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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, 1997
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 333-9943
CNL AMERICAN REALTY FUND, INC.
(Exact name of registrant as specified in its charter)
Maryland 59-3396369
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
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:
None
(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]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of shares of common stock (the
"Shares") on Form S-11 under the Securities Act of 1933, as amended. Since no
established market for such Shares exists, there is no market value for such
Shares. Each Share was originally sold at $10 per Share.
The number of shares of common stock outstanding as of February 18,
1998, was 1,491,067.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant incorporates by reference portions of the CNL American
Realty Fund, Inc. Definitive Proxy Statement for the 1998 Annual Meeting of
Stockholders (Items 10, 11, 12 and 13 of Part III) to be filed no later than
April 30, 1998.
PART I
Item 1. Business
CNL American Realty Fund, Inc. (the "Company") is a corporation which
was organized pursuant to the laws of the state of Maryland on June 12, 1996,
and which operates for federal income tax purposes as a real estate investment
trust (a "REIT"). Beginning in July 1997, the Company offered for sale up to
$165,000,000 of shares of common stock (the "Shares") (16,500,000 shares at $10
per share) pursuant to a registration statement on Form S-11 under the
Securities Act of 1933, as amended, effective July 9, 1997. As of December 31,
1997, the Company had received subscription proceeds of $11,325,402 (1,132,540
Shares) from the offering, including $1,056 (106 Shares) through the
distribution reinvestment plan provided under the Company's registration
statement. The offering of the Shares of the Company will terminate no later
than July 9, 1998, unless the Company elects to extend it to a date no later
than July 9, 1999, in states that permit such extension.
The Company was organized to acquire properties (the "Properties")
located across the United States to be leased on a long term, "triple-net" basis
to operators of selected national and regional limited service, extended stay
and full service hotel chains (the "Hotel Chains") and to operators of national
and regional fast-food, family-style and casual dining restaurant chains (the
"Restaurant Chains") . The Company is not obligated to invest in both hotel
Properties and restaurant Properties. Under the Company's triple-net leases, the
lessee will be responsible for property costs associated with ongoing
operations, including repairs, maintenance, property taxes, insurance, and
utilities. The Company may also provide mortgage financing (the "Mortgage
Loans") in the aggregate principal amount of approximately 5% to 10% of the
gross offering proceeds. The Company expects that the general economic effects
of the Mortgage Loans will be similar to those of its leases with full repayment
in 15 to 20 years. The Company also intends to offer furniture, fixtures, and
equipment financing (the "Secured Equipment Leases") to operators of Hotel
Chains and Restaurant Chains. Secured Equipment Leases will be funded from the
proceeds of financing to be obtained by the Company. The aggregate outstanding
principal amount of Secured Equipment Leases will not exceed 10% of gross
proceeds from the offering. The number of Properties to be acquired and Mortgage
Loans to be entered into will depend upon the amount of net offering proceeds
available to the Company. As of December 31, 1997, net proceeds to the Company
from its offering of Shares and capital contributions from CNL Real Estate
Advisors, Inc. (the "Advisor"), after deduction of selling commissions,
marketing support and due diligence expense reimbursement fees and
organizational and offering expenses totalled $9,220,841.
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's assets while (i) making distributions commencing in
the initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and distributions)
and providing protection against inflation through automatic increases in base
rent and/or receipt of percentage rent, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
qualifying and remaining qualified as a REIT for federal income tax purposes;
and (iv) providing stockholders of the Company with liquidity of their
investment within five to ten years after commencement of the offering, either
in whole or in part, through (a) listing of the shares on a national securities
exchange or over-the-counter market (the "Listing"), or (b) the commencement of
orderly sales of the Company's assets and distribution of the proceeds thereof
(outside the ordinary course of business and consistent with its objectives of
qualifying as a REIT). There can be no assurance that these investment
objectives will be met. In addition, if the Shares are not listed by December
31, 2007, as to which there can be no assurance, the Company will commence the
orderly sale of its assets and the distribution of the proceeds. Listing does
not assure liquidity.
For the first five to ten years after the commencement of the offering,
the Company intends, to the extent consistent with the Company's objective of
qualifying as a REIT, to reinvest in additional Properties or Mortgage Loans any
proceeds of the sale of a Property or Mortgage Loan that are not required to be
distributed to stockholders in order to preserve the Company's REIT status for
federal income tax purposes. Similarly, and to the extent consistent with REIT
qualification, the Company plans to use the proceeds of the sale of a Secured
Equipment Lease to fund additional Secured Equipment Leases, or to reduce its
outstanding indebtedness on the Loan. At or prior to the end of such ten-year
period, the Company intends to provide stockholders of the Company with
liquidity of
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their investment, either in whole or in part, through Listing of the Shares of
the Company (although liquidity cannot be assured thereby) or by commencing
orderly sales of the Company's assets. If Listing occurs, the Company intends to
reinvest in additional Properties, Mortgage Loans and Secured Equipment Leases
any net sales proceeds not required to be distributed to stockholders in order
to preserve the Company's status as a REIT. The Company's Articles of
Incorporation provide, however, that if Listing does not occur within ten years
after the commencement of the offering, the Company thereafter will undertake
the orderly liquidation of the Company and the sale of the Company's assets and
will distribute any net sales proceeds to stockholders. In addition, the Company
will not sell any assets if such sale would not be consistent with the Company's
objective of qualifying as a REIT.
In deciding the precise timing and terms of Property sales, the Advisor
will consider factors such as national and local market conditions, potential
capital appreciation, cash flows, and federal income tax considerations. The
terms of certain leases, however, may require the Company to sell a Property at
an earlier time if the tenant exercises its option to purchase a Property after
a specified portion of the lease term has elapsed. The Company will have no
obligation to sell all or any portion of a Property at any particular time,
except as may be required under property or joint venture purchase options
granted to certain tenants. In connection with sales of Properties by the
Company, purchase money obligations may be taken by the Company as part payment
of the sales price. The terms of payment will be affected by custom in the area
in which the Property is located and prevailing economic conditions. When a
purchase money obligation is accepted in lieu of cash upon the sale of a
Property, the Company will continue to have a mortgage on the Property and the
proceeds of the sale will be realized over a period of years rather than at
closing of the sale.
The Company does not anticipate selling the Secured Equipment Leases
prior to expiration of the lease term, except in the event that the Company
undertakes orderly liquidation of its assets. In addition, the Company does not
anticipate selling any Mortgage Loans prior to the expiration of the loan term,
except in the event (i) the Company owns the Property (land only) underlying the
building improvements which secure the Mortgage Loan and the sale of the
Property occurs, or (ii) the Company undertakes an orderly sale of its assets.
