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, 2003
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 Section 12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($10 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes___ No X ------------
Aggregate market value of the voting stock held by nonaffiliates of
the registrant: The registrant registered an offering of 4,500,000 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, 2000, the Partnership owned 39 Properties directly
and four Properties indirectly through joint venture or tenancy in common
arrangements. 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
with CNL Income Fund VII, Ltd., a Florida limited partnership and an affiliate
of the General Partners. During 2003 the Partnership sold its Properties in
Salina, Kansas and Independence, Missouri. In addition, during 2003, the
Partnership reinvested a portion of the proceeds from the 2002 sale of the
Property in Mesquite, Texas, the proceeds from the 2002 sale of the Property in
Bucyrus, Ohio and the proceeds from the 2003 sales of the Properties in Salina,
Kansas and Independence, Missouri in two additional Properties, each as
tenants-in-common with affiliates of the General Partners. As of December 31,
2003, the Partnership owned 33 Properties directly and eight Properties
indirectly through joint venture or tenancy in common arrangements. The 41
Properties 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 taxes. 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 2023. 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 $24,200 to $259,900. The majority of the leases
provide for percentage rent, based on sales in excess of a specified amount. In
addition, the majority of the leases provide that, commencing in specified lease
years (generally the 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
successive five-year renewal options subject to the same terms and conditions as
the initial lease. Lessees of 27 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 12, 2004, 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.
In January 2001, the leases relating to the Properties in Idaho Falls,
Idaho and Moab, Utah were assigned to another tenant and amended to provide for
a reduction in rents for a two-year period. In December 2002, these leases were
amended to provide for a reduction in rents for an additional six-month period.
All other lease terms remained unchanged. The General Partners do not anticipate
that any decrease in rental income relating to these amendments will have a
material adverse affect on the Partnership's financial position or results of
operations.
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 2003, the Partnership reinvested a portion of the proceeds from
the 2002 sale of the Property in Mesquite, Texas, the proceeds from the 2002
sale of the Property in Bucyrus, Ohio and the proceeds from the 2003 sales of
the Properties in Salina, Kansas and Independence, Missouri in two additional
Properties, each as tenants-in-common with affiliates of the General Partners.
The lease terms for these Properties are substantially the same as the
Partnership's other leases.
Major Tenants
During 2003, 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 total rental revenues (including the Partnership's share of total rental
revenues from Properties owned by joint ventures and the Properties held as
tenants-in-common with affiliates). As of December 31, 2003, Golden Corral
Corporation and Jack in the Box Inc. each 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 total rental revenues in 2004. In
addition, three Restaurant Chains, Golden Corral Buffet and Grill ("Golden
Corral"), Jack in the Box, and Denny's, each accounted for more than ten percent
of total rental revenues (including the Partnership's share of total rental
revenues from Properties owned by joint ventures and the Properties held as
tenants-in-common with affiliates). In 2004, it is anticipated that each of
these Restaurant Chains will continue to contribute more than ten percent of
total rental revenues to which the Partnership is entitled under the terms of
the leases. Any failure of these lessees or Restaurant Chains will materially
affect the Partnership's operating results if the Partnership is not able to
re-lease the Properties in a timely manner. As of December 31, 2003, no tenant
or group of affiliated tenants 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, 2003:
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
CNL Income Fund VI, Ltd., CNL 2003 20.00% CNL Income Fund VI, Ltd. Dalton, Georgia
Income Fund XI, Ltd., CNL Income Fund XI, Ltd.
CNL Income Fund XV, CNL Income Fund XV, Ltd.
Ltd., and CNL Income
Fund XVI, Ltd. Tenants
in Common
CNL Income Fund XI, Ltd. and 2003 74.00% CNL Income Fund XI, Ltd. Hoover, Alabama
CNL Income Fund XVI,
Ltd. Tenants in Common
Each of the joint ventures or tenancies in common was 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
entity or the Property. 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 entity or the Property.
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 or assign its 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 2003, the Partnership reinvested a portion of the proceeds from
the 2002 sale of the Property in Mesquite, Texas, the proceeds from the 2002
sale of the Property in Bucyrus, Ohio and the proceeds from the 2003 sales of
the Properties in Salina, Kansas and Independence, Missouri in two additional
Properties, each as tenants-in-common with affiliates of the General Partners.
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. (the "Advisor"), 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. The
Advisor is responsible for collecting rental payments, inspecting the Properties
and the tenants' books and records, assisting the Partnership in responding to
tenant inquiries and notices, and providing information to the Partnership about
the status of the leases and the Properties. The Advisor also assists the
General Partners in negotiating the leases. For these services, the Partnership
has agreed to pay the Advisor an annual fee of one percent of the sum of gross
rental revenues from Properties wholly owned by the Partnership plus the
Partnership's allocable share of gross revenues of joint ventures in which the
Partnership is a co-venturer, but not in excess of competitive fees for
comparable services.
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.
During 2003, CNL Capital Management, Inc., ("CCM"), a wholly owned
subsidiary of CNL Financial Group, Inc., began providing certain strategic
advisory services to the General Partners relative to the Partnership's
business. CCM is not reimbursed for these services by the Partnership. CCM also
began providing some accounting and portfolio management services to the
Partnership during 2003, through a subcontract with the Advisor.
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, the officers and employees of CNL Restaurant Properties, Inc.
(formerly CNL American Properties Fund, Inc.), the parent company of the
Advisor, and the officers and employees of CCM 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, 2003, the Partnership owned 41 Properties. Of the 41
Properties, 33 are owned by the Partnership in fee simple, three are owned
through joint venture arrangements and five 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.
Description of Properties
Land. The Partnership's Property sites range from approximately 16,300
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, 2003 by state.
Number of Properties
State
Alabama 1
California 1
Colorado 1
Washington, D.C. 1
Florida 5
Georgia 2
Idaho 1
Indiana 2
Louisiana 1
Missouri 3
New Mexico 3
North Carolina 3
Ohio 3
Pennsylvania 1
Tennessee 1
Texas 11
Utah 1
-----------------
TOTAL PROPERTIES 41
=================
Buildings. Each of the Properties 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, 2003, the Partnership had committed to fund
additional construction costs to the Property in Hoover, Alabama, in which the
Partnership owns a 74% interest as tenants-in-common with CNL Income Fund XI,
Ltd. 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, 2003, 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 $29,573,053 and
$11,292,586, 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, 2003 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 2
Boston Market 2
Checkers 6
Denny's 5
Flat Rock Grille 1
Golden Corral 5
IHOP 2
Jack in the Box 5
KFC 1
Long John Silver's 4
O'Charley's 1
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
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.
The following is a schedule of the average rent and occupancy rate per
Property for each of the years ended December 31:
2003 2002 2001 2000 1999
-------------- ------------- ------------- ------------- -------------
Rental Revenues (1)(2) $ 3,817,730 $ 3,953,069 $ 3,398,196 $ 3,730,031 $ 4,033,287
Properties (2) 40 40 39 42 43
Average Rent per Property $ 95,443 $ 98,827 $ 87,133 $ 88,810 $ 93,797
Occupancy Rate 100% 98% 93% 98% 95%
(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 or under construction 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, 2003 for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2004 -- -- --
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 1 $ 25,014 0.68%
2009 1 62,519 1.69%
2010 4 498,615 13.48%
2011 3 339,320 9.17%
2012 2 251,950 6.81%
2013 1 100,923 2.73%
Thereafter 28 2,421,054 65.44%
---------- ------------------ -------------
Total (1) 40 $ 3,699,395 100.00%
========== ================== =============
(1) Excludes one Property which was under construction at December 31,
2003.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2003 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases five Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2010 and 2015) and the
average minimum base annual rent is approximately $148,000 (ranging from
approximately $113,300 to $175,800).
