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, 2001
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 0-24095
CNL INCOME FUND XVIII, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3295394
(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. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 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 XVIII, 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 20, 1996, the
Partnership offered for sale up to $35,000,000 of limited partnership interests
(the "Units") (3,500,000 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 February 6, 1998, at which date the
maximum offering proceeds of $35,000,000 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"). As of December 31, 1998, net
proceeds to the Partnership from its offering of Units, after deduction of
organizational and offering expenses, totalled $30,810,000. During 1998, the
Partnership had invested approximately $29,859,000 of the proceeds to acquire 24
Properties (which included one Property owned by a joint venture in which the
Partnership is a co-venturer) and to pay acquisition fees and certain
acquisition expenses. In February 1999, the Partnership invested in a joint
venture arrangement, CNL Portsmouth Joint Venture, with CNL Income Fund XI,
Ltd., an affiliate of the General Partners to hold and purchase one Property and
used the remaining amounts to establish a working capital reserve for
Partnership purposes. In December 1999, the Partnership sold one Property in
Atlanta, Georgia. In June 2000, the Partnership reinvested the net sales
proceeds from the sale of the Property in Atlanta, Georgia in a joint venture
arrangement, TGIF Pittsburgh Joint Venture, with CNL Income Fund VII, Ltd., CNL
Income Fund XV, Ltd., and CNL Income Fund XVI, Ltd., each an affiliate of the
General Partners, to purchase one Property in Homestead, Pennsylvania. In
January 2001, the Partnership sold a portion of its interest in TGIF Pittsburgh
Joint Venture to CNL Income Fund VII, Ltd., a Florida limited partnership and an
affiliate of the General Partners, for approximately $500,000. The Partnership
used the net sales proceeds to pay liabilities of the Partnership and to meet
the Partnership's working capital needs. During 2001, the Partnership sold its
Properties in Timonium, Maryland and Henderson, Nevada and reinvested the
majority of these net sales proceeds in a Property in Denver, Colorado, as
tenants-in-common, with CNL Income Fund VIII, Ltd., a Florida limited
partnership and an affiliate of the General Partners. In addition, in December
2001, the Partnership sold its Property in Santa Rosa, California. As a result
of the above transactions, as of December 31, 2001, the Partnership owned 19
Properties directly, and had interests in four additional Properties indirectly
through joint venture or tenancy in common arrangements. In January 2002 the
Partnership reinvested a portion of the net sales proceeds from the sale of the
Property in Santa Rose, California in a Property in Houston, Texas. In addition,
in January 2002, the Partnership reinvested the remaining net sales in a
Property in Austin, Texas, as tenants-in-common, with CNL Income Fund X, Ltd., a
Florida limited partnership and an affiliate of the General Partners. The
Properties are generally leased on a triple-net basis with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities.
The Partnership will hold 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 will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. 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.
Description of Leases
The leases of the Properties provide for initial terms ranging from 15
to 20 years (the average being 18 years) and expire between 2012 and 2019. The
leases are generally on a triple-net basis, with the lessee responsible for all
repairs and maintenance, property taxes, insurance and utilities. The leases
provide for minimum base annual rental payments (payable in equal monthly
installments) ranging from approximately $58,400 to $259,900. 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 provide for two to five five-year renewal options
subject to the same terms and conditions as the initial lease. Lessees of 17 of
the Partnership's 23 Properties also have been granted options to purchase the
Properties after a specified portion of the lease term has elapsed. The option
purchase price is equal to the Partnership's original cost of the Property
(including acquisition costs), plus a specified percentage of the Property's
fair market value at the time the purchase option is exercised, whichever is
greater. Fair market value will be determined through an appraisal by an
independent appraisal firm.
The leases also generally provide that, in the event the Partnership
wishes to sell the Properties, the Partnership first must offer the lessees the
right to purchase the Properties on the same terms and conditions, and for the
same price, as any offer which the Partnership has received for the sale of the
Properties.
In July 2001, the Partnership reinvested the majority of the net sales
proceeds it received from the sale of the Properties in Timonium, Maryland and
Henderson, Nevada, in a Property located in Denver, Colorado with CNL Income
Fund VIII, Ltd., as tenants-in-common, as described below in "Joint Venture and
Tenancy in Common Arrangements." The lease terms for this Property are
substantially the same as the Partnership's other leases, as described above.
In January 2002, the Partnership reinvested a portion of the net sales
proceeds it received from the sale of the Property in Santa Rosa, California, in
a Property located in Austin, Texas, with CNL Income Fund X, Ltd., as
tenants-in-common, as described below in "Joint Venture and Tenancy in Common
Arrangements." In addition, in January 2002, the Partnership reinvested the
remaining net sales proceeds in a Property located in Houston, Texas. The lease
terms for these Properties are substantially the same as the Partnership's other
leases, as described above.
