FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended September 30, 2004
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from ______________________ to _______________________
Commission file number
0-26216
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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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- ---------------------------------------- --------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
--------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes___ No X
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
Item 4. Controls and Procedures 12
Part II
Other Information 13-14
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
2004 2003
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 18,736,399 $ 19,019,814
Net investment in direct financing leases 2,280,365 2,336,717
Real estate held for sale 799,165 3,747,970
Investment in joint ventures 5,219,616 5,776,721
Cash and cash equivalents 5,598,719 1,446,341
Receivables, less allowance for doubtful accounts of $1,041
in 2004 318,935 310,398
Accrued rental income, less allowance for doubtful
accounts of $4,213 and $27,005, respectively 1,698,102 1,634,755
Other assets 56,210 38,255
------------------- -------------------
$ 34,707,511 $ 34,310,971
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 66,545 $ 15,983
Real estate taxes payable 9,138 9,590
Distributions payable 800,000 800,000
Due to related parties 31,273 16,989
Rents paid in advance and deposits 139,227 178,746
------------------- -------------------
Total liabilities 1,046,183 1,021,308
Commitment (Note 5)
Partners' capital 33,661,328 33,289,663
------------------- -------------------
$ 34,707,511 $ 34,310,971
=================== ===================
See accompanying notes to condensed financial statements.
1
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------------- --------------- -------------- --------------
Revenues:
Rental income from operating leases $ 562,883 $ 574,817 $ 1,707,775 $ 1,727,333
Earned income from direct financing leases 67,955 70,155 205,575 211,974
Contingent rental income -- -- 1,074 297
Interest and other income 510 1,015 1,824 4,040
------------- --------------- -------------- --------------
631,348 645,987 1,916,248 1,943,644
------------- --------------- -------------- --------------
Expenses:
General operating and administrative 107,954 57,077 297,672 199,532
Property related 2,846 9,203 8,425 15,377
Management fees to related parties 8,505 8,714 25,670 26,695
State and other taxes -- 94 45,239 38,689
Depreciation and amortization 72,033 75,077 216,099 225,244
------------- --------------- -------------- --------------
191,338 150,165 593,105 505,537
------------- --------------- -------------- --------------
Income before loss on exchange of assets
and equity in earnings of unconsolidated
joint ventures 440,010 495,822 1,323,143 1,438,107
Gain on exchange of assets 53,471 -- 53,471 --
Equity in earnings of unconsolidated joint
ventures 145,839 108,634 408,414 327,439
------------- --------------- -------------- --------------
Income from continuing operations 639,320 604,456 1,785,028 1,765,546
------------- --------------- -------------- --------------
Discontinued operations:
Income from discontinued operations 31,819 93,108 169,480 329,878
Gain on disposal of discontinued operations 166,255 -- 817,157 --
------------- --------------- -------------- --------------
198,074 93,108 986,637 329,878
------------- --------------- -------------- --------------
Net income $ 837,394 $ 697,564 $ 2,771,665 $ 2,095,424
============= =============== ============== ==============
Income per limited partner unit:
Continuing operations $ 0.16 $ 0.15 $ 0.45 $ 0.44
Discontinued operations 0.05 0.02 0.24 0.08
------------- --------------- -------------- --------------
$ 0.21 $ 0.17 $ 0.69 $ 0.52
============= =============== ============== ==============
Weighted average number of limited
partner units outstanding 4,000,000 4,000,000 4,000,000 4,000,000
============= =============== ============== ==============
See accompanying notes to condensed financial statements.
2
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
2004 2003
--------------------- ------------------
General partners:
Beginning balance $ 174,788 $ 174,788
Net income -- --
--------------------- ------------------
174,788 174,788
--------------------- ------------------
Limited partners:
Beginning balance 33,114,875 33,459,848
Net income 2,771,665 2,855,027
Distributions ($0.60 and $0.80 per limited
partner unit, respectively) (2,400,000) (3,200,000)
--------------------- ------------------
33,486,540 33,114,875
--------------------- ------------------
Total partners' capital $ 33,661,328 $ 33,289,663
===================== ==================
See accompanying notes to condensed financial statements.
