UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 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 Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801-3336
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($10 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. No [x]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes___ No X ---------
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 3,000,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund XVII, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on February 10, 1995. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on September 2, 1995, the
Partnership offered for sale up to $30,000,000 of limited partnership interests
(the "Units") (3,000,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
August 11, 1995. The offering terminated on September 19, 1996, at which date
the maximum offering proceeds of $30,000,000 had been received from investors
who were admitted to the Partnership as limited partners (the "Limited
Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food, family-style and casual dining
restaurant chains (the "Restaurant Chains"). Net proceeds to the Partnership
from its offering of Units, after deduction of organizational and offering
expenses, totalled $26,400,000 and were used as of December 31, 1998, to acquire
29 Properties, pay acquisition fees totalling $1,350,000 and to establish a
working capital reserve for Partnership purposes. The 29 Properties included
four Properties owned by joint ventures in which the Partnership is a
co-venturer and three Properties owned with affiliates of the General Partners
as tenants-in-common.
As of December 31, 2000, the Partnership owned 28 Properties, either
directly or indirectly through joint venture or tenancy in common arrangements.
During the year ended December 31, 2001, the Partnership reinvested the net
sales proceeds from the 2000 sale of the Properties in Warner Robins, Georgia,
and Long Beach, California along with a portion of the net sales proceeds
received from the 2001 sale of the Property in Houston, Texas, into a joint
venture arrangement, CNL VII & XVII Lincoln Joint Venture, with an affiliate of
the General Partners to purchase and hold one property in Lincoln, Nebraska. In
addition, during 2001, the Partnership sold its Properties in Kentwood, Missouri
and El Dorado, California, and reinvested a portion of these net sales proceeds
in a Property in Austin, Texas, and in a Property in Waldorf, Maryland, as
tenants-in-common, with affiliates of the General Partners. During 2001, the
Partnership distributed to the Limited Partners, a portion of the net sales
proceeds received from the sale of the Property in Inglewood, California and a
portion of the net sales proceeds received from the sale of the Property in
Houston, Texas. During 2002, the Partnership sold its Properties in Mesquite,
Nevada; Knoxville, Tennessee; and Wilmette, Illinois, and reinvested the
majority of the sales proceeds in a Property in Houston Texas; a joint venture
arrangement, Katy Joint Venture, with an affiliate of the General Partners,
which holds one Property in Katy, Texas; and in a Property in Kenosha,
Wisconsin, as tenants-in-common, with an affiliate of the General Partners. Also
during 2002, Mansfield Joint Venture, in which the Partnership owns a 21%
interest, sold its Property in Mansfield, Texas and reinvested the proceeds in a
Property in Arlington, Texas. During 2003, the Partnership and its joint venture
partner liquidated CNL Ocean Shores Joint Venture and the Partnership received
its pro rata share of the liquidation proceeds. The Partnership intends to
reinvest the liquidation proceeds in an additional Property and also pay
liabilities of the Partnership.
As of December 31, 2003, the Partnership owned 26 Properties. The 26
Properties include four Properties owned by joint ventures in which the
Partnership is a co-venturer and six Properties owned with affiliates as
tenants-in-common. The Partnership generally leases the Properties on a
triple-net basis with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.
The Partnership holds its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners consider factors such as potential capital
appreciation, net cash flow and federal income taxes. Certain lessees also have
been granted options to purchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property purchase options
granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties provide for initial terms
ranging from 10 to 20 years (the average being 18 years) and expire between 2011
and 2020. The majority of the leases are on a triple-net basis, with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities. The leases of the Properties provide for minimum base annual rental
payments (payable in monthly installments) ranging from approximately $63,000 to
$246,400. The majority of the leases provide for percentage rent, based on sales
in excess of a specified amount. In addition, the majority of the leases provide
that, commencing in specified lease years (generally the sixth lease year), the
annual base rent required under the terms of the lease will increase.
Generally, the leases of the Properties provide for two to four
successive five-year renewal options subject to the same terms and conditions as
the initial lease. Lessees of 21 of the Partnership's 26 Properties also have
been granted options to purchase Properties at the Property's then fair market
value after a specified portion of the lease term has elapsed. Fair market value
will be determined through an appraisal by an independent appraisal firm. Under
the terms of certain leases, the option purchase price may equal the
Partnership's original cost to purchase the Property (including acquisition
costs), plus a specified percentage from the date of the lease or a specified
percentage of the Partnership's purchase price, if that amount is greater than
the Property's fair market value at the time the purchase option is exercised.
The leases generally provide that, in the event the Partnership wishes
to sell the Property subject to the terms of the lease, the Partnership first
must offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
In December 2002, AmeriKing Corporation, the parent company to National
Restaurant Enterprises, Inc., which was the tenant of the Properties in Harvey,
Lyons, and Chicago Ridge Illinois, filed for bankruptcy protection. As a result
of the bankruptcy, the leases relating to the Properties in Harvey and Chicago
Ridge, Illinois were amended during 2003 to provide for a reduction in rents. In
December 2003, the leases relating to all three Properties were assigned to and
assumed by a new tenant. As a result of the assignment and assumption, the rents
due under the leases were reduced. The Partnership does not believe these
reduced rents will have a material adverse effect on the operating results of
the Partnership.
Major Tenants
During the year ended December 31, 2003, four lessees of the
Partnership, Golden Corral Corporation, National Restaurant Enterprises, Inc.,
Taco Cabana, LP and Carrols Corporation (which are affiliated entities under
common control) (hereinafter referred to as "Carrols Corporation") and RTM
Indianapolis, Inc. and RTM Southwest Texas, Inc. (which are affiliated entities
under common control) (hereinafter referred to as "RTM, Inc."), each contributed
more than ten percent of the Partnership's total rental revenues (including
total rental revenues form 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). As of December 31, 2003, Golden
Corral Corporation and Carrols Corporation were each the lessee under leases
relating to four restaurants, and RTM, Inc. was the lessee under leases relating
to three restaurants. It is anticipated that based on the minimum rental
payments required by the leases, Golden Corral Corporation, Carrols Corporation
and RTM, Inc. each will continue to contribute more than ten percent of the
Partnership's total rental revenues in 2004. In addition, four Restaurant
Chains, Golden Corral Buffet and Grill ("Golden Corral"), Burger King, Taco
Cabana and Arby's, each accounted for more than ten percent of the Partnership's
total rental revenues during the year ended December 31, 2003 (including total
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). In 2004, it is anticipated that each of
these four Restaurant Chains will continue to contribute more than ten percent
of the Partnership's total rental revenues to which the Partnership is entitled
under the terms of the leases. Any failure of these lessees or Restaurant Chains
will materially affect the Partnership's operating results if the Partnership is
not able to re-lease the Properties in a timely manner. As of December 31, 2003,
Golden Corral Corporation leased Properties with an aggregate carrying value in
excess of 20% of the total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The partnership has entered into the following joint venture and
tenancy in common arrangements as of December 31, 2003:
Entity Name Year Ownership Partners Property
CNL Income Fund XVI, Ltd and 1996 19.56% CNL Income Fund XVI, Ltd. Fayetteville, NC
CNL Income Fund XVII,
Ltd. Tenants in Common
CNL Income Fund XI, Ltd. and 1997 27.42% CNL Income Fund XI, Ltd. Corpus Christi, TX
CNL Income Fund XVII,
Ltd. Tenants in Common
CNL Income Fund XIII, Ltd. 1997 36.91% CNL Income Fund XIII, Ltd. Akron, OH
and CNL Income Fund
XVII, Ltd. Tenants in
Common
CNL Mansfield Joint Venture 1997 21.00% CNL Income Fund VII, Ltd. Arlington, TX
CNL Kingston Joint Venture 1997 60.06% CNL Income Fund XIV, Ltd. Kingston, TN
CNL Income Fund IV, Ltd. and 1999 24.00% CNL Income Fund IV, Ltd. Zephyrhills, FL
CNL Income Fund XVII,
Ltd. Tenants in Common
CNL VII & XVII Lincoln Joint 2001 86.00% CNL Income Fund VII, Ltd. Lincoln, NE
Venture
CNL Income Fund VI, Ltd., CNL 2001 25.00% CNL Income Fund VI, Ltd. Waldorf, MD
Income Fund IX, Ltd. and CNL Income Fund IX, Ltd.
CNL Income Fund XVII,
Ltd. Tenants in Common
Katy Joint Venture 2002 40.00% CNL Income Fund IX, Ltd. Katy, TX
CNL Income Fund VIII, Ltd. 2002 90.00% CNL Income Fund VIII, Ltd. Kenosha, WI
and CNL Income Fund
XVII, Ltd. Tenants in
Common
Each joint venture or tenancy in common was formed to hold one
Property. Each CNL Income Fund is an affiliate of the General Partners and is a
limited partnership organized pursuant to the laws of the state of Florida. The
Partnership shares management control equally with the affiliates of the General
Partners.
The joint venture and tenancy in common arrangements provide for the
Partnership and its joint venture and tenancy in common partners to share in all
costs and benefits in proportion to each partner's percentage interest in the
entity or Property. The Partnership and its partners are also jointly and
severally liable for all debts, obligations and other liabilities of the joint
venture or tenancy in common. Net cash flow from operations is distributed to
each joint venture or tenancy in common partner in accordance with its
respective percentage interest in the entity or Property.
CNL VII and XVII Lincoln Joint Venture and Katy Joint Venture, each has
an initial term of 30 years, and each of the other joint ventures has an initial
term of 20 years. After the expiration the initial term, each continues in
existence from year to year unless terminated at the option of either joint
venturer or by an event of dissolution. Events of dissolution include the
bankruptcy, insolvency or termination of any joint venturer, sale of the
Property owned by the joint venture and mutual agreement of the Partnership and
its joint venture partners to dissolve the joint venture. Any liquidation
proceeds, after paying joint venture debts and liabilities and funding reserves
for contingent liabilities, will be distributed first to the joint venture
partners with positive capital account balances in proportion to such balances
until such balances equal zero, and thereafter in proportion to each joint
venture partner's percentage interest in the joint venture.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer or assign its interest without first offering
it for sale to its partners, either upon such terms and conditions as to which
the parties may agree or, in the event the parties cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture or tenancy in common interest.
During 2003, CNL 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 the joint venture was liquidated. The Partnership received its
pro rata share of the liquidation proceeds.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Certain Management Services
RAI Restaurants, Inc. (the "Advisor"), an affiliate of the General
Partners, provides certain services relating to management of the Partnership
and its Properties pursuant to a management agreement with the Partnership.
Under this agreement, the Advisor is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices, and providing
information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one percent of the sum of gross rental revenues from Properties
wholly owned by the Partnership plus the Partnership's allocable share of gross
revenues of joint ventures in which the Partnership is a co-venturer, but not in
excess of competitive fees for comparable services.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
During 2003, CNL Capital Management, Inc., ("CCM"), a wholly owned
subsidiary of CNL Financial Group, Inc., began providing certain strategic
advisory services to the General Partners relative to the Partnership's
business. CCM is not reimbursed for these services by the Partnership. CCM also
began providing some accounting and portfolio management services to the
Partnership during 2003, through a subcontract with the Advisor.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation, the officers and employees of CNL Restaurant Properties, Inc.
(formerly CNL American Properties Fund, Inc.), the parent company of the
Advisor, and the officers and employees of CCM perform certain services for the
Partnership. In addition, the General Partners have available to them the
resources and expertise of the officers and employees of CNL Financial Group,
Inc., a diversified real estate company, and its affiliates, who may also
perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2003, the Partnership owned 26 Properties. Of the 26
Properties, 16 are owned by the Partnership in fee simple, four are owned
through joint venture arrangements and six are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement.
