease in interest income attributable to the
redemption of certificates of deposit held by the Partnership.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $432,320 and $701,307 for the six
months ended June 30, 2002 and 2001, respectively, of which $212,312 and
$348,608 were incurred during the quarters ended June 30, 2002 and 2001,
respectively. Operating expenses were higher during the quarter and six months
ended June 30, 2001, as compared to the same period in 2002, due to the fact
that the Partnership recorded provisions for write-down of assets in the amount
of $61,588 in the quarter and six months ended June 30, 2001, relating to
previously accrued rental income, for the Properties in Abilene, Texas and Avon,
Colorado as a result of the financial difficulties PRG experienced, as described
above. During the six months ended June 30, 2001, the Partnership also 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 provisions represented the difference between
the carrying value of the Properties and their fair value at June 30, 2001. The
Partnership sold the Property in Sebring, Florida in November 2001, and PRG
assigned the leases relating to the two Properties in May 2002.
Operating expenses were also higher during the six months ended June
30, 2001, as compared to the same period in 2002, due to real estate taxes
incurred in 2001 relating to the Property in Avon, Colorado. The tenant, PRG,
experienced financial difficulties, as described above. During the six months
ended June 30, 2002, the Partnership incurred lower administrative expenses for
servicing the Partnership and its Properties.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
In June 2002, the Partnership sold its Burger King properties in
Columbus, Ohio and East Detroit, Michigan, to the tenant resulting in a gain of
approximately $442,100, as described above in "Capital Resources." In addition,
the Partnership is negotiating two separate agreements to sell the properties in
Highlands, California and Kent, Ohio. The Partnership expects to use the
proceeds from the anticipated sales to reinvest in additional income producing
Properties. In accordance with Statement of Financial Accounting Standards No.
144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the
Partnership reclassified the assets relating to these Properties from land and
building on operating leases, direct financing leases and accrued rental income
to real estate held for sale. The Properties were recorded at the lower of their
carrying amounts or fair value less cost to sell. The Partnership stopped
recording depreciation and accrued rental income upon placing the Properties up
for sale. The Partnership recognized net rental income (rental income relating
to the Properties less Property related expenses) of $146,401 and $145,838
during the six months ended June 30, 2002 and 2001, respectively, of which
$77,278 and $74,925 were earned during the quarters ended June 30, 2002 and
2001, respectively. The amounts were reported as Discontinued Operations in the
financial statements.
In June 2002, Ashland Joint Venture, in which the Partnership has a
62.16% interest, sold its Burger King property in Ashland, New Hampshire to the
tenant and received net sales proceeds of approximately $1,472,900, resulting in
a gain of approximately $500,900, as discussed above in "Capital Resources."
Ashland Joint Venture recognized net rental income (rental revenues less
Property related expenses) of $26,927 and $36,240 during the six months ended
June 30, 2002 and 2001, respectively, of which $9,534 and $16,017 were earned
during the quarters ended June 30, 2002 and 2001, respectively. The
Partnership's pro-rata share of these amounts are included in equity in earnings
of unconsolidated joint ventures in the accompanying financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) 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 Exhibit 3.2 to
Registration Statement 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 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 14, 2001, and
incorporated herein by reference.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Filed
herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended June 30, 2002.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 12th day of August, 2002.
CNL INCOME FUND XI, LTD.
By:CNL REALTY CORPORATION
General Partner
By:/s/ James M. Seneff, Jr.
------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Robert A. Bourne
------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund XI, Ltd. (the
"Partnership"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Partnership's Quarterly
Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The
undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
Date: August 12, 2002 /s/ James M. Seneff, Jr.
----------------------------
Name: James M. Seneff, Jr.
Title: Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Robert A. Bourne, the President and Treasurer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund XI, Ltd. (the
"Partnership"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Partnership's Quarterly
Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The
undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Partnership.
Date: August 12, 2002 /s/ Robert A. Bourne
------------------------------
Name: Robert A. Bourne
Title: President and Treasurer
EXHIBIT INDEX
Exhibit Number
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 Exhibit 3.2 to Registration Statement
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 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 14, 2001,
and incorporated herein by reference.)
10.5 Assignment of Management Agreement from CNL APF Partners, LP to
CNL Restaurants XVIII, Inc. (Filed herewith.)
EXHIBIT 10.5