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, 2003
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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 ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes___ No X
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
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
Part II.
Other Information 12-13
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
2003 2002
------------------ -------------------
ASSETS
Real estate properties with operating leases, net $ 19,475,206 $ 19,016,839
Net investment in direct financing leases 5,737,840 6,489,145
Real estate held for sale -- 553,897
Investment in joint ventures 4,382,901 4,414,071
Cash and cash equivalents 2,553,761 1,763,878
Receivables, less allowance for doubtful accounts
of $131,066 and $23,196, respectively 56,522 230,688
Accrued rental income 1,620,203 1,715,758
Other assets 136,567 135,940
------------------ -------------------
$ 33,963,000 $ 34,320,216
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 16,159 $ 3,271
Real estate taxes payable 25,222 15,632
Distributions payable 875,006 1,075,006
Due to related parties 18,639 20,101
Rents paid in advance and deposits 85,728 163,020
------------------ -------------------
Total liabilities 1,020,754 1,277,030
Minority interests 507,223 507,991
Partners' capital 32,435,023 32,535,195
------------------ -------------------
$ 33,963,000 $ 34,320,216
================== ===================
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,
2003 2002 2003 2002
------------- -------------- ----------------- ---------------
Revenues:
Rental income from operating leases $ 548,642 $ 610,930 $ 1,144,552 $ 1,198,094
Earned income from direct financing leases 189,673 205,313 390,854 417,361
Contingent rental income 1,527 7,295 2,831 28,705
Interest and other income 3,473 8,251 8,310 9,493
------------- -------------- ----------------- ---------------
743,315 831,789 1,546,547 1,653,653
------------- -------------- ----------------- ---------------
Expenses:
General operating and administrative 60,957 69,497 138,350 153,464
Property related 14,432 49,981 18,582 58,853
Management fees to related parties 11,871 13,132 19,490 23,934
State and other taxes 4,351 10,078 32,354 31,779
Depreciation 100,866 98,806 197,568 198,058
Provision for write-down of assets 67,693 -- 67,693 --
------------- -------------- ----------------- ---------------
260,170 241,494 474,037 466,088
------------- -------------- ----------------- ---------------
Income Before Minority Interests in Income of
Consolidated Joint Ventures and Equity in
Earnings of Unconsolidated Joint Ventures 483,145 590,295 1,072,510 1,187,565
Minority Interests in Income of Consolidated
Joint Ventures (14,380 ) (16,999 ) (29,131 ) (33,441 )
Equity in Earnings of Unconsolidated Joint
Ventures 110,959 584,639 210,494 641,858
------------- -------------- ----------------- ---------------
Income from Continuing Operations 579,724 1,157,935 1,253,873 1,795,982
------------- -------------- ----------------- ---------------
Discontinued Operations:
Income from discontinued operations -- 259,092 18,006 310,613
Gain on disposal of discontinued operations -- 442,146 377,961 442,146
------------- -------------- ----------------- ---------------
-- 701,238 395,967 752,759
------------- -------------- ----------------- ---------------
Net Income $ 579,724 $ 1,859,173 $ 1,649,840 $ 2,548,741
============= ============== ================= ===============
Income Per Limited Partner Unit:
Continuing Operations $ 0.14 $ 0.28 $ 0.31 $ 0.45
Discontinued Operations -- 0.18 0.10 0.19
------------- -------------- ----------------- ---------------
$ 0.14 $ 0.46 $ 0.41 $ 0.64
============= ============== ================= ===============
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,
2003 2002
-------------------- ------------------
General partners:
Beginning balance $ 242,465 $ 242,465
Net income -- --
-------------------- ------------------
242,465 242,465
-------------------- ------------------
Limited partners:
Beginning balance 32,292,730 31,678,628
Net income 1,649,840 4,314,126
Distributions ($0.44 and $0.93 per
limited partner unit, respectively) (1,750,012 ) (3,700,024 )
-------------------- ------------------
32,192,558 32,292,730
-------------------- ------------------
Total partners' capital $ 32,435,023 $ 32,535,195
==================== ==================
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,
2003 2002
--------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 1,837,936 $ 2,162,728
--------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of real estate properties 931,858 1,734,373
Investment in joint ventures -- (1,839,798 )
Redemption of certificates of deposit -- 211,587
--------------- ---------------
Net cash provided by investing activities 931,858 106,162
--------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,950,012 ) (1,750,012 )
Distributions to holders of minority interests (29,899 ) (33,762 )
--------------- ---------------
Net cash used in financing activities (1,979,911 ) (1,783,774 )
--------------- ---------------
Net Increase in Cash and Cash Equivalents 789,883 485,116
Cash and Cash Equivalents at Beginning of Period 1,763,878 993,402
--------------- ---------------
Cash and Cash Equivalents at End of Period $ 2,553,761 $ 1,478,518
=============== ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of the
period $ 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, 2003 and 2002
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the general partners, necessary for a fair
statement of the results for the interim periods presented. Operating
results for the quarter and six months ended June 30, 2003 may not be
indicative of the results that may be expected for the year ending
December 31, 2003. Amounts as of December 31, 2002, 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, 2002.
