FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the quarterly period ended March 31, 2004
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from ______________________ to _______________________
Commission file number
0-26218
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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
incorporation or organization) Identification No.)
450 South Orange Ave.
Orlando, Florida 32801 - 3336
- ------------------------------------------ -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes___ No X
CONTENTS
Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-8
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 9
Item 4. Controls and Procedures 9
Part II
Other Information 10-11
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
March 31, December 31,
2004 2003
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 21,808,231 $ 21,322,602
Net investment in direct financing leases 1,971,796 2,580,395
Real estate held for sale -- 1,363,218
Investment in joint ventures 4,679,071 4,722,017
Cash and cash equivalents 3,829,959 2,090,183
Receivables, less allowance for doubtful accounts
of $56,734 and $75,006, respectively 15,559 36,470
Due from related parties 5,210 6,135
Accrued rental income, less allowance for doubtful accounts of
$12,469 and $12,753, respectively 1,752,113 1,719,305
Other assets 33,911 35,149
------------------- -------------------
$ 34,095,850 $ 33,875,474
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 47,640 $ 9,031
Real estate taxes payable 7,263 5,312
Distributions payable 900,000 900,000
Due to related parties 36,817 166,003
Rents paid in advance and deposits 115,077 105,033
------------------- -------------------
Total liabilities 1,106,797 1,185,379
Partners' capital 32,989,053 32,690,095
------------------- -------------------
$ 34,095,850 $ 33,875,474
=================== ===================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
2004 2003
-------------- ---------------
Revenues:
Rental income from operating leases $ 703,220 $ 696,050
Earned income from direct financing leases 73,680 73,163
Contingent rental income 7,769 --
Interest and other income 1,146 348
-------------- ---------------
785,815 769,561
-------------- ---------------
Expenses:
General operating and administrative 95,826 74,876
Property related -- 3,848
Management fees to related party 9,494 9,229
State and other taxes 32,425 25,878
Depreciation and amortization 110,174 105,630
-------------- ---------------
247,919 219,461
-------------- ---------------
Income before equity in earnings of unconsolidated
joint ventures 537,896 550,100
Equity in earnings of unconsolidated joint ventures 86,029 81,134
-------------- ---------------
Income from continuing operations 623,925 631,234
-------------- ---------------
Discontinued operations:
Income from discontinued operations 40,251 70,810
Gain on disposal of discontinued operations 534,782 992
-------------- ---------------
575,033 71,802
-------------- ---------------
Net income $ 1,198,958 $ 703,036
============== ===============
Income per limited partner unit:
Continuing operations $ 0.14 $ 0.14
Discontinued operations 0.13 0.02
-------------- ---------------
$ 0.27 $ 0.16
============== ===============
Weighted average number of limited partner
units outstanding 4,500,000 4,500,000
============== ===============
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
2004 2003
------------------- ------------------
General partners:
Beginning balance $ 160,017 $ 160,017
Net income -- --
------------------- ------------------
160,017 160,017
------------------- ------------------
Limited partners:
Beginning balance 32,530,078 32,829,923
Net income 1,198,958 3,300,155
Distributions ($0.20 and $0.80 per limited
partner unit, respectively) (900,000 ) (3,600,000 )
------------------- ------------------
32,829,036 32,530,078
------------------- ------------------
Total partners' capital $ 32,989,053 $ 32,690,095
=================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
2004 2003
----------------- -----------------
Net cash provided by operating activities $ 741,776 $ 919,189
----------------- -----------------
Cash flows from investing activities:
Proceeds from sale of assets 1,898,000 154,492
----------------- -----------------
Net cash provided by investing activities 1,898,000 154,492
----------------- -----------------
Cash flows from financing activities:
Distributions to limited partners (900,000 ) (900,000 )
----------------- -----------------
Net cash used in financing activities (900,000 ) (900,000 )
----------------- -----------------
Net increase in cash and cash equivalents 1,739,776 173,681
Cash and cash equivalents at beginning of quarter 2,090,183 1,343,836
----------------- -----------------
Cash and cash equivalents at end of quarter $ 3,829,959 $ 1,517,517
================= =================
Supplemental schedule of non-cash financing activities:
Distributions declared and unpaid at end of quarter $ 900,000 $ 900,000
================= =================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 2004 and 2003
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the general partners, necessary for a fair
statement of the results for the interim periods presented. Operating
results for the quarter ended March 31, 2004 may not be indicative of
the results that may be expected for the year ending December 31, 2004.
