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 0-26218
CNL INCOME FUND XVI, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3198891
(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 Section12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section12(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 4,500,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund XVI, 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 September 2, 1994, the
Partnership offered for sale up to $45,000,000 of limited partnership interests
(the "Units") (4,500,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
February 23, 1994. The offering terminated on June 12, 1995, at which date the
maximum offering proceeds of $45,000,000 had been received from investors who
were admitted to the Partnership as limited partners (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
$39,600,000 and were used to acquire 43 Properties, including seven Properties
consisting of land only.
As of December 31, 1999, the Partnership owned 40 Properties directly
and three Properties indirectly through joint venture or tenancy in common
arrangements. During 2000, the Partnership reinvested the net sales proceeds
from the 1999 sale of the Property in Lawrence, Kansas in TGIF Pittsburgh Joint
Venture, with affiliates of the General Partners, to purchase and hold one
restaurant Property. During 2000, the Partnership sold its Property in Columbia
Heights, Minnesota. During 2001, the Partnership sold its Properties in Marana,
Arizona, St. Cloud, Minnesota, and Las Vegas, Nevada and reinvested the majority
of the net sales proceeds in a Property in San Antonio, Texas and a Property in
Walker, Louisiana, with CNL Income Fund VIII, Ltd., a Florida limited
partnership and an affiliate of the General Partners, as tenants-in-common.
During 2002, the Partnership sold its Properties in Rancho Cordova, California,
Mesquite, Texas, and Bucyrus, Ohio. The Partnership reinvested the net sales
proceeds from the sales of the Properties in Rancho Cordova, California, and
Mesquite, Texas in a Property in Austin, Texas and in Arlington Joint Venture.
The Partnership intends to reinvest the proceeds from the sale of the Property
in Bucyrus, Ohio in an additional Property. As of December 31, 2002, the
Partnership owned 35 Properties directly and six Properties indirectly through
joint venture or tenancy in common arrangements. The 35 Properties owned
directly include six Properties consisting of land only. The lessee of the six
Properties consisting of only land 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 terms. In general, the Partnership leases the
Properties 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
Properties owned by joint ventures in which the Partnership is a co-venturer and
Properties owned as tenants-in-common with affiliates of the General Partners
provide for initial terms ranging from 9 to 20 years (the average being 18
years) and expire between 2008 and 2020. The leases are generally on a
triple-net basis, with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities. The leases of the Properties provide
for minimum base annual rental payments (payable in monthly installments)
ranging from approximately $25,100 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 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 28 of the Partnership's 41 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 generally provide that, in the event the Partnership wishes
to sell the Property subject to that lease, the Partnership first must offer the
lessee the right to purchase the Property on the same terms and conditions, and
for the same price, as any offer which the Partnership has received for the sale
of the Property.
In August 1999, the leases relating to the Long John Silver's
Properties in Silver City and Clovis, New Mexico and Copperas Cove, Texas were
amended to provide rent deferrals. All other lease terms remained unchanged. As
of March 10, 2003, the Partnership has continued to receive the reduced rental
payments relating to these Properties and has collected a portion of the
deferrals, in accordance with the 1999 agreement. The General Partners do not
believe that the rent deferrals will have a material adverse effect on the
results of operations of the Partnership.
The tenant of the Property in Celina, Ohio exercised its option to
extend the lease for an additional five years beginning in March 2003. All other
lease terms remained unchanged and are substantially the same as the
Partnership's other leases as described above.
During 2001, Phoenix Restaurant Group, Inc. ("PRG") filed for
bankruptcy and rejected two of the four leases it had with the Partnership. In
May and June 2002, the bankruptcy court assigned the two leases not rejected by
PRG relating to the properties Branson, Missouri and Temple, Texas to CherryDen,
LLC and Seana, LLC, respectively. CherryDen, LLC is an affiliate of the General
Partners. All other lease terms remained the same.
During 2002, the Partnership reinvested the net sales proceeds from the
sale of the Properties in Rancho Cordova, California, and Mesquite, Texas in a
Property in Austin, Texas and in Arlington Joint Venture, which acquired a
Property in Arlington, Texas. The lease terms for these Properties are
substantially the same as the Partnership's other leases.
Major Tenants
During 2002, two lessees of the Partnership, (i) Golden Corral
Corporation and (ii) Jack in the Box Inc. and Jack in the Box Eastern Division,
LP. (affiliated under common control of Jack in the Box Inc., herein after
referred to as "Jack in the Box Inc."), each contributed more than ten percent
of the Partnership's rental revenues (including the Partnership's share of
rental revenues from Properties owned by joint ventures and the Properties held
as tenants-in-common with affiliates). As of December 31, 2002, Golden Corral
Corporation was the lessee under leases relating to six restaurants and Jack in
the Box Inc. was the lessee under leases relating to five restaurants. It is
anticipated that based on the minimum rental payments required by the leases
these two lessees will each continue to contribute more than ten percent of the
Partnership's rental revenues in 2003. In addition, three Restaurant Chains,
Golden Corral Family Steakhouse Restaurants ("Golden Corral"), Jack in the Box,
and Denny's, each accounted for more than ten percent of the Partnership's
rental revenues (including the Partnership's share of rental revenues from
Properties owned by joint ventures and the Properties held as tenants-in-common
with affiliates). In 2003, it is anticipated that each of these Restaurant
Chains will continue to contribute more than ten percent of the Partnership's
rental revenues to which the Partnership is entitled under the terms of the
leases. Any failure of these lessees or Restaurant Chains could materially
affect the Partnership's income if the Partnership is not able to re-lease the
Properties in a timely manner. As of December 31, 2002, Golden Corral
Corporation leased 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
CNL Income Fund XVI, Ltd and 1996 80.44% CNL Income Fund XVII, Ltd. Fayetteville, NC
CNL Income Fund XVII,
Ltd. Tenants in Common
CNL Income Fund II, Ltd., CNL 1998 40.42% CNL Income Fund II, Ltd. Memphis, TN
Income Fund VI, Ltd. and CNL Income Fund VI, Ltd.
CNL Income Fund XVI,
Ltd. Tenants in Common
Columbus Joint Venture 1998 32.35% CNL Income Fund XII, Ltd. Columbus, OH
CNL Income Fund XVIII, Ltd.
TGIF Pittsburgh Joint Venture 2000 19.72% CNL Income Fund VII, Ltd. Homestead, PA
CNL Income Fund XV, Ltd.
CNL Income Fund XVIII, Ltd.
CNL Income Fund VIII, Ltd., 2001 83.00% CNL Income Fund VIII, Ltd. Walker, LA
and CNL Income Fund XVI,
Ltd. Tenants in Common
Arlington Joint Venture 2002 21.00% CNL Income Fund VII, Ltd. Arlington, TX
Each of the 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.
Arlington Joint Venture has an initial term of 30 years, each of the
other joint ventures has an initial term of 20 years and, after the expiration
of the initial term, continues in existence from year to year unless terminated
at the option of 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 to 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.
During 2002, the Partnership reinvested a portion of the net sales
proceeds from the sale of the Property in Mesquite, Texas in Arlington Joint
Venture, to purchase and hold one Property.
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. ("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, 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 41 Properties. Of the 41
Properties, 35 are owned by the Partnership in fee simple, three are owned
through joint venture arrangements and three are owned 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 16,600
to 104,800 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
The following table lists the Properties owned by the Partnership,
either directly or indirectly through joint venture or tenancy in common
arrangements, 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.
State Number of Properties
California 1
Colorado 1
Washington, D.C. 1
Florida 5
Georgia 1
Idaho 1
Indiana 2
Kansas 1
Louisiana 1
Missouri 4
New Mexico 3
North Carolina 3
Ohio 3
Pennsylvania 1
Tennessee 1
Texas 11
Utah 1
-----------------
TOTAL PROPERTIES 41
=================
Buildings. Each of the Properties owned by the Partnership, either
directly or indirectly through joint venture or tenancy in common arrangements,
includes a building that is one of a Restaurant Chain's approved designs.
However, the buildings located on the six Checkers Properties are owned by the
tenant while the land parcels are owned by the Partnership. 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 2,000 to 11,100 square feet. All buildings
on Properties are freestanding and surrounded by paved parking areas. Buildings
are suitable for conversion to various uses, although modifications may be
required prior to use for other than restaurant operations. As of December 31,
2002, the Partnership had no plans for renovation of the Properties.
Depreciation expense is computed for buildings and improvements using the
straight line method using a depreciable life of 40 years for federal income tax
purposes.
As of December 31, 2002, the aggregate cost of the Properties owned by
the Partnership and joint ventures (including Properties owned through tenancy
in common arrangements) for federal income tax purposes was $32,441,035 and
$8,290,050, respectively.
The following table lists the Properties owned by the Partnership,
either directly or indirectly through joint venture or tenancy in common
arrangements, as of December 31, 2002 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 2
Boston Market 2
Checkers 6
Denny's 6
Golden Corral 6
IHOP 2
Jack in the Box 5
KFC 1
Long John Silver's 4
T.G.I. Friday's 1
Taco Cabana 3
Wendy's 1
Other 2
---------------------
TOTAL PROPERTIES 41
=====================
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
98%, 93%, 98%, 95% and 89%, occupied, respectively. The following is a schedule
of the average rent per property for each of the years ended December 31:
2002 2001 2000 1999 1998
-------------- ------------- ------------- ------------- -------------
Rental Revenues (1)(2) $ 3,953,069 $ 3,398,196 $ 3,730,031 $ 4,033,287 $ 4,244,356
Properties (2) 40 39 42 43 44
Average Rent per Property $ 98,827 $ 87,133 $ 88,810 $ 93,797 $ 96,463
(1) Rental revenues includes the Partnership's share of rental revenues from
the Properties owned through joint venture arrangements and the Properties
owned through tenancy in common arrangements.
