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, 2002
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 0-26216
CNL INCOME FUND XV, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3198888
(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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes No X
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 4,000,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund XV, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on September 2, 1993. 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 February 23, 1994, the
Partnership offered for sale up to $40,000,000 of limited partnership interests
(the "Units") (4,000,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
February 23, 1994. The offering terminated on September 1, 1994, at which date
the maximum offering proceeds of $40,000,000 had been received from investors
who were admitted to the Partnership as limited partners (the "Limited
Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totaled
$35,200,000 and were used to acquire 45 Properties, including 15 Properties
consisting of only land and two Properties owned by a joint venture in which the
Partnership is a co-venturer, to pay acquisition fees totaling $2,200,000 to an
affiliate of the General Partners and to establish a working capital reserve for
Partnership purposes.
As of December 31, 1999, the Partnership owned 40 Properties directly,
which included 14 wholly owned Properties consisting of only land, and owned
nine Properties indirectly through joint venture or tenancy in common
arrangements. During the year ended December 31, 2000, the Partnership sold its
interest in Duluth Joint Venture to an affiliate of the General Partners. In
addition, during 2000, the Partnership sold a Property in Lexington, North
Carolina and used the net sales proceeds to invest in a joint venture
arrangement, TGIF Pittsburgh Joint Venture, with affiliates of the General
Partners, to purchase and hold one Property. During the year ended December 31,
2001, the Partnership sold its Property in Greer, South Carolina and accepted a
promissory note in the principal sum of $467,000 which the Partnership collected
in its entirety during 2001. In addition, during 2001, the Partnership sold its
Properties in Woodland Hills and Altadena, California. The Partnership used the
net sales proceeds from the sales of these Properties, a portion of the net
sales from the sale of the Property in Greer, South Carolina, and a portion of
the amount received from the promissory note, to invest in a Property in Blue
Springs, Missouri with CNL Income Fund XIII, Ltd., an affiliate of the General
Partners as tenants-in-common and to invest in a Property in Houston, Texas. In
addition, during 2001, Wood-Ridge Real Estate Joint Venture, in which the
Partnership owns a 50% interest, sold its Property in Paris, Texas. The
Partnership and the other joint venture partner each received $400,000
representing a return of capital from the net sales proceeds and used the
proceeds to invest in a joint venture arrangement, CNL VII, XV Columbus Joint
Venture, with an affiliate of the General Partners to construct and hold one
Property. During 2002, the Partnership sold its Properties in Redlands,
California, Medina, Ohio, and Stratford, New Jersey. The Property in Stratford,
New Jersey consisted of land only. The Partnership reinvested the net sales
proceeds from the sale of the Property in Redlands, California in a Property in
Houston, Texas. The Partnership intends to reinvest the proceeds from the sale
of the Properties in Medina, Ohio and Stratford, New Jersey in an additional
Property.
As of December 31, 2002, the Partnership owned 36 Properties directly,
which included 13 wholly owned Properties consisting of only land, and held
interests in seven Properties owned by joint ventures in which the Partnership
is a co-venturer and three Properties owned with affiliates as
tenants-in-common. Generally, the Properties are leased on a triple-net basis
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities.
The Partnership holds 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 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.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership, the
joint ventures, in which the Partnership is a co-venturer and the Properties
owned with affiliates as tenants-in-common, provide for initial terms ranging
from 10 to 20 years (the average being 18 years) and expire between 2009 and
2022. Generally, the leases are 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 $25,200 to
$259,900. The majority of the leases provide for percentage rent, based on sales
in excess of a specified amount. In addition, the majority of the leases provide
that, commencing in specified lease years (generally the third or 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 39 of the Partnership's 46 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 for the 13 wholly owned Properties consisting of only land
are substantially the same as those described above except that the leases
relate solely to the land associated with the Property, with the tenant owning
the buildings currently on the land and having the right, if not in default
under the lease, to remove the buildings from the land at the end of the lease
term.
The leases generally provide that, in the event the Partnership wishes
to sell the Property subject to that lease, the Partnership must first offer the
lessee the right to purchase the Property on the same terms and conditions, and
for the same price, as any offer which the Partnership has received for the sale
of the Property.
During 2002, the Partnership reinvested the net sales proceeds from the
sale of its Property in Redlands, California in a Property in Houston, Texas.
The lease terms for this Property are substantially the same as the
Partnership's other leases, as described above.
During 2001, Phoenix Restaurant Group, Inc. ("PRG") filed for
bankruptcy and neither rejected, nor affirmed the lease relating to the Property
in Bartlesville, Oklahoma. During 2002, the bankruptcy court assigned the lease
relating to this Property to SWAC, LLC. All other lease terms remained the same.
Major Tenants
During 2002, three lessees of the Partnership, Flagstar Enterprises,
Inc., Checkers Drive-In Restaurants, Inc., and Golden Corral Corporation, each
contributed more than 10% of the Partnership's total rental revenues (including
the Partnership's share of rental revenues from Properties owned by joint
ventures and Properties owned with affiliates as tenants-in-common). As of
December 31, 2002, Flagstar Enterprises, Inc. was the lessee under leases
relating to seven restaurants, Checkers Drive-In Restaurants, Inc. was the
lessee under leases relating to 13 restaurants and Golden Corral Corporation was
the lessee under leases relating to five restaurants. It is anticipated that,
based on the minimum rental payments required by the leases, these three lessees
each will continue to contribute more than 10% of the Partnership's total rental
revenues in 2003. In addition, four Restaurant Chains, Hardee's, Checker's, Long
John Silver's, and Golden Corral, each accounted for more than 10% of the
Partnership's total rental revenues during 2002 (including the Partnership's
share of rental revenues from Properties owned by joint ventures and Properties
owned with affiliates as tenants-in-common). In 2003, it is anticipated that
these four Restaurant chains each will continue to account for more than 10% of
the total rental revenues to which the Partnership is entitled under the terms
of the leases. Any failure of these lessees or Restaurant Chains will materially
affect the Partnership's income if the Partnership is not able to re-lease the
Properties in a timely manner. No single tenant or group of affiliated tenants
lease Properties with an aggregate carrying value in excess of 20% of the total
assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into the following joint venture and
tenancy in common arrangements as of December 31, 2002:
Entity Name Year Ownership Partners Property
Wood-Ridge Real Estate Joint 1996 50.00% CNL Income Fund XIV, Ltd. Murfreesboro, TN
Venture Raleigh, NC
Blaine, MN
Matthews, NC
Anniston, AL
CNL Income Fund IV, Ltd., CNL 1996 16.00% CNL Income Fund IV, Ltd. Clinton, NC
Income Fund VI, Ltd., CNL Income Fund VI, Ltd.
CNL Income Fund X, Ltd. CNL Income Fund X, Ltd.
and CNL Income Fund XV,
Ltd., Tenants in Common
CNL Income Fund VI, Ltd., and 1998 15.00% CNL Income Fund VI, Ltd. Ft Myers, FL
CNL Income Fund XV,
Ltd., Tenants in Common
TGIF Pittsburgh Joint Venture 2000 23.62% CNL Income Fund VII, Ltd. Homestead, PA
CNL Income Fund XVI, Ltd.
CNL Income Fund XVIII, Ltd.
CNL Income Fund XIII, Ltd. 2001 59.00% CNL Income Fund XIII, Ltd. Blue Spring, MS
and CNL Income Fund XV,
Ltd., Tenants in Common
CNL VII, XV Columbus Joint 2001 31.25% CNL Income Fund VII, Ltd. Columbus, GA
Venture
Wood-Ridge Real Estate Joint Venture holds five Properties, however,
all other joint ventures or tenancies in common were formed to hold one
Property. Each CNL Income Fund is an affiliate of the General Partners and is a
limited partnership organized pursuant to the laws of the state of Florida. The
Partnership shares management control equally with the affiliates of the General
Partners
The joint venture and tenancy in common arrangements provide for the
Partnership and its joint venture or tenancy in common partners to share in all
costs and benefits in proportion to each partner's percentage interest in the
business entity. The Partnership and its partners are also jointly and severally
liable for all debts, obligations and other liabilities of the joint venture or
tenancy in common. Net cash flow from operations is distributed to each joint
venture or tenancy in common partner in accordance with its respective
percentage interest in the business entity.
Each joint venture has an initial term of 30 years and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of either joint venturer by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property owned by the joint venture and mutual
agreement of the Partnership and its joint venture partner to dissolve 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.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer or assign its joint venture or tenancy in
common interest without first offering it for sale to its partner, either upon
such terms and conditions as to which the parties may agree or, in the event the
parties cannot agree, on the same terms and conditions as any offer from a third
party to purchase such joint venture or tenancy in common interest.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Certain Management Services
RAI Restaurants, Inc. (formerly known as CNL Restaurants XVIII, Inc.),
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. CNL APF Partners, LP assigned its rights in, and
its obligations under, the management agreement with the Partnership to RAI
Restaurants, Inc. ("the Advisor") effective January 1, 2002. All of the terms
and conditions of the management agreement, including the payment of fees,
remained unchanged. Under this agreement, 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 had 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.
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 CNL American Properties Fund, Inc.
("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, 2002, the Partnership owned 46 Properties. Of the 46
Properties, 36 are owned by the Partnership in fee simple, seven are owned
indirectly through three joint venture arrangements and three are owned
indirectly through tenancy in common arrangements. 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 15,600
to 137,700 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, either directly or
indirectly, by the Partnership as of December 31, 2002 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, 2002.
State Number of Properties
Alabama 1
Florida 10
Georgia 5
Kentucky 1
Minnesota 1
Mississippi 1
Missouri 2
New Mexico 1
North Carolina 4
Ohio 1
Oklahoma 2
Pennsylvania 3
South Carolina 4
Tennessee 4
Texas 5
Virginia 1
-------
TOTAL PROPERTIES 46
=======
Buildings. Each of the Properties owned, either directly or indirectly,
by the Partnership includes a building that is one of a Restaurant Chain's
approved designs. However, the buildings located on the 13 Checkers Properties
owned by the Partnership are owned by the tenants. The buildings generally are
rectangular and are constructed from various combinations of stucco, steel,
wood, brick and tile. The sizes of the buildings owned by the Partnership range
from approximately 2,100 to 11,000 square feet. All buildings on the 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. Depreciation expense is computed for
buildings and improvements using the straight-line method using depreciable
lives of 40 years for federal income tax purposes.
As of December 31, 2002, the aggregate cost of the Properties owned,
either directly or indirectly, by the Partnership and joint ventures (including
the Properties owned indirectly through tenancy in common arrangements) for
federal income tax purposes was $28,871,382 and $12,091,259, respectively.
The following table lists the Properties owned, either directly or
indirectly, by the Partnership as of
December 31, 2002 by Restaurant Chain.
Restaurant Chain Number of Properties
Bennigan's 2
Boston Market 2
Checkers 13
Denny's 2
Golden Corral 5
Hardee's 7
Jack in the Box 1
Japan Express 1
Long John Silver's 5
Sonny's Bar-B-Q 1
TGI Fridays 1
Taco Bell 1
Taco Cabana 2
Wendy's 1
Other 2
-------
TOTAL PROPERTIES 46
=======
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.