Jack in the Box Inc. leases five 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, nor its General Partners, nor any affiliate of
the Partnership, 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 12, 2004, there were 3,018 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 2003, 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, 2003, 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 2003 and 2002 other than
pursuant to the Plan, net of commissions.
2003 (1) 2002 (1)
------------------------------------ -------------------------------------
High Low Average High Low Average
--------- -------- ----------- --------- -------- -----------
First Quarter $8.05 $ 6.00 $ 7.28 $7.21 $ 6.00 $ 6.29
Second Quarter 9.55 6.76 7.81 6.75 6.68 6.72
Third Quarter 9.50 6.98 8.66 7.33 6.00 6.39
Fourth Quarter 8.14 6.53 7.58 7.25 6.00 6.39
(1) A total of 30,121 and 39,922 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2003 and 2002, respectively.
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, 2003 and 2002, 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, 2003 and
2002, are required to be or have been treated by the Partnership as a return of
capital for purposes of calculating the Limited Partners' return on their
adjusted capital contributions. 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.
2003 2002 2001 2000 1999
------------- -------------- -------------- -------------- -------------
Year ended December 31:
Continuing Operations (5):
Revenues $3,098,420 $ 3,627,699 $ 2,631,323 $3,016,288 $3,145,931
Equity in earnings of unconsolidated
joint ventures 326,150 312,454 250,885 180,084 158,580
Income from continuing
operations (1) (2) 2,668,161 3,191,883 1,048,515 1,455,559 2,176,923
Discontinued Operations (5):
Revenues 342,106 407,325 443,510 689,867 755,299
Income (loss) from and gain on
disposal of discontinued
operations (3) (4) 631,994 105,445 (908,647 ) 490,253 638,085
Net income 3,300,155 3,297,328 139,868 1,945,812 2,815,008
Income (loss) per Unit:
Continuing operations $ 0.59 $ 0.71 $ 0.23 $ 0.32 $ 0.49
Discontinued operations 0.14 0.02 (0.20 ) 0.11 0.14
------------- -------------- -------------- -------------- -------------
Total $ 0.73 $ 0.73 $ 0.03 $ 0.43 $ 0.63
============= ============== ============== ============== =============
Cash distributions declared $3,600,000 $ 3,600,000 $ 3,600,000 $3,600,000 $3,600,000
Cash distributions declared per Unit 0.80 0.80 0.80 0.80 0.80
At December 31:
Total assets $33,875,474 $ 34,019,581 $ 34,305,402 $37,936,084 $39,710,973
Total partners' capital 32,690,095 32,989,940 33,292,612 36,752,744 38,406,932
(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 and gain on disposal of discontinued operations
includes $556,884, $1,158,159, and $36,166 in provisions for write-down
of assets for the years ended December 31, 2002, 2001, and 2000,
respectively.
(4) Income (loss) from and gain on disposal of discontinued operations
includes $348,023 and $396,382 in gains on sale of assets for the years
ended December 31, 2003 and 2002.
(5) Certain items in the prior years' financial data have been reclassified
to conform to the 2003 presentation. This reclassification had no
effect on net income. The results of operations relating to properties
that were identified for sale as of December 31, 2001 but sold
subsequently are reported as continuing operations. The results of
operations relating to properties that were either identified for sale
and disposed of subsequent to January 1, 2002 or were classified as
held for sale as of December 31, 2003 are reported as discontinued
operations for all periods presented.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on September 2, 1993, to acquire for
cash, either directly or through joint venture arrangements, both newly
constructed and existing restaurant Properties, as well as land upon which
restaurant Properties were to be constructed, to be leased primarily to
operators of 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
$24,200 to $259,900. The majority of the leases provide for percentage rent
based on sales in excess of a specified amount. In addition, the majority of the
leases provide that, commencing in specified lease years (generally the sixth
lease year), the annual base rent required under the terms of the lease will
increase. 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. As of December 31, 2003, the Partnership owned 33
Properties directly and eight Properties indirectly through joint venture or
tenancy in common arrangements.
Capital Resources
Cash from operating activities was $3,550,856, $3,878,671, and
$2,723,368, for the years ended December 31, 2003, 2002, and 2001, respectively.
The decrease in cash from operating activities during the year ended December
31, 2003, as compared to the previous year, was primarily a result of changes in
the Partnership's working capital, such as the timing of transactions relating
to the collection of receivables and the payment of expenses, and changes in
income and expenses, such as changes in rental revenues and changes in operating
and Property related expenses. The increase in cash from operating activities
during the year ended December 31, 2002, as compared to the previous year, was
primarily a result of changes in income and expenses, such as changes in rental
revenues and changes in operating and Property related expenses..
Other sources and uses of cash included the following during the years
ended December 31, 2003, 2002, and 2001.
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,
and 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. During 2002, the Partnership
ceased collection efforts and wrote off the balance of the promissory note.
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.
The Partnership 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 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 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. The Partnership contributed approximately $210,800 for a 21%
interest in this joint venture.
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.
During 2003, the Partnership sold its Properties in Salina, Kansas and
Independence, Missouri, each to a third party and received net sales proceeds of
approximately $2,102,400, resulting in a gain on disposal of discontinued
operations of approximately $348,000. The Partnership had recorded provisions
for write-down of assets in previous years relating to the Property in Salina,
Kansas. During 2003, the Partnership reinvested a portion of the proceeds from
the 2002 sale of the Property in Mesquite, Texas, the 2002 sale of the Property
in Bucyrus, Ohio and the 2003 sales of the Properties in Salina, Kansas and
Independence, Missouri in a Property in Dalton, Georgia with CNL Income Fund VI,
Ltd., CNL Income Fund XI, Ltd., and CNL Income Fund XV, Ltd., and a Property in
Hoover, Alabama with CNL Income Fund XI, Ltd., each as tenants-in-common. The
Partnership contributed approximately $380,000 and $926,900 to the Properties in
Dalton, Georgia and Hoover, Alabama, respectively and has committed to fund up
to an additional $701,100 for additional construction costs relating to the
Property in Hoover, Alabama. The Partnership owns a 20% and a 74% interest in
the Properties in Dalton, Georgia and Hoover, Alabama, respectively.
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.
At December 31, 2003, the Partnership had $2,090,183 in cash and cash
equivalents, as compared to $1,343,836 at December 31, 2002. At December 31,
2003, these funds were held in demand deposit accounts at commercial banks. The
increase in cash was primarily a result of the Partnership holding sales
proceeds at December 31, 2003, pending the funding of additional construction
costs relating to the Property in Hoover, Alabama, as described above. As of
December 31, 2003, the average interest rate earned on the rental income
deposited in demand deposit accounts at commercial banks was less than one
percent annually. The funds remaining at December 31, 2003, after the payment of
distributions and other liabilities will be used to fund additional construction
costs and to meet the Partnership's working capital needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate net cash
flow in excess of operating expenses.
The General Partners have the right, but not the obligation, to make
additional capital contributions or loans 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, 2003, 2002, and 2001. This represents
distributions of $0.80 per Unit for each of the years ended December 31, 2003,
2002, and 2001. No distributions were made to the General Partners during the
years ended December 31, 2003, 2002, and 2001. No amounts distributed to the
Limited Partners for the years ended December 31, 2003, 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. 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,
2003, 2002, and 2001.