(2) Excludes Properties that were vacant at December 31, and did not generate
rental revenues during the year ended December 31.
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
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2003 -- -- --
2004 -- -- --
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 1 $ 25,056 0.65%
2009 2 255,371 6.59%
2010 4 498,615 12.87%
2011 3 339,320 8.76%
2012 2 251,950 6.50%
Thereafter 28 2,503,835 64.63%
---------- ------------ -------
Total (1) 40 $ 3,874,147 100.00%
========== ============ ======
(1) Excludes one Property which was vacant at December 31, 2002 and sold in
February 2003.
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.
Golden Corral Corporation leases six 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 $155,400 (ranging from
approximately $138,000 to $192,900).
Jack in the Box Inc. leases six Jack in the Box restaurants. The
initial term of each lease is either 17 or 18 years (expiring between 2011 and
2019) and the average minimum base annual rent is approximately $113,900
(ranging from approximately $96,300 to $136,500).
Item 3. Legal Proceedings
Neither the Partnership, not 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 3,012 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 $8.62 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 $7.21 $ 6.00 $ 6.29 $9.51 $ 5.97 $ 7.81
Second Quarter 6.75 6.68 6.72 6.78 6.20 6.43
Third Quarter 7.33 6.00 6.39 6.70 6.70 6.70
Fourth Quarter 7.25 6.00 6.39 6.88 5.60 6.54
(1) A total of 39,922 and 31,096 Units were transferred other than pursuant to
the Plan for the years ended December 31, 2002 and 2001.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 2002 and 2001, the Partnership
declared cash distributions of $3,600,000 to the Limited Partners. 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. Distributions of $900,000 were declared at the close of each
of the Partnership's calendar quarters. This amount includes monthly
distributions made in arrears for the Limited Partners electing to receive such
distributions on this basis.
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
The following selected financial data should be read in conjunction
with the financial statements and related notes in Item 8. hereof.
2002 2001 2000 1999 1998
------------- -------------- -------------- -------------- -------------
Year ended December 31:
Continuing Operations (5):
Revenues $3,989,492 $ 2,924,556 $ 3,379,286 $3,508,929 $3,738,930
Equity in earnings of joint ventures 312,454 250,885 180,084 158,580 132,002
Income from continuing
operations (1) (2) 3,477,533 1,335,833 1,742,889 2,464,253 2,616,126
Discontinued Operations (5):
Revenues 45,532 150,277 326,869 392,301 407,192
Income (loss) from discontinued
operations (3) (4) (180,205 ) (1,195,965 ) 202,923 350,755 360,872
Net income 3,297,328 139,868 1,945,812 2,815,008 2,976,998
Net income (loss) per Unit:
Continuing operations $ 0.77 $ 0.30 $ 0.38 $ 0.55 $ 0.58
Discontinued operations (0.04 ) (0.27 ) 0.05 0.08 0.08
---------- ----------- ----------- ---------- ----------
Total $ 0.73 $ 0.03 $ 0.43 $ 0.63 $ 0.66
========== =========== =========== ========== ==========
Cash distributions declared $3,600,000 $ 3,600,000 $ 3,600,000 $3,600,000 $3,690,000
Cash distributions declared per
Unit 0.80 0.80 0.80 0.80 0.82
At December 31:
Total assets $34,019,581 $ 34,305,402 $37,936,084 $39,710,973 $40,188,641
Total partners' capital 32,989,940 33,292,612 36,752,744 38,406,932 39,191,924
(1) Income from continuing operations includes $1,132,394 and $926,805 in
provisions for write-down of assets for the years ended December 31,
2001 and 2000, respectively.
(2) Income from continuing operations includes $383,637 and $88,661 in
gains on sale of assets for the years ended December 31, 2001 and
2000, respectively. Income from continuing operations includes $84,478
in loss on sale of assets for the year ended December 31, 1999.
(3) Income (loss) from discontinued operations includes $556,884,
$1,158,159, $36,166 and $450,625 in provisions for write-down of
assets for the years ended December 31, 2002, 2001, 2000 and 1998,
respectively.
(4) Income (loss) from discontinued operations includes $396,382 in gains
on sale of assets for the year ended December 31, 2002.
(5) Certain items in prior years' financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on total net income. The results of operations relating
to Properties that were either disposed of or 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.
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 generally responsible
for all repairs and maintenance, property taxes, insurance and utilities. The
leases provide for minimum base annual rental amounts (payable in monthly
installments) ranging from approximately $25,100 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 sixth lease year), the annual base rent
required under the terms of the lease will increase. As of December 31, 2000,
the Partnership owned 39 Properties directly and four Properties indirectly
through joint venture or tenancy in common arrangements. As of December 31,
2001, the Partnership owned 37 Properties directly and five Properties
indirectly through joint venture or tenancy in common arrangements. As of
December 31, 2002, the Partnership owned 35 Properties directly and six
Properties indirectly through joint venture or tenancy in common arrangements.
Capital Resources
Cash from operating activities was $3,878,671, $2,723,368, and
$3,165,697, for the years ended December 31, 2002, 2001, and 2000, respectively.
The increase in cash from operating activities during the year ended December
31, 2002, as compared to the previous year, and the decrease during 2001, as
compared to 2000, was primarily a 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 the year ended December 31, 1999, the Partnership accepted a
promissory note from the former tenant of the Shoney's Property in Las Vegas,
Nevada, in the amount of $52,191, representing past due rental and other
amounts. The note represented receivables for which the Partnership had
established a provision for doubtful accounts. Payments were due in 60 monthly
installments of $1,220 including interest at a rate of ten percent per annum,
which were scheduled to commence on March 1, 2000, at which time the accrued and
unpaid interest of $5,219 was capitalized into the principal balance of the
note. Due to the uncertainty of the collectibility of the note, the Partnership
established a provision for doubtful accounts. As of December 31, 2001 and 2000,
the balance in the allowance for doubtful accounts relating to this promissory
note was $63,954 and $62,751, respectively, including accrued interest of $6,117
and $4,914, respectively. During 2002, the Partnership ceased collection efforts
and wrote off the balance of the promissory note.
In February 1999, the Partnership entered into a new lease for the
Property in Las Vegas, Nevada. In connection therewith, the Partnership incurred
$183,500 in renovation costs which were completed in November 2000.
In June 2000, the Partnership used the net sales proceeds from the 1999
sale of the Property in Lawrence, Kansas to invest in a joint venture
arrangement, TGIF Pittsburgh Joint Venture, with CNL Income Fund VII, Ltd., CNL
Income Fund XV, 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. As of December 31, 2002, the Partnership owned a 19.72%
interest in the profits and losses of the joint venture.
During 2000, the Partnership sold its Property in Columbia Heights,
Minnesota, to a third party and received net sales proceeds of approximately
$575,800, resulting in a gain of approximately $88,700.
During 2001, the Partnership sold its Properties in Marana, Arizona, Las
Vegas, Nevada, and St. Cloud, Minnesota, each to a third party, and received net
sales proceeds of approximately $2,851,700, resulting in a net gain on sale of
assets of approximately $383,700. During 2001, the Partnership reinvested the
net sales proceeds from the sale of the Property in Marana, Arizona in a
Property in Walker, Louisiana, as tenants-in-common, with CNL income Fund VIII,
Ltd., a Florida limited partnership, and an affiliate of the General Partners.
As of December 31, 2002, the Partnership had contributed approximately
$1,144,200 for an 83% interest in the profits and losses of the Property. During
2001, the Partnership reinvested the net sales proceeds from the sale of the
Property in Las Vegas, Nevada in a Property in San Antonio, Texas.
In October 2001, the Partnership entered into a promissory note with the
corporate General Partner in the amount of $300,000 in connection with the
operations of the Partnership. The loan was uncollateralized, non-interest
bearing and due on demand. As of December 31, 2001, the Partnership had repaid
the loan in full to the corporate General Partner.
During 2002, the Partnership sold its Properties Rancho Cordova,
California, Mesquite, Texas, and Bucyrus, Ohio, each to a third party, and
received net sales proceeds of approximately $1,918,700, resulting in a net gain
on discontinued operations of approximately $396,400. The Partnership reinvested
the sales proceeds from the sales of the properties in Rancho Cordova,
California and Mesquite, Texas in a Property in Austin, Texas and in Arlington
Joint Venture, with CNL Income Fund VII, Ltd., a Florida limited partnership and
an affiliate of the General Partners. The joint venture acquired a Property in
Arlington, Texas. As of December 31, 2002, the Partnership had contributed
approximately $210,800 for a 21% interest in this joint venture The Partnership
intends to reinvest the net sales proceeds from the sale of the Property in
Bucyrus, Ohio in an additional Property.