Major Tenants
During 2001, four lessees of the Partnership, Golden Corral
Corporation, Jack in the Box Inc., IHOP Properties, Inc., and S&A Properties
Corporation and Steak and Ale of Colorado, Inc. (under common control of
Metromedia Restaurant Group, hereinafter referred to as Metromedia Restaurant
Group), each contributed more than ten percent of the Partnership's total rental
and earned income (including the Partnership's share of total rental and earned
income from joint ventures and the Property held as tenants-in-common with an
affiliate). As of December 31, 2001, Golden Corral Corporation was the lessee
under leases relating to four restaurants, Jack in the Box Inc. was the lessee
relating to three leases, Metromedia Restaurant Group was the lessee relating to
two leases and IHOP Properties, Inc. was the lessee relating to one lease. It is
anticipated that based on the minimum rental payments required by the leases,
Golden Corral Corporation, Jack in the Box Inc. and Metromedia Restaurant Group
will each continue to contribute more than ten percent of the Partnership's
total rental and earned income (including the Partnership's share of total
rental and earned income from joint ventures and the Property held as
tenants-in-common with an affiliate) in 2002. In addition, four Restaurant
Chains, Golden Corral Family Steakhouse Restaurants ("Golden Corral"), Jack in
the Box, Bennigan's, and IHOP, each accounted for more than ten percent of the
Partnership's total rental and earned income (including the Partnership's share
of total rental and earned income from joint ventures and the Property held as
tenants-in-common with an affiliate) for 2001. In 2002, it is anticipated that
Golden Corral, Jack in the Box and Bennigan's will each contribute more than ten
percent of the Partnership's rental and earned income (including the
Partnership's share of total rental and earned income from joint ventures and
the Property held as tenants-in-common with an affiliate) to which the
Partnership is entitled under the terms of the leases. Any failure of such
lessees or Restaurant Chains could materially adversely affect the Partnership's
income if the Partnership is not able to re-lease the Properties in a timely
manner. As of December 31, 2001, 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
In August 1998, the Partnership entered into a joint venture
arrangement, Columbus Joint Venture, with CNL Income Fund XII, Ltd. and CNL
Income Fund XVI, Ltd., affiliates of the General Partners, to construct and hold
one Property. Each of the affiliates is a limited partnership organized pursuant
to the laws of the State of Florida. The joint venture arrangement provides for
the Partnership and its joint venture partners to share in all costs and
benefits associated in the joint venture in proportion to each partner's
percentage interest in the joint venture. The Partnership has a 39.93% interest
in Columbus Joint Venture. The Partnership and its joint venture partners are
also jointly and severally liable for all debts, obligations and other
liabilities of the joint venture.
In addition, in February 1999, the Partnership entered into a joint
venture arrangement, CNL Portsmouth Joint Venture, with CNL Income Fund XI,
Ltd., an affiliate of the General Partners, to purchase and hold one Property.
The affiliate is a limited partnership organized pursuant to the laws of the
State of Florida. The joint venture agreement provides for the Partnership and
its joint venture partner to share in all costs and benefits associated with the
joint venture in proportion to each partner's percentage interest in the joint
venture. The Partnership owns a 57.2% interest in the joint venture.
In addition, in June 2000, the Partnership entered into a joint venture
arrangement, TGIF Pittsburgh Joint Venture, with CNL Income Fund VII, Ltd., CNL
Income Fund XV, Ltd. and CNL Income Fund XVI, Ltd., affiliates of the General
Partners, to purchase and hold one Property. Each of the affiliates is a limited
partnership organized pursuant to the laws of the State of Florida. The joint
venture agreement provides for the Partnership and its joint venture partners to
share in all costs and benefits associated with the joint venture in proportion
to each partner's percentage interest in the joint venture. In January 2001, the
Partnership sold a portion of its interest in TGIF Pittsburgh Joint Venture to
CNL Income Fund VII, Ltd., a Florida limited partnership and an affiliate of the
General Partners, for approximately $500,000. As of December 31, 2001, the
Partnership owned a 19.78% interest in the joint venture. The Partnership used
the net sales proceeds to pay liabilities of the Partnership and to meet the
Partnership's working capital needs.
Each joint venture has an initial term of 20 years and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of any of the joint venturers 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.
The Partnership shares management control equally with affiliates of
the General Partners for each of the joint ventures. The joint venture
agreements restrict each venturer's ability to sell, transfer or assign its
joint venture interest without first offering it for sale to its joint venture
partners, either upon such terms and conditions as to which the venturers may
agree or, in the event the venturers cannot agree, on the same terms and
conditions as any offer from a third party to purchase such joint venture
interest.
Net cash flow from operations of Columbus Joint Venture, CNL Portsmouth
Joint Venture and TGIF Pittsburgh Joint Venture are distributed 39.93%, 57.2%
and 19.78%, respectively, to the Partnership and the balance is distributed to
the respective joint venture partners in accordance with its respective
percentage interest in 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.
In addition to the above joint venture agreements, in July 2001, the
Partnership entered into an agreement to hold a Property as tenants-in-common,
with CNL Income Fund VIII, Ltd., an affiliate of the General Partners. The
agreement provides for the Partnership and the affiliate to share in the profits
and losses of the Property in proportion to each co-tenant's percentage
interest. The Partnership owns an 80.7% interest in this Property. CNL Income
Fund VIII, Ltd. is a limited partnership organized pursuant to the laws of the
State of Florida. The tenancy in common agreement restricts each co-tenant's
ability to sell, transfer, or assign its interest in the tenancy in common's
Property without first offering it for sale to the remaining co-tenant.