As of December 31, 2003 and 2002, the Partnership owed $166,003 and
$18,292, respectively, to related parties for accounting and administrative
services, management fees and other amounts. As of March 12, 2004, the
Partnership had reimbursed the affiliates these amounts. Other liabilities,
including distributions payable, were $1,019,376 at December 31, 2003, as
compared to $1,011,349 at December 31, 2002. The General Partners believe that
the Partnership has sufficient cash on hand to meet its current working capital
needs.
In December 2003, the Partnership entered into an agreement with the
tenant to sell the Property in Fort Collins, Colorado. As a result, the
Partnership reclassified the assets relating to this Property to real estate
held for sale. As of March 12, 2004, the sale had not occurred.
Off-Balance Sheet Transactions
The Partnership holds interests in various unconsolidated joint venture
and tenancy in common arrangements that are accounted for using the equity
method. The General Partners do not believe that any such interest would
constitute an off-balance sheet arrangement requiring any additional disclosures
under the provisions of the Sarbanes-Oxley Act of 2002.
Contractual Obligations, Contingent Liabilities, and Commitments
In December 2003, the Partnership entered into an agreement to sell the
Property in Fort Collins, Colorado. As of March 12, 2004, the sale had not
occurred.
In December 2003, the Partnership and CNL Income Fund XVI, Ltd., as
tenants-in-common, purchased a Property in Hoover, Alabama. The Partnership
contributed approximately $325,700 to acquire the land and has committed to fund
up to an additional $246,300 for construction costs relating to this Property.
The Partnership owns a 26% interest in this Property. The Partnership has no
contingent liabilities.
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 Financial Accounting Standards 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.
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 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.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Accordingly, 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, 2003 to year ended December 31, 2002
Rental revenues from continuing operations were $3,055,686 during the
year ended December 31, 2003, as compared to $3,517,609 during the same period
of 2002. Rental revenues from continuing operations were higher during the year
ended December 31, 2002, as compared to the same period of 2003, because during
2002, the Partnership received payment and recognized as income past due rents
of approximately $522,800 relating to two Properties, which were formerly leased
by Phoenix Restaurant Group, Inc. ("PRG"). In October 2001, PRG filed for
bankruptcy and the Partnership stopped recording rental revenues relating to
these two Properties. During 2002, the bankruptcy court assigned the two leases
relating to these two Properties 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. The decrease was
partially offset by the fact that during 2003, the Partnership earned rental
revenues as a result of the reinvestment of sales proceeds from the 2002 sale of
the Property in Rancho Cordova, California in a Property in Austin, Texas in
June 2002.
The Partnership earned $40,730 in contingent rental income during the
year ended December 31, 2003, as compared to $49,977 during the same period of
2002. The decrease in contingent rental income during 2003 was due to a decrease
in reported gross sales of the restaurants with leases that require the payment
of contingent rental income.
The Partnership earned $326,150 attributable to net income earned by
unconsolidated joint ventures during the year ended December 31, 2003, as
compared to $312,454 during the same period of 2002. Net income earned by joint
ventures was higher during the year ended December 31, 2003, as compared to the
same period of 2002, because in June 2002, the Partnership reinvested a portion
of the net sales proceeds from the 2002 sale of the Property in Mesquite, Texas
in a joint venture arrangement, Arlington Joint Venture, with CNL Income Fund
VII, Ltd., and in November 2003, the Partnership reinvested the remaining
proceeds from the sale of the Property in Mesquite, Texas and the proceeds from
the 2003 sale of the Property in Bucyrus, Ohio in a Property in Dalton, Georgia,
with CNL Income Fund VI, Ltd., CNL Income Fund XI, Ltd., and CNL Income Fund XV,
Ltd., as tenants-in-common. Each of the CNL Income Funds is a Florida limited
partnership and an affiliate of the General Partners.
During 2003, two lessees of the Partnership, Golden Corral Corporation
and Jack in the Box Inc., each contributed more than ten percent of total rental
revenues (including the Partnership's share of total rental revenues from
Properties owned by joint ventures and the Properties held as tenants-in-common
with affiliates). As of December 31, 2003, Golden Corral Corporation and Jack in
the Box Inc. each 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
total rental revenues in 2004. In addition, three Restaurant Chains, Golden
Corral, Jack in the Box, and Denny's, each accounted for more than ten percent
of total rental revenues (including the Partnership's share of total rental
revenues from Properties owned by joint ventures and the Properties held as
tenants-in-common with affiliates). In 2004, it is anticipated that each of
these Restaurant Chains will continue to contribute more than ten percent of the
total rental revenues to which the Partnership is entitled under the terms of
the leases. Any failure of these lessees or Restaurant Chains will materially
affect the Partnership's operating results if the Partnership is not able to
re-lease the Properties in a timely manner.
The Partnership earned $2,004 in interest and other income during the
year ended December 31, 2003, as compared to $60,113 during the same period of
2002. During 2002, the Partnership received reimbursement of property
expenditures that were incurred in previous years relating to vacant Properties.
Operating expenses, including depreciation and amortization expenses
were $756,409 during the year ended December 31, 2003, as compared to $748,270
during the same period of 2002. Operating expenses were higher during 2003 due
to an increase in state tax expense relating to several states in which the
Partnership conducts business and an increase in depreciation expense resulting
from the 2002 acquisition of the Property in Austin, Texas. The increase in
operating expenses was partially offset by a decrease in Property related
expenses because the Partnership did not incur Property expenses relating to the
two former PRG Properties after they were assigned to new tenants, as described
above.
During 2002, the Partnership identified for sale four Properties that
were classified as Discontinued Operations in the accompanying financial
statements. The Partnership sold three of these Properties during 2002 and sold
the fourth Property in February 2003. During 2003, the Partnership identified
for sale two additional Properties, located in Independence, Missouri and Fort
Collins, Colorado, that were also classified as Discontinued Operations in the
accompanying financial statements. The Partnership sold the Property in
Independence, Missouri in November 2003. The Partnership reclassified the asset
relating to the Property in Fort Collins, Colorado 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 fair value, less cost to sell.
As of March 12, 2004, the sale had not occurred. The Partnership recognized a
net rental loss (Property related expenses and provisions for write-down of
assets in excess of rental revenues) of $290,937 during the year ended December
31, 2002, relating to these Properties. The net rental loss during 2002 was
primarily the result of the Partnership recording provisions for write-down of
assets of approximately $556,900 relating to the vacant PRG Properties. The
provisions represented the difference between each Property's net carrying value
and it estimated fair value. The Partnership sold the Property in Mesquite,
Texas in March 2002. Because the Partnership had recorded provisions for
write-down of assets in previous years, no gain or loss was recorded during 2002
relating to the sale of this Property. In June 2002, the Partnership sold the
Property in Rancho Cordova, California and recorded a gain on disposal of
discontinued operations of approximately $402,600. The Partnership sold the
Property in Bucyrus, Ohio in August 2002, and recorded a loss on disposal of
discontinued operations of approximately $6,300. The Partnership had recorded
provisions for write-down of assets in previous periods, including approximately
$20,300 during 2002. The provision represented the difference between the
Property's net carrying value and its estimated fair value. The Partnership
recognized net rental income of $283,971 during the year December 31, 2003
relating to the Properties in Salina, Kansas, Independence, Missouri, and Fort
Collins, Colorado. In February 2003, the Partnership sold the Property in
Salina, Kansas and recorded a gain on disposal of discontinued operations of
approximately $1,000. The Partnership had recorded provisions for write-down of
assets in previous years relating to this Property. In November 2003, the
Partnership sold the Property in Independence, Missouri and recorded a gain on
disposal of discontinued operations of approximately $347,000.