3
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2004 2003
-------------- --------------
Net cash provided by operating activities $ 2,172,574 $ 2,416,512
-------------- --------------
Cash flows from investing activities:
Proceeds from sale of assets 3,757,114 558,990
Liquidating distribution from joint venture 499,690 --
Proceeds from exchange of assets 123,000 --
-------------- --------------
Net cash provided by investing activities 4,379,804 558,990
-------------- --------------
Cash flows from financing activities:
Distributions to limited partners (2,400,000) (2,500,000)
-------------- --------------
Net cash used in financing activities (2,400,000) (2,500,000)
-------------- --------------
Net increase in cash and cash equivalents 4,152,378 475,502
Cash and cash equivalents at beginning of period 1,446,341 2,317,004
-------------- --------------
Cash and cash equivalents at end of period $ 5,598,719 $ 2,792,506
============== ==============
Supplemental schedule of non-cash investing and financing activities:
Land under operating lease exchanged for land under
operating lease $ 837,803 $ --
============== ==============
Distributions declared and unpaid at end of
period $ 800,000 $ 800,000
============== ==============
See accompanying notes to condensed financial statements.
4
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the general partners, necessary for a fair
statement of the results for the interim periods presented. Operating
results for the quarter and nine months ended September 30, 2004, may
not be indicative of the results that may be expected for the year
ending December 31, 2004. Amounts as of December 31, 2003, included in
the financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XV, Ltd. (the "Partnership") for the year ended December
31, 2003.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January
2003) ("FIN 46R"), "Consolidation of Variable Interest Entities"
requiring existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries. Application of FIN 46R is
required in financial statements of public entities that have interests
in variable interest entities for periods ending after March 15, 2004.
The Partnership adopted FIN 46R during the quarter ended March 31,
2004. The Partnership was not the primary beneficiary of a variable
interest entity at the time of adoption of FIN 46R, therefore the
adoption had no effect on the balance sheet, partners' capital or net
income.
2. Real Estate Properties with Operating Leases
Real estate properties with operating leases consisted of the following
at:
September 30, December 31,
2004 2003
------------------- -------------------
Land $ 12,654,347 $ 12,723,876
Buildings 8,198,463 8,198,464
------------------- -------------------
20,852,810 20,922,340
Less accumulated depreciation (2,116,411) (1,902,526)
------------------- -------------------
$ 18,736,399 $ 19,019,814
=================== ===================
In September 2004, the Partnership entered into a purchase and exchange
agreement whereby the Properties in Marietta and Norcross, Georgia,
consisting of only land, were exchanged for land in Tampa and Ruskin,
Florida and the leases were amended to include an extension of the
lease term. In accordance with the agreement, the Partnership received
$123,000 and recorded a gain on exchange of assets of approximately
$53,500.
3. Discontinued Operations
During 2003, the Partnership identified for sale three properties that
were classified as discontinued operations in the accompanying
financial statements. The Partnership sold the property in
Bartlesville,
5
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
3. Discontinued Operations - Continued
Oklahoma in June 2003. During the nine months ended September 30, 2004,
the Partnership identified three additional properties for sale and
reclassified the assets to real estate held for sale. Because the
current carrying amount of these assets is less than their fair value
less cost to sell, no provision for write-down of assets was recorded.
In March 2004, the Partnership sold the properties in Piney Flats,
Tennessee and Huntsville, Texas, and in April 2004, sold the property
in Cookeville, Tennessee to separate third parties. In August 2004, the
Partnership sold the property in Columbia, South Carolina to a third
party. The Partnership received aggregate net sales proceeds of
approximately $3,757,100, resulting in a gain on disposal of
discontinued operations of approximately $817,200 relating to these
sales.
The operating results of these properties reflected as discontinued
operations are as follows:
Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
--------------- ------------- ------------- ------------
Rental revenues $ 31,819 $ 102,201 $ 180,357 $ 361,189
Expenses -- (9,093) (10,877) (31,311)
--------------- ------------- ------------- ------------
Income from discontinued
operations $ 31,819 $ 93,108 $ 169,480 $ 329,878
=============== ============= ============= ============
4. Investment in Joint Ventures
In August 2004, CNL VII, XV Columbus Joint Venture, in which the
Partnership owned a 31.25% interest, entered into an agreement with the
tenant to sell its property in Columbus, Georgia. In August 2004, the
joint venture sold this property and received net sales proceeds of
$1,600,000, resulting in a gain on disposal of discontinued operations
of approximately $33,000. As a result of the sale, the joint venture
was dissolved, and the Partnership received approximately $499,700,
representing its pro-rata share of the liquidating distribution of the
joint venture. The financial results for this property are reflected as
discontinued operations in the combined, condensed financial
information presented below.
