FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 2002
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _____________________ to _____________________
Commission file number
0-22485
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CNL Income Fund XVII, Ltd.
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3295393
- -------------------------------------- -------------------------
(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 _________
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-11
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 11
Part II
Other Information 12-13
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
2002 2001
------------------ -------------------
ASSETS
Land and buildings on operating leases, net $ 15,082,369 $ 13,864,015
Net investment in direct financing leases 976,915 988,429
Real estate held for sale -- 3,220,848
Investment in joint ventures 4,047,614 3,658,974
Cash and cash equivalents 949,040 673,924
Restricted cash 1,680,079 297,288
Receivables, less allowance for doubtful accounts
of $286,567 in 2001 1,598 2,709
Due from related parties 8,612 19,289
Accrued rental income 506,016 465,033
Other assets 12,889 3,839
------------------ -------------------
$ 23,265,132 $ 23,194,348
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 11,033 $ 8,974
Real estate taxes payable 27,591 --
Distributions payable 600,000 600,000
Due to related parties 15,373 11,582
Rents paid in advance 15,941 8,350
Deferred rental income 51,738 53,478
------------------ -------------------
Total liabilities 721,676 682,384
Partners' capital 22,543,456 22,511,964
------------------ -------------------
$ 23,265,132 $ 23,194,348
================== ===================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
-------------- ------------- -------------- --------------
Revenues:
Rental income from operating leases $ 421,474 $ 412,291 $ 833,377 $ 824,386
Earned income from direct financing leases 24,424 24,980 48,995 50,092
Interest and other income 4,751 4,420 18,716 40,597
-------------- ------------- -------------- --------------
450,649 441,691 901,088 915,075
-------------- ------------- -------------- --------------
Expenses:
General operating and administrative 49,787 62,544 112,925 175,785
Property expenses 11,373 23,548 14,511 48,286
Management fee to related party 6,249 4,189 12,305 10,096
State and other taxes 1,149 2,534 9,258 35,028
Depreciation and amortization 70,365 78,002 147,945 163,546
Provision for write-down of assets -- 39,575 -- 39,575
-------------- ------------- -------------- --------------
138,923 210,392 296,944 472,316
-------------- ------------- -------------- --------------
Income Before Loss on Sale of Assets and Equity in
Earnings of Joint Ventures 311,726 231,299 604,144 442,759
Loss on Sale of Assets -- (38,877 ) -- (34,593 )
Equity in Earnings of Joint Ventures 163,822 22,512 240,684 45,660
-------------- --------------
-------------- -------------
Income from Continuing Operations 475,548 214,934 844,828 453,826
-------------- ------------- -------------- --------------
Discontinued Operations (Note 6):
Income (loss) from discontinued operations, net 43,663 13,149 100,987 74,789
Gain (loss) on disposal of discontinued
operations, net 285,677 (29,333 ) 285,677 (29,333 )
-------------- ------------- -------------- --------------
329,340 (16,184 ) 386,664 45,456
-------------- ------------- -------------- --------------
Net Income $ 804,888 $ 198,750 $ 1,231,492 $ 499,282
============== ============= ============== ==============
Income (Loss) Per Limited Partner Unit
Continuing operations $ 0.16 $ 0.08 $ 0.28 $ 0.15
Discontinued operations 0.11 (0.01 ) 0.13 0.02
-------------- ------------- -------------- --------------
Total $ 0.27 $ 0.07 $ 0.41 $ 0.17
============== ============= ============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 3,000,000 3,000,000 3,000,000 3,000,000
============== ============= ============== ==============
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
2002 2001
-------------------- ------------------
General partners:
Beginning balance $ (4,460 ) $ (4,460 )
Net income -- --
-------------------- ------------------
(4,460 ) (4,460 )
-------------------- ------------------
Limited partners:
Beginning balance 22,516,424 23,947,228
Net income 1,231,492 969,196
Distributions ($0.40 and $0.80 per limited partner
unit, respectively) (1,200,000 ) (2,400,000 )
-------------------- ------------------
22,547,916 22,516,424
-------------------- ------------------
Total partners' capital $ 22,543,456 $ 22,511,964
==================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Six Months Ended
June 30,
2002 2001
--------------- --------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 1,145,942 $ 795,960
--------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 3,499,595 1,463,948
Additions to land and buildings on operating leases (1,364,194 ) --
Investment in joint ventures (424,807 ) (1,496,721 )
Increase in restricted cash (1,381,420 ) --
--------------- --------------
Net cash provided by (used in) investing 329,174 (32,773 )
activities --------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,200,000 ) (1,200,000 )
--------------- --------------
Net cash used in financing activities (1,200,000 ) (1,200,000 )
--------------- --------------
Net Increase (decrease) in Cash and Cash Equivalents 275,116 (436,813 )
Cash and Cash Equivalents at Beginning of Period 673,924 1,597,502
--------------- --------------
Cash and Cash Equivalents at End of Period $ 949,040 $ 1,160,689
=============== ==============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
period $ 600,000 $ 600,000
=============== ==============
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, 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 Form 10-K of CNL
Income Fund XVII, Ltd. (the "Partnership") for the year ended December
31, 2001.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
2. Reclassification:
Certain items in the prior years' financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on total partners' capital or net income.