In addition, in January 2002, the Partnership reinvested a portion of
the sales proceeds from the 2001 sale of the Property in Santa Rosa, California
in a Property in Austin, Texas, as tenants-in-common, with CNL Income Fund X,
Ltd., a Florida limited partnership and an affiliate of the General Partners.
The Partnership entered into a separate long-term, triple-net lease with terms
substantially the same as its other leases for each property.
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.
Management Services
CNL APF Partners, LP, an affiliate of the General Partners, provides
certain services relating to the management of the Partnership and its
Properties pursuant to a management agreement with the Partnership. Under this
agreement, CNL APF Partners, LP (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.
Effective July 1, 2000, CNL Fund Advisors, Inc. assigned its rights in,
and its obligations under, the management agreement with the Partnership to the
Advisor. All of the terms and conditions of the management agreement, including
the payment of fees, as described above, remain unchanged.
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.
Competition
The fast-food family-style and casual dining 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 and the officers and employees of CNL American Properties Fund,
Inc., the parent company of the Advisor, 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, 2001, the Partnership owned 23 Properties. Of the 23
Properties, 19 are owned by the Partnership in fee simple, three are owned
through joint venture arrangements and one is owned through a tenancy in common
arrangement. 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. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. As of December 31, 2001, the Partnership's Property sites ranged
from approximately 24,400 to 148,500 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 as of
December 31, 2001 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation for the year ended December 31, 2001.
State Number of Properties
Arizona 1
California 1
Colorado 1
Florida 2
Illinois 1
Kentucky 1
Minnesota 1
North Carolina 3
New York 1
Ohio 2
Pennsylvania 1
Tennessee 1
Texas 6
Virginia 1
--------------
TOTAL PROPERTIES 23
==============
Buildings. Each of the Properties owned by the Partnership as of
December 31, 2001, includes a building that is one of a Restaurant Chain's
approved designs. The buildings generally are rectangular and constructed from
various combinations of stucco, steel, wood, brick and tile. Building sizes
range from approximately 2,100 to 9,700 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, 2001, 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, 2001, the aggregate cost of the Properties owned by
the Partnership and joint ventures for federal income tax purposes was
$23,240,960 and $6,205,016, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 2
Bennigan's 2
Boston Market 3
Burger King 1
Chevy's Fresh Mex 1
Golden Corral 4
Ground Round 1
IHOP 1
Jack in the Box 3
NI's International Buffet 1
On the Border 1
Taco Bell 1
T.G.I. Friday's 1
Wendy's 1
--------------
TOTAL PROPERTIES 23
==============
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 selected
national and regional fast-food, family-style and casual dining 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. Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease. The terms of
the leases of the Properties owned by the Partnership are described in Item 1.
Business - Leases.
At December 31, 2001, 2000, 1999, 1998 and 1997 the Properties were
83%, 80%, 96%, 96% and 100% occupied, respectively. The following is a schedule
of the average rent per Property for each of the years ended December 31:
2001 2000 1999 1998 1997
------------- ------------- --------------- -------------- -------------
Rental Revenues (1)(2) $ 2,564,402 $ 2,888,408 $ 3,141,240 $ 2,953,285 $1,290,621
Properties (2) 19 20 23 24 22
Average rent per
property $ 134,969 $ 144,420 $ 136,576 $ 123,054 $58,665
(1) Rental income includes the Partnership's share of rental income from
the Properties owned through joint venture and tenancy in common
arrangements. Rental revenues have been adjusted, as applicable, for
any amounts for which the Partnership has established an allowance for
doubtful accounts.
(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, 2001 for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2001 -- -- --
2002 -- -- --
2003 -- -- --
2004 -- -- --
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 -- -- --
2009 -- -- --
2010 -- -- --
Thereafter 19 $ 2,594,700 100.00%
---------- ------------- -------------
Total (1) 19 $ 2,594,700 100.00%
========== ============= =============
(1) Excludes four Properties which were vacant at December 31, 2001.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants, as of December 31, 2001 (See Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Description of Leases.
Golden Corral Corporation leases four Golden Corral restaurants. The
initial term of each lease is 15 years (expiring in 2012 to 2013) and the
average minimum base annual rent is approximately $164,400 (ranging from
approximately $156,700 to $178,200).
Jack in the Box Inc. leases three Jack in the Box restaurants. The
initial term of each lease is 18 years (expiring in 2015) and the average
minimum base annual rent is approximately $113,000 (ranging from approximately
$77,900 to $132,200).
Metromedia Restaurant Group leases two Bennigan's restaurants. The
initial term of one lease is 11 years (expiring in 2019) and the initial term of
the other lease is ten years (expiring in 2018) and the average minimum base
annual rent is approximately $218,400 (ranging from approximately $200,200 to
$236,600).
IHOP Properties, Inc. leases one IHOP restaurant. The initial term of
the lease is 18 years (expiring in 2017) and the minimum base annual rent is
approximately $144,100.