Leases
As of December 31, 1997, the Company had not entered into any
commitment for an acquisition of a Property. However, the leases are expected to
be triple-net leases, which means that the tenants generally will be required to
pay all repairs, maintenance, property taxes, utilities, and insurance. The
tenants also will be required to pay for special assessments, sales and use
taxes, and the cost of any renovations permitted under the leases. The Company
will own the Properties either directly or indirectly through a joint venture,
partnership, or a subsidiary. Some hotel Property leases may obligate the tenant
to fund, in addition to its lease payment, a capital expenditures reserve fund
up to a pre-determined amount. Money in that fund may be used by the tenant,
with the approval of the Company, to pay for capital expenditures. The Company
may be responsible for capital expenditures in excess of the amounts in the
reserve fund, and the tenant generally would be responsible for replenishing the
reserve fund and to pay a specified return on the amount of capital expenditures
paid for by the Company in excess of amounts in the reserve fund.
The initial terms of the leases are presently anticipated to be 10 to
20 years with up to four, five-year renewal options. During the initial term of
each lease, the tenant will pay the Company, as lessor, minimum annual rent
equal to a specified percentage of the Company's cost of purchasing the Property
payable in monthly installments. If the Company is acquiring a Property that is
to be constructed or renovated pursuant to the development agreement, the cost
of purchasing the Property will include the purchase price of the land,
including all fees, costs, and expenses paid by the Company in connection with
its purchase of the land, and all fees, costs, and expenses disbursed by the
Company for construction of building improvements. The minimum rental payment
under the renewal option generally will be greater than that due for the final
lease year of the initial term of the lease. In addition to the minimum annual
rent, the lease will generally provide for percentage rent based on a percentage
of the gross sales above a specified amount to be paid by the tenant.
Certain lessees may have the right to purchase the Property seven to
twenty years after commencement of the lease at a purchase price equal to the
greater of (i) the appraised value of the Property, or (ii) a specified amount,
generally equal to the Company's purchase price of the Property, plus a
pre-determined percentage of the Company's purchase price. The leases also
generally provide that, in the event the Company wishes to sell a Property
subject
2
to that lease to a third party, it must offer the lessee first refusal to
purchase the Property on the same terms and conditions, and for the same price,
as any offer which the Company has received for the sale of the Property.
Certain Management Services
Pursuant to an advisory agreement (the "Advisory Agreement") with the
Company, the Advisor provides management services relating to the Company, the
Properties, the Mortgage Loans and the Secured Equipment Lease Program. Under
this agreement, the Advisor is responsible for assisting the Company in
negotiating leases, Mortgage Loans, the line of credit (the "Line of Credit")
and Secured Equipment Leases, collecting rental, Mortgage Loan and Secured
Equipment Lease payments, inspecting the Properties and the tenants' books and
records, and responding to tenants inquiries and notices. The Advisor also
provides information to the Company about the status of the leases, the
Properties, the Mortgage Loans, the Line of Credit and the Secured Equipment
Leases. In exchange for these services, the Advisor is entitled to receive
certain fees from the Company. For supervision of the Properties and the
Mortgage Loans, the Advisor receives the asset management fee, which is payable
monthly in an amount equal to one-twelfth of .60% of the total amount invested
in the Properties as of the end of the preceding month, exclusive of acquisition
fees and acquisition expenses (the "Real Estate Asset Value") plus one-twelfth
of .60% of the outstanding principal amount of any Mortgage Loans, as of the end
of the preceding month. For negotiating Secured Equipment Leases and supervising
the Secured Equipment Lease program, the Advisor will receive, upon entering
into each lease, a secured equipment lease servicing fee, payable out of the
proceeds of the Line of Credit, equal to 2% of the purchase price of the
equipment subject to each Secured Equipment Lease (the "Secured Equipment Lease
Servicing Fee"). For identifying the Properties, structuring the terms of the
acquisition and leases of the Properties and structuring the terms of the
Mortgage Loans, the Advisor will receive a fee equal to 4.5% of gross proceeds,
loan proceeds from permanent financing (the "Permanent Financing") and amounts
outstanding on the Line of Credit, if any, at the time of Listing, but excluding
that portion of the Permanent Financing used to finance Secured Equipment
Leases.
The Advisory Agreement continues until July 9, 1998, and thereafter my
be extended annually upon mutual consent of the Advisor and the Board of
Directors of the Company unless terminated at an earlier date upon 60 days prior
written notice by each party.
Borrowing
The Company plans to obtain a revolving Line of Credit in an amount up
to $45,000,000, and may, in addition, also obtain Permanent Financing to acquire
assets and to pay certain fees during the offering period. The Line of Credit
may be repaid with offering proceeds, working capital or Permanent Financing.
Although the Board of Directors anticipates that the Line of Credit will be in
the amount of $45,000,000 and that the aggregate amount of any Permanent
Financing will not exceed 30% of the Company's total assets, the maximum amount
the Company may borrow, absent a satisfactory showing that a higher level of
borrowing is appropriate as approved by the majority of the independent
directors, is 300% of the Company's Net Assets (as defined in the Company's
Prospectus). Any excess in borrowing over such 300% level shall occur only with
approval by a majority of the independent directors and will be disclosed and
explained to stockholders in the first quarterly report of the Company prepared
after such approval occurs. The Company has engaged in preliminary discussions
with a potential lender, but has not yet received a commitment for the Line of
Credit or any Permanent Financing and there is no assurance that the Company
will obtain the Line of Credit or any Permanent Financing on satisfactory terms.
Competition
The hotel and restaurant businesses are characterized by intense
competition. The operators of the hotels and restaurants to be located on the
Company's Properties are expected to compete with independently owned hotels and
restaurants, hotels and restaurants which are part of local or regional chains,
and hotels and restaurants in other well-known national chains, including those
offering different types of food and accommodations.
Many successful fast-food, family-style, and casual dining restaurants
are located in "eating islands", which are areas to which people tend to return
frequently and within which they can diversify their eating habits, because in
many cases local competition may enhance the restaurant's success instead of
detracting from it. Fast-food, family-style, and casual dining restaurants
frequently experience better operating results when there are other
3
restaurants in the same area. Similarly, many successful hotel "pockets" have
developed in areas of concentrated lodging demand, such as airports, urban
office parks and resort areas where this gathering promotes credibility to the
market as a lodging destination and accords the individual properties
efficiencies such as area transportation, visibility and the promotion of other
support amenities.
The Company will be in competition with other persons and entities both
to locate suitable Properties to acquire and to locate purchasers for its
Properties. The Company also will compete with other financing sources such as
banks, mortgage lenders, and sale/leaseback companies for suitable Properties,
tenants and equipment tenants.
Employees
Reference is made to Item 10. Directors and Executive Officers of the
Registrant for a listing of the Company's Executive Officers. The Company has no
other employees.
