UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-21558
CNL INCOME FUND XII, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3078856
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($10 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No __
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 4,500,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund XII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on August 20, 1991. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on September 29, 1992, the
Partnership offered for sale up to $45,000,000 of limited partnership interests
(the "Units") (4,500,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
March 12, 1992. The offering terminated on March 15, 1993, at which date the
maximum offering proceeds of $45,000,000 had been received from investors who
were admitted to the Partnership as limited partners ("Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$39,615,456, and were used to acquire 48 Properties, including interests in
three Properties owned by joint ventures in which the Partnership is a
co-venturer, to loan $208,855 to the tenant of Kingsville Real Estate Joint
Venture and to establish a working capital reserve for Partnership purposes.
During the year ended December 31, 1996, the Partnership sold its
Property in Houston, Texas and reinvested the sales proceeds, along with
additional funds, in a joint venture arrangement, Middleburg Joint Venture, with
CNL Income Fund VIII, Ltd., a Florida limited partnership and affiliate of the
General Partners. During the year ended December 31, 1998, the Partnership
entered into a joint venture arrangement, Columbus Joint Venture, with
affiliates of the General Partners, to construct and hold one restaurant
Property. During 1998, the Partnership sold its Property in Monroe, North
Carolina. During 1999, the Partnership sold its Property in Morganton, North
Carolina and reinvested the majority of the net sales proceeds, along with the
net sales proceeds from the 1998 sale of the Property in Monroe, North Carolina,
in a joint venture arrangement, Bossier City Joint Venture, with CNL Income Fund
VIII, Ltd. and CNL Income Fund XIV, Ltd., both Florida limited partnerships and
affiliates of the General Partners, to purchase and hold one restaurant
Property. During 2000, the Partnership sold its Property in Cleveland, Tennessee
and reinvested the majority of the net sales proceeds in a Krystal Property in
Pooler, Georgia. In addition, during 2000, the Partnership sold its Property in
Bradenton, Florida and reinvested the majority of the net sales proceeds in a
Property in Colorado Springs, Colorado as tenants-in-common with CNL Income Fund
VII, Ltd., a Florida limited partnership and an affiliate of the General
Partners. During the year ended December 31, 2001, the Partnership and the joint
venture partner liquidated Middleburg Joint Venture and the Partnership received
its pro rata share of the liquidation proceeds. The Partnership reinvested the
majority of these proceeds in a joint venture arrangement, CNL VIII, X, XII
Kokomo Joint Venture, with CNL Income Fund VIII, Ltd. and CNL Income Fund X,
Ltd., affiliates of the General Partners, to purchase and hold one Property. In
addition, during 2001, the Partnership sold its Properties in Rialto, California
and Winter Haven, Florida and reinvested the net sales proceeds in two
Properties, one each in Pasadena and Pflugerville, Texas. As a result of the
above transactions, as of December 31, 2001, the Partnership owned 48
Properties. The Partnership owned 41 Properties directly and held interests in
six Properties owned by joint ventures in which the Partnership is a co-venturer
and one Property owned with an affiliate of the General Partners as
tenants-in-common. The Partnership generally leases the Properties on a
triple-net basis with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. The Partnership has no obligation to sell all or any portion of a
Property at any particular time, except as may be required under property
purchase options granted to certain lessees.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and CNL American Properties Fund, Inc.
("APF") announced that they had mutually agreed to terminate the Agreement and
Plan of Merger entered into in March 1999. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable. The General Partners are continuing to evaluate
strategic alternatives for the Partnership, including alternatives to provide
liquidity to the Limited Partners.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
the joint ventures in which the Partnership is a co-venturer provide for initial
terms ranging from 5 to 20 years (the average being 18 years), and expire
between 2004 and 2020. The leases are generally on a triple-net basis, with the
lessees responsible for all repairs and maintenance, property taxes, insurance
and utilities. The leases of the Properties provide for minimum base annual
rental payments (payable in monthly installments) ranging from approximately
$48,000 to $225,800. The majority of the leases provide for percentage rent,
based on sales in excess of a specified amount. In addition, some of the leases
provide that, commencing in specified lease years (generally the sixth lease
year), the annual base rent required under the terms of the lease will increase.
Generally, the leases of the Properties provide for two to five
five-year renewal options subject to the same terms and conditions as the
initial lease. Lessees of 34 of the Partnership's 48 Properties also have been
granted options to purchase Properties at the Property's then fair market value
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
In January 2001, the Partnership terminated its lease relating to its
Property in Albany, Georgia. In connection therewith, the Partnership entered
into a new lease with a new tenant with lease terms substantially the same as
the Partnership's other leases.
In September 2001, Cypress Restaurants of Georgia, Inc. filed for
bankruptcy. The tenant ceased making rental payments to the Partnership from
June 2001 through September 2001. As of March 15, 2002, the Partnership has
continued receiving rental payments since October 2001, relating to this lease.
While the tenant has not rejected or affirmed the lease there can be no
assurance that the lease will not be rejected in the future.
Major Tenants
During 2000, two lessees (or groups of affiliated tenants) of the
Partnership, (i) Jack in the Box Inc. and Jack in the Box Eastern Division, L.P.
(which are affiliated entities under common control of Jack in the Box Inc.)
(hereinafter referred to as "Jack in the Box Inc.") and (ii) Flagstar
Enterprises, Inc., each contributed more than 10% of the Partnership's total
rental, earned and mortgage interest income (including the Partnership's share
of rental and earned income from Properties owned by joint ventures and a
Property owned with an affiliate of the General Partners as tenants-in-common).
As of December 31, 2001, Jack in the Box Inc. was the lessee under leases
relating to nine restaurants and Flagstar Enterprises, Inc. was the lessee under
leases relating to 11 restaurants. It is anticipated that based on the minimum
rental payments required by the leases, these two lessees each will continue to
contribute more than 10% of the Partnership's total rental, earned and mortgage
interest income in 2002. In addition, four Restaurant Chains, Long John
Silver's, Hardee's, Jack in the Box and Denny's, each accounted for more than
10% of the Partnership's total rental, earned, and mortgage interest income
during 2001 (including the Partnership's share of rental and earned income from
Properties owned by joint ventures and a Property owned with an affiliate of the
General Partners as tenants-in-common). In 2002, it is anticipated that these
four Restaurant Chains each will continue to account for more than 10% of the
Partnership's total rental, earned and mortgage interest income to which the
Partnership is entitled under the terms of the leases. Any failure of these
lessees or Restaurant Chains could materially affect the Partnership's income if
the Partnership is not able to re-lease these Properties in a timely manner. No
single tenant or groups of affiliated tenants lease Properties with an aggregate
carrying value in excess of 20% of the total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into the following separate joint venture
arrangements: Williston Real Estate Joint Venture with CNL Income Fund X, Ltd.;
Des Moines Real Estate Joint Venture with CNL Income Fund VII, Ltd. and CNL
Income Fund XI, Ltd.; Kingsville Real Estate Joint Venture with CNL Income Fund
IV, Ltd.; Columbus Joint Venture with CNL Income Fund XVI, Ltd. and CNL Income
Fund XVIII, Ltd.; and Bossier City Joint Venture with CNL Income Fund VIII, Ltd.
and CNL Income Fund XIV, Ltd. Each of the CNL Income Funds is a limited
partnership organized pursuant to the laws of the state of Florida and an
affiliate of the General Partners. Each of the joint ventures was formed to
purchase or construct and hold one restaurant Property.
The joint venture arrangements provide for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint ventures in accordance with their respective percentage interests in the
joint ventures. The Partnership has a 59.05% interest in Williston Real Estate
Joint Venture, an 18.61% interest in Des Moines Real Estate Joint Venture, a
31.13% interest in Kingsville Real Estate Joint Venture, a 27.72% interest in
Columbus Joint Venture, and a 55% interest in Bossier City Joint Venture. The
Partnership and its joint venture partners are also jointly and severally liable
for all debts, obligations and other liabilities of the joint ventures.
Net cash flow from operations of Williston Real Estate Joint Venture,
Des Moines Real Estate Joint Venture, Kingsville Real Estate Joint Venture,
Columbus Joint Venture, and Bossier City Joint Venture is distributed 59.05%,
18.61%, 31.13%, 27.72%, and 55%, respectively, to the Partnership and the
balance is distributed to each of the joint venture partners in accordance with
its respective percentage interest in the joint venture. Any liquidation
proceeds, after paying joint venture debts and liabilities and funding reserves
for contingent liabilities, will be distributed first to the joint venture
partners with positive capital account balances in proportion to such balances
until such balances equal zero, and thereafter in proportion to each joint
venture partner's percentage interest in the joint venture.
In March 2001, Middleburg Joint Venture, in which the Partnership owned
a 87.54% interest, sold its Property to the tenant, in accordance with the
purchase option under the lease agreement. The Partnership and the joint venture
partner liquidated Middleburg Joint Venture and the Partnership received its pro
rata share of the liquidation proceeds from the joint venture.
In addition, in April 2001, the Partnership entered into a joint
venture arrangement, CNL VIII, X, XII Kokomo Joint Venture, with CNL Income Fund
VIII, Ltd. and CNL Income Fund X, Ltd., affiliates of the General Partners, to
purchase and hold one restaurant Property. The joint venture arrangement
provides for the Partnership and its joint venture partners to share in all
costs and benefits associated with the joint venture in proportion to each
partner's percentage interest in the joint venture. The Partnership and its
joint venture partners are also jointly and severally liable for all debts,
obligations and other liabilities of the joint venture. The Partnership has a
80% interest in the profits and losses of this joint venture. Each of the
affiliates is a limited partnership organized pursuant to the laws of the state
of Florida.
Williston Real Estate Joint Venture, Des Moines Real Estate Joint
Venture, Kingsville Real Estate Joint Venture, Columbus Joint Venture and
Bossier City Joint Venture each have an initial term of 20 years, and after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of any of the joint venturers or by an event of
dissolution. CNL VIII, X, XII Kokomo Joint Venture has an initial term of 30
years. Events of dissolution include the bankruptcy, insolvency or termination
of any joint venturer, sale of the Property owned by the joint venture and
mutual agreement of the Partnership and its joint venture partners to dissolve
the joint venture.
The Partnership shares management control equally with affiliates of
the General Partners for each joint venture. The joint venture agreements
restrict each venturer's ability to sell, transfer or assign its joint venture
interest without first offering it for sale to its joint venture partners,
either upon such terms and conditions as to which the venturers may agree or, in
the event the venturers cannot agree, on the same terms and conditions as any
offer from a third party to purchase such joint venture interest.
In addition to the joint venture arrangements, in August 2000, the
Partnership entered into an agreement to purchase and hold a Bennigan's Property
in Colorado Springs, Colorado, as tenants-in-common with CNL Income Fund VII,
Ltd., an affiliate of the General Partners and Florida limited partnership. The
agreement provides for the Partnership and the affiliate to share in the profits
and losses of the Property and net cash flow from the Property, in proportion to
each co-tenant's percentage interest. The Partnership owns a 57% interest in
this Property.
Each of the affiliates is a limited partnership organized pursuant to
the laws of the state of Florida. The tenancy in common agreement restricts each
co-tenant's ability to sell, transfer, or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining co-tenant.
The use of joint venture arrangements and tenancy in common
arrangements allows the Partnership to fully invest its available funds at times
at which it would not have sufficient funds to purchase an additional property,
or at times when a suitable opportunity to purchase an additional property is
not available. The use of joint venture and tenancy in common arrangements also
provides the Partnership with increased diversification of its portfolio among a
greater number of properties.
Certain Management Services
CNL APF Partners, LP, an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL APF Partners, LP (the "Advisor") is responsible for collecting rental
payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices and
providing information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross rental revenues from Properties
wholly owned by the Partnership plus the Partnership's allocable share of gross
revenues of joint ventures in which the Partnership is a co-venturer, but not in
excess of competitive fees for comparable services.