3. Land and Buildings on Operating Leases:
In June 2002, the Partnership reinvested the majority of the net sales
proceeds it received from the sale of the properties in Mesquite,
Nevada and Knoxville, Tennessee (see Note 6), in a Taco Cabana property
located in Houston, Texas, at an approximate cost of approximately
$1,364,200.
4. Investment in Joint Ventures:
In May 2002, Mansfield Joint Venture, in which the Partnership owns a
21% interest, entered into negotiations with an unrelated third party
to sell the property in Mansfield, Texas. As a result, the Joint
Venture reclassified the assets relating to this property from land and
building on operating leases, and accrued rental income to real estate
held for sale. The property was recorded at the lower of its carrying
amount or fair value less cost to sell. In addition, the Joint Venture
stopped recording depreciation and accrued rental income. The financial
results for this property are reflected as Discontinued Operations in
the condensed financial information presented below.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
4. Investment in Joint Ventures - Continued:
In June 2002, the Partnership reinvested a portion of the net sales
proceeds from the sale of the property in Mesquite, Nevada, in a joint
venture arrangement, Katy Joint Venture, with CNL Income Fund IX, Ltd.,
a Florida limited partnership and an affiliate of the general partners.
The joint venture acquired a property in Katy, Texas from CNL Funding
2001-A, LP, an affiliate of the general partners (see Note 5). The
Partnership and CNL Income Fund IX, Ltd. entered into an agreement
whereby each co-venturer will share in the profits and losses of the
property in proportion to its applicable percentage interest. As of
June 30, 2002, the Partnership had contributed approximately $416,700
for a 40% interest in this joint venture.
As of June 30, 2002, CNL Mansfield Joint Venture, CNL Kingston Joint
Venture, Ocean Shores Joint Venture, CNL VII & XVII Lincoln Joint
Venture, Katy Joint Venture, each owned and leased one property to an
operator of national fast-food or family-style restaurants. In
addition, the Partnership and affiliates, as five separate tenancy in
common arrangements, each owned and leased one property to an operator
of national fast-food or family-style restaurants. The following
presents the combined, condensed financial information for the joint
ventures and the properties held as tenants-in-common with affiliates
at:
June 30, December 31,
2002 2001
----------------- -----------------
Land and buildings on operating leases, net $ 9,177,002 $ 8,220,336
Real estate held for sale 742,130 745,619
Cash 106,701 107,183
Receivables, less allowance for doubtful
accounts 4,784 2,119
Accrued rental income 194,182 165,314
Other assets -- 1,252
Liabilities 18,076 54,184
Partners' capital 10,206,723 9,187,639
Quarter Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
-------------- -------------- -------------- --------------
Revenues $ 552,886 $ 182,429 $ 798,135 $ 257,676
Expenses (57,882 ) (210,814 ) (120,848 ) (236,527 )
-------------- -------------- -------------- --------------
Income (loss) from
continuing operations 495,004 (28,385 ) 677,287 21,149
-------------- -------------- -------------- --------------
Discontinued operations:
Revenues 22,365 22,240 44,730 44,592
Expenses (1,503 ) (4,694 ) (5,952 ) (9,021 )
-------------- -------------- -------------- --------------
20,862 17,546 38,778 35,571
-------------- -------------- -------------- --------------
Net Income (Loss) $ 515,866 $ (10,839 ) $ 716,065 $ 56,720
============== ============== ============== ==============
The Partnership recognized income of $240,684 and $45,660 during the
six months ended June 30, 2002 and 2001, respectively, from these joint
ventures and tenancies in common of which, $163,822 and $22,512 were
earned during the quarters ended June 30, 2002 and 2001, respectively.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 2002 and 2001
