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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 2002
--------------------------------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from ____________________ to _____________________
Commission file number
001-15581
---------------------------------------
CNL American Properties Fund, Inc.
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 59-3239115
- --------------------------------- -----------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- --------------------------------- -----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date:
44,942,515 shares of common stock, $0.01 par value, outstanding as of August 12,
2002
CONTENTS
Part I - FINANCIAL INFORMATION Page
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets 1
Condensed Consolidated Statements of Income 2-3
Condensed Consolidated Statements of
Stockholders' Equity and Comprehensive
Income/(Loss) 4
Condensed Consolidated Statements of Cash Flows 5-6
Notes to Condensed Consolidated Financial
Statements 7-17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 18-25
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 25
Part II - OTHER INFORMATION 26-29
Item 1. Financial Statements
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands except for share data)
June 30, December 31,
2002 2001
------------------ -----------------
ASSETS
Real estate investment properties $ 608,588 $ 613,190
Net investment in direct financing leases 121,794 128,331
Real estate held for sale 94,584 220,233
Mortgage loans held for sale 58,039 315,835
Mortgage, equipment and other notes receivable, net of allowance of
$27,666 and $29,631, respectively 343,636 103,962
Other investments 32,519 32,797
Cash and cash equivalents 21,623 19,333
Restricted cash 7,514 12,456
Receivables, less allowance for doubtful accounts
of $4,577 and $4,315, respectively 6,243 4,990
Accrued rental income 20,603 18,454
Goodwill 56,260 56,260
Other assets 31,876 33,273
------------------ -----------------
$ 1,403,279 $ 1,559,114
================== =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Credit facility $ 10,500 $ 10,000
Note payable 250,769 48,731
Mortgage warehouse facilities 99,936 430,169
Subordinated note payable 43,750 43,750
Bonds payable 433,381 441,065
Due to related parties 350 5,201
Other payables 21,100 35,505
------------------ -----------------
Total liabilities 859,786 1,014,421
------------------ -----------------
Minority interests, including redeemable partnership interest 18,931 18,511
------------------ -----------------
Stockholders' equity:
Preferred stock, without par value. Authorized
and unissued 3,000,000 shares -- --
Excess shares, $0.01 par value per share.
Authorized and unissued 78,000,000 shares -- --
Common stock, $0.01 par value per share. Authorized 62,500,000
shares, issued 44,979,817 and 44,112,943 shares, respectively,
outstanding 44,942,515 and 44,075,641 shares, respectively 450 441
Capital in excess of par value 812,995 798,154
Accumulated other comprehensive income/(loss) (2,967 ) 1,370
Accumulated distributions in excess of net earnings (285,916 ) (273,783 )
------------------ -----------------
Total stockholders' equity 524,562 526,182
------------------ -----------------
$ 1,403,279 $ 1,559,114
================== =================
See accompanying notes to condensed consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In Thousands except for per share data)
Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------------- -------------- ------------ -------------
Revenues:
Sale of real estate $ 103,572 $ 14,574 $ 140,805 $ 27,227
Rental income from operating leases 17,703 19,075 38,934 39,889
Earned income from direct financing leases 3,011 3,128 6,150 7,294
Interest income from mortgage, equipment and
other notes receivable 9,137 12,050 18,526 24,253
Investment and interest income 623 1,437 1,340 3,278
Loss on sale of assets - operating -- (1,081 ) -- (1,081 )
Other income 3,381 3,452 6,499 7,759
Net increase (decrease) in value of mortgage loans
held for sale, net of related hedge (26 ) 52 (3,307) 2,614
137,401 52,687 208,947 111,233
Expenses:
Cost of real estate sold 96,098 13,893 130,434 25,916
General operating and administrative 7,588 9,707 14,830 16,716
Interest expense 15,517 17,907 30,943 36,513
Property expenses (343 ) 156 2,116 602
State and other taxes 49 834 235 898
Depreciation and amortization 3,867 5,360 7,845 11,067
Loss on investment in securities -- 122 -- 122
Impairment provisions 442 1,253 1,132 4,329
------------- --------------- ------------- --------------
123,218 49,232 187,535 96,163
------------- --------------- ------------- --------------
Earnings from continuing operations before minority
interest in (income)/loss of consolidated joint
ventures, equity in earnings of unconsolidated
joint ventures and loss on sale of assets 14,183 3,455 21,412 15,070
Minority interest in (income)/loss of consolidated
joint ventures (529 ) 35 (664 ) 68
Equity in earnings of unconsolidated joint ventures 173 263 442 417
Loss on sale of assets (469 ) (588 ) (627 ) (1,304 )
Earnings from continuing operations, net 13,358 3,165 20,563 14,251
Discontinued operations
Income/(loss) from discontinued operations, net (565 ) 2,030 (1,258 ) 2,959
Gain on disposal of discontinued operations, net 2,249 -- 2,169 --
------------- --------------- ------------- --------------
1,684 2,030 911 2,959
------------- --------------- ------------- --------------
Earnings before cumulative effect of accounting change 15,042 5,195 21,474 17,210
------------ --------------- ------------ -------------
Cumulative effect of accounting change -- -- -- (3,841 )
------------ --------------- ------------ ------------
Net earnings $ 15,042 $ 5,195 $ 21,474 $ 13,369
============ =============== ============ ============
See accompanying notes to condensed consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - CONTINUED
(In Thousands except for per share data)
Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
------------ --------------- ----------- ----------
Earnings per share of common stock (basic and diluted):
From continuing operations $ 0.30 $ 0.07 $ 0.47 $ 0.33
------------ --------------- ------------ ------------
From discontinued operations 0.04 0.05 0.02 0.07
------------ --------------- ------------ ------------
Before cumulative effect of accounting change 0.34 0.12 0.49 0.40
------------ --------------- ------------ ------------
Cumulative effect of accounting change -- -- -- (0.09 )
------------ --------------- ------------ ------------
Net earnings $ 0.34 $ 0.12 $ 0.49 $ 0 .31
============ =============== ============ ============
Weighted average number of shares of common stock
outstanding 44,170,902 43,495,919 44,123,535 43,495,919
============ =============== ============ ============
See accompanying notes to condensed consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE
INCOME/(LOSS)
Six Months Ended June 30, 2002 and Year Ended December 31, 2001
(In Thousands except for share data and per share data)
Accumulated
distributions Accumulated
Common stock Capital in in excess Other
Number Par excess of of net Comprehensive Comprehensive
of shares value par value earnings Income/(Loss) Total Income/(Loss)
------------ --------- -------------- -------------- ---------------- ------------ -------------
Balance at December 31, 2000 43,495,919 $ 435 $ 789,926 $ (182,865 ) $ 242 $ 607,738 $ --
Shares issued 579,722 6 9,722 -- -- 9,728 --
Stock issuance costs -- -- (1,494 ) -- -- (1,494 ) --
Net loss -- -- -- (24,452 ) -- (24,452 ) (24,452 )
Other comprehensive
income, market
revaluation on available
for sale securities -- -- -- -- 839 839 839
Cumulative effect adjustment
to recognize fair value
of cash flow hedges -- -- -- -- (5,172 ) (5,172 ) (5,172 )
Reclassification of cash flow
hedge losses to statement
of operations -- -- -- -- 8,060 8,060 8,060
Current period adjustment to
recognize change in fair
value of cash flow hedges -- -- -- -- (2,599 ) (2,599 ) (2,599 )
--------------
Total comprehensive Loss -- -- -- -- -- -- $ (23,324 )
==============
Distributions declared and
paid ($1.52 per share) -- -- -- (66,466 ) -- (66,466 )
------------ --------- -------------- -------------- -------------- -------------
Balance at December 31, 2001 44,075,641 $ 441 $ 798,154 $ (273,783 ) $ 1,370 $ 526,182 $ --
Shares issued 866,874 9 14,841 -- -- 14,850 --
Net earnings -- -- -- 21,474 -- 21,474 21,474
Other comprehensive loss,
market revaluation on
available for sale
securities -- -- -- -- (427 ) (427 ) (427 )
Current period adjustment to
recognize change in fair
value of cash flow hedge -- -- -- -- (3,910 ) (3,910 ) (3,910 )
--------------
Total comprehensive income -- -- -- -- -- -- $ 17,137
==============
Distributions declared and
paid ($0.76 per share) -- -- -- (33,607 ) -- (33,607 )
------------ --------- -------------- -------------- -------------- -------------
Balance at June 30, 2002 44,942,515 $ 450 $ 812,995 $ (285,916 ) $ (2,967 ) $ 524,562
============ ========= ============== ============== ============== =============
See accompanying notes to condensed consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Six Months Ended
June 30,
2002 2001
------------------ -----------------
Cash Flow from Operating Activities:
Net earnings $ 21,474 $ 13,369
Adjustments to reconcile net earnings to net cash provided by
(used in) operating activities:
Depreciation and amortization 7,845 11,067
Impairment provisions 1,132 4,329
Investments in mortgage loans held for sale (1,125 ) (111,966 )
Collection on mortgage loans held for sale 18,608 32,160
Proceeds from sale of mortgage loans held for sale -- 47,693
Change in inventories of real estate held for sale 102,403 (33,385 )
Loss on sale of assets 627 1,304
Decrease (increase) in value of mortgage loans held for sale,
net of related hedge (12,017 ) 542
Changes in other operating assets and liabilities (4,254 ) (3,408 )
------------------ -----------------
Net cash provided by (used in) operating activities $ 134,693 $ (38,295 )
------------------ -----------------
Cash Flows from Investing Activities:
Additions to real estate investment properties (362 ) (7,572 )
Investment in direct financing leases -- (1,251 )
Proceeds from sale of assets 25,241 5,990
Decrease (increase) in restricted cash 4,943 (5,477 )
Investment in joint ventures (205 ) --
Investment in mortgage, equipment and other notes
receivable (6,607 ) (9,182 )
Collections on mortgage, equipment and other notes
receivable 6,446 8,520
Decrease in other assets -- 334
Other -- 246
------------------ ------------------
Net cash provided by (used in) investing activities $ 29,456 $ (8,392 )
================== ==================
See accompanying notes to condensed consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
(In Thousands)
Six Months Ended
June 30,
2002 2001
------------------ -----------------
Cash Flows from Financing Activities:
Payment of stock issuance costs $ (1,493 ) $ (1,493 )
Proceeds from borrowing from affiliate 7,500 2,000
Proceeds from borrowing on line of credit, note payable and
subordinated note payable 222,890 41,704
Payment on line of credit and note payable (26,795 ) (26,155 )
Proceeds from borrowing on mortgage warehouse facilities 37,084 162,227
Issuance of bonds -- 41,723
Payments on mortgage warehouse facilities (364,116 ) (141,691 )
Retirement of bonds payable (7,699 ) (4,232 )
Subscriptions received from stockholder 4,500 --
Distributions to minority interests (123 ) (118 )
Distributions to stockholders (33,607 ) (33,165 )
------------------ -----------------
Net cash provided by (used in) financing activities $ (161,859 ) $ 40,800
------------------ -----------------
Net Increase (Decrease) in Cash and Cash Equivalents 2,290 (5,887 )
Cash and Cash Equivalents at Beginning of Period 19,333 23,772
------------------ -----------------
Cash and Cash Equivalents at End of Period $ 21,623 $ 17,885
================== =================
Supplemental Disclosures of Cash Flow Information:
Non-Cash investing and Financing Activities:
Conversion of related party advances into shares of common
stock $ 10,350 $ --
================== ==================
Cash paid for interest $ 29,508 $ 32,928
================== ==================
See accompanying notes to condensed consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
1. Organization and Nature of Business:
CNL American Properties Fund, Inc. was organized in Maryland on May 2,
1994, and is a self-administered real estate investment trust ("REIT").