During 2000, CNL Fund Advisors, Inc. assigned its rights in, and its
obligations under, the management agreement with the Partnership to CNL APF
Partners, LP. All of the terms and conditions of the management agreement,
including the payment of fees, as described above, remain unchanged.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of APF, the parent company of the
Advisor, perform certain services for the Partnership. In addition, the General
Partners have available to them the resources and expertise of the officers and
employees of CNL Financial Group, Inc., a diversified real estate company, and
its affiliates, who may also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2001, the Partnership owned 48 Properties. Of the 48
Properties, 41 are owned by the Partnership in fee simple, six are owned through
joint venture arrangements and one is owned with an affiliate through a tenancy
in common arrangement. See Item 1. Business - Joint Venture and Tenancy in
Common Arrangements. The Partnership is not permitted to encumber its Properties
under the terms of its partnership agreement. Reference is made to the Schedule
of Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 9,200
to 120,000 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation for the year ended December 31, 2001.
State Number of Properties
Alabama 1
Arizona 5
California 1
Colorado 1
Florida 2
Georgia 6
Indiana 1
Louisiana 2
Mississippi 2
Missouri 2
New Mexico 1
North Carolina 4
Ohio 2
South Carolina 2
Tennessee 4
Texas 11
Washington 1
------
TOTAL PROPERTIES 48
======
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
2,100 to 11,400 square feet. All buildings on Properties are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations. As of December 31, 2001, the Partnership had no plans for
renovation of the Properties. Depreciation expense is computed for buildings and
improvements using the straight-line method using a depreciable life of 40 years
for federal income tax purposes.
As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and joint ventures (including the Property owned through a
tenancy in common arrangement) for federal income tax purposes was $33,976,528
and $9,078,715, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 1
Bennigan's 1
Burger King 2
Denny's 8
Golden Corral 2
Hardee's 11
IHOP 1
Jack in the Box 9
KFC 1
Krystal 1
Long John Silver's 6
Taco Cabana 2
Other 3
-----
TOTAL PROPERTIES: 48
=====
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish buildings, premises,
signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
As of December 31, 2001, 2000, 1999, 1998 and 1997 the Properties were
100%, 100%, 100%, 96%, and 100%, occupied, respectively. The following is a
schedule of the average rent per property for the years ended December 31:
2001 2000 1999 1998 1997
-------------- ------------- -------------- ------------- -------------
Rental Income (1) $ 4,210,846 $4,102,805 $4,299,590 $4,247,369 $4,443,606
Properties 48 48 48 48 48
Average Per Property $ 87,726 $ 85,475 $ 89,575 $ 88,487 $ 92,575
(1) Rental income includes the Partnership's share of rental income from
the Properties owned through joint venture arrangements and the
Property owned through a tenancy in common arrangement. Rental revenues
have been adjusted, as applicable, for any amounts for which the
Partnership has established an allowance for doubtful accounts.
The following is a schedule of lease expirations for leases in place as
of December 31, 2001 for the next ten years and thereafter.
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
- -------------------- ----------------- ------------------- ------------------
2002 -- $ -- --
2003 -- -- --
2004 1 14,942 .34%
2005 -- -- --
2006 -- -- --
2007 2 257,655 5.90%
2008 -- -- --
2009 1 55,233 1.26%
2010 2 108,274 2.49%
2011 7 798,446 18.30%
Thereafter 35 3,128,732 71.71%
--------- ---------------- -----------------
Total 48 $ 4,363,282 100.00%
========= ================ =================
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2000 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business -Leases.
Flagstar Enterprises, Inc. leases 11 Hardee's restaurants. The initial
term of each lease is 20 years (expiring between 2012 and 2013) and the average
minimum base annual rent is approximately $79,700 (ranging from approximately
$61,300 to $95,000).
Jack in the Box Inc. leases nine Jack in the Box restaurants. The
initial term of each lease is 18 years (expiring between 2010 and 2011) and the
average minimum base annual rent is approximately $111,400 (ranging from
approximately $86,400 to $140,900).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliates of
the General Partners, nor any of their respective Properties, is party to, or
subject to, any material pending legal proceedings. Item 4. Submission of
Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 15, 2002, there were 3,480 holders of record of the
Units. There is no public trading market for the Units, and it is not
anticipated that a public market for the Units will develop. During 2001,
Limited Partners who wished to sell their Units may have offered the Units for
sale pursuant to the Partnership's distribution reinvestment plan (the "Plan"),
and Limited Partners who wished to have their distributions used to acquire
additional Units (to the extent Units were available for purchase), may have
done so pursuant to such Plan. The General Partners have the right to prohibit
transfers of Units. From inception through December 31, 2001, the price for any
Unit transferred pursuant to the Plan was $9.50 per Unit. The price paid for any
Unit transferred other than pursuant to the Plan was subject to negotiation by
the purchaser and the selling Limited Partner. The Partnership will not redeem
or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2001 and 2000 other than
pursuant to the Plan, net of commissions.
2001 (1) 2000 (1)
---------------------------------- ------------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- --------- ----------
First Quarter $6.12 $ 5.60 $ 5.78 (2) (2) (2)
Second Quarter 9.50 6.20 7.25 $9.00 $ 8.00 $ 8.50
Third Quarter 10.00 6.23 7.18 8.45 6.73 7.88
Fourth Quarter 8.00 6.50 6.94 7.01 6.98 6.99
(1) A total of 35,663 and 14,010 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2001 and 2000,
respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 2001, 2000 and 1999, the
Partnership declared cash distributions of $3,825,008, to the Limited Partners.
Distributions of $956,252 were declared to the Limited Partners at the close of
each of the Partnership's calendar quarters during 2001 and 2000. These amounts
include monthly distributions made in arrears for the Limited Partners electing
to receive such distributions on this basis. No amounts distributed to partners
for the years ended December 31, 2001 and 2000, are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the Limited Partners' return on their adjusted capital contributions. No
distributions have been made to the General Partners to date.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions, for an annual fee.
(b) Not applicable.
Item 6. Selected Financial Data
2001 2000 1999 1998 1997
--------------- -------------- -------------- --------------- --------------
Year ended December 31:
Revenues (1) $4,238,921 $4,452,993 $4,423,599 $4,276,059 $4,522,216
Net income (2) 3,268,250 3,820,216 3,645,043 2,933,537 3,952,214
Cash distributions
declared (3) 3,825,008 3,825,008 3,825,008 3,960,008 3,825,008
Net income per Unit (2) 0.73 0.85 0.80 0.65 0.87
Cash distributions
declared per Unit (3) 0.85 0.85 0.85 0.88 0.85
At December 31:
Total assets $39,836,611 $40,319,220 $40,440,927 $40,634,898 $41,430,990
Partners' capital 38,649,326 39,206,084 39,210,876 39,390,841 40,417,312
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the years ended December 31, 2001, 2000 and 1999,
includes $349,516, $254,405 and $74,714 from gains on sales of assets.
Net income for the year ended December 31, 1998, includes $104,374 from
a loss on sale of assets. Net income for the years ended 2001, 2000 and
1998, includes $362,265, $155,281 and $206,535, respectively, for a
provision for write-down of assets.
(3) Distributions for the year ended December 31, 1998, include a special
distribution to the Limited Partners of $135,000 which represented
cumulative excess operating reserves.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on August 20, 1991, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, to be leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains. The
leases are generally triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 2001, the Partnership owned 41 Properties directly and held interests in
seven Properties either through joint venture or tenancy in common arrangements.
Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 2001, 2000, and 1999, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $3,934,568, $3,867,350,
and $3,920,030, for the years ended December 31, 2001, 2000, and 1999,
respectively. The increase in cash from operations during 2001 as compared to
2000 was primarily a result of changes in the Partnership's working capital. The
decrease in cash from operations during 2000 as compared to 1999 was primarily a
result of changes in income and expenses as described in "Results of Operations"
below.
Other sources and uses of capital included the following during the
years ended December 31, 2001, 2000 and 1999.
In August 1998, the Partnership entered into a joint venture
arrangement, Columbus Joint Venture, with affiliates of the General Partners, to
construct, own and lease one restaurant Property. As of December 31, 2001 the
Partnership had contributed approximately $251,100 to the joint venture. The
Partnership owns a 27.72% interest in the profits and losses of this joint
venture.
In May 1999, the Partnership sold its Property in Morganton, North
Carolina, to an unrelated third party for $550,000, received $467,300 in cash
and accepted the remaining sales proceeds in the form of a promissory note in
the principal sum of $55,000. The Partnership had recorded an allowance for loss
on assets relating to this Property of $206,535 at December 31, 1998 due to the
tenant filing for bankruptcy. The allowance represented the difference between
the carrying value of the Property at December 31, 1998 and the General
Partners' estimated net realizable value for this Property. During 1999, the
Partnership recorded a gain relating to the sale of this Property of $74,714
resulting in an overall net loss relating to the sale of this Property of
approximately $131,800. The promissory note was collateralized by a mortgage on
the Property and bore interest at a rate of 10.25% per annum. The Partnership
received the outstanding principal and interest balance of $45,375 during 2001.
The net proceeds of $467,300 received in cash were used to invest in Bossier
City Joint Venture, as described below. The Partnership distributed amounts
sufficient to enable the Limited Partners to pay federal and state income taxes,
if any (at a level reasonably assumed by the General Partners), resulting from
the sale.
In July 1999, the Partnership entered into a new lease for the Property
in Statesville, North Carolina. In connection therewith, the Partnership
incurred $30,000 in renovation costs which were completed in August 1999.
In November 1999, the Partnership reinvested the majority of the
proceeds from the 1998 sale of the Property in Monroe, North Carolina, plus
proceeds from the 1999 sale of the Property in Morganton, North Carolina in a
joint venture arrangement, Bossier City Joint Venture, with CNL Income Fund
VIII, Ltd. and CNL Income Fund XIV, Ltd., both Florida limited partnerships and
affiliates of the General Partners, to purchase and hold one restaurant
Property.
In March 2000, the Partnership sold its Property in Cleveland,
Tennessee to an unrelated third party for $806,460 and received net sales
proceeds of approximately $791,500, resulting in a gain of approximately
$147,600. In April 2000, the Partnership used these net sales proceeds along
with net sales proceeds received from the 1999 sale of its Property in
Morganton, North Carolina to reinvest in a Property in Pooler, Georgia. The
transaction relating to the sale of the Property in Cleveland, Tennessee and the
reinvestment of the net sales proceeds qualified as a like-kind exchange
transaction for federal income tax purposes. However, the Partnership
distributed amounts sufficient to enable the Limited Partners to pay federal and
state income taxes, if any (at a level reasonably assumed by the General
Partners), resulting from the sale.
In July 2000, the Partnership sold its Property in Bradenton, Florida
to an unrelated third party and received net sales proceeds of approximately
$1,227,900, resulting in a gain of approximately $106,800. In August 2000, the
Partnership reinvested the net sales proceeds from the sale in an additional
Property in Colorado Springs, Colorado, as tenants-in-common with CNL Income
Fund VII, Ltd., a Florida limited partnership and an affiliate of the General
Partners. The Partnership owns a 57% interest in the profits and losses of this
Property. The transaction relating to the sale of the Property in Bradenton,
Florida and the reinvestment of the net sales proceeds qualified as a like-kind
exchange transaction for federal income tax purposes. The Partnership
distributed amounts sufficient to enable the Limited Partners to pay federal and
state income taxes, if any (at a level reasonably assumed by the General
Partners), resulting from the sale.