Wood-Ridge Real Estate Joint Venture owns five properties. TGIF
Pittsburgh Joint Venture owns one property. In addition, the
Partnership and affiliates, in five separate tenancy in common
arrangements, each own one property.
The following presents the combined, condensed financial information
for the joint ventures and the properties held as tenants-in-common
with affiliates at:
September 30, December 31,
2004 2003
---------------- ---------------
Real estate properties with operating
leases, net $ 12,205,846 $ 12,401,758
Net investment in direct financing
leases 751,675 764,271
Real estate held for sale -- 1,575,355
Cash 51,360 103,799
Receivables 18,252 18,000
Accrued rental income 580,276 498,211
Other assets 9,242 10,700
Liabilities 43,234 66,613
Partners' capital 13,573,417 15,305,481
6
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
4. Investment in Joint Ventures - Continued
Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------------ ---------------- ------------- ---------------
Continuing operations:
Revenues $ 374,800 $ 304,219 $ 1,126,192 $ 911,603
Expenses (67,473) (51,473) (201,302) (147,623)
------------ ---------------- ------------- ---------------
Income from continuing operations 307,327 252,746 924,890 763,980
Discontinued operations:
Revenues 60,840 51,815 164,469 155,444
Expenses (3,318) (10,199) (23,436) (30,514)
Gain on disposal of discontinued
operations 32,985 -- 32,985 --
------------ ---------------- ------------- ----------------
90,507 41,616 174,018 124,930
------------ ---------------- ------------- ----------------
Net income $ 397,834 $ 294,362 $1,098,908 $ 888,910
============ ================ ============= ================
The Partnership recognized income of $408,414 and $327,439 during the
nine months ended September 30, 2004 and 2003, respectively, $145,839
and $108,634 of which were earned during the third quarters of 2004 and
2003, respectively, from these joint ventures and tenants-in-common
arrangements.
5. Commitment
In September 2004, the Partnership entered into an agreement with a
third party to sell the property in Pawleys Island, South Carolina. As
of November 5, 2004, the Partnership had not sold this property.
6. Merger Transaction
On August 9, 2004, the Partnership entered into a definitive Agreement
and Plan of Merger pursuant to which the Partnership will be merged
with a subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The
merger is one of multiple concurrent transactions pursuant to which 17
other affiliated limited partnerships also will be merged with a
subsidiary of U.S. Restaurant Properties, Inc. and in which CNL
Restaurant Properties, Inc., an affiliate, also will be merged with
U.S. Restaurant Properties, Inc. CNL Restaurant Properties, Inc.
currently provides property management and other services to the
Partnership. The merger of the Partnership (and each of the 17 other
affiliated mergers) is subject to certain conditions including approval
by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as
measured by the value of the merger consideration) of all limited
partnerships, consummation of the merger between U.S. Restaurant
Properties, Inc. and CNL Restaurant Properties, Inc., approval of the
shareholders of U.S. Restaurant Properties, Inc., and availability of
financing. The transaction is expected to be consummated in the first
quarter of 2005.
7
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
6. Merger Transaction - Continued
Under the terms of the merger agreement, if the transaction is
approved, the limited partners will receive total consideration of
approximately $39.43 million, consisting of approximately $32.97
million in cash and approximately $6.46 million in U.S. Restaurant
Properties, Inc. Series A Convertible Preferred Stock that is listed on
the New York Stock Exchange. The general partners will receive total
consideration of approximately $128,000 consisting of approximately
$107,000 in cash and approximately $21,000 in preferred stock.