Item 3. Legal Proceedings
On August 10, 1998, DJD Partners VII, LLC served a lawsuit filed on or
about July 28, 1998 against Finest Foodservice, LLC and CNL Income Fund XVIII,
Ltd., DJD Partners VII, LLC v. Finest Foodservice, LLC, et al, Case No. CT
98-014942, in the District Court of the Fourth Judicial District of Hennepin
County, Minnesota, alleging a breach of a contract entered into by Finest
Foodservice, LLC and assigned to CNL Income Fund XVIII, Ltd. in connection with
the construction of a Boston Market property in Minnetonka, Minnesota. In
October 1998 Finest Foodservice, LLC filed for bankruptcy and rejected its
lease, causing the obligations of the contract to become the responsibility of
CNL Income Fund XVIII, Ltd. On May 4, 2001, the District Court awarded a
judgment of approximately $85,400 to the plaintiff. CNL Income Fund XVIII, Ltd.
is appealing the judgment.
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 15, 2002, there were 1,559 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 2001,
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. The price paid for any Unit transferred pursuant to the Plan
through December 31, 2001 range from $8.57 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 2001 and 2000 other than
pursuant to the Plan, net of commissions.
2001 (1) 2000(1)
-------------------------------------- ------------------------------------------
High Low Average High Low Average
--------- --------- ------------ ----------- --------- -------------
First Quarter $6.86 $ 6.80 $ 6.83 $9.30 $ 7.45 $ 8.73
Second Quarter 6.57 6.57 6.57 6.65 6.65 6.65
Third Quarter 6.30 6.30 6.30 7.27 7.27 7.27
Fourth Quarter 8.00 8.00 8.00 6.47 6.47 6.47
(1) A total of 22,500 and 10,290 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2001 and 2000,
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, 2001 and 2000, the Partnership
declared cash distributions of $2,800,000 to the Limited Partners. Distributions
of $700,000 were declared at the close of each of the Partnership's calendar
quarters during 2001 and 2000, 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, 2001 and 2000, 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
The following selected financial data should be read in conjunction
with the financial statements and related notes in Item 8. hereof.
Year Ended Year Ended Year Ended Year Ended Year Ended
December 31, December 31, December 31, December 31, December 31,
2001 2000 1999 1998 1997
---------------- --------------- --------------- ---------------- ---------------
Revenues (1) $ 2,681,283 $ 3,021,125 $ 3,192,371 $ 3,097,757 $ 1,453,242
Net income (3)(4)(5) 1,168,765 1,117,197 2,515,356 2,302,322 1,154,760
Cash distributions
declared 2,800,000 2,800,000 2,799,998 2,657,764 1,310,885
Net income per Unit 0.33 0.32 0.72 0.66 0.51
Cash distributions
declared per Unit 0.80 0.80 0.80 0.76 0.57
Weighted average number
of Limited Partner
Unitsoutstanding (2) 3,500,000 3,500,000 3,500,000 3,495,278 2,279,801
2001 2000 1999 1998 1997
---------------- --------------- --------------- ---------------- ----------------
At December 31:
Total assets $ 27,511,695 $ 29,112,352 $30,866,006 $31,112,617 $31,807,255
Total partners' 26,669,817 28,301,052 29,983,855 30,268,497 29,846,580
capital
(1) Revenues include equity in earnings of joint ventures.
(2) Represents the weighted average number of Units outstanding during the
period the Partnership was operational.
(3) Net income for the years ended December 31, 2001, 2000, and 1998,
includes $708,377, $993,178 and $197,466, respectively, from provisions
for write-down of assets.
(4) Net income for the years ended December 31, 2001 and 1999, include
$429,072 and $46,300 from gains on sale of assets.
(5) Net income for the year ended December 31, 2000, includes $100,000 from
lease termination income.
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
restaurants were to be constructed, which are leased primarily to operators of
selected national and regional fast-food, family-style and casual dining
Restaurant Chains. The leases are generally triple-net leases, with the lessees
generally responsible for all repairs and maintenance, property taxes, insurance
and utilities. As of December 31, 2001, the Partnership owned 23 Properties,
either directly or through joint venture or tenancy in common arrangements.
Capital Resources
Currently, the Partnership's primary source of capital is cash from
operations (which includes cash received from tenants, interest received and
distributions from joint ventures, less cash paid for expenses). Cash from
operations was $1,684,911, $2,310,051, and $2,797,040, for the years ended
December 31, 2001, 2000, and 1999, respectively. The decrease in cash from
operations during 2001 and 2000, each as compared to the previous year, was
primarily a result of changes in income and expenses as described in "Results of
Operations" below.
Other sources and uses of capital included the following during the
years ended December 31, 2001, 2000, and 1999.
In February 1999, the Partnership entered into a joint venture
arrangement, CNL Portsmouth Joint Venture, with CNL Income Fund XI, Ltd., a
Florida limited partnership and an affiliate of the General Partners, to own and
lease one restaurant Property. As of December 31, 2001, the Partnership had
contributed approximately $330,500 to the joint venture and owned a 57.2%
interest in this joint venture.