In March 2001, Middleburg Joint Venture, in which the Partnership owned
an 87.54% interest, sold its Property to the tenant in accordance with the
option under its lease agreement to purchase the Property, for $1,900,000. Due
to the fact that the joint venture had recorded accrued rental income,
representing non-cash amounts that the joint venture had recognized as income
since the inception of the lease relating to the straight-lining of future
scheduled rent increases in accordance with generally accepted accounting
principles, a loss of approximately $61,900 was recorded by the joint venture in
March 2001. As a result, the Partnership received approximately $1,663,300 as a
return of capital representing its 87.54% share of the liquidation proceeds of
the joint venture. In April 2001, Middleburg Joint Venture was dissolved in
accordance with the joint venture agreement. No gain or loss on the dissolution
of the joint venture was incurred. In April 2001, the Partnership used these
proceeds to invest in a joint venture arrangement, CNL VIII, X, XII Kokomo Joint
Venture, to acquire a Property in Kokomo, Indiana with CNL Income Fund VIII,
Ltd. and CNL Income Fund X, Ltd., each of which is a Florida limited partnership
and an affiliate of the General Partners. The Partnership accounts for its
investment using the equity method since the joint venture agreement requires
the consent of all partners on key decisions affecting the operations of the
underlying Property. The joint venture acquired this Property from CNL BB Corp.,
an affiliate of the General Partners. The affiliate had purchased and
temporarily held title to the Property in order to facilitate the acquisition of
the Property by the joint venture. The purchase price paid by the joint venture
represented the costs incurred by the affiliate to acquire the Property,
including closing costs. As of December 31, 2001, the Partnership had
contributed approximately $1,689,600 to acquire the restaurant Property for an
80% interest in the profits and losses of the joint venture.
In September 2001, the Partnership sold its Property in Rialto,
California to an unrelated third party for approximately $1,423,000 and received
net sales proceeds of approximately $1,382,400 resulting in a gain of
approximately $4,200. In October 2001, the Partnership sold its Property in
Winter Haven, Florida for $1,100,000 and received net sales proceeds of
approximately $1,090,300 resulting in a gain of approximately $345,300. In
December 2001, the Partnership invested the majority of the net sales proceeds
from the sales of these Properties in two Properties, one each in Pasadena and
Pflugerville, Texas. The Partnership acquired these Properties from CNL Funding
2001-A, LP, an affiliate of the General Partners. The affiliate had purchased
and temporarily held title to the Properties in order to facilitate the
acquisition of the Properties by the Partnership. The purchase price paid by the
Partnership represented the costs incurred by the affiliate to acquire the
Properties, including closing costs. These transactions, relating to the sales
of the Properties and the reinvestment of the proceeds qualified as like-kind
exchange transactions for federal income tax purposes. The Partnership
distributed amounts sufficient to enable the Limited Partners to pay federal and
state income taxes, if any (at a level reasonably assumed by the General
Partners), resulting from the sales.
None of the Properties owned by the Partnership, or the joint ventures
or tenancy in common arrangement in which the Partnership owns an interest, is
or may be encumbered. Subject to certain restrictions on borrowing, however, the
Partnership may borrow funds but will not encumber any of the Properties in
connection with any such borrowing. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners. The Partnership will not
borrow under arrangements that would make the Limited Partners liable to
creditors of the Partnership. The General Partners further have represented that
they will use their reasonable efforts to structure any borrowing so that it
will not constitute "acquisition indebtedness" for federal income tax purposes
and also will limit the Partnership's outstanding indebtedness to three percent
of the aggregate adjusted tax basis of its Properties. Affiliates of the General
Partners from time to time incur certain operating expenses on behalf of the
Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties and any net
sales proceeds from the sale of Properties are invested in money market accounts
or other short-term highly liquid investments such as demand deposit accounts at
commercial banks, money market accounts and certificates of deposit with less
than a 90-day maturity date, pending the Partnership's use of such funds to pay
Partnership expenses, to make distributions to partners or to reinvest in
additional Properties. At December 31, 2001, the Partnership had $1,826,962
invested in such short-term investments as compared to $1,672,295 at December
31, 2000. The increase in cash and cash equivalents at December 31, 2001 was
primarily due to the fact that the Partnership received its pro rata share of
the liquidation proceeds from the dissolution of Middleburg Joint Venture, as
described above. As of December 31, 2001, the average interest rate earned on
the rental income deposited in demand deposit accounts at commercial banks was
approximately 4% annually. The funds remaining at December 31, 2001, after
payment of distributions and other liabilities, will be used to meet the
Partnership's working capital 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.
Due to low operating expenses and ongoing cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because all leases of the Partnership's Properties are
on a triple-net basis, it is not anticipated that a permanent reserve for
maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based on current cash from operations, the Partnership declared
distributions to the Limited Partners of $3,825,008, for the years ended
December 31, 2001, 2000 and 1999. This represents a distribution of $0.85 per
Unit for the years ended December 31, 2001, 2000 and 1999. No distributions were
made to the General Partners during the years ended December 31, 2001, 2000 and
1999, respectively. No amounts distributed to the Limited Partners for the years
ended December 31, 2001, 2000, and 1999, are required to be or have been treated
by the Partnership as a return of capital for purposes of calculating the
Limited Partners' return on their adjusted capital contributions. The
Partnership intends to continue to make distributions of cash available for
distribution to the Limited Partners on a quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the year ended December 31, 2001 and 2000.
As of December 31, 2001 and 2000, the Partnership owed $25,885 and
$22,808, respectively, to affiliates for operating expenses and accounting and
administrative services. As of March 15, 2002, the Partnership had reimbursed
the affiliates all such amounts. Other liabilities including distributions
payable increased to $1,161,400 at December 31, 2001, from $1,090,328 at
December 31, 2000, primarily as the result of an increase in rents paid in
advance and deposits. The increase was partially offset by a decrease in
accounts payable. 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.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for using either the direct financing or the operating
method. FAS 13 requires management to estimate the economic life of the leased
property, the residual value of the leased property and the present value of
minimum lease payments to be received from the tenant. In addition, management
assumes that all payments to be received under its leases are collectible.
Changes in management's estimates or assumption regarding collectibility of
lease payments could result in a change in accounting for the lease at the
inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews its Properties and investments in unconsolidated
entities periodically (no less than once per year) for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through operations. Management determines whether
impairment in value has occurred by comparing the estimated future undiscounted
cash flows, including the residual value of the Property, with the carrying cost
of the individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
Results of Operations
During 1999, 2000 and 2001, the Partnership owned and leased 43 wholly
owned Properties (including one Property which was sold in 1999, two Properties
which were sold in 2000 and two Properties which were sold in 2001). In
addition, during 1999 and 2000, the Partnership was a co-venturer in six
separate joint ventures that each owned and leased one Property. In addition,
during 2000, the Partnership owned and leased one Property with an affiliate as
tenants-in-common. During 2001, the Partnership was a co-venturer in seven
separate joint ventures (including one Property which was sold during 2001) that
each owned and leased one Property. As of December 31, 2001, the Partnership
owned, either directly or through joint venture arrangements, or tenancy in
common arrangements, 48 Properties which are, in general, subject to long-term,
triple-net leases. The leases of the Properties provide for minimum base annual
rental payments (payable in monthly installments) ranging from approximately
$48,000 to $225,800. The majority of the leases provide for percentage rent
based on sales in excess of a specified amount. In addition, some of the leases
provide that, commencing in specified lease years (generally the sixth lease
year), the annual base rent required under the terms of the lease will increase.
For a further description of the Partnership's leases and Properties, see Item
1. Business - Leases and Item 2. Properties, respectively.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership earned $3,768,784, $3,958,088, and $3,964,818, respectively, in
rental income from operating leases and earned income from direct financing
leases from its wholly owned Properties.
The decrease during 2001 and 2000 each as compared to the previous year
was partially due to the sale of two Properties during 2001 and the sale of two
Properties during 2000, as described in "Capital Resources." This decrease
during 2001 and 2000 each as compared to the previous year was partially offset
by an increase in rental and earned income as a result of the Partnership
reinvesting net sales proceeds in Properties in Pasadena and Pflugerville, Texas
during 2001 and in a Property in Pooler, Georgia during 2000, as described in
"Capital Resources."
The decrease in rental and earned income during 2001 was also partially
attributable to the fact that the Partnership stopped recording rental income
relating to its Property in Columbus, Georgia. In September 2001, the tenant of
this Property filed for bankruptcy. While the tenant has neither rejected nor
affirmed the lease, there can be no assurance that the lease will not be
rejected in the future. The lost revenues resulting from the possible rejection
of the lease could have an adverse effect on the results of operations of the
Partnership if the Partnership is unable to sell or re-lease the Property in a
timely manner.
In addition, rental and earned income was higher during 2000 than 2001
and 1999 due to the fact that the Partnership collected and recognized as income
approximately $122,800 in past due rental amounts relating to the Properties
whose leases were rejected in connection with Long John Silvers, Inc. filing for
bankruptcy during 1998. The General Partners do not anticipate receiving any
additional amounts but will apply such amounts, if received to income.
The decrease in rental and earned income during 2001 and 2000, each as
compared to the previous year was partially offset by the fact that in August
1999, rental payments commenced, for a formerly vacant Long John Silver's
Property that was re-leased to a new tenant in 1999. In August 1999, Long John
Silver's, Inc. assumed and affirmed its five remaining leases, and the
Partnership has continued receiving rental payments relating to these five
leases. In addition, the Partnership granted Long John Silver's, Inc. rent
concessions on three of the affirmed leases, causing a decrease in rental and
earned income of approximately $26,000 during 2000.
The decrease in rental and earned income during 2001 and 2000, each as
compared to the previous year, was also partially a result of the Partnership
amending the lease relating to the Property in St. Ann, Missouri to provide for
rent reductions from January 2000 through the end of the lease term. The General
Partners do not believe that the rent reductions will have a material adverse
effect on the result of operations of the Partnership.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership also earned $19,927, $5,156, and $16,994, respectively, in
contingent rental income. The increase in contingent rental income during 2001,
as compared to 2000, and the decrease during 2000, as compared to 1999, is
primarily the result of fluctuations in the gross sales of certain restaurant
Properties requiring the payments of contingent rental income.
In addition, for the years ended December 31, 2001, 2000, and 1999, the
Partnership earned $364,478, $373,694, and $344,964, respectively, attributable
to net income earned by joint ventures in which the Partnership is a
co-venturer. The decrease in net income earned by these joint ventures, during
2001 as compared to 2000, was primarily due to the fact that in March 2001,
Middleburg Joint Venture in which the Partnership owned an 87.54% interest,
recognized a loss of approximately $61,900 as the result of the sale of its
Property. The Partnership dissolved the joint venture in accordance with the
joint venture agreement and did not incur a gain or loss on the dissolution. The
decrease in net income earned from joint ventures during 2001 was partially
offset by the fact that in April 2001, the Partnership used a portion of the net
sales proceeds received from the sale of its Property in Middleburg, Ohio to
invest in a joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture,
with CNL Income Fund VIII, Ltd. and CNL Income Fund X, Ltd. to purchase and hold
one restaurant Property. Each of the CNL Income Funds is a Florida limited
partnership pursuant to the laws of the state of Florida, and an affiliate of
the general partners. Net income earned by joint ventures increased during 2000,
as compared to 1999, partially attributable to the fact that in 1999, the
Partnership invested in Bossier City Joint Venture and in 2000, the Partnership
invested in a Property in Colorado Springs, Colorado with an affiliate of the
General Partners, as tenants-in-common, as described above in "Capital
Resources." The increase during 2000 was partially offset by the fact that
during 1999, Middleburg Joint Venture, in which the Partnership owned as 87.54%
interest, collected and recognized as income past due rental amounts for which
the joint venture had previously established an allowance for doubtful accounts.
During the year ended December 31, 2001, two lessees (or groups of
affiliated tenants) of the Partnership Jack in the Box Inc. and Jack in the Box
Eastern Division, L.P. (which are affiliated entities under common control of
Jack in the Box Inc. (hereinafter referred to as "Jack in the Box Inc.") and
Flagstar Enterprises, Inc., each contributed more than 10% of the Partnership's
total rental, earned and mortgage interest income (including the Partnership's
share of rental and earned income from Properties owned by joint ventures and a
Property owned with an affiliate of the General Partners as tenants-in-common).