8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULT
OF OPERATIONS
CNL Income Fund XV, Ltd. (the "Partnership," which may be referred to
as "we," "us," or "our") is a Florida limited partnership that was organized on
September 2, 1993, to acquire for cash, either directly or through joint venture
and tenancy in common arrangements, both newly constructed and existing
restaurants, as well as land upon which restaurants were to be constructed (the
"Properties"), which are leased primarily to operators of national and regional
fast-food and family-style restaurant chains. The leases generally are
triple-net leases, with the lessee responsible for all repairs and maintenance,
property taxes, insurance and utilities. As of September 30, 2003, we owned 35
Properties directly and ten Properties indirectly through joint venture or
tenancy in common arrangements. As of September 30, 2004, we owned 31 Properties
directly and eleven Properties indirectly through joint venture or tenancy in
common arrangements.
Merger Transaction
The general partners believe their primary objective is to maintain
current operations with restaurant operators as successfully as possible, while
evaluating strategic alternatives, including alternatives that may provide
liquidity to the limited partners. Real estate markets are strong throughout
much of the nation, and the performance of restaurants has generally improved
after several challenging years. As a result, the general partners believe that
this is an attractive period for a strategic event to monetize the interests of
the limited partners.
In furtherance of this, on August 9, 2004, we entered into a definitive
Agreement and Plan of Merger pursuant to which we will be merged with a
subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The merger is one of
multiple concurrent transactions pursuant to which 17 other affiliated limited
partnerships also will be merged with a subsidiary of U.S. Restaurant
Properties, Inc. and in which CNL Restaurant Properties, Inc., an affiliate,
also will be merged with U.S. Restaurant Properties, Inc. Our merger (and each
of the 17 other affiliated mergers) is subject to certain conditions including
approval by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as measured
by the value of the merger consideration) of all limited partnerships,
consummation of the merger between U.S. Restaurant Properties, Inc. and CNL
Restaurant Properties, Inc., approval of the shareholders of U.S. Restaurant
Properties, Inc., and availability of financing. U.S. Restaurant Properties,
Inc. is a real estate investment trust (REIT) that focuses primarily on
acquiring, owning and leasing restaurant properties. The transaction is expected
to be consummated in the first quarter of 2005.
Under the terms of the merger agreement, if the transaction is
approved, our limited partners will receive total consideration of approximately
$39.43 million, consisting of approximately $32.97 million in cash and
approximately $6.46 million in U.S. Restaurant Properties, Inc. Series A
Convertible Preferred Stock that is listed on the New York Stock Exchange. The
general partners will receive total consideration of approximately $128,000
consisting of approximately $107,000 in cash and approximately $21,000 in
preferred stock.
We received an opinion from Wachovia Capital Markets, LLC that as of
August 9, 2004 the merger consideration to be received by the holders of our
general and limited partnership interests is fair, from a financial point of
view, to such holders.
As reflected above, the contemplated transactions are complex, and
contingent upon certain conditions. The restaurant marketplace, the real estate
industry, and the equities markets, all individually or taken as a whole, could
impact the economics of this transaction. As a result, there is no assurance
that we will be successful in completing the contemplated transaction.
Capital Resources
Net cash provided by operating activities was $2,172,574 and $2,416,512
for the nine months ended September 30, 2004 and 2003, respectively. The
decrease in cash from operating activities during the nine months ended
September 30, 2004, as compared to the previous year, was a result of changes in
our working capital, such as the timing of transactions relating to the
collection of receivables and the payment of expense, and changes in income and
expenses, such as changes in rental revenues resulting from sales of Properties
and changes in operating and property related expenses.
9
During the nine months ended September 30, 2004, we sold the Properties
in Huntsville, Texas; Piney Flats and Cookeville, Tennessee; and Columbia, South
Carolina to separate third parties and received aggregate net sales proceeds of
approximately $3,757,100 resulting in an aggregate gain on disposal of
discontinued operations of approximately $817,200. We may reinvest the net sales
proceeds in additional Properties or use the sales proceeds to pay liabilities.
In September 2004, CNL VII, XV Columbus Joint Venture, in which we
owned a 31.25% interest, sold its Property in Columbus, Georgia and received net
sales proceeds of $1,600,000 resulting in a gain on disposal of discontinued
operations of approximately $33,000. As a result of the sale of the Property,
the joint venture was dissolved and we received approximately $499,700
representing our pro-rata share of the liquidating distribution from the joint
venture. We may use the liquidation proceeds to invest in additional Properties
or to pay liabilities.