The Partnership and the joint venture acquired the Properties in San
Antonio, Texas, Austin, Texas and Arlington, Texas from CNL Funding 2001-A, LP,
a Delaware limited partnership and an affiliate of the General Partners. CNL
Funding 2001-A, LP had purchased and temporarily held title to the Properties in
order to facilitate the acquisition of the Properties by the Partnership and the
joint venture. The purchase prices paid by the Partnership and the joint venture
represented the costs incurred by CNL Funding 2001-A, LP to acquire the
Properties. These transactions, or a portion thereof, relating to the sale of
Properties in Las Vegas, Nevada and Rancho Cordova, California and the
reinvestment of the net sales proceeds in the Properties in San Antonio and
Austin, Texas qualified as a like-kind transaction for federal income tax
purposes.
In December 2002, the Partnership entered into an agreement with a third
party to sell the Property in Salina, Kansas. In February 2003, the Partnership
sold this Property and received net sales proceeds of approximately $154,500,
resulting in a loss on sale of discontinued operations of approximately
$536,600, which the Partnership recorded as of December 31, 2002. The
Partnership anticipates it will reinvest these proceeds in an additional
Property.
None of the Properties owned by the Partnership, or the joint venture 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 three percent
of the aggregate adjusted tax basis of its Properties. In addition, the
Partnership will not borrow unless it first obtains an opinion of counsel that
such borrowing will not constitute acquisition indebtedness. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties and 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 reinvestment in additional Properties,
paying Partnership expenses, or making distributions to partners. At December
31, 2002, the Partnership had $1,343,836 invested in such short-term investments
as compared to $774,673 at December 31, 2001. The increase in cash was primarily
a result of the Partnership holding sales proceeds at December 31, 2002, pending
reinvestment in additional Properties. 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, will be used to invest in an additional Property, and
toward the payment of distributions and other liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate net cash
flow in excess of 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
the operations of the Partnership.
Due to low ongoing operating expenses and cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because the majority of the 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 on current and anticipated future cash from operations, and
for the year ended December 31, 2001, a loan from the corporate General Partner,
the Partnership declared distributions to the Limited Partners of $3,600,000,
for each of the years ended December 31, 2002, 2001, and 2000. This represents
distributions of $0.80 per Unit for each of the years ended December 31, 2002,
2001, and 2000. No distributions were made to the General Partners during the
years ended December 31, 2002, 2001, and 2000. No amounts distributed to the
Limited Partners for the years ended December 31, 2002, 2001, and 2000, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the Limited Partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to 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 during the years ended December 31,
2002, 2001 and 2000.
As of December 31, 2002 and 2001, the Partnership owed $18,292 and
$17,331, respectively, to related parties for accounting and administrative
services and management fees. As of March 10, 2003, the Partnership had
reimbursed the affiliates these amounts. Other liabilities, including
distributions payable, were $1,011,349 at December 31, 2002, as compared to
$995,459 at December 31, 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, including contingent rental income, were
$3,930,584 during the year ended December 31, 2002, as compared to $2,883,920
during the same period of 2001. Rental revenues were lower during the year ended
December 31, 2001 as compared to the same period of 2002, because the
Partnership stopped recording rental revenues in March 2001 when the tenant,
PRG, was experiencing financial difficulties and ceased rental payments relating
to two Denny's Properties. In October 2001, PRG filed for bankruptcy. During
2002, the Partnership received payment of past due rents of approximately
$522,800 relating to these two Properties, which were not rejected by PRG, and
recorded the rental revenues. During 2002, the bankruptcy court assigned these
two leases to new tenants and all other lease terms remained the same. One of
the new tenants, CherryDen, LLC, is a Delaware limited liability company and an
affiliate of the General Partners.
In addition, the Partnership stopped recording rental revenues when the
tenant of the Las Vegas, Nevada Property vacated the Property and ceased
restaurant operations during the first quarter of 2001. The Partnership sold
this Property in December 2001 and used the proceeds, along with the sales
proceeds from the sale of a Property in Rancho Cordova, California, to acquire
two additional Properties. The increase in rental revenues during 2002 was also
partially due to the acquisition of these two Properties, one in December 2001
and one in June 2002.
The Partnership also earned $312,454 attributable to net income earned
by joint ventures during the year ended December 31, 2002, as compared to
$250,885 during the same period of 2001. The increase in net income earned by
joint ventures during the year ended December 31, 2002, as compared to the same
periods of 2001, was primarily due to the fact that in June 2001, the
Partnership reinvested the net sales proceeds it received from the 2001 sale of
the Property in Marana, Arizona in a Property in Walker, Louisiana, as
tenants-in-common, with an affiliate of the General Partners. In addition, in
June 2002, the Partnership reinvested a portion of the net sales proceeds from
the sale of the Property in Mesquite, Texas in a joint venture arrangement,
Arlington Joint Venture.
During 2002, two lessees of the Partnership, Golden Corral Corporation
and Jack in the Box Inc., each contributed more than ten percent of the
Partnership's rental revenues (including the Partnership's share of rental
revenues from Properties owned by joint ventures and the Properties held as
tenants-in-common with affiliates). As of December 31, 2002, Golden Corral
Corporation was the lessee under leases relating to six restaurants and Jack in
the Box Inc. was the lessee under leases relating to five restaurants. It is
anticipated that based on the minimum rental payments required by the leases
these two lessees will each continue to contribute more than ten percent of the
Partnership's rental revenues in 2003. In addition, three Restaurant Chains,
Golden Corral, Jack in the Box, and Denny's, each accounted for more than ten
percent of the Partnership's rental revenues (including the Partnership's share
of rental revenues from Properties owned by joint ventures and the Properties
held as tenants-in-common with affiliates). In 2003, it is anticipated that each
of these Restaurant Chains will continue to contribute more than ten percent of
the Partnership's rental revenues to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income if the Partnership is not able to
re-lease the Properties in a timely manner.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets were $824,413 during the year ended December
31, 2002, as compared to $2,223,245 during the same period of 2001. Operating
expenses were higher during 2001 because the Partnership established a provision
for write-down of assets of approximately $1,132,400 relating to the vacant
Properties in Las Vegas, Nevada and St. Cloud, Minnesota and two Properties
leased by PRG. The provisions represented the difference between each Property's
net carrying value and its estimated fair value. During 2001, the Partnership
sold the two vacant Properties and assigned the leases of the other two
Properties to new tenants, as described above.
During the years ended December 31, 2002 and 2001, the Partnership
incurred Property related expenses, such as legal fees, repairs and maintenance,
insurance and real estate taxes relating to vacant Properties. In addition,
during 2001, the Partnership recorded a provision for doubtful accounts of
approximately $90,100 relating to the Properties leased to PRG. Between November
2001 and February 2003, the Partnership sold all of its vacant Properties and
re-leased the two PRG Properties to new tenants. The Partnership did not incur
any additional expenses relating to these Properties after the sale and re-lease
of each Property had occurred.
Operating expenses were lower during the year ended December 31, 2002,
due to a decrease in the costs incurred for administrative expenses for
servicing the Partnership and its Properties and a decrease in the amount of
state tax expense relating to several states in which the Partnership conducts
business.
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.
As a result of the 2001 sales of the Properties in Marana, Arizona, Las
Vegas, Nevada, and St. Cloud, Minnesota, the Partnership recognized gains
totaling approximately $383,600 during the year ended December 31, 2001.
During the year ended December 31, 2002, the Partnership identified four
Properties that met the criteria of this standard and were classified as
Discontinued Operations in the accompanying financial statements. The
Partnership sold its Properties in Rancho Cordova, California, Mesquite, Texas,
and Bucyrus, Ohio, resulting in a net gain on discontinued operations of
approximately $396,400. The Partnership had recorded provisions for write-down
of approximately $20,300, $899,900 and $36,200 during the years ended December
31, 2002, 2001 and 2000, respectively, relating to the Properties in Mesquite,
Texas, and Bucyrus, Ohio. The Partnership reinvested the sales proceeds from the
sales of the Properties in Rancho Cordova, California and Mesquite, Texas in a
Property in Austin, Texas and in Arlington Joint Venture. During 2002, the
Partnership entered into an agreement with a third party to sell the Property in
Salina, Kansas. In connection with the anticipated sale of the Property, the
Partnership recorded a provision for write-down of assets of approximately
$536,600 during the year ended December 31, 2002. The Partnership had recorded a
provision for write-down of assets in previous years, including approximately
$258,300 during the year ended December 31, 2001 relating to this Property. In
February 2003, the Partnership sold this Property. PRG, the tenant of the
Properties in Mesquite, Texas, Bucyrus, Ohio and Salina, Kansas, experienced
financial difficulties in March 2001 and terminated the lease relating to the
Property in Bucyrus, Ohio. In October 2001, PRG filed for bankruptcy and
rejected the leases relating to the other two Properties. The provisions
represented the difference between each Property's net carrying value and its
estimated fair value. The Partnership intends to reinvest the net sales proceeds
from the sale of the Properties in Bucyrus, Ohio and Salina, Kansas in
additional Properties.
Comparison of year ended December 31, 2001 to year ended December 31, 2000
Total rental revenues, including contingent rental income, were
$2,883,920 during the year ended December 31, 2001, as compared to $3,330,684
during the same period of 2000. Rental revenues were lower during 2001 because
PRG experienced financial difficulties during 2001 and filed for bankruptcy, as
described above. As a result, the Partnership stopped recording rental revenues
relating to two Properties. The Partnership also had a vacant Property during
2001 resulting from a bankruptcy of a tenant in 1998. During 2001, the
Partnership sold this vacant Property.