At December 31, 2002, 2001, 2000, 1999 and 1998, the Properties were
100%, 98%, 92%, 98% and 88% occupied, respectively. The following is a schedule
of the average rent per Property for the years ended December 31:
2002 2001 2000 1999 1998
-------------- ------------- -------------- ------------- -------------
Rental Income (1)(2) $ 3,669,076 $ 3,528,678 $ 3,555,125 $3,568,289 $3,461,756
Properties (2) 46 47 48 50 50
Average Per Property 79,763 $ 75,078 $ 74,065 $ 71,366 $ 69,235
(1) Rental income includes the Partnership's share of rental income from
the Properties owned indirectly through joint venture arrangements and
tenancy in common arrangements.
(2) Excludes Properties which were vacant and generated no rental income.
The following is a schedule of lease expirations for leases in place as
of December 31, 2002 for the next ten years and thereafter.
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
- -------------------- ----------------- ------------------- ------------------
2003 -- $ -- --
2004 -- -- --
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 -- -- --
2009 5 576,196 15.84%
2010 -- -- --
2011 3 122,604 3.37%
2012 2 146,872 4.04%
Thereafter 36 2,790,989 76.75%
----------------- ------------------ --------------------
Total 46 $ 3,636,661 100.00%
================= ================== ====================
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2002 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Flagstar Enterprises, Inc. leases seven Hardee's restaurants. The
initial term of each lease is 20 years (expiring in 2014) and the average
minimum base annual rent is approximately $82,600 (ranging from approximately
$70,500 to $98,300).
Checkers Drive-In Restaurants, Inc. leases 13 Checkers Drive-In
Restaurants ("Checkers"). The initial term of each of its leases is 20 years
(expiring between 2014 and 2015) and the average minimum base annual rent is
approximately $49,100 (ranging from approximately $25,200 to $70,700). The
leases for the 13 Checkers Properties consist of only land. The tenant owns the
buildings currently on the land and has the right, if not in default under the
lease, to remove the buildings from the land at the end of the lease term.
Golden Corral Corporation leases five Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2009 and 2015) and the
average minimum base annual rent is approximately $159,900 (ranging from
approximately $88,000 to $222,500).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective Properties, is party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 10, 2003 there were 2,700 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 2002,
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, 2002, the price paid for
any Unit transferred pursuant to the Plan ranged from $8.29 to $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 2002 and 2001 other than
pursuant to the Plan, net of commissions.
2002 (1) 2001 (1)
------------------------------------- -------------------------------------
High Low Average High Low Average
--------- --------- ----------- --------- --------- -----------
First Quarter $6.45 $6.00 $ 6.08 $10.00 $6.24 $ 9.13
Second Quarter (2) (2) (2) 6.66 6.00 6.52
Third Quarter 7.18 5.79 6.43 6.10 4.73 5.77
Fourth Quarter (2) (2) (2) 6.89 6.11 6.57
(1) A total of 16,339 and 29,170 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2002 and 2001,
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 the year ended December 31, 2002, the Partnership declared cash
distributions of $3,300,000 to the Limited Partners. For the year ended December
31, 2001, the Partnership declared cash distributions of $3,200,000.
Distributions for the year ended December 31, 2002, included a special
distribution of $100,000 representing cumulative excess operating reserves.
Distributions of $800,000 were declared to the Limited Partners at the close of
each of the Partnership's calendar quarters during 2002 and 2001. These amounts
include monthly distributions made in arrears for the Limited Partners electing
to receive such distributions on this basis. No amounts distributed to the
Limited Partners for the years ended December 31, 2002 and 2001, are required to
be or have been treated by the Partnership as a return of capital for purposes
of calculating the Limited Partners' return on their adjusted capital
contributions. No distributions have been made to the General Partners to date.
As indicated in the chart below, distributions were declared at the
close of each of the Partnership's calendar quarters. These amounts include
monthly distributions made in arrears for the Limited Partners electing to
receive such distributions on this basis.
Quarter Ended 2002 2001
----------------- ----------- ----------
March 31 $ 800,000 $ 800,000
June 30 800,000 800,000
September 30 800,000 800,000
December 31 900,000 800,000
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 Year ended December 31:
2002 2001 2000 1999 1998
----------------- ------------------ ------------- ---------------- ---------------
Continuing Operations (4):
Revenues $ 3,102,490 $ 2,990,002 $ 3,221,628 $ 3,592,074 $ 3,289,275
Equity in earnings of joint
ventures 442,344 435,249 296,929 259,508 236,553
Income from continuing
operations (1) 2,699,117 2,534,477 2,844,431 2,676,998 2,567,237
Discontinued Operations (4):
Revenues 56,242 147,084 177,296 147,144 195,843
Income (loss) from discontinued
operations (2) 335,028 105,724 (220,016) 92,977 75,260
Net income 3,034,145 2,640,201 2,624,415 2,769,975 2,642,497
Net income (loss) per Unit:
Continuing operations $ 0.67 $ 0.63 $ 0.72 $ 0.65 $ 0.62
Discontinued operations 0.09 0.03 (0.06) 0.04 0.04
----------------- ----------------------------------------------- ---------------
Total $ 0.76 $ 0.66 $ 0.66 $ 0.69 $ 0.66
================= =============================================== ===============
Cash distributions declared (3) $ 3,300,000 $ 3,200,000 $ 3,200,000 $ 3,200,000 $ 3,400,000
Cash distributions declared per
Unit (3) 0.83 0.80 0.80 0.80 0.85
At December 31:
Total assets $ 34,727,532 $ 34,832,208 $ 34,465,658 $ 36,073,980 $ 36,356,904
Total partners' capital 33,634,636 33,900,491 34,460,290 35,035,875 35,465,900
(1) Income from continuing operations for the years ended December 31, 2001
and 2000, includes $418,754 and $38,003, respectively, from gain on
sale of assets and for the year ended December 31, 1999, includes
$165,503 from loss on sale of assets. Income for the years ended
December 31, 2002, 2001, 2000, 1999 and 1998 includes $129,598,
$512,523, $52,501, $258,995 and $531,538, respectively, from provision
for write-down of assets.
(2) Income (loss) from discontinued operations for the year ended December
31, 2002 includes $304,600 from gain on sale of assets. Income (loss)
from discontinued operations for the years ended December 31, 2002 and
2000 includes $8,624 and $394,474, respectively, from provision for
write-down of assets.
(3) Distributions for the years ended December 31, 2002 and 1998, include a
special distribution to the Limited Partners of $100,000 and $200,000,
respectively, which represented cumulative excess operating reserves.
(4) Certain items in the prior years' financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on net income. The results of operations relating to
properties that were either disposed of or that were classified as held
for sale as of December 31, 2002 are reported as discontinued
operations. The results of operations relating to properties that were
identified for sale as of December 31, 2001, but sold subsequently are
reported as continuing operations.
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 September 2, 1993, 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. The leases of the Properties provide for minimum base annual rental
amounts (payable in monthly installments) ranging from approximately $25,200 to
$259,900. Generally, the leases provide for percentage rent based on sales in
excess of a specified amount. In addition, a majority of the leases provide
that, commencing in specified lease years (ranging from the third to the sixth
lease year), the annual base rent required under the terms of the lease will
increase. As of December 31, 2000, the Partnership owned 40 Properties directly
and ten Properties indirectly through joint venture or tenancy in common
arrangements. As of December 31, 2001, the Partnership owned 38 Properties
directly and ten Properties indirectly through joint venture or tenancy in
common arrangements. As of December 31, 2002, the Partnership owned 36
Properties directly and ten Properties indirectly through joint venture and
tenancy in common arrangements.
Capital Resources
Cash from operating activities was $3,355,765, $3,097,228, and
$3,325,920, for the years ended December 31, 2002, 2001 and 2000, respectively.
The increase in cash from operating activities during 2002, as compared to 2001,
was a result of changes in income and expenses and changes in the Partnership's
working capital. The decrease in cash from operating activities during 2001 as
compared to the previous year was the result of changes in income and expenses.
Other sources and uses of cash included the following during the years
ended December 31, 2002, 2001 and 2000.
During 2000, the Partnership contributed $252,591 to Duluth Joint
Venture to pay for construction costs. In October 2000, the Partnership sold its
33% interest in Duluth Joint Venture, to CNL Income Fund VII, Ltd. for $610,032.
The proceeds from the sale exceeded the basis of the interest in this joint
venture resulting in a gain of $38,003.
The Partnership committed to fund up to $749,500 for renovation costs
for the Property in Mentor, Ohio upon re-leasing the Property to a new tenant in
1999. All of the renovation costs were incurred and paid during 2000.
In January 2000, the Partnership sold its Property in Lexington, North
Carolina, and received net sales proceeds of $562,130, resulting in a loss of
$88,869, which the Partnership recorded at December 31, 1999. In June 2000, the
Partnership used the net sales proceeds received from the sale of this Property
to enter into a joint venture arrangement, TGIF Pittsburgh Joint Venture, with
CNL Income Fund VII, Ltd., CNL Income Fund XVI, Ltd., and CNL Income Fund XVIII,
Ltd., each a Florida limited partnership and an affiliate of the General
Partners, to purchase and hold one restaurant Property in Homestead,
Pennsylvania. As of December 31, 2002, the Partnership owned a 23.62% interest
in the profits and losses of the joint venture.
In April 2001, the Partnership sold its Property in Greer, South
Carolina and received net sales proceeds of $700,000 (consisting of $233,000 in
cash and $467,000 in the form of a promissory note), resulting in a loss of
$288,684, which the Partnership had recorded as a provision for write-down of
assets at March 31, 2001. The promissory note, collateralized by a mortgage on
the Property, bore interest at a rate of 10% per annum. The Partnership
collected the outstanding principal and interest during 2001. In addition, in
April 2001, the Partnership sold its Property in Woodland Hills, California to a
third party and received net sales proceeds of approximately $1,253,700,
resulting in a gain of approximately $246,700. In April 2001, the Partnership
reinvested the net sales proceeds from the sale of these Properties in a
Property in Blue Springs, Missouri, as tenants-in-common with CNL Income Fund
XIII, Ltd., ("CNL XIII") a Florida limited partnership and an affiliate of the
General Partners. The Partnership and CNL XIII, as tenants-in-common, 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 Partnership and CNL XIII, as
tenants-in-common. The purchase price paid by the Partnership and CNL XIII, as
tenants-in-common, represented the costs incurred by the affiliate to acquire
and carry the Property. As of December 31, 2002, the Partnership had contributed
approximately $1,269,700 and owned a 59% interest in the profits and losses of
the Property. The transaction relating to the sale of the Property in Woodland
Hills, California and the reinvestment of the net sales proceeds was structured
to qualify as a like-kind exchange transaction for federal income tax purposes.
In May 2001, Wood-Ridge Real Estate Joint Venture, in which the
Partnership owns a 50% interest, sold its Property in Paris, Texas to the tenant
for $800,000, in accordance with the purchase option under the lease agreement.
The sale resulted in a loss to the joint venture of approximately $84,500. In
connection with the sale, the joint venture received $200,000 in lease
termination income in consideration for the joint venture releasing the tenant
from its obligations under the lease. As of December 31, 2001, the Partnership
and the other joint venture partner had each received approximately $400,000
representing a return of capital from the net sales proceeds.