In addition, during September 2004, we entered into a purchase and
exchange agreement whereby our Properties in Marietta and Norcross, Georgia were
exchanged for Properties in Tampa and Ruskin, Florida and the leases were
amended to include an extension of the lease term. All of these Properties
consist of land only. Per the agreement, we received $123,000 and, as a result,
recorded a gain on exchange of assets of approximately $53,500.
At September 30, 2004, we had $5,598,719 in cash and cash equivalents,
as compared to $1,446,341 at December 31, 2003. At September 30, 2004, these
funds were held in a demand deposit account at a commercial bank. The increase
in cash and cash equivalents at September 30, 2004, was a result of holding
sales proceeds from the sales described above and as a result of cash received
in a transaction involving the exchange of land. The funds remaining at
September 30, 2004, after payment of distributions and other liabilities, may be
used to invest in additional Properties and to meet our working capital needs.
Short-Term Liquidity
Our investment strategy of acquiring Properties for cash and leasing
them under triple-net leases to operators who generally meet specified financial
standards minimizes our operating expenses. The general partners believe that
the leases will continue to generate cash flow in excess of operating expenses.
Our short-term liquidity requirements consist primarily of our
operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
our operations.
We generally distribute cash from operations remaining after the
payment of operating expenses to the extent that the general partners determine
that such funds are available for distribution. Based on current and anticipated
future cash from operations, we declared distributions to limited partners of
$2,400,000 for each of the nine months ended September 30, 2004 and 2003
($800,000 for each applicable quarter). This represents distributions of $0.60
per unit for each of the nine months ended September 30, 2004 and 2003 ($0.20
per unit for each applicable quarter). No distributions were made to the general
partners for the quarters and nine months ended September 30, 2004 and 2003. No
amounts distributed to the limited partners for the nine months ended September
30, 2004 and 2003 are required to be or have been treated as a return of capital
for purposes of calculating the limited partners' return on their adjusted
capital contributions. We intend to continue to make distributions of cash to
the limited partners on a quarterly basis.
Total liabilities, including distributions payable, were $1,046,183 at
September 30, 2004, as compared to $1,021,308 at December 31, 2003. The increase
was primarily due to an increase in accounts payable and accrued expenses and
amounts due to related parties, which was partially offset by a decrease in
rents paid in advance and deposits. The general partners believe that we have
sufficient cash on hand to meet our current working capital needs.
10
Contractual Obligations, Contingent Liabilities, and Commitments
In September 2004, we entered into an agreement to sell the Property in
Pawleys Island, South Carolina. As of November 5, 2004, we had not sold this
Property.
Long-Term Liquidity
We have no long-term debt or other long-term liquidity requirements.
Results of Operations
Rental revenues from continuing operations were $1,913,350 during the
nine months ended September 30, 2004, as compared to $1,939,307 during the same
period of 2003, $630,838 and $644,972 of which were earned during the third
quarters of 2004 and 2003, respectively. In March 2004, we entered into an
agreement, effective January 2004, to provide temporary and partial rent
deferral to a tenant who is experiencing liquidity difficulties. The general
partners anticipate that deferring a portion of monthly rent through December
2004 on the one lease the tenant has with us will provide the necessary relief
to the tenant. Rental payment terms revert to the original terms beginning in
January 2005. Repayment of the deferred amounts is secured by letters of credit
and scheduled to begin in January 2005 and continue for 60 months. The general
partners do not believe that this temporary decline in cash flows will have a
material adverse effect on our operating results.
We earned $408,414 attributable to net income earned by unconsolidated
joint ventures during the nine months ended September 30, 2004, as compared to
$327,439 during the same period of 2003, $145,839 and $108,634 of which were
earned during the quarters ended September 30, 2004 and 2003, respectively. Net
income earned by unconsolidated joint ventures was higher during the quarter and
nine months ended September 30, 2004, as compared to 2003, because in August
2004, CNL VII, XV Columbus Joint Venture, in which we owned a 31.25% interest,
sold its Property in Columbus, Georgia to the tenant and recorded a gain of
approximately $33,000. We recorded our pro-rata share of this gain as equity in
earnings of unconsolidated joint ventures and the joint venture was liquidated.