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Rental revenues from continuing operations were $3,517,609 during the
year ended December 31, 2002, as compared to $2,509,353 during the same period
of 2001. Rental revenues from continuing operations were lower during the year
ended December 31, 2001 as compared to the same period of 2002, because in March
2001, the Partnership stopped recording rental revenues when the tenant, PRG,
experienced 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 from continuing
operations 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 $49,977 in contingent rental income during
the year ended December 31, 2002, as compared to $81,334 during the same period
of 2001. Contingent rental income was higher during 2001 due to an increase in
reported gross sales of the restaurants with leases that require the payment of
contingent rental income.
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.
The Partnership earned $60,113 in interest and other income during the
year ended December 31, 2002, as compared to $40,636 during the same period of
2001. Interest and other income was higher during 2002, because the Partnership
received reimbursement of property expenditures that were incurred in previous
years relating to vacant Properties.
Operating expenses, including depreciation and amortization expenses
and provision for write-down of assets were $748,270 during the year ended
December 31, 2002, as compared to $2,217,330 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 in 2002 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 or re-lease
of each Property had occurred.
Operating expenses were also 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, a decrease in the amount of state
tax expense relating to several states in which the Partnership conducts
business, and a decrease in depreciation expense as a result of the sale of
several Properties.
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. Because
these Properties were identified for sale prior to the January 2002
implementation of Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets," the results of
operations relating to these Properties were included as Income from Continuing
Operations in the accompanying financial statements.
The Partnership identified for sale six Properties that were classified
as Discontinued Operations in the accompanying financial statements, as
described above. The Partnership recognized a net rental loss (Property related
expenses and provisions for write-down of assets in excess of rental revenues)
of $290,937 and $908,647 during the years ended December 31, 2002 and 2001,
relating to these Properties. The net rental loss during 2002 and 2001 was a
result of the Partnership recording provisions for write-down of assets of
approximately $556,900 and $1,158,200, respectively, relating to the Properties
formerly leased by PRG, as described above. The provisions represented the
difference between each Property's net carrying value and it estimated fair
value.
The General Partners continuously evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the Limited
Partners.
The Partnership's leases as of December 31, 2003, 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, the Financial Accounting Standards Board ("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, FIN 46 requires
that a variable interest entity be consolidated by a company if that company is
subject to a majority risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both. Prior to FIN 46, a company generally included another entity in its
consolidated financial statements only if it controlled the entity through
voting interests. In December 2003, the FASB issued FASB Interpretation No. 46R
("FIN 46R"), to clarify some of the provisions of FIN 46. Under FIN 46R, special
effective date provisions apply to entities that have fully or partially applied
FIN 46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public entities, other than small
business issuers, for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. The Partnership
did not fully or partially apply FIN 46 prior to the issuance of FIN 46R. Also,
the Partnership does not have interests in structures commonly referred to as
special-purpose entities. Therefore, application of FIN 46R is required in the
Partnership's financial statements for periods ending after March 15, 2004. The
General Partners believe adoption of this standard may result in either
consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint ventures, which are currently accounted for under the
equity method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
Item 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 24-36
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, 2003 and 2002, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2003 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 Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
March 24, 2004
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2003 2002
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 21,322,602 $ 21,742,253
Net investment in direct financing leases 2,580,395 2,662,948
Real estate held for sale 1,363,218 3,174,200
Investment in joint ventures 4,722,017 3,446,648
Cash and cash equivalents 2,090,183 1,343,836
Receivables, less allowance for doubtful accounts
of $75,006 and $63,752, respectively 36,470 49,577
Due from related parties 6,135 18,966
Accrued rental income, less allowance for
doubtful accounts of $12,753 in 2003 and 2002 1,719,305 1,549,115
Other assets 35,149 32,038
------------------- -------------------
$ 33,875,474 $ 34,019,581
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 9,031 $ 3,505
Real estate taxes payable 5,312 10,502
Distributions payable 900,000 900,000
Due to related parties 166,003 18,292
Rents paid in advance and deposits 105,033 97,342
------------------- -------------------
Total liabilities 1,185,379 1,029,641
Commitment (Note 12)
Partners' capital 32,690,095 32,989,940
------------------- -------------------
$ 33,875,474 $ 34,019,581
=================== ===================
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2003 2002 2001
---------------- ---------------- ---------------
Revenues:
Rental income from operating leases $ 2,788,621 $ 3,206,654 $ 2,205,123
Earned income from direct financing leases 267,065 310,955 304,230
Contingent rental income 40,730 49,977 81,334
Interest and other income 2,004 60,113 40,636
---------------- ---------------- ---------------
3,098,420 3,627,699 2,631,323
---------------- ---------------- ---------------
Expenses:
General operating and administrative 256,829 258,345 379,613
Property related 12,144 17,453 129,863
Provision for doubtful accounts -- -- 90,074
Management fees to related parties 37,158 41,568 30,726
State and other taxes 27,761 20,288 30,716
Depreciation and amortization 422,517 410,616 423,944
Provision for write-down of assets -- -- 1,132,394
---------------- ---------------- ---------------
756,409 748,270 2,217,330
---------------- ---------------- ---------------
Income before gain on sale of assets and equity in
earnings of unconsolidated joint ventures 2,342,011 2,879,429 413,993
Gain on sale of assets -- -- 383,637
Equity in earnings of unconsolidated joint ventures 326,150 312,454 250,885
---------------- ---------------- ---------------
Income from continuing operations 2,668,161 3,191,883 1,048,515
---------------- ---------------- ---------------
Discontinued operations
Income (loss) from discontinued operations 283,971 (290,937 ) (908,647 )
Gain on disposal of discontinued operations 348,023 396,382 --
---------------- ---------------- ---------------
631,994 105,445 (908,647 )
---------------- ---------------- ---------------
Net income $ 3,300,155 $ 3,297,328 $ 139,868
================ ================ ===============
Income (loss) per limited partner unit
Continuing operations $ 0.59 $ 0.71 $ 0.23
Discontinued operations 0.14 0.02 (0.20 )
---------------- ---------------- ---------------
$ 0.73 $ 0.73 $ 0.03
================ ================ ===============
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, 2003, 2002, and 2001
General Partners Limited Partners
-------------------------------------- ---------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------ ---------------- ----------------- ---------------- -----------------
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
Distributions to limited
partners ($0.80 per
limited partner unit) -- -- -- (3,600,000 ) --
Net income -- -- -- -- 3,300,155
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2003 $ 1,000 $ 159,017 $ 45,000,000 $ (31,423,017 ) $ 24,343,095
================== ================ ================= ================ =================
See accompanying notes to financial statements.