The term "Company" includes, unless the context otherwise requires, CNL
American Properties Fund, Inc. and its majority owned and controlled
subsidiaries. These subsidiaries include CNL Restaurant Properties,
Inc. ("CNL-RP") and CNL Franchise Network, Corp. ("CNL-FNC"). The
Company's operations are divided into two business segments, real
estate and specialty finance. The real estate segment, operated
principally through the Company's wholly owned subsidiary CNL-RP and
its subsidiaries, is charged with overseeing and maximizing value on a
portfolio of primarily long-term triple-net lease properties. Those
responsibilities related to the real estate segment include portfolio
management, property management and dispositions. In addition, CNL-RP
manages approximately $625 million in affiliate portfolios and earns
management fees related thereto. The specialty finance segment,
operated through the Company's wholly-owned subsidiary CNL-FNC and a
partnership with Bank of America, CNL Franchise Network, LP ("CNL-FN")
and its subsidiaries, delivers financial solutions in the forms of
financing, servicing, development and advisory services to national and
regional restaurant operators.
2. 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, in the opinion of management, are necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 2002 may not be indicative of
the results that may be expected for the year ending December 31, 2002.
Amounts as of December 31, 2001, 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 the Company's
Form 10-K for the year ended December 31, 2001. Certain items in the
prior year's financial statements have been reclassified to conform
with the 2002 presentation. These reclassifications had no effect on
stockholders' equity or net earnings.
3. Adoption of New Accounting Standards:
In July 2001, the Financial Accounting Standards Board (the "FASB")
issued Statement of Financial Accounting Standards No. 142, "Goodwill
and Other Intangible Assets" ("FAS 142"). FAS 142 requires the use of a
nonamortization approach to account for purchased goodwill and certain
intangibles. Under a nonamortization approach, goodwill and certain
intangibles will not be amortized into results of operations, but
instead are reviewed for impairment and written down and charged to
results of operations only in the periods in which the recorded value
is more than its fair value. The Company adopted the provisions of this
statement on January 1, 2002. The Company's goodwill relates to its
specialty finance segment. The adoption of this accounting standard
will have the impact of reducing the Company's amortization of goodwill
and intangibles commencing January 1, 2002; however, impairment reviews
may result in future periodic write-downs. As of June 30, 2002, the
Company has not identified any requirement for goodwill impairment.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
3. Adoption of New Accounting Standards - Continued:
The following table summarizes the effect of this adoption:
Quarter Ended June 30, Six Months Ended June 30,
(In Thousands except for per share data) 2002 2001 2002 2001
--------------- ---------------- -------------- -------------
Reported earnings before cumulative $ 15,042 $ 5,195 $ 21,474 $ 17,210
effect of accounting change
Add back: Goodwill amortization -- 782 -- 1,571
-------------- ---------------- ------------ -------------
Adjusted earnings before cumulative effect
of accounting change $ 15,042 $ 5,977 $ 21,474 $ 18,781
============== ================ ============ =============
Reported net earnings $ 15,042 $ 5,195 $ 21,474 $ 13,369
Add back: Goodwill amortization -- 782 -- 1,571
-------------- ---------------- ------------ -------------
Adjusted net earnings $ 15,042 $ 5,977 $ 21,474 $ 14,940
============== ================ ============ =============
Earnings per share of common stock Quarter Ended June 30, Six Months Ended June 30,
(basic and diluted): 2002 2001 2002 2001
--------------- ---------------- -------------- -------------
Reported earnings before cumulative
effect of accounting change $ 0.34 $ 0.12 $ 0.49 $ 0.40
Add back: Goodwill amortization -- 0.02 -- 0.04
-------------- ---------------- ------------ -------------
Adjusted earnings before cumulative effect
of accounting change $ 0.34 $ 0.14 $ 0.49 $ 0.44
============== ================ ============ =============
Reported net earnings 0.34 $ 0.12 $ 0.49 $ 0.31
Add back: Goodwill amortization -- 0.02 -- 0.04
-------------- ---------------- ------------ -------------
Adjusted net earnings $ 0.34 $ 0.14 $ 0.49 $ 0.35
============== ================ ============ =============
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
3. Adoption of New Accounting Standards - Continued:
Effective January 1, 2002, the Company adopted Statement of Financial
Accounting Standards No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets" ("FAS 144"). This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation, for components designated on or after the
effective date.
The Company's specialty finance subsidiary CNL-FNC actively acquires
real estate assets with the intent to sell or securitize them. Assets
acquired after December 31, 2001 under this program are subject to FAS
144, and the operating results and gains or losses on such assets are
treated as discontinued operations. This transition rule will alter the
comparability between periods of the level of sales under the CNL-FNC
program, until the last of such properties held at December 31, 2001 is
sold.
The Company's real estate investment subsidiary, CNL-RP will divest
properties from time to time when such measure is strategic to its
longer-term goals. When CNL-RP establishes its intent to sell a
property, all operating results and the ultimate gain or loss, are
treated as discontinued operations for all periods presented. These
statements reflect certain reclassifications of rental related income,
interest expense and other categories so as to conform with the
requirements of FAS 144.
As of June 30, 2002, the Company had designated approximately $95
million in real estate as held for sale, including $44.9 million
acquired or designated after December 31, 2001, with approximately $66
million financed through the Company's mortgage warehouse facilities.
The operating results of these discontinued operations are as follows:
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
3. Adoption of New Accounting Standards - Continued:
Quarter Ended June 30, Six Months Ended June 30,
(In Thousands) 2002 2001 2002 2001
-------------- -------------- -------------- ----------------
Rental income $ 2,024 $ 2,492 $ 2,121 $ 3,482
Interest expense (338 ) -- (338 ) --
Impairment provisions (1,543 ) -- (2,065 ) --
Other expenses (708 ) (462 ) (976 ) (523 )
-------------- ------------- -------------- ---------------
Income (loss) from
discontinued operations, net (565 ) 2,030 (1,258 ) 2,959
Sales of real estate 26,587 -- 29,372 --
Cost of real estate sold (24,338 ) -- (27,203 ) --
-------------- ------------- -------------- ---------------
Gain on disposal of
discontinued operations, net 2,249 -- 2,169 --
-------------- ------------- -------------- ---------------
Income from discontinued
operations, net $ 1,684 $ 2,030 $ 911 $ 2,959
============== ============= ============== ===============
In April 2002, the FASB issued Statement of Financial Accounting
Standards No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections." ("FAS
145"). This statement rescinds FASB Statement No. 4, "Reporting Gains
and Losses from Extinguishment of Debt," and an amendment of that
Statement, FASB Statement No. 64, "Extinguishments of Debt Made to
Satisfy Sinking-Fund Requirements." This statement also rescinds FASB
Statement No. 44, "Accounting for Intangible Assets of Motor Carriers."
This statement amends FASB Statement No. 13, "Accounting for Leases,"
to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain
lease modifications that have economic effects that are similar to
sale-leaseback transactions. This statement also amends other existing
authoritative pronouncements to make various technical corrections,
clarify meanings, or describe their applicability under changed
conditions. The provisions of this statement related to the rescission
of Statement 4 are applicable in fiscal years beginning after May 15,
2002. The provisions of this statement related to Statement 13 are
effective for transactions occurring after May 15, 2002. All other
provisions of this statement are effective for financial statements
issued on or after May 15, 2002. The provisions of this statement, to
the extent already applicable, did not have a significant impact on the
financial position or results of operations of the Company. Provisions
applicable to future reporting periods are not expected to have a
significant impact on the financial position or results of operations
of the Company.
In July 2002, the FASB issued Statement of Financial Accounting
Standards No. 146, "Accounting for Costs Associated with Exit or
Disposal Activities" ("FAS 146"). The statement requires companies to
recognize costs associated with exit or disposal activities when they
are incurred rather than at the date of a
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
3. Adoption of New Accounting Standards - Continued:
commitment to an exit or disposal plan. Examples of costs covered by
the statement include lease termination costs and certain employee
severance costs that are associated with a restructuring, discontinued
operation, plant closing, or other exit or disposal activity. The
statement is to be applied prospectively to exit or disposal activities
initiated after December 31, 2002. The adoption of this statement is
not expected to have a significant impact on the financial position or
results of operations of the Company.
4. Mortgage Loans Held for Sale:
Mortgage loans held for sale are wholly or partially collateralized by
first mortgages on land and/or buildings of franchised restaurant
businesses. As a result of the Company's refinancing in June 2002,
approximately $225 million in mortgage loans formerly designated as
held for sale were transferred as collateral for a new five-year
borrowing facility. As of June 30, 2002, the Company has approximately
$62.3 million remaining fixed-rate loans, classified as held for sale,
carrying a weighted average interest rate of 8.9 percent. The mortgage
loans are due in monthly installments with maturity dates ranging from
2004 to 2022.
Mortgage loans held for sale consist of the following as of:
(In Thousands) June 30, 2002 December 31, 2001
------------- -----------------
Outstanding principal $ 62,338 $ 306,887
Accrued interest income 1,685 2,059
Deferred financing income (99 ) (1,640 )
Valuation adjustment (5,885 ) 8,529
-------------- ------------------
$ 58,039 $ 315,835
============== ==================
The valuation adjustment at June 30, 2002 reflects a decrease in
current value over historical cost of $1.4 million and an estimated
$4.5 million decline in value associated with borrower delinquencies.
5. Mortgage, Equipment and Other Notes Receivables:
Mortgage, equipment and other notes receivables consist of the
following at:
(In Thousands) June 30, 2002 December 31, 2001
--------------- ------------------
Outstanding principal $ 354,693 $ 132,519
Accrued interest income 2,186 694
Deferred financing income (2,092 ) (893 )
Unamortized loan costs/premiums 16,515 1,273
Allowance for uncollectiable notes (27,666 ) (29,631 )
--------------- ------------------
$ 343,636 $ 103,962
=============== ==================
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
5. Mortgage, Equipment and Other Notes Receivables - Continued:
Changes in the allowance for loan losses for 2002 and 2001 are
summarized as follows:
(In Thousands) June 30, 2002 December 31, 2001
-------------- -----------------
Balance at beginning of year $ 29,631 $ 3,108
Provision for loan losses -- 28,200
Loans charged off (1,965 ) (1,677 )
-------------- -----------------
Balance at end of the period $ 27,666 $ 29,631
============== =================
The Company has redesignated approximately $225 million in mortgage
loans formerly held for sale as a result of the refinancing agreement
signed in June 2002. Approximately $328 million and $88 million of the
outstanding principal balance as of June 30, 2002 and December 31,
2001, respectively, is secured by mortgages. The remaining principal is
secured by equipment and other collateral. As of June 30, 2002 and
December 31, 2001, approximately $27 million and $40 million,
respectively, in notes receivable were considered impaired and
approximately $27 million and $38.5 million, respectively, were on
non-accrual status with regard to recognition of interest.