Item 2. Properties
Even though the Company can acquire hotel or restaurant Properties, it
is not obligated to acquire both hotel and restaurant Properties. Generally,
Properties to be acquired by the Company will consist of both land and building,
although in a number of cases the Company may acquire the land underlying the
building with the building owned by the tenant or a third party, and also may
acquire the building only with the land owned by a third party. The Company
expects that any Properties purchased by the Company will conform generally to
the following specifications of size, cost, and type of land and buildings.
Hotel Properties. The lot sizes will generally range up to 10 acres
depending on product, market and design considerations, and are available at a
broad range of pricing. It is anticipated that hotel sites purchased by the
Company will generally be in primary or secondary urban, suburban, airport,
highway or resort markets which have been evaluated for past and future expected
lodging demand trends.
The hotel buildings are predicted to be low to mid rise construction.
The Company may acquire limited service, extended stay or full service hotel
Properties. Limited service hotels generally minimize non-guest room space and
offer limited food service such as complimentary continental breakfasts and do
not have restaurant or lounge facilities on site. Extended stay hotels generally
contain guest suites with a kitchen area and living area separate from the
bedroom. Extended stay hotels vary with respect to providing on-site restaurant
facilities. Full service hotels generally have conference or meeting facilities
and on-site food and beverage facilities.
Restaurant Properties. Lot sizes will range between 25,000 to 60,000
square feet depending upon building size and local demographic factors.
Restaurants located on land within shopping centers will be freestanding and may
be located on smaller parcels if insufficient common parking is available. Sites
purchased by the Company will be in locations zoned for commercial use which
have been reviewed for traffic patterns and volume. The restaurant buildings
generally will be rectangular and constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes generally will range from
2,500 to 6,000 square feet, with the larger restaurants having greater seating
and equipment areas.
Before or after construction or renovation, both hotel and restaurant
Properties to be acquired will be one of a Hotel Chain's or Restaurant Chains's
approved designs. In general, the Properties will be freestanding and surrounded
by paved parking areas. Buildings will be suitable for a variety of uses, and in
the case of hotel Properties, the Properties may include equipment.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs, and equipment so as to comply with the
lessee's obligations under the franchise agreement to reflect the current
commercial image of its Hotel Chain or Restaurant Chain. These capital
expenditures generally will be paid by the lessee during the term of the lease.
Some hotel Property leases may, however, obligate the lessee to fund, in
addition to its lease payment, a capital expenditures reserve fund up to a
pre-determined amount. Money in that fund may be used by the lessee, with the
4
approval of the Company, to pay for capital expenditures. The Company may be
responsible for capital expenditures in excess of the amounts in the reserve
fund, and the lessee would be generally responsible for replenishing the reserve
fund and to pay a specified return on the amount of capital expenditures paid
for by the Company in excess of amounts in the reserve fund.
The Company presently is negotiating to acquire Properties and as of
January 22, 1998, had not acquired any such Properties.
Item 3. Legal Proceedings
Neither the Company, nor its Advisor or any affiliates of the Advisor,
nor any of their respective properties, is a party to, or subject to, any
material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
5
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of January 22, 1998, there were 695 stockholders of record of common
stock. There is no public trading market for the Shares, and even though the
Company intends to list the Shares on a national securities exchange or
over-the-counter market within ten years of commencement of the offering of
Shares, there is no assurance that one will develop and it is not known at this
time if a public market for the Shares will develop. After the termination of
the offering and prior to such time, if any, as Listing occurs, any stockholder
(other than the Advisor) may present all or any portion equal to at least 25% of
such stockholder's Shares to the Company for redemption at any time. At such
time, the Company may, at its option, subject to certain conditions, redeem such
Shares presented for redemption for cash to the extent it has sufficient net
proceeds ("Reinvestment Proceeds") from the sale of Shares under the Company's
distribution reinvestment plan (the "Reinvestment Plan"). Stockholders who wish
to have their distributions used to acquire additional Shares (to the extent
Shares are available for purchase), may do so pursuant to the Company's
Reinvestment Plan. There is no assurance that there will be Reinvestment
Proceeds available for redemption and, accordingly, a stockholder's Shares may
not be redeemed. Any Shares acquired pursuant to a redemption will be retired
and no longer available for issuance by the Company. The Board of Directors of
the Company, in their discretion, may amend or suspend the redemption plan at
any time they determine that such amendment or suspension is in the best
interest of the Company. The price to be paid for any Share transferred other
than pursuant to the redemption plan is subject to negotiation by the purchaser
and the selling stockholder. For the year ended December 31, 1997, no Shares
were transferred, or retired pursuant to the redemption plan.
As of December 31, 1997, the offering price per Share was $10.
The Company expects to distribute at least 95% of its real estate
investment trust taxable income to the stockholders pursuant to the provisions
of the Articles of Incorporation. For the year ended December 31, 1997, the
Company declared cash distributions of $29,776 to stockholders. For federal
income tax purposes, 100 percent of dividends paid in 1997 were considered to be
ordinary income. No amounts distributed to stockholders for the year ended
December 31, 1997, were required to be or have been treated by the Company as a
return of capital for purposes of calculating the stockholders' return on their
invested capital. As indicated in the chart below, these distributions were
declared for each month following the first admission of stockholders to the
Company.
Distributions
Record Date (1) 1997 Distribution per Share
November 1 $10,758 $0.025
December 1 19,018 0.025
Total $29,776 $0.050
(1) For the period June 12, 1996 (date of inception) through October 15,
1997, the Company did not make any cash distributions because
operations had not commenced.
In January 1998, the Company declared distributions to stockholders
totalling $28,814 ($0.025 per Share) payable in March 1998. In addition, in
January 1998, the Company declared distributions of $0.025 per share of common
stock to stockholders of record on February 1, 1998, also payable in March 1998.
The Company intends to continue to declare distributions of cash to
stockholders on a monthly basis during the offering period, and quarterly
thereafter.
6
Item 6. Selected Financial Data
1997 (1) 1996 (2)
------------- ---------
Year Ended December 31:
Revenues $ 46,071 $ -
Net earnings 22,852 -
Cash distributions declared 29,776 -
Funds from operations (3) 22,852 -
Earnings per Share 0.03 -
Cash distributions declared per Share 0.05 -
Weighted average number of Shares outstanding (4) 686,063 -
At December 31:
Total assets $9,443,476 $598,190
Total stockholders' equity 9,233,917 200,000
(1) No operations commenced until the Company received minimum offering
proceeds and funds were released from escrow on October 15, 1997.
(2) Selected financial data for 1996 represents the period June 12, 1996
(date of inception) through December 31, 1996.