In December 1999, the Partnership sold its Property in Atlanta,
Georgia, and received net sales proceeds of $688,997, resulting in a gain of
$46,300. In June 2000, the Partnership reinvested the net sales proceeds from
this sale into a joint venture arrangement, TGIF Pittsburgh Joint Venture, with
CNL Income Fund VII, Ltd., CNL Income Fund XV, Ltd., and CNL Income Fund XVI,
Ltd., each of which is a Florida limited partnership and an affiliate of the
General Partners, to own and lease one restaurant Property. As of December 31,
2000, the Partnership had contributed approximately $1,001,600 to the joint
venture. In January 2001, the Partnership sold a portion of its interest in TGIF
Pittsburgh Joint Venture to CNL Income Fund VII, Ltd., for approximately
$500,000. Because the Partnership sold 50% of its interest in TGIF Pittsburgh
Joint Venture at its current carrying value, no gain or loss was recognized. As
of December 31, 2001, the Partnership had a remaining investment of
approximately $501,500 in the joint venture representing a 19.78% interest in
this joint venture. The Partnership used the net sales proceeds to pay
liabilities of the Partnership and to meet the Partnership's working capital
needs.
In June 2001, the Partnership sold its Property in Timonium, Maryland
to an unrelated third party for $875,000 and received net sales proceeds of
approximately $848,600, resulting in a loss of $18,855. In July 2001, the
Partnership reinvested the majority of these sales proceeds in a Property in
Denver, Colorado, as tenants-in-common, with CNL Income Fund VIII, Ltd., as
described below.
In July 2001, the Partnership sold its Property in Henderson, Nevada to
an unrelated third party for approximately $1,314,700 and received net sales
proceeds of approximately $1,278,000 resulting in a gain of approximately
$177,900. In July 2001, the Partnership reinvested the majority of these sales
proceeds in a Property in Denver, Colorado, as tenants-in-common, with CNL
Income Fund VIII, Ltd., a Florida limited partnership and an affiliate of the
General Partners. As of December 31, 2001, the Partnership had contributed
approximately $1,766,400 for an 80.7% interest in the profits and losses of the
Property.
In addition, in December 2001, the Partnership sold its Property in
Santa Rosa, California to an unrelated third party for approximately $1,718,800
and received net sales proceeds of approximately $1,664,800 resulting in a gain
of approximately $270,100. In January 2002, the Partnership reinvested a portion
of these net sales proceeds in a Property in Houston, Texas and reinvested the
remaining net sales proceeds in a Property in Austin, Texas, as
tenants-in-common with CNL Income Fund X, Ltd., a Florida limited partnership
and an affiliate of the General Partners.
In 2001, the Partnership entered in a promissory note with the
corporate General Partner for a loan in the amount of $75,000 in connection with
the operations of the partnership. The loan was uncollateralized, non-interest
bearing and due on demand. As of December 31, 2001, the Partnership had repaid
the loan in full to the corporate General Partner.
None of the Properties owned or to be acquired by the Partnership, or
the joint ventures 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 or 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. Affiliates of the General Partners from
time to time incur certain expenses on behalf of the Partnership for which the
Partnership reimburses the affiliates without interest.
In November 2001, the Partnership entered into an agreement with an
unrelated third party to sell the On the Border property in San Antonio, Texas.
As of March 15, 2002 the sale had not occurred.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments such as
demand deposit accounts at commercial banks, money market accounts and
certificates of deposit with less than a 90 day maturity date, pending the
Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At December 31, 2001, the Partnership had
$226,136 invested in such short-term investments, as compared to $479,603 at
December 31, 2000. As of December 31, 2001, the average interest rate earned on
the rental income deposited in demand deposit accounts at commercial banks was
approximately 3.1% annually. The funds remaining at December 31, 2001 will be
used to pay distributions and other liabilities of the Partnership.
In January 2002, the Partnership entered into a promissory note with
the corporate General Partner for a loan in the amount of $125,000 in connection
with the operations of the partnership. The loan was uncollateralized,
non-interest bearing and due on demand. As of March 15, 2002, the Partnership
had repaid the loan in full to the corporate General Partner.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them generally 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 generate cash flow
in excess of operating expenses.
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 all of the leases for the Partnership's Properties
are generally 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 General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of 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 anticipated future cash from operations, and
for the year ended December 31, 2001 loans from the corporate General Partner,
as described above in "Capital Resources," the Partnership declared
distributions to the Limited Partners of $2,800,000, $2,800,000, and $2,799,998,
for the years ended December 31, 2001, 2000, and 1999, respectively. This
represents distributions of $0.80 per Unit, for each of the years ended December
31, 2001, 2000 and 1999. No distributions were made to the General Partners for
the years ended December 31, 2001, 2000, or 1999. No amounts distributed or to
be distributed to the Limited Partners for the years ended December 31, 2001,
2000 or 1999, are required to be or have been treated by the Partnership as a
return of capital for purposes of calculating the Limited Partners' return on
their adjusted capital contributions. The Partnership intends to continue to
make distributions of cash available for distribution to the Limited Partners on
a quarterly basis, although some Limited Partners, in accordance with their
election, receive monthly distributions, for an annual fee.
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 accounts 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, 2001 and 2000.
As of December 31, 2001 and 2000, the Partnership owed $20,273 and
$53,181, respectively, to related parties for operating expenses and accounting
and administrative services. As of March 15, 2002, the Partnership had
reimbursed the affiliates all such amounts. Other liabilities, including
distributions payable, increased to $821,605 at December 31, 2001, as compared
to $758,119 at December 31, 2000. Liabilities at December 31, 2001, to the
extent they exceed cash and cash equivalents at December 31, 2001, will be paid
from anticipated future cash from operations, loans from the General Partners,
or from future General Partners contributions.