In addition, the increase in net income earned by unconsolidated joint ventures
was partially due to the fact that in November 2003, we invested in a Property
in Tucker, Georgia with CNL Income Fund X, Ltd., CNL Income Fund XIII, Ltd. and
CNL Income Fund XIV, Ltd., as tenants-in-common, and in a Property in Dalton,
Georgia with CNL Income Fund VI, Ltd., CNL Income Fund XI, Ltd., and CNL Income
Fund XVI, Ltd., as tenants-in-common. Each of the CNL Income Funds is a Florida
limited partnership pursuant to the laws of the state of Florida, and an
affiliate of the general partners. Rental payments relating to these Properties
commenced at the time of acquisition.
Operating expenses, including depreciation and amortization expense,
were $593,105 during the nine months ended September 30, 2004, as compared to
$505,537 during the same period of 2003, $191,338 and $150,165 of which were
incurred during the quarters ended September 30, 2004 and 2003, respectively.
The increase in operating expenses during the quarter and nine months ended
September 30, 2004, was primarily due to incurring additional general operating
and administrative expenses, including, primarily, legal fees incurred in
connection with the merger transaction described above.
During the quarter and nine months ended September 30, 2004, we
recorded a gain on the exchange of assets of approximately $53,500, as described
above.
11
We recognized income from discontinued operations (rental revenues less
property related expenses) of $93,108 and $329,878 during the quarter and nine
months ended September 30, 2003, respectively, relating to the Properties in
Bartlesville, Oklahoma; Piney Flats and Cookeville, Tennessee; Huntsville,
Texas; and Columbia and Pawleys Island, South Carolina. We sold the
Bartlesville, Oklahoma Property in June 2003. We recognized income from
discontinued operations of $31,819 and $169,480 during the quarter and nine
months ended September 30, 2004, respectively. In March 2004, we sold the
Properties in Piney Flats, Tennessee and Huntsville, Texas, and in April 2004,
we sold the Property in Cookeville, Tennessee. In August 2004, we sold the
Property in Columbia, South Carolina. We recorded an aggregate gain on disposal
of discontinued operations of approximately $817,200 relating to these sales. As
of November 5, 2004, we had not sold the Property in Pawleys Island, South
Carolina. In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January 2003) ("FIN
46R"), "Consolidation of Variable Interest Entities" requiring existing
unconsolidated variable interest entities to be consolidated by their primary
beneficiaries. Application of FIN 46R is required in financial statements of
public entities that have interests in variable interest entities for periods
ending after March 15, 2004. We adopted FIN 46R during the quarter ended March
31, 2004. We were not the primary beneficiary of a variable interest entity at
the time of adoption of FIN 46R, therefore the adoption had no effect on the
balance sheet, partners' capital or net income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in our
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 our disclosure controls
and procedures as of the end of the period covered by this Quarterly Report on
Form 10-Q and have determined that such disclosure controls and procedures are
effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
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Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
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Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
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Item 5. Other Information. Inapplicable.
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Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits
2.1 Agreement and Plan of Merger among U.S. Restaurant
Properties, Inc., Ivanhoe Acquisition XV, LLC, and CNL
Income Fund XV, Ltd., dated as of August 9, 2004.
(Included as Exhibit 99.2 to Form 8-K filed with the
Securities and Exchange Commission on August 9, 2004,
and incorporated herein by reference.)
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 to Form 10-Q filed with the Securities and
Exchange Commission on August 7, 2001 and incorporated
herein by reference.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included as
Exhibit 10.5 to Form 10-Q filed with the Securities and
Exchange Commission on August 13, 2002, and incorporated
herein by reference.)
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31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 11th day of November 2004.
CNL INCOME FUND XV, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-------------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-------------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit Number
Exhibits
2.1 Agreement and Plan of Merger among U.S. Restaurant
Properties, Inc., Ivanhoe Acquisition XV, LLC, and CNL
Income Fund XV, Ltd., dated as of August 9, 2004.
(Included as Exhibit 99.2 to Form 8-K filed with the
Securities and Exchange Commission on August 9, 2004,
and incorporated herein by reference.)
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 to Form 10-Q filed with the Securities and
Exchange Commission on August 7, 2001 and incorporated
herein by reference.)
10.5 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Included as
Exhibit 10.5 to Form 10-Q filed with the Securities and
Exchange Commission on August 13, 2002, and incorporated
herein by reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2