In August 2001, the Partnership used a portion of the amounts received
as a return of capital, as described above, to enter into a joint venture
arrangement, CNL VII, XV Columbus Joint Venture, with CNL Income Fund VII, Ltd.,
a Florida limited partnership and affiliate of the General Partners, to
construct one restaurant Property in Columbus, Georgia. As of December 31, 2001,
the Partnership had contributed approximately $466,100 to purchase land and pay
for its share of construction costs relating to the joint venture and
contributed approximately $34,900 during 2002 to complete the construction. As
of December 31, 2002, the Partnership owned a 31.25% interest in the profits and
losses of the joint venture.
In October 2001, the Partnership sold its Property in Altadena,
California to a third party and received net sales proceeds of approximately
$937,300, resulting in a gain of approximately $172,100. In December 2001, the
Partnership reinvested the net sales proceeds received from this sale and a
portion of the proceeds from the sale of the Property in Greer, South Carolina
in a Property in Houston, Texas. The Partnership acquired this Property from CNL
Funding 2001-A, LP, an affiliate of the General Partners. The transaction, or a
portion thereof, relating to the sale of the Property and the reinvestment of
the proceeds, qualified as a like-kind exchange transaction for federal income
tax purposes.
During 2002, the Partnership sold its Properties in Redlands,
California, Medina, Ohio and Stratford, New Jersey to separate third parties and
received aggregate net sales proceeds of $2,046,900 resulting in an aggregate
gain on disposal of discontinued operations of $304,600. The Property in
Stratford, New Jersey consisted of land only. The Partnership had recorded a
provision for write-down of assets in the amount of $394,474 related to the
Property in Medina, Ohio during 2000 because the tenant of the Property filed
for bankruptcy and rejected its lease in 1998. The Partnership reinvested the
proceeds from the sale of the Property in Redlands, California in a Property in
Houston, Texas. The Partnership acquired this Property from CNL Funding 2001-A,
LP, a Delaware limited partnership and an affiliate of the General Partners. The
purchase price paid by the Partnership represented the costs incurred by CNL
Funding 2001-A, LP to acquire and carry the Property. The transaction relating
the sale of the Property and the reinvestment of the net sales proceeds was
structured to qualify as a like-kind exchange transaction for federal income tax
purposes. The Partnership intends to use the proceeds from the sale of the other
Properties to invest in additional Properties.
None of the Properties owned by the Partnership, or the joint ventures
or tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Subject to certain restrictions on borrowing, however, the
Partnership may borrow funds but will not encumber any of the Properties in
connection with any such borrowing. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners. The Partnership will not
borrow under arrangements that would make the Limited Partners liable to
creditors of the Partnership. The General Partners further have represented that
they will use their reasonable efforts to structure any borrowing so that it
will not constitute "acquisition indebtedness" for federal income tax purposes
and also will limit the Partnership's outstanding indebtedness to 3% 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, cash reserves, 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, make distributions
to partners or reinvest in additional Properties. At December 31, 2002, the
Partnership had $2,317,004 invested in such short-term investments as compared
to $1,364,847 at December 31, 2001. The increase in cash and cash equivalents
was because as of December 31, 2002 the Partnership had not reinvested the net
sales proceeds received from the sales of the Properties in Medina, Ohio and
Stratford, New Jersey. As of December 31, 2002, the average interest rate earned
on the rental income deposited in demand deposit accounts at commercial banks
was approximately one percent annually. The funds remaining at December 31,
2002, after investment in additional Properties and payment of distributions and
other liabilities, will be used to meet the Partnership's working capital needs.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
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 substantially 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 to cause the Partnership to maintain additional
reserves if, in their discretion, they determine such reserves are required to
meet the Partnership's working capital needs.
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 primarily on current and anticipated future cash from
operating activities, the Partnership declared distributions to the Limited
Partners of $3,300,000 for the year ended December 31, 2002 and $3,200,000 for
the years ended December 31, 2001 and 2000. This represents distributions of
$0.83 for the year ended December 31, 2002 and $0.80 for each of the years ended
December 31, 2001 and 2000. No distributions were made to the General Partners
for the years ended December 31, 2002, 2001 and 2000. No amounts distributed to
the Limited Partners for the years ended December 31, 2002, 2001 or 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. 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 years ended December 31, 2002, 2001 and 2000.
As of December 31, 2002 and 2001, the Partnership owed $20,605 and
$20,970, respectively, to related parties for accounting and administrative
services and management fees. As of March 15, 2003, the Partnership had
reimbursed the affiliates for these amounts. Other liabilities, including
distributions payable, increased to $1,072,291 at December 31, 2002, from
$910,747 at December 31, 2001 primarily as a result of an increase in rents paid
in advance and deposits. The increase was partially offset by a decrease in real
estate taxes payable and deferred rental income during 2002 as compared to 2001.
The General Partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
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 the Partnership's Properties and investments in
unconsolidated entities periodically for impairment at least once a year or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The assessment is based on the carrying amount
of the Property or investment at the date it is tested for recoverability
compared to the sum of the estimated future cash flows expected to result from
its operation and sale through the expected holding period. If an impairment is
indicated, the asset is adjusted to its estimated fair value.
When the Partnership makes the decision to sell or commits to a plan to
sell a Property within one year, its operating results are reported as
discontinued operations.
Results of Operations
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Total rental revenues were $3,048,101 during the year ended December
31, 2002 as compared to $2,887,160 for the same period of 2001. The increase in
rental revenues during 2002, as compared to the same period of 2001, was
partially due to the fact that in December 2001 the Partnership used a portion
of the sales proceeds from the sale of the Partnership's Property in Greer,
South Carolina and the majority of the sales proceeds from the sale of the
Partnership's Property in Altadena, California to acquire a Property in Houston,
Texas. In addition, the increase in revenues during 2002 was also partially due
to the Partnership receiving approximately $87,500 of rental payments related to
the Property in Bartlesville, Oklahoma. During 2000, Phoenix Restaurant Group,
Inc. ("PRG"), the tenant of this Property, experienced financial difficulties
and ceased payment of rent. As a result, the Partnership stopped recording
rental revenues during the quarter ended March 31, 2001. In October 2001, PRG
filed for bankruptcy and resumed payment of rent to the Partnership from the
bankruptcy date through April 30, 2002. The Partnership re-leased this Property
to a new tenant in May 2002. In addition, revenues increased during 2002 because
in June 2002 the Partnership used the majority of the proceeds from the sale of
the Property in Redlands, California to acquire another Property in Houston,
Texas. The increase in rental revenues during 2002 was partially offset by the
fact that the Partnership sold three Properties during 2001.
The Partnership also earned $39,211 in contingent rental income for the
year ended December 31, 2002 as compared to $23,529 for the same period of 2001.
The increase in contingent rental income was the result of increased gross sales
reported by certain restaurant Properties, the leases of which require the
payment of contingent rent.
During the year ended December 31, 2002, the Partnership earned
$442,344 in net income earned by unconsolidated joint ventures as compared to
$435,249 for the same period of 2001. The increase in net income earned by joint
ventures was due to the fact that during 2001, the Partnership invested in a
Property in Blue Springs, Missouri with CNL Income Fund XIII, Ltd. as
tenants-in-common, and in a joint venture arrangement, CNL VII, XV Columbus
Joint Venture, with CNL Income Fund VII, Ltd. Each of the CNL Income Funds is a
Florida limited partnership and an affiliate of the General Partners. The
increase in net income earned by joint ventures during 2002, as compared to the
previous year was partially offset by the fact that in May 2001, Wood-Ridge Real
Estate Joint Venture, in which the Partnership owns a 50% interest, sold its
Property in Paris, Texas in accordance with the purchase option under the lease
agreement. During 2001, the joint venture distributed the net sales proceeds
received from the sale as a return of capital to the Partnership and the other
joint venture partner. During 2002, the Partnership reinvested these net sales
proceeds in a joint venture arrangement, CNL VII, XV Columbus Joint Venture,
with an affiliate of the General Partners as described below.
During the year ended December 31, 2002, three lessees of the
Partnership, Flagstar Enterprises, Inc., Checkers Drive-In Restaurants, Inc.,
and Golden Corral Corporation, each contributed more than 10% of the
Partnership's total rental revenues (including the Partnership's share of rental
revenues from Properties owned by joint ventures and Properties owned with
affiliates of the General Partners as tenants-in-common). As of December 31,
2002, Flagstar Enterprises, Inc. was the lessee under leases relating to seven
restaurants, Checkers Drive-In Restaurants, Inc. was the lessee under leases
relating to 13 restaurants, and Golden Corral Corporation was lessee under
leases relating to five restaurants. It is anticipated that, based on the
minimum rental payments required by the leases, these three lessees each will
continue to contribute more than 10% of the Partnership's total rental revenues
in 2003. In addition, during the year ended December 31, 2002, four Restaurant
Chains, Hardee's, Checkers Drive-In Restaurants, Long John Silver's, and Golden
Corral each accounted for more than 10% of the Partnership's total rental
revenues (including the Partnership's share of rental revenues from Properties
owned by joint ventures and Properties owned with affiliates of the General
Partners as tenants-in-common). In 2003, it is anticipated that these four
Restaurant Chains each will continue to account for more than 10% of the total
rental revenues to which the Partnership is entitled under the terms of the
leases. Any failure of these lessees or Restaurant Chains will materially affect
the Partnership's income if the Partnership is not able to re-lease the
Properties in a timely manner.
During the year ended December 31, 2002, the Partnership also earned
$15,178 as compared to $79,313 for the same period of 2001 in interest and other
income. Interest and other income were lower during 2002 due to a decrease in
the average cash balance as a result of the reinvestment of sales proceeds
received in 2001 and due to a decline in interest rates.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $845,717 for the year ended December
31, 2002 as compared to $1,309,528 for the same period of 2001. Operating
expenses were higher during 2001 as a result of the Partnership recording a
provision for write-down of assets in the amount of $288,684 relating to the
Property in Greer, South Carolina. The provision represented the difference
between the carrying value of the Property and its estimated fair value. In
addition, during 2001, the Partnership recorded a provision for write-down of
assets of $223,839 related to the Property in Bartlesville, Oklahoma. During
2001, the Partnership also recorded bad debt expense of approximately $46,900
relating to this Property. The tenant of the Property, Phoenix Restaurant Group,
Inc., experienced financial difficulty and filed for bankruptcy during 2001. The
Partnership re-leased this Property to a new tenant in May 2002 and sold the
Property in Greer, South Carolina in 2001.
The decrease in operating expenses during 2002, as compared to the same
period of 2001, was also attributable to a decrease in the costs incurred for
administrative expenses for servicing the Partnership and its Properties and due
to a decrease in state tax expense. The decrease in operating expenses during
2002 was partially offset because the Partnership increased the provision for
write-down of assets relating to the Property in Bartlesville, Oklahoma by
$129,598. The provision represented the difference between the carrying value of
the Property at December 31, 2002 and its estimated fair value.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
During 2002, the Partnership identified and sold three Properties that
met the criteria of this standard and were classified as Discontinued Operations
in the accompanying financial statements. During 2000, the Partnership recorded
a provision for write-down of assets in the amount of $394,474 related to the
Property in Medina, Ohio because during 1998 the tenant of the Property filed
for bankruptcy and rejected its lease. The provision represented the difference
between the carrying value of the Property at December 31, 2000 and its
estimated fair value. During 2002, the Partnership recognized a gain of
approximately $306,200 on the sale of the Properties in Redlands, California and
Stratford, New Jersey, and a loss of approximately $1,600 on the sale of the
Property in Medina, Ohio. The Partnership reinvested the proceeds from the sale
of one Property in an additional Property and intends to reinvest the proceeds
from the other Properties during 2003.