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.
In January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and
strengthen existing accounting guidance that addresses when a company
should include the assets, liabilities and activities of another entity
in its financial statements. To improve financial reporting by
companies involved with variable interest entities (more commonly
referred to as special-purpose entities or off-balance sheet
structures), FIN 46 requires that a variable interest entity be
consolidated by a company if that company is subject to a majority risk
of loss from the variable interest entity's activities or entitled to
receive a majority of the entity's residual returns or both. Prior to
FIN 46, a company generally included another entity in its consolidated
financial statements only if it controlled the entity through voting
interests. The consolidation requirements of FIN 46 apply immediately
to variable interest entities created after January 31, 2003, and to
older entities, in the first fiscal year or interim period beginning
after June 15, 2003. The general partners believe adoption of this
standard may result in either consolidation or additional disclosure
requirements with respect to the Partnership's unconsolidated joint
ventures, which are currently accounted for under the equity method.
However, such consolidation is not expected to significantly impact the
Partnership's results of operations.
2. Reclassification:
Certain items in the prior year's financial statements have been
reclassified to conform to 2003 presentation. These reclassifications
had no effect on total partners' capital or net income.
3. Net Investment in Direct Financing Leases:
During the quarter and six months ended June 30, 2003, the Partnership
recorded a provision for write-down of assets of $67,693 relating to
the property in Yelm, Washington. The provision represented the
difference between the carrying value of the property and its estimated
fair value. The tenant of this property experienced financial
difficulties, and in March 2003, the Partnership executed a termination
of the tenant's lease rights, and the tenant surrendered the premises.
As a result, the Partnership reclassified this property from direct
financing leases to real estate properties with operating leases. No
loss on the reclassification of the direct financing lease was
recorded.
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2003 and 2002
4. Discontinued Operations:
During 2002, the Partnership identified and sold two properties. In
addition, during the six months ended June 30, 2003, the Partnership
identified and sold its property in Abilene, Texas to the tenant and
received net sales proceeds of approximately $931,900, resulting in a
gain of approximately $378,000. The financial results for these
properties are reflected as Discontinued Operations in the accompanying
financial statements.
The operating results of the discontinued operations for the above
properties are as follows:
Quarter Ended June 30, Six Months Ended June 30,
2003 2002 2003 2002
------------- --------------- -------------- ----------------
Rental revenues $ -- $ 223,196 $ 21,491 $ 282,359
Other income -- 39,756 -- 39,756
Expenses -- (3,860 ) (3,485 ) (11,502 )
------------- --------------- -------------- ----------------
Income from discontinued operations $ -- $ 259,092 $ 18,006 $ 310,613
============= =============== ============== ================
5. Concentration of Credit Risk:
The following schedule presents total rental revenues from individual
lessees, each representing more than ten percent of rental revenues
(including the Partnership's share of rental revenues from the
unconsolidated joint ventures and the properties held as
tenants-in-common with affiliates of the general partners), for each of
the six months ended June 30:
2003 2002
-------------- ---------------
Jack in the Box Inc. and Jack in the Box Eastern
Division, L.P. $ 384,037 $ 382,141
Golden Corral Corporation 228,459 225,776
Denny's, Inc. and Denny's Corporation 223,606 N/A
Texas Taco Cabana, LP 203,144 N/A
Burger King Corporation and BK Acquisition,
Inc. N/A 287,713
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than ten percent
of rental revenues (including the Partnership's share of rental
revenues from the unconsolidated joint ventures and the properties held
as tenants-in-common with affiliates of the general partners), for each
of the six months ended June 30:
2003 2002
-------------- ---------------
Jack in the Box $ 384,037 $ 382,141
Burger King 311,528 497,309
Denny's 280,954 528,987
Golden Corral Family Steakhouse Restaurants 228,459 225,776
Taco Cabana 203,144 N/A
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2003 and 2002
5. Concentration of Credit Risk - Continued:
The information denoted by N/A indicates that for each period
presented, the tenant or group of affiliated tenants, and the chain did
not represent more than ten percent of the Partnership's total rental
revenues.