(3) Funds from operations ("FFO"), based on the revised definition adopted
by the Board of Governors of NAREIT and as used herein, means net
earnings determined in accordance with generally accepted accounting
principles ("GAAP"), excluding gains or losses from debt restructuring
and sales of property, plus depreciation and amortization of real
estate assets and after adjustments for unconsolidated partnerships and
joint ventures. FFO was developed by NAREIT as a relative measure of
performance and liquidity of an equity REIT in order to recognize that
income-producing real estate historically has not depreciated on the
basis determined under GAAP. However, FFO (i) does not represent cash
generated from operating activities determined in accordance with GAAP
(which, unlike FFO, generally reflects all cash effects of transactions
and other events that enter into the determination of net earnings),
(ii) is not necessarily indicative of cash flow available to fund cash
needs and (iii) should not be considered as an alternative to net
earnings determined in accordance with GAAP as an indication of the
Company's operating performance, or to cash flow from operating
activities determined in accordance with GAAP as a measure of either
liquidity or the Company's ability to make distributions. Accordingly,
the Company believes that in order to facilitate a clear understanding
of the consolidated historical operating results of the Company, FFO
should be considered in conjunction with the Company's net earnings and
cash flows as reported in the accompanying financial statements and
notes thereto.
(4) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Company is a Maryland corporation that was organized on June 12,
1996, to acquire Properties located across the United States to be leased on a
long term, "triple net" basis to operators of selected national and regional
limited service, extended stay and full service Hotel Chains and operators of
national and regional fast-food, family- style and casual dining Restaurant
Chains. The Company is not obligated to invest in both hotel Properties and
restaurant Properties. The Company may also provide Mortgage Loans in the
aggregate principal amount of approximately 5% to 10% of the gross offering
proceeds. The Company also intends to offer Secured Equipment Leases to
operators of Hotel Chains and Restaurant Chains. Secured Equipment Leases will
be funded from the proceeds of financing to be obtained by the Company. The
aggregate outstanding principal amount of Secured Equipment Leases will not
exceed 10% of gross proceeds from the offering.
7
Pending investment in suitable Properties and Mortgage Loans, net
offering proceeds are invested in short-term, highly liquid U.S. Government
securities or in other short-term, highly liquid investments with appropriate
safety of principal. Management anticipates that after the Company has invested
in assets, Company revenues sufficient to pay operating expenses, provide cash
distributions to the stockholders and service debt, will be derived from the
lease and mortgage payments paid to the Company by the tenants and borrowers.
The Company's primary investment objectives are to preserve, protect,
and enhance the Company's assets while (i) making distributions commencing in
the initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and distributions)
and providing protection against inflation through automatic increases in base
rent and/or receipt of percentage rent, and obtaining fixed income through the
receipt of payments from Mortgage Loans and Secured Equipment Leases; (iii)
qualifying and remaining qualified as a REIT for federal income tax purposes;
and (iv) providing stockholders of the Company with liquidity of their
investment within five to ten years after commencement of the offering, either
in whole or in part, through (a) Listing of the Shares or (b) the commencement
of orderly sales of the Company's assets, and distribution of the proceeds
thereof (outside the ordinary course of business and consistent with its
objective of qualifying as a REIT). There can be no assurance that these
investment objectives will be met. In addition, if the Shares are not listed by
December 31, 2007, as to which there can be no assurance, the Company will
commence the orderly sale of its assets and the distribution of the proceeds.
Listing does not assure liquidity.
Pursuant to the registration statement on Form S-11 under the
Securities Act of 1933, as amended, effective July 9, 1997, the Company
registered for sale an aggregate of $165,000,000 of Shares of common stock
(16,500,000 Shares at $10 per Share), with 1,500,000 of such Shares available
only to stockholders who elect to participate in the Company's Reinvestment
Plan. The offering of Shares of the Company will terminate no later than July 9,
1998, unless the Company elects to extend it to a date no later than July 9,
1999, in states that permit such extension.
Liquidity and Capital Resources
During the period June 12, 1996 (date of inception) through December
31, 1996, the Company received initial capital contributions of $200,000 for
20,000 shares of common stock from CNL Fund Advisors, Inc. In February 1997, CNL
Real Estate Advisors, Inc. purchased the Company's outstanding common stock from
CNL Fund Advisors, Inc. and became the sole stockholder of the Company.
Effective July 1997, the Company commenced an offering of its Shares of
common stock. As of December 31, 1997, the Company had received aggregate
subscription proceeds totalling $11,325,402 (1,132,540 Shares) from the
offering, including $1,056 (106 Shares) through the Company's Reinvestment Plan.
As of December 31, 1997, net proceeds to the Company from its offering
of Shares and capital contributions from the Advisor, after deduction of selling
commissions, marketing support and due diligence expense reimbursement fees and
organizational and offering expenses totalled $9,220,841. The Company used
$535,792 to pay for acquisition fees and acquisition expenses, leaving
$8,658,049 in net offering proceeds available for investment in Properties and
Mortgage Loans. As of January 22, 1998, the Company had received subscription
proceeds (excluding the capital contributions from the Advisor) of $12,628,022
(1,262,802 Shares) from its offering of Shares. As of January 22, 1998, net
proceeds to the Company from its offering of Shares and capital contributions
from the Advisor, after deduction of selling commissions, marketing support and
due diligence expense reimbursement fees and organizational and offering
expenses totalled $10,419,251. The Company used $594,410 to pay for acquisition
fees and acquisition expense, leaving $9,824,841 in net offering proceeds
available for investment in Properties and Mortgage Loans. As of January 22,
1998, the Company had not acquired any Properties or entered into any Mortgage
Loans.
The Company expects to use net offering proceeds from the sale of
Shares to purchase Properties and to invest in Mortgage Loans. In addition, the
Company intends to borrow money to acquire Properties, to invest in Mortgage
Loans and Secured Equipment Leases, and to pay certain related fees. The Company
intends to encumber assets in connection with such borrowing. The Company plans
to obtain a revolving Line of Credit in an amount up to $45,000,000. The Company
also plans to obtain Permanent Financing. Although the Board of Directors
anticipates that the Line of Credit will be in the amount of $45,000,000 and
that the aggregate amount of any Permanent Financing shall not exceed 30% of the
Company's total assets, the maximum amount the Company may borrow, absent a
satisfactory showing that a higher level of borrowing is appropriate as approved
by a majority of the independent directors, is 300% of the Company's net assets,
defined for this purpose as the Company's total assets (other than intangibles),
calculated at cost, less total liabilities. The Line of Credit is expected to be
used to facilitate the acquisition of assets and will be repaid with proceeds of
the offering or from Permanent Financing.
