Back to GetFilings.com
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 September 30, 2003
--------------------------------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _____________________ to _____________________
Commission file number
0-22485
---------------------------------------
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 ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes___ No X
CONTENTS
Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
Item 4. Controls and Procedures 12
Part II
Other Information 13-15
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
2003 2002
------------------ -------------------
ASSETS
Real estate properties with operating leases, net $ 14,652,591 $ 15,022,053
Net investment in direct financing leases 402,431 410,120
Investment in joint ventures 5,794,302 5,749,285
Cash and cash equivalents 668,902 829,739
Receivables, less allowance for doubtful accounts
of $60,093 in 2003 36,017 37,006
Accrued rental income 444,129 502,962
Other assets 17,802 12,370
------------------ -------------------
$ 22,016,174 $ 22,563,535
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 114,785 $ 3,494
Real estate taxes payable 5,667 13,457
Distributions payable 600,000 600,000
Due to related parties 13,317 26,600
Rents paid in advance 25,096 31,910
Deferred rental income 47,368 49,998
------------------ -------------------
Total liabilities 806,233 725,459
Partners' capital 21,209,941 21,838,076
------------------ -------------------
$ 22,016,174 $ 22,563,535
================== ===================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------------- -------------- ------------- -------------
Revenues:
Rental income from operating leases $ 413,600 $ 453,252 $1,270,187 $1,280,066
Earned income from direct financing leases 10,784 24,278 32,560 73,273
Interest and other income -- 6,667 1,112 29,524
------------- -------------- ------------- -------------
424,384 484,197 1,303,859 1,382,863
------------- -------------- ------------- -------------
Expenses:
General operating and administrative 41,195 43,597 139,139 160,031
Property related 3,021 4,325 7,431 17,396
Management fees to related parties 5,854 5,948 17,550 18,253
State and other taxes -- -- 25,246 9,258
Depreciation and amortization 81,832 78,380 244,064 226,325
Provision for write-down of assets -- -- 213,000 --
------------- -------------- ------------- -------------
131,902 132,250 646,430 431,263
------------- -------------- ------------- -------------
Income Before Equity in Earnings of Joint Ventures 292,482 351,947 657,429 951,600
Equity in Earnings of Joint Ventures 256,483 172,098 514,436 412,782
------------- -------------- ------------- -------------
Income from Continuing Operations 548,965 524,045 1,171,865 1,364,382
------------- -------------- ------------- -------------
Discontinued Operations:
Income from discontinued operations -- -- -- 105,478
Gain on disposal of discontinued operations -- -- -- 285,677
------------- -------------- ------------- -------------
-- -- -- 391,155
------------- -------------- ------------- -------------
Net Income $ 548,965 $ 524,045 $1,171,865 $1,755,537
============= ============== ============= =============
Income Per Limited Partner Unit
Continuing operations $ 0.18 $ 0.17 $ 0.39 $ 0.46
Discontinued operations -- -- -- 0.13
------------- -------------- ------------- -------------
$ 0.18 $ 0.17 $ 0.39 $ 0.59
============= ============== ============= =============
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
Nine Months Ended Year Ended
September 30, December 31,
2003 2002
--------------------- ------------------
General partners:
Beginning balance $ (4,460 ) $ (4,460 )
Net income -- --
--------------------- ------------------
(4,460 ) (4,460 )
--------------------- ------------------
Limited partners:
Beginning balance 21,842,536 22,516,424
Net income 1,171,865 1,726,112
Distributions ($0.60 and $0.80 per limited partner
unit, respectively) (1,800,000 ) (2,400,000 )
--------------------- ------------------
21,214,401 21,842,536
--------------------- ------------------
Total partners' capital $ 21,209,941 $ 21,838,076
===================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2003 2002
--------------- --------------
Net Cash Provided by Operating Activities $ 1,639,163 $ 1,716,847
--------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of assets -- 3,499,595
Additions to real estate properties with operating leases -- (1,364,194 )
Investment in joint ventures -- (2,136,538 )
Decrease in restricted cash -- 297,288
--------------- --------------
Net cash provided by investing activities -- 296,151
--------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,800,000 ) (1,800,000 )