- ---------------
Syndication
Costs Total
- -------------- --------------
$ (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
-- (3,600,000 )
-- 3,300,155
- -------------- --------------
$ (5,390,000 ) $32,690,095
============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2003 2002 2001
--------------- --------------- --------------
Cash flows from operating activities
Net income $ 3,300,155 $ 3,297,328 $ 139,868
--------------- --------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 476,266 504,712 549,520
Amortization of investment in direct
financing leases 82,553 51,016 52,904
Amortization 2,865 2,912 3,097
Equity in earnings of unconsolidated
joint ventures, net of distributions
Gain on sale of assets (348,023 ) (396,382 ) (383,637 )
Provision for write-down of assets -- 556,884 2,290,553
Provision for doubtful accounts -- -- 90,074
Decrease (increase) in receivables 13,107 (8,993 ) 289,153
Decrease in due from related parties 12,831 -- --
Increase in accrued rental income (170,190 ) (166,534 ) (165,285 )
Increase in other assets (5,976 ) (2,852 ) (801 )
Increase (decrease) in accounts payable
and accrued expenses and real estate
taxes payable 336 (31,413 ) 1,632
Increase (decrease) in due to related
parties 147,711 961 (135,626 )
Increase (decrease) in rents paid in
advance and deposits 7,691 47,303 (36,556 )
--------------- --------------- --------------
Total adjustments 250,701 581,343 2,583,500
--------------- --------------- --------------
Net cash provided by operating activities 3,550,856 3,878,671 2,723,368
--------------- --------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 2,102,390 1,918,641 2,851,675
Additions to real estate properties with
operating leases -- (1,406,745 ) (1,147,903 )
Investment in joint ventures (1,306,899 ) (221,404 ) (1,134,117 )
--------------- --------------- --------------
Net cash provided by investing activities 795,491 290,492 569,655
--------------- --------------- --------------
Cash Flows from Financing Activities:
Proceeds from loan from corporate
general partner -- -- 300,000
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 746,347 569,163 (306,977 )
Cash and cash equivalents at beginning of year 1,343,836 774,673 1,081,650
--------------- --------------- --------------
Cash and cash equivalents at end of year $ 2,090,183 $ 1,343,836 $ 774,673
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2003 2002 2001
--------------- --------------- --------------
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 statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
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, 2003, 2002, and 2001,
tenants paid, or are expected to pay, directly to real estate taxing
authorities approximately $464,100, $456,800, and $435,000,
respectively, in estimated real estate taxes in accordance with the
terms of their leases.
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
operating or the direct financing methods.
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.
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.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date.
Substantially all 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.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, the assets are
adjusted to their estimated fair value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is recorded 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; Walker, Louisiana; Dalton, Georgia; and Hoover, Alabama,
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. 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. When a property is sold or a lease is
terminated the related lease cost, if any, net of accumulated
amortization is removed from the accounts and charged against income.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs represent a reduction
of Partnership equity and a reduction in the basis of each partner's
investment.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
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 years' financial
statements have been reclassified to conform to 2003 presentation.
These reclassifications had no effect on partners' capital, net income
or cash flows.
Statement of Financial Accounting Standards No. 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 - In January 2003, the Financial Accounting
Standards Board ("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, FIN 46 requires
that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. In December 2003,
the FASB issued FASB Interpretation No. 46R ("FIN 46R"), to clarify
some of the provisions of FIN 46. Under FIN 46R, special effective date
provisions apply to entities that have fully or partially applied FIN
46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests
in structures that are commonly referred to as special-purpose entities
for periods ending after December 15, 2003. Application by public
entities, other than small business issuers, for all other types of
variable interest entities is required in financial statements for
periods ending after March 15, 2004. The Partnership did not fully or
partially apply FIN 46 prior to the issuance of FIN 46R. Also, the
Partnership does not have interests in structures commonly referred to
as special-purpose entities. Therefore, application of FIN 46R is
required in the Partnership's financial statements for periods ending
after March 15, 2004. The general partners believe adoption of this
standard may result in either consolidation or additional disclosure
requirements of the Partnership's unconsolidated joint ventures, which
are currently accounted for under the equity method. However, such
consolidation is not expected to significantly impact the Partnership's
results of operations.
CNL INCOME FUND XVI, LTD.
( A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
2. Real Estate Properties with Operating Leases
Real estate Properties with operating leases consisted of the following
at December 31:
2003 2002
-------------------- --------------------
Land $ 11,974,352 $ 11,974,352
Buildings 12,657,778 12,657,778
-------------------- --------------------
24,632,130 24,632,130
Less accumulated depreciation (3,309,528 ) (2,889,877 )
-------------------- --------------------
$ 21,322,602 $ 21,742,253
==================== ====================
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.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2003:
2004 $ 2,847,520
2005 2,988,673
2006 3,024,383
2007 3,026,095
2008 3,021,453
Thereafter 16,729,648
------------------
$ 31,637,772
==================
3. Net Investment in Direct Financing Leases
The following lists the components of the net investment in direct
financing leases at December 31:
2003 2002
------------------ -----------------
Minimum lease payments
receivable $ 4,083,345 $ 4,448,402
Estimated residual values 957,216 957,216
Less unearned income (2,460,166 ) (2,742,670 )
------------------ -----------------
Net investment in direct
financing leases $ 2,580,395 $ 2,662,948
================== =================
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
3. Net Investment in Direct Financing Leases - Continued
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2003:
2004 $ 355,478
2005 356,140
2006 356,808
2007 357,483
2008 358,165
Thereafter 2,299,271
--------------
$ 4,083,345
==============
4. Investment in Joint Ventures
The Partnership has a 32.35% and a 19.72% interest in the profits and
losses of Columbus Joint Venture and TGIF Pittsburgh Joint Venture,
respectively. In addition, the Partnership has an 80.44%, a 40.42%, and
an 83% interest in a property in Fayetteville, North Carolina, a
property in Memphis, Tennessee, and a property in Walker, Louisiana,
respectively, each of which is held as tenants-in-common. The other
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 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, 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. The Partnership
contributed approximately $210,800 for a 21% interest in this joint
venture.
In November 2003, the Partnership and CNL Income Fund VI, Ltd, CNL
Income Fund XI, Ltd., and CNL Income Fund XV, Ltd., as
tenants-in-common, invested in a property in Dalton, Georgia. The
Partnership contributed $380,000 for a 20% interest in the property. In
addition, in December 2003, the Partnership and CNL XI, Ltd., as
tenants-in-common, invested in a property in Hoover, Alabama. The
Partnership contributed approximately $926,900 to pay for construction
costs and owns a 74% interest in the property. The Partnership and
affiliates entered into agreements whereby each co-venturer will share
in the profits and losses of the respective property in proportion to
its applicable percentage interest. Each of the CNL Income Funds is an
affiliate of the general partners.
As of December 31, 2003, Columbus Joint Venture, TGIF Pittsburgh Joint
Venture, and Arlington Joint Venture each owned one property. In
addition, the Partnership and affiliates, in five separate tenancies in
common arrangements, each owned one property. The following presents
the combined, condensed financial information for the joint ventures
at:
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
December 31,
2003 2002
-------------------- -----------------
Land and buildings on operating leases, net $ 10,564,455 $ 7,783,964
Construction in process 26,861 --
Cash 60,545 27,252
Receivables 153,552 --
Accrued rental income 423,778 340,550
Other assets -- 188
Liabilities 47,780 30,893
Partners' capital 11,181,411 8,121,061
Years ended December 31,
2003 2002 2001
------------- -------------- ---------------
Revenues $ 952,108 $ 877,210 $ 747,735
Expenses (170,240 ) (157,120 ) (134,476 )
------------- -------------- ---------------
Net income $ 781,868 $ 720,090 $ 613,259
============= ============== ===============
The Partnership recognized income totaling $326,150, $312,454, and
$250,885, for the years ended December 31, 2003, 2002, and 2001,
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. During
2002, the Partnership ceased collection efforts and wrote off the
balance of the note.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
6. Discontinued Operations
During 2002, the Partnership identified for sale four properties that
were classified as Discontinued Operations in the accompanying
financial statements. During 2002, the Partnership sold three of these
properties each to a third party, and received net sales proceeds of
approximately $1,918,700, resulting in a net gain on disposal of
discontinued operations of approximately $396,400. In February 2003,
the Partnership sold the fourth property to a third party and received
net sales proceeds of approximately $154,500, resulting in a gain on
disposal of discontinued operations of approximately $1,000. The
Partnership had recorded provisions for write-down of assets of
approximately $556,900 and $1,158,200 during the years ended December
31, 2002 and 2001, respectively, relating to these properties. The
provision represented the difference between each property's net
carrying value and its estimated fair value. During 2003, the
Partnership identified for sale two additional properties. The
Partnership sold one of these two properties in November 2003 and
received net sales proceeds of approximately $1,947,900, resulting in a
gain on disposal of discontinued operations of approximately $347,000.