Rental revenues were lower during 2001 because the Partnership sold its
Property in Marana, Arizona. In addition, rental revenues are lower during 2001
because the Partnership stopped recording rental revenues when the tenant of the
Property in Las Vegas, Nevada ceased restaurant operations and vacated the
Property. The Partnership sold this Property during 2001. The decrease in rental
revenues was partially offset by an increase in contingent rental income
resulting from increased gross sales of certain restaurant properties, the
leases of which require the payment of contingent rental income.
The Partnership also earned $250,885 in net income from joint ventures
during the year ended December 31, 2001, as compared to $180,084 during the same
period of 2000. Net income earned by joint ventures was higher during 2001, as
compared to 2000, because the Partnership reinvested the net sales proceeds from
the sale of the Property in Marana, Arizona in Property in Walker, Louisiana, as
tenants-in-common, with an affiliate of the General Partners.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets were $2,223,245 during the year ended
December 31, 2001, as compared to $1,905,142 during the same period of 2000.
Operating expenses were higher during 2001 because the Partnership established a
provision for write-down of assets of approximately $1,132,400, as described
above, during 2001, as compared to approximately $926,800 in 2000, relating to
the vacant Properties described above. The Partnership incurred expenses, such
as legal fees, repairs and maintenance, insurance and real estate taxes relating
to these vacant Properties. In addition, the Partnership recorded a provision
for doubtful accounts of approximately $90,100 relating to the Properties leased
to PRG during 2001, as compared to approximately $33,500 during 2000 relating to
the vacant Property in Las Vegas, Nevada. The Partnership has sold all of its
vacant Properties and re-leased the two PRG Properties to new tenants, as
described above. The Partnership did not incur any additional expenses relating
to these Properties after the sale and re-lease of each Property had occurred.
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.
During 2000, the Partnership incurred $32,580 in transaction costs
related to the General Partners retaining financial and legal advisors to assist
them in evaluating and negotiating the proposed merger with APF. On March 1,
2000, the merger discussions were terminated.
As a result of the 2000 sale of the Property in Columbia Heights,
Minnesota, the Partnership recognized a gain on sale of assets of approximately
$88,700, during 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 of
the results of operations of the Partnership. Continued inflation may cause
capital appreciation of the Partnership's Properties. Inflation and changing
prices, however, also may have an adverse impact on the sales of the restaurants
and on potential capital appreciation of the Properties.
In 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 XVI, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22-23
Notes to Financial Statements 24-38
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund XVI, 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 XVI, 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) present
fairly, in all material respects, the information set forth therein when read
in conjunction with the related financial statements. These financial
statements and financial statement schedules are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits. We
conducted our audits of these statements in accordance with auditing standards
generally accepted in the United States of America, which require that we plan
and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
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, except for Note 13, for which the date is February 2, 2003
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2002 2001
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 24,762,953 $ 23,839,579
Net investment in direct financing leases 2,662,948 2,713,964
Real estate held for sale 153,500 2,252,023
Investment in joint ventures 3,446,648 3,248,973
Cash and cash equivalents 1,343,836 774,673
Receivables, less allowance for doubtful accounts
of $63,752 and $755,431, respectively 49,577 50,999
Due from related parties 18,966 10,513
Accrued rental income, less allowance for
doubtful accounts of $12,753 and $48,919, respectively 1,549,115 1,382,581
Other assets 32,038 32,097
------------- -------------
$ 34,019,581 $ 34,305,402
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable 3,505 $ 9,022
Real estate taxes payable 10,502 36,398
Distributions payable 900,000 900,000
Due to related parties 18,292 17,331
Rents paid in advance and deposits 97,342 50,039
-------------- -------------
Total liabilities 1,029,641 1,012,790
Commitment (Note 12)
Partners' capital 32,989,940 33,292,612
--------------- -------------
$ 34,019,581 $ 34,305,402
============= =============
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2002 2001 2000
---------------- ---------------- ---------------
Revenues:
Rental income from operating leases $ 3,608,380 $ 2,617,750 $ 2,965,627
Earned income from direct financing leases 322,204 266,170 365,057
Interest and other income 58,908 40,636 48,602
------------ ----------- -----------
3,989,492 2,924,556 3,379,286
------------ ----------- -----------
Expenses:
General operating and administrative 258,345 338,269 172,013
Property expenses 17,928 101,454 134,070
Provision for doubtful accounts -- 90,074 33,532
Management fees to related parties 41,568 30,726 36,605
State and other taxes 20,288 30,716 27,356
Depreciation and amortization 486,284 499,612 542,181
Provision for write-down of assets -- 1,132,394 926,805
Transaction costs -- -- 32,580
------------ ----------- -----------
824,413 2,223,245 1,905,142
------------ ----------- -----------
Income Before Gain on Sale of Assets and Equity in
Earnings of Joint Ventures 3,165,079 701,311 1,474,144
Gain on Sale of Assets -- 383,637 88,661
Equity in Earnings of Joint Ventures 312,454 250,885 180,084
------------ ----------- -----------
Income from Continuing Operations 3,477,533 1,335,833 1,742,889
------------ ----------- -----------
Discontinued Operations (Note 6)
Loss from discontinued operations (576,587) (1,195,965) 202,923
Gain on disposal of discontinued operations 396,382 -- --
------------ ----------- -----------
(180,205) (1,195,965) 202,923
------------ ----------- -----------
Net Income $ 3,297,328 $ 139,868 1,945,812
============ =========== ===========
Income (Loss) Per Limited Partner Unit
Continuing Operations 0.77 0.30 0.38
Discontinued Operations (0.04) (0.27) 0.05
------------ ----------- -----------
Total $ 0.73 $ 0.03 $ 0.43
============ =========== ===========
Weighted Average Number of
Limited Partner Units Outstanding 4,500,000 4,500,000 4,500,000
============ =========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND XVI, 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 $ 159,017 $ 45,000,000 $ (17,023,017 ) $ 15,659,932
Distributions to limited
partners ($0.80 per
limited partner unit) -- -- -- (3,600,000 ) --
Net income -- -- -- -- 1,945,812
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2000 1,000 159,017 45,000,000 (20,623,017 ) 17,605,744
Distributions to limited
partners ($0.80 per
limited partner unit) -- -- -- (3,600,000 ) --
Net income -- -- -- -- 139,868
------------- ------------- ------------- ------------- -------------
Balance, December 31, 2001 1,000 159,017 45,000,000 (24,223,017 ) 17,745,612
Distributions to limited
partners ($0.80 per
limited partner unit) -- -- -- (3,600,000 ) --
Net income -- -- -- -- 3,297,328
------------- ------------ ------------- -------------- --------------
Balance, December 31, 2002 $ 1,000 $ 159,017 $ 45,000,000 $ (27,823,017 ) $ 21,042,940
============= ============ ============= ============== =============
Syndication
Costs Total
--------------- --------------
$ (5,390,000 ) $38,406,932
-- (3,600,000 )
-- 1,945,812
------------ -----------
(5,390,000 ) 36,752,744
-- (3,600,000 )
-- 139,868
------------ -----------
(5,390,000 ) 33,292,612
-- (3,600,000 )
-- 3,297,328
------------ -----------
$ (5,390,000 ) $32,989,940
============ ===========
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2002 2001 2000
--------------- --------------- --------------
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net Income $ 3,297,328 $ 139,868 $ 1,945,812
--------------- --------------- --------------
Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation 504,712 549,520 572,650
Amortization of investment in direct
financing leases 51,016 52,904 52,973
Amortization 2,912 3,097 13,009
Equity in earnings of joint ventures,
net of distributions 23,729 28,472 7,553
Gain on sale of assets (396,382 ) (383,637 ) (88,661 )
Provision for write-down of assets 556,884 2,290,553 962,971
Provision of doubtful accounts -- 90,074 33,532
Loss on termination of direct financing
lease -- -- 31,215
Decrease (increase) in receivables (8,993 ) 289,153 (186,514 )
Increase in accrued rental (166,534 ) (165,285 ) (212,436 )
Decrease (increase) in other assets (2,852 ) (801 ) 4,294
Increase (decrease) in accounts
payable and real estate taxes payable (31,413 ) 1,632 (93,185 )
Increase (decrease) in due to related
parties 961 (135,626 ) 79,104
Increase (decrease) in rents paid in
advance and deposits 47,303 (36,556 ) 43,380
--------------- --------------- --------------
Total adjustments 581,343 2,583,500 1,219,885
--------------- --------------- --------------
Net Cash Provided by Operating Activities 3,878,671 2,723,368
3,165,697
--------------- --------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 1,918,641 2,851,675 575,778
Additions to real estate properties with
operating leases (1,406,745 ) (1,147,903 ) (183,500 )
Investment in joint ventures (221,404 ) (1,134,117 ) (500,021 )
Payment of lease costs -- -- (14,057 )
--------------- --------------- --------------
Net cash provided by (used in)
investing activities 290,492 569,655 (121,800 )
--------------- --------------- --------------
Cash Flows from Financing Activities:
Proceeds from loan from corporate -- 300,000 --
general partner
Repayment of loan from corporate general
partner -- (300,000 ) --
Distributions to limited partners (3,600,000 ) (3,600,000 ) (3,600,000 )
--------------- --------------- --------------
Net cash used in financing activities (3,600,000 ) (3,600,000 ) (3,600,000 )
--------------- --------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents 569,163 (306,977 ) (556,103 )
Cash and Cash Equivalents at Beginning of Year 774,673 1,081,650 1,637,753
--------------- --------------- --------------
Cash and Cash Equivalents at End of Year $ 1,343,836 $ 774,673 $ 1,081,650
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at
December 31 $ 900,000 $ 900,000 900,000
=============== =============== ==============
See accompanying notes to financial statments.