Description of Properties
Land. The Partnership's Property sites, owned directly and indirectly,
range from approximately 23,500 to 115,100 square feet depending upon building
size and local demographic factors. Sites purchased by the Partnership are in
locations zoned for commercial use which have been reviewed for traffic patterns
and volume.
The following table lists the Properties owned by the Partnership,
directly and indirectly, as of December 31, 2003 by state.
State Number of Properties
California 1
Florida 3
Georgia 1
Illinois 3
Indiana 2
Maryland 1
Nebraska 1
North Carolina 1
Ohio 1
South Carolina 1
Tennessee 2
Texas 8
Wisconsin 1
--------------
TOTAL PROPERTIES 26
==============
Buildings. Each of the Properties includes a building that is one of a
Restaurant Chain's approved designs. The buildings generally are rectangular and
are constructed from various combinations of stucco, steel, wood, brick and
tile. The sizes of the buildings owned by the Partnership ranged from
approximately 2,100 to 11,300 square feet. All buildings on Properties acquired
by the Partnership are freestanding and surrounded by paved parking areas.
Buildings are suitable for conversion to various uses, although modifications
may be required prior to use for other than restaurant operations. As of
December 31, 2003, the Partnership had no plans for renovation of the
Properties. Depreciation expense is computed for buildings and improvements
using the straight line method using a depreciable life of 40 years for federal
income tax purposes.
As of December 31, 2003, the aggregate cost of the Properties owned by
the Partnership and joint ventures (including Properties owned through tenancy
in common arrangements) for federal income tax purposes was $17,341,796 and
$12,245,448, respectively.
The following table lists the Properties owned by the Partnership,
directly and indirectly, as of December 31, 2003 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 4
Bennigan's 1
Black-eyed Pea 1
Boston Market 1
Burger King 4
Denny's 1
Fazoli's 1
Golden Corral 4
Jack in the Box 3
Taco Bell 1
Taco Cabana 3
Texas Roadhouse 1
Wendy's 1
--------------
TOTAL PROPERTIES 26
==============
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of
Restaurant Chains. The leases are generally on a long-term "triple net" basis,
meaning that the tenant is responsible for repairs, maintenance, property taxes,
utilities and insurance.
The following is a schedule of the average rent per Property and
occupancy rate for the years ended December 31:
2003 2002 2001 2000 1999
-------------- ------------- ------------- ------------- --------------
Rental income(1)(2) $ 2,388,965 $ 2,359,096 $ 2,357,917 $ 2,353,394 $2,667,611
Properties(2) 26 27 26 26 29
Average rent per property $ 91,883 $ 87,374 $ 90,689 $ 90,515 $ 91,987
Occupancy rate 96% 100% 96% 92% 93%
(1) Rental revenues include the Partnership's share of rental revenues from
the Properties owned through joint venture and tenancy in common
arrangements.
(2) Excludes Properties that were vacant at December 31, and did not
generate rental revenues during the year ended December 31.
The following is a schedule of lease expirations for leases in place as
of December 31, 2003 for each year for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- ----------------- --------------------------
2004 -- -- --
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 -- -- --
2009 -- -- --
2010 -- -- --
2011 3 438,398 18.07%
2012 1 24,043 0.99%
2013 -- -- --
Thereafter 22 2,027,301 80.94%
---------- ------------------ -------------
Total 26 $ 2,489,742 100.00%
========== ================== =============
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2003 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases four Golden Corral restaurants. The
initial term of each lease is 15 years (three leases expiring in 2011 and one
lease in 2015) and the average minimum base annual rent is approximately
$156,200 (ranging from approximately $107,600 to $190,000).
National Restaurant Enterprises, Inc. leased three Burger King
restaurants. The initial term of each lease was 20 years (expiring between 2016
and 2017) and the average minimum base annual rent was approximately $140,400
(ranging from approximately $123,200 to $153,600). In December 2003, these
leases were assigned to and assumed by Heartland Illinois Food Corp.
Carrols Corporation leases three Taco Cabana restaurants and one Burger
King restaurant. The initial term of each lease is either 19 or 20 years
(expiring between 2016 and 2020) and the average minimum base annual rent is
approximately $114,400 (ranging from $94,200 to $140,300).
RTM, Inc. leases three Arby's restaurants. The initial term of each
lease is 20 years (expiring in 2016) and the average minimum base annual rent is
approximately $89,300 (ranging from approximately $86,100 to $91,900).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners, nor any affiliate of
the Partnership, nor any of their respective Properties, is party to, or subject
to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 12, 2004, there were 1,640 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. During 2003, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), may have done so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units. From
inception through December 31, 2003, the price paid for any Unit transferred
pursuant to the Plan ranged from $9.14 to $9.50 per Unit. The price paid for any
Unit transferred other than pursuant to the Plan was subject to negotiation by
the purchaser and the selling Limited Partner. The Partnership will not redeem
or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2003 and 2002, other than
pursuant to the Plan, net of commissions.
2003 2002
---------- -- ---------- -- ----------- -------- --- ---------- --- -----------
High Low Average High Low Average
---------- ---------- ----------- -------- ---------- -----------
First Quarter (2) (2) (2) $7.00 $ 6.00 $ 6.67
Second Quarter $ 8.18 $ 7.18 $ 7.78 7.50 6.75 7.13
Third Quarter 8.05 7.42 7.84 7.35 6.57 7.12
Fourth Quarter 6.79 6.79 6.79 9.30 6.84 8.07
(1) A total of 10,400 and 11,400 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2003 and 2002,
respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 2003 and 2002, the Partnership
declared cash distributions of $2,400,000 to the Limited Partners. Distributions
of $600,000 were declared at the close of each of the Partnership's calendar
quarters during 2003 and 2002 to the Limited Partners. These amounts include
monthly distributions made in arrears for the Limited Partners electing to
receive such distributions on this basis. No amounts distributed to partners for
the years ended December 31, 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. No
distributions have been made to the General Partners to date.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although some Limited Partners, in accordance with their election, receive
monthly distributions for an annual fee.
(b) Not applicable.
Item 6. Selected Financial Data
Year ended December 31: 2003 2002 2001 2000 1999
-------------- -------------- -------------- ------------- -------------
Continuing Operations (2):
Revenues $ 1,697,355 $1,716,737 $1,698,351 $1,859,942 $2,368,007
Equity in earnings (loss) of
unconsolidated joint
ventures 645,804 543,978 (136,021 ) 176,088 182,132
Income from continuing
operations (1) 1,791,674 1,256,056 1,189,757 326,285 1,544,896
Discontinued Operations (2):
Revenues 46,820 225,350 323,045 435,849 324,756
Income (loss) from and gain
on disposal of discontinued
operations (3) (184,260 ) 470,056 (220,561 ) 346,853 294,373
Net income 1,607,414 1,726,112 969,196 673,138 1,839,269
Income (loss) per Unit:
Continuing operations $ 0.60 $ 0.42 $ 0.40 $ 0.11 $ 0.51
Discontinued operations (0.06 ) 0.16 (0.08 ) 0.11 0.10
-------------- -------------- -------------- ------------- -------------
$ 0.54 $ 0.58 $ 0.32 $ 0.22 $ 0.61
============== ============== ============== ============= =============
Cash distributions declared $2,400,000 $2,400,000 $2,400,000 $2,400,000 $2,400,000
Cash distributions declared per
unit 0.80 0.80 0.80 0.80 0.80
At December 31:
Total assets $21,781,634 $22,563,535 $23,194,348 $24,675,610 $26,561,963
Partners' capital 21,045,490 21,838,076 22,511,964 23,942,768 25,669,630
(1) Income from continuing operation for the years ended December 31, 2002,
2001, 2000 and 1999 includes $456,000, $39,576, $1,079,275 and $232,140
from provisions for write-down of assets, respectively, and for the
years ended December 31, 2001 and 2000, it includes $310,979 and
$17,447 from gain on sale of assets, respectively. Income from
continuing operations for the year ended December 31, 1999 includes
$82,914 from loss on dissolution of joint venture.
(2) Certain items in the prior years' financial statements have been
reclassified to conform to 2003 presentation. These reclassifications
had no effect on net income. The results of operations relating to
Properties that were either identified for sale and disposed of
subsequent to January 1, 2002 or were classified as held for sale as of
December 31, 2003 are reported as discontinued operations. The results
of operations relating to properties that were identified for sale as
of December 31, 2001 but sold subsequently are reported as continuing
operations.
(3) Income (loss) from and gain on disposal of discontinued operations for
the years ended December 31, 2003, 2001 and 2000 includes $213,000,
$465,915 and $28,644 from provisions for write-down of assets,
respectively, and for the year ended December 31, 2002, it includes
$285,677 from gain on disposal of discontinued operations.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership 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
restaurant Properties were to be constructed, which are leased primarily to
operators of Restaurant Chains. The leases are generally triple-net leases, with
the lessees generally responsible for all repairs and maintenance, property
taxes, insurance and utilities. The leases provide for minimum base annual
rental amounts (payable in monthly installments) ranging from approximately
$63,000 to $246,400. The majority of the leases provide for percentage rent,
based on sales in excess of a specified amount. In addition, some of the leases
provide that, commencing in specified lease years (generally the sixth lease
year), the annual base rent required under the terms of the lease will increase.
As of December 31, 2003, 2002, and 2001, the Partnership owned 16, 16,
and 18 Properties directly, respectively. In addition, the Partnership owned
ten, eleven, and nine Properties indirectly through joint venture or tenancy in
common arrangements as of December 31, 2003, 2002, and 2001, respectively.
Capital Resources
For the years ended December 31, 2003, 2002, and 2001, cash from
operating activities was $2,143,557, $2,259,664 and $1,784,443, respectively.
The decrease in cash from operating activities during the year ended December
31, 2003, as compared to 2002, and the increase in cash from operating
activities during 2002, as compared to 2001, was a result of changes in the
Partnership's working capital, such as the timing of transactions relating to
the collection of receivables and the payment of expenses, and changes in income
and expenses, such as changes in rental revenues and changes in operating and
Property related expenses.
Other sources and uses of cash included the following during the years
ended December 31, 2003, 2002, and 2001.
In January 2001, the Partnership sold its Property in Houston, Texas to
a third party and received net sales proceeds of approximately $782,700,
resulting in a gain of $4,284. The Partnership used the net sales proceeds to
acquire an interest in CNL VII and XVII Lincoln Joint Venture, and to make
distributions to the Limited Partners. CNL VII and XVII Lincoln Joint Venture,
is a joint venture with CNL Income Fund VII, Ltd., an affiliate of the General
Partners. The joint venture holds one Property. The Property was acquired from
CNL BB Corp., an affiliate of the General Partners, who had purchased and
temporarily held title to the Property in order to facilitate the acquisition of
the Property by the joint venture. In April 2001, the Partnership contributed
approximately $1,496,700 to the joint venture, which included the net sales
proceeds from the sales of Properties in Warner Robins, Georgia, Long Beach,
California, and Houston, Texas. The Partnership owns an 86% interest in the
profits and losses of the joint venture.
In June 2001, the Partnership sold the Property in Kentwood, Michigan,
received net sales proceeds of approximately $681,200 and recorded a loss of
$38,877. In July 2001, the Partnership used a portion of these net sales
proceeds to acquire an interest in a Property in Waldorf, Maryland, as
tenants-in-common with CNL Income Fund VI, Ltd. and CNL Income Fund IX, Ltd.,
each of which is an affiliate of the General Partners. The Partnership
contributed approximately $570,100 for a 25% interest in the profits and losses
of the Property.
In September 2001, the Partnership sold the Property in Inglewood,
California to a third party for $300,000 and received net sales proceeds of
approximately $298,300. Since the Partnership had recorded a provision for
write-down of this Property in 2001, no additional gain or loss was recognized
on the sale. The Partnership used the majority of the net sales proceeds to pay
liabilities of the Partnership.