Management believes the net carrying value of the notes approximates
fair value based on current rates at which similar loans would be made
to borrowers with similar credit and for similar maturities.
6. Note Payable:
In June 2002, the Company entered into a loan and security agreement
with Nieuw Amsterdam Receivables Corporation with an initial borrowing
amount of $207 million that bears interest at a rate of weighted
average commercial paper plus 1.25 percent per annum. The Company has
used the proceeds from the new facility to refinance a pool of
approximately $225 million of franchise loans formerly held on its
other mortgage warehouse facilities. The loan agreement has an initial
term of five years with a renewal provision based on the Company's
request and the lender's consent.
7. Mortgage Warehouse Facilities:
As of June 30, 2002, CNL-FN maintains mortgage warehouse facilities
("Mortgage Warehouse Facilities") with a total borrowing capacity of
$510 million that bear interest at LIBOR plus a weighted average of 133
basis points per annum. The mortgage warehouse facilities are
collateralized by approximately $58 million in mortgage loans held for
sale and $71 million of land, buildings, and real estate held for sale.
For the six months ended June 30, 2002, the weighted average interest
rate for funding on the facilities approximated 2.95 percent. After
consideration of the Company's interest rate swaps, the effective
weighted average interest rate for the outstanding balance relating to
mortgage warehouse facilities was 4.56 percent for the six months ended
June 30, 2002. In connection with the renewal of the strategic alliance
with Bank of America in October 2001, CNL-FN has agreed to remove $187
million in loans by October 2002 and CNL-RP provided a $15 million
guaranty related to the removal or disposition. As of June 30, 2002,
the Company has successfully refinanced $162 million of the $187
million and reduced the guaranty from $15 million to $2 million.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
8. Subordinated Note Payable:
In June 2000, CNL-FN entered into a $43.75 million senior subordinated
note payable. The principal balance together with unpaid interest is
due in full in 2007. In October 2001, CNL-RP agreed to a $15 million
guaranty for a portion of the subordinated note. The guaranty has
provisions for its reduction tied to achievement of earnings targets,
full availability of the facility and removal of the targeted amount of
loans from the mortgage warehouse facility. The Company also amended
the note to permit prepayments. If any of the targets are not met by
October 13, 2002, the lender will have a one-month option to convert
exactly 80 percent of the guaranty to a preferred security of CNL-RP
with terms substantially equivalent to the subordinated note. As part
of the agreement, Bank of America agreed to reduce their potential
ownership percentage in CNL-FN from 29.12 percent to 22.28 percent. As
a result of refinancing $162 million in loans on the mortgage warehouse
facility in June 2002, the Company has reduced the $15 million guaranty
to $5.4 million and will be able to reduce it further by achieving
certain earnings and liquidity targets by October 13, 2002. Any amounts
remaining on such date will be subject to a one-month option by Bank of
America to convert the Subordinated Debt Facility Guaranty to a
preferred security of CNL-RP with a face value of 100 percent of the
outstanding guaranteed amount and with terms substantially equivalent
to the Subordinated Debt Facility. Any default on the warehouse
facility could cause the payment of the full $5.4 million guaranty on
or before October 13, 2002
9. Related Party Transactions:
As of December 31, 2001, CNL Financial Group, Inc. an affiliate, had
advanced $2.7 million to the Company in the form of a demand balloon
promissory note. The loan bore interest at a rate of LIBOR plus 2.5
percent. During the six months ended June 30, 2002, CNL Financial
Group, Inc. advanced an additional $7.5 million to the Company under
the same terms of the previous advances. In June 2002, the Company
converted the $10.3 million of outstanding principal plus accrued
interest under the advances, into 604,177 shares of stock. The Company
also issued an additional 262,697 shares to CNL Financial Group, Inc.
in exchange for $4.5 million cash.
During the six months ended June 30, 2002, a tenant and borrower of the
Company assigned loans in the amount of $7.5 million to Restaurants
Acquisitions I, LLC,an affiliate of the Company. The Company agreed to
the assignment and advanced an additional $3.6 million to the affiliate
in exchange for an $11.1 million participating note. The note bears
interest at a rate of ten percent per annum and matures on May 1, 2014.
The participating note entitles the Company to receive a percentage of
all cash flows generated by the borrower on a quarterly basis until the
note matures.
In May 2002, the Company purchased a combined five percent partnership
interest in CNL Plaza, Ltd. and CNL Plaza Venture, Ltd. (the "Plaza")
for $0.2 million. Affiliates of a member of the Company's board of
directors own the remaining partnership interests. Since November 1999,
the Company has leased its office space from the Plaza. The Company's
lease expires in October 2014. During the six months ended June 30,
2002 and 2001, the Company incurred rental expenses in connection with
the lease of $0.6 million and $0.4 million, respectively. For the
quarters ended June 30, 2002 and 2001, rental expenses in connection
with the lease totaled $0.3 million and $0.2 million, respectively. In
addition, the Company has guaranteed 8.33 percent or $1.3 million of a
$15.5 million unsecured promissory note of the Plaza.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
10. Segment Information:
The Company has separate legal entities to operate and measure its real
estate and specialty finance segments. Those entities are: CNL-RP and
CNL-FNC. CNL-RP is the parent company of CNL APF Partners LP, and
CNL-FNC is the parent company of CNL-FN.
CNL-RP holds real estate, mortgage loans, and equipment and other loans
on a portfolio basis. CNL-FNC originates mortgage loans and net leases
with the intent to sell or securitize. The following table summarizes
the results for the quarters and six months ended June 30, 2002 and
2001 with segment information for the two lines of business:
Quarter Ended June 30, 2002
CNL CNL
(In Thousands) Restaurant Franchise Consolidated
Properties, Inc Network Corp. Eliminations Totals
--------------- -------------- ------------- ------------------
Revenues $ 21,865 $ 115,896 $ (360 ) $ 137,401
=============== ============== ============= ==================
Earnings from continuing
operations $ 7,305 $ 6,053 $ -- $ 13,358
=============== ============== ============= ==================
Earnings from discontinued
operations $ 915 $ 769 $ -- $ 1,684
=============== ============== ============= ==================
Earnings before cumulative
effect of accounting change $ 8,220 $ 6,822 $ -- $ 15,042
=============== ============== ============= ==================
Net earnings $ 8,220 $ 6,822 $ -- $ 15,042
=============== ============== ============= ==================
Assets at June 30, 2002 $ 900,210 $ 516,220 $ (13,151 ) $ 1,403,279
=============== ============== ============= ==================
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
10. Segment Information - Continued:
Quarter Ended June 30, 2001
CNL CNL
Restaurant Franchise Consolidated
Properties, Inc Network Corp. Eliminations Totals
--------------- -------------- -------------- -----------------
(In Thousands)
Revenues $ 22,920 $ 29,859 $ (92 ) $ 52,687
=============== ============== ============= ==================
Earnings/(loss) from continuing
operations $ 4,570 $ (1,405) $ -- $ 3,165
=============== ============== ============= ==================
Earnings from discontinued
operations $ 2,030 $ -- $ -- $ 2,030
=============== ============== ============= ==================
Earnings/(loss) before
cumulative effect of
accounting change $ 6,600 $ (1,405 ) $ -- $ 5,195
=============== ============== ============= ==================
Net earnings/(loss) $ 6,600 $ (1,405 ) $ -- $ 5,195
=============== ============== ============= ==================
Assets at June 30, 2001 $ 978,200 $ 692,921 $ (7,602 ) $ 1,663,519
=============== ============== ============= ==================
Six Months Ended June 30, 2002
CNL CNL
Thousands) Restaurant Franchise Eliminations Consolidated
Properties, Inc Network Corp. Totals
---------------- --------------- ------------- ------------------
Revenues $ 45,600 $ 164,176 $ (829 ) $ 208,947
=============== ============== ============= ==================
Earnings from continuing
operations $ 13,758 $ 6,805 $ -- $ 20,563
=============== ============== ============= ==================
Earnings from discontinued
operations $ 142 $ 769 $ -- $ 911
=============== ============== ============= ==================
Earnings before cumulative
effect of accounting
change $ 13,900 $ 7,574 $ -- $ 21,474
=============== ============== ============= ==================
Net earnings $ 13,900 $ 7,574 $ -- $ 21,474
=============== ============== ============= ==================
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
10. Segment Information - Continued:
Six Months Ended June 30, 2001
CNL CNL
(In Thousands) Restaurant Franchise Eliminations Consolidated
Properties, Inc Network Corp. Totals
--------------- -------------- -------------- --------------
Revenues $ 50,868 $ 60,725 $ (360 ) $ 111,233
=============== ============== ============== ==============
Earnings from continuing
operations $ 13,163 $ 1,088 $ -- $ 14,251
=============== ============== ============== ==============
Earnings from discontinued
operations $ 2,959 $ -- $ -- $ 2,959
=============== ============== ============== ==============
Earnings before cumulative
effect of accounting
change $ 16,122 $ 1,088 $ -- $ 17,210
=============== ============== ============== ==============
Net earnings/(loss) $ 16,122 $ (2,753) $ -- $ 13,369
=============== ============== ============== ==============
11. Income Tax:
For income tax purposes, CNL-FNC, the Company's taxable REIT subsidiary
("TRS"), treats loan valuation adjustments, loss reserves, loan fees,
depreciation, and other items differently from the treatment of these
items for financial reporting purposes. In the aggregate, the Company's
TRS has an excess of available future deductible items over future
taxable items and as such may benefit from these items when the taxable
subsidiaries produce a greater level of taxable income. At present, the
Company has recorded only a portion of this potential future benefit
because the subsidiaries involved do not have sufficient historical
earnings on which to base a greater potential future benefit.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 2002 and 2001
11. Income Tax - Continued:
The consolidated provision for federal income taxes is composed of the
following estimates for the six months ended June 30, 2002 and 2001 of
the Company's TRS:
Six Months Ending
(In Thousands) June 30,2002 June 30, 2001
------------ ------------------
Expected tax at US statutory rate $ 2,575 $ (936 )
Adjustments arising from:
Non-deductible goodwill amortization -- 451
Hedge and loan valuation related items (972 ) 102
Unconsolidated affiliates -- (614)
Loan origination fees (20 ) (102)
Other 233 (39)
Net operating losses carried forward (used) (183 ) 1,138
Recognition of net deferred tax asset (1,633 ) --
----------- -----------------
Provision for income taxes $ -- $ --
=========== =================
The components of the net deferred tax asset as of June 30, 2002 and
December 31, 2001 are as follows:
(In Thousands) June 30, 2002 December 31, 2001
----------------- ---------------------
Deferred tax asset:
Hedge and loan valuation related
differences $ 4,294 $ 5,266
Loan origination fees 516 535
Net operating losses -- 183
Other 1,231 1,000
----------------- ---------------------
Total 6,041 6,984
Valuation allowance (4,408 ) (6,984 )
----------------- ---------------------
Net recorded deferred tax asset $ 1,633 $ --
================= =====================
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following information, including, without limitation, the Quantitative and
Qualitative Disclosures About Market Risk that are not historical facts, may be
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. These
statements generally are characterized by the use of terms such as "believe,"
"expect" and "may." 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. Factors that might cause such a
difference include: changes in general economic conditions, changes in real
estate conditions, availability of capital from borrowings under the Company's
credit facilities, the availability of other debt and equity financing
alternatives, changes in interest rates under the Company's current credit
facilities and under any additional variable rate debt arrangements that the
company may enter into the future, the ability of the Company to refinance
amounts outstanding under its credit facilities at maturity on terms favorable
to the Company, the ability of the Company to locate suitable tenants for its
restaurant properties and borrowers for its mortgage loans, the ability of
tenants and borrowers to make payments under their respective leases, secured
equipment leases or mortgage loans, the ability of the Company to re-lease
properties that are currently vacant or that become vacant and the ability of
the Company to securitize or sell mortgage loans on a favorable and timely
basis. Given these uncertainties, readers are cautioned not to place undue
reliance on such statements.