The Partnership reclassified the asset relating to the remaining
property not sold 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. The financial results for these six properties are reflected as
Discontinued Operations in the accompanying financial statements.
The operating results of the discontinued operations for these
properties are as follows:
Year Ended December 31,
2003 2002 2001
------------- -------------- --------------
Rental revenues $ 342,106 $ 407,325 $ 409,531
Termination fee income -- -- 33,979
Expenses (58,135 ) (141,378 ) (193,998 )
Provision for write-down of assets -- (556,884 ) (1,158,159 )
------------- -------------- --------------
Income (loss) from discontinued
operations $ 283,971 $ (290,937 ) $ (908,647 )
============= ============== ==============
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
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.
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, 2003, 2002, and
2001.
During each of the years ended December 31, 2003, 2002, and 2001 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
Years Ended December 31, 2003, 2002, and 2001
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:
2003 2002 2001
-------------- -------------- ---------------
Net income for financial reporting purposes $ 3,300,155 $ 3,297,328 $ 139,868
Effect of timing differences relating to
depreciation 34,053 35,244 40,740
Provision for write-down of assets -- 556,884 2,290,553
Direct financing leases recorded as operating
leases for tax reporting purposes 82,553 51,016 52,904
Effect of timing differences relating to equity
in earnings of unconsolidated joint ventures (2,185 ) (7,210 ) (15,881 )
Effect of timing differences relating to
gains/losses on sale of assets (735,303 ) (1,243,058 ) (993,358 )
Effect of timing differences relating to
allowance for doubtful accounts 10,365 (691,679 ) 326,169
Accrued rental income (170,190 ) (166,534 ) (165,285 )
Rents paid in advance and deposits 7,691 47,303 (22,056 )
Other (499 ) -- --
-------------- -------------- ---------------
Net income for federal income tax purposes $ 2,526,640 $ 1,879,294 $ 1,653,654
============== ============== ===============
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
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 Restaurant
Properties, Inc. (formerly known as American Properties Fund, Inc.)
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. (the "Advisor"). The Advisor is a wholly owned
subsidiary of CNL Restaurant Properties, Inc. ("CNL-RP"). The
individual general partners are stockholders and directors of CNL-RP.
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 $37,158, $41,568,
and $30,726, for the years ended December 31, 2003, 2002, and 2001,
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, 2003, 2002, and 2001, the
Partnership's affiliates provided accounting and administrative
services. The Partnership incurred $149,450, $179,207, and $243,206,
for the years ended December 31, 2003, 2002, and 2001, 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 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 and carry 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 $277,700 and $265,900 relating to the property in
Branson, Missouri during the years ended December 31, 2003 and 2002.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
9. Related Party Transactions - Continued
The amount due to related parties at December 31, 2003 and 2002 totaled
$166,003 and $18,292, respectively.
10. Concentration of Credit Risk
The following schedule presents total rental revenues from individual
lessees, each total representing more than ten percent of the
Partnership's total rental revenues (including the Partnership's share
of rental total revenues from joint ventures and properties held as
tenants-in-common with affiliates) for each of the years ended December
31:
2003 2002 2001
----------------- ----------------- -----------------
Golden Corral Corporation $ 959,872 $ 989,368 $ 1,023,304
Jack in the Box Inc. 583,384 624,944 621,879
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than ten percent
of the Partnership's total 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:
2003 2002 2001
----------------- ----------------- ------------------
Golden Corral Buffet and Grill $ 959,872 $ 989,368 $ 1,023,304
Denny's 731,315 729,186 402,615
Jack in the Box 583,384 624,944 621,879
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
Years Ended December 31, 2003, 2002, and 2001
11. Selected Quarterly Financial Data
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2003 and
2002.
2003 Quarter First Second Third Fourth Year
---------------------------------------- ----------- ------------- ------------- ------------ ------------
Continuing Operations (1):
Revenues $ 769,561 $ 771,531 $ 778,443 $ 778,885 $3,098,420
Equity in earnings of
unconsolidated joint ventures 81,134 80,656 80,438 83,922 326,150
Income from continuing
operations 631,234 674,282 674,576 688,069 2,668,161
Discontinued Operations (1):
Revenues 90,749 90,749 90,749 69,859 342,106
Income from and gain on disposal
of discontinued operations (3) 71,802 71,832 77,633 410,727 631,994
Net income 703,036 746,114 752,209 1,098,796 3,300,155
Income per limited partner unit
Continuing operations $ 0.14 $ 0.15 $ 0.15 $ 0.15 $ 0.59
Discontinued operations 0.02 0.02 0.02 0.08 0.14
----------- ------------- ------------- ------------ ------------
$ 0.16 $ 0.17 $ 0.17 $ 0.23 $ 0.73
=========== ============= ============= ============ ============
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
11. Selected Quarterly Financial Data - Continued
2002 Quarter First Second Third Fourth Year
---------------------------------------- ----------- ------------- ------------- ------------ ------------
Continuing Operations (1):
Revenues $737,434 $1,328,366 $794,181 $767,718 $3,627,699
Equity in earnings of
unconsolidated joint ventures 75,155 75,646 81,698 79,955 312,454
Income from continuing
operations 609,065 1,180,423 694,701 707,694 3,191,883
Discontinued Operations (1):
Revenues 117,470 108,355 90,749 90,751 407,325
Income (loss) from and gain
on disposal of discontinued
operations (2) 75,192 446,961 52,923 (469,631 ) 105,445
Net income 684,257 1,627,384 747,624 238,063 3,297,328
Income (loss) per limited partner
unit
Continuing operations $ 0.14 $ 0.26 $ 0.15 $ 0.16 $ 0.71
Discontinued operations 0.02 0.10 0.01 (0.11 ) 0.02
----------- ------------- ------------- ------------ ------------
$ 0.16 $ 0.36 $ 0.16 $ 0.05 $ 0.73
=========== ============= ============= ============ ============
(1) Certain items in the quarterly financial data have been reclassified
to conform to the 2003 presentation. This reclassification had no
effect on net income. The results of operations relating to
properties that were identified for sale as of December 31, 2001 but
sold subsequently are reported as continuing operations. The results
of operations relating to properties that were either identified for
sale and disposed of subsequent to January 1, 2002 or were
classified as held for sale as of December 31, 2003 are reported as
discontinued operations for all periods presented.
(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 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 and recorded a gain on disposal of
discontinued operations of approximately $1,000.
(3) In November 2003, the Partnership sold its property in Independence,
Missouri to a third party and recorded a gain on disposal of
discontinued operations of approximately $347,000.