CNL INCOME FUND XVI, 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 XVI, 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 acquisitions
of real estate properties at cost, including closing costs. Real estate
properties are leased to third parties on a triple-net basis, whereby
the tenant is generally responsible for all operating expenses relating
to the property, including property taxes, insurance, maintenance and
repairs. During the years ended December 31, 2002, 2001, and 2000,
tenants paid directly to real estate taxing authorities $456,800
$435,000, and $463,100, 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
periodic 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 the land
portion of some of the 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.
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
The majority of the 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 adjustment 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's investments in TGIF
Pittsburgh Joint Venture, Columbus Joint Venture and Arlington Joint
Venture, and the properties in Fayetteville, North Carolina, Memphis,
Tennessee, and Walker, Louisiana each of which is held as
tenants-in-common with affiliates, are accounted for 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 brokerage fees associated with
negotiating leases and are amortized over the term of the new lease
using the straight-line method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
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.
Reclassifications - Certain items in the prior year's financial
statements have been reclassified to conform to 2002 presentation,
including a change in presentation of the statement of cash flows from
the direct method to the indirect method. These reclassifications had
no effect on 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 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.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
2. Real estate Properties with Operating Leases:
--------------------------------------------
Real estate Properties with operating leases consisted of the following
at December 31:
2002 2001
-------------- -------------
Land $ 13,323,055 $ 12,776,956
Buildings 14,927,816 14,067,169
-------------- ------------
28,250,871 26,844,125
Less accumulated depreciation (3,487,918 ) (3,004,546 )
-------------- ------------
$ 24,762,953 $ 23,839,579
============== =============
During the 2001, the Partnership sold its property in Marana, Arizona
and received net sales proceeds of approximately $1,145,000, resulting
in a total gain of approximately $281,100. The Partnership reinvested
these sales proceeds in a property in Walker, Louisiana, as
tenants-in-common, with CNL Income Fund VIII, Ltd., an affiliate of the
general partners.
During the year ended December 31, 2001, the Partnership recorded a
provision for write-down of assets of approximately $25,300 relating to
a Boston Market property located in St. Cloud, Minnesota. The
Partnership had recorded provisions for write-down of assets in prior
years. During 1998, the tenant of this property filed for bankruptcy
and ceased making rental payments. The provisions represented the
difference between the net carrying value of the property and its
estimated fair value. In November 2001, the Partnership sold this
property to a third party and received net sales proceeds of
approximately $647,400, resulting in a gain on sale of assets of
approximately $100,700.
During the year ended December 31, 2001, the Partnership established a
provision for write-down of assets of approximately $248,800 relating
to the property Las Vegas, Nevada. The tenant of this property
experienced financial difficulties, ceased restaurant operations, and
vacated the property. In December 2001, the Partnership sold this
property to a third party and received net sales proceeds of
approximately $1,059,300, resulting in a gain of approximately $1,900.
In December 2001, the Partnership reinvested these sales proceeds in a
property in San Antonio, Texas. The Partnership acquired this property
from CNL Funding 2001-A, LP, an affiliate of the general partners.
In addition, during 2001, the Partnership established a provision for
write-down of assets of approximately $858,300 relating to two
properties leased by Phoenix Restaurant Group, Inc. ("PRG"). The
provision represented the difference between the net carrying value of
each property and their estimated fair value. PRG experienced financial
difficulties during 2001 and filed for Chapter 11 bankruptcy
protection. During 2002 the bankruptcy court assigned the two leases to
new tenants, one of which is an affiliate of the general partners.
During 2002, the Partnership reinvested a portion of the net sales
proceeds from the sale of a property in Mesquite, Texas and the
majority of the net sales proceeds from the sale of a property in
Rancho Cordova, California in a property in Austin, Texas for
approximately $1,406,700. The Partnership acquired this property from
CNL Funding 2001-A, LP, an affiliate of the general partners.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
2. Real Estate Properties with Operating Leases - Continued:
--------------------------------------------------------
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2002:
2003 $ 2,988,014
2004 3,014,551
2005 3,155,704
2006 3,191,414
2007 3,193,126
Thereafter 20,122,669
------------------
$ 35,665,478
==================
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 $ 4,448,402 $ 4,799,563
Estimated residual values 957,216 957,216
Less unearned income (2,742,670 ) (3,042,815 )
-------------
-----------
Net investment in direct
financing leases $ 2,662,948 $ 2,713,964
============= ===========
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2002:
2003 $ 355,644
2004 356,299
2005 356,961
2006 357,629
2007 358,304
Thereafter 2,663,565
--------------
$ 4,448,402
==============
In March 2001, the Partnership sold its property in Marana, Arizona,
for which the building portion had been classified as a direct
financing lease. In connection therewith, the gross investment (minimum
lease payments receivable and the estimated residual value) and
unearned income relating to the building were removed from the accounts
and the gain from the sale of the property was reflected in income.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures:
----------------------------
The Partnership has a 32.35%,a 19.72% an 80.44%, and a 40.42% interest
in the profits and losses of Columbus Joint Venture, TGIF Pittsburgh
Joint Venture, a property in Fayetteville, North Carolina and a
property in Memphis, Tennessee, held as tenants-in-common,
respectively. The remaining interests in the joint ventures and the
properties held as tenants in common are held by affiliates of the
Partnership which have the same general partners.
In June 2001, the Partnership reinvested the sales proceeds it received
from the sale of property in Marana, Arizona, in an additional property
in Walker, Louisiana, as tenants-in-common, with CNL Income Fund VIII,
Ltd., an affiliate of the general partners. As of December 31, 2002,
the Partnership had contributed approximately $1,144,200 for an 83%
interest in the profit and losses of the property.
In June 2002, the Partnership reinvested a portion of the net sales
proceeds from the sale of the property in Mesquite, Texas, in a joint
venture arrangement, Arlington Joint Venture, with CNL Income Fund VII,
Ltd., an affiliate of the general partners. The joint venture acquired
a property in Arlington, Texas from CNL Funding 2001-A, LP, an
affiliate of the general partners for an aggregate cost of
approximately $1,003,600. The Partnership and CNL Income Fund VII, Ltd.
entered into an agreement whereby each co-venturer will share in the
profits and losses of the property in proportion to its applicable
percentage interest. As of December 31, 2002, the Partnership had
contributed approximately $210,800 for a 21% interest in this joint
venture.
Columbus Joint Venture, TGIF Pittsburgh Joint Venture, and Arlington
Joint Venture, each owned and leased one property to operators of
fast-food or family-style restaurants. In addition, the Partnership and
affiliates, in three separate tenancies in common, each owned and
leased one property to operators of fast-food or family-style
restaurants. The following presents the combined, condensed financial
information for the joint ventures at:
December 31, December 31,
2002 2001
------------------ ----------------
Real estate properties with
operating leases, net $ 7,783,964 $ 6,921,194
Cash 27,252 11,544
Accrued rental income 340,550 246,192
Other assets 188 1,160
Liabilities 30,893 23,698
Partners' Capital 8,121,061 7,156,392
Year Ended December 31,
2002 2001 2000
---------------- ---------------- -----------------
Revenues $ 877,210 $ 747,735 $ 530,177
Expenses (157,120 ) (134,476 ) (97,682 )
---------------- ---------------- -----------------
Net Income $ 720,090 $ 613,259 $ 432,495
================ ================ =================
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
----------------------------------------
The Partnership recognized income totaling $312,454, $250,885, and
$180,084, for the years ended December 31, 2002, 2001, and 2000,
respectively, from the joint ventures and the properties held as
tenants-in-common with affiliates of the general partners.
5. Receivables:
-----------
During the year ended December 31, 1999, the Partnership accepted a
promissory note from the former tenant of the Shoney's property in Las
Vegas, Nevada, in the amount of $52,191 for past due amounts. Payments
were due in 60 monthly installments of $1,220 including interest at a
rate of ten percent per annum, commencing on March 1, 2000, at which
time, all accrued and unpaid interest amounts were capitalized into the
principal balance of the note. Due to the uncertainty of collection of
the note, the Partnership established a provision for doubtful accounts
relating to this note during the year ended December 31, 1999. As of
December 31, 2001, the balance in the allowance for doubtful accounts
relating to this promissory note was $63,954 including accrued interest
of $6,117. During 2002, the Partnership ceased collection efforts and
wrote off the balance of the note.
6. Discontinued Operations:
During 2002, the Partnership sold its properties in Rancho Cordova,
California, Mesquite, Texas, and Bucyrus, Ohio, each to a third party,
and received net sales proceeds of approximately $1,918,700, resulting
in a net gain on discontinued operations of approximately $396,400. The
Partnership had recorded provisions for write-down of assets of
approximately $20,300, $899,900 and $36,200 during the years ended
December 31, 2002, 2001 and 2000, respectively, relating to the
properties in Mesquite, Texas, and Bucyrus, Ohio. The Partnership
reinvested the sales proceeds from the sales of the properties in
Rancho Cordova, California and Mesquite, Texas in a property in Austin,
Texas and in Arlington Joint Venture.