Although the Partnership's properties have some geographical diversity
in the United States and the Partnership's lessees operate a variety of
restaurant concepts, default by any of these lessees or restaurant
chains will significantly impact the results of operations of the
Partnership if the Partnership is not able to re-lease the properties
in a timely manner.
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. The Partnership owned
31 and 32 Properties directly as of June 30, 2003 and 2002, respectively. The
Partnership also owned eight Properties indirectly through joint venture or
tenancy in common arrangements as of June 30, 2003 and 2002.
Capital Resources
Cash from operating activities was $1,837,936 and $2,162,728 for the
six months ended June 30, 2003 and 2002, respectively. The decrease in cash from
operating activities for the six months ended June 30, 2003, as compared to the
six months ended June 30, 2002, was a result of changes in the Partnership's
income and expenses and changes in working capital.
Other sources and uses of cash included the following during the six
months ended June 30, 2003.
In March 2003, the Partnership sold its Property in Abilene, Texas to
the tenant and received net sales proceeds of approximately $931,900, resulting
in a gain of approximately $378,000. The Partnership expects to reinvest these
proceeds in an additional Property.
Cash and cash equivalents of the Partnership increased to $2,553,761 at
June 30, 2003, from $1,763,878 at December 31, 2002, primarily as a result of
the Partnership holding the net proceeds from the sale of the Property in
Abilene, Texas pending reinvestment in an additional Property. At June 30, 2003,
these funds were primarily held in demand deposit accounts at commercial banks.
The funds remaining at June 30, 2003, after payment of distributions and other
liabilities will be used to invest in an additional Property, and to meet the
Partnership's working capital needs.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who 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 Partnership's operations.
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, 2003 and 2002 ($875,006 for each of the quarters ended
June 30, 2003 and 2002). This represents distributions of $0.44 per unit for
each of the six months ended June 30, 2003 and 2002 ($0.22 per unit for each
applicable quarter). No distributions were made to the general partners for the
six months ended June 30, 2003 and 2002. No amounts distributed to the limited
partners for the six months ended June 30, 2003 and 2002 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 $1,020,754 at June 30, 2003 from $1,277,030 at December 31, 2002,
primarily as a result of the payment of a special distribution to the limited
partners during the six months ended June 30, 2003, which was accrued at
December 31, 2002. The special distribution of $200,000 represented accumulated,
excess operating reserves. 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 $1,535,406 for the six months ended June 30,
2003, as compared to $1,615,455 in the same period in 2002, of which $738,315
and $816,243 were earned during the second quarter of 2003 and 2002,
respectively. Rental revenues during the quarter and six months ended June 30,
2002 were higher primarily because the Partnership collected and recognized as
revenues $158,000 in past due rents. Phoenix Restaurant Group, Inc., the former
tenant of the Property in Abilene, Texas ceased paying rent and filed for
bankruptcy in 2001. During April 2002, the bankruptcy court assigned the lease
to a new tenant, and as a result, the Partnership collected the past due rents
from the new tenant. All other lease terms remained unchanged and are
substantially the same as the Partnership's other leases.
