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 September 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
Item 4. Controls and Procedures 11-12
Part II.
Other Information 13-14
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
2002 2001
----------------- ------------------
ASSETS
Land and buildings on operating leases, net $ 19,355,205 $ 19,645,302
Net investment in direct financing leases 6,819,432 6,941,611
Real estate held for sale -- 1,303,330
Investment in joint ventures 4,441,906 2,389,323
Cash and cash equivalents 1,648,907 993,402
Certificates of deposit -- 218,217
Receivables, less allowance for doubtful accounts
of $21,955 and $487,127, respectively 58,382 182,619
Due from related parties -- 4,161
Accrued rental income 1,734,567 1,640,219
Other assets 129,295 133,544
----------------- ------------------
$ 34,187,694 $ 33,451,728
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 6,077 $ 9,153
Real estate taxes payable 24,925 54,185
Distributions payable 875,006 875,006
Due to related parties 44,814 16,701
Rents paid in advance and security deposits 55,824 66,213
----------------- ------------------
Total liabilities 1,006,646 1,021,258
Minority interests 506,670 509,377
Partners' capital 32,674,378 31,921,093
----------------- ------------------
$ 34,187,694 $ 33,451,728
================= ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF OPERATIONS
Quarter Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
------------- ------------- -------------- -------------
Revenues:
Rental income from operating leases $ 614,019 $ 559,860 $ 1,881,584 $1,682,884
Earned income from direct financing leases 230,839 214,294 784,225 645,910
Contingent rental income 76,756 31,903 79,404 85,671
Interest and other income 5,992 7,787 55,241 48,516
------------- ------------- -------------- -------------
927,606 813,844 2,800,454 2,462,981
------------- ------------- -------------- -------------
Expenses:
General operating and administrative 66,484 41,200 219,698 268,472
Property expenses 35,305 61,295 68,500 122,525
Provision for doubtful accounts -- 3,301 -- 74,197
Management fees to related party 8,224 8,911 32,158 25,450
State and other taxes -- -- 31,779 29,869
Depreciation 92,039 99,375 290,097 298,133
Provision for write-down of assets -- 522,449 -- 627,986
------------- ------------- -------------- -------------
202,052 736,531 642,232 1,446,632
------------- ------------- -------------- -------------
Income Before Minority Interests in Income of Consolidated
Joint Ventures and Equity in Earnings (Losses) of
Unconsolidated Joint Ventures 725,554 77,313 2,158,222 1,016,349
Minority Interests in Income of Consolidated
Joint Ventures (14,985 ) (16,748 ) (48,426 ) (49,876 )
Equity in Earnings (Losses) of Unconsolidated Joint Ventures 118,993 (157,573 ) 760,851 (201,788 )
------------- ------------- -------------- -------------
Income (loss) from Continuing Operations 829,562 (97,008 ) 2,870,647 764,685
------------- ------------- -------------- -------------
Discontinued Operations (Note 4):
Income from discontinued operations, net -- 33,878 65,510 102,971
Gain on disposal of discontinued operations, net -- -- 442,146 --
------------- ------------- -------------- -------------
-- 33,878 507,656 102,971
------------- ------------- -------------- -------------
Net Income (Loss) $ 829,562 $ (63,130 ) $ 3,378,303 $ 867,656
============= ============= ============== =============
Income (Loss) Per Limited Partner Unit
Continuing Operations $ 0.21 $ (0.03 ) $ 0.71 $ 0.19
Discontinued Operations -- 0.01 0.13 0.03
------------- ------------- -------------- -------------
Total $ 0.21 $ (0.02 ) $ 0.84 $ 0.22
============= ============= ============== =============
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
Nine Months Ended Year Ended
September 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 3,378,303 1,727,316
Distributions ($0.66 and $0.88 per
limited partner unit, respectively) (2,625,018 ) (3,500,024 )
--------------------- ------------------
32,431,913 31,678,628
--------------------- ------------------
Total partners' capital $ 32,674,378 $ 31,921,093
===================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2002 2001
--------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 3,225,494 $ 2,443,001
--------------- ---------------
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 41,230
--------------- ---------------
Net cash provided by investing activities 106,162 41,230
--------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (2,625,018 ) (2,625,018 )
Distributions to holders of minority interests (51,133 ) (47,555 )
--------------- ---------------
Net cash used in financing activities (2,676,151 ) (2,672,573 )
--------------- ---------------
Net Increase (decrease) in Cash and Cash Equivalents 655,505 (188,342 )