In September 2001, the Partnership also sold its Property in El Dorado,
California to a third party and received net sales proceeds of approximately
$1,510,500, resulting in a gain of $345,572. In December 2001, the Partnership
reinvested the majority of net sales proceeds received in a Property in Austin,
Texas. The Partnership acquired the Property from an affiliate of the General
Partners. The affiliate had purchased and temporarily held title to the Property
in order to facilitate the acquisition of the Property by the Partnership. The
purchase price paid by the Partnership of approximately $1,216,600 represented
the costs incurred by the affiliate to acquire the Property. The transaction, or
a portion thereof, relating to the sale of the Property and the reinvestment of
the proceeds qualified as a like-kind exchange transaction for federal income
tax purposes. The Partnership used the remaining net sales proceeds to pay
liabilities of the Partnership.
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. Since the Partnership had recorded provisions for write-down of assets
in prior years 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 estimated fair value.
In May and June 2002, the Partnership sold its Properties in Knoxville,
Tennessee and Wilmette, Illinois to 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 contributed
approximately $416,700 for a 40% interest in the profits and losses of the joint
venture.
The Partnership and Katy Joint Venture acquired the Properties in
Houston and Katy, Texas from CNL Funding 2001-A, LP, 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 and carry the Properties.
In August 2002, the Partnership reinvested the net sales proceeds from
the sale of the Property in Wilmette, Illinois in a Property in Kenosha,
Wisconsin as tenants-in-common with CNL Income Fund VIII, Ltd. ("CNL VIII"), and
an affiliate of the General Partners, at an approximate cost of $1,883,000. The
Partnership contributed approximately $1,694,700 for a 90% interest in this
Property. The General Partners believe that the transactions, or portion
thereof, relating to the sale of the Property and the reinvestment of the net
sales proceeds, or a portion thereof, will qualify as a like-kind exchange
transaction for federal income tax purposes.
In August 2002, Mansfield Joint Venture, in which the Partnership owns
a 21% interest, sold its Property in Mansfield, Texas to the tenant and received
net sales proceeds of approximately $1,011,500 resulting in a gain of
approximately $269,800. The joint venture used the proceeds from the sale of the
Property and additional contributions from the Partnership and CNL Income Fund
VII, Ltd., who are the general partners of the joint venture, of approximately
$17,000 and $63,900, respectively, to acquire a Property in Arlington, Texas
from CNL Net Lease Investors, L.P. ("NLI"), at an approximate cost of
$1,089,900. During 2002, and prior to the joint venture's acquisition of this
Property, CNL Financial LP Holding, LP ("CFN"), a Delaware limited partnership,
and CNL Net Lease Investors GP Corp. ("GP Corp"), a Delaware corporation,
purchased the limited partner's interest and general partner's interest,
respectively, of NLI. Prior to this transaction, an affiliate of the
Partnership's General Partners owned a 0.1% interest in NLI and served as a
general partner of NLI. The original general partners of NLI waived their rights
to benefit from this transaction. The acquisition price paid by CFN for the
limited partner's interest was based on the portfolio acquisition price. The
joint venture acquired the Property in Arlington, Texas at CFN's cost and did
not pay any additional compensation to CFN for the acquisition of the Property.
Each CNL entity is an affiliate of the Partnership's General Partners.
In September 2003, CNL Ocean Shores Joint Venture, in which the
Partnership owned a 30.94% interest, sold its property to a third party for
$824,600 resulting in a gain of approximately $413,700. As a result, the
Partnership received approximately $242,800 representing its pro-rata share of
the liquidation proceeds. CNL Ocean Shores Joint Venture was dissolved in
accordance with the joint venture agreement and no gain or loss was recognized
on the dissolution. The General Partners intend to reinvest the liquidation
proceeds in an additional property and pay liabilities of the Partnership.
None of the Properties owned by the Partnership, or the joint ventures
or tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Subject to certain restrictions on borrowing, however, the
Partnership may borrow funds but will not encumber any of the Properties in
connection with any such borrowing. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners. The Partnership will not
borrow under arrangements that would make the Limited Partners liable to
creditors of the Partnership. The General Partners further have represented that
they will use their reasonable efforts to structure any borrowing so that it
will not constitute "acquisition indebtedness" for federal income tax purposes
and also will limit the Partnership's outstanding indebtedness to three percent
of the aggregate adjusted tax basis of its Properties. In addition, the
Partnership will not borrow unless it first obtains an opinion of counsel that
such borrowing will not constitute acquisition indebtedness. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
At December 31, 2003, the Partnership had $816,092 invested in cash and
cash equivalents as compared to $829,739 at December 31, 2002. At December 31,
2003, these funds were held in demand deposit and money market accounts at
commercial banks. As of December 31, 2003, the average interest rate earned on
rental income held in demand deposit and money market accounts at commercial
banks was less than one percent annually. The funds remaining at December 31,
2003, after payment of distributions and other liabilities, will be used to
invest in an additional property and to meet the Partnership's working capital
needs.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to 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 operations of the Partnership.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because generally all leases of the Partnership's Properties
are on a triple-net basis, it is not anticipated that a permanent reserve for
maintenance and repairs is necessary at this time. To the extent, however, that
the Partnership has insufficient funds for such purposes, the General Partners
will contribute to the Partnership an aggregate amount of up to one percent of
the offering proceeds for maintenance and repairs. The General Partners have the
right to cause the Partnership to maintain reserves if, in their discretion,
they determine such reserves are required to meet the Partnership's working
capital needs.
The Partnership generally distributes cash from operations remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based on current and future cash from operating activities, the
Partnership declared distributions to the Limited Partners of $2,400,000 for
each of the years. This represents distributions of $0.80 per Unit for each of
the years ended December 31, 2003, 2001 and 2001. No distributions were made to
the General Partners for the years ended December 31, 2003, 2002 and 2001. No
amounts distributed to the Limited Partners for the years ended December 31,
2003, 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 Limited Partners on a
quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2003, 2002 and 2001.
As of December 31, 2003 and 2002, the Partnership owed $11,242 and
$26,600, respectively, to affiliates of the General Partners for operating
expenses, accounting and administrative services, and management fees. As of
March 12, 2004, the Partnership had reimbursed the affiliates for these amounts.
Other liabilities, including distributions payable, increased to $724,902 at
December 31, 2003, from $698,859 at December 31, 2002. The General Partners
believe that the Partnership has sufficient cash on hand to meet its current
working capital needs.
Off-Balance Sheet Transactions
The Partnership holds interests in various unconsolidated joint venture
and tenancy in common arrangements that are accounted for using the equity
method. The General Partners do not believe that any such interest would
constitute an off-balance sheet arrangement requiring any additional disclosures
under the provisions of the Sarbanes-Oxley Act of 2002.
Contractual Obligations, Contingent Liabilities, and Commitments
The Partnership has no contractual obligations, contingent liabilities,
or commitments as of December 31, 2003.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for Leases"
("FAS 13"), and have been accounted for using either the direct financing or the
operating method. FAS 13 requires management to estimate the economic life of
the leased property, the residual value of the leased property and the present
value of minimum lease payments to be received from the tenant. In addition,
management assumes that all payments to be received under its leases are
collectible. Changes in management's estimates or assumptions regarding
collectibility of lease payments could result in a change in accounting for the
lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews the Partnership's Properties and investments in
unconsolidated entities periodically for impairment at least once a year or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The assessment is based on the carrying amount
of the Property or investment at the date it is tested for recoverability
compared to the sum of the estimated future cash flows expected to result from
its operation and sale through the expected holding period. If an impairment is
indicated, the asset is adjusted to its estimated fair value.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." Accordingly, when the Partnership makes the
decision to sell or commits to a plan to sell a Property within one year, its
operating results are reported as discontinued operations.
Results of Operations
Comparison of the year ended December 31, 2003 to the year ended December 31,
2002
Rental revenues from continuing operations were $1,696,453 for the year
ended December 31, 2003 as compared to $1,700,468 in the same period in 2002.
While rental revenues from continuing operations remained constant during 2003
as compared to 2002, they were impacted by the following items. AmeriKing
Corporation, the parent company to National Restaurant Enterprises, Inc., which
was 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 2003, the Partnership granted a rent reduction of
approximately $24,800, for the period January through February 2003, to the
tenant of these Properties, and a second temporary rent reduction of
approximately $49,600 for the period September through December 2003. In
December 2003, the leases relating to the Properties were assigned to and
assumed by a new tenant. As a result of the assignment and assumption, the rents
due under the leases have been reduced. The Partnership does not believe these
reduced rents will have a material adverse effect on the operating results of
the Partnership.
The decrease in rental revenues from continuing operations during 2003
as discussed above, was 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 years ended December 31, 2003 and 2002, the Partnership
recognized income of $645,804 and $543,978, respectively, attributable to the
net operating results reported by unconsolidated joint ventures. The increase in
net income earned by unconsolidated joint ventures during 2003, 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. Also, CNL 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 $242,800.
The increase in net income earned by unconsolidated joint ventures was
partially offset by the fact that during the year ended December 31, 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 year ended December 31, 2003, four lessees of the
Partnership, Golden Corral Corporation, National Restaurant Enterprises, Inc.,
Carrols Corporation, and 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). As of December 31, 2003, Golden Corral Corporation and Taco
Cabana, LP were each the lessee under leases relating to four restaurants, and
RTM, Inc., was the lessee under leases relating to three restaurants. It is
anticipated that based on the minimum rental payments required by the leases,
Golden Corral Corporation, Carrols Corporation and RTM, Inc. each will continue
to contribute more than ten percent of the Partnership's total rental revenues
in 2004. In addition, four Restaurant Chains, Golden Corral, Burger King, Taco
Cabana, and Arby's, each accounted for more than ten percent of the
Partnership's total rental revenues during the year ended December 31, 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). In 2004, it is anticipated that
each of these four Restaurant Chains will continue to contribute more than ten
percent of the total 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 income if the Partnership is
not able to re-lease or sell the Properties in a timely manner.
During the years ended December 31, 2003 and 2002, the Partnership also
earned $902 and $16,269, respectively, in interest and other income. During
2002, interest and other income was higher as compared to 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. Interest and other income was lower during 2003
due to a decline in interest rates and a decrease in the average cash balance.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $551,485 and $1,004,659 for the years
ended December 31, 2003 and 2002, respectively. The decrease in operating
expenses during 2003, was due to the recording of provisions for write-down of
assets, during 2002, in the amount of $456,000 relating to the Properties in
Harvey and Chicago Ridge, Illinois, as a result of AmeriKing Corporation, the
parent company to National Restaurant Enterprises, Inc. which was the tenant of
these Properties, filing for bankruptcy protection, as described above. The
provision represented the difference between the carrying value of the
Properties and their estimated fair value.
The decrease in operating expenses during the year ended December 31,
2003 was also partially due to a decrease in the costs incurred for
administrative expenses for servicing the Partnership and its Properties during
2003. The decrease in operating expenses during the year ended December 31, 2003
was partially offset by 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. Also, there was an increase in state tax
expense relating to several states in which the Partnership conducts business.
During 2002, the Partnership identified and sold the Properties located
in Mesquite, Nevada; Knoxville, Tennessee; and Wilmette, Illinois, which were
classified as discontinued operations in the accompanying financial statements.
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. Since the Partnership had recorded
provisions for write-down of assets of $465,915 and $28,644 during the years
2001 and 2000, respectively. 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 third parties resulting in a
total gain of approximately $285,700. The majority of the net sales proceeds
from the sales of these Properties were reinvested in three Properties, one
owned directly by the Partnership and the other two owned indirectly through a
tenancy in common and a joint venture.