--------------- --------------
Net cash used in financing activities (1,800,000 ) (1,800,000 )
--------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents (160,837 ) 212,998
Cash and Cash Equivalents at Beginning of Period 829,739 673,924
--------------- --------------
Cash and Cash Equivalents at End of Period $ 668,902 $ 886,922
=============== ==============
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 Nine Months Ended September 30, 2003 and 2002
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the general partners, necessary for a fair
statement of the results for the interim periods presented. Operating
results for the quarter and nine months ended September 30, 2003, may
not be indicative of the results that may be expected for the year
ending December 31, 2003. Amounts as of December 31, 2002, 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, 2002.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of
Variable Interest Entities" to expand upon and strengthen existing
accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with
variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be consolidated by a company
if that company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. The consolidation
requirements of FIN 46 apply immediately to variable interest entities
created after January 31, 2003, and to older entities, in the first
fiscal year or interim period ending after December 15, 2003. The
general partners believe adoption of this standard may result in either
consolidation or additional disclosure requirements of the
Partnership's unconsolidated joint ventures, which are currently
accounted for under the equity method. However, such consolidation is
not expected to significantly impact the Partnership's results of
operations.
In May 2003, the FASB issued FASB Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities
and Equity" ("FAS 150"). FAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. FAS 150 will require
issuers to classify certain financial instruments as liabilities (or
assets in some circumstances) that previously were classified as
equity. One requirement of FAS 150 is that minority interests for
majority owned finite lived entities be classified as a liability and
recorded at fair market value. FAS 150 initially applied immediately to
all financial instruments entered into or modified after May 31, 2003,
and otherwise was effective at the beginning of the first interim
period beginning after June 15, 2003. Effective October 29, 2003, the
FASB deferred implementation of FAS 150 as it applies to minority
interests of finite lived Partnerships. The deferral of these
provisions is expected to remain in effect while these interests are
addressed in either Phase II of the FASB's Liabilities and Equity
project or Phase II of the FASB's Business Combinations project;
therefore, no specific timing for the implementation of these
provisions has been stated. The implementation of the currently
effective aspects of FAS 150 did not have an impact on the
Partnership's results of operations.
2. Reclassification
Certain items in the prior year's financial statements have been
reclassified to conform to 2003 presentation. These reclassifications
had no effect on total partners' capital or net income.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
3. Real Estate Properties with Operating Leases
During the nine months ended September 30, 2003, the Partnership
recorded a provision for write-down of assets of $213,000 relating to
the property in Warner Robins, Georgia. The provision represented the
difference between the carrying value of the property and its estimated
fair value. The tenant of this property experienced financial
difficulties, and in July 2003, the tenant surrendered the premises.
4. Investment in Joint Ventures
In September 2003, Ocean Shores Joint Venture, in which the Partnership
owned a 30.94% interest, sold its vacant property in Ocean Shores,
Washington to a third party and recorded a gain on disposal of assets
of approximately $413,700. The joint venture had recorded a provision
for write-down of assets in a previous year relating to this property.
The financial results relating to the property in Ocean Shores,
Washington and a property sold in August 2002 by Mansfield Joint
Venture, in which the Partnership owns a 21% interest, are classified
as Discontinued Operations in the combined condensed financial
information presented below.
CNL Mansfield Joint Venture, CNL Kingston Joint Venture, CNL VII & XVII
Lincoln Joint Venture, Katy Joint Venture and the Partnership and
affiliates, as tenants-in-common in six separate tenancy-in-common
arrangements, each own one property.