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 Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for as operating leases. 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
assumption regarding collectibility of lease payments could result in a change
in accounting for the lease at the inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted 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 ventures agreement requires the consent of all
partners on all key decisions affecting the operations of the underlying
Property.
Management reviews its Properties and investments in unconsolidated
entities periodically (no less than once per year) for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through operations. Management determines whether
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. If an impairment is indicated, the assets are
adjusted to their fair value.
Results of Operations
During 1999, the Partnership owned and leased 25 wholly owned
Properties (including one Property which was sold in 1999). During 2000 and
2001, the Partnership owned and leased 22 wholly owned Properties (including
three Properties which were sold in 2001). In addition, during 1999, the
Partnership was a co-venturer in two joint ventures, that each owned and leased
one Property. During 2000 and 2001, the Partnership was a co-venturer in one
additional joint venture that owned and leased one Property, and during 2001,
the Partnership owned and lease one Property with an affiliate, as
tenants-in-common. As of December 31, 2001, the Partnership owned, either
directly or through joint venture or tenancy in common arrangements, 23
Properties, which are generally subject to long-term triple-net leases. The
leases of the Properties provide for minimum base annual rental payments
(payable in monthly installments) ranging from approximately $58,400 to
$259,900. 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. For a
further description of the Partnership's leases and Properties, see Item 1.
Business - Leases and Item 2. Properties.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership earned $2,465,515, $2,772,490, and $3,071,229, respectively, in
rental income from operating leases and earned income from direct financing
leases. The decrease in rental and earned income during 2001 and 2000, each as
compared to the previous year, was partially due to the fact that the tenants of
three Boston Market Properties, Boston Chicken, Inc., Finest Foodservice, L.L.C.
and WMJ Texas, Inc., filed for bankruptcy in 1998. During 1998, one of these
tenants in bankruptcy rejected its lease and ceased making rental payments to
the Partnership for this lease. The Partnership continued receiving rental
payments relating to the leases that were not rejected until June 2000, at which
time the other two tenants rejected the leases relating to two remaining
Properties and ceased making rental payments. In June 2001, the Partnership sold
the Property in Timonium, Maryland, as described in "Capital Resources." The
Partnership will not recognize any rental and earned income from the remaining
vacant Properties in Minnetonka, Minnesota and San Antonio, Texas until new
tenants for the Properties are located, or until the Properties are sold and the
proceeds from such sales are reinvested in additional Properties. The lost
revenues resulting from the remaining vacant Properties, could have an adverse
affect on the results of operations of the Partnership if the Partnership is not
able to re-lease these Properties in a timely manner. The General Partners are
currently seeking either new tenants or purchasers for these vacant Properties.
Rental and earned income also decreased during 2001 and 2000, each as
compared to the previous year, due to the fact that in October 2000, the
Partnership terminated the lease with the tenant of the Boston Market Property
in Raleigh, North Carolina, due to financial difficulties the tenant was
experiencing. In connection therewith, the Partnership received $100,000 in
lease termination income in consideration for the Partnership releasing the
tenant from its obligations under the lease. The Partnership will not recognize
any rental income relating to this Property until a new tenant for the Property
is located or until the Property is sold and the proceeds from such sale are
reinvested in an additional Property. The Partnership is currently seeking a new
tenant or purchaser for this Property.
Rental and earned income also decreased during 2001 and 2000, each as
compared to the previous year, due to the fact that in June 2000, the tenant of
the On the Border Property in San Antonio, Texas defaulted under the terms of
its lease, vacated the Property and discontinued making rental payments. As a
result, in 2000, the Partnership reclassified the asset from net investment in
direct financing leases to land and buildings on operating leases. In accordance
with Statement of Financial Accounting Standards No. 13, "Accounting for
Leases," the Partnership recorded the reclassified assets at the lower of
original cost, present fair value, or present carrying value. No loss on
termination of direct financing leases was recorded. The Partnership will not
recognize any rental income relating to this Property until a new tenant for the
Property is located or until the Property is sold and the proceeds from such
sale are reinvested in an additional Property. The Partnership is currently
seeking a new tenant or purchaser for this Property.
The decrease in rental income during 2001 and 2000, was also partially
due to the 2001 sale of the Property in Henderson, Nevada, and the 1999 sale of
the Property in Atlanta, Georgia, as described in "Capital Resources." In June
2000, the Partnership reinvested the net sales proceeds from the 1999 sale of
the Property in Atlanta, Georgia, in a joint venture arrangement, TGIF
Pittsburgh Joint Venture, and in July 2001, the Partnership reinvested the net
sales proceeds from the 2001 sale of the Property in Henderson, Nevada, in a
Property in Denver, Colorado, with an affiliate of the General Partners as
tenants-in-common. Rental and earned income are expected to remain at reduced
amounts while equity in earnings of joint ventures is expected to increase due
to the fact that the Partnership reinvested these net sales proceeds in a joint
venture and a Property with an affiliate of the General Partners, as
tenants-in-common.