12. Commitment
In December 2003, the Partnership entered into an agreement with a
third party to sell the property in Fort Collins, Colorado.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART 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-RP, CCM, CNL Financial Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 57. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL-RP, a public, unlisted real
estate investment trust since 1994. Mr. Seneff served as Chief Executive Officer
of CNL-RP from 1994 through August 1999 and as Co-Chief Executive Officer from
December 2000 through September 2003. Mr. Seneff served as Chairman of the Board
and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, from its inception in 1990 until it merged with a
wholly-owned subsidiary of CNL-RP in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. CNL Fund Advisors,
Inc., formerly CNL Institutional Advisors, Inc., is a registered investment
advisor. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the parent
company of CNL Financial Group, Inc., a diversified real estate company, and has
served as a Director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since 1973. CNL Financial Group, Inc. is and 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 and Chairman of the Board of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
and served as Chief Executive Officer of CNL Hospitality Properties, Inc. from
its inception in 1997 until 2003 and served as Co-Chief Executive Officer from
February 2003 until May 1, 2003. Mr. Seneff has served as Chairman of the Board
of CNL Hospitality Corp., the advisor to CNL Hospitality Properties, Inc., since
its inception in 1997. Mr. Seneff also served as Chief Executive Officer from
its inception in 1997 through February 2003, and currently serves as Co-Chief
Executive Officer of CNL Hospitality Corp. Mr. Seneff has served as Director and
Chairman of the Board of CNL Retirement Corp. since 1997 and served as Chief
Executive Officer of CNL Retirement Corp. from 1997 through 2003. CNL Retirement
Corp. is the advisor to CNL Retirement Properties, Inc., a public, unlisted real
estate investment trust. Mr. Seneff has also served as Director and Chairman of
the Board of Commercial Net Lease Realty, Inc., a public real estate investment
trust that is listed on the New York Stock Exchange, since 1992 and served as
Chief Executive Officer of Commercial Net Lease Realty, Inc. from 1992 through
February 2004. Mr. Seneff has served as a Director, Chairman of the Board, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff has
served as Chairman of the Board and Chief Executive Officer of CNL Commercial
Finance, Inc. since 2000. Mr. Seneff also serves as Chairman of the Board of
CNLBank, 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 the
Florida state retirement plan. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 56. 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 has
served as a Director and Vice Chairman of the Board of CNL-RP since 1994. Mr.
Bourne also served as President of CNL-RP from 1994 through February 1999 and
served as Treasurer from February 1999 through August 1999 and from May 1994
through December 1994. Mr. Bourne served in various executive positions with CNL
Fund Advisors, Inc. prior to its merger with a wholly-owned subsidiary of CNL-RP
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. Mr. Bourne serves as Director, Vice Chairman of the Board
and Treasurer and from 1997 until June 2002 served as President of CNL
Hospitality Properties, Inc. and as Director, President and Treasurer of CNL
Hospitality Corp. Mr. Bourne also serves as Director and Treasurer of CNL
Retirement Properties, Inc. and as Director and Treasurer of CNL Retirement
Corp. Mr. Bourne serves as a Director of CNLBank. Mr. Bourne has also 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. Mr. Bourne 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. 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 48. Mr. McWilliams has served as President of
CNL-RP since May 2001 and as Chief Executive Officer of CNL-RP since September
2003. Mr. McWilliams served as Co-Chief Executive Officer of CNL-RP from
December 2000 through September 2003 and served as Chief Executive Officer from
September 1999 through December 2000. Mr. McWilliams also served as President
and Chief Executive Officer of CNL Franchise Network Corp., a wholly owned
subsidiary of CNL-RP since August 2002 and served as President of CNL-RP from
February 1999 until September 1999 and as Executive Vice President of CNL-RP
from 1997 through February 1999. Mr. McWilliams served as an Executive Vice
President of CNL Financial Group, Inc. from the time he joined the company in
April 1997 until September 1999. 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 CNL-RP 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 40. Mr. Shackelford was promoted to
Executive Vice President and Chief Operating Officer of CNL-RP in September
2003. Mr. Shackelford has also served as Chief Financial Officer since January
1997. He served as Senior Vice President of CNL-RP from January 1997 through
July 2000, when he was promoted to Executive Vice President. Mr. Shackelford has
also served as Secretary and Treasurer of CNL-RP 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.
Thomas Arasi, age 46. Mr. Arasi has served as President of CCM since it
was formed in July 2003 to provide strategic advisory services to the General
Partners. He has served in various consulting capacities to CNL Hospitality Corp
and other CNL affiliates since January 2003. Since November 2001 he has been an
independent consultant working for a variety of operating and investment
companies in the hospitality industry. Until October 2001, Mr. Arasi was
President & Chief Executive Officer, and a member of the Board of Directors of
Lodgian, Inc., a New York Stock Exchange traded company, one of the largest
independent hotel owner/operators in North America, with hotel properties under
most brand names including Marriott, Courtyard by Marriott, Fairfield Inn by
Marriott, Crowne Plaza, Holiday Inn, Hilton, and Radisson. From June 1997
through November 2000, Mr. Arasi was a member of the Management Committee and
held several top operating positions with Bass Hotels & Resorts, one of the
leading international owners, operators and franchisors of hotels, most recently
serving as President, Bass Hotels & Resort--The Americas. Mr. Arasi was formerly
President of Tishman Hotel Corporation, Vice President of Salomon Brothers,
Inc., in New York, Tokyo and Los Angeles and held positions with Sheraton,
Westin and HVS International. Mr. Arasi graduated from Cornell University in
January 1981, where he received a Bachelor's degree in Hotel and Restaurant
Administration.
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 2003.
Code of Business Conduct
The Partnership does not have employees and, accordingly, has not
adopted a code of business conduct applicable exclusively to the Partnership.
However, employees of the General Partners or their affiliates, including the
individual General Partners, are bound by the Code of Business Conduct adopted
November 11, 2003 by CNL Holdings, Inc. Separately, the employees of the Advisor
are bound by the similar Code of Business Conduct adopted by CNL Restaurant
Properties, Inc. Each of these codes of business conduct will be made available
to any person who writes the Partnership requesting a copy.
Audit Committee Financial Expert
Due to its organization as a limited partnership, the Partnership does
not have an audit committee that is responsible for supervising the
Partnership's relationship with its independent auditors. For the Partnership,
this role is performed by the General Partners. Based on his previous service as
the principal financial officer of companies with businesses similar to that of
the Partnership, Robert A. Bourne, one of the General Partners, has the
requisite experience to be considered an "audit committee financial expert" as
defined in the rules under the Securities Exchange Act of 1934, if the
Partnership had an audit committee. As a General Partner, Mr. Bourne is not
independent of the Partnership.
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 and
Related Stockholder Matters
As of March 12, 2004, 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 12, 2004, 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, 2003, 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, 2003
- --------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and
operating expenses the lower of cost or 90% of the admini-strative services: $149,450
prevailing rate at which comparable
services could have been obtained in
the same geographic area.
Affiliates of the General Partners
from time to time incur certain
operating expenses on behalf of the
Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual management fee to One percent of the sum of gross $37,158
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, 2003
- --------------------------------- -------------------------------------- ------------------------------
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, 2003
- --------------------------------- -------------------------------------- ------------------------------
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 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
$277,700 and $265,900 relating to the Property in Branson, Missouri during the
years ended December 31, 2003 and 2002.
Item 14. Principal Accountant Fees and Services
The following table outlines the only fees paid or accrued by the
Partnership for the audit and other services provided by the Partnership's
independent certified public accountants, PricewaterhouseCoopers LLP, for the
years ended December 31:
2003 2002
--------------------- -----------------------
Audit Fees (1) $ 17,632 $ 15,000
Tax Fees (2) 6,980 6,868
--------------------- -----------------------
Total $ 24,612 $ 21,868
===================== =======================
(1) Audit services of PricewaterhouseCoopers LLP for 2003 and 2002 consisted
of the examination of the financial statements of the Partnership and
quarterly review of financial statements.
(2) Tax Fees relates to tax consulting and compliance services.
Each of the non-audit services described above was approved by the
General Partners. Due to its organization as a limited partnership, the
Partnership does not have an audit committee.