Organization and Business
CNL American Properties Fund, Inc. ("CNL-APF" or the "Company") is a
self-advised real estate investment trust ("REIT") operating as a holding
company for two primary subsidiary operating companies, CNL Restaurant
Properties, Inc. and CNL Franchise Network, Corp. The Company was founded in
1994 and at June 30, 2002, had financial interests in approximately 1,100
properties diversified among more than 100 restaurant concepts in 47 states. The
Company's total real estate holdings subject to lease included 700 properties of
which approximately 50 properties are classified as held for sale. At June 30,
2002, the servicing portfolio of net lease properties and mortgages included
over 2,400 units of which over 1,300 are serviced on behalf of third parties.
In June 2000 the Company divided its operations into the real estate and
specialty finance businesses. The objective of the Company was to combine the
real estate segment, an entity with a strong capital base and stable cash flows,
with a specialty finance growth business that could partner with a large
financial institution and provide an additional source of liquidity. The real
estate segment, operated principally through the Company's wholly owned
subsidiary CNL Restaurant Properties, Inc. ("CNL-RP") and its subsidiaries, is
charged with overseeing and maximizing value on a portfolio of primarily
long-term triple-net lease properties. Those responsibilities related to the
real estate segment include portfolio management, property management and
dispositions. In addition, CNL-RP manages approximately $625 million in
affiliate portfolios and earns management fees related thereto. The specialty
finance segment, operated through the Company's wholly-owned subsidiary CNL
Franchise Network Corp ("CNL-FNC") and a partnership with Bank of America, CNL
Franchise Network, LP ("CNL-FN") and its subsidiaries, delivers financial
solutions in the forms of financing, servicing, development and advisory
services to national and regional restaurant operators.
Effective January 1, 2001, CNL-FNC elected to be treated as a taxable REIT
subsidiary ("TRS") pursuant to the provisions of the REIT Modernization Act. As
a TRS, CNL-FNC will be able to engage in activities that would previously have
caused income to the Company from CNL-FN to be disqualified from being eligible
REIT income under the federal income tax rules governing REITs. CNL-FNC
originates mortgages and triple-net lease properties for sale to third parties
and, in some cases, securitization. CNL-FNC also performs net lease and loan
servicing on behalf of third parties. While the Company intends to continue
managing its existing core portfolio of real estate leases and loans, management
expects that the activities of CNL-FNC will be an increasingly significant part
of the Company's business on a going-forward basis.
The company was created in 1994 with a requirement to provide stockholder
liquidity by December 31, 2005 either by listing on a national exchange, merging
with another public company or liquidating its assets. The Company continues to
monitor the public markets for opportunities. The Company's board does not
intend to liquidate the Company. To comply with certain tax guidelines governing
taxable REIT subsidiaries, the Company may pursue other alternatives related to
CNL-FNC that would provide stockholder liquidity for all or a portion of the
Company's investment by this date.
Liquidity and Capital Resources
CNL American Properties Fund, Inc.
The Company is a real estate investment trust that receives distributions from
its two primary subsidiaries, CNL-RP and CNL-FNC. During the six months ended
June 30, 2002, CNL-APF did not receive any distributions from CNL-FNC. CNL-APF
declared and paid distributions to its stockholders of $33.6 million and $33.2
million for the six months ended June 30, 2002 and 2001, respectively. The
distribution for the six-month period ended June 30, 2002 was primarily funded
by distributions from CNL-RP, a loan from an affiliate that the Company
subsequently converted into its common stock, and sales of its common stock to
an affiliate.
Specialty Finance Segment (CNL Franchise Network Corporation)
CNL-FN originates triple-net leases and loans, temporarily financing those
assets with warehouse credit facilities and periodically securitizing,
refinancing or selling those assets. In a securitization the Company sells or
transfers a pool of loans or properties with triple-net leases to certain
special purpose entities which, in turn, issue to investors securities backed by
an interest in the revenue originating from the loans or triple-net leases.
These transactions serve to recycle and diversify capital.
Uncertainty in the franchise finance sector caused by rising delinquencies in
late 2000 and throughout 2001 resulted in considerable volatility in the
franchise asset-backed securitization market. In addition, falling treasury
rates, macroeconomic uncertainties and sluggish restaurant sales contributed to
market volatility. What resulted were wider bond spreads that translated into
investors demanding higher interest rates on the securities issued in
securitizations and an increase in ratings actions. In public securitizations,
the quality of the underlying loans is periodically reviewed by rating agencies
to affirm the ratings originally issued on the bonds sold to investors. Should
an issuer suffer a ratings action, it could result in material adverse
consequences impacting the issuer's ability to successfully sell or refinance
the loans intended for a securitization transaction. While many of the Company's
competitors have experienced or continue to experience downgrades or ratings
actions on bonds previously issued, the Company's prior loan or lease
securitizations to date have not been subject to any such ratings action.
In October 2001 the Company and Bank of America renegotiated certain terms of
their strategic alliance. During such renegotiation, CNL-FN agreed to remove by
October 13, 2002 approximately $187 million in restaurant loans then held as
collateral under the Bank of America warehouse credit facility. CNL-RP provided
a guaranty of $15 million, which would be reduced ratably as certain conditions
are met, including the removal of the restaurant loans. Any balance remaining on
October 13, 2002, CNL-FN, or CNL-RP in the event CNL-FN does not have adequate
liquidity, will remit to Bank of America as additional enhancement capital.
Through June 30, 2002 CNL-FN has removed $162 million of the $187 million amount
and has reduced the guaranty to $2.0 million as of June 30, 2002.
As part of the referenced renegotiation, CNL-RP also agreed to a $15 million
guaranty on Bank of America's subordinated debt facility, which consists of a
note payable having an outstanding amount of $43.75 million as of June 30, 2002.
The $15 million guaranty has provisions for its reduction tied to achievement of
an earnings target, full availability of a liquidity facility and the removal of
the $187 million in loans described above. The parties to this initial guaranty
have reduced the guaranty to $5.4 million as of June 30, 2002.
The October 2001 Bank of America renegotiation also led to a $10 million
unsecured credit facility to CNL-RP that is renewable in October 2002 subject to
the renewal of the mortgage warehouse facility. CNL-RP then entered into a $10
million mirror facility with CNL-FN to provide CNL-FN working capital. CNL-FN
utilizes this mirror credit facility as necessary to fund its equity in new
properties substantially financed on the mortgage warehouse facilities and to
meet margin calls on the mortgage warehouse facilities. At June 30, 2002 the
mirror facility had $7.5 million outstanding.
In June 2002, as a partial resolution to Bank of America's requirement to remove
or sell $187 million in loans by October 13, 2002, the Company entered into a
five-year term $207 million financing collateralized with $225 million in
mortgage loans redesignated to reflect the Company's intention to hold them to
maturity. This five-year term financing carries a variable interest rate tied to
the weighted average rate of commercial paper plus 1.25 percent. A portion of
the proceeds from this financing was used to pay down the mortgage warehouse
facilities. Through the execution of this transaction, the Company eliminated
$13 million of the $15 million Bank of America guaranty tied to the removal of
the $187 million in loans and was able to renegotiate the terms of all remaining
guaranty amounts. In addition to reducing the guaranty, the transaction provides
CNL-FN ongoing earnings on the excess of interest income over interest expense,
and management believes it also allows more time for the franchise asset-backed
markets to stabilize offering possible alternatives to holding these loans to
maturity. A relatively small portion of the warehouse credit facility, $29.1
million, supports the $58 million remaining in mortgage loans held for sale.
The June 2002 financing led to an amendment to the terms of the Bank of America
guaranty described above. The $15 million guaranty tied to the removal of $187
million in loans was decreased to $2 million, and such decreased amount is now
tied to the ultimate disposition of all of the then existing loans that have
amounts outstanding within the Bank of America warehouse facility. The $15
million guaranty tied to the subordinated debt was reduced to $5.4 million and
continues to be reduced through the achievement of certain earnings and
liquidity targets by October 13, 2002 with any remaining amounts then subject to
a one-month option by the bank to convert the guaranty to a preferred security
of CNL-RP with a face value of 100 percent of the outstanding guaranty and with
terms substantially equivalent to the subordinated note. Any default on the
warehouse facility could cause the payment of the full $7.4 million guaranty on
or before October 13, 2002. Management is continuing to seek resolution to the
remaining loans and achieve the earnings and liquidity necessary to remove the
guaranty before October 13, 2002.
The uncertainty in the franchise asset-backed securitization market referenced
earlier also led management to direct the originations effort toward new
long-term, triple-net leases on real estate that can be sold in the tax-deferred
real estate exchange market ("Section 1031 Exchanges") by both CNL-FN and
through an affiliated partnership. Throughout 2001 $128 million of such real
estate properties were sold generating $9.1 million in gains to the Company.
During the six months ending June 30, 2002, CNL-FN and its partnership sold
another $157 million under this program, generating $11.5 million in gains to
the Company. CNL-FN management expects continued strong demand for this product
but continues to investigate other sales channels in which to market net lease
assets. Management also continues to monitor the securitization market for
potential re-entry in the future.
During the current year, CNL-FNC's primary cash flows were derived from lease
and interest income earned in excess of interest expense paid ("net spread"),
net gains from Section 1031 Exchanges and servicing revenues. Significant cash
outflows consist of operating expenses and capital enhancements in the loan
portfolio. Through its warehouse credit facility provided by Bank of America and
by another lender to its subsidiary, CNL-FN, CNL-FNC currently has a credit
capacity of $510 million. The warehouse credit facility lenders monitor asset
securitization market assumptions, assumptions on the Company's derivatives and
delinquency assumptions and may require a margin call to reduce the level of
warehouse financing. During the six months ended June 30, 2002, CNL-FN paid over
$16 million in net margin calls on its warehouse credit facilities. Over the
course of 2001, CNL-FN had fully drawn its subordinated note payable. Through
June 2002, has drawn a net $7.5 million on the mirror credit facility to meet
margin calls.