As of December 31, 2001, Jack in the Box Inc. was the lessee under leases
relating to nine restaurants and Flagstar Enterprises, Inc. was the lessee under
leases relating to 11 restaurants. It is anticipated that based on the minimum
rental payments required by the leases, that these tenants will each continue to
contribute more than 10% of the Partnership's total rental, earned and mortgage
interest income during 2002. In addition, during the year ended December 31,
2001, four Restaurant Chains, Long John Silver's, Hardee's, Jack in the Box, and
Denny's, each accounted for more than ten percent of the Partnership's total
rental, earned and mortgage interest income (including the Partnership's share
of rental and earned income from Properties owned by joint ventures and a
Property owned with an affiliate of the General Partners as tenants-in-common).
In 2002, it is anticipated that these four Restaurant Chains each will continue
to account for more than ten percent of the Partnership's total rental, earned
and mortgage interest income to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income if the Partnership is not able to
re-lease the Properties in a timely manner.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership also earned $85,732, $116,055, and $96,823, respectively, in
interest and other income. The decrease in interest income during 2001 as
compared to 2000, was primarily due to the reinvestment of the net sales
proceeds received from the sale of two Properties during 2000. The increase in
interest and other income during 2000 as compared to 1999, was primarily
attributable to interest income earned on the net sales proceeds from the sale
of two Properties during 2000 pending reinvestment in additional Properties.
Operating expenses, including depreciation and amortization expense and
provisions for write-down of assets, $1,320,187, $887,182, and $853,270, for the
years ended December 31, 2001, 2000, and 1999, respectively. The increase in
operating expenses, during 2001 as compared to 2000, was primarily attributable
to an increase in the costs incurred for administrative expenses for servicing
the Partnership and its Properties, as permitted by the Partnership agreement.
In addition, during 2001, the Partnership recorded a provision for write-down of
assets of $362,265, including the accumulated accrued rental income balance,
relating to the Properties in Winter Haven, Florida and Albany, Georgia. The
tenant of the Property in Winter Haven, Florida vacated the Property and ceased
rental payments to the Partnership. The tenant of the Property in Albany,
Georgia terminated its lease with the Partnership. The provisions represented
the difference between the carrying value of the Properties, including the
accumulated accrued rental income balance and the General Partners' estimated
net realizable value for each Property. The Partnership sold the Property in
Winter Haven, Florida in December 2001 and re-leased the Property in Albany,
Georgia to a new tenant with lease terms substantially the same as the
Partnership's other leases. During 2000, the Partnership recorded a provision
for write-down of assets in the amount of $155,281 relating to two Denny's
Properties. The provision represented the difference between the carrying value
of the Properties, including the accumulated accrued rental income balance, and
the General Partners' estimated net realizable value for each Property. The
increase in operating expenses was also attributable to an increase in state
taxes incurred by the Partnership due to changes in the tax laws of a state in
which the Partnership conducts business. In addition, operating expenses also
increased during 2001, as compared to 2000, due to an increase in depreciation
expense. During 2001, the Partnership terminated the leases relating to its
Properties in Albany, Georgia and Winter Haven, Florida, as described above, and
reclassified the assets from investment in direct financing leases to land and
building on operating leases. In accordance with Statement of Financial
Accounting Standards No. 13, "Accounting for Leases," the Partnership recorded
the reclassified assets at the lower or original cost, present fair value or
present carrying amount. No loss on reclassification was recorded. In addition,
the Partnership incurred certain expenses such as legal fees, real estate taxes,
insurance and maintenance relating to the Property in Winter Haven, Florida as a
result of the tenant vacating the Property in April 2001, as described above.
The Partnership will not continue to incur these expenses due to the fact that
the Property was sold in October 2001.
The increase in operating expenses during 2001 and 2000, each as
compared to the previous year, was partially offset by the fact that the
Partnership incurred $38,677 and $218,853 during 2000 and 1999, respectively, in
transaction costs related to the General Partners retaining financial and legal
advisors to assist them in evaluating and negotiating the proposed and
terminated merger with APF, as described below in "Termination of Merger." No
such transaction costs were incurred during the year ended December 31, 2001.
The increase in operating expenses during 2000 was partially offset by
the fact that in 1999, the Partnership incurred legal, insurance and real estate
tax expenses on the Properties for which the leases were rejected and which were
vacant during 1999, as a result of Long John Silver's, Inc. filing for
bankruptcy, as described above. The Partnership sold one of the vacant
Properties in May 1999, and the Partnership entered into a long-term triple net
lease with a new tenant for the remaining vacant Property in July 1999. The new
tenant is responsible for real estate taxes, insurance and maintenance;
therefore, the General Partners do not anticipate that the Partnership will
continue to incur these expenses. Due to the fact that Long John Silver's, Inc.
assumed and affirmed its remaining leases, as described above, Long John
Silver's, Inc. will be responsible for such expenses relating to these
Properties; therefore, the General Partners do not anticipate that the
Partnership will incur these expenses for these Properties in the future. During
2000, the Partnership received settlement amounts relating to the four Long John
Silver's Properties whose leases were rejected. As a result, during 2000, the
Partnership reversed certain expenses such as legal fees, real estate taxes,
insurance, and maintenance, previously incurred by the Partnership as a result
of the tenant filing for bankruptcy. The increase in depreciation expense during
2000, as compared to 1999, was the result of several Properties being
reclassified from net investment in direct financing leases to land and
buildings on operating leases due to amendments to their leases.
As a result of the sales of the Properties in Rialto, California and
Winter Haven, Florida, during 2001, the sales of the Properties in Cleveland,
Tennessee and Bradenton, Florida, during 2000, and the sale during 1999 of the
Property in Morganton, North Carolina, as described above in "Capital
Resources," the Partnership recognized gains of $349,516, $254,405, and $74,714
for the years ended December 31, 2001, 2000 and 1999, respectively.
The restaurant industry, as a whole, has been one of the many
industries affected by the general slowdown in the economy. While the
Partnership has experienced some losses due to the financial difficulties of a
limited number of restaurant operators, the General Partners remain confident in
the overall performance of the fast-food and family style restaurants, the
concepts that comprise the majority of the Partnership's portfolio. Industry
data shows that these restaurant concepts continue to outperform and remain more
stable than higher-end restaurants, which have been more adversely affected by
the slowing economy.
The Partnership's leases as of December 31, 2001, are generally
triple-net leases, and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Inflation, overall, has had a minimal effect on
the results of operations of the Partnership. Continued inflation may cause
capital appreciation of the Partnership's Properties. Inflation and changing
prices, however, also may have an adverse impact on the sales of the restaurants
and on potential capital appreciation of the Properties.
In December 1999, the Securities and Exchange Commission released SAB
101, which provides the staff's view in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 requires the
Partnership to defer recognition of certain percentage rental income until
certain defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
Partnership results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" (FAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement requires
that a long-lived asset be tested for recoverability whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable. The
carrying amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. The assessment is based on the carrying amount of the
asset at the date it is tested for recoverability. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds its fair
value. If an impairment is recognized, the adjusted carrying amount of a
long-lived asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this Statement
retained the fundamental provisions of FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March 1,
2000, the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger entered into in March 1999. The
agreement to terminate the Agreement and Plan of Merger was based, in large
part, on the General Partners' concern that, in light of market conditions
relating to publicly traded real estate investment trusts, the value of the
transaction had diminished. As a result of such diminishment, the General
Partners' ability to unequivocally recommend voting for the transaction, in the
exercise of their fiduciary duties, had become questionable. The General
Partners are continuing to evaluate strategic alternatives for the Partnership,
including alternatives to provide liquidity to the Limited Partners.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22-23
Notes to Financial Statements 24-41
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund XII, Ltd.
In our opinion, the accompanying balance sheets and the related statements of
income, of partners' capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund XII, Ltd. (a Florida limited
partnership) at December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under item 14(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with auditing standards generally
accepted in the United States of America, which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 8, 2002
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------- ---------------------
ASSETS
Land and buildings on operating leases, net $ 22,624,980 $ 21,239,166
Net investment in direct financing leases 8,143,626 9,740,755
Investment in joint ventures 4,577,565 4,673,593
Mortgage note receivable -- 45,375
Cash and cash equivalents 1,281,855 1,161,018
Certificates of deposit 545,107 511,277
Receivables, less allowance for doubtful accounts of $51,016
and $30,338, respectively 5,584 192,518
Due from related parties 25,037 28,054
Accrued rental income, less allowance for
doubtful accounts of $9,061 and $161,604,
respectively 2,563,320 2,645,628
Other assets 69,537 81,836
------------------- ---------------------
$ 39,836,611 $ 40,319,220
=================== =====================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 22,119 $ 39,360
Accrued and escrowed real estate taxes payable 7,037 8,853
Distributions payable 956,252 956,252
Due to related parties 25,885 22,808
Rents paid in advance and deposits 175,992 85,863
------------------- ---------------------
Total liabilities 1,187,285 1,113,136
Partners' capital 38,649,326 39,206,084
------------------- ---------------------
$ 39,836,611 $ 40,319,220
=================== =====================
See accompanying notes to financial statements.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
----------------- --------------- ----------------
Revenues:
Rental income from operating leases $ 2,772,637 $ 2,796,165 $ 2,518,075
Earned income from direct financing leases 996,147 1,161,923 1,446,743
Contingent rental income 19,927 5,156 16,994
Interest and other income 85,732 116,055 96,823
----------------- --------------- ----------------
3,874,443 4,079,299 4,078,635
----------------- --------------- ----------------
Expenses:
General operating and administrative 324,635 185,596 172,205
Professional services 74,981 41,191 46,920
Management fees to related parties 40,719 42,538 42,710
Real estate taxes 20,092 -- 4,099
State and other taxes 49,739 20,833 22,880
Depreciation and amortization 447,756 403,066 345,603
Provision for write-down of assets 362,265 155,281 --
Transaction costs -- 38,677 218,853
----------------- --------------- ----------------
1,320,187 887,182 853,270
----------------- --------------- ----------------
Income Before Gain on Sale of Assets and Equity in
Earnings of Joint Ventures 2,554,256 3,192,117 3,225,365
Gain on Sale of Assets 349,516 254,405 74,714
Equity in Earnings of Joint Ventures 364,478 373,694 344,964
----------------- --------------- ----------------
Net Income $ 3,268,250 $ 3,820,216 $ 3,645,043
================= =============== ================
Allocation of Net Income:
General partners $ -- $ -- $ 35,804
Limited partners 3,268,250 3,820,216 3,609,239
----------------- --------------- ----------------
$ 3,268,250 $ 3,820,216 $ 3,645,043
================= =============== ================
Net Income Per Limited Partner Unit $ 0.73 $ 0.85 $ 0.80
================= =============== ================
Weighted Average Number of Limited Partner Units
Outstanding 4,500,000 4,500,000 4,500,000
================= =============== ================
See accompanying notes to financial statements.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001, 2000 and 1999
General Partners Limited Partners
-------------------------------------- -----------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------- ----------------- ------------------ ----------------- ------------------
Balance, December 31, 1998 $ 1,000 $ 222,305 $ 45,000,000 $ (22,300,043) $ 21,842,123
Distributions to limited
partners ($0.85 per
limited partner unit) -- -- -- (3,825,008) --
Net income -- 35,804 -- -- 3,609,239
------------------- ----------------- ------------------ ----------------- ------------------
Balance, December 31, 1999 1,000 258,109 45,000,000 (26,125,051) 25,451,362
Distributions to limited
partners ($0.85 per
limited partner unit) -- -- -- (3,825,008) --
Net income -- -- -- -- 3,820,216
------------------- ----------------- ------------------ ----------------- ------------------
Balance, December 31, 2000 1,000 258,109 45,000,000 (29,950,059) 29,271,578
Distributions to limited
partners ($0.85 per
limited partner unit) -- -- -- (3,825,008) --
Net income -- -- -- -- 3,268,250
------------------- ----------------- ------------------ ----------------- ------------------
Balance, December 31, 2001 $ 1,000 $ 258,109 $ 45,000,000 $ (33,775,067) $ 32,539,828
=================== ================= ================== ================= ==================
See accompanying notes to financial statements.