During 2003, the Partnership identified one Property for sale located
in Warner Robins, Georgia. In June 2003, the Partnership recorded a provision
for write-down of assets of $213,000 relating to the Property, after the tenant
who was experiencing financial difficulties surrendered the premises. The
provision represented the difference between the carrying value of the Property
and its estimated fair value. The Property was classified as discontinued
operations in the accompanying financial statements and was reclassified to real
estate held for sale. The Partnership recognized a net rental loss (Property
related expenses and provision for write-down of assets in excess of rental
revenues) of $184,260 and net rental income (rental revenues less Property
related expenses and provision for write-down of assets) of $184,379 during the
years ended December 31, 2003 and 2002, respectively, relating to these
Properties.
During the year ended December 31, 2003, CNL Ocean Shores Joint
Venture, in which the Partnership owned a 30.94% 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 of
the General Partners. The Partnership's pro-rata share of these amounts is
included in equity in earnings of joint ventures in the accompanying financial
statements.
Comparison of the year ended December 31, 2002 to the year ended December 31,
2001
Rental revenues from continuing operations were $1,700,468 for the year
ended December 31, 2002 as compared to $1,640,597 in the same period in 2001.
The slight increase in rental revenues from continuing operations during 2002,
was due to the fact the Partnership reinvested the majority of the net sales
proceeds from the 2001 and 2002 sale of the Properties.
During the years ended December 31, 2002 and 2001, the Partnership
recognized income of $543,978 and a loss of $136,021, respectively, attributable
to the net operating results reported by unconsolidated joint ventures. Results
were lower during 2001 because 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. Property related expenses such as, legal
fees, insurance and real estate taxes relating to this Property were also
incurred and a provision for write-down of assets of approximately $356,700 was
recorded. The provision represented the difference between the carrying value of
the Property and its estimated fair value. In October 2001, PRG filed for
Chapter 11 bankruptcy protection. Since the bankruptcy filing, the tenant
resumed paying rent. The Partnership and the affiliate, as tenants-in-common,
received from PRG the rent payments relating to this Property from the
bankruptcy date through April 2002. During April 2002, the bankruptcy court
assigned its lease to a new tenant, an affiliate of the General Partners which
has continued to pay rent pursuant to the lease. 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
from the new tenant $309,700 in rents not collected in 2001 from the previous
tenant.
In addition, the operating results reported by unconsolidated joint
ventures were lower during 2001, as compared to the same period in 2002, because
CNL Ocean Shores Joint Venture, in which the Partnership owned a 30.94%
interest, recorded a provision for write down of assets of approximately
$781,700 in 2001. The provision represented the difference between the carrying
value of the Property and its estimated fair value. The tenant of the Property
owned by this joint venture experienced financial difficulties and vacated the
Property in April 2001. During 2002, the joint venture has not recorded rental
revenues relating to this Property. In September 2003, CNL Ocean Shores Joint
Venture sold its property to a third party, and dissolved the joint venture as
described above.
The increase in net operating results reported by unconsolidated joint
ventures during 2002, as compared to the same period in 2001, was also the
result of the Partnership investing during 2001 and 2002 the majority of the net
proceeds from the sales of Properties in Warner Robins, Georgia; Long Beach,
California; Kentwood, Michigan; Mesquite, Nevada; and Wilmette, Illinois; in two
joint ventures and two additional Properties, each as a separate tenancy in
common with affiliates of the General Partners.
In August 2002, Mansfield Joint Venture, in which the Partnership owns
a 21% interest, sold the Property in Mansfield, Texas, and reinvested the net
sales proceeds in a Property in Arlington, Texas.
During the years ended December 31, 2002 and 2001, the Partnership
earned $16,269 and $56,643, respectively, in interest and other income. During
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 a former tenant. In addition, higher average cash balances existed
during 2001 pending reinvestment in an additional income producing Property.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $1,004,659 and $683,552 for the years
ended December 31, 2002 and 2001, respectively. The increase in operating
expenses during 2002, as compared to the same period in 2001, was due to the
recording of provisions for write-down of assets in the amount of $456,000
relating to the Properties in Harvey and Chicago Ridge, Illinois, as a result of
the AmeriKing Corporation's bankruptcy.
The increase in operating expenses during 2002 was also partially due
to an increase in depreciation expense as a result of Property acquisitions and
the reclassification of the lease relating to the Property in Muncie, Indiana
from direct financial leases to operating leases due to an amendment to the
lease.
The increase in operating expenses during 2002, as compared to the same
period in 2001, was partially offset by a decrease in the costs incurred for
administrative expenses for servicing the Partnership and its Properties, a
decrease in Property expenses such as legal fees and real estate taxes relating
to several Properties with tenants that experienced financial difficulties in
2001, and a decrease in state taxes.
During 2001, the Partnership recorded provisions for write-down of
assets in the amount of $39,576 relating to the Property in Inglewood,
California, which was sold at no additional gain or loss during 2001.
During 2001, the Partnership sold a Property in Houston, Texas
resulting in a gain of $4,284, a Property in El Dorado, California resulting in
a gain of $345,572 and a Property in Kentwood, Michigan resulting in a loss of
$38,877.
During 2002, the Partnership identified and sold the Properties located
in Mesquite, Nevada; Knoxville, Tennessee; and Wilmette, Illinois, which were
classified as discontinued operations in the accompanying financial statements.
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. Since the Partnership had recorded
provisions for write-down of assets of $465,915 and $28,644 during the years
2001 and 2000, respectively. 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 third parties resulting in a
total gain of approximately $285,700. During 2003, the Partnership identified
one property for sale located in Warner Robins, Georgia. The property was
classified as discontinued operations in the accompanying financial statements
and was reclassified to real estate held for sale. The Partnership recognized
net rental income (rental revenues less Property related expenses and provision
for write-down of assets) of $184,379 and a net rental loss (Property related
expenses and provision for write-down of assets in excess of rental revenues) of
$220,561 during the years ended December 31, 2002 and 2001, respectively,
relating to these Properties.
The General Partners continuously evaluate strategic alternatives for
the Partnership, including alternatives to provide liquidity to the Limited
Partners.
The Partnership's leases as of December 31, 2003, are generally
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Inflation, overall, has had a minimal effect on
results of operations of the Partnership. Continued inflation may cause capital
appreciation of the Partnership's Properties. Inflation and changing prices,
however, also may have an adverse impact on the sales of the restaurants and on
potential capital appreciation of the Properties.
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, 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. In December 2003, the FASB issued FASB Interpretation No. 46R
("FIN 46R"), to clarify some of the provisions of FIN 46. Under FIN 46R, special
effective date provisions apply to entities that have fully or partially applied
FIN 46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests in
structures that are commonly referred to as special-purpose entities for periods
ending after December 15, 2003. Application by public entities, other than small
business issuers, for all other types of variable interest entities is required
in financial statements for periods ending after March 15, 2004. The Partnership
did not fully or partially apply FIN 46 prior to the issuance of FIN 46R. Also,
the Partnership does not have interests in structures commonly referred to as
special-purpose entities. Therefore, application of FIN 46R is required in the
Partnership's financial statements for periods ending after March 15, 2004. 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.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 20
Financial Statements:
Balance Sheets 21
Statements of Income 22
Statements of Partners' Capital 23
Statements of Cash Flows 24-25
Notes to Financial Statements 26-39
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund XVII, Ltd.
In our opinion, the accompanying balance sheets and the related statements of
income, of partners' capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund XVII, Ltd. (a Florida
limited partnership) at December 31, 2003 and 2002, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2003 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 15(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and the financial statement schedules are the responsibility of the
Partnership's management; our responsibility is to express an opinion on these
financial statements and the financial statement schedules based on our audits.
We conducted our audits of these statements in accordance with auditing
standards generally accepted in the United States of America, which require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standards No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
March 24, 2004
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2003 2002
----------------- ------------------
ASSETS
Real estate properties with operating leases, net $ 14,077,876 $ 14,386,288
Net investment in direct financing leases 399,726 410,120
Real estate held for sale 496,678 705,863
Investment in joint ventures 5,531,064 5,749,285
Cash and cash equivalents 816,092 829,739
Receivables, less allowance for doubtful
accounts of $43,516 in 2003 - 36,516
Due from related parties 277 490
Accrued rental income 446,800 432,864
Other assets 13,121 12,370
----------------- ------------------
$ 21,781,634 $ 22,563,535
================= ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 7,973 $ 3,494
Real estate taxes payable 38,114 13,457
Distributions payable 600,000 600,000
Due to related parties 11,242 26,600
Rents paid in advance 32,407 31,910
Deferred rental income 46,408 49,998
----------------- ------------------
Total liabilities 736,144 725,459
Partners' capital 21,045,490 21,838,076
----------------- ------------------
$ 21,781,634 $ 22,563,535
================= ==================
See accompanying notes to financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2003 2002 2001
---------------- --------------- ----------------
Revenues:
Rental income from operating leases $ 1,653,180 $ 1,638,297 $ 1,541,558
Earned income from direct financing leases 43,273 62,171 99,039
Contingent rental income -- -- 1,111
Interest and other income 902 16,269 56,643
---------------- --------------- ----------------
1,697,355 1,716,737 1,698,351
---------------- --------------- ----------------
Expenses:
General operating and administrative 180,637 207,379 253,794
Property related 9,530 3,042 52,021
Management fee to related parties 23,448 24,452 21,315
State and other taxes 25,246 9,258 34,733
Depreciation and amortization 312,624 304,528 282,113
Provision for write-down of assets -- 456,000 39,576
---------------- --------------- ----------------
551,485 1,004,659 683,552
---------------- --------------- ----------------
Income before gain on sale of assets and equity in
earnings (loss) of unconsolidated joint ventures 1,145,870 712,078 1,014,799
Gain on sale of assets -- -- 310,979
Equity in earnings (loss) of unconsolidated joint ventures 645,804 543,978 (136,021 )
---------------- --------------- ----------------
Income from continuing operations 1,791,674 1,256,056 1,189,757
---------------- --------------- ----------------
Discontinued operations:
Income (loss) from discontinued operations (184,260 ) 184,379 (220,561 )
Gain on disposal of discontinued operations -- 285,677 --
---------------- --------------- ----------------
(184,260 ) 470,056 (220,561 )
---------------- --------------- ----------------
Net income $ 1,607,414 $ 1,726,112 $ 969,196
================ =============== ================
Income (loss) per limited partner unit
Continuing operations $ 0.60 $ 0.42 $ 0.40
Discontinued operations (0.06 ) 0.16 (0.08 )
---------------- --------------- ----------------
$ 0.54 $ 0.58 $ 0.32
================ =============== ================
Weighted average number of limited partner units
outstanding 3,000,000 3,000,000 3,000,000
================ =============== ================
See accompanying notes to financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2003, 2002, and 2001
General Partners Limited Partners
------------------------------------ --------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
----------------- ---------------- ----------------- ---------------- --------------
Balance, December 31, 2000 $ 1,000 $ (5,460 ) $ 30,000,000 $ (10,682,464 ) $ 8,219,692
Distributions to limited partners
($0.80 per limited partner unit) -- -- -- (2,400,000 ) --
Net income -- -- -- -- 969,196
----------------- -------------- --------------- ---------------- -----------------
Balance, December 31, 2001 1,000 (5,460 ) 30,000,000 (13,082,464 ) 9,188,888
Distributions to limited partners
($0.80 per limited partner unit) -- -- -- (2,400,000 ) --
Net income -- -- -- -- 1,726,112
----------------- -------------- --------------- ---------------- -----------------
Balance, December 31, 2002 1,000 (5,460 ) 30,000,000 (15,482,464 ) 10,915,000
Distributions to limited partners
($0.80 per limited partner unit) -- -- -- (2,400,000 ) --
Net income -- -- -- -- 1,607,414
----------------- -------------- --------------- ---------------- -----------------
Balance, December 31, 2003 $ 1,000 $ (5,460 ) $ 30,000,000 $ (17,882,464 ) $ 12,522,414
================= ============== =============== ================ =================
See accompanying notes to financial statements.