For the remainder of 2002, the Company intends to focus origination efforts on
the triple-net lease financing product. CNL-FN's warehouse facilities provide
advances for up to 97 percent of appraised real estate value. The Company
expects the remaining amount to be provided by cash flow from operations. Cash
from operations could be negatively impacted if interest rates increased,
reducing the net spread.
At June 30, 2002, CNL-FN had approximately $55.4 million in capital supporting
its loan and lease portfolio. During 2002, as the remaining loans are sold or
refinanced and the leased restaurant properties are sold, CNL-FN expects to
reinvest most of the proceeds in new triple-net leases. Through June 30, 2002
CNL-FN has originated $23.2 million in net leases compared with $85.6 million in
the same period last year. The decrease reflects a slowdown in demand for net
lease financing given available low interest rate mortgage financing and
aggressive lease rates offered by the CNL-FN's competitors. Management believes
that net lease originations are important to CNL-FN as they provide inventory
necessary to execute the Section 1031 Exchange program and are profitable while
held by CNL-FN. Management has responded to this slowdown by revising net lease
rates and by identifying new areas to reduce costs. Management believes that
competitors will slow originations as they experience capital constraints, and
that restaurant operators will continue to use net lease financing as a tool to
manage their own leverage ratios that have been skewed by the abundance of
mortgage financing. Management anticipates that net lease origination volume
will increase during the second half of 2002.
Liquidity risks within the Company's specialty finance segment include the
possible occurrence of economic events that could have a negative impact on the
franchise asset-backed securitization market and affect the quality or
perception of the loans or leases underlying CNL-FN's securitization
transactions. Upon the occurrence of a significant amount of delinquencies
and/or defaults, one or more of the three rating agencies may choose to place a
specific transaction on ratings watch or even downgrade one or more classes of
securities to a lower rating. The Company's previous securitizations are in
bankruptcy remote entities and are separate legal entities whose assets are not
available to satisfy the claims of creditors of the Company, any subsidiary or
its affiliates. To date, the ratings on the loans underlying the securities
issued in these transactions have been affirmed. Should the loans underlying the
securities undergo a negative ratings action, CNL-FN could experience material
adverse consequences impacting its ability to continue earning income as
servicer and its ability to engage in future profitable securitization
transactions. To potentially avoid those consequences, CNL-FN could choose to
contribute capital to serve as additional collateral supporting one or more of
the bankruptcy remote entities used to facilitate a securitization in order to
avoid a negative ratings action.
Other liquidity difficulties could arise for CNL-FN through borrower
delinquencies on the mortgage loans held for sale or held to maturity. In
addition to the resulting shortfall on scheduled payments, the lenders that
provide CNL-FN financing through the warehouse facilities and the five-year note
are protected by provisions allowing margin calls in the event underlying loans
experience delinquencies. The impact of tenant defaults is more fully described
below under the Real Estate Segment (CNL Restaurant Properties, Inc.) discussion
of liquidity.
In summary, the Company's specialty finance segment expects to meet its
liquidity requirements in 2002 with a combination of cash from operations,
including the Section 1031 Exchange program, and borrowings on the warehouse
credit facilities or the mirror credit facility. CNL-FN renews its warehouse
credit facilities annually and to date has been successful in doing so. CNL-FN's
longer-term liquidity requirements are expected to be met through the successful
renewal of its warehouse credit facilities and the mirror credit facility,
successful execution of the Company's Section 1031 Exchange program, portfolio
debt origination fees, asset securitizations and augmented by operating cash
flows provided by servicing and advisory services. However, there can be no
assurance that future expansion will be successful due to competitive,
regulatory, market, economic or other factors.
Real Estate Segment (CNL Restaurant Properties, Inc.)
CNL-RP operates as a real estate company and its cash flows primarily consist of
rental income from tenants on restaurant properties owned, interest income on
mortgage loans, dispositions of properties and income from holding residual
interests in prior loan securitizations. The Company's cash outflows are
predominantly interest expense, operating expenses, reinvestment of disposition
proceeds and distributions to the Company.
CNL-RP's short-term debt includes the $30 million revolving line of credit (the
"Revolver") entered into in October 2001 and a $48.7 million secured note
payable (the "Secured Credit Facility") entered into in October 1999. The
Secured Credit Facility matures on February 18, 2003 and CNL-RP is currently
selling select properties to pay down the note during 2002, and has designated
such properties as discontinued operations, as described in greater detail
below. CNL-RP management is also evaluating whether any additional properties
should be sold or whether other capital resources should be utilized to pay any
remaining amounts on this Secured Credit Facility before its maturity. At June
30, 2002, the Secured Credit Facility has a balance of $43.4 million. The
Company, from time to time, utilizes the Revolver to manage the timing of
inflows and outflows of cash from operations. The Company's Revolver is a
two-year facility, maturing in October 2003, and includes a one-year renewal
option. At June 30, 2002, the Revolver had an outstanding balance of $3 million.
CNL-RP also had medium-term and long-term bond financing. In October 2001,
CNL-RP issued $131 million in medium-term bonds, Series 2001, bearing an
interest rate of LIBOR plus 48 basis points and maturing in 2006. In August
2000, CNL-RP issued $281 million in bonds, Series 2000-A, bearing the fixed
interest rate of 7.925 percent and maturing substantially between 2009 and 2017.
Rental income received on the combined 376 properties pledged as collateral is
used to make scheduled reductions in bond principal and interest.
Liquidity risks within the real estate business include the potential that a
tenant's financial condition could deteriorate, causing it to fail to make its
rent payments and thereby reducing CNL-RP's income. Generally, CNL-RP uses a
triple-net lease to lease its properties to its tenants. The triple-net lease is
a long-term lease with periodic rent increases and requires the tenant to pay
expenses on the property. The lease somewhat insulates CNL-RP from significant
cash outflows for maintenance, repair or insurance. However, if the tenant
experiences financial problems, rental payments could be interrupted, and the
Company may be required to fund certain expenses in the event of tenant
bankruptcy in order to retain control of, or take possession of, the property
which may expose the Company to successor liabilities and further affect
liquidity. Such events may adversely affect the Company's revenue and operating
cash flow.
The Company may commit further resources in seeking resolution to these
properties including funding restaurant businesses directly or on behalf of
successor tenants. For example, where the value of the real estate subject to
tenant difficulties is integrally linked to the financial performance of the
restaurants themselves, CNL-RP may allocate capital to invest in turnaround
opportunities. In a recent significant tenant/borrower bankruptcy, CNL-RP holds
an $11.1 million participating loan to the successor tenants and the terms
provide that in addition to recurring interest payments, CNL-RP will participate
in the profits of the successor tenant.
CNL-RP believes the combination of availability on its line of credit and the
projected disposition volume in 2002 will permit it to meet its short-term
liquidity objectives. Long-term liquidity requirements will be met through a
combination of selectively disposing assets and reinvesting the proceeds in
higher-yielding investments and cash from operating activities.
Interest Rate Risk
Floating interest rates on the Revolver, Secured Credit Facility, mortgage
warehouse facilities, the June 2002 five-year financing, and the 2001 Series
bonds expose the Company to interest rate risk. As of June 30, 2002, the Company
had $10.5 million, $43.4 million, $99.9 million, $207.4 million and $127.5
million outstanding under its Revolver, Secured Credit Facility, mortgage
warehouse facilities, the June 2002 five-year financing, and the 2001 Series
bonds, respectively. The Company believes it has mitigated its risk by entering
into interest rate swap agreements and an interest rate cap agreement, which
reduce the impact of fluctuating interest rates on its floating rate debt.
In addition, the Company invests in certain financial instruments that are
subject to various forms of market risk such as interest rate fluctuations,
credit risk and prepayment risk. Management believes that the value of its
mortgage loans held for sale and investments could potentially change as a
result of fluctuating interest rates, credit risk, market sentiment and other
external forces, which could materially adversely affect the Company's liquidity
and capital resources.
Generally, the Company uses derivative financial instruments (primarily interest
rate swap contracts) to hedge against fluctuations in interest rates from the
time it originates and holds fixed-rate mortgage loans until the time it sells
them. Additionally, the Company uses interest rate swaps to hedge against
fluctuations in interest rates on its floating rate debt. Under interest rate
swaps, the Company agrees with other parties to exchange, at specified
intervals, the difference between fixed-rate and floating-rate interest amounts
calculated by reference to an agreed upon notional principal amount. The Company
will terminate certain of these contracts and both the gain or loss on the sale
of the loans and the additional gain or loss on the termination of the interest
rate swap contracts are measured and recognized in the consolidated statement of
operations.
Management estimates that a one-percentage point increase in long-term interest
rates as of June 30, 2002 would have resulted in a decrease in the fair value of
its fixed-rate loans held for sale of $0.8 million. This decline in fair value
would have been offset by an increase in the fair value of certain interest rate
swap positions of $1.3 million. In addition, a one-percentage point increase in
short-term interest rates for the six months ended June 30, 2002 would have
resulted in additional interest costs of approximately $2.0 million. This
sensitivity analysis contains certain simplifying assumptions (for example, it
does not consider the impact of changes in prepayment risk or credit spread
risk). Therefore, although it gives an indication of the Company's exposure to
interest rate change, it is not intended to predict future results and the
Company's actual results will likely vary.
Management believes inflation has not significantly affected the Company's
earnings because the inflation rate has remained moderate. Additionally, the
Company's earnings primarily reflect long-term investments with fixed rents or
interest rates. The Company mainly finances these investments with a combination
of equity, senior notes and borrowings under the revolving lines of credit or
warehouse facilities. During inflationary periods, which generally are
accompanied by rising interest rates, the Company's ability to grow may be
adversely affected because the yield on new investments may increase at a slower
rate than new borrowing costs. However, sustained low inflation could lead to
net lease pricing pressure as tenant's request decreasing rates for longer
maturities.
Results from Operations
The Company's net earnings were $21.5 million compared with $13.4 million in the
six months ended June 30, 2002 and 2001, respectively, and $15 million and $5.2
million during the quarter ended June 30, 2002 and 2001, respectively. During
the six months ended June 30, 2002, CNL-FNC and CNL-RP had net earnings of $7.6
million and $13.9 million, respectively, compared with a net loss of $2.8
million and net earnings of $16.1 million in the six months ended June 30, 2001,
respectively. While the specialty finance sector has improved its overall
performance through the Section 1031 Exchange program, the performance of the
real estate segment during the comparative six month periods reflects the
reduction in rent and interest from tenants and borrowers who have experienced
financial difficulties. Earnings during the six months ending June 30, 2001
reflect the effect of the adoption of the Statement of Financial Accounting
Standards No. 133 which requires that all derivative instruments be recorded on
the balance sheet at fair value that resulted in a charge of $3.8 million
against the Company earnings in the CNL-FN segment.
Revenues
The Company recorded $208.9 million and $111.2 million in revenues during the
six months ended June 30, 2002 and 2001, respectively, and $137.4 million and
$52.7 million during the quarter ended June 30, 2002 and 2001, respectively.
During the six months ended June 30, 2002, CNL-FNC and CNL-RP recorded revenues
(before segment elimination adjustments) of $164.2 million and $45.6 million,
respectively, compared with $60.7 million and $50.9 million in the six months
ended June 30, 2001.