Comparison of year ended December 31, 2001 to year ended December 31, 2000
Total rental revenues were $2,887,160 during the year ended December
31, 2001 as compared to $3,097,681 for the same period of 2000. The decrease in
rental revenues during 2001, as compared to 2000, was partially due to the fact
that the Partnership sold its Properties in Greer, South Carolina, and Woodland
Hills and Altadena, California during 2001. The Partnership reinvested the
proceeds from the sale of these Properties in a Property in Blue Springs,
Missouri, as tenants-in-common with an affiliate of the General Partners and in
a joint venture arrangement, CNL VII, XV Columbus Joint Venture with an
affiliate of the General Partners. As a result of this reinvestment, rental
revenues will remain at reduced amounts while equity in earnings of joint
ventures has increased. Rental revenues were also higher in 2000 because the
Partnership received approximately $99,100 in bankruptcy proceeds in connection
with the bankruptcy filing by Long John Silver's, Inc. in 1998.
In addition, rental revenues decreased during 2001 as compared to 2000,
due to the fact that PRG, the tenant of the Property in Bartlesville, Oklahoma,
experienced financial difficulties during 2000, ceased making rental payments to
the Partnership, and filed for bankruptcy in October 2001. As a result, the
Partnership stopped recording rental revenue relating to this Property. The
Partnership re-leased this Property to a new tenant in May 2002.
The Partnership also earned $23,529 in contingent rental income for the
year ended December 31, 2001 as compared to $28,165 for the same period of 2000.
Contingent rental income decreased during 2001 primarily as a result of a
decrease in gross sales of certain restaurant Properties that are subject to
leases requiring the payment of contingent rent.
During the year ended December 31, 2001, the Partnership earned
$435,249 in net income earned by unconsolidated joint ventures as compared to
$296,929 for the same period of 2000. The increase in net income earned by joint
ventures during 2001 was primarily attributable to the Partnership investing in
a Property in Blue Springs, Missouri in April 2001, with an affiliate of the
General Partners, and in a Property in Homestead, Pennsylvania in June 2000,
with an affiliate of the General Partners. The increase in net income earned by
joint ventures during 2001, as compared to 2000, was also partially attributable
to the Partnership investing in CNL VII, XV Columbus Joint Venture with an
affiliate of the General Partners in August 2001. The increase in net income was
partially offset because in May 2001, Wood-Ridge Real Estate Joint Venture, in
which the Partnership owns a 50% interest, sold its Property in Paris, Texas to
the tenant for $800,000. This resulted in a loss to the joint venture of
approximately $84,500. However, in conjunction with the sale of its Property in
Paris, Texas, Wood-Ridge Real Estate Joint Venture received $200,000 in
consideration for the joint venture releasing the tenant from its obligations
under the lease. As of December 31, 2001, the Partnership and the other joint
venture partner had each received $400,000 representing a return of capital from
the net sales proceeds. The Partnership used these proceeds to invest in a joint
venture arrangement, CNL VII, XV Columbus Joint Venture.
During the year ended December 31, 2001, the Partnership also earned
$79,313, as compared to $ 95,782 for the same period of 2000, in interest and
other income. The decrease in interest and other income during 2001, as compared
to 2000, was primarily attributable to the reinvestment of sales proceeds from
the sale of Properties during 2000. The decrease during 2001 was partially
offset by an increase in interest income related to the Partnership's sale of
its Property in Greer, South Carolina, for which the Partnership accepted a
promissory note.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets were $1,309,528 for the year ended December
31, 2001 as compared to $712,129 for the same period of 2000. Operating expenses
were higher during 2001 as a result of the Partnership recording provisions for
write-down of assets relating to the Properties in Greer, South Carolina and
Bartlesville, Oklahoma, as described above. The provisions represented the
difference between the carrying value of the Properties and their estimated fair
values. During 2001, the Partnership also recorded bad debt expense of
approximately $46,900 relating to the Property in Bartlesville, Oklahoma, as
described above. The Partnership also incurred real estate taxes in connection
with this Property.
The increase in operating expenses during 2001 was also partially
attributable to an increase in the costs incurred for administrative expenses
for servicing the Partnership and its Properties. In addition, the increase in
operating expenses during 2001, as compared to 2000, was partially due to the
Partnership incurring additional state taxes in states in which the Partnership
conducts business. The increase in operating expenses during 2001, as compared
to 2000, was partially offset by a decrease in depreciation expense as a result
of the sales of several Properties during 2001 and 2000.
The Partnership incurred $45,089 during 2000 in transaction costs
related to the General Partners retaining financial and legal advisors to assist
them in evaluating and negotiating a proposed merger with APF. The merger
negotiations were terminated in March 2000.
As a result of the sales of several Properties, the Partnership
recognized gains totaling $418,754 during 2001 as compared to $38,003 resulting
from the sale of one Property in 2000.
The restaurant industry has been relatively resilient during this
volatile time with steady performance during 2002. However, the industry remains
in a state of cautious optimism. Restaurant operators expect their business to
be better in 2003, according to a nationwide survey conducted by the National
Restaurant Association, but are concerned by the budget deficits being
experienced by many states and the potential of new taxes on the industry to
alleviate the situation.
The Partnership's leases as of December 31, 2002, 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
results of operations of the Partnership. Continued inflation also 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 January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be considered by a company if that company is subject to a majority risk of loss
from the variable interest entity's activities or entitled to receive a majority
of the entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. Consolidation of variable
interests entities will provide more complete information about the resources,
obligations, risks and opportunities of the consolidated company. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003, and to older entities in the first
fiscal year or interim period beginning after June 15, 2003. Management believes
adoption of this standard may result in either consolidation or additional
disclosure requirements with respect to the Partnership's unconsolidated joint
ventures or Properties held with affiliates of the General Partners as
tenants-in-common, which are currently accounted for under the equity method.
However, such consolidation is not expected to significantly impact the
Partnership's results of operations.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 19
Financial Statements:
Balance Sheets 20
Statements of Income 21
Statements of Partners' Capital 22
Statements of Cash Flows 23-24
Notes to Financial Statements 25-37
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund XV, 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 XV, Ltd. (a Florida limited
partnership) at December 31, 2002 and 2001, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2002 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 15(a)(2) presents 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.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
January 31, 2003
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2002 2001
--------------------- ---------------------
ASSETS
Real estate properties with operating leases, net $ 21,447,308 $ 20,557,652
Net investment in direct financing leases 4,569,326 4,805,598
Real estate held for sale -- 1,751,473
Investment in joint ventures 4,455,920 4,554,955
Cash and cash equivalents 2,317,004 1,364,847
Receivables, less allowance for doubtful accounts of
$1,068 and $191,602, respectively 37,849 21,795
Due from related parties -- 15,022
Accrued rental income, less allowance for doubtful
accounts of $27,005 in 2002 and 2001 1,857,219 1,727,416
Other assets 42,906 33,450
--------------------- ---------------------
$ 34,727,532 $ 34,832,208
===================== =====================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 6,985 $ 5,993
Real estate taxes payable 2,109 29,605
Distributions payable 900,000 800,000
Due to related parties 20,605 20,970
Rents paid in advance and deposits 163,197 68,253
Deferred rental income -- 6,896
--------------------- ---------------------
Total liabilities 1,092,896 931,717
Partners' capital 33,634,636 33,900,491
--------------------- ---------------------
$ 34,727,532 $ 34,832,208
===================== =====================
See accompanying notes to financial statements.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2002 2001 2000
------------------ ----------------- -----------------
Revenues
Rental income from operating leases $ 2,494,080 $ 2,381,179 $ 2,451,850
Earned income from direct financing leases 554,021 505,981 645,831
Contingent rental income 39,211 23,529 28,165
Interest and other income 15,178 79,313 95,782
----------------- ----------------- ----------------
3,102,490 2,990,002 3,221,628
------------------ ----------------- ----------------
Expenses:
General operating and administrative 280,597 321,495 187,279
Property expenses 28,772 33,621 18,596
Bad debt expense -- 46,935 --
Management fees to related parties 36,043 33,498 35,870
State and other taxes 41,960 55,122 35,676
Depreciation and amortization 328,747 306,334 337,118
Provision for write-down of assets 129,598 512,523 52,501
Transaction costs -- -- 45,089
---------------- ----------------- -----------------
845,717 1,309,528 712,129
------------------ ----------------- -----------------
Income Before Gain on Sale of Assets and Equity in Earnings
of Joint Ventures 2,256,773 1,680,474 2,509,499
Gain on Sale of Assets -- 418,754 38,003
Equity in Earnings of Joint Ventures 442,344 435,249 296,929
------------------ ----------------- -----------------
Income from Continuing Operations 2,699,117 2,534,477 2,844,431
------------------ ----------------- -----------------
Discontinued Operations (Note 5)
Income (loss) from discontinued operations 30,428 105,724 (220,016)
Gain on disposal of discontinued operations 304,600 -- --
------------------ ----------------- -----------------
335,028 105,724 (220,016)
Net Income $ 3,034,145 $ 2,640,201 $ 2,624,415
================== ================= =================
Income (Loss) Per Limited Partner Unit
Continuing operations $ 0.67 $ 0.63 $ 0.71
Discontinued operations 0.09 0.03 (0.05)
------------------ ----------------- -----------------
$ 0.76 $ 0.66 $ 0.66
================== ================= =================
Weighted Average Number of Limited Partner Units Outstanding 4,000,000 4,000,000 4,000,000
================== ================= =================
See accompanying notes to financial statements.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2002, 2001 and 2000
General Partners Limited Partners
-------------------------------------- ----------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
----------------- ----------------- ------------------ ----------------- ----------------
Balance, December 31, 1999 $ 1,000 $ 173,788 $ 40,000,000 $ (17,165,947) $ 16,817,034
Distributions to limited
partners ($0.80 per
limited partner unit) -- -- -- (3,200,000) --
Net income -- -- -- -- 2,624,415
-------------- ------------- ------------------ ----------------- -----------------
Balance, December 31, 2000 1,000 173,788 40,000,000 (20,365,947) 19,441,449
-------------- ------------- ------------------ ----------------- ------------------
Distributions to limited
partners ($0.80 per
limited partner unit) -- -- -- (3,200,000) --
Net income -- -- -- -- 2,640,201
-------------- ------------- ------------------ ----------------- ------------------
Balance, December 31, 2001 1,000 173,788 40,000,000 (23,565,947) 22,081,650
-------------- ------------- ------------------ ----------------- -----------------
Distributions to limited
partners ($0.83 per
limited partner unit) -- -- -- (3,300,000) --
Net income -- -- -- -- 3,034,145
-------------- ------------- ------------------ ----------------- -----------------
Balance, December 31, 2002 $ 1,000 $ 173,788 $ 40,000,000 $ (26,865,947) $ 25,115,795
============== ============= ================== ================= =================
Syndication
Costs Total
----------------- ---------------
$ (4,790,000) $ 35,035,875
-- (3,200,000)
-- 2,624,415
-------------- ---------------
(4,790,000) 34,460,290
------------- ---------------
-- (3,200,000)
-- 2,640,201
------------- ---------------
(4,790,000) 33,900,491
------------- ---------------
-- (3,300,000)
-- 3,034,145
------------- ---------------
$ (4,790,000) $ 33,634,636
============= ===============
See accompanying notes to financial statments.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2002 2001 2000
---------------- ----------------- --------------------
Increase ( Decrease) in Cash and Cash Equivalents:
Net income $ 3,034,145 $ 2,640,201 $ 2,624,415