- --------------
Syndication
Costs Total
- -------------- ---------------
$ (5,374,544) $ 39,390,841
-- (3,825,008)
-- 3,645,043
- -------------- ---------------
(5,374,544) 39,210,876
-- (3,825,008)
-- 3,820,216
- -------------- ---------------
(5,374,544) 39,206,084
-- (3,825,008)
-- 3,268,250
- -------------- ---------------
$ (5,374,544) $ 38,649,326
============== ===============
See accompanying notes to financial statements.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
2001 2000 1999
---------------- ---------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 3,932,778 $ 3,901,717 $ 3,865,771
Distributions from joint ventures 486,855 384,885 312,470
Cash paid for expenses (527,685) (497,870) (344,114)
Interest received 42,620 78,618 85,903
---------------- ---------------- ---------------
Net cash provided by operating activities 3,934,568 3,867,350 3,920,030
---------------- ---------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 2,472,661 2,019,357 467,300
Additions to land and buildings on operating
leases (2,478,795) (1,009,067) (30,000)
Liquidating distribution from joint venture 1,663,260 -- --
Investment in joint ventures (1,689,609) (1,268,896) (861,390)
Collection on mortgage note receivable 43,760 6,916 4,324
Investment in certificates of deposit -- (500,000) --
Additions to other assets -- -- (32,870)
---------------- ---------------- ---------------
Net cash provided by (used in) investing
activities 11,277 (751,690) (452,636)
---------------- ---------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,825,008) (3,825,008) (3,960,008)
---------------- ---------------- ---------------
Net cash used in financing activities (3,825,008) (3,825,008) (3,960,008)
---------------- ---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents 120,837 (709,348) (492,614)
Cash and Cash Equivalents at Beginning of Year 1,161,018 1,870,366 2,362,980
---------------- ---------------- ---------------
Cash and Cash Equivalents at End of Year $ 1,281,855 $ 1,161,018 $ 1,870,366
================ ================ ===============
See accompanying notes to financial statements.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31,
2001 2000 1999
---------------- ---------------- ---------------
Reconciliation of Net Income to Net Cash Provided by
Operating Activities:
Net income $ 3,268,250 $ 3,820,216 $ 3,645,043
---------------- ---------------- ---------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 442,404 397,718 342,717
Amortization 5,352 5,348 2,886
Equity in earnings of joint ventures, net of
distributions 122,377 11,191 (32,494)
Gain on sale of assets (349,516) (254,405) (74,714)
Provisions for write-down of assets 362,265 155,281 --
Decrease in net investment in direct financing
leases 148,849 197,885 192,256
Decrease (increase) in receivables 188,549 (118,217) (64,554)
Increase in interest receivable (33,830) -- --
Decrease (increase) in other assets 6,947 (17,351) (6,514)
Increase in accrued rental income (304,245) (190,569) (200,368)
Increase (decrease) in accounts payable and
accrued and escrowed real estate taxes
payable (19,057) (99,690) 116,571
Increase (decrease) in due to related parties 3,077 (52,101) 50,884
Increase (decrease) in due from related parties 3,017 (22,832) (5,222)
Increase (decrease) in rents paid in advance and
deposits 90,129 34,876 (46,461)
---------------- ---------------- ---------------
Total adjustments 666,318 47,134 274,987
---------------- ---------------- ---------------
Net Cash Provided by Operating Activities $ 3,934,568 $ 3,867,350 $ 3,920,030
================ ================ ===============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Mortgage note accepted in exchange for
sale of assets $ -- $ -- $ 55,000
================ ================ ===============
Distributions declared and unpaid at
December 31 $ 956,252 $ 956,252 $ 956,252
================ ================ ===============
See accompanying notes to financial statements.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund XII, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators or franchisees of
national and regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (see Note 4). Unearned income is deferred
and amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's net
investment in the leases.
Operating method - Land and building leases accounted for using
the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged to
operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled
rental payments to date. Whenever a tenant defaults under the
terms of its lease, or events or changes in circumstance
indicate that the tenant will not lease the property through
the end of the lease term, the Partnership either reserves or
reverses the cumulative accrued rental income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, the assets are
adjusted to their fair values. Although the general partners have made
their best estimate of these factors based on current conditions, it is
reasonably possible that changes could occur in the near term which
could adversely affect the general partners' estimate of net cash flows
expected to be generated from its properties and the need for asset
impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
although the Partnership continues to pursue collection of such
amounts. If amounts are subsequently determined to be uncollectible,
the corresponding receivable and allowance for doubtful accounts are
decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in Des
Moines Real Estate Joint Venture, Williston Real Estate Joint Venture,
Kingsville Real Estate Joint Venture, Columbus Joint Venture, Bossier
City Joint Venture, CNL VIII, X, XII Kokomo Joint Venture and a
property in Colorado Springs, Colorado held as tenants-in-common with
affiliates of the General Partners are accounted for using the equity
method since each
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
joint venture agreement requires the consent of all partners on all key
decisions affecting the operations of the underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts.
Lease Costs - Other assets include brokerage fees associated with
negotiating a new lease which are amortized over the term of the new
lease using the straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment - See "Income
Taxes" footnote for a reconciliation of net income for financial
reporting purposes to net income for federal income tax purposes.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2001 presentation.
These reclassifications had no effect on total partners' capital or net
income.
Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Partnership
to defer recognition of certain percentage rental income until certain
defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material
impact on the Partnership results of operations.
Statement of Financial Accounting Standard No. 141 ("FAS 141") and
Statement of Financial Accounting Standard No. 142 ("FAS 142") - In
July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" (FAS
141) and Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" (FAS 142). The Partnership has reviewed
both statements and has determined that both FAS 141 and FAS 142 do not
apply to the Partnership as of December 31, 2001.
Statement of Financial Accounting Standard No. 144 ("FAS 144") - In
October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement
requires that a long-lived asset be tested for recoverability whenever
events or changes in circumstances indicate that its carrying amount
may not be recoverable. The carrying amount of a long-lived asset is
not recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this
Statement retained the fundamental provisions of FAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of."
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
2. Leases:
------
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." Some of the leases have been
classified as operating leases and some of the leases have been
classified as direct financing leases. For the leases classified as
direct financing leases, the building portions of the property leases
are accounted for as direct financing leases while the land portions of
the leases are operating leases. Substantially all leases are for 10 to
20 years and provide for minimum and contingent rentals. In addition,
the tenant pays all property taxes and assessments, fully maintains the
interior and exterior of the building and carries insurance coverage
for public liability, property damage, fire and extended coverage. The
lease options generally allow tenants to renew the leases for two to
four successive five-year periods subject to the same terms and
conditions as the initial lease. Most leases also allow the tenant to
purchase the property at fair market value after a specified portion of
the lease has elapsed.
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at
December 31:
2001 2000
----------------- -------------------
Land $ 12,369,450 $ 12,216,811
Buildings 13,045,143 11,547,810
----------------- -------------------
25,414,593 23,764,621
Less accumulated depreciation (2,789,613) (2,525,455)
----------------- -------------------
$ 22,624,980 $ 21,239,166
================= ===================
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
Effective January 2000, the Partnership amended the lease relating to
its property in St. Ann, Missouri, to allow for a rent reduction. As a
result, the Partnership reclassified the building portion of this asset
from net investment in direct financing lease to building on operating
lease. In accordance with Statement of Financial Accounting Standards
No. 13, "Accounting for Leases," the Partnership recorded the
reclassified asset at the lower of original cost, present fair value,
or present carrying value. No loss was recorded on the
reclassification.
In April 2000, the Partnership reinvested the net sales proceeds it
received from the sale of the property in Cleveland, Tennessee, along
with additional funds in a Krystal property located in Pooler, Georgia
(see Note 4). In connection therewith, the Partnership entered into a
long term, triple-net lease with terms substantially the same as its
other leases.
In July 2000, the Partnership sold its property in Bradenton, Florida,
to an unrelated third party for approximately $1,227,900 resulting in a
gain of approximately $106,800. The Partnership used the net sales
proceeds to acquire an interest in a property in Colorado Springs,
Colorado, with an affiliate of the general partners, as
tenants-in-common (see Note 5).
Effective January 2001, the tenant terminated the lease with the
Partnership relating to its property in Albany, Georgia. As a result,
the Partnership reclassified the building portion of this asset from
net investment in direct financing lease to building on operating
lease. In accordance with statement of Financial Accounting Standards
No. 13, "Accounting for Leases," the Partnership recorded the
reclassified asset at the lower of original cost, present fair value,
or present carrying value. No loss on reclassification of direct
financing lease was recorded. In connection therewith, the Partnership
entered into a new lease with a new tenant with lease terms
substantially the same as the Partnership's other leases.
In September 2001, the Partnership sold its property in Rialto,
California to a third party for approximately $1,423,000 and received
net sales proceeds of approximately $1,382,400 resulting in a gain of
approximately $345,300.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
In October 2001, the Partnership sold its Property in Winter Haven,
Florida to a third party for $1,100,000 and received net sales proceeds
of approximately $1,090,300 resulting in a gain of approximately
$4,200. In December 2001, the Partnership used the net sales proceeds
from the sales of the Properties in Rialto, California and Winter
Haven, Florida to invest in two additional Properties, one each in
Pasadena and Pflugerville, Texas. The Partnership acquired these
Properties from CNL Funding 2001-A, L.P., an affiliate of the General
Partners (see Note 9).
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2001:
2002 $2,646,771
2003 2,914,461
2004 2,958,995
2005 2,979,486
2006 2,994,042
Thereafter 19,215,935
----------------
$33,709,690
================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2001 2000
------------------ -----------------
Minimum lease payments receivable $ 13,177,488 $ 17,040,423
Estimated residual values 2,769,298 3,179,130
Less unearned income (7,803,160 ) (10,478,798 )
------------------ -----------------
Net investment in direct financing leases $ 8,143,626 $ 9,740,755
================== =================
The following is a schedule of future minimum lease payments to be
received on the direct financing leases at December 31, 2001:
2002 $1,097,469
2003 1,138,184
2004 1,154,081
2005 1,154,081
2006 1,154,081
Thereafter 7,479,592
----------------
$13,177,488
================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
In March 2000, the Partnership sold its property in Cleveland,
Tennessee, for which the land and building had been classified as a
direct financing lease, to an unrelated third party for $806,460 and
received net sales proceeds of approximately $791,500, resulting in a
gain of approximately $147,600. In April 2000, the Partnership used the
net sales proceeds from the sale of this property and a portion of the
net sales proceeds received from the 1999 sale of its property in
Morganton, North Carolina in a Krystal property in Pooler, Georgia (see
Note 3).
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Net Investment in Direct Financing Leases - Continued:
-----------------------------------------------------
During 2001, the Partnership established a provision for impairment in
carrying value in the amount of $64,518 for its property in Winter
Haven, Florida as a result of the tenant vacating the property and
ceasing restaurant operations. The provision represented the difference
between the carrying value of the net investment in the direct
financing lease at June 30, 2001 and the anticipated sales price for
the property. In July 2001, the Partnership and the tenant terminated
its lease. As a result, the Partnership reclassified the building
portion of the asset from net investment in direct financing leases to
land and buildings on operating leases. In accordance with Statement of
Financial Accounting Standards No. 13, "Accounting for Leases," the
Partnership recorded the reclassified asset at the lower of original
cost, present fair value, or present carrying amount. No loss on
termination of direct financing lease was recorded. In October 2001,
the Partnership sold this property (see Note 3).
5. Investment in Joint Ventures:
----------------------------
As of December 31, 2001, the Partnership had a 59.05%, an 18.61%, a
31.13%, a 27.72% and a 55% interest in the profits and losses of
Williston Real Estate Joint Venture, Des Moines Real Estate Joint
Venture, Kingsville Real Estate Joint Venture, Columbus Joint Venture,
and Bossier City Joint Venture, respectively. The remaining interests
in these joint ventures are held by affiliates of the Partnership which
have the same general partners.