CNL-FNC's increase is attributed primarily to increased revenue from sales of
real estate of $140.8 million compared to $27.2 million during the six months
ended June 30, 2002 and 2001, respectively. During 2001, CNL-FN began its
program of selling real estate properties to private investors in Section 1031
Exchanges, and as a result the gross proceeds from Section 1031 Exchanges now
appear as a component of operating revenues. During the six months ended June
30, 2002 and 2001, the costs associated with these sales were $130.4 million and
$25.9 million, respectively, and are reflected as a component of expenses.
CNL-FN's revenue from the Section 1031 Exchange program is also attributed for
the growth in CNL-FN's total revenues from $48.3 million in the first quarter to
$115.9 in the quarter ending June 30, 2002 as well as the growth from $29.9
million to $115.9 million comparing the current quarter to the year-ago quarter.
The costs associated with these sales grew comparably from $34.3 million in the
first quarter to $96.1 million in the quarter ending June 30, 2002.
The revenue of CNL-RP has decreased $5.3 million between the six month periods
and $1.1 million in the quarters presented as a result of decreased rental and
interest revenues from properties sold or properties leased to tenants and
borrowers who have experienced financial difficulties, excluding the impact of
properties reclassified as discontinued operations.
CNL-RP has experienced some tenant defaults throughout most of 2001 and into
2002 and has been working diligently to resolve the tenant defaults and re-lease
properties. The bankruptcy of certain tenants impacts comparability between
periods.
Expenses
General and administrative expenses for the Company were approximately $14.8
million and $16.7 million for the six months ended June 30, 2002 and 2001,
respectively and $7.6 million and $9.7 million for the quarter ended June 30,
2002 and 2001, respectively. For the six months ended June 30, 2002, general and
administrative expenses for CNL-FNC and CNL-RP were $9.8 million and $5.0
million, respectively, compared with $12.1 million and $4.6 million in the six
months ended June 30, 2001. CNL-FNC has decreased professional expenses
associated with the resolution of loan delinquencies. Also, CNL-FNC has realized
efficiencies from computer systems changes and currently operates with fewer
employees. Despite similar cost savings in several CNL-RP general and
administrative categories, certain costs relating to delinquencies have
increased other costs causing overall general and administrative expenses to
remain relatively flat within this segment.
Interest expense for the Company was $30.9 million and $36.5 million for the six
months ended June 30, 2002 and 2001, respectively. Interest expense in the
current quarter ended June 30, 2002 of $15.5 million is similarly decreasing
when compared with the $17.9 million in the year-ago period. Interest expense
for CNL-FNC and CNL-RP during the six months ended June 30, 2002, was $14.5
million and $16.4 million, respectively, compared with $17.2 million and $19.3
million for the six months ended June 30, 2001. CNL-FNC has reduced its
interest-bearing debt substantially, in particular during the second quarter
where $103.6 million in sales of 1031 Exchange properties occurred. The reduced
overall debt, as well as reductions in interest rates, has allowed CNL-FNC to
realize a 16 percent reduction in this category. CNL-RP has maintained its level
of debt, yet experienced a 15 percent reduction in interest expense between
years based on the Series 2001 Bonds issued in October 2001 carrying a lower
rate of interest than the Secured Credit Facility the proceeds in part repaid.
Expense categories such as state taxes and depreciation and amortization
expenses have reflected and will continue to reflect the level of assets
invested in leased properties. This category has also included amortization on
intangible assets, such as goodwill. During 2001, the Company amortized $3.1
million in goodwill pursuant to existing accounting standards on a straight-line
basis. In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 142 "Goodwill and Other Intangible Assets"
("FAS 142"). FAS 142 requires the use of a non-amortization approach to account
for purchased goodwill and certain intangibles. Under a non-amortization
approach, goodwill and certain intangibles will not be amortized into results of
operations, but instead would be reviewed for impairment and written down and
charged to results of operations only in the periods in which the recorded value
of goodwill and certain intangibles is more than its fair value. The Company's
adoption of this accounting standard has eliminated its amortization of goodwill
commencing January 1, 2002; however, impairment reviews may result in future
periodic write-downs. During the six months ended June 30, 2002, no such
write-downs have been necessary.
The Company has decreased certain property expenses, in part, through decreasing
the length of time necessary to re-lease a defaulted tenant's property. However
the overall number of these properties increased as a result of several
significant tenant bankruptcies during the past nine months leading to $2.1
million in property expenses during the six months ended June 30, 2002 compared
with $0.6 million in the six months ended June 30, 2001. Some expenses on this
large number of properties estimated earlier in the year are now expected to be
slightly lower, creating a small credit in the current quarter of $0.3 million
compared with $0.2 million in costs in the same period a year ago.
The Company has recorded impairment provisions of $1.1 million and $4.3 million
for the six months ended June 30, 2002 and 2001, respectively excluding
impairments on properties treated as discontinued operations as described below.
Impairments were $0.4 million and $1.3 million in the quarter ended June 30,
2002 and 2001, respectively. Impairment provisions are recorded when
circumstances indicate that future expected cash flows do not recover the
carrying cost of the individual properties. The Company recorded more
significant impairment provisions in the latter part of 2001 as a result of
tenant bankruptcies. The following summarizes the more significant bankruptcies:
o In January 2002, the Company filed an involuntary bankruptcy petition
against Roadhouse Grill, Inc., franchiser of the casual steak chain,
Roadhouse Grill. CNL-RP owns 13 Roadhouse Grill properties and CNL-FN
owns one. The Federal Bankruptcy Court approved the Company's request
to present a plan. Prior to the court's ruling only Roadhouse
management was legally entitled to present a plan for reorganization.
CNL-RP expects the plan to maximize the value of the Company's
investment.
o In January 2002, Houlihan's Restaurant Group ("HRG") filed for
voluntary bankruptcy under the provisions of Chapter 11. HRG operates
and franchises the Houlihan's concept, operates the Darryl's and J.
Gilbert's concepts and operates five separately branded seafood
restaurants. CNL-RP owns 19 Houlihan's and Darryl's units, with a total
investment of $26.3 million. As of June 30, 2002 the rental payments on
the leases were current. Eleven of the 19 leases have been rejected.
Condemnation proceeds are in escrow for a partial taking on one of the
eleven sites. Possession of the remaining ten properties has been
returned to CNL-RP and the properties are currently being marketed for
sale or lease. As of June 30, 2002, a settlement with HRG is pending in
the amount of $1.4 million which will result in three additional
properties being returned to CNL-RP.
Effective January 1, 2002 the Company accounts for certain of its revenues and
expenses as originating from discontinued operations pursuant to Statement of
Financial Accounting Standard No. 144 "Accounting for the Impairment or Disposal
of Long-Lived Assets" . FAS 144 requires that sales of real estate, or the
designation of a real estate asset as held for sale, be treated as discontinued
operations. Any gain or loss from such disposition, and any income or expenses
associated with these real estate assets, are included in the income statement
as discontinued operations. CNL-FN's Section 1031 Exchange program, a vital
piece of its ongoing operating strategy and a contributor of over $20 million in
operating profits since December 2000 is nonetheless deemed to fall under the
new guidance. Therefore, gains from properties sold under the Section 1031
Exchange program unless acquired before January 1, 2002 are included as
discontinued operations; income and expenses associated with assets designated
as held for sale after December 31, 2001 are also included in discontinued
operations. In addition, CNL-RP has designated certain real estate assets since
December 31, 2001 and has included income and expenses associated with the
assets as well as the gain or loss from any dispositions of these assets as
discontinued operations.
In April 2002, the FASB issued Statement of Financial Accounting Standards No.
145, "Rescission of FASB Statements No. 4, 44, and 64, Amendment of FASB
Statement No. 13, and Technical Corrections." ("FAS 145"). This statement
rescinds FASB Statement No. 4, "Reporting Gains and Losses from Extinguishment
of Debt," and an amendment of that Statement, FASB Statement No. 64,
"Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements." This
statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers." This statement amends FASB Statement No. 13, "Accounting for
Leases," to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects that are similar to sale-leaseback
transactions. This statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The provisions of this
statement related to the rescission of Statement 4 are applicable in fiscal
years beginning after May 15, 2002. The provisions of this statement related to
Statement 13 are effective for transactions occurring after May 15, 2002. All
other provisions of this statement are effective for financial statements issued
on or after May 15, 2002. The provisions of this statement, to the extent
already applicable, did not have a significant impact on the financial position
or results of operations of the Company. Provisions applicable to future
reporting periods are not expected to have a significant impact on the financial
position or results of operations of the Company.
In July 2002, the FASB issued Statement of Financial Accounting Standards No.
146, "Accounting for Costs Associated with Exit or Disposal Activities" ("FAS
146"). The statement requires companies to recognize costs associated with exit
or disposal activities when they are incurred rather than at the date of a
commitment to an exit or disposal plan. Examples of costs covered by the
statement include lease termination costs and certain employee severance costs
that are associated with a restructuring, discontinued operation, plant closing,
or other exit or disposal activity. The statement is to be applied prospectively
to exit or disposal activities initiated after December 31, 2002. The adoption
of this statement is not expected to have a significant impact on the financial
position or results of operations of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Information regarding the Company's market risk at December 31, 2001 is included
in its Annual Report on Form 10-K for the year ended December 31, 2001. The
material changes in the Company's market risk are discussed in Item 2 above.
Information regarding the Company's market risk relating to changes in interest
rates is incorporated herein by reference to Item 2. "Interest Rate Risk".
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.
On June 20, 2002 the Company held its Annual Meeting of
Stockholders (the "Annual Meeting"). At the Annual Meeting,
the following nominees were elected to the Board of Directors
of the Company: Robert A. Bourne (23,865,483 for and 295,107
withheld); G. Richard Hostetter (23,870,501 for and 290,089
withheld); Richard C. Huseman (23,857,026 for and 303,564
withheld); J. Joseph Kruse (23,846,392 for and 314,198
withheld) and James M. Seneff, Jr. (23,854,106 for and 306,484
withheld). In addition, the stockholders voted to approve an
amendment to the Second Amended and Restated Articles of
Incorporation (22,562,698 for, 813,909 against and 783,983
abstentions).
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger, by and among
the Registrant, CFA Acquisition Corp., CNL
Fund Advisors, Inc. and CNL Group, Inc.,
dated March 11, 1999 (included as Exhibit
10.38 to the Registrant's Registration
Statement No. 333-74329 on Form S-4 (the
"Form S-4") as originally filed and
incorporated herein by reference).
2.2 Agreement and Plan of Merger, by and among
the Registrant, CFC Acquisition Corp., CFS
Acquisition Corp., CNL Financial Corp., CNL
Financial Services, Inc., CNL Group, Inc.,
Five Arrows Realty Securities L.L.C., Robert
A. Bourne, Curtis B. McWilliams and Brian
Fluck, dated March 11, 1999 (included as
Exhibit 10.39 to the Form S-4 as originally
filed and incorporated herein by reference).