---------------- ----------------- --------------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 328,034 327,426 337,382
Amortization of net investment in direct
financing leases 106,674 87,580 78,031
Amortization 2,961 3,170 2,574
Equity in earnings of joint ventures, net of
distributions 133,074 87,495 66,276
Gains on sale of assets (304,600) (418,754) (38,003)
Provision for write-down of assets 138,222 512,523 469,471
Decrease (increase) in receivables (15,835) 57,276 17,818
Decrease (increase) in due from related parties 14,982 18,856 (33,878)
Decrease (increase) in other assets (11,580) 9,750 (12,523)
Increase in accrued rental income (131,491) (136,975) (170,575)
Decrease in accounts payable and accrued
expenses (26,504) (31,919) (83,834)
Decrease in due to related parties (365) (254) (39,767)
Increase (decrease) in rents paid in advance
and deposits 94,944 (14,533) 108,533
Decrease in deferred rental income (6,896) (44,614) --
----------------- ------------------- -------------------
Total adjustments 321,620 457,027 701,505
---------------- ----------------- --------------------
Net Cash Provided by Operating Activities $ 3,355,765 $ 3,097,228 $ 3,325,920
================ ================= ====================
Cash Flows from Investing Activities:
Proceeds from sale of real estate properties 2,046,888 2,423,978 562,130
Additions to real estate properties with operating (1,215,441) (1,445,207) (749,500)
leases
Redemption of (investment in) certificate
of deposit -- 100,000 (100,000)
Investment in joint ventures (34,876) (1,735,778) (241,466)
Return of capital from joint venture -- 400,000 --
Collections on mortgage note receivable -- 467,000 --
---------------- ----------------- --------------------
Net cash provided by (used in)
investing activities 796,571 209,993 (528,836)
---------------- ----------------- --------------------
Cash Flows from Financing Activities:
Distributions to limited partners (3,200,000) (3,200,000) (3,200,000)
---------------- ----------------- --------------------
Net cash used in financing activities (3,200,000) (3,200,000) (3,200,000)
---------------- ----------------- --------------------
Net Increase (Decrease) in Cash and Cash Equivalents 952,336 107,221 (402,916)
Cash and Cash Equivalents at Beginning of Year 1,364,668 1,257,447 1,660,363
---------------- ----------------- --------------------
Cash and Cash Equivalents at End of Year $ 2,317,004 $ 1,364,668 $ 1,257,447
================ ================= ====================
See accompanying notes to fiancial statments.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
STATEMENT OF CASH FLOWS - CONTINUED
Year Ended December 31,
2002 2001 2000
------------------- -------------------- --------------------
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid at
December 31 $ 900,000 $ 800,000 $ 800,000
=================== ==================== ====================
See accompanying notes to financial statments.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001 and 2000
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund XV, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisitions of real estate properties at cost, including closing
costs. Real estate properties are leased to third parties generally on
a triple-net basis, whereby the tenant is responsible for all operating
expenses relating to the property, including property taxes, insurance,
maintenance and repairs. During the years ended December 31, 2002,
2001, and 2000 tenants paid directly to real estate taxing authorities
approximately $361,000, $342,500 and $321,700, respectively, in real
estate taxes in accordance with the terms of their triple net leases
with the Partnership.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The Partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
direct financing or the operating methods. Such methods are described
below:
Direct financing method - 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).
Unearned income is deferred and amortized to income over the lease
terms so as to produce a constant periodical rate of return on the
Partnership's net investment in the leases. For the leases
classified as direct financing leases, the building portions of the
property leases are accounted for as direct financing leases while
a majority of the land portion of these leases are operating
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 XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
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. In contrast, deferred rental income represents
the aggregate amount of scheduled rental payments to date
(including rental payments due during construction and prior to the
property being placed in service) in excess of income recognized on
a straight-line basis over the lease term commencing on the date
the property is placed in service
Substantially all leases are for 15 to 20 years and provide for minimum
and contingent rentals. The lease options generally allow tenants to
renew the leases for two to five successive five-year periods subject
to the same terms and conditions as the initial lease. Most leases also
allow the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
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 estimated fair value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is made to increase the
allowance for doubtful accounts. If amounts are subsequently determined
to be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its
interests in Wood-Ridge Real Estate Joint Venture, TGIF Pittsburgh
Joint Venture, CNL VII, XV Columbus Joint Venture, and properties in
Clinton, North Carolina, Fort Myers, Florida, and Blue Springs,
Missouri held as tenants-in-common with affiliates, using the equity
method since the 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 lease incentive costs and brokerage
and legal fees associated with negotiating leases and are amortized
over the term of the new lease using the straight-line method.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
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 represent a reduction
of Partnership equity and a reduction in the basis of each partner's
investment.
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.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2002 presentation,
including a change in presentation of the statement of cash flows from
the direct to the indirect method. These reclassifications had no
effect on total partners' capital, net income or cash flows.
Statement of Financial Accounting Standards No. 144 ("FAS 144") -
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
FASB Interpretation No. 46 ("FIN 46") - In January 2003, FASB issued
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting
guidance that addresses when a company should include the assets,
liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with
variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be considered by a company if
that company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. Consolidation of
variable interests entities will provide more complete information
about the resources, obligations, risks and opportunities of the
consolidated company. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31,
2003, and to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Management believes adoption of this
standard
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
may result in either consolidation or additional disclosure
requirements with respect to the Partnership's unconsolidated joint
ventures or properties held with affiliates of the general partners as
tenants-in-common, which are currently accounted for under the equity
method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
2. Real Estate Properties with Operating Leases:
Real estate properties with operating leases consisted of the following
at December 31:
2002 2001
--------------- ----------------
Land $ 13,827,656 $ 13,184,445
Buildings 9,592,932 9,020,702
----------------- ---------------
23,420,588 22,205,147
Less accumulated depreciation (1,973,280) (1,647,495)
---------------- ----------------
$ 21,447,308 $ 20,557,652
=============== =================
In April 2001, the Partnership sold its property in Woodland Hills,
California to a third party and received net sales proceeds of
approximately $1,253,700, resulting in a gain of approximately
$246,700. In April 2001, the Partnership reinvested the net sales
proceeds in a property in Blue Springs, Missouri as tenants-in-common
with CNL Income Fund XIII, Ltd., an affiliate of the general partners.
In addition, in October 2001, the Partnership sold its property in
Altadena, California to a third party and received net sales proceeds
of approximately $937,000, resulting in a gain of approximately
$172,100. In December 2001, the Partnership reinvested the net sales
proceeds plus a portion of the net sales proceeds from the sale of the
property in Greer, South Carolina (see Note 3) in a property in
Houston, Texas.
In June 2002, the Partnership reinvested the majority of the proceeds
from the sale of the property in Redlands, California (see Note 5) in a
property in Houston, Texas. The Partnership acquired this property from
CNL Funding 2001-A, LP, an affiliate of the general partners.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2002:
2003 $ 2,426,934
2004 2,482,633
2005 2,609,497
2006 2,613,379
2007 2,648,296
Thereafter 17,758,689
----------------
$ 30,539,428
===============
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
3. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
2002 2001
-------------------- ---------------------
Minimum lease payments receivable $ 7,522,964 $ 8,314,470
Estimated residual values 1,777,624 1,777,609
Less unearned income (4,731,262) (5,286,481)
-------------------- ---------------------
Net investment in direct financing leases $ 4,569,326 $ 4,805,598
==================== =====================
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2002:
2003 $ 667,249
2004 667,249
2005 670,953
2006 678,361
2007 690,356
Thereafter 4,148,796
-------------
$ 7,522,964
==============
During 2001, the Partnership increased its provision for write-down of
assets for the property in Bartlesville, Oklahoma by $223,839 to
$276,340 because the tenant of the property experienced financial
difficulties and filed for bankruptcy in October 2001. During 2002, the
Partnership increased the provision by an additional $129,597. The
provisions represented the difference between the carrying value of the
net investment in direct financing lease and the property's estimated
fair value.
In April 2001, the Partnership sold its property in Greer, South
Carolina to the tenant and received net sales proceeds of $700,000
(consisting of $233,000 in cash and $467,000 in the form of a
promissory note) resulting in a loss of $288,684 which the Partnership
recorded as a provision for write-down of assets at March 31, 2001. The
provision represented the difference between the carrying value of the
net investment in the direct financing lease and the property's fair
value based on the sales contract. The Partnership reinvested a portion
of the net sales plus the net sales proceeds from the sales of the
property in Altadena, California in a property in Houston, Texas.
During the year ended December 31, 2001, the Partnership collected the
entire amount due under the promissory note.
4. Investment in Joint Ventures:
The Partnership has a 50%, a 23.62%, a 16% and a 15% interest in the
profits and losses of Wood-Ridge Real Estate Joint Venture, TGIF
Pittsburgh Joint Venture, a property in Clinton, North Carolina and a
property in Fort Myers, Florida, held as tenants-in-common with
affiliates of the general partners. The remaining interests in these
joint ventures are held by affiliates of the Partnership, which have
the same general partners.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
In April 2001, the Partnership used a portion of the net sales proceeds
from the sale of its properties in Woodland Hills, California and
Greer, South Carolina to acquire an interest in a property in Blue
Springs, Missouri, as tenants-in-common, with CNL Income Fund XIII,
Ltd., a Florida limited partnership, and an affiliate of the general
partners. The Partnership acquired this interest from CNL BB Corp., an
affiliate of the general partners. The Partnership contributed
approximately $1,269,700 and as of December 31, 2002, the Partnership
owned a 59% interest in this property.
In May 2001, the Wood-Ridge Real Estate Joint Venture, in which the
Partnership owns a 50% interest, sold its property in Paris, Texas to
the tenant for $800,000, in accordance with the purchase option under
the lease agreement. This resulted in a loss to the joint venture of
approximately $84,500. In connection with the sale, the joint venture
received $200,000 in lease termination income in consideration for the
joint venture releasing the tenant from its obligations under the
lease. As of December 31, 2001, the Partnership and the other joint
venture partner each received approximately $400,000 representing a
return of capital from the net sales proceeds.
In August 2001, the Partnership used a portion of the amounts received
as a return of capital, as described above, to enter into a joint
venture arrangement, CNL VII, XV Columbus Joint Venture, with CNL
Income Fund VII, Ltd., an affiliate of the general partners, to
construct one restaurant property in Columbus, Georgia. As of December
31, 2001, the Partnership had contributed approximately $466,120 to
purchase land and pay for its share of construction costs relating to
the joint venture. During 2002, the Partnership contributed $34,876 to
complete the construction. As of December 31, 2002, the Partnership
owned a 31.25% interest in the profits and losses of the joint venture.