During the years ended December 31, 2001, 2000 and 1999, the
Partnership also earned $197,012, $112,863 and $61,656, respectively,
attributable to net income earned by joint ventures in which the Partnership is
a co-venturer. The increase in net income earned by joint ventures during 2001,
as compared to 2000, was primarily due to the Partnership reinvesting the net
sales proceeds from the sale of the Property in Henderson, Nevada, in a Property
in Denver, Colorado, during 2001, with an affiliate of the General Partners, as
tenants-in-common, as described in "Capital Resources". The increase in net
income earned by joint ventures during 2000, as compared to 1999, was primarily
attributable to the Partnership entering into TGIF Pittsburgh Joint Venture
during 2000 and CNL Portsmouth Joint Venture in February 1999, as described
above in "Capital Resources."
During 2001, four lessees of the Partnership, Golden Corral
Corporation, Jack in the Box Inc., IHOP Properties, Inc. and Metromedia
Restaurant Group, each contributed more than ten percent of the Partnership's
total rental and earned income (including the Partnership's share of total
rental and earned income from joint ventures and the Property held as
tenants-in-common with an affiliate). As of December 31, 2001, Golden Corral
Corporation was the lessee under leases relating to four restaurants, Jack in
the Box Inc. was the lessee relating to three leases, Metromedia Restaurant
Group was the lessee relating to two leases and IHOP Properties, Inc. was the
lessee relating to one lease. It is anticipated that based on the minimum rental
payments required by the leases, Golden Corral Corporation, Jack in the Box Inc.
and Metromedia Restaurant Group will each continue to contribute more than ten
percent of the Partnership's total rental and earned income (including the
Partnership's share of total rental and earned income from joint ventures and
the Property held as tenants-in-common with an affiliate) in 2002. In addition,
four Restaurant Chains, Golden Corral Family Steakhouse Restaurants ("Golden
Corral"), Jack in the Box, Bennigan's, and IHOP, each accounted for more than
ten percent of the Partnership's total rental and earned income (including the
Partnership's share of total rental and earned income from joint ventures and
the Property held as tenants-in-common with an affiliate) for 2001. In 2002, it
is anticipated that Golden Corral, Jack in the Box and Bennigan's will each
contribute more than ten percent of the Partnership's rental and earned income
(including the Partnership's share of total rental and earned income from joint
ventures and the Property held as tenants-in-common with an affiliate) to which
the Partnership is entitled under the terms of the leases. Any failure of such
lessees or Restaurant Chains could materially adversely affect the Partnership's
income if the Partnership is not able to re-lease the Properties in a timely
manner.
During the years ended December 31, 2001, 2000 and 1999, the
Partnership earned $18,756, $35,772, and $59,486, respectively, in interest and
other income. The decrease in interest and other income during 2001 and 2000,
each as compared to the previous year, was primarily attributable to the
decrease in the amount of funds invested in cash and cash equivalents due to the
acquisition of an additional Property in 1999 and the investment in joint
venture arrangements during 2000 and 1999.
Operating expenses, including depreciation and amortization expense and
provisions for write-down on assets, were $1,941,590, $1,819,055, and $723,315,
during the years ended December 31, 2001, 2000 and 1999, respectively. The
increase in operating expenses during 2001 and 2000, each as compared to the
previous year, was partially due to the fact that the Partnership recorded a
provision for write-down of assets of $387,138 and $553,317 during the years
ended December 31, 2001 and 2000, respectively, relating to the Boston Market
Properties in Timonium, Maryland; Raleigh, North Carolina; and San Antonio,
Texas. The tenant of the Timonium and San Antonio, Properties declared
bankruptcy and rejected the leases relating to these Properties. The tenant of
the Raleigh Property terminated its lease with the Partnership and ceased
restaurant operations. The provisions represented the difference between each of
the Properties' carrying values and the General Partners' estimated net
realizable value of each of the Properties. No such provision was established
during the year ended December 31, 1999. In June 2001, the Partnership sold the
Timonium, Maryland Property, as described in "Capital Resources." In addition,
during the year ended December 31, 2000, the Partnership recorded a provision
for write-down of assets in the amount of $299,849 relating to the On the Border
Property in San Antonio, Texas. The tenant of this Property defaulted under the
terms of its lease, vacated the Property and ceased operation during 2000. The
provision represented the difference between the carrying value of the asset at
December 31, 2000, and the General Partners' estimated net realizable value for
this Property. During 2001, the Partnership recognized an additional provision
for write-down of assets relating to this Property of $321,239. The total
provision represented the difference between the carrying value of the Property
at December 31, 2001 and the estimated net sales proceeds from the anticipated
sale of the Property based on a purchase and sales contract with an unrelated
third party. As of March 15, 2002, the sale had not occurred. No such provision
was established during the year ended December 31, 1999. The increase in
operating expenses during 2001, as compared to 2000, was partially attributable
to the fact that during 2001, the Partnership incurred approximately $85,400
pursuant to a judgment entered against the Partnership in a lawsuit relating to
the Property in Minnetonka, Minnesota. The General Partners are appealing the
judgment. In addition, the increase in operating expenses during 2001 and 2000,
each as compared to the previous year, was partially due to the fact that the
Partnership incurred expenses such as insurance, repairs and maintenance, legal
fees and real estate taxes relating to the vacant Properties described above.