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, 2003 and 2002
Statements of Income for the years ended December 31, 2003,
2002, and 2001
Statements of Partners' Capital for the years ended December
31, 2003, 2002, and 2001
Statements of Cash Flows for the years ended December 31,
2003, 2002, and 2001
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2003, 2002, and 2001
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2003
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2003
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.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period
October 1, 2003 through December 31, 2003.
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 23rd day of
March, 2004.
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 23, 2004
- ----------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 23, 2004
- ----------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2003, 2002, and 2001
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
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
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
============== =============== ================ ============= ============ ============
2003 Allowance for
doubtful
accounts (a) $ 76,505 $ 17,482 $ -- (b) $ -- (c) $ 6,228 $ 87,759
============== =============== ================ ============= ============ ============
(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, 2003
Costs Capitalized
Subsequent To Net Cost Basis at Which
Initial Cost Acquisition Carried at Close of Period (g)
---------------- ---------------------- ------------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
----------- ------------ ----------- ------------- -------- ----------- ----------- ------------
Properties the Partnership
has Invested in Under
Operating Leases:
Arby's Restaurant:
Indianapolis, Indiana - $315,276 $591,993 - - $315,276 $591,993 $907,269
Checkers Drive-In Restaurants:
Conyers, Georgia - 363,553 - - - 363,553 - 363,553
Lake Worth, Florida - 325,301 - - - 325,301 - 325,301
Ocala, Florida - 289,578 - - - 289,578 - 289,578
Pompano Beach, Florida - 373,491 - - - 373,491 - 373,491
Tampa, Florida - 372,176 - - - 372,176 - 372,176
Tampa, Florida - 221,715 - - - 221,715 - 221,715
Denny's Restaurants:
Idaho Falls, Idaho - 552,186 - 692,274 - 552,186 692,274 1,244,460
Branson, Missouri (k) - 1,160,979 - 1,010,688 - 951,757 801,464 1,753,221
Dover, Ohio - 266,829 - - - 266,829 (d) 266,829
Moab, Utah - 435,927 - - - 435,927 (d) 435,927
Temple, Texas (l) - 306,866 677,659 - - 306,866 522,185 829,051
Golden Corral Buffet and
Grill Restaurants:
Hickory, North Carolina - 761,108 - 1,001,893 - 761,108 1,001,893 1,763,001
Baytown, Texas - 446,240 - 971,766 - 446,240 971,766 1,418,006
Rosenburg, Texas - 320,133 - 804,428 - 320,133 804,428 1,124,561
Farmington, New Mexico - 523,584 - 870,136 - 523,584 870,136 1,393,720
IHOP Restaurant:
Ft. Worth, Texas - 364,634 554,302 - - 364,634 554,302 918,936
Jack in the Box Restaurants:
Brownsville, Texas - 553,671 - 658,282 - 553,671 658,282 1,211,953
Grand Prairie, Texas - 439,950 - 636,524 - 439,950 636,524 1,076,474
Temple City, California - 744,493 225,404 - - 744,493 225,404 969,897
Texas City, Texas - 403,476 568,053 - - 403,476 568,053 971,529
KFC Restaurant:
Concordia, Missouri - 188,759 - 434,369 - 188,759 434,369 623,128
Long John Silver's Restaurants:
Copperas Cove, Texas - 162,000 - - - 162,000 (d) 162,000
Kansas City, Missouri - 370,204 - 433,058 - 370,204 433,058 803,262
Silver City, New Mexico - 116,767 183,174 - - 116,767 183,174 299,941
Taco Cabana Restaurants:
San Antonio, Texas (m) - 442,286 705,618 - - 442,286 705,618 1,147,904
Austin, Texas (n) - 546,099 860,648 - - 546,098 860,647 1,406,745
Wendy's Old Fashioned
Hamburgers Restaurant:
Washington, District of
Columbia - 393,963 567,625 - - 393,963 567,625 961,588
Other:
Celina, Ohio (j) - 109,130 - 158,888 - 109,130 158,888 268,018
Charlotte, North Carolina - 313,201 - 415,695 - 313,201 415,695 728,896
------------ ----------- ------------- -------- ----------- ----------- ------------
$12,183,575 $4,934,476 $8,088,001 - $11,974,352 $12,657,778 $24,632,130
=========== =========== ============= ======== =========== =========== ============
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Boston Market Restaurant:
Indianapolis, Indiana (h)- $184,014 $577,320 - - (d) (d) (d)
Denny's Restaurants:
Dover, Ohio - - 200,612 236,270 - - (d) (d)
Moab, Utah - - - 718,578 - - (d) (d)
Long John Silver's Restaurants:
Clovis, New Mexico - 127,607 425,282 - - (d) (d) (d)
Copperas Cove, Texas - - 424,319 - - - (d) (d)
------------ ----------- ------------- --------
$311,621 $1,627,533 $954,848 -
============ =========== ============= ========
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation structioAcquired Computed
- ------------ ------- -------- ------------
$165,172 1978 08/95 (c)
(b) - 12/94 (b)
(b) - 12/94 (b)
(b) - 12/94 (b)
(b) - 12/94 (b)
(b) - 12/94 (b)
(b) - 12/94 (b)
196,589 1995 01/95 (c)
252,217 1995 03/95 (c)
(e) 1971 03/95 (e)
(e) 1995 06/95 (e)
173,100 1975 08/95 (c)
300,659 1994 11/94 (c)
283,113 1995 01/95 (c)
225,986 1995 05/95 (c)
226,141 1996 01/96 (c)
144,565 1994 03/96 (c)
196,814 1995 10/94 (c)
186,291 1995 10/94 (c)
68,896 1984 10/94 (c)
173,633 1991 10/94 (c)
117,860 1995 09/95 (c)
(e) 1994 12/94 (e)
126,784 1995 12/94 (c)
49,267 1982 12/95 (c)
49,001 1995 12/01 (c)
45,427 1980 06/02 (c)
171,120 1983 12/94 (c)
36,453 1995 10/94 (i)
120,440 1995 12/94 (c)
- ------------
$3,309,528
============
(f) 1995 05/95 (f)
(e) 1971 03/95 (e)
(e) 1995 06/94 (e)
(f) 1976 12/94 (f)
(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, 2003
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 2003, 2002, 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, 2000 $ 24,259,947 $ 2,274,546
Acquisitions 1,147,903 --
Dispositions (1,369,847 ) (213,220 )
Provision for write-down of assets (812,619 ) --
Depreciation expense -- 420,847
---------------- -----------------
Balance, December 31, 2001 23,225,384 2,482,173
Acquisitions 1,406,746 --
Depreciation expense -- 407,704
---------------- -----------------
Balance, December 31, 2002 24,632,130 2,889,877
Depreciation expense -- 419,651
---------------- -----------------
Balance, December 31, 2003 $ 24,632,130 $ 3,309,528
================ =================
(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, 2003, the aggregate cost of the Partnership's wholly
owned Properties was $29,573,053 for federal income tax purposes. 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.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
(i) Effective June 1998, the lease for the Property in Celina, Ohio 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 of approximately $266,300 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, 2003, 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 of approximately $418,400 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, 2003, 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 of approximately $155,500 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, 2003, 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.
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.)
31.1 Certification of Chief Executive Officer of
Corporate General Partner Pursuant to Rule 13a-14 as
Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of
Corporate General Partner Pursuant to Rule 13a-14 as
Adopted Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of
Corporate General Partner Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of
Corporate General Partner Pursuant to 18 U.S.C.
Section 1350 as Adopted Pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002. (Filed herewith.)
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2