The following presents the combined, condensed financial information
for the joint ventures and the properties held as tenants-in-common
with affiliates at:
September 30, December 31,
2003 2002
----------------- ------------------
Real estate properties with operating leases, net $ 11,465,035 $ 11,649,517
Real estate held for sale -- 377,303
Cash 836,355 37,123
Receivables, less allowance for doubtful accounts 518 6,735
Accrued rental income 300,922 237,749
Liabilities 40,216 20,858
Partners' capital 12,562,614 12,287,569
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
4. Investment in Joint Ventures - Continued
Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
-------------- ------------- -------------- -------------
Revenues $ 356,596 $ 312,420 $1,066,237 $ 1,110,555
Expenses (66,645 ) (59,268 ) (190,666 ) (162,763 )
------------- -------------- ------------- --------------
Income from continuing operations 289,951 253,152 875,571 947,792
------------- -------------- ------------- --------------
Discontinued operations:
Revenues -- 19,124 -- 63,855
Expenses (3,905 ) (8,204 ) (15,623 ) (31,510 )
Gain on disposal of discontinued
operations 413,665 269,791 413,665 269,791
------------- -------------- ------------- --------------
409,760 280,711 398,042 302,136
------------- -------------- ------------- --------------
Net income $ 699,711 $ 533,863 $1,273,613 $ 1,249,928
============= ============== ============= ==============
The Partnership recognized income of $514,436 and $412,782 during the
nine months ended September 30, 2003 and 2002, respectively, of which
$256,483 and $172,098 were earned during the quarters ended September
30, 2003 and 2002, respectively, from these joint ventures and
tenants-in-common arrangements.
5. Concentration of Credit Risk
The following schedule presents total rental revenues from individual
lessees, each representing more than ten percent of rental revenues
(including the Partnership's share of rental revenues from the joint
ventures and the properties held as tenants-in-common with affiliates
of the general partners), for each of the nine months ended September
30:
2003 2002
--------------- ---------------
Golden Corral Corporation $ 449,101 $ 448,965
Carrols Corporation and Texas Taco Cabana, LP 250,920 N/A
(under common control of Carrols Corp.)
National Restaurant Enterprises, Inc. 246,248 318,522
RTM Indianapolis, Inc. and RTM Southwest Texas, 197,851 197,867
Inc.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
5. Concentration of Credit Risk - Continued
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than ten percent
of rental revenues (including the Partnership's share of rental
revenues from the joint ventures and the properties held as
tenants-in-common with affiliates of the general partners), for each of
the nine months ended September 30:
2003 2002
-------------- --------------
Golden Corral Family Steakhouse Restaurants $ 449,101 $ 448,965
Burger King 272,750 346,307
Taco Cabana 224,419 N/A
Arby's 211,411 211,162
The information denoted by N/A indicates that for each period
presented, the tenant or group of affiliated tenants, and the chain did
not represent more than ten percent of the Partnership's total rental
revenues.
Although the Partnership's properties have some geographical diversity
in the United States and the Partnership's lessees operate a variety of
restaurant concepts, default by any of these lessees or restaurant
chains will significantly impact the results of operations of the
Partnership if the Partnership is not able to re-lease the properties
in a timely manner.
6. Subsequent Event
In October 2003, Ocean Shores Joint Venture was dissolved and the
Partnership received approximately $243,100 as its pro-rata share of
the liquidating distribution from the joint venture. No gain or loss
was recognized related to the dissolution. The Partnership owned a
30.94% interest in this joint venture.
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. The Partnership owned 16 Properties directly as of September 30, 2003
and 2002. The Partnership owned ten and eleven Properties indirectly through
joint venture or tenancy in common arrangements as of September 30, 2003 and
2002, respectively.
Capital Resources
Cash from operating activities was $1,639,163 and $1,716,847 for the
nine months ended September 30, 2003 and 2002, respectively.
In September 2003, Ocean Shores Joint Venture, in which the Partnership
owned a 30.94% interest, sold its Property in Ocean Shores, Washington to a
third party and received net sales proceeds of $787,700, resulting in a gain to
the joint venture of approximately $413,700. The joint venture had recorded
provisions for write-down of assets relating to this Property in a previous
year. In October 2003, the Partnership received approximately $243,100 as its
pro-rata share of the liquidating distribution from the joint venture. The
Partnership intends to use the liquidating distribution to pay liabilities of
the Partnership, including distributions to the Limited Partners.