8
The Company has engaged in discussions with a potential lender, but has not yet
executed a commitment for the Line of Credit or any Permanent Financing and
there is no assurance that the Company will obtain the Line of Credit or any
Permanent Financing on satisfactory terms.
Properties will be leased on a long-term, triple-net basis, meaning
that tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected to
exceed the Company's operating expenses. For these reasons, no short-term or
long-term liquidity problems associated with operating the Properties are
currently anticipated by management.
Until Properties are acquired, or Mortgage Loans are entered into, net
offering proceeds are held in short-term, highly liquid investments which
management believes to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Company's use of
these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At December 31, 1997, the
Company had $8,869,838 invested in such short-term investments as compared to
$2,084 at December 31, 1996. The increase in the amount invested in short-term
investments reflects subscription proceeds derived from the sale of Shares
during the year ended December 31, 1997. These funds will be used primarily to
purchase and develop or renovate Properties, to make Mortgage Loans, to pay
organizational and offering expenses and acquisition expenses, to pay
distributions to stockholders, to meet other Company expenses and, in
management's discretion, to create cash reserves.
During the year ended December 31, 1997 and the period June 12, 1996
(date of inception) through December 31, 1996, affiliates of the Company
incurred on behalf of the Company $638,274 and $555,812, respectively, for
certain organizational and offering expenses. In addition, during the year ended
December 31, 1997, affiliates of the Company incurred on behalf of the Company
$26,149 for certain acquisition expenses and $11,003 for certain operating
expenses. As of December 31, 1997 and 1996, the Company owed the Advisor
$193,254 and $386,561, respectively, for such amounts, unpaid fees and
accounting and administrative expenses. The Advisor has agreed to pay or
reimburse to the Company all organizational and offering expenses in excess of
three percent of gross offering proceeds.
During the year ended December 31, 1997, the Company generated cash
from operations (which includes interest received less cash paid for operating
expenses) of $22,469. Based on current and anticipated future cash from
operations the Company declared distributions to its stockholders of $29,776
during the period October 15, 1997 (the date operations commenced) through
December 31, 1997. No distributions were paid or declared for the period June
12, 1996 (date of inception) through October 14, 1997 because operations had not
commenced. On January 1, 1998, the Company declared distributions to
stockholders of record on January 1, 1998, totalling $28,814 ($0.025 per share),
payable in March 1998. On January 16, 1998, the Company declared distributions
of $0.025 per share of common stock to stockholders of record on February 1,
1998, also payable in March 1998. For the year ended December 31, 1997, 100
percent of the distributions received by stockholders were considered to be
ordinary income for federal income tax purposes. No amounts distributed or to be
distributed to the stockholders as of January 22, 1998, were required to be or
have been treated by the Company as a return of capital for purposes of
calculating the stockholders' return on their invested capital.
Due to anticipated low operating expenses, rental income expected to be
obtained from Properties after they are acquired, the fact that the Line of
Credit and Permanent Financing have not been obtained and that the Company has
not entered into Mortgage Loans or Secured Equipment Leases, management does not
believe that working capital reserves will be necessary at this time. Management
has the right to cause the Company to maintain reserves if, in their discretion,
they determine such reserves are required to meet the Company's working capital
needs.
As of January 22, 1998, the Company had not entered into any
arrangements creating a reasonable probability that a Property would be acquired
by the Company or that a particular Mortgage Loan or Secured Equipment Lease
would be funded. The number of Properties to be acquired and Mortgage Loans to
be invested in will depend upon the amount of net offering proceeds and loan
proceeds available to the Company. The amount invested in Secured Equipment
Leases will not exceed 10% of the gross offering proceeds.
Management expects that the cash to be generated from operations will
be adequate to pay operating expenses and to make distributions to stockholders.
9
Results of Operations
No operations commenced until the Company received the minimum offering
proceeds of $2,500,000 on October 15, 1997. The Company did not acquire any
Properties or enter into any Mortgage Loans during the year ended December 31,
1997.
During the year ended December 31, 1997, the Company earned $46,071 in
interest income from investments in money market accounts. Interest income is
expected to increase as the Company invests subscription proceeds received in
the future in highly liquid investments pending investment in Properties and
Mortgage Loans. However, as net offering proceeds are invested in Properties and
used to make Mortgage Loans, the percentage of the Company's total revenues from
interest income from investments in money market accounts or other short term,
highly liquid investments is expected to decrease.
Operating expenses, including amortization expense, were $23,219 for
the year ended December 31, 1997. Operating expenses, including amortization
expense, represent only a portion of operating expenses which the Company is
expected to incur during a full year in which the Company owns Properties or in
which the Company is operational. The dollar amount of operating expenses is
expected to increase as the Company acquires Properties and invests in Mortgage
Loans.
The Company anticipates that its leases will be triple-net leases and
will contain provisions that management believes will mitigate the adverse
effect of inflation. Such provisions will include clauses requiring the payment
of percentage rent based on certain gross sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in gross sales volumes due to inflation
and real sales growth should result in an increase in rental income over time.
Continued inflation also may cause capital appreciation of the Company's
Properties. Inflation and changing prices, however, also may have an adverse
impact on the sales of the Properties and on potential capital appreciation of
the Properties.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 129, "Disclosure of Information
about Capital Structure". The Statement, which is effective for fiscal years
ending after December 15, 1997, provides for disclosure of the Company's capital
structure as it relates to its preferred stock. At this time, the Company's
Board of Directors has not determined the relative rights, preferences, and
privileges of each class or series of preferred stock authorized. Since the
Company has not issued preferred shares, the disclosures to this Statement are
not applicable.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive Income". The
Statement, which is effective for fiscal years beginning after December 15,
1997, requires the reporting of net earnings and all other changes to equity
during the period, except those resulting from investments by owners and
distributions to owners, in a separate statement that begins with net earnings.
Currently, the Company's only component of comprehensive income is its net
earnings. The Company does not believe that adoption of this Statement will have
a material effect on the Company's financial position or results of operations.
The Advisor of the Company is in the process of assessing and
addressing the impact of the year 2000 on its computer package software. The
hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the Company does not expect this matter to materially impact how it
conducts business nor its future results of operations or financial position.
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Company believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Company's actual results could differ materially from those set
forth in the forward-looking statements. Certain factors that might cause such a
difference include the following: changes in general economic conditions,
changes in local and national real estate conditions, continued availability of
proceeds from the Company's offering, the ability of the Company to obtain a
Line of Credit or Permanent Financing, as described above, on satisfactory
terms, the ability of the Company to identify suitable investments, the ability
of the Company to locate suitable tenants for its
10
Properties and borrowers for its Mortgage Loans and Secured Equipment Leases,
and the ability of such tenants and borrowers to make payments under their
respective leases, Mortgage Loans or Secured Equipment Leases.