In August 2000, the Partnership reinvested the net sales proceeds from
the sale of its property in Bradenton, Florida in a property in
Colorado Springs, Colorado as tenants-in-common with CNL Income Fund
VII, Ltd. ("CNL VII"), a Florida limited partnership and an affiliate
of the general partners. In connection therewith, the Partnership and
the affiliate entered into an agreement whereby each co-tenant will
share in the profits and losses of the property in proportion to its
applicable percentage interest. The Partnership and CNL VII acquired
this property from CNL BB Corp., an affiliate of the general partners
(see Note 9). The Partnership owns a 57% interest in this property.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
In March 2001, Middleburg Joint Venture, in which the Partnership owned
an 87.54% interest, sold its property to the tenant, in accordance with
the purchase option under the lease agreement, for $1,900,000. Due to
the fact that the joint venture had recorded accrued rental income,
representing non-cash amounts that the joint venture had recognized as
income since the inception of the lease relating to the straight-lining
of future scheduled rent increases in accordance with generally
accepted accounting principles, a loss of approximately $61,900 was
recorded by the joint venture in March 2001. The Partnership dissolved
the joint venture in accordance with the Partnership agreement and did
not incur a gain or loss on the dissolution.
In April 2001, the Partnership used the proceeds received from the
liquidation of Middleburg Joint Venture as described above, to invest
in a joint venture arrangement, CNL VIII, X, XII Kokomo Joint Venture,
with CNL Income Fund VIII, Ltd. and CNL Income Fund X, Ltd. to purchase
and hold one restaurant property. The joint venture acquired this
property from CNL BB Corp., an affiliate of the general partners (see
Note 9). Each of the CNL Income Funds is an affiliate of the general
partners and a Florida limited partnership pursuant to the laws of the
state of Florida. As of December 31, 2001, the Partnership owned an 80%
interest in the profits and losses of the joint venture.
Williston Real Estate Joint Venture, Des Moines Real Estate Joint
Venture, Kingsville Real Estate Joint Venture, Columbus Joint Venture,
Bossier City Joint Venture, CNL VIII, X, XII Kokomo Joint Venture and
the Partnership and affiliates, in a tenancy in common arrangement,
each own and lease one property to an operator of national fast-food or
family-style restaurants.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
----------------------------------------
The following presents the joint ventures' combined, condensed
financial information at December 31:
2001 2000
------------------ ------------------
Land and buildings on operating
leases, net $ 7,580,162 $ 6,153,743
Net investment in direct financing
leases 640,381 1,926,938
Cash 53,152 85,033
Receivables, less allowance for
doubtful accounts 951 193
Accrued rental income 193,083 294,356
Other assets 1,444 741
Liabilities 27,721 54,005
Partners' capital 8,441,452 8,406,999
Revenues 894,206 779,865
Net income 720,786 658,303
The Partnership recognized income totaling $364,478, $373,694, and
$344,964, for the years ended December 31, 2001, 2000, and 1999,
respectively, from these joint ventures.
6. Mortgage Note Receivable:
------------------------
In connection with the sale of the property in Morganton, North
Carolina, in May 1999, the Partnership accepted a promissory note in
the principal sum of $55,000 collateralized by a mortgage on the
property. During the year ended December 31, 2001, the Partnership
collected the outstanding principal and interest balance of $45,375
relating to this promissory note.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. Allocations and Distributions:
------------------------------
From inception through December 31, 1999, generally, all net income and
net losses of the Partnership, excluding gains and losses from the sale
of properties, were allocated 99% to the limited partners and one
percent to the general partners. Distributions of net cash flow were
made 99% to the limited partners and one percent to the general
partners; provided, however, that the one percent of net cash flow to
be distributed to the general partners is subordinated to receipt by
the limited partners of an aggregate, ten percent, cumulative,
noncompounded annual return on their invested capital contributions
(the "Limited Partners' 10% Return").
From inception through December 31, 1999, generally, net sales proceeds
from the sale of properties, not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their Limited Partners'
10% Return, plus the return of their adjusted capital contributions.
The general partners then received, to the extent previously
subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds distributed 95% to the
limited partners and five percent to the general partners. Any gain
from the sale of a property not in liquidation of the Partnership was,
in general, allocated in the same manner as net sales proceeds are
distributable. Any loss from the sale of a property was, in general,
allocated first, on a pro rata basis, to partners with positive
balances in their capital accounts; and thereafter, 95% to the limited
partners and five percent to the general partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after allocations of net income, gains
and/or losses, to distribute to the partners with positive capital
accounts balances, in proportion to such balances, up to amounts
sufficient to reduce such positive balances to zero, and (v)
thereafter, any funds remaining shall then be distributed 95% to the
limited partners and five percent to the general partners.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. Allocations and Distributions - Continued:
-----------------------------------------
Effective January 1, 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the year
ended December 31, 2001 and 2000.
The Partnership declared distributions to the limited partners of
$3,825,008, during the years ended December 31, 2001, 2000, and 1999.
No distributions have been made to the general partners to date.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. Income Taxes:
-------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2001 2000 1999
--------------- --------------- -------------
Net income for financial reporting purposes $ 3,268,250 $ 3,820,216 $ 3,645,043
Depreciation for tax reporting purposes in
excess of depreciation for financial
reporting purposes (86,914) (146,845) (210,176)
Direct financing leases recorded as
operating leases for tax reporting
purposes 148,848 197,885 192,255
Provision for write-down of assets 362,265 155,281 --
Gain on sale of assets for
tax reporting purposes in excess of (less
than) gain/loss for financial reporting
purposes (338,327) (254,405) (181,362)
Capitalization (deduction) of transaction costs
for tax reporting purposes -- (243,135) 218,853
Equity in earnings of joint ventures for tax
reporting purposes in excess of (less
than) equity in earnings of joint ventures
for financial reporting purposes 191,130 (55,273) (126,086)
Allowance for doubtful accounts 20,678 15,847 (200,142)
Accrued rental income (303,491) (190,569) (200,368)
Rents paid in advance 91,629 34,376 (47,461)
--------------- --------------- -------------
Net income for federal income tax purposes $ 3,354,068 $ 3,333,378 $ 3,090,556
=============== =============== =============
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
9. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP. (the "Advisor") is a wholly owned subsidiary
of CNL Financial Group, Inc. until it merged with CNL American
Properties Fund, Inc. ("APF"). CNL Fund Advisors, Inc., a majority
owned subsidiary of CNL Financial Group, Inc. until it merged with and
into APF effective September 1, 1999, served as the Partnership's
advisor until it assigned its rights and obligations under a management
agreement with the Partnership to the Advisor effective July 1, 2000.
The individual general partners are stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with
the Partnership. In connection therewith, the Partnership agreed to pay
the Advisor a management fee of one percent of the sum of gross
revenues from properties owned by the Partnership and the Partnership's
allocable share of gross revenues from joint ventures. The management
fee, which will not exceed fees which are competitive for similar
services in the same geographic area, may or may not be taken, in whole
or in part as to any year, in the sole discretion of the Advisor. The
Partnership incurred management fees of $40,719, $42,538, and $42,710,
for the years ended December 31, 2001, 2000, and 1999, respectively.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the Limited Partners of their aggregate 10%
Preferred Return, plus their adjusted capital contributions. No
deferred, subordinated real estate disposition fees have been incurred
since inception.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
9. Related Party Transactions:
--------------------------
During the years ended December 31, 2001, 2000, and 1999, the
Partnership's advisor and its affiliates provided accounting and
administrative services to the Partnership on a day-to-day basis
including services relating to the proposed and terminated merger. The
Partnership incurred $245,519, $107,794, and $139,857 for the years
ended December 31, 2001, 2000, and 1999, respectively, for such
services.
During 2000, the Partnership and CNL VII, as tenants-in-common,
acquired an interest in a Bennigan's property from CNL BB Corp., an
affiliate of the general partners, for a purchase price of $2,226,134.
CNL BB Corp. had purchased and temporarily held title to this property
in order to facilitate the acquisition of the property by the
Partnership. The purchase price paid represents the costs incurred by
CNL BB Corp. to acquire and carry the property including closing costs.
In April 2001, the Partnership, CNL Income Fund VIII, Ltd., and CNL
Income Fund X, Ltd. invested in a joint venture arrangement, CNL VIII,
X, XII Kokomo Joint Venture to acquire a Golden Corral property from
CNL BB Corp., an affiliate of the general partners, for a total
purchase price of $2,112,011. CNL Income Fund VIII, Ltd. and CNL Income
Fund X, Ltd. are each Florida limited partnerships and affiliates of
the general partners. CNL BB Corp. had purchased and temporarily held
title to this property in order to facilitate the acquisition of the
property by the joint venture. The purchase price paid by the joint
venture represents the costs incurred by CNL BB Corp. to acquire and
carry the property, including closing costs.
In December 2001, the Partnership acquired two properties, one each in
Pasadena and Pflugerville, Texas from CNL Funding 2001-A, LP, for a
purchase price of approximately $2,478,795 (see Note 3). CNL Funding
2001-A, LP is a Delaware limited partnership and an affiliate of the
general partners. CNL Funding 2001-A, LP had purchased and temporarily
held title to the property in order to facilitate the acquisition of
the property by the Partnership. The purchase price paid by the
Partnership represented the costs incurred by CNL Funding 2001-A, LP to
acquire and carry the property, including closing costs.
The amounts due to related parties at December 31, 2001 and 2000,
totaled $25,885 and $22,808, respectively.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
10. Concentration of Credit Risk:
----------------------------
The following schedule presents rental, earned, and mortgage interest
income from individual lessees, or affiliated groups of lessees, each
representing more than ten percent of the Partnership's total rental,
earned and mortgage interest income (including the Partnership's share
of rental and earned income from joint ventures and the property held
with an affiliate as tenants-in-common) for each of the years ended
December 31:
2001 2000 1999
---------------- ---------------- ---------------
Jack in the Box Inc. and Jack in the Box
Eastern Division, L.P. in 2001
(formerly Foodmaker, Inc.) $ 994,523 $1,024,667 $1,024,667
Flagstar Enterprises, Inc. 761,163 766,823 775,075
In addition, the following schedule presents total rental, earned, and
mortgage interest income from individual restaurant chains, each
representing more than ten percent of the Partnership's total rental,
earned and mortgage interest income (including the Partnership's share
of rental and earned income from joint ventures and the property owned
with an affiliate as tenants-in-common), for each of the years ended
December 31:
2001 2000 1999
------------ ------------- -----------
Jack in the Box $ 994,523 $ 1,024,667 $1,024,667
Hardee's 761,162 766,823 775,075
Denny's 684,816 570,046 799,567
Long John Silver's 463,546 429,275 479,814
Golden Corral N/A N/A 446,595
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,
earned and mortgage interest income.
In June 1998, Long John Silver's, Inc. filed for bankruptcy and
rejected the leases relating to three of its eight Properties and
ceased making rental payments to the Partnership on the three rejected
leases. In December 1998 and May 1999, the Partnership sold two of the
vacant properties. In July 1999, the Partnership entered into a new
lease with a new tenant
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
10. Concentration of Credit Risk - Continued:
----------------------------------------
for the remaining vacant property for which rental payments commenced
in August of 1999. In August 1999, Long John Silver's, Inc. assumed and
affirmed its five remaining leases.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
11. Selected Quarterly Financial Data:
----------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2001 and
2000.
2001 Quarter First Second Third Fourth Year
------------------------ --------------- -------------- -------------- --------------- --------------
Revenues (1)(2) $1,108,168 $1,030,519 $1,038,181 $1,062,053 $4,238,921
Net income 451,309 731,932 1,181,748 903,261 3,268,250
Net income per
limited partner
unit 0.10 0.16 0.26 0.21 0.73
2000 Quarter First Second Third Fourth Year
------------------------ --------------- -------------- -------------- --------------- --------------
Revenues (1)(2) $1,126,566 $1,102,495 $1,022,198 $1,201,734 $4,452,993
Net income 1,036,139 893,042 944,221 946,814 3,820,216
Net income per
limited partner
unit 0.23 0.20 0.21 0.21 0.85
(1) Revenues include equity in earnings of joint ventures
(2) Rental revenues have been adjusted to reclassify any reversals of
accrued rental income to provision for write-down of assets.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Financial Group, Inc.
and their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 55. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL American Properties Fund,
Inc. ("APF"), a public, unlisted real estate investment trust, since 1994. Mr.