In December 2002, the Partnership entered into an agreement with a
third party to sell the property in Salina, Kansas. As a result, the
Partnership reclassified the asset from real estate properties with
operating leases to real estate held for sale. The reclassified asset
was recorded at the lower of its carrying amount or estimated fair
value, less cost to sell. In addition, the Partnership stopped
recording depreciation once the property was identified for sale. In
connection with the anticipated sale of the property, the Partnership
recorded a provision for write-down of assets of approximately $536,600
during the year ended December 31, 2002. The Partnership had recorded a
provision for write-down of assets of approximately $258,300 during the
year ended December 31, 2001 relating to this property. In February
2003, the Partnership sold this property. The financial results for
these four properties are reflected as Discontinued Operations in the
accompanying financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
6. Discontinued Operations - Continued:
-----------------------------------
The operating results of the discontinued operations for the above
properties are as follows:
Year Ended December 31,
2002 2001 2001
-------------- -------------- ---------------
Rental revenues $ 45,532 $ 116,298 $ 326,869
Termination fee income -- 33,979 --
Expenses (65,235 ) (188,083 ) (87,780 )
Provision for write-down (556,884 ) (1,158,159 ) (36,166 )
Gain on disposal of assets 396,382 -- --
-------------- -------------- ---------------
Income (loss) from discontinued operations $ (180,205 ) $(1,195,965 ) $ 202,923
============== ============== ===============
7. Allocations and Distributions:
-----------------------------
From inception through December 31, 1999, generally, net income and
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,
distributions of net cash flow were made 99% to the limited partners
and one percent to the general partners. However, the one percent of
net cash flow to be distributed to the general partners was
subordinated to receipt by the limited partners of an aggregate, eight
percent, 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 sale of properties not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their Limited Partners' 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 five
percent to the general partners. Any gain from the sale of a property,
not in liquidation of the Partnership was, in general, allocated in the
same manner as net sales proceeds are distributable. Any loss from the
sale of a property was, in general, allocated first, on a pro rata
basis, to partners with positive balances in their capital accounts;
and thereafter, 95% to the limited partners and five percent to the
general partners.
Generally, net sales proceeds from a 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 obligations of the
Partnership, (iii) third, to pay all of the Partnership's liabilities,
if any, to the general and limited partners, (iv) fourth, after
allocations of net income, gains and/or losses, to 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 five percent to the general partners.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
7. Allocations and Distributions - Continued:
-----------------------------------------
Effective January 1, 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income during the years ended December 31, 2002, 2001 and 2000.
During each of the years ended December 31, 2002, 2001, and 2000 the
Partnership declared distributions to the limited partners of
$3,600,000. No distributions have been made to the general partners to
date.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
8. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2002 2001 2000
-------------- -------------- ---------------
Net income for financial reporting purposes $ 3,297,328 $ 139,868 $ 1,945,812
Effect of timing differences relating to
depreciation 35,244 40,740 38,747
Provision for write-down of assets 556,884 2,290,553 962,971
Direct financing leases recorded as operating
leases for tax reporting purposes 51,016 52,904 52,973
Loss on termination of direct financing leases -- -- 31,215
Effect of timing differences relating to equity
in earnings of joint ventures (7,210 ) (15,881 ) (7,155 )
Effect of timing differences relating to
gains/losses on real estate property sales (1,243,058 ) (993,358 ) (430,205 )
Effect of timing differences relating to
allowance for doubtful accounts (691,679 ) 326,169 338,368
Accrued rental income (166,534 ) (165,285 ) (212,436 )
Rents paid in advance 47,303 (22,056 ) 43,380
Deduction of transaction costs for tax
reporting purposes -- -- (236,745 )
-------------- -------------- ---------------
Net income for federal income tax purposes $ 1,879,294 $ 1,653,654 $ 2,526,925
============== ============== ===============
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
9. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, 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 has agreed to
pay the Advisor an annual 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 $41,568, $30,726,
and $36,605, 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 three percent of the sales price if the Advisor
provides a substantial amount of services in connection with the sale.
However, if the net sales proceeds are reinvested in a replacement
property, no such real estate disposition fees will be incurred until
such replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to the receipt by the limited partners of their aggregate
Limited Partners' 8% Return, plus their adjusted 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 provided accounting and
administrative services. The Partnership incurred $179,207, $243,206,
and $109,898, for the years ended December 31, 2002, 2001, and 2000,
respectively, for such services.
During 2001 and 2002, the Partnership acquired a property located in
San Antonio, Texas and a property in Austin, Texas, respectively, from
CNL Funding 2001-A, LP. In addition, in June 2002, Arlington Joint
Venture, in which the Partnership owns a 21% interest, acquired a
property in Arlington, Texas, from CNL Funding 2001-A, LP. 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 and
the joint venture. The purchase prices paid by the Partnership and the
joint venture represented the costs incurred by CNL Funding 2001-A, LP
to acquire the properties.
During 2001, Phoenix Restaurant Group, Inc. ("PRG") filed for
bankruptcy and rejected two of the four leases it had with the
Partnership. In May and June 2002, the bankruptcy court assigned the
two leases not rejected by PRG relating to the properties in Branson,
Missouri and Temple, Texas to CherryDen, LLC and Seana, LLC,
respectively. CherryDen, LLC is an affiliate of the general partners.
All other lease terms remained the same. In connection with the lease
to CherryDen, LLC, the Partnership recognized rental revenues of
approximately $265,900 relating to the property in Branson, Missouri
during the year ended December 31, 2002.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
9. Related Party Transactions - Continued
--------------------------------------
The amount due to related parties at December 31, 2002 and 2001 totaled
$18,292 and $17,331, respectively.
10. Concentration of Credit Risk:
----------------------------
The following schedule presents rental revenues from individual
lessees, each representing more than ten percent of the Partnership's
rental revenues (including the Partnership's share of rental revenues
from joint ventures and properties held as tenants-in-common with
affiliates) for each of the years ended December 31:
2002 2001 2000
----------------- ----------------- -----------------
Golden Corral Corporation $ 989,368 $ 1,023,304 $ 931,631
Jack in the Box Inc.
(formerly known as Foodmaker, Inc.)
624,944 621,879 556,365
In addition, the following schedule presents rental revenues from
individual restaurant chains, each representing more than ten percent
of the Partnership's rental revenues (including the Partnership's share
of total rental income from joint ventures and properties held as
tenants-in-common with affiliates) for each of the years ended December
31:
2002 2001 2000
---------------- ---------------- ---------------
Golden Corral Family
Steakhouse Restaurants $ 989,368 $ 1,023,304 $ 931,631
Denny's 729,186 402,615 946,399
Jack in the Box 624,944 621,879 556,365
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
11. 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 $ 828,183 $1,379,203 $ 884,931 $ 897,175 $3,989,492
Equity in earnings of joint
ventures 75,155 75,646 81,698 79,955 312,454
Income from continuing
operations 680,423 1,252,998 766,534 777,578 3,477,533
Discontinued operations (1):
Revenues 26,721 18,811 -- -- 45,532
Income (loss) from discontinued
operations (2) 3,834 374,386 (18,910 ) (539,515 ) (180,205 )
Net Income 684,257 1,627,384 747,624 238,063 3,297,328
Net Income (Loss) per limited partner unit:
Continuing operations $ 0.15 $ 0.28 $ 0.17 $ 0.17 $ 0.77
Discontinued operations -- 0.08 -- (0.12 ) (0.04 )
----------- ------------- ------------- ------------ ------------
Total $ 0.15 $ 0.36 $ 0.17 $ 0.05 $ 0.73
=========== ============= ============= ============ ============
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
11. Selected Quarterly Financial Data:
---------------------------------
2001 Quarter First Second Third Fourth Year
--------------------------------------- ------------ ------------- ------------- ------------ ------------
Continuing Operations (1):
Revenues $ 754,655 $ 746,553 $ 679,376 $ 743,972 $ 2,924,556
Equity in earnings of joint
ventures 49,314 47,716 76,368 77,487 250,885
Income (Loss) from continuing
operations 562,902 378,421 (383,821 ) 778,331 1,335,833
Discontinued operations (1):
Revenues 75,587 12,485 47,278 14,927 150,277
Loss from discontinued
operations (8,310 ) (481,576 ) (676,150 ) (29,929 ) (1,195,965 )
Net Income (Loss) 554,592 (103,155 ) (1,059,971 ) 748,402 139,868
Net Income (Loss) per limited partner unit:
Continuing operations $ 0.12 $ 0.09 $ (0.09 ) $ 0.18 $ 0.30
Discontinued operations -- (0.11 ) (0.15 ) (0.01 ) (0.27 )
------------ ------------- ------------- ------------ ------------
Total $ 0.12 $ (0.02 ) $ (0.24 ) $ 0.17 $ 0.03
============ ============= ============= ============ ============
(1) Certain items in the selected quarterly financial data have been
reclassified to conform to the 2002 presentation. These
reclassifications had no effect on total net income. The results
of operations relating to properties that were either disposed of
or 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.
(2) In December 2002, the Partnership entered into an agreement with a
third party to sell the property in Salina, Kansas. In connection
with the anticipated sale of the property, the Partnership
recorded a provision for write-down of assets of approximately
$536,600 during the fourth quarter of 2002. During 2001, the
tenant of this property experienced financial difficulties, filed
for bankruptcy, and rejected the lease relating to the property.