5. Related Party Transactions:
In June 2002, the Partnership acquired a property in Houston, Texas,
from CNL Funding 2001-A, LP, for a purchase price of approximately
$1,364,200 (see Note 3). In addition, in June 2002, Katy Joint Venture
acquired a property in Katy, Texas (see Note 4) from CNL Funding
2001-A, LP. CNL Funding 2001-A, LP is an affiliate of the general
partners. CNL Funding 2001-A, LP had purchased and temporarily held
title to the properties in order to facilitate the acquisition of the
properties by the Partnership and the Joint Venture. The purchase price
paid by the Partnership and the Joint Venture represented the costs
incurred by CNL Funding 2001-A, LP to acquire and carry the properties,
including closing costs.
6. Discontinued Operations:
In October 2001, Phoenix Restaurant Group, Inc. and its subsidiaries, a
tenant of the Partnership, filed for bankruptcy protection and rejected
the lease relating to the property in Mesquite, Nevada. In March 2002,
the Partnership sold the property to a third party and received net
sales proceeds of approximately $771,800. Due to the fact that in 2001,
the Partnership recorded a provision for write-down of assets of
$264,914 for this property, no gain or loss was recognized in 2002
relating to the sale.
In May and June 2002, the Partnership sold its properties in Knoxville,
Tennessee and Wilmette, Illinois to unrelated third parties and
received total net sales proceeds of approximately $2,727,800 resulting
in a total gain of approximately $285,700.
The financial results for these properties are reflected as
Discontinued Operations in the accompanying financial statements. The
operating results of discontinued operations are as follows:
Quarter Ended June 30, Six Months Ended June 30,
2002 2001 2002 2001
------------- ------------- ------------- --------------
Rental revenues $ 55,824 $ 76,156 $ 126,481 $ 144,694
Expenses (12,161 ) (63,009 ) (25,494 ) (69,906 )
Gain (loss) on disposal of assets 285,677 (29,333 ) 285,677 (29,333 )
------------- ------------- ------------- --------------
Income (loss) from discontinued
operations $ 329,340 $ (16,186 ) $ 386,664 $ 45,455
============= ============= ============= ==============
7. Subsequent Event:
In July 2002, the Partnership reinvested the majority of the net sales
proceeds it received from the sale of the property in Wilmette,
Illinois to acquire a 90% interest in a property in Kenosha, Wisconsin,
as tenants-in-common, with CNL Income Fund VIII, Ltd., a Florida
limited Partnership and affiliate of the general partners. The
Partnership contributed approximately $ 1,694,700 for its interest.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XVII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on February 10, 1995, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurant properties, as well as land upon which restaurants were to
be constructed, to be leased primarily to operators of national and regional
fast-food, family-style and casual dining restaurant chains (collectively, the
"Properties"). The leases generally are triple-net leases, with the lessee
responsible for all repairs and maintenance, property taxes, insurance and
utilities. As of June 30, 2001, the Partnership owned 19 Properties directly and
eight Properties indirectly, through joint venture or tenancy in common
arrangements. As of June 30, 2002, the Partnership owned 16 Properties directly
and ten Properties indirectly, through joint venture or tenancy in common
arrangements.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 2002 and 2001 was cash from operating activities (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses). Cash from operating activities
was $1,145,942 and $795,960 for the six months ended June 30, 2002 and 2001,
respectively. The increase in cash from operating activities for the six months
ended June 30, 2002, was primarily a result of changes in the Partnership's
income and expenses as described in "Results of Operations" below.