Syndication
Costs Total
-------------- --------------
$ (3,590,000 ) $23,942,768
-- (2,400,000 )
-- 969,196
-------------- --------------
(3,590,000 ) 22,511,964
-- (2,400,000 )
-- 1,726,112
-------------- --------------
(3,590,000 ) 21,838,076
-- (2,400,000 )
-- 1,607,414
-------------- --------------
$ (3,590,000 ) $21,045,490
============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2003 2002 2001
--------------- ---------------- ----------------
Net income $ 1,607,414 $ 1,726,112 $ 969,196
--------------- ---------------- ----------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 318,942 330,474 342,690
Amortization 4,212 4,212 4,212
Provision for write-down of assets 213,000 456,000 505,491
Equity in earnings of unconsolidated joint
ventures, net of distributions (28,787 ) 42,015 382,447
Gain on sale of assets -- (285,677 ) (310,979 )
Decrease (increase) in receivables 36,516 (36,626 ) 26,719
Decrease (increase) in due from related parties 213 18,799 (14,396 )
Amortization of investment in direct financing
leases 10,394 14,085 35,649
Increase in accrued rental income (20,155 ) (46,289 ) (118,167 )
Decrease (increase) in other assets (751 ) (6,516 ) 12,039
Increase (decrease) in accounts payable and
accrued expenses and real estate taxes payable 29,136 7,977 (17,688 )
Increase (decrease) in due to related parties (15,358 ) 15,018 (2,237 )
Increase (decrease) in rents paid in advance
and deposits 497 23,560 (27,053 )
Decrease in deferred rental income (11,716) (3,480 ) (3,480 )
--------------- ---------------- ----------------
Total adjustments 536,143 533,552 815,247
--------------- ---------------- ----------------
Net cash provided by operating activities 2,143,557 2,259,664 1,784,443
--------------- ---------------- ----------------
Cash Flows from Investing Activities:
Additions to real estate properties with operating
leases -- (1,364,194 ) (1,216,598 )
Proceeds from sale of real estate properties -- 3,499,595 3,272,711
Liquidating distribution from joint venture 242,796 -- --
Investment in joint ventures -- (2,136,538 ) (2,066,846 )
(Increase) decrease in restricted cash -- 297,288 (297,288 )
--------------- ---------------- ----------------
Net cash provided by (used in) investing
activities 242,796 296,151 (308,021 )
--------------- ---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (2,400,000 ) (2,400,000 ) (2,400,000 )
--------------- ---------------- ----------------
Net cash used in financing activities (2,400,000 ) (2,400,000 ) (2,400,000 )
--------------- ---------------- ----------------
Net increase (decrease) in cash and cash equivalents (13,647 ) 155,815 (923,578 )
Cash and cash equivalents at beginning of year 829,739 673,924 1,597,502
--------------- ---------------- ----------------
Cash and cash equivalents at end of year $ 816,092 $ 829,739 $ 673,924
=============== ================ ================
See accompanying notes to financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2003 2002 2001
--------------- ---------------- ----------------
Supplemental Schedule of Non-Cash Financing Activities:
Distributions declared and unpaid at December 31 $ 600,000 $ 600,000 $ 600,000
=============== ================ ================
See accompanying notes to financial statements.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies
Organization and Nature of Business - CNL Income Fund XVII, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food, family-style and casual dining restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the real
estate property acquisitions at cost. The properties are leased to
third parties generally on a triple-net basis, whereby the tenant is
generally responsible for all operating expenses relating to the
property, including property taxes, insurance, maintenance and repairs.
During the years ended December 31, 2003, 2002 and 2001, the tenants
paid, or are expected to pay, directly to real estate taxing
authorities approximately $374,500, $312,800, and $321,200,
respectively, in estimated real estate taxes in accordance with the
terms of their leases..
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The Partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using either the
operating or the direct financing method.
Operating method - Real estate property leases accounted for using
the operating method are recorded at cost, revenue is recognized
as rentals are earned and depreciation is charged to operations as
incurred. Buildings are depreciated on the straight-line method
over their estimated useful lives of 30 years. When scheduled
rentals vary during the lease term, income is recognized on a
straight-line basis so as to produce a constant periodic rent over
the lease term commencing on the date the property is placed in
service.
Direct financing method - Leases accounted for using the direct
financing method are recorded at their net investment (which at
the inception of the lease generally represents the cost of the
asset). Unearned income is deferred and amortized to income over
the lease terms so as to produce a constant periodic rate of
return on the Partnership's investment in the leases. For property
leases classified as direct financing leases, the building
portions of the majority of property leases are accounted for as
direct financing leases while the land portions of these leases
are accounted for as operating leases.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date. In contrast, deferred rental income represents the
aggregate amount of scheduled rental payments to date (including rental
payments due during construction and prior to the property being placed
in service) in excess of income recognized on a straight-line basis
over the lease term commencing on the date the property is placed in
service.
Leases are generally for 15 to 20 years and provide for minimum and
contingent rentals. The lease options generally allow tenants to renew
the leases for two to four successive five-year periods subject to the
same terms and conditions of the initial lease. Most leases also allow
the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, or deferred rental
income, are removed from the accounts and gains or losses from sales
are reflected in income. The general partners of the Partnership review
properties for impairment whenever events or changes in circumstances
indicate that the carrying amount of the assets may not be recoverable
through operations. The general partners determine whether an
impairment in value has occurred by comparing the estimated future
undiscounted cash flows, including the residual value of the property,
with the carrying cost of the individual property.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is recorded to increase the
allowance for doubtful accounts. If amounts are subsequently determined
to be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its
interests in CNL Kingston Joint Venture; CNL Mansfield Joint Venture;
CNL VII & XVII Lincoln Joint Venture; and Katy Joint Venture; and the
properties in Corpus Christi, Texas; Akron, Ohio; Fayetteville, North
Carolina; Zephyrhills, Florida; Waldorf, Maryland; and Kenosha,
Wisconsin, for which each property is held as tenants-in-common, are
accounted for using the equity method since each joint venture
agreement requires the consent of all partners on all key decisions
affecting the operations of the underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds. Cash equivalents
are stated at cost plus accrued interest, which approximates market
value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs represent a reduction
of Partnership equity and a reduction in the basis of each partner's
investment.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
1. Significant Accounting Policies - Continued
Rents Paid in Advance - Rents paid in advance by lessees for future
periods are deferred upon receipt and are recognized as revenues during
the period in which the rental income is earned.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior year's financial
statements have been reclassified to conform to 2003 presentation.
These reclassifications had no effect on partner's capital, net income
or cash flows.
Statement of Financial Accounting Standards No. 144 - Effective January
1, 2002, the Partnership adopted Statement of Financial Accounting
Standards No. 144 ("FAS 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 estimated 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.
FASB Interpretation No. 46 - 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, 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. In December 2003,
the FASB issued FASB Interpretation No. 46R ("FIN 46R"), to clarify
some of the provisions of FIN 46. Under FIN 46R, special effective date
provisions apply to entities that have fully or partially applied FIN
46 prior to issuance of FIN 46R. Otherwise, application of FIN 46R is
required in financial statements of public entities that have interests
in structures that are commonly referred to as special-purpose entities
for periods ending after December15, 2003. Application by public
entities, other than small business issuers, for all other types of
variable interest entities is required in financial statements for
periods ending after March 15, 2004. The Partnership did not fully or
partially apply FIN 46 prior to the issuance of FIN 46R. Also, the
Partnership does not have interests in structures commonly referred to
as special-purpose entities. Therefore, application of FIN 46R is
required in the Partnership's financial statements for periods ending
after March 15, 2004. 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.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
2. Real Estate Properties with Operating Leases
Real estate properties with operating leases consisted of the following
at December 31:
2003 2002
------------------- -------------------
Land $ 6,830,859 $ 6,830,859
Buildings 9,225,912 9,225,912
------------------- -------------------
16,056,771 16,056,771
Less accumulated depreciation (1,978,895 ) (1,670,483 )
------------------- -------------------
$ 14,077,876 14,386,288
=================== ===================
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 a cost of approximately $1,364,200 from CNL Funding
2001-A, LP, an affiliate of the general partners.
In 2002, the Partnership recorded provisions for write-down of assets
in the amount of $456,000 relating to the Properties in Harvey and
Chicago Ridge, Illinois. In December 2002, AmeriKing Corporation, the
parent company of National Restaurant Enterprises, Inc., the former
tenant of these Properties, filed for bankruptcy protection. The
provision represented the difference between the carrying value of the
Properties and their estimated fair value.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2003:
2004 $ 1,558,333
2005 1,560,116
2006 1,577,989
2007 1,598,241
2008 1,600,093
Thereafter 10,922,009
---------------
$ 18,816,781
===============
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
3. Net Investment in Direct Financing Leases
The following lists the components of the net investment in direct
financing leases at December 31:
2003 2002
----------------- -----------------
Minimum lease payments
receivable $ 666,973 $ 720,639
Estimated residual values 113,894 113,894
Less unearned income (381,141 ) (424,413 )
----------------- -----------------
Net investment in direct
financing leases $ 399,726 $ 410,120
================= =================
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2003:
2004 $ 53,666
2005 53,666
2006 53,666
2007 53,666
2008 53,666
Thereafter 398,643
--------------
$ 666,973
==============
4. Investment in Joint Ventures
The Partnership has interests of 21%, 60.06% and 86% in the profits and
losses of CNL Mansfield Joint Venture, CNL Kingston Joint Venture and
CNL VII & XVII Lincoln Joint Venture, respectively. The remaining
interests in these joint ventures are held by affiliates of the
Partnership which have the same general partners.
The Partnership owns properties in Fayetteville, North Carolina; Corpus
Christi, Texas; Akron, Ohio; Zephyrhills, Florida, and Waldorf,
Maryland, as tenants-in-common with affiliates of the general partners.
The Partnership owns interests in these properties of 19.56%, 27.42%,
36.91%, 24% and 25%, respectively.
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. 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. The Partnership contributed approximately $416,700 for a 40%
interest in this joint venture.
In August 2002, the Partnership reinvested the net sales proceeds from
the sale of the Property in Wilmette, Illinois in a Property in
Kenosha, Wisconsin as tenants-in-common with CNL Income Fund VIII, Ltd.
("CNL VIII"), a Florida limited partnership and an affiliate of the
general partners, at an approximate cost of $1,883,000. The Partnership
and CNL VIII entered into an agreement whereby each co-tenant will
share in the profits and losses of each property in proportion to its
applicable percentage interest. The Partnership contributed
approximately $1,694,700 for a 90% interest in this property.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
In August 2002, Mansfield Joint Venture, in which the Partnership owns
a 21% interest, sold the property in Mansfield, Texas to the tenant and
received net sales proceeds of approximately $1,011,500 resulting in a
gain of approximately $269,800. The joint venture used the proceeds
from the sale of the property and additional contributions from the
Partnership and CNL Income Fund VII, Ltd., who are the general partners
of the joint venture, of approximately $17,000 and $63,900,
respectively, to acquire a property in Arlington, Texas from CNL Net
Lease Investors, L.P., at an approximate cost of $1,089,900. CNL Income
Fund VII, Ltd. and CNL Net Lease Investors, L.P. are affiliates of the
general partners. The financial results for the property in Mansfield,
Texas are reflected as discontinued operations in the combined
condensed financial information presented below.