Cash and cash equivalents were $668,902 and $829,739 at September 30,
2003 and December 31, 2002, respectively. At September 30, 2003, these funds
were held in demand deposit accounts at commercial banks. The funds remaining at
September 30, 2003 will be used toward the payment of distributions and other
liabilities.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who meet specified
financial standards minimizes the Partnership's operating expenses. The general
partners believe that the leases will generate net cash flow in excess of
operating expenses.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the Partnership's operations.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations, the Partnership
declared distributions to limited partners of $1,800,000 for each of the nine
months ended September 30, 2003 and 2002 ($600,000 for each of the quarters
ended September 30, 2003 and 2002). This represents distributions for each
applicable nine months of $0.60 per unit ($0.20 per unit for each applicable
quarter). No distributions were made to the general partners for the quarters
and nine months ended September 30, 2003 and 2002. No amounts distributed to the
limited partners for the nine months ended September 30, 2003 and 2002, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the limited partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the limited partners on a quarterly basis.
Total liabilities, including distributions payable, were $806,233 at
September 30, 2003, as compared to $725,459 at December 31, 2002. Total
liabilities at September 30, 2003, to the extent they exceed cash and cash
equivalents, will be paid from anticipated future cash from operations, the
liquidating distribution received in October 2003 from Ocean Shores Joint
Venture, or in the event the general partners elect to make additional capital
contributions or loans, from the future general partners' contributions or
loans.
Long Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues were $1,302,747 for the nine months ended
September 30, 2003 as compared to $1,353,339 in the same period in 2002, of
which $424,384 and $477,530 were earned during the third quarter of 2003 and
2002, respectively. The decrease in rental revenues during the quarter and nine
months ended September 30, 2003, as compared to the same periods in 2002, was
primarily due to the fact that AmeriKing Corporation, the parent company to
National Restaurant Enterprises, Inc., which is the tenant of the Properties in
Harvey, Lyons and Chicago Ridge, Illinois, experienced financial difficulties
and filed for bankruptcy protection in December 2002. The tenant has continued
paying rent for each of these Properties; however, during the nine months ended
September 30, 2003, the Partnership granted a rent reduction of approximately
$24,800 to the tenant of these Properties, and a second temporary rent reduction
of approximately $49,600 for the period September through December 2003. While
the tenant has neither rejected nor affirmed the leases, there can be no
assurance that they will not be rejected in the future. The lost revenues that
would result if the tenant rejects these leases will have an adverse effect on
the results of operations of the Partnership if the Partnership is unable to
lease the Properties in a timely manner. In addition, rental revenues decreased
during the quarter and nine months ended September 30, 2003 because the
Partnership stopped recording rental revenues in July 2003, when Pasta Concepts,
LLC, a tenant of the Partnership, vacated the Property in Warner Robins, Georgia
and ceased making rental payments. The lost revenues resulting from the vacant
Property will have an adverse effect on the results of operations of the
Partnership if the Partnership is unable to lease the Property in a timely
manner. The Partnership is seeking a replacement tenant.
The decrease in rental revenues during the nine months ended September
30, 2003, as compared to the same period in 2002, was partially offset by the
acquisition of a Property in Houston, Texas in June 2002 with the majority of
the net sales proceeds received from the 2002 sales of the Properties in
Mesquite, Nevada and Knoxville, Tennessee.
During the nine months ended September 30, 2003 and 2002, the
Partnership earned $514,436 and $412,782 respectively, attributable to net
income earned by joint ventures, of which $256,483 and $172,098 were earned
during the third quarter of 2003 and 2002, respectively. The increase in net
income earned by joint ventures during the quarter and nine months ended
September 30, 2003, as compared to the same periods in 2002, was partially due
to the Partnership reinvesting the majority of the net proceeds from the sales
of the Properties in Mesquite, Nevada and Wilmette, Illinois during 2002 in Katy
Joint Venture and a tenancy in common arrangement for a Property in Kenosha,
Wisconsin, with affiliates of the general partners. In addition, the increase in
net income earned by joint ventures during the quarter and nine months ended
September 30, 2003 was also partially due to the fact that Ocean Shores Joint
Venture, in which the Partnership owned a 30.94% interest, sold its vacant
Property in Ocean Shores, Washington to a third party in September 2003 and
recorded a gain of approximately $413,700 for which the Partnership received a
liquidating distribution of approximately $243,100 in October 2003.