3.1 CNL American Properties Fund, Inc. Amended
and Restated Articles of Incorporation, as
amended (included as Exhibit 3.1 to the
Registrant's Form 10-Q for the quarter ended
June 30, 1999 and incorporated herein by
reference).
3.2 CNL American Properties Fund, Inc. Amended
and Restated Bylaws (included as Exhibit 3.2
to the Registrant's Registration Statement
No. 333-37657 on Form S-11 and incorporated
herein by reference).
3.3 CNL American Properties Fund, Inc. Second
Amended and Restated Articles of
Incorporation (included as Exhibit 3.3 to
the Registrant's Form 10-Q for the quarter
ended June 30, 2000 and incorporated herein
by reference).
3.4 Articles of Amendment to Second Amended and
Restated Articles of Incorporation of CNL
American Properties Fund, Inc. (filed
herewith).
4.1 Form of Stock Certificate (included as
Exhibit 4.5 to the Registrant's Registration
Statement No. 33-78790 on Form S-11 and
incorporated herein by reference).
10.1 Form of Indemnification Agreement dated as
of April 18, 1995, between the Registrant
and each of James M. Seneff, Jr., Robert A.
Bourne, G. Richard Hostetter, J. Joseph
Kruse, Richard C. Huseman, John T. Walker,
Jeanne A. Wall, Lynn E. Rose and Edgar J.
McDougall, dated as of January 27, 1997,
between the Registrant and Steven D.
Shackelford, dated as of February 18, 1998,
between the Registrant and Curtis B.
McWilliams, and dated as of September 1,
1999, between the Registrant and each of
Howard J. Singer, John L. Farren, Timothy J.
Neville, Michael I. Wood and Barry L. Goff
(included as Exhibit 10.9 to the
Registrant's Registration Statement No.
333-15411 on Form S-11 and incorporated
herein by reference).
10.2 Amended and Restated Agreement of Limited
Partnership of CNL APF Partners, LP
(included as Exhibit 10.50 to Amendment No.
2 to the Form S-4 and incorporated herein by
reference).
10.3 Amended and Restated Credit Agreement by and
among CNL APF Partners, LP, Registrant,
First Union National Bank, First Union
Capital Markets Group, Banc of America
Securities LLC, NationsBank, N.A., The Chase
Manhattan Bank and other financial
institutions, dated June 9, 1999 (included
as Exhibit 10.51 to Amendment No. 1 to the
Form S-4 and incorporated herein by
reference).
10.4 First Amendment to Amended and Restated
Credit Agreement dated as of December 31,
1999 between CNL APF Partners, LP and First
Union National Bank, as Agent (included as
Exhibit 10.4 to the Registrant's Form 10-K
for the year ended December 31, 1999 and
incorporated herein by reference).
10.5 Franchise Receivable Funding and Servicing
Agreement dated as of October 14, 1999
between CNL APF Partners, LP and Neptune
Funding Corporation (included as Exhibit
10.5 to the Registrant's Form 10-K for the
year ended December 31, 1999 and
incorporated herein by reference).
10.6 Interim Wholesale Mortgage Warehouse and
Security Agreement dated as of September 18,
1998, and Amended Agreement dated as of
August 30, 1999 between CNL APF Partners, LP
and Prudential Securities Credit Corporation
(included as Exhibit 10.6 to the
Registrant's Form 10-K for the year ended
December 31, 1999 and incorporated herein by
reference).
10.7 1999 Performance Incentive Plan (included as
Exhibit 10.1 to Amendment No. 1 to the Form
S-4 and incorporated herein by reference).
10.8 Registration Rights Agreement by and among
the Registrant, Robert A. Bourne, Curtis B.
McWilliams, John T. Walker, Howard Singer,
Steven D. Shackelford and CNL Group, Inc.,
dated as of March 11, 1999 (included as
Exhibit 10.40 to Amendment No. 1 to the Form
S-4 and incorporated herein by reference).
10.9 Registration Rights Agreement by and among
the Registrant, Five Arrows Realty
Securities L.L.C., James M. Seneff, Jr.,
Robert A. Bourne, Curtis B. McWilliams and
CNL Group, Inc., dated as of March 11, 1999
(included as Exhibit 10.41 to Amendment No.
1 to the Form S-4 and incorporated herein by
reference).
10.10 Employment Agreement by and between Curtis
B. McWilliams and the Registrant, dated
September 15, 1999 (included as Exhibit
10.42 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference).
10.11 Employment Agreement by and between Steven
D. Shackelford and the Registrant, dated
September 15, 1999 (included as Exhibit
10.43 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference).
10.12 Employment Agreement by and between John T.
Walker and the Registrant, dated September
15, 1999 (included as Exhibit 10.44 to
Amendment No. 2 to the Form S-4 and
incorporated herein by reference).
10.13 Employment Agreement by and between Howard
J. Singer and the Registrant, dated
September 15, 1999 (included as Exhibit
10.45 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference).
10.14 Employment Agreement by and between Barry L.
Goff and the Registrant, dated September 15,
1999 (included as Exhibit 10.46 to Amendment
No. 2 to the Form S-4 and incorporated
herein by reference).
10.15 Employment Agreement by and between Robert
W. Chapin and the Registrant, dated
September 15, 1999 (included as Exhibit
10.47 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference).
10.16 Employment Agreement by and between Timothy
J. Neville and the Registrant, dated
September 15, 1999 (included as Exhibit
10.48 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference).
10.17 Holdback Agreement by and among the
Registrant and Stockholders, dated August
31, 1999 (included as Exhibit 10.56 to
Amendment No. 2 to the Form S-4 and
incorporated herein by reference).
10.18 Amended and Restated Credit and
Reimbursement Agreement by and among CNL APF
Partners, LP, CNL APF LP Corp., CNL APF GP
Corp., Bank of America, N.A. and Bank of
America Securities LLC, dated as of June 15,
2000 (included as Exhibit 10.18 to the
Registrant's Form 10-Q for the quarter ended
June 30, 2000).
10.19 Employment Agreement by and between Michael
Wood and the Registrant, dated August 31,
1999 (included as Exhibit 10.19 to the
Registrant's Form 10-Q for the quarter ended
March 31, 2001).
10.20 Employment Agreement by and between Brent
Heaton and the Registrant, dated September
29, 1999 (included as Exhibit 10.20 to the
Registrant's Form 10-Q for the quarter ended
March 31, 2001).
10.21 Addendum to Employment Agreement dated as of
November 1, 1999, between the Registrant and
Curtis McWilliams (included as Exhibit 10.21
to the Registrant's Form 10-Q for the
quarter ended March 31, 2001). The following
persons have signed a substantially
identical Addendum relating to their
respective employment agreements; Steve
Shackelford (dated November 1, 1999), John
Walker (dated November 3, 1999), Barry Goff
(dated November 1, 1999), and Brent Heaton
(dated November 3, 1999).
10.22 Addendum to Employment Agreement dated as of
November 1, 1999, between the Registrant and
Robert Chapin (included as Exhibit 10.22 to
the Registrant's Form 10-Q for the quarter
ended March 31, 2001). The following persons
have signed a substantially identical
Addendum relating to their respective
employment agreements: Howard Singer (dated
November 1, 1999), Michael Wood (dated
November 8, 1999) and Timothy Neville (dated
November 24, 1999).
10.23 Second Addendum to Employment Agreement
dated as of June 16, 2000, between the
Registrant and Curtis McWilliams (included
as Exhibit 10.23 to the Registrant's Form
10-Q for the quarter ended March 31, 2001).
The following persons have signed a
substantially identical Second Addendum
relating to their respective employment
agreements: Howard Singer (dated June 19,
2000), Robert Chapin (dated June 20, 2000)
and Brent Heaton (dated October 30, 2000).
10.24 Second Addendum to Employment Agreement
dated as of August 20, 2000, between the
Registrant and Barry Goff (included as
Exhibit 10.24 to the Registrant's Form 10-Q
for the quarter ended March 31, 2001).
10.25 Second Addendum to Employment Agreement
dated as of September 1, 2000, between the
Registrant and Steve Shackelford (included
as Exhibit 10.25 to the Registrant's Form
10-Q for the quarter ended March 31, 2001).
10.26 Second Addendum to Employment Agreement
dated as of 2000, between the Registrant and
Timothy Neville (included as Exhibit 10.26
to the Registrant's Form 10-Q for the
quarter ended March 31, 2001).
10.27 Second Addendum to Employment Agreement
dated as of October 24, 2000, between the
Registrant and Michael Wood (included as
Exhibit 10.27 to the Registrant's Form 10-Q
for the quarter ended March 31, 2001).
10.28 Second Addendum to Employment Agreement
dated as of October 25, 2000, between the
Registrant and John Walker (included as
Exhibit 10.28 to the Registrant's Form 10-Q
for the quarter ended March 31, 2001).
10.29 Amended and Restated Master Purchase
Agreement dated as of October 11, 2001,
among Bank of America, N.A., CNL Financial
VII, LP and CNL Franchise Network, LP
(included as Exhibit 10.29 to the
Registrant's Form 10-K for the year ended
December 31, 2001 and incorporated herein by
reference).
10.30 Third Amended and Restated Side Letter dated
as of October 11, 2001, among Bank of
America, N.A., CNL Financial VII, LP and CNL
Franchise Network, LP (included as Exhibit
10.30 to the Registrant's Form 10-K for the
year ended December 31, 2001 and
incorporated herein by reference).
10.31 Loan and Security Agreement dated as of June
14, 2002 between CNL Financial IX, LP and
Nieuw Amsterdam Receivables Corporation
(filed herewith).
(b) Reports on Form 8-K
The Registrant did not file any reports on
Form 8-K during the quarter ended June 30,
2002.
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 13th day of August 2002.
CNL AMERICAN PROPERTIES FUND, INC.
By:/s/ James M. Seneff, Jr.
----------------------------
JAMES M. SENEFF, JR.
co-Chief Executive Officer
(Principal Executive Officer)
By:/s/ Curtis B. McWilliams
----------------------------
CURTIS B. MCWILLIAMS
co-Chief Executive Officer
(Principal Executive Officer)
By:/s/ Steven D. Shackelford
----------------------------
STEVEN D. SHACKELFORD
Chief Financial Officer
(Principal Financial and
Accounting Officer)
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, James M. Seneff, Jr., the Co-Chief Executive Officer of CNL
American Properties Fund, Inc. (the "Company"), has executed this certification
in connection with the filing with the Securities and Exchange Commission of the
Company's Quarterly Report on Form 10-Q for the period ending June 30, 2002 (the
"Report"). The undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
DATED this 13th day of August 2002.
/s/ James M. Seneff, Jr.
-----------------------------------------
James M. Seneff, Jr.
Co-Chief Executive Officer
CERTIFICATION OF CO-CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Curtis B. McWilliams, the Co-Chief Executive Officer of CNL
American Properties Fund, Inc. (the "Company"), has executed this certification
in connection with the filing with the Securities and Exchange Commission of the
Company's Quarterly Report on Form 10-Q for the period ending June 30, 2002 (the
"Report"). The undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
DATED this 13th day of August 2002.