In September 2003, CNL Ocean Shores Joint Venture, in which the
Partnership owned a 30.94% interest, sold its property to a third party
for $824,600 resulting in a gain of approximately $413,700. The joint
venture recorded provisions for write-down of assets in previous years
relating to this Property. The Partnership and the joint venture
partner dissolved the joint venture in accordance with the joint
venture agreement and did not recognize a gain or loss on the
dissolution. The Partnership received approximately $242,800
representing its pro rata share of the liquidation proceeds. The
general partners intend to reinvest a portion of the liquidation
proceeds in an additional property and also pay the liabilities of the
Partnership, including distributions to the limited partners. The
financial results relating to this property are reflected as
discontinued operations in the combined, condensed financial
information 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:
December 31, December 31,
2003 2002
---------------------- --------------------------
Real estate properties with operating $ 11,403,541 $ 11,649,517
leases, net
Real estate held for sale -- 377,303
Cash 78,972 37,123
Receivables, less allowance for doubtful
accounts 5,767 6,468
Accrued rental income 321,980 237,749
Other assets -- 267
Liabilities 56,333 20,858
Partners' capital 11,753,927 12,287,569
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
4. Investment in Joint Ventures - Continued
Years ended December 31,
2003 2002 2001
-------------------- ------------------ ------------------
Continuing operations:
Revenues $ 1,422,859 $ 1,475,878 $ 657,842
Expenses (252,827 ) (228,657 ) (274,289 )
Provision for write-down of assets -- -- (356,719 )
-------------------- ------------------ ------------------
Income from continuing operations 1,170,032 1,247,221 26,834
-------------------- ------------------ ------------------
Discontinued operations:
Revenues -- 62,549 122,867
Expenses (15,827 ) (34,805 ) (36,076 )
Provision for write-down of assets -- -- (781,741 )
Gain on disposal of real estate
properties 413,666 269,791 --
-------------------- ------------------ ------------------
397,839 297,535 (694,950 )
-------------------- ------------------ ------------------
Net Income $ 1,567,871 $ 1,544,756 $ (668,116 )
==================== ================== ==================
The Partnership recognized income totaling $645,804 and $543,978 for
the years ended December 31, 2003 and 2002, and a loss totaling
$136,021 for the year ended December 31, 2001, from these joint
ventures and the properties held as tenants-in-common with affiliates.
5. 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. The Partnership had recorded
provisions for write-down of assets of $465,915 and $28,644 during the
years 2001 and 2000, respectively. 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 third parties and received total
net sales proceeds of approximately $2,727,800 resulting in a total
gain of approximately $285,700.
During November 2003, the Partnership identified for sale its property
in Warner Robins, Georgia. As a result, the property was reclassified
from real estate properties with operating leases to real estate held
for sale. The reclassified assets were recorded at the lower of their
carrying amounts or fair value, less cost to sell. During June 2003,
subsequent to the tenant vacating the property, the Partnership
recorded a provision for write-down of assets of $213,000. The
provision represented the difference between the carrying value of the
property and its estimated fair value.
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:
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
5. Discontinued Operations - Continued
Year Ended December 31,
2003 2002 2001
-------------- ------------- -------------
Rental revenues $ 46,820 $ 222,631 $ 321,966
Other income -- 2,719 1,079
Expenses (18,080 ) (40,971 ) (77,691 )
Provision for write-down of assets (213,000 ) -- (465,915 )
-------------- ------------- -------------
Income (loss) from discontinued operations $ (184,260 ) $ 184,379 $ (220,561 )
============== ============= =============
6. Allocations and Distributions
From inception through December 31, 1999, distributions of net cash
flow, as defined in the limited partnership agreement of the
Partnership, were made 95% to the limited partners and five percent to
the general partners; provided, however, that for any particular year,
the five percent of net cash flow to be distributed to the general
partners was subordinated to receipt by the limited partners in that
year of an eight percent cumulative, noncompounded return on their
aggregate invested capital contributions (the "Limited Partners" 8%
Return").
From inception through December 31, 1999, generally, net income
(determined without regard to any depreciation and amortization
deductions and gains and losses from the sale of properties) was
allocated between the limited partners and the general partners first,
in an amount not to exceed the net cash flow distributed to the
partners attributable to such year in the same proportions as such net
cash flow is distributed; and thereafter, 99% to the limited partners
and one percent to the general partners. All deductions for
depreciation and amortization were allocated 99% to the limited
partners and one percent to the general partners.
From inception through December 31, 1999, net sales proceeds from the
sale of a property not in liquidation of the Partnership generally were
distributed first to the limited partners in an amount sufficient to
provide them with the return of their invested capital contributions,
plus their cumulative Limited Partners' 8% Return. The general partners
then received a return of their capital contributions and, to the
extent previously subordinated and unpaid, a five percent interest in
all net cash flow distributions. Any remaining net sales proceeds were
distributed 95% to the limited partners and five percent to the general
partners.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
6. Allocations and Distributions - Continued
Any gain from the sale of a property, not in liquidation of the
Partnership, was in general, allocated in the same manner as net sales
proceeds are distributable. Any loss was, in general, allocated first,
on a pro rata basis to the partners with positive balances in their
capital accounts; and thereafter, 95 percent to the limited partners
and five percent to the general partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after allocations of net income, gains
and/or losses, to distribute to the partners with positive capital
accounts balances, in proportion to such balances, up to amounts
sufficient to reduce such positive balances to zero, and (v)
thereafter, any funds remaining shall then be distributed 95% to the
limited partners and five percent to the general partners.
Effective January 1, 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the years
ended December 31, 2003, 2001 and 2001.
During each of the years ended December 31, 2003, 2001, and 2001, the
Partnership declared distributions to the limited partners of
$2,400,000. No distributions have been made to the general partners to
date.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
7. Income Taxes
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2003 2002 2001
--------------- -------------- --------------
Net income for financial reporting purposes $ 1,607,414 $ 1,726,112 $ 969,196
Effect of timing differences relating to depreciation 61,215 60,987 37,122
Effect of timing differences relating to amortization -- -- (848 )
Direct financing leases recorded as operating
leases for tax reporting purposes 10,393 14,085 35,649
Effect of timing differences relating to equity in
earnings of unconsolidated joint ventures (267,447 ) (88,917 ) 426,474
Accrued rental income (20,155 ) (37,857 ) (105,700 )
Rents paid in advance 497 23,560 (14,806 )
Deferred rental income (11,716 ) (11,912 ) (15,948 )
Effect of timing differences relating to allowance
for doubtful accounts 43,516 (286,567 ) 31,981
Effect of timing differences relating to gains/losses
on real estate property sales -- (618,059 ) (725,184 )
Provision for write-down of assets 213,000 456,000 505,491
Other (290 ) -- --
--------------- -------------- --------------
Net income for federal income tax purposes $ 1,636,427 $ 1,237,432 $ 1,143,427
=============== ============== ==============
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
8. Related Party Transactions
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP, a wholly owned subsidiary of CNL Restaurant
Properties, Inc. (formerly known as CNL American Properties Fund, Inc.)
served as the Partnership's advisor until January 1, 2002, when it
assigned its rights and obligations under a management agreement to RAI
Restaurants, Inc. (the "Advisor") The Advisor is a wholly owned
subsidiary of CNL Restaurant Properties, Inc. ("CNL-RP"). The
individual general partners are stockholders and directors of CNL-RP.
The Advisor provides services pursuant to a management agreement with
the partnership. In connection therewith, the Partnership agreed to pay
certain Advisor management fees of one percent of the sum of gross
revenues from properties wholly owned by the Partnership and the
Partnership's allocable share of gross revenues from joint ventures.
Any portion of the Management fee not paid is deferred without
interest. The Partnership incurred management fees of $23,448, $24,452,
and $21,315, for the years ended December 31, 2003, 2002, and 2001,
respectively.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the sales proceeds are reinvested in a replacement property, no such
real estate disposition fees will be incurred until such replacement
property is sold and the net sales proceeds are distributed. The
payment of the real estate disposition fee is subordinated to the
receipt by the limited partners of their aggregate 8% Preferred Return,
plus their adjusted capital contributions. No deferred, subordinated
real estate disposition fees have been incurred since inception.
During 2001, Phoenix Restaurant Group, Inc. ("PRG") filed for
bankruptcy and rejected one of the two leases it had with the
Partnership. The other lease was held with an affiliate of the general
partners, as tenants-in-common. The Partnership owns a 27.42% interest
in the tenancy in common. In May 2002, the bankruptcy court assigned
this lease, relating to the property in Corpus Christi, Texas to RAI,
LLC, an affiliate of the general partners. All other lease terms
remained the same. In connection with this lease, the tenancy in common
recognized rental revenues of approximately $190,600 and $127,800
during the years ended December 31, 2003 and 2002, respectively. The
Partnership recognized its pro-rata share of this amount in equity in
earnings of joint ventures in the accompanying financial statements.
In June 2002, the Partnership acquired a property in Houston, Texas,
from CNL Funding 2001-A, LP, for approximately $1,364,200. In addition,
in June 2002, Katy Joint Venture acquired a property in Katy, Texas
from CNL Funding 2001-A, LP. 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.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
8. Related Party Transactions - Continued
In September 2002, CNL Mansfield Joint Venture acquired a property in
Arlington, Texas from CNL Net Lease Investors, L.P. ("NLI"), at an
approximate cost of $1,089,900. During 2002, and prior to the joint
venture's acquisition of this property, CNL Financial LP Holding, LP
("CFN") and CNL Net Lease Investors GP Corp. ("GP Corp") purchased the
limited partner's interest and general partner's interest,
respectively, of NLI. Prior to this transaction, an affiliate of the
Partnership's general partners owned a 0.1% interest in NLI and served
as a general partner of NLI. The original general partners of NLI
waived their rights to benefit from this transaction. The acquisition
price paid by CFN for the limited partner's interest was based on the
portfolio acquisition price. The joint venture acquired the property in
Arlington, Texas at CFN's cost and did not pay any additional
compensation to CFN for the acquisition of the property. Each CNL
entity is an affiliate of the Partnership's general partners.
During the years ended December 31, 2003, 2002, and 2001, the Advisor
and its affiliates provided accounting and administrative services. The
Partnership incurred $114,200, $149,801, and $189,320, for the years
ended December 31, 2003, 2002, and 2001, respectively, for such
services.
The amount due related parties at December 31, 2003 and 2002 totaled
$11,242 and $26,600, respectively.
9. Concentration of Credit Risk
The following schedule presents total rental revenues from individual
lessees, each representing more than ten percent of total rental
revenues (including the Partnership's share of total rental revenues
from the joint ventures and the properties held as tenants-in-common
with affiliates of the general partners), for each of the years ended
December 31:
2003 2002 2001
-------------- --------------- -------------
Golden Corral Corporation $ 598,801 $ 598,592 $ 555,303
National Restaurant Enterprises, Inc. 350,337 424,696 424,696
Taco Cabana and Carrols Corp (entities
under common control) 334,988 N/A N/A
RTM Indianapolis and RTM Southwest
Texas, Inc. (entities under common
control) 263,801 262,169 264,878
Jack in the Box Inc. and
Jack in the Box Eastern Division, L.P.
(entities under common control) N/A N/A 324,397
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
9. 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 total rental revenues (including the Partnership's share of total
rental revenues from the joint ventures and the properties held as
tenants-in-common with affiliates of the General Partners), for each of
the years ended December 31:
2003 2002 2001
--------------- --------------- ---------------
Golden Corral Buffet and Grill $ 598,801 $ 598,592 $ 555,303
Burger King 386,101 463,478 472,109
Taco Cabana 299,225 N/A N/A
Arby's 281,892 279,905 282,266
Jack in the Box N/A N/A 324,397
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 are geographically diverse
throughout 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.