Cash and Cash Equivalents at Beginning of Period 993,402 1,006,620
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 1,648,907 $ 818,278
=============== ===============
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 Nine Months Ended September 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 nine months ended September 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 September 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 Nine Months Ended September 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:
September 30, December 31,
2002 2001
--------------- ----------------
Land and buildings on operating leases, net $ 5,579,308 $ 2,209,218
Net investment in direct financing lease 310,042 313,339
Real estate held for sale -- 983,074
Cash 27,603 15,352
Receivables less, allowance for doubtful
accounts -- 7,383
Accrued rental income 142,834 7,543
Other assets 6,240 115,767
Liabilities 14,564 29,240
Partners' capital 6,051,463 3,622,436
Quarter Ended Nine Months Ended
September 30, September 30,
2002 2001 2002 2001
----------- -------------- ------------ ---------------
Revenues $ 189,739 $ 138,770 $ 676,689 $ 257,012
Expenses (27,489 ) (20,364 ) (71,910 ) (176,797 )
Provision for write-down of assets -- (327,274 ) -- (327,274 )
----------- -------------- ------------ ---------------
Income (loss) from continuing operations 162,250 (208,868 ) 604,779 (247,059 )
----------- -------------- ------------ ---------------
Discontinued operations:
Income from discontinued operations, net -- 21,443 26,927 57,683
Gain on disposal of assets -- -- 500,912 --
----------- -------------- ------------ ---------------
-- 21,443 527,839 57,683
----------- -------------- ------------ ---------------
Net Income (Loss) $ 162,250 $ (187,425 ) $1,132,618 $ (189,376 )
=========== ============== ============ ===============
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2002 and 2001
3. Investment in Joint Ventures - Continued:
The Partnership recognized income of $760,851 and a loss of $201,788
during the nine months ended September 30, 2002 and 2001, respectively,
from these joint ventures, of which income of $118,993 and a loss of
$157,573 were recorded during the quarters ended September 30, 2002 and
2001, respectively.
4. Discontinued Operations:
At June 2002, the Partnership was negotiating two separate agreements to
sell the properties in Highlands, California and Kent, Ohio. The
negotiations for the sale of these property were subsequently
discontinued and as a result, the Partnership reclassified the assets
from real estate held for sale to direct financing leases, land and
building on operating leases and accrued rental income.
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 financial results for these properties are
reflected as Discontinued Operations in the accompanying financial
statements.
The operating results of discontinued operations are as follows:
Nine Months Ended
Quarter Ended September 30, September 30,
2002 2001 2002 2001
------------- -------------- ------------- --------------
Rental revenues $ -- $ 41,148 $ 76,863 $ 124,776
Expenses -- (7,270 ) (11,353 ) (21,805 )
Gain on disposal of assets -- -- 442,146 --
------------- -------------- ------------- --------------
Income from discontinued operations $ -- $ 33,878 $ 507,656 $ 102,971
============= ============== ============= ==============
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 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 approximately $1,343,000 (see Note 3).
CNL Funding 2001-A, LP, an affiliate of the general partners, 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.
During 2001, Phoenix Restaurant Group, Inc. ("PRG") filed for bankruptcy
and neither rejected, nor affirmed the three leases it had with the
Partnership, including a lease held with an affiliate of the general
partners, as tenants-in-common. The Partnership owns a 73% interest in
the tenancy in common. In April and May 2002, the bankruptcy court
assigned the leases relating to the properties in Avon, Colorado and
Corpus Christi, Texas to CherryDen, LLC and RAI, LLC, respectively, each
of which is an affiliate of the general partners. All other lease terms
remained the same. In connection with these leases, the Partnership
recognized rental revenues of approximately $44,000 and $66,900 relating
to the property in Avon, Colorado during the quarter and nine months
ended September 30, 2002, respectively. The tenancy in common recognized
rental revenues of approximately $47,700 and $80,200 relating to the
property in Corpus Christi, Texas during the quarter and nine months
ended September 30, 2002, respectively. The Partnership recognized its
pro-rata share of these amounts in equity in earnings of unconsolidated
joint ventures in the accompanying financial statements.