Item 8. Financial Statements and Supplementary Data
11
CNL AMERICAN REALTY FUND, INC.
CONTENTS
Page
Report of Independent Accountants 13
Financial Statements:
Balance Sheets 14
Statements of Earnings 15
Statements of Stockholders' Equity 16
Statements of Cash Flows 17
Notes to Financial Statements 19
12
Report of Independent Accountants
To the Board of Directors
CNL American Realty Fund, Inc.
We have audited the financial statements of CNL American Realty Fund, Inc. (a
Maryland corporation) listed in Item 14(a) of this Form 10-K. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL American Realty Fund, Inc.
as of December 31, 1997 and 1996, and the results of its operations and its cash
flows for the year ended December 31, 1997 and the period June 12, 1996 (date of
inception) through December 31, 1996, in conformity with generally accepted
accounting principles.
/s/ Coopers & Lybrand, L.L.P.
Orlando, Florida
January 22, 1998
13
CNL AMERICAN REALTY FUND, INC.
BALANCE SHEETS
December 31,
ASSETS 1997 1996
------------ -----------
Cash and cash equivalents $8,869,838 $ 2,084
Due from related party 7,500 -
Prepaid expenses 11,179 -
Organization costs, less accumulated
amortization of $833 in 1997 19,167 -
Deferred offering costs - 596,106
Other assets 535,792 -
---------- ---------
$9,443,476 $ 598,190
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses $ 16,305 $ 11,629
Due to related parties 193,254 386,561
---------- ----------
Total liabilities 209,559 398,190
---------- ----------
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares in 1997 - -
Excess shares, $.01 par value per
share. Authorized and unissued
63,000,000 shares in 1997 - -
Common stock, $.01 par value per
share. Authorized 60,000,000
shares and 100,000 shares,
respectively, issued and
outstanding 1,152,540 and 20,000,
respectively 11,525 200
Capital in excess of par value 9,229,316 199,800
Accumulated distributions in excess
of net earnings (6,924 ) -
---------- ---------
Total stockholders' equity 9,233,917 200,000
---------- ----------
$9,443,476 $ 598,190
========== ==========
See accompanying notes to financial statements.
14
CNL AMERICAN REALTY FUND, INC.
STATEMENTS OF EARNINGS
June 12, 1996
(Date of
Inception)
Year Ended through
December 31, December 31,
1997 1996
------------ ------------
Interest income $ 46,071 $ -
---------- ---------
Expenses:
General operating and
administrative 22,386 -
Amortization 833 -
---------- ---------
23,219 -
---------- ---------
Net Earnings $ 22,852 $ -
========== =========
Earnings Per Share of Common
Stock (Basic and Diluted) $ 0.03 $ -
========== =========
Weighted Average Number of
Shares of Common Stock
Outstanding 686,063 -
========== =========
See accompanying notes to financial statements.
15
CNL AMERICAN REALTY FUND, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
Year Ended December 31, 1997 and the
Period June 12, 1996 (Date of Inception) through
December 31, 1996
Accumulated
distributions
Common stock Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
Balance at
June 12, 1996 - $ - $ - $ - $ -
Sale of common
stock to related
party 20,000 200 199,800 - 200,000
---------- ------- ----------- --------- -----------
Balance at
December 31, 1996 20,000 200 199,800 - 200,000
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment plan 1,132,540 11,325 11,314,077 - 11,325,402
Stock issuance costs - - (2,284,561) - (2,284,561)
Net earnings - - - 22,852 22,852
Distributions
declared ($0.05
per share) - - - (29,776) (29,776)
---------- ------- ----------- --------- -----------
Balance at
December 31, 1997 1,152,540 $11,525 $ 9,229,316 $ (6,924) $ 9,233,917
========== ======= =========== ========= ===========
See accompanying notes to financial statements.
16
CNL AMERICAN REALTY FUND, INC.
STATEMENTS OF CASH FLOWS
June 12, 1996
(Date of
Inception)
Year Ended through
December 31, December 31,
1997 1996
------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows From Operating Activities:
Interest received $ 46,071 $ -
Cash paid for expenses (23,602) -
------------ -----------
Net cash provided by operating
activities 22,469 -
------------ -----------
Cash Flows From Investing Activities:
Increase in other assets (463,470) -
------------ -----------
Net cash used in investing
activities (463,470) -
------------ -----------
Cash Flows From Financing Activities:
Reimbursement of acquisition, organi-
zation and stock issuance costs paid
by related parties on behalf of the
Company (1,003,031) (197,916)
Sale of common stock to related party - 200,000
Subscriptions received from stock-
holders 11,327,900 -
Distributions to stockholders (29,776) -
Payment of stock issuance costs (986,338) -
------------ -----------
Net cash provided by financing
activities 9,308,755 2,084
------------ ------------
Net Increase in Cash and Cash Equivalents 8,867,754 2,084
Cash and Cash Equivalents at Beginning of
Period 2,084 -
------------ -----------
Cash and Cash Equivalents at End of Period $ 8,869,838 $ 2,084
============ ============
See accompanying notes to financial statements.
17
CNL AMERICAN REALTY FUND, INC.
STATEMENTS OF CASH FLOWS - CONTINUED
June 12, 1996
(Date of
Inception)
Year Ended through
December 31, December 31,
1997 1996
------------ -------------
Reconciliation of Net Earnings to Net Cash
Provided by Operating Activities:
Net earnings $ 22,852 $ -
------------ -----------
Adjustments to reconcile net earnings
to net cash provided by operating
activities:
Amortization 833 -
Increase in prepaid expenses (11,179) -
Increase in accounts payable and
accrued expenses 6,141 -
Increase in due to related parties,
excluding reimbursement of acqui-
sition, organization and stock
issuance costs paid on behalf
of the Company 3,822 -
------------ -----------
Total adjustments (383) -
------------ -----------
Net Cash Provided by Operating Activities $ 22,469 $ -
============ ===========
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain acquisition,
organization and stock issuance
costs on behalf of the Company as follows:
Acquisition costs $ 26,149 $ -
Organization costs - 20,000
Deferred offering costs - 535,812
Stock issuance costs 638,274 -
------------ -----------
$ 664,423 $ 555,812
============ ============
See accompanying notes to financial statements.
18
CNL AMERICAN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1997 and the Period
June 12, 1996 (Date of Inception) through
December 31, 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL American Realty Fund, Inc.