Seneff served as Chief Executive Officer of APF from 1994 through August 1999,
and has served as Co-Chief Executive Officer of APF since December 2000. Mr.
Seneff served as Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors, Inc., formerly the Partnership's advisor, until it merged with a
wholly-owned subsidiary of APF in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc., a diversified real estate company, and has served as a Director,
Chairman of the Board and Chief Executive Officer of CNL Financial Group, Inc.
since its formation in 1980. CNL Financial Group, Inc. is the parent company,
either directly or indirectly through subsidiaries, of CNL Real Estate Services,
Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp.
Mr. Seneff also serves as a Director, Chairman of the Board and Chief Executive
Officer of CNL Hospitality Properties, Inc., a public, unlisted real estate
investment trust, as well as, CNL Hospitality Corp., its advisor. In addition,
he serves as a Director, Chairman of the Board and Chief Executive Officer of
CNL Retirement Properties, Inc., a public, unlisted real estate investment trust
and its advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has also served as
a Director, Chairman of the Board and Chief Executive Officer of Commercial Net
Lease Realty, Inc., a public real estate investment trust that is listed on the
New York Stock Exchange. Mr. Seneff has also served as a Director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a Director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNL Bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 54. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne is
Director of the Board of Directors of APF. Mr. Bourne served as President of APF
from 1994 through February 1999. He also served as Treasurer from February 1999
through August 1999 and from May 1994 through December 1994. He also served in
various executive positions with CNL Fund Advisors, Inc. prior to its merger
with a wholly-owned subsidiary of APF including, President from 1994 through
September 1997, and Director from 1994 through August 1999. Mr. Bourne serves as
President and Treasurer of CNL Financial Group, Inc.; Director, Vice Chairman of
the Board, President and Treasurer of CNL Hospitality Properties, Inc., a
public, unlisted real estate investment trust; as well as, Director, Vice
Chairman of the Board, President and Treasurer of CNL Hospitality Corp., its
advisor. In addition, Mr. Bourne serves as Director, Vice Chairman of the Board,
President and Treasurer of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust; as well as, a Director, Vice Chairman of the
Board, President and Treasurer of its advisor, CNL Retirement Corp. Mr. Bourne
also serves as a Director of CNL Bank. He has served as a Director since 1992,
Vice Chairman of the Board since February 1996, Secretary and Treasurer from
February 1996 through 1997, and President from July 1992 through February 1996,
of Commercial Net Lease Realty, Inc., a public real estate investment trust
listed on the New York Stock Exchange. Mr. Bourne also serves as Director,
President and Treasurer for various affiliates of CNL Financial Group, Inc.
including, CNL Investment Company, CNL Securities Corp. and CNL Institutional
Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified Public Accountants, from 1971 through 1978, where he attained the
position of Tax Manager in 1975. Mr. Bourne graduated from Florida State
University in 1970 where he received a B.A. in Accounting, with honors.
Curtis B. McWilliams, age 46. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as Chief
Executive Officer from September 1999 through December 2000. Prior to the
acquisition of CNL Fund Advisors, Inc., Mr. McWilliams served as President of
APF from February 1999 until September 1999. From February 1998 to February
1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL
Financial Group, Inc. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc. from April
1997 until the acquisition of such entities by wholly-owned subsidiaries of APF
in September 1999. From September 1983 through March 1997, Mr. McWilliams was
employed by Merrill Lynch & Co. The majority of his career at Merrill Lynch &
Co. was in the Investment Banking division where he served as a Managing
Director. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.
Steven D. Shackelford, age 38. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors, Inc. from September 1996 to September 1999. From March
1995 to July 1996, Mr. Shackelford was a senior manager in the national office
of Price Waterhouse LLP where he was responsible for advising foreign clients
seeking to raise capital and a public listing in the United States. From August
1992 to March 1995, he was a manager in the Paris, France office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and senior from 1986 to 1992 in the Orlando, Florida office of Price
Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business Administration degree from Florida State
University and is a certified public accountant.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 15, 2002, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 15, 2002, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2001, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- ---------------------------------- -------------------------------------- --------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and administrative
operating expenses the lower of cost or 90% of the services: $245,519
prevailing rate at which comparable
services could have been obtained in
the same geographic area.
Affiliates of the General Partners
from time to time incur certain
operating expenses on behalf of the
Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual management fee One percent of the sum of gross $40,719
to affiliates operating revenues from Properties
wholly owned by the Partnership plus
the Partnership's allocable share of
gross revenues of joint ventures in
which the Partnership is a
co-venturer. The management fee,
which will not exceed competitive
fees for comparable services in the
same geographic area, may or may not
be taken, in whole or in part as to
any year, in the sole discretion of
affiliates.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee payable disposition fee, payable upon sale
to affiliates of one or more Properties, in an
amount equal to the lesser of (i)
one-half of a competitive real
estate commission, or (ii) three
percent of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the sale
of a Property or Properties and
shall be subordinated to certain
minimum returns to the Limited
Partners. However, if the net sales
proceeds are reinvested in a
replacement Property, no such real
estate disposition fee will be
incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales proceeds distributions of such net sales
from a sale or sales not in proceeds, subordinated to certain
liquidation of the Partnership minimum returns to the Limited
Partners.
Amount Incurred
Type of Compensation For the Year
And Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net loss,
gain and loss, in proportion to such
balances, up to amounts sufficient
to reduce such balances to zero; and
(iii) thereafter, 95% to the Limited
Partners and 5% to the General Partners.
The Partnership entered into a joint venture arrangement with CNL Income Fund
VIII, Ltd., and CNL Income Fund X, Ltd., affiliates of the General Partners to
acquire a Golden Corral Property from CNL BB Corp., an affiliate of the General
Partners, for a purchase price of $2,112,011. CNL BB Corp. had purchased and
temporarily held title to this Property in order to facilitate the acquisition
of the Property by the joint venture. The purchase price paid by the Partnership
represents the costs incurred by CNL BB Corp. to acquire and carry the Property,
including closing costs.
The Partnership acquired two Taco Cabana properties from CNL Funding 2001-A, LP,
an affiliate of the General Partners for a purchase price of $2,478,795. CNL
Funding 2001-A, LP had purchased and temporarily held title to these properties
in order to facilitate the acquisition of the properties by the Partnership. The
purchase price paid by the Partnership represents the costs incurred by CNL
Funding 2001-A, LP to acquire and carry the properties, including closing costs.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2001 and 2000
Statements of Income for the years ended December 31, 2001,
2000, and 1999
Statements of Partners' Capital for the years ended December
31, 2001, 2000, and 1999
Statements of Cash Flows for the years ended December 31,2001,
2000, and 1999
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II -Valuation and Qualifying Accounts for the years
ended December 31, 2001, 2000 and 1999
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2001
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2001
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XII, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278-01 on Form S-11
and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XII, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278-01 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XII, 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 XII,
Ltd. and CNL Investment Company (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on April 15, 1993, and
incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1995,
and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996,
and incorporated herein by reference.)
10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 to Form 10-Q filed with the Securities
and Exchange Commission on August 13, 2001, and
incorporated herein by reference.)
(b) The Registrant filed no reports on Form 8-K during the period October
1, 2001 through December 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 22nd day of
March, 2002.
CNL INCOME FUND XII, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
-----------------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
-----------------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
-----------------------------------
JAMES M. SENEFF, JR.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert A. Bourne President, Treasurer and Director March 22, 2002
- ------------------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 22, 2002
- ------------------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000, and 1999
Additions Deductions
--------------------------------- -------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
1999 Allowance for
doubtful
accounts (a) $ 220,956 $ -- $ 14,490 (b) $208,727 (c) $ 5,905 $ 20,814
============== =============== ================ ============= ============ ============
2000 Allowance for
doubtful
accounts (a) $ 20,814 $ -- $ 264,253 (b) $ -- (c) $ 93,125 $ 191,942
============== =============== ================ ============= ============ ============
2001 Allowance for
doubtful
accounts (a) $ 191,942 $ 12,665 $ 100,231 (b) $ 91,631 (c) $ 153,130 $ 60,077
============== =============== ================ ============= ============ ============
(a) Deducted from receivables and accrued rental income on the
balance sheet.
(b) Reduction of rental, earned, and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
Costs Capitalized
Subsequent to
Initial Cost Acquisition
---------------------- --------------------
Encum- Buildings anImprove- Carrying
brances Land Improvements ments Costs
--------- ---------- ---------------------- -------
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurants:
Valdosta, Georgia - $238,891 $316,670 - -
Natchitoches, Louisiana - 152,329 - 489,366 -
Denny's Restaurants:
St. Ann, Missouri (m) - 338,826 302,975 - -
Phoenix, Arizona - 456,306 - - -
Black Mountain, North Ca-olina 260,493 - - -
Blue Springs, Missouri - 497,604 - - -
Columbus, Georgia (g) - 125,818 314,690 - -
Tempe, Arizona - 709,275 - - -
Golden Corral Family
Steakhouse Restaurant:
Arlington, Texas - 711,558 1,159,978 - -
Hardee's Restaurants:
Crossville, Tennessee - 290,136 334,350 - -
Toccoa, Georgia - 208,847 - - -
Columbia, Mississippi - 134,810 - - -
Pensacola, Florida - 277,236 - - -
Columbia, South Carolina- 325,674 - - -
Simpsonville, South Caro-ina 239,494 - - -
Indian Trail, North Caro-ina 298,938 - - -
Clarksville, Georgia - 160,478 415,540 - -
Jack in the Box Restaurants:
Spring, Texas - 564,164 510,639 - -
Houston, Texas - 360,617 659,805 - -
Arlington, Texas - 329,226 716,600 - -
Grapevine, Texas - 471,367 590,988 - -
Phoenix, Arizona - 294,773 527,466 - -
Petaluma, California - 534,076 800,780 - -
Willis, Texas - 569,077 427,381 - -
Houston, Texas - 368,758 663,022 - -
KFC Restaurant:
Las Cruces, New Mexico - 175,905 - - -
Krystal Restaurant:
Pooler, Georgia - 410,085 598,982 - -
Long John Silver's Restaurants:
Clarksville, Tennessee (-) 166,283 384,574 - -
El Paso, Texas - 314,270 - - -
Tucson, Arizona - 277,378 245,385 - -
Asheville, North Carolin- (l) 213,536 453,223 - -
Taco Cabana Restaurants:
Pfugerville, Texas - 674,782 816,449 - -
Pasadena, Texas - 477,192 510,374 - -
Other:
Albany, Georgia (n) - 378,547 765,736 - -
Statesville, Nor(i)Carol-na 240,870 334,643 30,000 -
Tempe, Arizona (h) - 121,831 620,527 55,000 -
---------- ---------- ---------- -------