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 September 30,
2001, the Partnership owned 34 Properties directly and seven Properties
indirectly, through joint venture or tenancy in common arrangements. As of
September 30, 2002, the Partnership owned 32 Properties directly and eight
Properties indirectly, through joint venture or tenancy in common arrangements.
Capital Resources
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) was $3,225,494 and $2,443,001 for the
nine months ended September 30, 2002 and 2001, respectively. The increase in
cash from operating activities for the nine months ended September 30, 2002 was
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 nine
months ended September 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 September
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. 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 September 30,
2002, the Partnership had $1,648,907 invested in such short-term investments, as
compared to $993,402 at December 31, 2001. The increase in cash and cash
equivalents at September 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
September 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 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 generate net cash flow in
excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Total liabilities of the Partnership, including distributions payable,
decreased to $1,006,646 at September 30, 2002 from $1,021,258 at December 31,
2001, primarily as a result of a decrease in real estate taxes payable at
September 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.
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 cash from operations, and for the quarter ended September 30, 2001,
anticipated future cash from operations, the Partnership declared distributions
to limited partners of $2,625,018 for each of the nine months ended September
30, 2002 and 2001, ($875,006 for each of the quarters ended September 30, 2002
and 2001). This represents distributions of $0.66 per unit for each of the nine
months ended September 30, 2002 and 2001, ($0.22 per unit for each applicable
quarter). No distributions were made to the general partners for the quarters
and nine months ended September 30, 2002 and 2001. No amounts distributed to the
limited partners for the nine months ended September 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.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues were $2,665,809 for the nine months ended
September 30, 2002, as compared to $2,328,794 for the nine months ended
September 30, 2001, of which $844,858 and $774,154 were earned during the third
quarter of 2002 and 2001, respectively. Rental revenues were lower during the
quarter and nine months ended September 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, the
bankruptcy court assigned its leases to two new tenants, one of which is 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 the Property in Abilene, Texas, the Partnership collected
and recognized as revenue $158,000 in 2001 and 2000 past due rents.
The increase in rental revenues during the quarter and nine months ended
September 30, 2002, as compared to the same periods in 2001, was also 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 quarter and nine
months ended September 30, 2002, as compared to the same periods in 2001, was
partially offset by the fact that the Property in Sebring, Florida was sold in
2001.
The increase in rental revenues during the nine months ended September
30, 2002, as compared to the same period in 2001, was also 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.
During the nine months ended September 30, 2002 and 2001, the
Partnership also earned $79,404 and $85,671, respectively, in contingent rental
income, $76,756 and $31,903 of which were earned during the quarters ended
September 30, 2002 and 2001, respectively.
During the nine months ended September 30, 2002 and 2001, the
Partnership recognized income of $760,851 and a loss of $201,788, respectively,
attributable to net operating results reported by unconsolidated joint ventures,
of which income of $118,993 and a loss of $157,573 were reported during the
quarters ended September 30, 2002 and 2001, respectively. Net operating results
reported by joint ventures were lower during the nine months ended September 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 nine months ended
September 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,
the bankruptcy court 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 and recognized as revenue
from the new tenant $309,700 in 2001 and 2000 past due rents. The Partnership
and the affiliate, as tenants-in-common of this Property, recorded during the
nine months ended September 30, 2001 a provision for write-down of assets of
approximately $327,300 including approximately $84,900 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 nine months ended September 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.