(the "Company") was organized in Maryland on June 12, 1996 primarily to
acquire properties ("Properties") located across the United States to
be leased on a long-term triple-net basis. The Company intends to
invest the proceeds from its public offering, after deducting offering
expenses, in hotel Properties to be leased to operators of national and
regional limited service, extended stay and full service hotel chains
(the "Hotel Chains") and in restaurant Properties to be leased to
operators of selected national and regional fast-food, family-style and
casual dining restaurant chains (the "Restaurant Chains"). The Company
may also provide mortgage financing ( the "Mortgage Loans"). The
Company also intends to offer furniture, fixture and equipment
financing (the "Secured Equipment Leases") to operators of Hotel Chains
and Restaurant Chains.
The Company was a development stage enterprise from June 12, 1996
through October 15, 1997. Since operations had not begun, activities
through October 15, 1997 were devoted to organization of the Company.
Cash and Cash Equivalents - The Company considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Company in demand deposits at
commercial banks and money market funds may exceed federally insured
levels; however, the Company has not experienced any losses in such
accounts. The Company limits investment of temporary cash investments
to financial institutions with high credit standing; therefore,
management believes it is not exposed to any significant credit risk on
cash and cash equivalents.
Organization Costs - Organization costs are amortized over five years
using the straight-line method.
19
CNL AMERICAN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1997 and the Period
June 12, 1996 (Date of Inception) through
December 31, 1996
1. Significant Accounting Policies - Continued:
Income Taxes - The Company intends to make an election to be taxed as a
real estate investment trust ("REIT") under Sections 856 through 860 of
the Internal Revenue Code of 1986, as amended, commencing with its
taxable year ended December 31, 1997. If the Company qualifies for
taxation as a REIT, the Company generally will not be subject to
federal corporate income taxes to the extent it distributes its REIT
taxable income to its stockholders, so long as it distributes at least
95 percent of its REIT taxable income and meets certain other
requirements for qualifying as a REIT. Accordingly, no provision for
federal income taxes has been made in the financial statements. Even if
the Company qualifies for taxation as a REIT, it may be subject to
certain state and local taxes on its income and property, and federal
income and excise taxes on its undistributed income.
Earnings Per Share - Basic earnings per share are calculated based upon
net earnings (income available to common stockholders) divided by the
weighted average number of shares of common stock outstanding during
the reporting period. The Company does not have any dilutive potential
common shares.
Use of Estimates - Management of the Company has 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. Actual results could differ from those
estimates.
New Accounting Standard - In February 1997, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
129, "Disclosure of Information about Capital Structure". The
Statement, which is effective for fiscal years ending after December
15, 1997, provides for disclosure of the Company's capital structure.
At this time, the Company's Board of Directors has not determined the
20
CNL AMERICAN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1997 and the Period
June 12, 1996 (Date of Inception) through
December 31, 1996
1. Significant Accounting Policies - Continued:
relative rights, preferences, and privileges of each class or series of
preferred stock authorized. Since the Company has not issued preferred
shares, the disclosures to this Statement are not applicable.
In June 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income". The Statement, which is effective for fiscal years beginning
after December 15, 1997, requires the reporting of net earnings and all
other changes to equity during the period, except those resulting from
investments by owners and distributions to owners, in a separate
statement that begins with net earnings or in the statement of
operations below net earnings. Currently, the Company's only component
of comprehensive income is its net earnings. The Company does not
believe that adoption of this Statement will have a material effect on
the Company's financial position or results of operations.
2. Public Offering:
The Company has filed a currently effective registration statement on
Form S-11 with the Securities and Exchange Commission.
A maximum of 16,500,000 shares ($165,000,000) may be sold, including
1,500,000 shares ($15,000,000) which is available only to stockholders
who elect to participate in the Company's reinvestment plan. The
Company has adopted a reinvestment plan pursuant to which stockholders
may elect to have the full amount of their cash distributions from the
Company reinvested in additional shares of common stock of the Company.
As of December 31, 1997, the Company had received subscription proceeds
of $11,325,402 (1,132,540 shares), including $1,056 (106 shares)
through the reinvestment plan.
3. Other Assets:
Other assets at December 31, 1997, consisted of acquisition fees and
miscellaneous acquisition expenses which will be allocated to future
Properties.
21
CNL AMERICAN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1997 and the Period
June 12, 1996 (Date of Inception) through
December 31, 1996
4. Stock Issuance Costs:
The Company has incurred certain expenses of its offering of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by an
affiliate of the Company, CNL Real Estate Advisors, Inc. (the
"Advisor"). The Advisor has agreed to pay all organizational and
offering expenses (excluding commissions and marketing support and due
diligence expense reimbursement fees) which exceed three percent of the
gross offering proceeds received from the sale of shares of the
Company.
As of December 31, 1997, the Company had incurred $2,304,561 in
organizational and offering costs, including $906,032 in commissions
and marketing support and due diligence expense reimbursement fees (see
Note 6). Of this amount $2,284,561 has been treated as stock issuance
costs and $20,000 has been treated as organization costs. The stock
issuance costs have been charged to stockholders' equity subject to the
three percent cap described above.
5. Distributions:
For the year ended December 31, 1997, 100 percent of the distributions
were considered to be ordinary income for federal income tax purposes.
No amounts distributed to stockholders for the year ended December 31,
1997, are required to be or have been treated by the Company as a
return of capital for purposes of calculating the stockholders' return
on their invested capital.
6. Related Party Transactions:
Certain affiliates of the Company will receive fees and compensation in
connection with the offering, and the acquisition, management, and sale
of the assets of the Company.
On June 12, 1996 (date of inception), CNL Fund Advisors, Inc.
contributed $200,000 in cash to the Company and became its sole
stockholder. In February 1997, the Advisor purchased the Company's
outstanding common stock from CNL Fund Advisors, Inc. and became the
sole stockholder of the Company.
22
CNL AMERICAN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1997 and the Period
June 12, 1996 (Date of Inception) through
December 31, 1996
6. Related Party Transactions - Continued:
CNL Securities Corp. is entitled to receive commissions amounting to
7.5% of the total amount raised from the sale of shares for services in
connection with the offering of the shares, a substantial portion of
which has been or will be paid as commissions to other broker-dealers.
During the year ended December 31, 1997, the Company incurred $849,405
of such fees of which $792,832 were or will be paid by CNL Securities
Corp. as commissions to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of
the total amount raised from the sale of shares, a portion of which may
be reallowed to other broker-dealers. During the year ended December
31, 1997, the Company incurred $56,627 of such fee, the majority of
which were reallowed to other broker-dealers and from which all bona
fide due diligence expenses were paid.
CNL Securities Corp. will also receive a soliciting dealer servicing
fee payable annually by the Company beginning on December 31 of the
year following the year in which the offering is completed in the
amount of 0.20% of the stockholders' investment in the Company. As of
December 31, 1997, no such fees had been incurred.