During the six months ended June 30, 2002, the Partnership provided a
rent reduction to the tenant of the Property in Yelm, Washington in the amount
of $16,500. However, the tenant continued having financial difficulties, and in
March 2003, although the tenant continued to meet its obligations under the
terms of this lease, the Partnership executed a termination of the tenant's
lease rights, and the tenant surrendered the premises. The restaurant has
continued to operate under a temporary lease agreement with a new tenant until
the negotiations for a new contract with this lessee are finalized. During the
quarter and six months ended June 30, 2003, the Partnership recognized
approximately $11,200 in rental revenues related to this temporary lease
agreement. The Partnership expects that the new tenant will continue to operate
as a Burger King with lease terms substantially the same as the Partnership's
other leases.
The decrease in rental revenues during the six months ended June 30,
was also due to the fact that during the quarter and six months ended June 30,
2003, the Partnership stopped recording rental revenues relating to the Property
in Dayton, Ohio whose tenant experienced financial difficulties. In addition,
Denver Joint Venture, in which the Partnership owns an 85% interest, also
stopped recording rental revenues because the tenant of the Property owned by
this joint venture experienced financial difficulties. The Partnership will
continue to pursue collection of these past due rents.
During the six months ended June 30, 2003 and 2002, the Partnership and
its consolidated joint ventures also earned $2,831 and $28,705, respectively, in
contingent rental income from the Partnership's Properties, of which $1,527 and
$7,295 were earned during the second quarter of 2003 and 2002, respectively. The
decrease in contingent rental income during the six months ended June 30, 2003,
as compared to the same period in 2002, was due to a reduction in the reported
gross sales of the restaurants as compared to the same period in 2002. The
decrease in contingent rental income during the six months ended June 30, 2003,
was also due to the Partnership not recording contingent rents relating to the
Properties in Dayton, Ohio and Roswell, New Mexico, whose tenants experienced
financial difficulties. The Partnership will continue to pursue the collection
of the past due contingent rents.
During the six months ended June 30, 2003 and 2002, the Partnership
earned $210,494 and $641,858, respectively, attributable to net income earned by
unconsolidated joint ventures, of which $110,959 and $584,639 were earned during
the second quarter of 2003 and 2002, respectively. Net income earned by
unconsolidated joint ventures during the quarter and six months ended June 30,
2002 was higher partially because 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
Partnership recognized its pro-rata share of this gain. The joint venture
reinvested the majority of the net sales proceeds from this sale in a Property
in San Antonio, Texas.
Net income earned by unconsolidated joint ventures during the quarter
and six months ended June 30, 2002 was also higher partially because the
Partnership and an affiliate, as tenants-in-common, collected and recognized as
revenues $309,700 in past due rents. Phoenix Restaurant Group, Inc., the former
tenant of the Property in Corpus Christi in which the Partnership owns an
approximate 73% interest, ceased paying rent and filed for bankruptcy in 2001.
During April 2002, the bankruptcy court assigned the lease to a new tenant, an
affiliate of the general partners, and as a result, the tenancy in common
collected the past due rents from the new tenant. All other lease terms remained
unchanged and are substantially the same as the Partnership's other leases.
The decrease in net income earned by unconsolidated joint ventures
during the quarter and six months ended June 30, 2003 was partially offset due
to the Partnership reinvesting the majority of the net sales proceeds, from the
sales of the Properties in Columbus, Ohio and East Detroit, Michigan, in two
Properties, one in Universal City and the other in Schertz, Texas. Each Property
is held as a separate tenancy-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, 2003, four lessees (or groups of
affiliated lessees) of the Partnership and its consolidated joint ventures, (i)
Jack in the Box Inc. and Jack in the Box Eastern Division, L.P. (which are
affiliated entities under common control) (hereinafter referred to as "Jack in
the Box Inc."), (ii) Golden Corral Corporation, (iii) Denny's, Inc. and Denny's
Corporation (which are affiliated entities under common control) (hereinafter
referred to as "Denny's, Inc."), and (iv) Texas Taco Cabana, LP, each
contributed more than 10% of the Partnership's total rental revenues (including
rental revenues from the Partnership's consolidated joint ventures, and the
Partnership's share of rental revenues from Properties owned by unconsolidated
joint ventures and Properties owned with affiliates of the general partners as
tenants-in-common). It is anticipated that, based on the minimum rental payments
required by the leases, these four lessees (or groups of affiliated lessees)
each will continue to contribute more than 10% of the Partnership's total rental
revenues. In addition during the six months ended June 30, 2003, five restaurant
chains, Jack in the Box, Burger King, Denny's, Golden Corral Family Steakhouse
Restaurants ("Golden Corral"), and Taco Cabana, each accounted for more than 10%
of the Partnership's total rental revenues (including rental revenues from the
Partnership's consolidated joint ventures, and the Partnership's share of rental
revenues from Properties owned by unconsolidated joint ventures and Properties
owned with affiliates of the general partners as tenants-in-common). It is
anticipated that these five restaurant chains each will continue to account for
more than 10% of the Partnership's total rental revenues to which the
Partnership is entitled under the terms of the leases. Any failure of these
lessees or restaurant chains will materially affect the Partnership's results of
operations if the Partnership is not able to re-lease the Properties in a timely
manner.