Amounts as of December 31, 2003, included in the financial statements,
have been derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XVI, Ltd. (the "Partnership") for the year ended December
31, 2003.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January
2003) ("FIN 46R"), "Consolidation of Variable Interest Entities"
requiring existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries. Application of FIN 46R is
required in financial statements of public entities that have interests
in variable interest entities for periods ending after March 15, 2004.
The Partnership has adopted FIN 46R as of March 31, 2004. The
Partnership was not the primary beneficiary of a variable interest
entity at the time of adoption of FIN 46R, therefore the adoption had
no effect on the balance sheet, partners' capital or net income.
2. Reclassification
Certain items in the prior year's financial statements have been
reclassified to conform to 2004 presentation. These reclassifications
had no effect on total partners' capital or net income.
3. Net Investment in Direct Financing Leases
During 2004, the lease relating to the property in Moab, Utah was
amended. As a result, the Partnership reclassified the asset from net
investment in direct financing leases to real estate properties with
operating leases.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 2004 and 2003
4. Discontinued Operations
In March 2004, the Partnership sold the property in Fort Collins,
Colorado to a third party and received net sales proceeds of $1,898,000
resulting in a gain on disposal of discontinued operations of
approximately $534,800.
The following presents the operating results of the discontinued
operations for this property, along with the properties in Salina,
Kansas and Independence, Missouri that were sold in February and
November 2003, respectively.
Quarter Ended
March 31,
2004 2003
-------------- --------------
Rental revenues $ 40,251 $ 90,749
Expenses -- (19,939)
-------------- ---------------
Income from discontinued
operations $ 40,251 $ 70,810
=============== ===============
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CNL Income Fund XVI, Ltd. (the "Partnership") is a Florida limited
partnership that 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 restaurants were to
be constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
are generally triple-net leases, with the lessee responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of March 31, 2003, the
Partnership owned 34 Properties directly and six Properties indirectly through
joint venture or tenancy in common arrangements. As of March 31, 2004, the
Partnership owned 32 Properties directly and eight Properties indirectly through
joint venture or tenancy in common arrangements.
Capital Resources
Net cash provided by operating activities was $741,776 and $919,189 for
the quarters ended March 31, 2004 and 2003, respectively. The decrease in net
cash provided by operating activities during the quarter ended March 31, 2004,
as compared to the quarter ended March 31, 2003, was 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.
In February 2004, the Partnership sold its Property in Fort Collins,
Colorado, to a third party and received net sales proceeds of $1,898,000,
resulting in a gain on disposal of discontinued operations of approximately
$534,800. The Partnership intends to reinvest these proceeds in an additional
Property or to pay liabilities of the Partnership as needed.
At March 31, 2004, the Partnership had $3,829,959 in cash and cash
equivalents, as compared to $2,090,183 at December 31, 2003. At March 31, 2004,
these funds were held in a demand deposit account at a commercial bank. The
increase in cash and cash equivalents at March 31, 2004 was primarily a result
of the Partnership holding sales proceeds. The funds remaining at March 31,
2004, after the payment of distributions and other liabilities, will be used to
invest in additional Properties, to fund additional construction costs, and to
meet the Partnership's working capital needs.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will generate net cash flow in
excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The general partners have the right, but not the obligation, to make
additional capital contributions or loans if they deem it appropriate in
connection with the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of 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, the Partnership
declared distributions to limited partners of $900,000 for each of the quarters
ended March 31, 2004 and 2003. This represents distributions of $0.20 per unit
for each of the quarters ended March 31, 2004 and 2003. No distributions were
made to the general partners for the quarters ended March 31, 2004 and 2003. No
amounts distributed to the limited partners for the quarters ended March 31,
2004 and 2003 are required to be or have been treated by the Partnership as a
return of capital for purposes of calculating the limited partners' return on
their adjusted capital contributions. The Partnership intends to continue to
make distributions of cash available for distribution to the limited partners on
a quarterly basis.