The increase in net income earned by joint ventures was partially
offset by the fact that during the nine months ended September 30, 2002, the
Partnership and an affiliate of the general partners, as tenants-in-common,
collected and recognized as revenues approximately $309,700 in past due rents.
Phoenix Restaurant Group, Inc., the former tenant of the Property in Corpus
Christi, Texas, in which the Partnership owns an approximate 27% interest,
ceased paying rent and filed for bankruptcy in 2001. During April 2002, the
bankruptcy court assigned the lease to a new tenant, an affiliate of the general
partners, and as a result, the tenancy in common collected the past due rents
from the new tenant. All other lease terms remained unchanged and are
substantially the same as the Partnership's other leases. In addition, in August
2002, Mansfield Joint Venture, in which the Partnership owns a 21% interest,
sold the Property in Mansfield, Texas resulting in a gain of approximately
$269,800. The Partnership recorded its pro-rata share of the gain as equity in
earnings. The joint venture reinvested the net sales proceeds in a Property in
Arlington, Texas.
During the nine months ended September 30, 2003, four lessees of the
Partnership, Golden Corral Corporation, Carrols Corporation and Texas Taco
Cabana, LP (which are affiliated entities under common control) (hereinafter
referred as "Carrols Corporation"), National Restaurant Enterprises, Inc., and
RTM Indianapolis, Inc. and RTM Southwest Texas, Inc. (which are affiliated
entities under common control) (hereinafter referred as "RTM, Inc."), each
contributed more than ten percent of the Partnership's total rental revenues
(including rental revenues from the Partnership's share of rental income from
Properties owned by joint ventures and Properties owned with separate affiliates
of the general partners as tenants-in-common). It is anticipated that based on
the minimum rental payments required by the leases, these four lessees each will
continue to contribute more than ten percent of the Partnership's total rental
revenues. In addition, four restaurant chains, Golden Corral Family Steakhouse
Restaurants, Burger King, Taco Cabana, and Arby's, each accounted for more than
ten percent of the Partnership's total rental revenues during the nine months
ended September 30, 2003 (including rental revenues from the Partnership's share
of rental income from Properties owned by joint ventures and Properties owned
with separate affiliates of the general partners as tenants-in-common). It is
anticipated that each of these four restaurant chains will continue to
contribute more than ten percent of the Partnership's rental revenues to which
the Partnership is entitled under the terms of the leases. Any failure of these
lessees or restaurant chains will have a material adverse affect on the
Partnership's results of operations if the Partnership is not able to re-lease
or sell the Properties in a timely manner.
During the nine months ended September 30, 2003 and 2002, the
Partnership also earned $1,112 and $29,524, respectively, in interest and other
income, of which $6,667 was earned during the third quarter of 2002. During the
nine months ended September 30, 2002, interest and other income was higher as
compared to the same period of 2003 because the Partnership recognized as other
income the reimbursement of property expenditures of approximately $11,200,
which were incurred in previous years related to vacant Properties. In addition,
interest and other income was lower during the nine months ended September 30,
2003 due to a decline in interest rates and a decrease in the average cash
balance as a result of the reinvestment of sales proceeds during 2002.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $646,430 and $431,263 for the nine
months ended September 30, 2003 and 2002, respectively, of which $131,902 and
$132,250 were incurred during the third quarter of 2003 and 2002, respectively.
The increase in operating expenses during the nine months ended September 30,
2003 was primarily due to the fact that during the nine months ended September
30, 2003, the Partnership recorded a provision for write-down of assets of
$213,000 relating to the Property in Warner Robins, Georgia. The provision
represented the difference between the carrying value of the Property and its
estimated fair value. The tenant of this Property experienced financial
difficulties, and in July 2003, the tenant surrendered the premises.