The Partnership had recorded a provision for write-down of assets
in previous years, including approximately $258,300 during the
year ended December 31, 2001 relating to this property. The
provision represented the difference between the net carrying
value of the property and its estimated fair value. In February
2003, the Partnership sold this property.
12. Commitment:
----------
In December 2002, the Partnership entered into an agreement with a
third party to sell the property in Salina, Kansas. In February 2003,
the Partnership sold this property.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
13. Subsequent Event:
----------------
In February 2003, the Partnership sold its property in Salina, Kansas,
to a third party and received net sales proceeds of approximately
$154,500, resulting in a loss on sale of discontinued operations of
approximately $536,600, which the Partnership recorded as a provision
for write-down of assets of December 31, 2002.
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 five percent 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 does not have any equity compensation plans.
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 admini-strative services:
prevailing rate at which comparable $179,207
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 $41,568
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 the
affiliates. All of 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) three percent of the
sales price of such Property or
Properties. Payment of such fee shall be
made only if affiliates of the General
Partners provide a substantial amount of
services in connection with the sale of a
Property or Properties and shall be
subordinated to certain minimum returns
to the Limited Partners. However, if the
net sales proceeds are reinvested in a
replacement Property, no such real estate
disposition fee will be incurred until
such replacement Property is sold and the
net sales proceeds are distributed.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales proceeds distributions of such net sales
from a sale or sales of proceeds, subordinated to certain
Properties not in liquidation minimum returns to the Limited
of the Partnership 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.
During 2002, the Partnership acquired a Property, in Austin, Texas, from CNL
Funding 2001-A, LP for an aggregate cost of approximately $1,406,700. In
addition, in June 2002, Arlington Joint Venture, in which the Partnership owns a
21% interest, acquired a Property in Arlington, Texas, from CNL Funding 2001-A,
LP for an aggregate cost of approximately $1,003,600. 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 and the joint venture. The purchase price
paid by the Partnership and the joint venture represented the costs incurred by
CNL Funding 2001-A, LP to acquire the Properties.
During 2001, Phoenix Restaurant Group, Inc. ("PRG") filed for bankruptcy and
rejected two of the four leases it had with the Partnership. In May and June
2002, the bankruptcy court assigned the two leases not rejected by PRG relating
to the Properties in Branson, Missouri and Temple, Texas to CherryDen, LLC and
Seana, LLC, respectively. CherryDen, LLC is an affiliate of the General
Partners. All other lease terms remained the same. In connection with the lease
with CherryDen, LLC the Partnership recognized rental revenues of approximately
$265,900 relating to the Property in Branson, Missouri during the year ended
December 31, 2002.
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 Schedules
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 XVI, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-69968-01 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund XVI, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-69968-01 on Form S-11 and
incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership of
CNL Income Fund XVI, Ltd. (Included as Exhibit 4.2 to Form
10-K filed with the Securities and Exchange Commission on
March 30, 1995, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund XVI, 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 Exchange Commission on
August 13, 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.)
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.
(c) Not applicable.
(d) Other Financial Information
The Partnership is required to file audited financial information of
one of its tenants (Golden Corral Corporation) as a result of this
tenant leasing more than 20% of the Partnership's total assets at
December 31, 2002. Golden Corral Corporation is a privately-held
company and its financial information is not available to the
Partnership to include in this filing. The Partnership will file this
financial information under cover of a Form 10-K/A as soon as it is
available.
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 24th day of
March, 2003.
CNL INCOME FUND XVI, 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 24, 2003
- ------------------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 24, 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 XVI, 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 24, 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 XVI, 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 24, 2003
/s/ Robert A. Bourne
- ---------------------------
Robert A. Bourne
President and Treasurer
CNL INCOME FUND XVI, 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) $ 96,992 $ 42,688 $ 489,975 (b) $ 3,171 (c) $ 148,303 $ 478,181
============== =============== ================ ============= ============ ============
2001 Allowance for
doubtful
accounts (a) $ 478,181 $ 198,086 $ 544,282 (b) $ 416,199 (c) $ -- $ 804,350
============== =============== ================ ============= ============ ============
2002 Allowance for
doubtful
accounts (a) $ 804,350 $ 5,615 $ 5,169 (b) $ 133,344 (c) $ 605,285 $ 76,505
============== =============== ================ ============= ============ ============
(a) Deducted from receivables and accrued rental income on the
balance sheet.
(b) Reduction of rental, earned and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND XVI, 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:
Arby's Restaurant:
Indianapolis, Indiana - $315,276 $591,993 - -
Checkers Drive-In Restaurants:
Conyers, Georgia - 363,553 - - -
Lake Worth, Florida - 325,301 - - -
Ocala, Florida - 289,578 - - -
Pompano Beach, Florida - 373,491 - - -
Tampa, Florida - 372,176 - - -
Tampa, Florida - 221,715 - - -
Denny's Restaurants:
Idaho Falls, Idaho - 552,186 - 692,274 -
Branson, Missouri (k) - 1,160,979 - 1,010,688 -
Dover, Ohio - 266,829 - - -
Moab, Utah - 435,927 - - -
Temple, Texas (l) - 306,866 677,659 - -
Golden Corral Family
Steakhouse Restaurants:
Fort Collins, Colora-o 566,943 - 1,122,500 -
Hickory, North Caroli-a 761,108 - 1,001,893 -
Independence, Missour- 781,761 - 1,147,538 -
Baytown, Texas - 446,240 - 971,766 -
Rosenburg, Texas - 320,133 - 804,428 -
Farmington, New Mexic- 523,584 - 870,136 -
IHOP Restaurant:
Ft. Worth, Texas - 364,634 554,302 - -
Jack in the Box Restaurants:
Brownsville, Texas - 553,671 - 658,282 -
Grand Prairie, Texas - 439,950 - 636,524 -
Temple City, California - 744,493 225,404 - -
Texas City, Texas - 403,476 568,053 - -
KFC Restaurant:
Concordia, Missouri - 188,759 - 434,369 -
Long John Silver's Restaurants:
Copperas Cove, Texas - 162,000 - - -
Kansas City, Missouri - 370,204 - 433,058 -
Silver City, New Mexico - 116,767 183,174 - -
Taco Cabana Restaurant:
San Antonio, Texas (m) - 442,286 705,618 - -
Austin, Texas (n) - 546,099 860,648 - -
Wendy's Old Fashioned
Hamburgers Restaurant:
Washington, District of
Columbia - 393,963 567,625 - -
Other:
Celina, Ohio (j) - 109,130 - 158,888 -
Charlotte, North Carolina- 313,200 - 415,695 -
----------- ----------- ------------ -------
$13,532,278 $4,934,476 $10,358,039 -
=========== =========== ============ =======
Property in Which the Partnership
has an 80.44% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Boston Market Restaurant:
Fayetville, North Ca-olina $377,800 $587,700 - -
=========== =========== ============ =======
Property in Which the Partnership
has a 40.42% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
IHOP Restaurant:
Memphis, Tennessee - $678,890 $825,076 - -
=========== =========== ============ =======
Property of Joint Venture in
Which the Partnership has a
32.35% Interest and has Invested
in Under an Operating Lease:
Arby's Restaurant:
Columbus, Ohio - $406,976 - $498,804 -
=========== =========== ============ =======
Property of Joint Venture in
Which the Partnership has a
19.72% Interest and has Invested
in Under an Operating Lease:
T.G.I. Friday's Restaurant:
Homestead, Pennsylva-ia $1,036,297 $1,499,295 - -
=========== =========== ============ =======
Property in Which the Partnership
has an 83% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Jack in the Box Restaurant:
Walker, Louisiana - $517,354 $861,245 - -
=========== =========== ============ =======
Property of Joint Venture in
Which the Partnership has a
21% Interest and has Invested
in Under an Operating Lease:
Taco.CabanarRestaurant:aurant:
Arlington, Texas (o)- $456,544 $547,070 - -
=========== =========== ============ =======
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Boston Market Restaurant:
Indianapolis, Indian- (h) $184,014 $577,320 - -
Denny's Restaurants:
Dover, Ohio - - 200,612 236,270 -
Moab, Utah - - - 718,578 -
Long John Silver's Restaurants:
Clovis, New Mexico - 127,607 425,282 - -
Copperas Cove, Texas- - 424,319 - -
----------- ----------- ------------ -------
$311,621 $1,627,533 $954,848 -
=========== =========== ============ =======
Net Cost Basis at Which
Carried at Close of Period (g) Depreciation in
- -------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
- ------------ ----------- ----------- ---------- ---------- ----- ------------
$315,276 $591,993 $907,269 $145,444 1978 08/95 (c)
363,553 - 363,553 (b) - 12/94 (b)
325,301 - 325,301 (b) - 12/94 (b)
289,578 - 289,578 (b) - 12/94 (b)
373,491 - 373,491 (b) - 12/94 (b)
372,176 - 372,176 (b) - 12/94 (b)
221,715 - 221,715 (b) - 12/94 (b)
552,186 692,274 1,244,460 173,513 1995 01/95 (c)