10. Selected Quarterly Financial Data
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2003 and
2002:
2003 Quarter First Second Third Fourth Year
--------------------------------------- ----------- ---------- ---------- ---------- -------------
Continuing operations (1)
Revenues $ 383,205 $442,982 $430,852 $440,316 $ 1,697,355
Equity in earnings of joint 129,034 128,919 256,483 131,368 645,804
ventures
Income from continuing
operations 344,999 443,535 559,108 444,032 1,791,674
Discontinued operations (1)
Revenues 22,956 30,332 (6,468 ) -- 46,820
Income (loss) from and gain
(Loss) on the disposal of
discontinued operations 19,440 (185,074 ) (10,143 ) (8,483 ) (184,260 )
Net income 364,439 258,461 548,965 435,549 1,607,414
Income (loss) per limited partner unit:
Continuing operations $ 0.11 $ 0.15 $ 0.19 $ 0.15 $ 0.60
Discontinued operations 0.01 (0.06 ) (0.01 ) -- (0.06 )
----------- ---------- ---------- ---------- -------------
Total $ 0.12 $ 0.09 $ 0.18 $ 0.15 $ 0.54
=========== ========== ========== ========== =============
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2003, 2002, and 2001
10. Selected Quarterly Financial Data - Continued
2002 Quarter First Second Third Fourth Year
----------------------------------------- ----------- ---------- ---------- ---------- --------------
Continuing Operations (1):
Revenues $ 428,726 $421,447 $459,494 $407,070 $1,716,737
Equity in earnings of joint
ventures 76,861 163,823 172,098 131,196 543,978
Income (loss) from continuing
operations (2) 352,860 446,015 503,358 (46,177 ) 1,256,056
Discontinued Operations (1):
Revenues 95,189 79,785 24,703 25,673 225,350
Income from and gain on the
disposal ofdiscontinued
operations 73,743 358,874 20,687 16,752 470,056
Net income 426,603 804,888 524,045 (29,424 ) 1,726,112
Income (loss) per limited partner unit:
Continuing operations $ 0.12 $ 0.15 $ 0.17 $ (0.02 ) $ 0.42
Discontinued operations 0.02 0.12 -- 0.02 0.16
----------- ---------- ---------- ---------- --------------
$ 0.14 $ 0.27 $ 0.17 $ -- $ 0.58
=========== ========== ========== ========== ==============
(1) Certain items in the quarterly financial data have been
reclassified to conform to the 2003 presentation. These
reclassifications had no effect on net income. The results of
operations relating to properties that were either identified
for sale and disposed of subsequent to January 1, 2002 or were
classified as held for sale as of December 31, 2003 are
reported as discontinued operations for all periods presented.
The results operations relating to properties that were
identified for sale as of December 31, 2001 but sold
subsequently are reported as continuing operations.
(2) In December 2002, the Partnership recorded provisions for
write-down of assets in the amount of $456,000 relating to the
Properties in Harvey and Chicago Ridge, Illinois, as a result
of the AmeriKing Corporation bankruptcy.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
Item 9A. 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 Annual Report on Form 10-K 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 III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL-RP, CCM, CNL Financial Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 57. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL-RP, a public, unlisted real
estate investment trust since 1994. Mr. Seneff served as Chief Executive Officer
of CNL-RP from 1994 through August 1999 and as Co-Chief Executive Officer from
December 2000 through September 2003. Mr. Seneff served as Chairman of the Board
and Chief Executive Officer of CNL Fund Advisors, Inc., formerly the
Partnership's advisor, from its inception in 1990 until it merged with a
wholly-owned subsidiary of CNL-RP in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. CNL Fund Advisors,
Inc., formerly CNL Institutional Advisors, Inc., is a registered investment
advisor. Mr. Seneff is a principal stockholder of CNL Holdings, Inc., the parent
company of CNL Financial Group, Inc., a diversified real estate company, and has
served as a Director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since 1973. CNL Financial Group, Inc. is and is the parent
company, either directly or indirectly through subsidiaries, of CNL Real Estate
Services, Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL
Securities Corp., all of which are engaged in the business of real estate
finance. Mr. Seneff also serves as a Director and Chairman of the Board of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
and served as Chief Executive Officer of CNL Hospitality Properties, Inc. from
its inception in 1997 until 2003 and served as Co-Chief Executive Officer from
February 2003 until May 1, 2003. Mr. Seneff has served as Chairman of the Board
of CNL Hospitality Corp., the advisor to CNL Hospitality Properties, Inc., since
its inception in 1997. Mr. Seneff also served as Chief Executive Officer from
its inception in 1997 through February 2003, and currently serves as Co-Chief
Executive Officer of CNL Hospitality Corp. Mr. Seneff has served as Director and
Chairman of the Board of CNL Retirement Corp. since 1997 and served as Chief
Executive Officer of CNL Retirement Corp. from 1997 through 2003. CNL Retirement
Corp. is the advisor to CNL Retirement Properties, Inc., a public, unlisted real
estate investment trust. Mr. Seneff has also served as Director and Chairman of
the Board of Commercial Net Lease Realty, Inc., a public real estate investment
trust that is listed on the New York Stock Exchange, since 1992 and served as
Chief Executive Officer of Commercial Net Lease Realty, Inc. from 1992 through
February 2004. Mr. Seneff has served as a Director, Chairman of the Board, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff has
served as Chairman of the Board and Chief Executive Officer of CNL Commercial
Finance, Inc. since 2000. Mr. Seneff also serves as Chairman of the Board of
CNLBank, an independent, state-chartered commercial bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of the
Florida state retirement plan. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 56. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne has
served as a Director and Vice Chairman of the Board of CNL-RP since 1994. Mr.
Bourne also served as President of CNL-RP from 1994 through February 1999 and
served as Treasurer from February 1999 through August 1999 and from May 1994
through December 1994. Mr. Bourne served in various executive positions with CNL
Fund Advisors, Inc. prior to its merger with a wholly-owned subsidiary of CNL-RP
including, President from 1994 through September 1997, and Director from 1994
through August 1999. Mr. Bourne serves as President and Treasurer of CNL
Financial Group, Inc. Mr. Bourne serves as Director, Vice Chairman of the Board
and Treasurer and from 1997 until June 2002 served as President of CNL
Hospitality Properties, Inc. and as Director, President and Treasurer of CNL
Hospitality Corp. Mr. Bourne also serves as Director and Treasurer of CNL
Retirement Properties, Inc. and as Director and Treasurer of CNL Retirement
Corp. Mr. Bourne serves as a Director of CNLBank. Mr. Bourne has also served as
a Director since 1992, Vice Chairman of the Board since February 1996, Secretary
and Treasurer from February 1996 through 1997, and President from July 1992
through February 1996, of Commercial Net Lease Realty, Inc. Mr. Bourne serves as
Director, President and Treasurer for various affiliates of CNL Financial Group,
Inc. including, CNL Investment Company, CNL Securities Corp. and CNL
Institutional Advisors, Inc. Mr. Bourne began his career as a certified public
accountant employed by Coopers & Lybrand, Certified Public Accountants, from
1971 through 1978, where he attained the position of Tax Manager in 1975. Mr.
Bourne graduated from Florida State University in 1970 where he received a B.A.
in Accounting, with honors.
Curtis B. McWilliams, age 48. Mr. McWilliams has served as President of
CNL-RP since May 2001 and as Chief Executive Officer of CNL-RP since September
2003. Mr. McWilliams served as Co-Chief Executive Officer of CNL-RP from
December 2000 through September 2003 and served as Chief Executive Officer from
September 1999 through December 2000. Mr. McWilliams also served as President
and Chief Executive Officer of CNL Franchise Network Corp., a wholly owned
subsidiary of CNL-RP since August 2002 and served as President of CNL-RP from
February 1999 until September 1999 and as Executive Vice President of CNL-RP
from 1997 through February 1999. Mr. McWilliams served as an Executive Vice
President of CNL Financial Group, Inc. from the time he joined the company in
April 1997 until September 1999. Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and CNL Financial Services, Inc., a corporation engaged in the
business of real estate financing, from April 1997 until the acquisition of such
entities by wholly owned subsidiaries of CNL-RP in September 1999. From
September 1983 through March 1997, Mr. McWilliams was employed by Merrill Lynch
& Co. The majority of his career at Merrill Lynch & Co. was in the Investment
Banking division where he served as a Managing Director. Mr. McWilliams received
a B.S.E. in Chemical Engineering from Princeton University in 1977 and a Master
of Business Administration degree with a concentration in finance from the
University of Chicago in 1983.
Steven D. Shackelford, age 40. Mr. Shackelford was promoted to
Executive Vice President and Chief Operating Officer of CNL-RP in September
2003. Mr. Shackelford has also served as Chief Financial Officer since January
1997. He served as Senior Vice President of CNL-RP from January 1997 through
July 2000, when he was promoted to Executive Vice President. Mr. Shackelford has
also served as Secretary and Treasurer of CNL-RP since September 1999. He also
served as Chief Financial Officer of CNL Fund Advisors, Inc. from September 1996
to September 1999. From March 1995 to July 1996, Mr. Shackelford was a senior
manager in the national office of Price Waterhouse LLP where he was responsible
for advising foreign clients seeking to raise capital and a public listing in
the United States. From August 1992 to March 1995, he was a manager in the
Paris, France office of Price Waterhouse, serving several multi-national
clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a Bachelor
of Arts degree in Accounting, with honors, and a Master of Business
Administration degree from Florida State University and is a certified public
accountant.
Thomas Arasi, age 46. Mr. Arasi has served as President of CCM since it
was formed in July 2003 to provide strategic advisory services to the General
Partners. He has served in various consulting capacities to CNL Hospitality Corp
and other CNL affiliates since January 2003. Since November 2001 he has been an
independent consultant working for a variety of operating and investment
companies in the hospitality industry. Until October 2001, Mr. Arasi was
President & Chief Executive Officer, and a member of the Board of Directors of
Lodgian, Inc., a New York Stock Exchange traded company, one of the largest
independent hotel owner/operators in North America, with hotel properties under
most brand names including Marriott, Courtyard by Marriott, Fairfield Inn by
Marriott, Crowne Plaza, Holiday Inn, Hilton, and Radisson. From June 1997
through November 2000, Mr. Arasi was a member of the Management Committee and
held several top operating positions with Bass Hotels & Resorts, one of the
leading international owners, operators and franchisors of hotels, most recently
serving as President, Bass Hotels & Resort--The Americas. Mr. Arasi was formerly
President of Tishman Hotel Corporation, Vice President of Salomon Brothers,
Inc., in New York, Tokyo and Los Angeles and held positions with Sheraton,
Westin and HVS International. Mr. Arasi graduated from Cornell University in
January 1981, where he received a Bachelor's degree in Hotel and Restaurant
Administration.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2003.
Code of Business Conduct
The Partnership does not have employees and, accordingly, has not
adopted a code of business conduct applicable exclusively to the Partnership.
However, employees of the General Partners or their affiliates, including the
individual General Partners, are bound by the Code of Business Conduct adopted
November 11, 2003 by CNL Holdings, Inc. Separately, the employees of the Advisor
are bound by the similar Code of Business Conduct adopted by CNL Restaurant
Properties, Inc. Each of these codes of business conduct will be made available
to any person who writes the Partnership requesting a copy.
Audit Committee Financial Expert
Due to its organization as a limited partnership, the Partnership does
not have an audit committee that is responsible for supervising the
Partnership's relationship with its independent auditors. For the Partnership,
this role is performed by the General Partners. Based on his previous service as
the principal financial officer of companies with businesses similar to that of
the Partnership, Robert A. Bourne, one of the General Partners, has the
requisite experience to be considered an "audit committee financial expert" as
defined in the rules under the Securities Exchange Act of 1934, if the
Partnership had an audit committee. As a General Partner, Mr. Bourne is not
independent of the Partnership.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters
As of March 12, 2004, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 12, 2004, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
The Partnership does not have any equity compensation plans.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2003, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- --------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and
operating expenses the lower of cost or 90% of the administrative services:
prevailing rate at which comparable $114,200
services could have been obtained in
the same geographic area.