Other sources and uses of capital included the following during the six
months ended June 30, 2002.
In March 2002, the Partnership sold its Denny's Property in Mesquite,
Nevada, to a third party and received net sales proceeds of approximately
$771,800. Due to the fact that in 2001, the Partnership recorded a provision for
write-down of assets of $264,914 for this Property, no gain or loss was
recognized in 2002, relating to the sale. The provision represented the
difference between the carrying value of the Property and its fair value.
In May and June 2002, the Partnership sold its properties in Knoxville,
Tennessee and Wilmette, Illinois to unrelated third parties and received total
net sales proceeds of approximately $2,727,800 resulting in a total gain of
approximately $285,700.
In June 2002, the Partnership reinvested the majority of the net sales
proceeds, it received from the sale of the Properties in Mesquite, Nevada and
Knoxville, Tennessee, in a Taco Cabana Property located in Houston, Texas, at an
approximate cost of approximately $1,364,200.
In addition in June 2002, the Partnership reinvested a portion of the
net sales proceeds from the sale of the Property in Mesquite, Nevada in a joint
venture arrangement, Katy Joint Venture, with CNL Income Fund IX, Ltd., a
Florida limited partnership and an affiliate of the general partners. The joint
venture acquired a Property in Katy, Texas. The Partnership and CNL Income Fund
IX, Ltd. entered into an agreement whereby each co-venturer will share in the
profits and losses of the Property in proportion to its applicable percentage
interest. As of June 30, 2002, the Partnership had contributed approximately
$416,700 for a 40% interest in this joint venture.
The Partnership and Katy Joint Venture acquired the Properties from CNL
Funding 2001-A, LP, a Delaware limited partnership and an affiliate of the
general partners. CNL Funding 2001-A, LP had purchased and temporarily held
title to the Properties in order to facilitate the acquisition of the Properties
by the Partnership and the Joint Venture. The purchase prices paid by the
Partnership and the Joint Venture represented the costs incurred by CNL Funding
2001-A, LP to acquire the Properties, including closing costs. The general
partners believe that the transactions, or a portion thereof, relating to the
sales of the Properties and the reinvestment of the proceeds will qualify as
like-kind exchange transactions for federal income tax purposes. The Partnership
anticipates that its distributions will be sufficient to enable the limited
partners to pay federal and state income taxes, if any (at a level reasonably
assumed by the general partners), resulting from the transactions.
In July 2002, the Partnership reinvested the majority of the net sales
proceeds it received from the sale of the Property in Wilmette, Illinois to
acquire a 90% interest in a Property in Kenosha, Wisconsin, as
tenants-in-common, with CNL Income Fund VIII, Ltd., a Florida limited
Partnership and affiliate of the general partners. The Partnership contributed
approximately $ 1,694,700 for its interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments such as
demand deposit accounts at commercial banks, money market accounts and
certificates of deposit with less than a 90-day maturity date, pending the
Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At June 30, 2002, the Partnership had $949,040
invested in such short-term investments, as compared to $673,924 at December 31,
2001. The increase in cash and cash equivalents at June 30, 2002 was due to the
fact that approximately $297,300 in restricted cash remaining from the net sales
proceeds relating to the sale of its Property in El Dorado, California were
released from restricted cash to cash and cash equivalents. The funds remaining
at June 30, 2002, after payment of distributions and other liabilities will be
used to meet the Partnership's working capital needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on cash from operations, and for the six months ended June 30, 2001, a
loan from the general partner in July 2001 of $50,000, the Partnership declared
distributions to limited partners of $1,200,000 for each of the six months ended
June 30, 2002 and 2001 ($600,000 for each of the quarters ended March 31, 2002
and 2001). This represents distributions for each applicable six months of $0.40
per unit ($0.20 per unit for each applicable quarter). No distributions were
made to the general partners for the quarters and six months ended June 30, 2002
and 2001. No amounts distributed to the limited partners for the six months
ended June 30, 2002 and 2001, are required to be or have been treated by the
Partnership as a return of capital for purposes of calculating the limited
partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution to
the limited partners on a quarterly basis.