Operating expenses, including depreciation and provision for write-down
of assets, were $474,037 and $466,088 for the six months ended June 30, 2003 and
2002, respectively, of which $260,170 and $241,494 were incurred during the
second quarter of 2003 and 2002, respectively. The increase in operating
expenses during the quarter and six months ended June 30, 2003 was primarily due
to the recording of a provision for write-down of assets of $67,693 relating to
the Property in Yelm, Washington. The provision represented the difference
between the carrying value of the Property and its estimated fair value. The
tenant of this Property experienced financial difficulties, and in March 2003,
the Partnership executed a termination of the tenant's lease rights, as
described above.
The increase during the six months ended June 30, 2003 was partially
offset by a decrease in the costs incurred for administrative expenses for
servicing the Partnership and its Properties and a decrease in legal fees
relating to tenants who were experiencing financial difficulties. Property
related expenses were higher in 2002 because the Partnership elected to
reimburse the tenant of the Properties in Oklahoma City, Oklahoma and McAllen,
Texas for certain renovation costs.
During the year ended December 31, 2002, the Partnership identified and
sold two Properties that were classified as Discontinued Operations in the
accompanying financial statements. 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. In addition, during the six
months ended June 30, 2003, the Partnership identified and sold its Property in
Abilene, Texas resulting in a gain of approximately $378,000. This Property was
also classified as Discontinued Operations in the accompanying financial
statements. The Partnership recognized net rental income (rental revenues less
Property related expenses) of $259,092 and $310,613 during the quarter and six
months ended June 30, 2002, respectively, relating to these three Properties.
The Partnership recognized net rental income of $18,006 during the six months
ended June 30, 2003, relating to the Property in Abilene, Texas.
In January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be consolidated by a company if that company is subject to a majority risk of
loss from the variable interest entity's activities or entitled to receive a
majority of the entity's residual returns or both. Prior to FIN 46, a company
generally included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. The consolidation
requirements of FIN 46 apply immediately to variable interest entities created
after January 31, 2003, and to older entities, in the first fiscal year or
interim period beginning after June 15, 2003. The general partners believe
adoption of this standard may result in either consolidation or additional
disclosure requirements with respect to the Partnership's unconsolidated joint
ventures, which are currently accounted for under the equity method. However,
such consolidation is not expected to significantly impact the Partnership's
results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Changes in Securities. Inapplicable.
---------------------
Item 3. 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 as Exhibit 3.2 to
Registration Statement No. 33-43278 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XI, Ltd. (Included as Exhibit 4.2
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, and incorporated herein
by reference.)
10.1 Management Agreement between CNL Income Fund XI, Ltd.
and CNL Investment Company (Included as Exhibit 10.1
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, and incorporated herein
by reference.)
10.2 Assignment of Management Agreement from CNL Investment
Company to CNL 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.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June
30, 2003.
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 8th day of August, 2003.
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)
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 as Exhibit 3.2 to
Registration Statement No. 33-43278 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XI, Ltd. (Included as Exhibit 4.2
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, and incorporated herein
by reference.)
10.1 Management Agreement between CNL Income Fund XI, Ltd.
and CNL Investment Company (Included as Exhibit 10.1
to Form 10-K filed with the Securities and Exchange
Commission on April 15, 1993, and incorporated herein
by reference.)
10.2 Assignment of Management Agreement from CNL Investment
Company to CNL 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.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2