951,757 801,464 1,753,221 226,993 1995 03/95 (c)
266,829 (d) 266,829 (e) 1971 03/95 (e)
435,927 (d) 435,927 (e) 1995 06/95 (e)
306,866 522,185 829,051 157,020 1975 08/95 (c)
566,943 1,122,500 1,689,443 291,927 1995 10/94 (c)
761,108 1,001,893 1,763,001 267,263 1994 11/94 (c)
781,761 1,147,538 1,929,299 306,115 1994 11/94 (c)
446,240 971,766 1,418,006 250,725 1995 01/95 (c)
320,133 804,428 1,124,561 199,166 1995 05/95 (c)
523,584 870,136 1,393,720 197,137 1996 01/96 (c)
364,634 554,302 918,936 126,085 1994 03/96 (c)
553,671 658,282 1,211,953 174,866 1995 10/94 (c)
439,950 636,524 1,076,474 165,075 1995 10/94 (c)
744,493 225,404 969,897 61,384 1984 10/94 (c)
403,476 568,053 971,529 154,697 1991 10/94 (c)
188,759 434,369 623,128 103,376 1995 09/95 (c)
162,000 (d) 162,000 (e) 1994 12/94 (e)
370,204 433,058 803,262 112,348 1995 12/94 (c)
116,767 183,174 299,941 43,158 1982 12/95 (c)
442,286 705,618 1,147,904 25,481 1995 12/01 (c)
546,098 860,647 1,406,745 16,734 1980 06/02 (c)
393,963 567,625 961,588 152,196 1983 12/94 (c)
109,130 158,888 268,018 30,634 1995 10/94 (i)
313,200 415,695 728,895 106,581 1995 12/94 (c)
- ------------ ----------- ----------- ----------
$13,323,055 $14,927,816 $28,250,871 $3,487,918
============ =========== =========== ==========
$377,800 $587,700 $965,500 $122,308 1996 10/96 (c)
============ =========== =========== ==========
$678,890 $825,076 $1,503,966 $136,654 1997 01/98 (c)
============ =========== =========== ==========
$406,976 $498,804 $905,780 $67,184 1999 08/98 (c)
============ =========== =========== ==========
$1,036,297 $1,499,295 $2,535,592 $129,244 2000 06/00 (c)
============ =========== =========== ==========
$517,354 $861,245 $1,378,599 $43,060 2001 06/01 (c)
============ =========== =========== ==========
$456,544 $547,070 $1,003,614 $10,637 1997 06/02 (c)
============ =========== =========== ==========
(d) (d) (d) (f) 1995 05/95 (f)
- (d) (d) (e) 1971 03/95 (e)
- (d) (d) (e) 1995 06/94 (e)
(d) (d) (d) (f) 1976 12/94 (f)
- (d) (d) (e) 1994 12/94 (e)
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 1999, 2000, and 2001 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 $ 29,996,632 $ 2,308,005
Acquisitions 33,500 --
Dispositions (603,038 ) (115,921 )
Provision for write-down of assets (857,316 ) --
Depreciation expense -- 529,172
---------------- -----------------
Balance, December 31, 2000 28,569,778 2,721,256
Acquisitions 1,147,903 --
Dispositions (2,035,631 ) (213,225 )
Provision for write-down of assets (837,925 ) --
Depreciation expense -- 496,515
---------------- -----------------
Balance, December 31, 2001 26,844,125 3,004,546
Acquisition 1,406,746 --
Depreciation expense -- 483,372
---------------- -----------------
Balance, December 31, 2002 $ 28,250,871 $ 3,487,918
================ =================
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
Accumulated
Cost Depreciation
---------------- ----------------
Property in Which the Partnership has an 80.44% Interest as
Tenants-in-Common and has Invested in Under an Operating Lease:
Balance, December 31, 1999 $ 965,500 $ 63,538
Depreciation expense -- 19,590
---------------- ----------------
Balance, December 31, 2000 965,500 83,128
Depreciation expense -- 19,590
---------------- ----------------
Balance, December 31, 2001 965,500 102,718
Depreciation expense -- 19,590
---------------- ----------------
Balance, December 31, 2002 $ 965,500 $ 122,308
================ ================
Property in Which the Partnership has a 40.42% Interest as
Tenants-in-Common and has Invested in Under an Operating Lease:
Balance, December 31, 1999 $ 1,503,966 $ 54,145
Depreciation expense -- 27,503
---------------- ----------------
Balance, December 31, 2000 1,503,966 81,648
Depreciation expense -- 27,503
---------------- ----------------
Balance, December 31, 2001 1,503,966 109,151
Depreciation expense -- 27,503
---------------- ----------------
Balance, December 31, 2002 $ 1,503,966 $ 136,654
================ ================
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
Accumulated
Cost Depreciation
---------------- ------------------
Property of Joint Venture in Which the Partnership has a 32.35%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1999 $ 905,780 $ 17,315
Depreciation expense -- 16,623
---------------- ----------------
Balance, December 31, 2000 905,780 33,938
Depreciation expense -- 16,623
---------------- ----------------
Balance, December 31, 2001 905,780 50,561
Depreciation expense -- 16,623
---------------- ----------------
Balance, December 31, 2002 $ 905,780 $ 67,184
================ ================
Property of Joint Venture in Which the Partnership has a 19.72%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1999 $ -- $ --
Acquisition 2,535,592 --
Depreciation expense -- 29,290
---------------- ----------------
Balance, December 31, 2000 2,535,592 29,290
Depreciation expense -- 49,977
---------------- ----------------
Balance, December 31, 2001 2,535,592 79,267
Depreciation expense -- 49,977
---------------- ----------------
Balance, December 31, 2002 $ 2,535,592 $ 129,244
================ ================
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
Accumulated
Cost Depreciation
---------------- ------------------
Property in Which the Partnership has an 83% Interest as
Tenants-in-Common and has Invested in Under an Operating Lease:
Balance, December 31, 2000 $ -- $ --
Acquisition 1,366,405 --
Depreciation expense -- 14,352
---------------- ----------------
Balance, December 31, 2001 1,366,405 14,352
Acquisition 12,194 --
Depreciation expense -- 28,708
---------------- ----------------
Balance, December 31, 2002 $ 1,378,599 $ 43,060
================ ================
Property of Joint Venture in Which the Partnership has a 21%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 2001 $ -- $ --
Acquisition 1,003,613 --
Depreciation expense -- 10,637
---------------- ----------------
Balance, December 31, 2002 $ 1,003,613 $ 10,637
================ ================
(b) The building portion of this Property is owned by the tenant;
therefore, depreciation is not applicable.
(c) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(d) 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.
(e) 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.
(f) The lease for the land and building has been recorded as a direct
financing lease. The cost of the land and building has been included in
net investment in direct financing leases; therefore, depreciation is
not applicable.
(g) As of December 31, 2002, the aggregate cost of the Properties owned by
the Partnership and the joint venture for federal income tax purposes
was $32,441,035 and $8,290,050, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
(h) This Property was exchanged for a Boston Market Property previously
owned and located in Chattanooga, Tennessee.
(i) Effective June 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 as
of June 11, 1998 and depreciated over its remaining estimated life of
approximately 26 years.
(j) The undepreciated cost of the Property in Celina, Ohio was written down
to net realizable value due to an anticipated impairment in value. The
Partnership recognized an impairment by recording a provision for
write-down of assets in the amount of $266,257 at December 31, 1998.
The tenant of this Property experienced financial difficulties and
ceased payments of rents under the terms of its lease agreement. The
provision represented the difference between the Property's net
carrying value and its estimated fair value. The cost of the Property
presented on this schedule is the net amount at which the Property was
carried at December 31, 2002, including the provision for write-down of
assets.
(k) The undepreciated cost of the Property in Branson, Missouri, was
written down to net realizable value due to an impairment in value. The
Partnership recognized the impairment by recording a provision for
write-down of assets in the amount of $418,447 at December 31, 2001.
The provision represented the difference between the Property's net
carrying value and its estimated fair value. The cost of the Property
presented on this schedule is the net amount at which the Property was
carried at December 31, 2002, including the provision for write-down of
assets.
(l) The undepreciated cost of the Property in Temple, Texas, was written
down to net realizable value due to an impairment in value. The
Partnership recognized the impairment by recording a provision for
write-down of assets in the amount of $155,474 at December 31, 2001.
The provision represented the difference between the Property's net
carrying value and its estimated fair value. The cost of the Property
presented on this schedule is the net amount at which the Property was
carried at December 31, 2002, including the provision for write-down of
assets.
(m) During 2001 the Partnership acquired a real estate property from CNL
Funding 2001-A, LP, an affiliate of the General Partners, for an
aggregate cost of approximately $1,147,900.
(n) During 2002, the Partnership acquired a real estate property from CNL
Funding 2001-A, LP, an affiliate of the General Partners, for an
aggregate cost of approximately $1,406,700.
(o) During 2002, Arlington Joint Venture, in which the Partnership owns a
21% interest, acquired a real estate property from CNL Funding 2001-A,
LP, an affiliate of the General Partners, for an aggregate cost of
approximately $1,003,600.
EXHIBIT INDEX
Exhibit Number
(a). Exhibits
3.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XVI, Ltd. (Included as Exhibit 3.2 to Registration Statement
No. 33-69968-01 on Form S-11 and incorporated herein by
reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XVI, Ltd. (Included as Exhibit 3.2 to Registration Statement
No. 33-69968-01 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement of Limited Partnership of CNL
Income Fund XVI, Ltd. (Included as Exhibit 4.2 to Form 10-K filed
with the Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund XVI, 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 Exchange Commission on August 13, 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.)
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.
EXHIBIT 99.1
EXHIBIT 99.2