Affiliates of the General Partners
from time to time incur certain
operating expenses on behalf of the
Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual management fee to One percent of the sum of gross $23,448
affiliates revenues (excluding noncash and
lease accounting adjustments) from
Properties wholly owned by the
Partnership plus the Partnership's
allocable share of gross revenues of
joint ventures in which the Partnership
is a co-venturer. The management fee,
which will not exceed competitive fees
for comparable services in the same
geographic area, may or may not be taken,
in whole or in part as to any year, in
the sole discretion of the affiliates.
All of any portion of the management fee
not taken as to any fiscal year shall be
deferred without interest and may be
taken in such other fiscal year as the
affiliates shall determine.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2003
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee payable disposition fee, payable upon sale
to affiliates. of one or more Properties, in an
amount equal to the lesser of (i)
one-half of a competitive real estate
commission, or (ii) three percent of the
sales price of such Property or
Properties. Payment of such fee shall be
made only if affiliates of the General
Partners provide a substantial amount of
services in connection with the sale of a
Property or Properties and shall be
subordinated to certain minimum returns
to the Limited Partners. However, if the
net sales proceeds are reinvested in a
replacement Property, no such real estate
disposition fee will be incurred until
such replacement Property is sold and the
net sales proceeds are distributed.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Part-nership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Part-nership net sales proceeds distributions of such net sales
from a sale or sales not in proceeds, subordinated to certain
liquidation of the Partnership minimum returns to the Limited
Partners
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales pro-ceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order or
priority: (i) first, to pay all debts and
liabilities of the Partnership and to
establish reserves; (ii) second, to
Partners with positive capital account
balances, determined after the allocation
of net income, net loss, gain and loss,
in proportion to such balances, up to
amounts sufficient to reduce such
balances to zero; and (iii) thereafter,
95% to the Limited Partners and 5% to the
General Partners.
During 2001, PRG filed for bankruptcy and rejected one of the two leases it had
with the Partnership. The other lease was held with an affiliate of the General
Partners, as tenants-in-common. The Partnership owns a 27.42% interest in the
tenancy in common. In May 2002, the bankruptcy court assigned this lease,
relating to the property in Corpus Christi, Texas to RAI, LLC, an affiliate of
the General Partners. All other lease terms remained the same. In connection
with this lease, the tenancy in common recognized rental revenues of
approximately $190,600 and $127,800 during the years ended December 31, 2003 and
2002, respectively. The Partnership recognized its pro-rata share of this amount
in equity in earnings of unconsolidated joint ventures in the accompanying
financial statements.
Item 14. Principal Accountant Fees and Services
The following table outlines the only fees paid or accrued by the Partnership
for the audit and other services provided by the Partnership's independent
certified public accountants, PricewaterhouseCoopers LLP, for the years ended
December 31:
2003 2002
--------------------- ---------------------
Audit Fees (1) $ 11,423 $ 9,500
Tax Fees (2) 3,725 6,175
--------------------- ---------------------
Total $ 15,148 $ 15,675
===================== =====================
(1) Audit services of PricewaterhouseCoopers LLP for 2003 and 2002
consisted of the examination of the financial statements of the
Partnership and quarterly review of financial statements.
(2) Tax Fees relates to tax consulting and compliance services.
Each of the non-audit services described above was approved by the General
Partners. Due to its organization as a limited partnership, the Partnership does
not have an audit committee.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2003 and 2002
Statements of Income for the year ended December 31, 2003,
2002, and 2001
Statements of Partners' Capital for the year ended December
31, 2003, 2002 and 2001
Statements of Cash Flows for the year ended December 31, 2003,
2002, and 2001
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2003, 2002, and 2001
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2003
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2003
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements
or notes thereto.
3. Exhibits
**3.1 Affidavit and Certificate of Limited Partnership of
CNL Income Fund XVII, Ltd. (Filed as Exhibit 3.2 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. (Included as Exhibit 3.2
to Registration Statement No. 33-90998-01 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 20, 1997, and
incorporated herein by reference.)
**10.2 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.)
**10.3 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Including as
Exhibit 10.2 to Form 10-Q filed with the Securities
and Exchange Commission on August 13, 2001, and
incorporated herein by reference.)
**10.4 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 10.15 to Form 10-Q filed with the
Securities and Exchange Commission on August 14,
2002, and incorporated herein be reference.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period
October 1, 2003 through December 31, 2003.
(c) Not applicable.
(d) Other Financial Information.
The Partnership is required to file audited financial
information of one of its tenants (Golden Corral Corporation) as
a result of this tenant leasing more than 20 percent of the
Partnership's total assets for the year ended December 31, 2003.
Golden Corral Corporation is a privately-held company, and its
financial information is not available to the Partnership to
include in this filing. The Partnership will file this financial
information under cover of a Form 10-K/A as soon as it is
available.
**previously filed
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
March, 2004.
CNL INCOME FUND XVII, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
-------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
-------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
-------------------------
JAMES M. SENEFF, JR.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert A. Bourne President, Treasurer and Director March 26, 2004
- ------------------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 26, 2004
- ------------------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2003, 2002, and 2001
Additions Deductions
---------------------------------- ----------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---------- ----------------- -------------- --------------- ---------------- ------------ ------------ ------------
2001 Allowance for
doubtful
accounts (a) $ 302,321 $ 24,589 $ 209,629 (b) $ 249,972 $ -- $ 286,567
============== =============== ================ ============ ============ ============
2002 Allowance for
doubtful
accounts (a) $ 286,567 $ -- $ -- $(286,567 ) $ -- $ --
============== =============== ================ ============ ============ ============
2003 Allowance for
doubtful
accounts (a) $ -- $ -- $ 79,990 (b) $ -- $ 36,474 $ 43,516
============== =============== ================ ============ ============ ============
(a) Deducted from receivables.
(b) Reduction of rental, earned and other income.
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
Costs Capitalized
Subsequent to Net Cost Basis at Which
Initial Cost Acquisition Carried at Close of Period (b)
------------------------ ------------------ ------------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
----------- ------------- --------- ------- ----------- ------------ ------------
Properties the Partnership
has Invested in Under
Under Operating Leases:
Arby's Restaurants:
Muncie, Indiana (g) - $242,759 $564,223 - - $242,759 $564,223 $806,982
Schertz, Texas - 348,245 470,577 - - 348,245 470,577 818,822
Plainfield, Indiana - 296,025 557,809 - - 296,025 557,809 853,834
Burger King Restaurants:
Harvey, Illinois (h) - 489,341 734,010 - 403,341 634,010 1,037,351
Chicago Ridge, Illinois -i) 771,965 - 699,556 - 613,965 587,556 1,201,521
Lyons, Illinois - 887,767 - 597,381 - 887,767 597,381 1,485,148
Denny's Restaurants:
Pensacola, Florida - 305,509 670,990 - - 305,509 670,990 976,499
Golden Corral Buffet and
Grill Restaurants:
Orange Park, Florida- 711,838 1,162,406 - - 711,838 1,162,406 1,874,244
Aiken, South Carolin- (f) 508,790 - 862,571 - 508,790 862,571 1,371,361
Weatherford, Texas (-) 345,926 - 691,222 - 345,926 691,222 1,037,148
Jack in the Box Restaurants:
Dinuba, California - 324,970 - 509,982 - 324,970 509,982 834,952
LaPorte, Texas - 355,929 - 560,485 - 355,929 560,485 916,414
Taco Cabana Restaurants:
Austin, Texas - 523,989 692,611 - - 523,989 692,611 1,216,600
Houston, Texas (j) - 700,105 664,089 - - 700,105 664,089 1,364,194
Wendy's Old Fashioned
Hamburgers Restaurants:
Livingston, Tennesse- 261,701 - - - 261,701 (d) 261,701
----------- ----------- --------- ------- ----------- ----------- -----------
$7,074,859 $5,516,715 $3,921,197 - $6,830,859 $9,225,912 $16,056,771
=========== =========== ========= ======= =========== =========== ===========
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Wendy's Old Fashioned
Hamburgers Restaurant:
Livingston, Tennesse- - - $455,575 - - (d) (d)
=========== =========== ========= ======= ===========
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation structioAcquired Computed
- ----------- ----------------- -----------
$36,280 1995 03/96 (g)
118,158 1996 06/96 (c)
133,614 1996 10/96 (c)
186,709 1996 03/96 (c)
172,860 1996 03/96 (c)
132,397 1997 11/96 (c)
165,589 1996 08/96 (c)
303,156 1996 03/96 (c)
217,240 1996 04/96 (c)
168,899 1996 03/96 (c)
124,927 1996 05/96 (c)
135,914 1996 07/96 (c)
48,099 1990 12/01 (c)
35,053 1990 06/02 (c)
(e) 1996 06/96 (e)
- -----------
$1,978,895
===========
(e) 1996 06/96 (e)
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2003
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 2003, 2002, and 2001 have been adjusted to reflect
the reclassification of properties accounted for as discontinued
operations.
Accumulated
Cost Depreciation
---------------- -----------------
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 2000 $ 16,596,823 $ 1,413,687
Acquisitions 1,216,598 --
Dispositions (3,189,492 ) (321,421 )
Provision for write-down of assets (39,575 ) --
Depreciation expense -- 277,902
---------------- -----------------
Balance, December 31, 2001 14,584,354 1,370,168
Acquisitions (j) 1,364,194 --
Reclassification from direct financing lease (g) 564,223 --
Provision for write-down of assets (h) (i) (456,000 ) --
Depreciation expense -- 300,315
---------------- -----------------
Balance, December 31, 2002 16,056,771 1,670,483
Depreciation expense -- 308,412
---------------- -----------------
Balance, December 31, 2003 $ 16,056,771 $ 1,978,895
================ =================
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2003
(b) As of December 31, 2003, the aggregate cost of the Partnership's wholly
owned Properties was $17,341,796 for federal income tax purposes. All of
the leases are treated as operating leases for federal income tax
purposes.
(c) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(d) Certain components of the lease relating to land and building have been
recorded as a direct financing lease. Accordingly, costs relating to
these components of this lease are not shown.
(e) The portion of the lease relating to the building has been recorded as a
direct financing lease. The cost of the building has been included in net
investment in direct financing leases; therefore, depreciation is not
applicable.
(f) During the year ended December 31, 1998, the Partnership received
reimbursements from the developer of the property upon final
reconciliation of total construction costs. In connection therewith, the
land and building value was adjusted accordingly.
(g) Effective April 2002, the lease for this property was amended, resulting
in the reclassification of the building portion of the lease to an
operating lease. The building was recorded at net book value, and will be
depreciated over its remaining estimated life of approximately 26 years.
(h) The undepreciated cost of the Property in Harvey, Illinois, was written
down to it estimated fair value due to an impairment in value. The
Partnership recognized the impairment by recording a provision for
write-down of assets in the amount of $186,000 at December 31, 2002. The
provision represented the difference between the Property's carrying
value and the estimated fair value. The cost of the Property presented on
this schedule is the net amount at which the Property is carried,
including the provision for write-down of assets.
(i) The undepreciated cost of the Property in Chicago Ridge, Illinois, was
written down to its estimated fair value due to an impairment in value.
The Partnership recognized the impairment by recording a provision for
write-down of assets in the amount of $270,000 at December 31, 2002. The
provision represented the difference between the Property's carrying
value and the estimated fair value. The cost of the Property presented on
this schedule is the net amount at which the Property is carried,
including the provision for write-down of assets.
(j) During 2002, the Partnership purchased a real estate property from CNL
2001-A, LP, an affiliate of the General Partners, for an aggregate cost
of approximately $ 1,364,200.
EXHIBIT INDEX
Exhibit Number
(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 10.15 to Form 10-Q filed with the Securities
and Exchange Commission on August 14, 2002, and
incorporated herein be 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