$12,369,450 $12,470,777 $574,366 -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has an
18.61% Interest and has
Invested in Under an
Operating Lease:
Jack in the Box Restaurant:
Des Moines, Washington - $322,726 $791,658 - -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
31.13% Interest and has
Invested in Under an
Operating Lease:
Denny's Restaurant:
Kingsville, Texas (j) - $171,061 $243,326 $99,128 -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
27.72% Interest in Under an
Operating Lease:
Arby's Restaurant:
Columbus, Ohio - $407,096 - $498,684 -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
55% Interest in Under an
Operating Lease:
IHOP Restaurant:
Bossier City, Louisiana - $453,016 866,192 - -
========== ========== ========== =======
Property in Which the
Partnership has a 57%
Interest and has Invested
in as Tenants-in-Common
Under an Operating Lease:
Bennigan's Restaurant:
Colorado Springs, Colora-o $947,120 1,279,013 - -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
80.00% Interest and has
Invested in Under an
Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Kokomo, Indiana - $644,163 $1,467,848 $ - $ -
========== ========== ========== =======
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Denny's Restaurants:
Phoenix, Arizona - - - 467,545 -
Black Mountain, North Ca-olina - 696,851 - -
Blue Springs, Missouri - - - 485,945 -
Tempe, Arizona - - - 491,258 -
Amherst, Ohio - 127,672 169,928 316,796 -
Hardee's Restaurants:
Toccoa, Georgia - - 437,938 - -
Fultondale, Alabama - 173,015 - 636,480 -
Poplarville, Mississippi- 138,019 - 444,485 -
Columbia, Mississippi - - 367,836 - -
Pensacola, Florida - - - 450,193 -
Columbia, South Carolina- - 452,333 - -
Simpsonville, South Caro-ina - 517,680 - -
Indian Trail, North Caro-ina - 496,110 - -
KFC Restaurant:
Las Cruces, New Mexico - - 224,790 - -
Long John Silver's Restaurants:
Murfreesboro, Tennessee - 174,746 555,186 - -
El Paso, Texas - - - 371,286 -
Chattanooga, Tennessee - 142,627 584,320 - -
---------- ---------- ---------- -------
$756,079 $4,502,972 $3,663,988 -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
59.05% Interest and has
Invested in Under a Direct
Financing Lease:
Hardee's Restaurant:
Williston, Florida - $150,143 - $499,071 -
========== ========== ========== =======
Net Cost Basis at Which Life on Which
Carried at Close of Period (c) Depreciation in
- ------------------------------------ Date Latest Income
Buildings and Accumulatedof Con- Date Statement is
Land Improvements Total DepreciatiostructioAcquired Computed
- ------------ ---------------------- ---------- -----------------------------
$238,891 $316,670 $555,561 $88,205 1990 08/92 (b)
152,329 489,366 641,695 143,234 1993 12/92 (b)
338,826 302,975 641,801 26,345 1993 11/92 (m)
456,306 (f) 456,306 (f) 1993 11/92 (d)
260,493 (f) 260,493 (f) 1992 12/92 (d)
497,604 (f) 497,604 (f) 1993 12/92 (d)
125,818 314,690 440,508 86,691 1980 01/93 (g)
709,275 (f) 709,275 (f) 1982 02/93 (d)
711,558 1,159,978 1,871,536 350,960 1992 12/92 (b)
290,136 334,350 624,486 100,580 1992 12/92 (b)
208,847 (f) 208,847 (f) 1992 12/92 (d)
134,810 (f) 134,810 (f) 1991 01/93 (d)
277,236 (f) 277,236 (f) 1993 03/93 (d)
325,674 (f) 325,674 (f) 1991 05/93 (d)
239,494 (f) 239,494 (f) 1992 06/93 (d)
298,938 (f) 298,938 (f) 1992 07/93 (d)
160,478 415,540 576,018 116,692 1992 07/93 (b)
564,164 510,639 1,074,803 152,539 1993 01/93 (b)
360,617 659,805 1,020,422 197,098 1993 01/93 (b)
329,226 716,600 1,045,826 214,064 1992 01/93 (b)
471,367 590,988 1,062,355 176,541 1992 01/93 (b)
294,773 527,466 822,239 158,095 1992 01/93 (b)
534,076 800,780 1,334,856 239,210 1993 01/93 (b)
569,077 427,381 996,458 127,004 1993 02/93 (b)
368,758 663,022 1,031,780 197,030 1993 02/93 (b)
175,905 (f) 175,905 (f) 1990 03/93 (d)
410,085 598,982 1,009,067 34,109 2000 04/00 (b)
166,283 384,574 550,857 37,010 1993 03/93 (k)
314,270 (f) 314,270 (f) 1993 06/93 (d)
277,378 245,385 522,763 69,403 1992 07/93 (b)
213,536 453,223 666,759 42,632 1993 08/93 (l)
674,782 816,449 1,491,231 2,267 2000 12/01 (b)
477,192 510,374 987,566 1,417 2000 12/01 (b)
378,547 765,736 1,144,283 34,806 1991 12/92 (n)
240,870 364,643 605,513 55,007 1993 04/93 (i)
121,831 675,527 797,358 138,672 1988 04/93 (h)
- ------------ ---------- ---------- ----------
$12,369,450 $13,045,143 $25,414,593 $2,789,611
============ ========== ========== ==========
$322,726 $791,658 $1,114,384 $243,062 1992 12/92 (b)
============ ========== ========== ==========
$150,742 $243,326 $394,068 $38,420 1988 10/92 (j)
============ ========== ========== ==========
$407,096 $498,684 $905,780 $50,561 1998 08/98 (b)
============ ========== ========== ==========
$453,016 $866,192 $1,319,208 $62,286 1998 11/99 (b)
============ ========== ========== ==========
$947,120 $1,279,013 $2,226,133 $60,398 2000 08/00 (b)
============ ========== ========== ==========
$644,163 $1,467,848 $2,112,011 $36,695 12/00 4/01 (b)
============ ========== ========== ==========
- (f) (f) (d) 1993 11/92 (d)
- (f) (f) (d) 1992 12/92 (d)
- (f) (f) (d) 1993 12/92 (d)
- (f) (f) (d) 1982 02/93 (d)
(f) (f) (f) (e) 1987 07/93 (e)
- (f) (f) (d) 1992 12/92 (d)
(f) (f) (f) (e) 1993 12/92 (e)
(f) (f) (f) (e) 1993 01/93 (e)
- (f) (f) (d) 1991 01/93 (d)
- (f) (f) (d) 1993 03/93 (d)
- (f) (f) (d) 1991 05/93 (d)
- (f) (f) (d) 1992 06/93 (d)
- (f) (f) (d) 1992 07/93 (d)
- (f) (f) (d) 1990 03/93 (d)
(f) (f) (f) (e) 1989 02/93 (e)
- (f) (f) (d) 1993 06/93 (d)
(f) (f) (f) (e) 1993 07/93 (e)
(f) (f) (f) (e) 1993 12/92 (e)
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(a) Transactions in real estate and accumulated depreciation during 2001,
2000, and 1999, are summarized as follows:
Accumulated
Cost Depreciation
---------------- -----------------
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 1998 $ 22,704,967 $ 1,795,099
Dispositions (664,199) (10,079 )
Additional costs capitalized 30,000 --
Reclassified to operating lease (k) 837,797 --
Depreciation expense -- 342,717
---------------- -----------------
Balance, December 31, 1999 22,908,565 2,127,737
Acquisition 1,009,067 --
Reclassified to operating lease (l) 302,975 --
Dispositions (455,986 ) --
Depreciation expense -- 397,718
---------------- -----------------
Balance, December 31, 2000 23,764,621 2,525,455
Reclassified to operating lease (m) 1,383,763 --
Acquisitions 2,478,795 --
Dispositions (2,212,588 ) (178,245 )
Depreciation expense -- 442,403
---------------- -----------------
Balance, December 31, 2001 $ 25,414,591 $ 2,789,613
================ =================
Property of Joint Venture in Which the Partnership has a 18.61%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 1,114,384 $ 163,895
Depreciation expense -- 26,389
---------------- -----------------
Balance, December 31, 1999 1,114,384 190,284
Depreciation expense -- 26,389
---------------- -----------------
Balance, December 31, 2000 1,114,384 216,673
Depreciation expense -- 26,389
---------------- -----------------
Balance, December 31, 2001 $ 1,114,384 $ 243,062
================ =================
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -----------------
Property of Joint Venture in Which the Partnership
has 27.72% Interest and has Invested in Under
Operating Leases:
Balance, December 31, 1998 $ 875,702 $ --
Acquisition 30,078 --
Depreciation expense -- 17,315
---------------- -----------------
Balance, December 31, 1999 905,780 17,315
Depreciation expense -- 16,623
---------------- -----------------
Balance, December 31, 2000 905,780 33,938
Depreciation expense -- 16,623
---------------- -----------------
Balance, December 31, 2001 $ 905,780 $ 50,561
================ =================
Property of Joint Venture in Which the Partnership has a 31.13%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 150,742 $ --
Reclassification to operating lease 243,326 --
Depreciation expense (j) -- 12,807
---------------- -----------------
Balance, December 31, 1999 394,068 12,807
Depreciation expense (j) -- 12,807
---------------- -----------------
Balance, December 31, 2000 394,068 25,614
Depreciation expense -- 12,806
---------------- -----------------
Balance, December 31, 2001 $ 394,068 $ 38,420
================ =================
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -----------------
Property of Joint Venture in Which the Partnership has a 55%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 1,319,208 --
Depreciation expense -- 4,541
---------------- -----------------
Balance, December 31, 1999 1,319,208 4,541
Depreciation expense -- 28,873
---------------- -----------------
Balance, December 31, 2000 1,319,208 33,414
Depreciation expense -- 28,872
---------------- -----------------
Balance, December 31, 2001 $ 1,319,208 $ 62,286
================ =================
Property in Which the Partnership has a 57% Interest and has
Invested in Under an Operating Lease:
Balance, December 31, 1999 $ -- $ --
Acquisition 2,226,133 --
Depreciation expense -- 17,765
---------------- -----------------
Balance, December 31, 2000 2,226,133 17,765
Depreciation expense -- 42,633
---------------- -----------------
Balance, December 31, 2001 $ 2,226,133 $ 60,398
================ =================
Property of Joint Venture in Which the Partnership has an 80.00%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 2000 $ -- $ --
Acquisition 2,112,011 --
Depreciation expense -- 36,695
---------------- -----------------
Balance, December 31, 2001 $ 2,112,011 $ 36,695
================ =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
(c) As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and joint ventures for federal income tax purposes was
$33,976,528 and $9,078,715, respectively. All of the leases are treated
as operating leases for federal income tax purposes.
(d) The portion of the lease relating to the building has been recorded as
a direct financing lease. The cost of the building has been included in
net investment in direct financing leases; therefore, depreciation is
not applicable.
(e) The lease for the land and building has been recorded as a direct
financing lease. The cost of the land and building has been included in
net investment in direct financing leases; therefore, depreciation is
not applicable.
(f) Certain components of the lease relating to land and building have been
recorded as a direct financing lease. Accordingly, costs relating to
these components of this lease are not shown.
(g) Effective January 1994, the lease for this Property was amended,
resulting in the reclassification of the building portion of the lease
to an operating lease. The building was recorded at net book value and
depreciated over its remaining estimated life of approximately 29
years.
(h) Effective July 1996, the lease for this Property terminated, resulting
in the lease being reclassified as an operating lease. The land and
building were recorded at net book value and the building is being
depreciated over its remaining estimated life of approximately 27
years.
(i) Effective June 1998, the lease for this Property was amended, resulting
in a reclassification of the building portion of the lease to an
operating lease. The building was recorded at net book value and
depreciated over its remaining estimated life of approximately 25
years.
(j) The undepreciated cost of the Property in Kingsville, Florida, was
written-down to its estimated net realizable value due to an
anticipated impairment in value. The Partnership recognized the
impairment by recording a provision for write-down of assets in the
amount of $316,113 during 1998. The impairment at December 31, 1998,
represented the difference between the Property's carrying value and
the general partners' estimated net realizable value of the Property.
During 1999, the joint venture re-leased the Property to a new tenant,
resulting in the reclassification of the building portion of the lease
as an operating lease. The building was recorded at net book value and
depreciated over the remaining life of approximately 19 years. The cost
of the Property presented on this schedule is the net amount at which
the Property was carried at December 31, 2001, including the provision
for write-down of assets.
(k) Effective October 1999, the lease for this Property was amended,
resulting in the reclassification of the building portion of the lease
as an operating lease. The building was recorded at net book value and
depreciated over its remaining estimated life of approximately 23
years.
(l) Effective October 1999, the lease for this Property was amended,
resulting in the reclassification of the building portion of the lease
as an operating lease. The building was recorded at net book value and
depreciated over its remaining life of approximately 24 years.
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
(m) Effective January 2000, the lease for this Property was amended,
resulting in the reclassification of the building portion of the lease
as an operating lease. The building was recorded at net book value and
depreciated over its remaining estimated life of approximately 23
years.
(n) Effective January 2001, the lease for this Property was terminated,
resulting in the reclassification of the building portion of the lease
as an operating lease. The building was recorded at net book value and
depreciated over its remaining life of approximately 22 years.