Total liabilities of the Partnership, including distributions payable,
increased to $715,113 at June 30, 2002, from $682,384 at December 31, 2001,
primarily as a result of an increase in real estate taxes payable at June 30,
2002, as compared to December 31, 2001. The general partners believe that the
Partnership has sufficient cash on hand to meet its current working capital
needs.
Long Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues were $882,372 for the six months ended June 30,
2002, as compared to $874,478 for the six months ended June 30, 2001, of which
$445,898 and $437,271 were earned during the second quarter of 2002 and 2001,
respectively. The increase in rental revenues during the quarter and six months
ended June 30, 2002, as compared to the same period in 2001, was due to the fact
that in December 2001, the Partnership reinvested the majority of the net sales
proceeds from the 2001 sale of the Property in El Dorado, California in a
Property in Austin, Texas. The increase in rental revenues during the quarter
and six months ended June 30, 2002, as compared to the same period in 2001, was
partially offset by the fact that the Partnership sold several Properties in
2002 and 2001.
During the six months ended June 30, 2002 and 2001, the Partnership
earned $18,716 and $40,597 respectively, in interest and other income, of which
$4,751 and $4,420 were earned during the quarters ended June 30, 2002 and 2001,
respectively. During the six months ended June 30, 2001, interest and other
income were higher as compared to the same period in 2002 due to the Partnership
recognizing as income the remainder of the security deposit from the former
tenant of the Property in Houston, Texas, in accordance with the lease
agreement. The tenant had rejected the lease, and the Partnership sold the
Property in January 2001.
During the six months ended June 30, 2002 and 2001, the Partnership
earned $240,684 and $45,660, respectively, attributable to net income earned by
joint ventures, of which income of $163,822 and $22,512 were reported during the
quarters ended June 30, 2002 and 2001, respectively. Net operating results
reported by joint ventures were lower during the six months ended June 30, 2001,
as compared to the same period in 2002, due to the fact that PRG, the tenant of
the Property in Corpus Christi, Texas, experienced financial difficulties and
ceased paying rent in 2001. As a result, the Partnership and an affiliate of the
general partners, as tenants-in-common, in which the Partnership owns an
approximate 27% interest, stopped recording rental revenues in accordance with
the Partnership's revenue recognition policy. The Partnership and the affiliate,
as tenants-in-common of this Property, recorded during the six months ended June
30, 2001 a provision for write-down of assets of approximately $55,700 in
previously accrued rental income relating to this Property. The accrued rental
income was the accumulated amount of non-cash accounting adjustments previously
recorded in order to recognize future scheduled rent increases as income evenly
over the term of the lease. In October 2001, PRG filed for Chapter 11 bankruptcy
protection, as described above. Since the bankruptcy filing, the tenant resumed
paying rent. The Partnership and the affiliate, as tenants-in-common, have
received the rent payments relating to this Property from the bankruptcy date
through June 30, 2002. During April 2002, PRG assigned its lease to a new
tenant, an affiliate of the general partners. All other lease terms remained
unchanged and are substantially the same as the Partnership's other leases. As a
result of the assignment relating to this Property, the Partnership collected
$309,700 in past due rents which were reserved in 2001.
The increase in net operating results reported by joint ventures during
the quarter and six months ended June 30, 2002, as compared to the same period
in 2001, was also the result of the Partnership investing during 2001 and 2002
in two joint ventures and one additional Property, as tenants-in-common with
affiliates of the General Partners.
The increase in operating results reported by joint ventures during the
six months ended June 30, 2002, as compared to the same period in 2001, was
partially offset by the fact that Ocean Shores Joint Venture, in which the
Partnership owns an approximate 31% interest, stopped recording rental revenues
totaling approximately $55,900 during 2002, due to financial difficulties of the
tenant. The tenant of the Property owned by the joint venture ceased operations
and vacated the Property in April 2001. The joint venture will continue to
pursue collection of these past due rental amounts.