/s/ Curtis B. McWilliams
--------------------------------------
Curtis B. McWilliams
Co-Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Steven D. Shackelford, the Chief Financial Officer of CNL
American Properties Fund, Inc. (the "Company"), has executed this certification
in connection with the filing with the Securities and Exchange Commission of the
Company's Quarterly Report on Form 10-Q for the period ending June 30, 2002 (the
"Report"). The undersigned hereby certifies that:
(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of
the Securities Exchange Act of 1934; and
(2) the information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Company.
DATED this 13th day of August 2002.
/s/ Steven D. Shackelford
--------------------------------------
Steven D. Shackelford
Chief Financial Officer
EXHIBIT INDEX
Exhibit Number
2.1 Agreement and Plan of Merger, by and among the
Registrant, CFA Acquisition Corp., CNL Fund Advisors,
Inc. and CNL Group, Inc., dated March 11, 1999
(included as Exhibit 10.38 to the Registrant's
Registration Statement No. 333-74329 on Form S-4 (the
"Form S-4") as originally filed and incorporated
herein by reference).
2.2 Agreement and Plan of Merger, by and among the
Registrant, CFC Acquisition Corp., CFS Acquisition
Corp., CNL Financial Corp., CNL Financial Services,
Inc., CNL Group, Inc., Five Arrows Realty Securities
L.L.C., Robert A. Bourne, Curtis B. McWilliams and
Brian Fluck, dated March 11, 1999 (included as
Exhibit 10.39 to the Form S-4 as originally filed and
incorporated herein by reference).
3.1 CNL American Properties Fund, Inc. Amended and
Restated Articles of Incorporation, as amended
(included as Exhibit 3.1 to the Registrant's Form
10-Q for the quarter ended June 30, 1999 and
incorporated herein by reference).
3.2 CNL American Properties Fund, Inc. Amended and
Restated Bylaws (included as Exhibit 3.2 to the
Registrant's Registration Statement No. 333-37657 on
Form S-11 and incorporated herein by reference).
3.3 CNL American Properties Fund, Inc. Second Amended and
Restated Articles of Incorporation (included as
Exhibit 3.3 to the Registrant's Form 10-Q for the
quarter ended June 30, 2000 and incorporated herein
by reference).
3.4 Articles of Amendment to Second Amended and Restated
Articles of Incorporation of CNL American Properties
Fund, Inc. (filed herewith).
4.1 Form of Stock Certificate (included as Exhibit 4.5 to
the Registrant's Registration Statement No. 33-78790
on Form S-11 and incorporated herein by reference).
10.1 Form of Indemnification Agreement dated as of April
18, 1995, between the Registrant and each of James M.
Seneff, Jr., Robert A. Bourne, G. Richard Hostetter,
J. Joseph Kruse, Richard C. Huseman, John T. Walker,
Jeanne A. Wall, Lynn E. Rose and Edgar J. McDougall,
dated as of January 27, 1997, between the Registrant
and Steven D. Shackelford, dated as of February 18,
1998, between the Registrant and Curtis B.
McWilliams, and dated as of September 1, 1999,
between the Registrant and each of Howard J. Singer,
John L. Farren, Timothy J. Neville, Michael I. Wood
and Barry L. Goff (included as Exhibit 10.9 to the
Registrant's Registration Statement No. 333-15411 on
Form S-11 and incorporated herein by reference).
10.2 Amended and Restated Agreement of Limited Partnership
of CNL APF Partners, LP (included as Exhibit 10.50 to
Amendment No. 2 to the Form S-4 and incorporated
herein by reference).
10.3 Amended and Restated Credit Agreement by and among
CNL APF Partners, LP, Registrant, First Union
National Bank, First Union Capital Markets Group,
Banc of America Securities LLC, NationsBank, N.A.,
The Chase Manhattan Bank and other financial
institutions, dated June 9, 1999 (included as Exhibit
10.51 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference).
10.4 First Amendment to Amended and Restated Credit
Agreement dated as of December 31, 1999 between CNL
APF Partners, LP and First Union National Bank, as
Agent (included as Exhibit 10.4 to the Registrant's
Form 10-K for the year ended December 31, 1999 and
incorporated herein by reference).
10.5 Franchise Receivable Funding and Servicing Agreement
dated as of October 14, 1999 between CNL APF
Partners, LP and Neptune Funding Corporation
(included as Exhibit 10.5 to the Registrant's Form
10-K for the year ended December 31, 1999 and
incorporated herein by reference).
10.6 Interim Wholesale Mortgage Warehouse and Security
Agreement dated as of September 18, 1998, and Amended
Agreement dated as of August 30, 1999 between CNL APF
Partners, LP and Prudential Securities Credit
Corporation (included as Exhibit 10.6 to the
Registrant's Form 10-K for the year ended December
31, 1999 and incorporated herein by reference).
10.7 1999 Performance Incentive Plan (included as Exhibit
10.1 to Amendment No. 1 to the Form S-4 and
incorporated herein by reference).
10.8 Registration Rights Agreement by and among the
Registrant, Robert A. Bourne, Curtis B. McWilliams,
John T. Walker, Howard Singer, Steven D. Shackelford
and CNL Group, Inc., dated as of March 11, 1999
(included as Exhibit 10.40 to Amendment No. 1 to the
Form S-4 and incorporated herein by reference).
10.9 Registration Rights Agreement by and among the
Registrant, Five Arrows Realty Securities L.L.C.,
James M. Seneff, Jr., Robert A. Bourne, Curtis B.
McWilliams and CNL Group, Inc., dated as of March 11,
1999 (included as Exhibit 10.41 to Amendment No. 1 to
the Form S-4 and incorporated herein by reference).
10.10 Employment Agreement by and between Curtis B.
McWilliams and the Registrant, dated September 15,
1999 (included as Exhibit 10.42 to Amendment No. 2 to
the Form S-4 and incorporated herein by reference).
10.11 Employment Agreement by and between Steven D.
Shackelford and the Registrant, dated September 15,
1999 (included as Exhibit 10.43 to Amendment No. 2 to
the Form S-4 and incorporated herein by reference).
10.12 Employment Agreement by and between John T. Walker
and the Registrant, dated September 15, 1999
(included as Exhibit 10.44 to Amendment No. 2 to the
Form S-4 and incorporated herein by reference).
10.13 Employment Agreement by and between Howard J. Singer
and the Registrant, dated September 15, 1999
(included as Exhibit 10.45 to Amendment No. 2 to the
Form S-4 and incorporated herein by reference).
10.14 Employment Agreement by and between Barry L. Goff and
the Registrant, dated September 15, 1999 (included as
Exhibit 10.46 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference).
10.15 Employment Agreement by and between Robert W. Chapin
and the Registrant, dated September 15, 1999
(included as Exhibit 10.47 to Amendment No. 2 to the
Form S-4 and incorporated herein by reference).
10.16 Employment Agreement by and between Timothy J.
Neville and the Registrant, dated September 15, 1999
(included as Exhibit 10.48 to Amendment No. 2 to the
Form S-4 and incorporated herein by reference).
10.17 Holdback Agreement by and among the Registrant and
Stockholders, dated August 31, 1999 (included as
Exhibit 10.56 to Amendment No. 2 to the Form S-4 and
incorporated herein by reference).
10.18 Amended and Restated Credit and Reimbursement
Agreement by and among CNL APF Partners, LP, CNL APF
LP Corp., CNL APF GP Corp., Bank of America, N.A. and
Bank of America Securities LLC, dated as of June 15,
2000 (included as Exhibit 10.18 to the Registrant's
Form 10-Q for the quarter ended June 30, 2000).
10.19 Employment Agreement by and between Michael Wood and
the Registrant, dated August 31, 1999 (included as
Exhibit 10.19 to the Registrant's Form 10-Q for the
quarter ended March 31, 2001).
10.20 Employment Agreement by and between Brent Heaton and
the Registrant, dated September 29, 1999 (included as
Exhibit 10.20 to the Registrant's Form 10-Q for the
quarter ended March 31, 2001).
10.21 Addendum to Employment Agreement dated as of November
1, 1999, between the Registrant and Curtis McWilliams
(included as Exhibit 10.21 to the Registrant's Form
10-Q for the quarter ended March 31, 2001). The
following persons have signed a substantially
identical Addendum relating to their respective
employment agreements; Steve Shackelford (dated
November 1, 1999), John Walker (dated November 3,
1999), Barry Goff (dated November 1, 1999), and Brent
Heaton (dated November 3, 1999).
10.22 Addendum to Employment Agreement dated as of November
1, 1999, between the Registrant and Robert Chapin
(included as Exhibit 10.22 to the Registrant's Form
10-Q for the quarter ended March 31, 2001). The
following persons have signed a substantially
identical Addendum relating to their respective
employment agreements: Howard Singer (dated November
1, 1999), Michael Wood (dated November 8, 1999) and
Timothy Neville (dated November 24, 1999).
10.23 Second Addendum to Employment Agreement dated as of
June 16, 2000, between the Registrant and Curtis
McWilliams (included as Exhibit 10.23 to the
Registrant's Form 10-Q for the quarter ended March
31, 2001). The following persons have signed a
substantially identical Second Addendum relating to
their respective employment agreements: Howard Singer
(dated June 19, 2000), Robert Chapin (dated June 20,
2000) and Brent Heaton (dated October 30, 2000).
10.24 Second Addendum to Employment Agreement dated as of
August 20, 2000, between the Registrant and Barry
Goff (included as Exhibit 10.24 to the Registrant's
Form 10-Q for the quarter ended March 31, 2001).
10.25 Second Addendum to Employment Agreement dated as of
September 1, 2000, between the Registrant and Steve
Shackelford (included as Exhibit 10.25 to the
Registrant's Form 10-Q for the quarter ended March
31, 2001).
10.26 Second Addendum to Employment Agreement dated as of
2000, between the Registrant and Timothy Neville
(included as Exhibit 10.26 to the Registrant's Form
10-Q for the quarter ended March 31, 2001).
10.27 Second Addendum to Employment Agreement dated as of
October 24, 2000, between the Registrant and Michael
Wood (included as Exhibit 10.27 to the Registrant's
Form 10-Q for the quarter ended March 31, 2001).
10.28 Second Addendum to Employment Agreement dated as of
October 25, 2000, between the Registrant and John
Walker (included as Exhibit 10.28 to the Registrant's
Form 10-Q for the quarter ended March 31, 2001).
10.29 Amended and Restated Master Purchase Agreement dated
as of October 11, 2001, among Bank of America, N.A.,
CNL Financial VII, LP and CNL Franchise Network, LP
(included as Exhibit 10.29 to the Registrant's Form
10-K for the year ended December 31, 2001 and
incorporated herein by reference).
10.30 Third Amended and Restated Side Letter dated as of
October 11, 2001, among Bank of America, N.A., CNL
Financial VII, LP and CNL Franchise Network, LP
(included as Exhibit 10.30 to the Registrant's Form
10-K for the year ended December 31, 2001 and
incorporated herein by reference).
10.31 Loan and Security Agreement dated as of June 14, 2002
between CNL Financial IX, LP and Nieuw Amsterdam
Receivables Corporation (filed herewith).
EXHIBIT 3.4
EXHIBIT 10.31