Total liabilities, including distributions payable, were $1,106,797 at
March 31, 2004, as compared to $1,185,379 at December 31, 2003. The decrease in
total liabilities was partially due to a decrease in amounts due to related
parties and was offset by an increase in accounts payable and accrued expenses.
The general partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Rental revenues from continuing operations were $776,900 during the
quarter ended March 31, 2004, as compared to $769,213 during the same period of
2003. Rental revenues from continuing operations were higher during the quarter
ended March 31, 2004 partially because the Partnership collected and recognized
as income a portion of the rent deferrals from prior years, relating to the
Properties in Silver City, New Mexico and Copperas Cove, Texas.
The Partnership earned $7,769 in contingent rental income during the
quarter ended March 31, 2004 based on reported gross sales of the restaurants
with leases that require the payment of contingent rental income. No such
amounts were earned during the quarter ended March 31, 2003.
The Partnership earned $86,029 attributable to net income earned by
unconsolidated joint ventures during the quarter ended March 31, 2004, as
compared to $81,134 during the same period of 2003. Net income earned by
unconsolidated joint ventures was higher during the quarter ended March 31, 2004
because in November 2003, the Partnership reinvested sales proceeds from prior
year sales 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. The Partnership owns a 20% interest in the profits and losses
of the Property.
Operating expenses, including depreciation and amortization expense,
were $247,919 during the quarter ended March 31, 2004, as compared to $219,461
during the same period of 2003. The increase in operating expenses during the
quarter ended March 31, 2004 was primarily because the Partnership incurred
additional general operating and administrative expenses, including legal fees,
and an increase in the amount of state tax expense relating to several states in
which the Partnership conducts business.
The Partnership recognized income from discontinued operations (rental
revenues less property related expenses) of $70,810 during the quarter ended
March 31, 2003, relating to the Properties in Salina, Kansas; Independence,
Missouri; and Fort Collins, Colorado. The Partnership sold the Salina, Kansas
Property in February 2003 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. The
Partnership sold the Independence, Missouri Property in November 2003. The
Partnership recognized income from discontinued operations of $40,251 during the
quarter ended March 31, 2004, relating to the Property in Fort Collins,
Colorado. The Partnership sold the Fort Collins, Colorado Property in March 2004
and recorded a gain on disposal of discontinued operations of approximately
$534,800.
The general partners continuously evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the limited
partners.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January 2003) ("FIN
46R"), "Consolidation of Variable Interest Entities" requiring existing
unconsolidated variable interest entities to be consolidated by their primary
beneficiaries. Application of FIN 46R is required in financial statements of
public entities that have interests in variable interest entities for periods
ending after March 15, 2004. The Partnership has adopted FIN 46R as of March 31,
2004. The Partnership was not the primary beneficiary of a variable interest
entity at the time of adoption of FIN 46R, therefore the adoption had no effect
on the balance sheet, partners' capital or net income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in 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 Quarterly Report on Form 10-Q and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
------------------
Item 2. Changes in Securities. Inapplicable.
----------------------
Item 3. Default upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
----------------------------------------------------
Item 5. Other Information. Inapplicable.
------------------
Item 6. Exhibits and Reports on Form 8-K.
(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 and
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) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter
ended March 31, 2004.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 7th day of May, 2004.
CNL INCOME FUND XVI, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit Number
(c) 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 and
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