In May 2002, Mansfield Joint Venture, in which the Partnership owns a
21% interest, entered into negotiations with an unrelated third party to sell
the Property in Mansfield, Texas, as described below.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $296,944 and $472,316, for the six
months ended June 30, 2002 and 2001, respectively, of which $138,923 and
$210,392 were incurred during the quarters ended June 30, 2002 and 2001,
respectively. The decrease in operating expenses during the quarter and six
months ended June 30, 2002, as compared to the same periods in 2001, was
partially attributable to a decrease in the costs incurred for administrative
expenses for servicing the Partnership and its Properties and to a decrease in
depreciation expense since the Partnership sold several Properties in 2002 and
2001. The decrease in operating expenses during the six months ended June 30,
2002 was also partially due to a decrease in state taxes.
Operating expenses were higher in 2001, as compared to the six months
ended June 30, 2002, since the Partnership recorded a provision for write-down
of assets in the amount of $39,575 relating to its Property in Inglewood,
California. The provision represented the difference between the carrying value
of the Property and its fair value. In September 2001, the Partnership sold this
Property to a third party. Due to the fact that the Partnership had previously
recorded a provision for write-down for this Property, no additional gain or
loss was recognized during 2001 relating to the actual sale of the Property
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
During the six months ended June 30, 2001, the Partnership sold the
Property in Houston, Texas, and recorded a gain of $4,284, and sold the Property
in Kentwood, Michigan, and recorded a loss of $38,877.
In March 2002, the Partnership sold the Property in Mesquite, Nevada
for which no gain or loss was recognized in 2002, as described above in "Capital
Resources." In May and June 2002, the Partnership sold its Properties in
Knoxville, Tennessee and Wilmette, Illinois to unrelated third parties and
received total net sales proceeds of approximately $2,727,800 resulting in a
total gain on disposal of discontinued operations of approximately $285,700, as
described above in "Capital Resources." The Partnership recognized net rental
income (rental revenues less Property related expenses) of $100,987 and $74,788
during the six months ended June 30, 2002 and 2001, respectively, of which
$43,663 and $13,147 were recognized during the quarters ended June 30, 2002 and
2001, respectively, relating to these Properties. The amounts were reported as
Discontinued Operations. The lower net rental income reported during the quarter
and six months ended June 30, 2001 was partially due to the Partnership
reporting bad debt expense during the quarter and six months ended June 30, 2001
of approximately $46,900 and $50,700, respectively, for past due rental amounts
relating to the Properties in Mesquite, Nevada and Kentwood, Michigan due to
financial difficulties the tenant was experiencing. In addition, the Partnership
incurred approximately $27,500 in real estate taxes during the quarter and six
months ended June 30, 2001, relating to these two Properties.
In May 2002, Mansfield Joint Venture, in which the Partnership owns a
21% interest, entered into negotiations with an unrelated third party to sell
the Property in Mansfield, Texas. The Joint Venture expects to use the proceeds
from the sale to reinvest in an additional Property. In accordance with
Statement of Financial Accounting Standards No. 144, "Accounting for the
Impairment or Disposal of Long-Lived Assets", the Joint Venture reclassified the
assets relating to this Property from land and building on operating leases, and
accrued rental income to real estate held for sale. The property in Mansfield,
Texas was recorded at the lower of its carrying amount or fair value less cost
to sell. During the quarter and six months ended June 30, 2002, the Joint
Venture suspended the recording of depreciation and accrued rental income upon
placing the property up for sale. In connection with this Property, the Joint
Venture recognized net rental income (rental revenues less Property related
expenses) of $38,778 and $35,571, during the six months ended June 30, 2002 and
2001, respectively, of which $20,862 and $17,546 were earned during the quarters
ended June 30, 2002 and 2001, respectively. The Partnership's pro-rata share of
these amounts are included in equity in earnings of joint ventures in the
accompanying financial statements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
**3.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XVII, Ltd. (Filed as Exhibit 3.1 to
the Registrant's Registration Statement on Form S-11,
No. 33-90998, incorporated herein by reference.)