Wood-Ridge Real Estate Joint Venture owns and leases five properties,
TGIF Pittsburgh Joint Venture and CNL VII, XV Columbus Joint Venture,
each own and lease one property to operators of national fast food or
family-style restaurants. The Partnership and affiliates, as
tenants-in-common in three separate tenancy-in-common arrangements,
each own and lease one property to an operator of national fast food or
family-style restaurants.
The following presents the combined, condensed financial information
for all of the Partnership's investments in joint ventures and
properties held as tenants-in-common at December 31:
December 31, December 31,
2002 2001
--------------- ---------------
Real estate properties with operating leases, net $ 10,724,926 $ 11,001,753
Net investment in direct financing leases 779,576 793,308
Cash 47,507 115,890
Receivables 20,708 25,675
Accrued rental income 450,591 341,059
Other assets 12,990 15,426
Liabilities 70,077 184,715
Partners' Capital 11,966,221 12,108,396
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
Year Ended December 31,
2002 2001 2000
---------------- ---------------- ---------------
Revenues $ 1,447,921 $ 1,227,629 $ 984,548
Lease termination income -- 200,000 --
Expenses (233,338 ) (204,327 ) (168,830 )
Loss on sale of assets -- (84,473 ) --
---------------- ---------------- ---------------
Net Income $ 1,214,583 $ 1,138,829 $ 815,718
================ ================ ===============
The Partnership recognized income of $442,344, $435,249, and $296,929
during the years ended December 31, 2002, 2001 and 2000, respectively,
from these joint ventures and tenancy in common arrangements.
5. Discontinued Operations:
During 2002, the Partnership sold its properties in Redlands,
California, Medina, Ohio and Stratford, New Jersey to separate third
parties and received aggregate net sales proceeds of $2,046,900
resulting in a net gain on disposal of $304,600. The property in
Stratford, New Jersey consisted of land only. During the second quarter
of 2002, the Partnership increased its provision for write-down of
assets related to the property in Medina, Ohio by $8,624. The
Partnership had recorded a provision for write-down of assets in the
amount of $394,474 related to the property in Medina, Ohio, during
2000, because the tenant of the property filed for bankruptcy and
rejected its lease in 1998. The provision represented the difference
between the carrying value of the property at December 31, 2000 and its
estimated fair value. The financial results for these properties are
reflected as Discontinued Operations in the accompanying financial
statements.
The operating results of discontinued operations are as follows:
Year Ended December 31,
2002 2001 2000
------------- ------------- ---------------
Rental revenues $ 56,242 $ 147,084 $ 177,296
Expenses (17,190 ) (41,360 ) (2,838 )
Provision for write-down of assets (8,624 ) -- (394,474 )
Gain (loss) on disposal of assets 304,600 -- --
------------- ------------- ---------------
Income (loss) from discontinued
operations $ 335,028 $ 105,724 $ (220,016 )
============= ============= ===============
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
6. Allocations and Distributions:
From inception through December 31, 1999, generally, all net income and
net losses of the Partnership, excluding gains and losses from the sale
of properties, were allocated 99% to the limited partners and one
percent to the general partners. From inception through December 31,
1999, generally, distributions of net cash flow were made 99% to the
limited partners and one percent to the general partners. However, one
percent of net cash flow to be distributed to the general partners was
subordinated to receipt by the limited partners of an aggregate, 8%,
cumulative, noncompounded annual return on their invested capital
contributions (the "Limited Partners' 8% Return").
From inception through December 31, 1999, generally, net sales proceeds
from the sales 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' 8%
Return, plus the return of their adjusted capital contributions.
The general partners then received, to the extent previously
subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds were distributed 95% to the
limited partners and 5% to the general partners. Any gain from a 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 5% to
the general partners.
Generally, net sales proceeds from a sale of properties, in liquidation
of the Partnership 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 obligation 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 the partners with positive capital
account 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 5% to the general partners.
Effective January 1, 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the years
ended December 31, 2002, 2001 and 2000.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
6. Allocations and Distributions - Continued:
During the year ended December 31, 2002, the Partnership declared
distributions to the limited partners of $3,300,000. The Partnership
declared distributions to the limited partners of $3,200,000, during
each of the years ended December 31, 2001 and 2000. No distributions
have been made to the general partners to date.
7. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2002 2001 2000
---------------- ---------------- ---------------
Net income for financial reporting purposes $ 3,034,145 $ 2,640,201 $ 2,624,415
Effect of timing differences relating to
depreciation (41,215) (52,017) (60,009)
Direct financing leases recorded as operating
leases for tax reporting purposes 106,674 87,580 78,031
Provision for write-down of assets 138,222 512,523 446,975
Effect of timing differences relating to equity
in earnings of unconsolidated joint (7,242) 31,391 34,119
ventures
Accrued rental income (134,712) (177,910) (148,079)
Rents paid in advance 95,015 (14,461) 108,533
Deduction of transaction costs for tax reporting
purposes -- -- (218,818)
Effect of timing differences relating to (190,534) 153,720 24,796
allowance for doubtful accounts
Effect of timing differences relating to
gains/losses on sale on real estate (563,927) (601,834) (109,474)
properties
Other 837 1,046 1,327
---------------- ---------------- ---------------
Net income for federal income tax purposes $ 2,437,263 $ 2,580,239 $ 2,781,816
================ ================ ===============
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
8. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, a wholly owned subsidiary of CNL American
Properties Fund, Inc. ("APF") served as the Partnership's advisor until
January 1, 2002, when it assigned its rights and obligations under a
management agreement to RAI Restaurants, Inc. (formerly known as CNL
Restaurants XVIII, Inc.). RAI Restaurants, Inc. ("the Advisor") is a
wholly owned subsidiary of APF. The individual general partners are
stockholders and directors of APF.
The Advisor provides services 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 wholly owned by the Partnership and the
Partnership's allocable share of gross revenues from joint ventures.
Any portion of the management fee not paid is deferred without
interest. The Partnership incurred management fees of $36,043, $33,498,
and $35,870, for the years ended December 31, 2002, 2001, and 2000,
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 3% 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
Limited Partners' 8% Return plus their invested capital contributions.
No deferred, subordinated real estate disposition fees have been
incurred since inception.
During the years ended December 31, 2002, 2001, and 2000, the
Partnership's advisor and its affiliates of the general partners
provided accounting and administrative services to the Partnership
including services during 2000 relating to the proposed and terminated
merger. The Partnership incurred $204,164, $233,022, $102,104, for the
years ended December 31, 2002, 2001, and 2000, respectively, for such
services.
In April 2001, the Partnership and CNL Income Fund XIII, Ltd., as
tenants-in-common, acquired an interest in a property from CNL BB
Corp., an affiliate of the general partners, for a purchase price of
approximately $2,152,000. CNL Income Fund XIII, Ltd. is an affiliate 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 Partnership and CNL Income Fund XIII, Ltd., as
tenants-in-common. The purchase price paid by the Partnership and CNL
Income Fund XIII, Ltd., as tenants-in-common, represents the costs
incurred by CNL BB Corp. to acquire and carry the property.
In December 2001, the Partnership acquired a property located in
Houston, Texas from CNL Funding 2001-A, LP, for a purchase price of
approximately $1,445,200. In June 2002, the Partnership acquired
another property in Houston, Texas from CNL Funding 2001-A, LP, for a
purchase price of approximately $1,215,400. CNL Funding 2001-A, LP is
an affiliate of the general partners. CNL Funding 2001-A, LP had
purchased and temporarily held title to the properties in order to
facilitate the acquisition of the properties by the Partnership. The
purchase prices paid by the Partnership represented the costs incurred
by CNL Funding 2001-A, LP to acquire and carry the properties.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
8. Related Party Transactions - Continued:
The amount due to related parties at December 31, 2002, 2001, and 2000,
totaled $20,605, $20,970, and $21,224, respectively.
9. Concentration of Credit Risk:
The following schedule presents total rental revenues from individual
lessees, each representing more than 10% of the Partnership's total
rental revenues (including the Partnership's share of total rental
revenues from joint ventures and the properties held as
tenants-in-common with affiliates of the general partners) for each of
the years ended December 31:
2002 2001 2000
---------------- --------------- ----------------
Checkers Drive-In Restaurants, Inc. $ 715,508 $ 717,759 $ 716,761
Golden Corral Corporation 679,064 637,725 584,897
Flagstar Enterprises, Inc. 529,394 533,063 536,076
Jack in the Box Inc. (formerly
Foodmaker, Inc.) N/A N/A 417,426
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than 10% of the
Partnership's total rental revenues (including the Partnership's share
of total rental revenues from joint ventures and the properties held as
tenants-in-common with affiliates of the general partners) for each of
the years ended December 31:
2002 2001 2000
---------------- ---------------- ---------------
Checkers Drive-In Restaurants $ 715,508 $ 717,758 $ 716,761
Golden Corral Family Steakhouse
Restaurants 679,064 637,725 584,897
Hardee's 529,394 533,063 536,076
Long John Silver's 407,523 396,422 392,709
Jack in the Box N/A N/A 417,426
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 lessee or restaurant
chain contributing more than 10% of the Partnership's revenues will
significantly impact the results of operations of the Partnership if
the Partnership is not able to re-lease the properties in a timely
manner.
The information denoted by N/A indicates that for each period
presented, the tenant or restaurant chain did not represent more than
10% of the Partnership's total rental revenues.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
10. Selected Quarterly Financial Data:
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2002 and
2001:
2002 Quarter First Second Third Fourth Year
------------------------------- ------------ -------------- ------------- ------------- --------------
Continuing Operations (1):
Revenues 758,371 740,280 811,899 791,940 3,102,490
Equity in earnings of
joint ventures 109,916 111,892 109,591 110,945 442,344
Income from continuing 656,459 677,218 758,022 607,418 2,699,117
operations
Discontinued Operations (1):
Revenues 24,921 14,222 9,012 8,087 56,242
Income (Loss) from
discontinued
operations 319,657 (624 ) 4,081 11,914 335,028
Net Income 976,116 676,594 762,103 619,332 3,034,145
Net Income per limited
partner unit:
Continuing operations $ 0.16 $ 0.17 $ 0.19 $ 0.15 $ 0.67
Discontinued operations 0.08 -- -- 0.01 0.09
------------ -------------- ------------- ------------- --------------
Total $ 0.24 $ 0.17 $ 0.19 $ 0.16 $ 0.76
============ ============== ============= ============= ==============
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
10. Selected Quarterly Financial Data - Continued:
2001 Quarter First Second Third Fourth Year
------------------------------- ------------ -------------- ------------- ------------- --------------
Continuing Operations (1):
Revenues $ 771,190 $ 740,304 $ 727,270 $ 751,238 $2,990,002
Equity in earnings of
joint ventures 80,799 157,359 99,801 97,290 435,249
Income from continuing
operations 241,471 930,094 474,281 888,631 2,534,477
Discontinued Operations (1):
Revenues 36,774 36,774 36,774 36,762 147,084
Income from
discontinued
operations 28,198 26,232 25,725 25,569 105,724
Net Income 269,669 956,326 500,006 914,200 2,640,201
Net Income per limited
partner unit:
Continuing operations $ 0.06 $ 0.23 $ 0.12 $ 0.22 $ 0.63
Discontinued operations 0.01 0.01 0.01 -- 0.03
------------ -------------- ------------- ------------- --------------
Total $ 0.07 $ 0.24 $ 0.13 $ 0.22 $ 0.66
============ ============== ============= ============= ==============
(1) Certain items in the quarterly financial data have been
reclassified to conform to 2002 presentation. These
reclassifications had no effect on net income. The results of
operations relating to properties that were either disposed of or
that were classified as held for sale as of December 31, 2002 are
reported as discontinued operations for all periods presented. The
results of operations relating to properties that were identified
for sale as of December 31, 2001, but sold subsequently are
reported as continuing operations.