The increase in net income earned by unconsolidated joint ventures
during the quarter and nine months ended September 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 nine months ended September 30, 2002 and 2001, the
Partnership and its consolidated joint ventures earned $55,241 and $48,516,
respectively, in interest and other income, of which $5,992 and $7,787 were
earned during the quarters ended June 30, 2002 and 2001, respectively. The
increase in interest and other income during the nine months ended September 30,
2002 was due to the fact that the Partnership collected and recognized as
revenue $29,800 in charges relating to the Property in Abilene, Texas, due to
the fact that PRG, the tenant, was experiencing financial difficulties, as
described above. The increase in interest and other income during the nine
months ended September 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 $642,232 and $1,446,632 for the nine
months ended September 30, 2002 and 2001, respectively, of which $202,052 and
$736,531 were incurred during the quarters ended September 30, 2002 and 2001,
respectively. Operating expenses were higher during the quarter and nine months
ended September 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 approximately $522,500 and $584,000 in the quarter and nine months
ended September 30, 2001, respectively, of which approximately $96,800 and
$158,400 related to previously accrued rental income, respectively, for the
Properties in Abilene, Texas and Avon, Colorado as a result of the financial
difficulties PRG experienced, as described above. During the nine months ended
September 30, 2001, the Partnership also recorded a provision for write-down of
assets of approximately $43,900 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 September 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 nine months ended
September 30, 2001, as compared to the same period in 2002, due to provisions
for doubtful accounts and real estate taxes incurred in 2001 relating to the
Properties in Avon, Colorado and Abilene, Texas. The tenant, PRG, experienced
financial difficulties, as described above. During the nine months ended
September 30, 2002, the Partnership incurred lower administrative expenses for
servicing the Partnership and its Properties. In addition, the decrease in
operating expenses during the quarter and nine months ended September 30, 2002,
as compared to the same periods in 2001, was partially offset by the fact that
during the nine months ended September 30, 2002, the Partnership elected to
reimburse the tenant of the Properties in Oklahoma City, Oklahoma and McAllen,
Texas for certain renovation costs.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
During the nine months ended September 30, 2002, the Partnership
identified and sold two Properties that met the criteria of this standard. The
financial results of these Properties were classified as Discontinued Operations
in the accompanying financial statements. The majority of the net sales proceeds
from the sales of these Properties were reinvested in two Properties, one owned
directly by the Partnership and the other one owned indirectly through a tenancy
in common, as described above in "Capital Resources."
During the nine months ended September 30, 2002, Ashland Joint Venture,
in which the Partnership owns a 36.8% interest, identified and sold a Property
that met the criteria of this standard. The financial results of this Property
were classified as Discontinued Operations in the condensed financial
information for the unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates presented in the footnotes to the accompanying
financial statements. The joint venture reinvested the net sales proceeds from
the sale of this Property in an additional income producing Property, as
discussed above in "Capital Resources."
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures within 90 days prior to the
filing of this Quarterly Report on Form 10-Q and have determined that such
disclosure controls and procedures are effective.
Subsequent to the above evaluation, there were no significant changes in
internal controls or other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART 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.
(Included as Exhibit 10.5 to Form 10-Q filed with
the Securities and Exchange Commission on August
14, 2002, and incorporated herein by reference.)
99.1 Certification of Chief Executive Officer of
Corporate General Partner Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of
Corporate General Partner Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the
quarter ended September 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 7th day of November, 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 RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund XI, Ltd. (the
"registrant"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the
registrant;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 7, 2002
/s/ James M. Seneff, Jr.
- ------------------------
James M. Seneff, Jr.
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Bourne, President and Treasurer of CNL Realty Corporation,
the corporate general partner of CNL Income Fund XI, Ltd. (the "registrant")
certify that:
1. I have reviewed this quarterly report on Form 10-Q of the
registrant;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material
fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading
with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other
financial information included in this quarterly report, fairly
present in all material respects the financial condition, results
of operations and cash flows of the registrant as of, and for, the
periods presented in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c. presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 7, 2002
/s/ Robert A. Bourne
- ------------------------
Robert A. Bourne
President and Treasurer
EXHIBIT INDEX
Exhibit Number
(c) 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. (Included as Exhibit 10.5
to Form 10-Q filed with the Securities and Exchange
Commission on August 14, 2002, and incorporated herein by
reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
EXHIBIT 99.1
EXHIBIT 99.2