**3.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XVII, Ltd. (Included as Exhibit
4.2 to Form 10-K filed with the Securities and
Exchange Commission on March 21, 1996, and
incorporated herein by reference.)
**4.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XVII, Ltd. (Filed as Exhibit 3.1 to
Registration Statement No. 33-90998 on Form S-11 and
incorporated herein by reference.)
**4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XVII, Ltd. (Included as Exhibit
4.2 to Form 10-K filed with the Securities and
Exchange Commission on March 21, 1996, and
incorporated herein by reference.)
**4.3 Form of Agreement between CNL Income Fund XVII, Ltd.
and MMS Escrow and Transfer Agency, Inc. and between
CNL Income Fund XVIII, Ltd. and MMS Escrow and
Transfer Agency, Inc. relating to the Distribution
Reinvestment Plans (Filed as Exhibit 4.4 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**8.3 Opinion of Baker & Hostetler regarding certain
material issues relating to the Distribution
Reinvestment Plan of CNL Income Fund XVII, Ltd.
(Filed as Exhibit 8.3 to Amendment No. Three to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.1 Management Agreement between CNL Income Fund XVII,
Ltd. and CNL Fund Advisors, Inc. (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on March 21, 1996, and
incorporated herein by reference.)
**10.2 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.2 to Form 10-Q filed with the Securities
and Exchange Commission on August 13, 2001, and
incorporated herein by reference.)
**10.3 Form of Joint Venture Agreement for Joint Ventures
with Unaffiliated Entities (Filed as Exhibit 10.2 to
the Registrant's Registration Statement on Form S-11,
No. 33-90998, incorporated herein by reference.)
**10.4 Form of Joint Venture Agreement for Joint Ventures
with Affiliated Programs (Filed as Exhibit 10.3 to
the Registrant's Registration Statement on Form S-11,
No. 33-90998, incorporated herein by reference.)
**10.5 Form of Development Agreement (Filed as Exhibit 10.5
to the Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
**10.6 Form of Indemnification and Put Agreement (Filed as
Exhibit 10.6 to the Registrant's Registration
Statement on Form S-11, No. 33-90998, incorporated
herein by reference.)
**10.7 Form of Unconditional Guarantee of Payment and
Performance (Filed as Exhibit 10.7 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.8 Form of Lease Agreement for Existing Restaurant
(Filed as Exhibit 10.8 to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.9 Form of Lease Agreement for Restaurant to be
Constructed (Filed as Exhibit 10.9 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.10 Form of Premises Lease for Golden Corral Restaurant
(Filed as Exhibit 10.10 to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.11 Form of Agreement between CNL Income Fund XVII, Ltd.
and MMS Escrow and Transfer Agency, Inc. and between
CNL Income Fund XVIII, Ltd. and MMS Escrow and
Transfer Agency, Inc. relating to the Distribution
Reinvestment Plans (Filed as Exhibit 4.4 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.12 Form of Cotenancy Agreement with Unaffiliated Entity
(Filed as Exhibit 10.12 to Amendment No. One to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.13 Form of Cotenancy Agreement with Affiliated Entity
(Filed as Exhibit 10.13 to Amendment No. One to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.14 Form of Registered Investor Advisor Agreement (Filed
as Exhibit 10.14 to Amendment No. One to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.15 Assignment of Management Agreement from CNL APF
Partners, LP to CNL Restaurants XVIII, Inc. (Filed
herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed 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 12th day of August, 2002.
CNL INCOME FUND XVII, LTD.
By:CNL REALTY CORPORATION
General Partner
By:/s/ James M. Seneff, Jr.
----------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund XVII, Ltd. (the
"Partnership"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Partnership'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 Partnership.
Date: August 12, 2002 /s/ James M. Seneff, Jr.
-------------------------------
Name: James M. Seneff, Jr.
Title: Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Robert A. Bourne, the President and Treasurer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund XVII, Ltd. (the
"Partnership"), has executed this certification in connection with the filing
with the Securities and Exchange Commission of the Partnership'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 Partnership.