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 American Properties Fund, Inc. ("APF"), 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 56. 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 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. (formerly CNL 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., all
of which are engaged in the business of real estate finance. 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, an independent,
state-chartered commercial 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 55. 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 a
Director 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, and Treasurer , and from 1997 until June 2002 served as President, of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
as well as, Director, Vice Chairman of the Board, and Treasurer, and from 1997
until June 2002 served as President, of CNL Hospitality Corp., its advisor. In
addition, Mr. Bourne serves as Director, Vice Chairman of the Board, and
Treasurer, and from 1997 until June 2002 served as President, of CNL Retirement
Properties, Inc., a public, unlisted real estate investment trust; as well as, a
Director, Vice Chairman of the Board, and Treasurer, and from 1997 until June
2002 served as President, 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 47. 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., a
corporation engaged in the business of real estate financing, 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 39. 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2002.
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 10, 2003, no person was known to the Registrant to be a
beneficial owner of more than 5% of the Units.
The following table sets forth, as of March 10, 2003, 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.
The Partnership has no equity compensation plans.
45
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, 2002, 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, 2002
--------------------------------- -------------------------------------- -------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and
operating expenses the lower of cost or 90% of the administra-tive services:
prevailing rate at which comparable $204,164
services could have been obtained in
the same geographic area.
Affiliates of the General Partners
from time to time incur certain
operating expenses on behalf of the
Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual management fee to One percent of the sum of gross $36,043
affiliates 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 of the General Partners.
All or any portion of the management
fee not taken as to any fiscal year
shall be deferred without interest
and may be taken in such other
fiscal year as the affiliates shall
determine.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2002
--------------------------------- -------------------------------------- -------------------------------
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) 3% 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 5% of Partnership distributions
Partnership net sales proceeds of such net sales proceeds,
from a sale or sales not in subordinated to certain minimum
liquidation of the Partnership returns to the Limited Partners.
Amount Incurred
Type of Compensation For the Year
And Recipient Method of Computation Ended December 31, 2002
--------------------------------- -------------------------------------- -------------------------------
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 acquired two Taco Cabana Properties in Houston, Texas from CNL
Funding 2001-A, LP, an affiliate of the General Partners, for purchase prices of
approximately $1,215,400 and $1,445,200. 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.
Item 14. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate General Partner have evaluated the
Partnership's disclosure controls and procedures within 90 days prior to the
filing of this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
Subsequent to the above evaluation, there were no significant changes
in internal controls or other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV
Item 15. 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, 2002 and 2001
Statements of Income for the years ended December 31, 2002, 2001, and 2000
Statements of Partners' Capital for the years ended December 31, 2002, 2001, and 2000
Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000
Notes to Financial Statements
2. Financial Statement Schedule
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 2002, 2001 and
2000.
Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002
Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002
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 XV, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-69968 on Form S-11 and
incorporated herein by reference.)
**4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund XV, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-69968 on Form S-11 and
incorporated herein by reference.)
**4.2 Amended and Restated Agreement of Limited Partnership of
CNL Income Fund XV, Ltd. (Included as Exhibit 4.2 to
Form 10-K filed with the Securities and Exchange
Commission on March 30,1995, incorporated herein by
reference.)
**10.1 Management Agreement between CNL Income Fund XV, Ltd.
and CNL Investment Company (Included as Exhibit 10.1 to
Form 10-K filed with the Securities and Exchange
Commission on March 30, 1995, and incorporated herein by
reference.)
**10.2 Assignment of Management Agreement from CNL Investment
Company to CNL Income Fund Advisors, Inc. (Included as
exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated
herein by reference.)
**10.3 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and incorporated
herein by reference.)
**10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 for Form 10-Q filed with the Securities and
Exchange Commission on August 7, 2001 and incorporated
herein be reference.)
**10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included as
Exhibit 10.5 to Form 10-Q filed with the Securities and
Exchange Commission on August 13, 2002, and incorporated
herein by reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period October
1, 2002 through December 31, 2002.
** Previously filed
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
March, 2003.
CNL INCOME FUND XV, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
JAMES M. SENEFF, JR.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert A. Bourne President, Treasurer and Director March 26, 2003
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 26, 2003
James M. Seneff, Jr. (Principal Executive Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund XV, Ltd. (the
"registrant"), certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a.designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b.evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c.presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a.all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and
b.any fraud, whether or not material, that involves
management or other employees who have a significant role in
the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 26, 2003
/s/ James M. Seneff, Jr.
James M. Seneff, Jr.
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Bourne, President and Treasurer of CNL Realty Corporation,
the corporate general partner of CNL Income Fund XV, Ltd. (the "registrant")
certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a.designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b.evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c.presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a.all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in internal
controls; and b. any fraud, whether or not material, that
involves management or other employees who have a
significant role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 26, 2003
/s/ Robert A. Bourne
Robert A. Bourne
President and Treasurer
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2002, 2001, and 2000
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
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
2000 Allowance for
doubtful
accounts (a) $ 13,085 $ -- $ 97,872 (b) $ -- (c) $ 47,450 $ 63,507
============== =============== ================ ============= ============ ============
2001 Allowance for
doubtful
accounts (a) $ 63,507 $ 46,935 $ 109,684 (b) $ 1,519 (c) $ -- $ 218,607
============== =============== ================ ============= ============ ============
2002 Allowance for
doubtful
accounts (a) $ 218,607 $ -- $ 5,242 (b) $ 184,891 (c) $ 10,885 $ 28,073
============== =============== ================ ============= ============ ============
(a) deducted from receivables and accrued rental income on the
balance sheet.
(b) reduction of rental and other income.
(c) amounts written off as uncollectible.
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
Costs Capitalized
Subsequent To
Initial Cost Acquisition
-------------------------- ---------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
---------- ------------ ------------ ------------ -------
Properties the Partnership
has Invested in Under
Operating Leases:
Bennigan's Restaurant:
Mentor, Ohio (h) - $520,556 $1,135,584 $749,500 -
Checkers Drive-In Restaurants:
Englewood, Florida - 339,499 - - -
Marietta, Georgia - 432,547 - - -
Norcross, Georgia - 405,256 - - -
Philadelphia, Pennsylvania - 417,014 - - -
St. Petersburg, Florida - 557,206 - - -
Lake Mary, Florida - 614,471 - - -
Philadelphia, Pennsylvania - 599,586 - - -
Winter Garden, Florida - 353,799 - - -
Chamblee, Georgia - 427,829 - - -
Largo, Florida - 407,211 - - -
Seminole, Florida - 423,116 - - -
Orlando, Florida - 604,920 - - -
Bradenton, Florida - 215,478 - - -
Denny's Restaurant:
Huntsville, Texas - 349,266 - - -
Golden Corral Family
Steakhouse Restaurants:
Aberdeen, North Caroli-a 406,989 - 849,648 -
Norman, Oklahoma - 763,892 - 939,205 -
Augusta, Georgia - 766,891 - 1,124,687 -
Hardee's Restaurants:
Olive Branch, Mississippi - 209,243 - - -
Columbia, South Carolina - 230,268 497,047 - -
Pawleys Island, South Carol-na 307,911 593,997 - -
Cookeville, Tennessee - 216,335 - - -
Niceville, Florida - 310,511 480,398 - -
Jack in the Box Restaurants:
Port Arthur, Texas - 426,378 646,811 - -
Japan Express Restaurant:
Lancaster, South Carolina (-) 221,251 - - -
Long John Silver's Restaurants:
Lexington, Kentucky (i) - 346,854 303,425 - -
Jackson, Tennessee - 254,023 - - -
Albuquerque, New Mexico - 210,008 311,622 - -
Irving, Texas - 454,448 - - -
Neosho, Missouri - 171,859 - - -
Taco Cabana Restaurant:
Houston, Texas - 735,323 709,885
Houston, Texas - 643,211 572,231 - -
Wendy's Old Fashioned
Hamburgers Restaurants:
Arlington, Virginia - 592,917 678,893 - -
------------ ------------ ------------ -------
$13,936,066 $5,929,893 $3,663,040 -
============ ============ ============ =======
Properties of Joint Venture in
Which the Partnership has
a 50% Interest and has
Invested in Under an
Operating Lease:
Boston Market Restaurants:
Matthews, North Caroli-a 409,942 737,391 - -
Raleigh, North Carolin- 518,507 542,919 - -
Taco Bell Restaurant:
Anniston, Alabama - 173,396 329,201 - -
Other Restaurants:
Murfeesboro, Tennessee- 398,313 - - -
Blaine, Minnesota - 253,934 531,509 - -
------------ ------------ ------------ -------
$1,754,092 $2,141,020 - -
============ ============ ============ =======
Property of Joint Venture
in Which the Partnership
has a 23.62% Interest
and has Invested in
Under an Operating Lease:
TGI Friday's Restaurant:
Homestead, Pennsylvani- $1,036,297 $1,499,296 - -
============ ============ ============ =======
Property in Which the Partnership
has a 16% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Clinton, North Ca-olina $138,382 $676,588 - -
============ ============ ============ =======
Property in Which the Partnership
has a 15% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Bennigan's Restaurant:
Ft. Myers, Florida - $638,026 - - -
============ ============ ============ =======
Property in Which the Partnership
has a 59% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Blue Springs, Missou-i (k) $786,973 $1,297,431 - -
============ ============ ============ =======
Property of Joint Venture