The increase in operating expenses during the nine months ended
September 30, 2003 was also partially due to an increase in depreciation expense
as a result of a Property acquisition in 2002, and the reclassification of the
lease relating to the Property in Muncie, Indiana from direct financing leases
to operating leases due to an amendment to the lease. The increase in operating
expenses was also partially due to an increase in state tax expense relating to
several states in which the Partnership conducts business. The increase in
operating expenses during the nine months ended September 30, 2003 was partially
offset by a decrease in the costs incurred for administrative expenses for
servicing the Partnership and its Properties during 2003.
During the year ended December 31, 2002, the Partnership identified and
sold three Properties that were classified as Discontinued Operations in the
accompanying financial statements. The Partnership recognized net rental income
(rental revenues less property related expenses) of $105,478 during the nine
months ended September 30, 2002, relating to these Properties. The Partnership
sold the Property in Mesquite, Nevada in March 2002. Because the Partnership
recorded provisions for write-down of assets for this Property in previous
years, no gain or loss was recognized relating to this sale. In May and June
2002, the Partnership sold its Properties in Knoxville, Tennessee and Wilmette,
Illinois, respectively, resulting in a total gain of approximately $285,700.
During the nine months ended September 30, 2003, Ocean Shores Joint
Venture, in which the Partnership owned an approximate 31% interest, sold its
vacant Property in Ocean Shores, Washington, as described above. The financial
results relating to the Property in Ocean Shores, Washington and a Property sold
in August 2002 by Mansfield Joint Venture, in which the Partnership owns a 21%
interest, were classified as Discontinued Operations in the combined, condensed
financial information reported in the footnotes to the accompanying financial
statements for the joint ventures and the tenancies in common with affiliates.
The Partnership's pro-rata share of these amounts is included in equity in
earnings of joint ventures in the accompanying financial statements.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting guidance
that addresses when a company should include the assets, liabilities and
activities of another entity in its financial statements. To improve financial
reporting by companies involved with variable interest entities (more commonly
referred to as special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. Prior to FIN 46, a company generally included another entity in
its consolidated financial statements only if it controlled the entity through
voting interests. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003, and to older
entities, in the first fiscal year or interim period ending after December 15,
2003. The general partners believe adoption of this standard may result in
either consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint ventures, which are currently accounted for under the
equity method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
In May 2003, the FASB issued FASB Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("FAS 150"). FAS 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. FAS 150 will require issuers to classify certain
financial instruments as liabilities (or assets in some circumstances) that
previously were classified as equity. One requirement of FAS 150 is that
minority interests for majority owned finite lived entities be classified as a
liability and recorded at fair market value. FAS 150 initially applied
immediately to all financial instruments entered into or modified after May 31,
2003, and otherwise was effective at the beginning of the first interim period
beginning after June 15, 2003. Effective October 29, 2003, the FASB deferred
implementation of FAS 150 as it applies to minority interests of finite lived
Partnerships. The deferral of these provisions is expected to remain in effect
while these interests are addressed in either Phase II of the FASB's Liabilities
and Equity project or Phase II of the FASB's Business Combinations project;
therefore, no specific timing for the implementation of these provisions has
been stated. The implementation of the currently effective aspects of FAS 150
did not have an impact on the Partnership's results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
------------------
Item 2. Changes in Securities. Inapplicable.
----------------------
Item 3. Default upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
----------------------------------------------------
Item 5. Other Information. Inapplicable.
------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
**3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund 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. (Included as Exhibit 10.5
to Form 10-Q filed with the Securities and Exchange
Commission on August 14, 2002, and incorporated herein by
reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted Pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002. (Filed
herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
** previously filed.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended September
30, 2003.
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 November, 2003.
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)
EXHIBIT INDEX
Exhibit Number
(c) 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. (Included as Exhibit
10.5 to Form 10-Q filed with the Securities and Exchange
Commission on August 14, 2002, and incorporated herein by
reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
(Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
** previously filed.
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2