Date: August 12, 2002 /s/ Robert A. Bourne
----------------------------
Name: Robert A. Bourne
Title: President and Treasurer
EXHIBIT INDEX
Exhibit Number
**3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund XVII, Ltd. (Filed as Exhibit 3.1 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**3.2 Amended and Restated Agreement of Limited Partnership of CNL
Income Fund XVII, Ltd. (Included as Exhibit 4.2 to Form 10-K
filed with the Securities and Exchange Commission on March
21, 1996, and incorporated herein by reference.)
**4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund XVII, Ltd. (Filed as Exhibit 3.1 to Registration
Statement No. 33-90998 on Form S-11 and incorporated herein
by reference.)
**4.2 Amended and Restated Agreement of Limited Partnership of CNL
Income Fund XVII, Ltd. (Included as Exhibit 4.2 to Form 10-K
filed with the Securities and Exchange Commission on March
21, 1996, and incorporated herein by reference.)
**4.3 Form of Agreement between CNL Income Fund XVII, Ltd. and MMS
Escrow and Transfer Agency, Inc. and between CNL Income Fund
XVIII, Ltd. and MMS Escrow and Transfer Agency, Inc. relating
to the Distribution Reinvestment Plans (Filed as Exhibit 4.4
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**8.3 Opinion of Baker & Hostetler regarding certain material
issues relating to the Distribution Reinvestment Plan of CNL
Income Fund XVII, Ltd. (Filed as Exhibit 8.3 to Amendment No.
Three to the Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by reference.)
**10.1 Management Agreement between CNL Income Fund XVII, Ltd. and
CNL Fund Advisors, Inc. (Included as Exhibit 10.1 to Form
10-K filed with the Securities and Exchange Commission on
March 21, 1996, and incorporated herein by reference.)
**10.2 Assignment of Management Agreement from CNL Fund Advisors,
Inc. to CNL APF Partners, LP. (Included as Exhibit 10.2 to
Form 10-Q filed with the Securities and Exchange Commission
on August 13, 2001, and incorporated herein by reference.)
**10.3 Form of Joint Venture Agreement for Joint Ventures with
Unaffiliated Entities (Filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.4 Form of Joint Venture Agreement for Joint Ventures with
Affiliated Programs (Filed as Exhibit 10.3 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.5 Form of Development Agreement (Filed as Exhibit 10.5 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.6 Form of Indemnification and Put Agreement (Filed as Exhibit
10.6 to the Registrant's Registration Statement on Form S-11,
No. 33-90998, incorporated herein by reference.)
**10.7 Form of Unconditional Guarantee of Payment and Performance
(Filed as Exhibit 10.7 to the Registrant's Registration
Statement on Form S-11, No. 33-90998, incorporated herein by
reference.)
**10.8 Form of Lease Agreement for Existing Restaurant (Filed as
Exhibit 10.8 to the Registrant's Registration Statement on
Form S-11, No. 33-90998, incorporated herein by reference.)
**10.9 Form of Lease Agreement for Restaurant to be Constructed
(Filed as Exhibit 10.9 to the Registrant's Registration
Statement on Form S-11, No. 33-90998, incorporated herein by
reference.)
**10.10 Form of Premises Lease for Golden Corral Restaurant (Filed as
Exhibit 10.10 to the Registrant's Registration Statement on
Form S-11, No. 33-90998, incorporated herein by reference.)
**10.11 Form of Agreement between CNL Income Fund XVII, Ltd. and MMS
Escrow and Transfer Agency, Inc. and between CNL Income Fund
XVIII, Ltd. and MMS Escrow and Transfer Agency, Inc. relating
to the Distribution Reinvestment Plans (Filed as Exhibit 4.4
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.12 Form of Cotenancy Agreement with Unaffiliated Entity (Filed
as Exhibit 10.12 to Amendment No. One to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.13 Form of Cotenancy Agreement with Affiliated Entity (Filed as
Exhibit 10.13 to Amendment No. One to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.14 Form of Registered Investor Advisor Agreement (Filed as
Exhibit 10.14 to Amendment No. One to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.15 Assignment of Management Agreement from CNL APF Partners, LP
to CNL Restaurants XVIII, Inc. (Filed herewith.)
EXHIBIT 10.15