in Which the Partnership
has a 31.25% Interest
and has Invested in
Under an Operating Lease:
Sonny'siBar-B-QeRestaurant:
Columbus, Georgia - $392,880 $1,194,307 $15,999 -
============ ============ ============ =======
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Denny's Restaurants:
Huntsville, Texas - - - $590,147 -
Bartlesville, Oklahoma- 199,747 789,589 - -
Hardee's Restaurants:
Chester, South Carolin- 140,016 587,718 - -
Cookeville, Tennessee - - 574,511 - -
Olive Branch, Mississi-pi - 510,712 - -
Piney Flats, Tennessee- 141,724 504,827 - -
Japan Express Restaurant:
Lancaster, South Carol-na (k) - 170,415 - -
Long John Silver's Restaurants:
Jackson, Tennessee - - 459,725 - -
Neosho, Missouri - - - 403,331 -
Irving, Texas - - - 414,009 -
------------ ------------ ------------ -------
$481,487 $3,597,497 $1,407,487 -
============ ============ ============ =======
Property in Which the Partnership has a
15% Interest as Tenants-in-Common
and has Invested in Under
Direct Financing Lease:
Bennigan's Restaurant:
Ft. Myers, Florida - - $831,741 - -
============ ============ ============ =======
Life on Which
Net Cost Basis at Which Depreciation in
Carried at Close of Period (c) Date Latest Income
- -----------------------------------------
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation structioAcquired Computed
- ------------- ------------ ------------ ----------- ------ -------- -------------
$520,556 $1,885,084 $2,405,640 $217,018 1995 10/94 (h)
339,499 - 339,499 (d) - 05/94 (d)
432,547 - 432,547 (d) - 05/94 (d)
405,256 - 405,256 (d) - 05/94 (d)
417,014 - 417,014 (d) - 05/94 (d)
557,206 - 557,206 (d) - 05/94 (d)
614,471 - 614,471 (d) - 07/94 (d)
599,586 - 599,586 (d) - 08/94 (d)
353,799 - 353,799 (d) - 08/94 (d)
427,829 - 427,829 (d) - 12/94 (d)
407,211 - 407,211 (d) - 12/94 (d)
423,116 - 423,116 (d) - 12/94 (d)
604,920 - 604,920 (d) - 03/95 (d)
215,478 - 215,478 (d) - 03/95 (d)
349,266 (e) 349,266 (f) 1994 05/94 (f)
406,989 849,648 1,256,637 233,731 1994 06/94 (b)
763,892 939,205 1,703,097 251,913 1994 08/94 (b)
766,891 1,124,687 1,891,578 300,225 1994 09/94 (b)
209,243 (e) 209,243 (f) 1994 04/94 (f)
230,268 497,047 727,315 144,598 1993 04/94 (b)
307,911 593,997 901,908 171,717 1992 04/94 (b)
216,335 (e) 216,335 (f) 1992 04/94 (f)
310,511 480,398 790,909 138,921 1993 04/94 (b)
426,378 646,811 1,073,189 177,932 1994 09/94 (b)
112,840 (e) 112,840 (f) 1994 07/94 (f)
346,854 303,425 650,279 39,619 1994 06/94 (i)
254,023 (e) 254,023 (f) 1994 06/94 (f)
210,008 311,622 521,630 78,816 1976 05/95 (b)
454,448 (e) 454,448 (f) 1995 07/94 (f)
171,859 (e) 171,859 (f) 1994 07/94 (f)
735,323 709,885 1,445,208 25,634 1998 12/01 (b)
643,211 572,231 1,215,442 11,126 1998 06/02 (b)
592,917 678,893 1,271,810 182,030 1994 12/94 (b)
- ------------- ------------ ------------ -----------
$13,827,655 $9,592,933 $23,420,588 $1,973,280
============= ============ ============ ===========
409,942 737,391 1,147,333 153,123 1994 10/96 (b)
518,507 542,919 1,061,426 112,740 1994 10/96 (b)
173,396 329,201 502,597 65,587 1993 01/97 (b)
398,313 - 398,313 (d) - 10/96 (d)
253,934 531,509 785,443 110,370 1996 10/96 (b)
- ------------- ------------ ------------ -----------
$1,754,092 $2,141,020 $3,895,112 $441,820
============= ============ ============ ===========
$1,036,297 $1,499,296 $2,535,593 $129,246 2000 06/00 (b)
============= ============ ============ ===========
$138,382 $676,588 $814,970 $156,486 1996 01/96 (b)
============= ============ ============ ===========
$638,026 (e) $638,026 (f) 1982 06/98 (f)
============= ============ ============
$786,973 $1,297,431 $2,084,404 $75,684 2000 04/01 (b)
============= ============ ============ ===========
$392,880 $1,210,306 $1,603,186 $43,129 2001 08/01 (b)
============= ============ ============ ===========
- (e) (e) (f) 1994 05/94 (f)
(e) (e) (e) (g) 1983 08/95 (g)
(e) (e) (e) (g) 1994 04/94 (g)
- (e) (e) (f) 1992 04/94 (f)
- (e) (e) (f) 1994 04/94 (f)
(e) (e) (e) (g) 1993 04/94 (g)
- (e) (e) (f) 1994 07/94 (f)
- (e) (e) (f) 1994 06/94 (f)
- (e) (e) (f) 1994 07/94 (f)
- (e) (e) (f) 1995 07/94 (f)
- (e) (e) (f) 1982 06/98 (f)
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDUE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(a) Transactions in real estate and accumulated depreciation are
summarized below. The balances in 2001, 2000 and 1999 have been adjusted to
reflect the reclassification of properties accounted for as discontinued
operations.
Accumulated
Cost Depreciation
------------------- --------------------
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1999 $ 22,394,016 $ 1,219,633
Acquisition 749,500 --
Dispositions (586,028 ) (23,899 )
Depreciation expense -- 304,125
------------------- --------------------
Balance, December 31, 2000 22,557,488 1,499,859
Acquisition 1,445,207 --
Dispositions (1,797,548 ) (155,528 )
Depreciation expense -- 303,164
------------------- --------------------
Balance, December 31, 2001 22,205,147 1,647,495
Acquisitions 1,215,441 --
Depreciation expense -- 325,785
------------------- --------------------
Balance, December 31, 2002 $ 23,420,588 $ 1,973,280
=================== ====================
Properties of Joint Venture in Which
the Partnership has a 50% Interest
and has Invested in Under Operating
Leases:
Balance, December 31, 1999 $ 4,883,784 $ 301,471
Depreciation expense -- 94,202
------------------- --------------------
Balance, December 31, 2000 4,883,784 395,673
Disposition (988,672 ) (104,199 )
Depreciation expense -- 78,979
------------------- --------------------
Balance, December 31, 2001 3,895,112 370,453
Depreciation expense -- 71,367
------------------- --------------------
Balance, December 31, 2002 $ 3,895,112 $ 441,820
=================== ====================
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDUE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -
CONTINUED
December 31, 2002
Accumulated
Cost Depreciation
------------------- -------------------
Property of Joint Venture in Which the
Partnership has a 23.62% Interest and
has Invested in Under an Operating
Lease:
Balance, December 31, 1999 $ -- $ --
Acquisition 2,535,593 --
Depreciation expense -- 29,292
------------------- -------------------
Balance, December 31, 2000 2,535,593 29,292
Depreciation expense -- 49,977
------------------- -------------------
Balance, December 31, 2001 2,535,593
79,269
Depreciation expense 49,977
------------------- -------------------
Balance, December 31, 2002 $ 2,535,593 $ 129,246
=================== ===================
Property Which the Partnership has a 16%
Interest as Tenants-In-Common and has
Invested in Under an Operating Lease:
Balance, December 31, 1999 $ 814,970 $ 88,827
Depreciation expense -- 22,553
------------------- -------------------
Balance, December 31, 2000 814,970 111,380
Depreciation expense -- 22,553
------------------- -------------------
Balance, December 31, 2001 814,970 133,933
Depreciation expense -- 22,553
------------------- -------------------
Balance, December 31, 2002 $ 814,970 $ 156,486
=================== ===================
Property in Which the Partnership has a
15% Interest as Tenants-In-Common and
has Invested in Under an Operating
Lease:
Balance, December 31, 1999 $ 638,026 $ --
Depreciation expense (f) -- --
------------------- -------------------
Balance, December 31, 2000 638,026 --
Depreciation expense (f) -- --
------------------- -------------------
Balance, December 31, 2001 638,026 --
Depreciation expense (f) -- --
------------------- -------------------
Balance, December 31, 2002 $ 638,026 $ --
=================== ===================
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDUE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -
CONTINUED
December 31, 2002
Accumulated
Cost Depreciation
------------------- -------------------
Property Which the Partnership has a 59%
Interest as Tenants-In-Common and has
Invested in Under an Operating Lease:
Balance, December 31, 2000 $ -- $ --
Acquisition 2,151,963 --
Depreciation expense -- 34,125
------------------- -------------------
Balance, December 31, 2001
Reimbursement of construction 2,151,963 34,125
cost (k) ) )
Depreciation expense (67,559 (3,941
-- 45,500
------------------- -------------------
Balance, December 31, 2002 $ 2,084,404 $ 75,684
=================== ===================
Property of Joint Venture in which the
Partnership has a 31.25% Interest and
has Invested in Under an Operating
Lease:
Balance, December 31, 2000 $ -- $ --
Acquisition 1,587,187 --
Depreciation expense -- 3,318
------------------- -------------------
Balance, December 31, 2001
1,587,187 3,318
Acquisition 15,999 --
Depreciation expense -- 39,811
------------------- -------------------
Balance, December 31, 2002 $ 1,603,186 $ 43,129
=================== ===================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2002 the aggregate cost of the Properties owned by
the Partnership and joint ventures for federal income tax purposes was
$28,871,382 and $12,091,259, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
(d) The building portion of this Property is owned by the tenant;
therefore, depreciation is not applicable.
(e) 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.
(f) 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.
(g) 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
the net investment in direct financing leases; therefore, depreciation
is not applicable.
(h) Effective December 9, 1999, the lease for this property was terminated
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 25
years.
(i) Effective October 1, 1999, 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 25
years.
(j) Effective June 11, 1998, the lease for this Property was terminated,
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 26
years. The undepreciated cost of the Property in Lancaster, South
Carolina was written down to its estimated net realizable value due to
an impairment in value. The Partnership recognized the impairment
during 1998, by recording a provision for write-down of assets in the
amount of $108,410 and $167,526, respectively. The impairment
represented the difference between the Property's carrying value and
the estimated net realizable value of the Property at December 31,
1998. In May 1999, the Partnership re-leased the Property to a new
tenant. In connection, the building portion of the lease was
reclassified from an operating lease to a net investment in direct
financing lease, based on the net carrying value of the building.
(k) During the year ended December 31, 2002, the Partnership received
reimbursement from the developer upon final construction cost
reconciliation. In connection, therewith, the land and building values
were adjusted accordingly.
EXHIBIT INDEX
Exhibit Number
(a). Exhibits
**3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund XV, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-69968 on Form S-11 and
incorporated herein by reference.)
**4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund XV, Ltd. (Included as Exhibit 3.1 to
Registration Statement No. 33-69968 on Form S-11 and
incorporated herein by reference.)
**4.2 Amended and Restated Agreement of Limited Partnership of
CNL Income Fund XV, Ltd. (Included as Exhibit 4.2 to
Form 10-K filed with the Securities and Exchange
Commission on March 30,1995, incorporated herein by
reference.)
**10.1 Management Agreement between CNL Income Fund XV, Ltd.
and CNL Investment Company (Included as Exhibit 10.1 to
Form 10-K filed with the Securities and Exchange
Commission on March 30, 1995, and incorporated herein by
reference.)
**10.2 Assignment of Management Agreement from CNL Investment
Company to CNL Income Fund Advisors, Inc. (Included as
exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated
herein by reference.)
**10.3 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and incorporated
herein by reference.)
**10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 for Form 10-Q filed with the Securities and
Exchange Commission on August 7, 2001 and incorporated
herein be reference.)
**10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included as
Exhibit 10.5 to Form 10-Q filed with the Securities and
Exchange Commission on August 13, 2002, and incorporated
herein by reference.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
EXHIBIT 99.1
EXHIBIT 99.2