The Advisor is entitled to receive acquisition fees for services in
finding, negotiating the leases of and acquiring properties on behalf
of the Company equal to 4.5% of gross proceeds, loan proceeds from
permanent financing and amounts outstanding on the line of credit, if
any, at the time of Listing, but excluding that portion of the
permanent financing used to finance Secured Equipment Leases. During
the year ended December 31, 1997, the Company incurred $509,643 of such
fees. Such fees are included in other assets at December 31, 1997.
23
CNL AMERICAN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1997 and the Period
June 12, 1996 (Date of Inception) through
December 31, 1996
6. Related Party Transactions - Continued:
The due to related parties consisted of the following at December 31:
1997 1996
---------- ----------
Due to CNL Securities Corp.:
Commissions $100,709 $ -
Marketing support and due
diligence expense reim-
bursement fee 7,268 -
-------- -------
107,977 -
-------- -------
Due to CNL Real Estate Advisors,
Inc.:
Expenditures incurred for
organizational and offering
expenses on behalf of the
Company 21,729 357,896
Accounting and administrative
services 17,376 28,665
Acquisition fees 46,172 -
-------- -------
85,277 386,561
-------- --------
$193,254 $386,561
======== ========
24
CNL AMERICAN REALTY FUND, INC.
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1997 and the Period
June 12, 1996 (Date of Inception) through
December 31, 1996
6. Related Party Transactions - Continued:
The Advisor and its affiliates provide accounting and administrative
services to the Company (including accounting and administrative
services in connection with the offering of shares) on a day-to-day
basis. For the year ended December 31, 1997 and the period June 12,
1996 (date of inception) through December 31, 1996, the expenses
incurred for these services were classified as follows:
June 12, 1996
(Date of
Inception)
Year Ended through
December 31, December 31,
1997 1996
------------ ------------
Deferred offering costs $ - $ 28,665
Stock issuance costs 185,335 -
General operating and
administrative expenses 6,889 -
-------- -------
$192,224 $ 28,665
======== ========
7. Subsequent Events:
During the period January 1, 1998 through January 22, 1998, the Company
received subscription proceeds of 130,262 shares ($1,302,620) of common
stock.
On January 1, 1998, the Company declared distributions of $28,814 or
$0.025 per share of common stock, payable in March 1998, to
stockholders of record on January 1, 1998.
On January 16, 1998, the Company declared distributions of $0.025 per
share of common stock to stockholders of record on February 1, 1998,
also payable in March 1998.
25
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 1998.
Item 11. Executive Compensation
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 1998.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 1998.
Item 13. Certain Relationships and Related Transactions
The information required by this Item is incorporated by reference to
the Company's Definitive Proxy Statement to be filed with the Commission no
later than April 30, 1998.
PART IV
Item 14. 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 Accountants
Balance Sheets at December 31, 1997 and 1996
Statements of Earnings for the year ended December 31, 1997,
and the period June 12, 1996 (date of inception) through
December 31, 1996
Statements of Stockholders' Equity for the year ended December
31, 1997, and the period June 12, 1996 (date of inception)
through December 31, 1996
Statements of Cash Flows for the year ended December 31, 1997,
and the period June 12, 1996 (date of inception) through
December 31, 1996
Notes to Financial Statements
26
3. Exhibits
3.1 CNL American Realty Fund, Inc. Amended and Restated
Articles of Incorporation (Included as Exhibit 3.2 to
Registration Statement No. 333-9943 on Form S-11 and
incorporated herein by reference.)
3.2 CNL American Realty Fund, Inc. Bylaws (Included as
Exhibit 3.3 to Registration Statement No. 333-9943 on
Form S-11 and incorporated herein by reference.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to
Registration Statement No. 333-9943 on Form S-11 and
incorporated herein by reference.)
10.1 Advisory Agreement, dated as of July 9, 1997, between
CNL American Realty Fund, Inc. and CNL Real Estate
Advisors, Inc. (Included as Exhibit 10.9 to
Registration Statement No. 333-9943 on Form S-11 and
incorporated herein by reference.)
10.2 Form of Indemnification Agreement dated as of July 9,
1997, between CNL American Realty Fund, Inc. and each
of James M. Seneff, Jr., Robert A. Bourne, G. Richard
Hostetter, J. Joseph Kruse, Richard C. Huseman,
Charles A. Muller, John T. Walker, Jeanne A. Wall and
Lynn E. Rose (Filed herewith.)
27 Financial Data Schedule (Filed herewith.)
(b) No reports on Form 8-K were filed during the period October 1,
1997 through December 31, 1997.
27
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 26 day of
February, 1998.
CNL AMERICAN REALTY FUND, INC.
By: ROBERT A. BOURNE
President (Principal Financial
and Accounting Officer)
/s/ Robert A. Bourne
--------------------------
ROBERT A. BOURNE
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/ James M. Seneff, Jr. Chairman of the Board and Chief February 26, 1998
- ------------------------ Executive Officer (Principal Executive
James M. Seneff, Jr. Officer)
/s/ Robert A. Bourne Director and President (Principal February 26, 1998
- ------------------------ Financial and Accounting Officer)
Robert A. Bourne
/s/ G. Richard Hostetter Independent Director February 26, 1998
- ------------------------
G. Richard Hostetter
/s/ J. Joseph Kruse Independent Director February 26, 1998
- ------------------------
J. Joseph Kruse
/s/ Richard C. Huseman Independent Director February 26, 1998
- ------------------------
Richard C. Huseman
EXHIBITS
EXHIBIT INDEX
Exhibit Number
3.1 CNL American Realty Fund, Inc. Amended and Restated Articles
of Incorporation (Included as Exhibit 3.2 to Registration
Statement No. 333-9943 on Form S-11 and incorporated herein by
reference.)
3.2 CNL American Realty Fund, Inc. Bylaws (Included as Exhibit 3.3
to Registration Statement No. 333-9943 on Form S-11 and
incorporated herein by reference.)
4.1 Reinvestment Plan (Included as Exhibit 4.4 to Registration
Statement No. 333- 9943 on Form S-11 and incorporated herein
by reference.)
10.1 Advisory Agreement, dated as of July 9, 1997, between CNL
American Realty Fund, Inc. and CNL Real Estate Advisors, Inc.
(Included as Exhibit 10.9 to Registration Statement No.
333-9943 on Form S-11 and incorporated herein by reference.)
10.2 Form of Indemnification Agreement dated as of July 9, 1997,
between CNL American Realty Fund, Inc. and each of James M.
Seneff, Jr., Robert A. Bourne, G. Richard Hostetter, J. Joseph
Kruse, Richard C. Huseman, Charles A. Muller, John T. Walker,
Jeanne A. Wall and Lynn E. Rose (Filed herewith.)
27 Financial Data Schedule (Filed herewith.)
i
EXHIBIT 10.2
Form of Indemnification Agreement