The Partnership will continue to incur such costs until the Partnership finds
replacement tenants or purchasers for the remaining vacant Properties.
The increase in operating expenses during 2001, as compared to 2000,
was also partially attributable to the fact that during 2000, the tenant of the
On the Border Property in San Antonio, Texas, in which the Partnership only owns
the building portion, subject to a ground lease, vacated the Property and ceased
restaurant operations. In accordance with an agreement executed in conjunction
with the execution of the initial lease, the ground lessor, the tenant and the
Partnership agreed that the Partnership would be provided certain rights to help
protect its interest in the building in the event of a default by the tenant
under the terms of the initial lease. As a result of the default by the tenant
and in order to preserve its interest in the building, during the year ended
December 31, 2001 and 2000, the Partnership incurred approximately $135,900 and
$31,400, respectively, in rent expense relating to the ground lease of the
Property. No such expense was recorded during the year ended December 31, 1999.
The Partnership will continue to incur such expense until the Partnership finds
a replacement tenant for this Property.
The increase in operating expenses during 2001, as compared to 2000,
was also partially attributable to an increase in the costs incurred for
administrative expenses for servicing the Partnership and its Properties, as
permitted by the Partnership agreement. In addition, the increase in operating
expenses during 2001, as compared to 2000, was partially due to the fact that
the Partnership incurred additional state taxes due to changes in the tax laws
of a state in which the Partnership conducts business.
The increase in operating expenses during 2000, as compared to 1999,
was partially attributable to an increase in depreciation expense as the result
of the fact that the Properties acquired during 1999, and the fact that during
2000, the Partnership reclassified the lease relating to the Property in San
Antonio, Texas from direct financing lease to operating lease. The increase in
operating expenses during 2001 and 2000, was partially offset by a decrease in
the amount of transaction costs the Partnership incurred relating to the General
Partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed and terminated Merger with APF, as described below in
"Termination of Merger."
As a result of the sales of three Properties, as described above in
"Capital Resources," the Partnership recognized total gains of $429,072 for the
year ended December 31, 2001. As a result of the sale of the Property in
Atlanta, Georgia, as described above in "Capital Resources," the Partnership
recognized a gain of $46,300 for the year ended December 31, 1999. No Properties
were sold during 2000.
The lease termination refund to tenant of $84,873 during 2000, was due
to lease termination negotiations related to the 1999 sale of the Property in
Atlanta, Georgia, as described in "Capital Resources." No such amounts were
incurred during 2001 or 1999. The Partnership does not anticipate incurring any
additional costs related to the sale of this Property.
The restaurant industry, as a whole, has been one of the many
industries affected by the general slowdown in the economy. While the
Partnership has experienced some losses due to the financial difficulties of a
limited number of restaurant operators, the General Partners remain confident in
the overall performance of the fast-food and family style restaurants, the
concepts that comprise the Partnership's portfolio. Industry data shows that
these restaurant concepts continue to outperform and remain more stable than
higher-end restaurants, those that have been more adversely affected by the
slowing economy.
The Partnership's leases are on a triple-net basis and contain
provisions that management believes will 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 the 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 December 1999, the Securities and Exchange Commission released SAB
101, which provides the staff's view in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 requires the
Partnership to defer recognition of certain percentage rental income until
certain defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
Partnership's results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" (FAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement requires
that a long-lived asset be tested for recoverability whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable. The
carrying amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. The assessment is based on the carrying amount of the
asset at the date it is tested for recoverability. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds its fair
value. If an impairment is recognized, the adjusted carrying amount of a
long-lived asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this Statement
retained the fundamental provisions of FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Subsequent to entering into the Merger agreement, the
General Partners received a number of comments from brokers who sold the
Partnership's units concerning the loss of passive income treatment in the event
the Partnership merged with APF. On June 3, 1999, the General Partners, on
behalf of the Partnership, and APF agreed that it would be in the best interests
of the Partnership and APF that APF not attempt to acquire the Partnership in
the acquisition. Therefore in June 1999, APF entered into a termination
agreement with the General Partners of the Partnership.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22-23
Notes to Financial Statements 24-42
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund XVIII, 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 XVIII, Ltd. (a Florida
limited partnership) at December 31, 2001 and 2000, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2001 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 14(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 financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and 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.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 8, 2002
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------- ------------------
ASSETS
Land and buildings on operating leases, net $ 18,917,589 $22,421,426
Net investment in direct financing leases 3,145,098 3,984,296
Investment in joint ventures 3,011,159 1,762,821
Cash and cash equivalents 226,136 479,603
Restricted cash 1,662,201 --
Receivables, less allowance for doubtful accounts of
$75,201 and $123,993,respectively 19,767 346
Accrued rental income 513,016 440,148
Other assets 16,729 23,712
------------------- ------------------
$ 27,511,695 $29,112,352
=================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 92,368 $ 33,559
Escrowed real estate taxes payable 12,817 11,788
Distributions payable 700,000 700,000
Due to related parties 20,273 53,181
Rents paid in advance 11,441 7,474
Deferred rental income 4,979 5,298
------------------- ------------------
Total liabilities 841,878 811,300
Commitment (Note 13)
Partners' capital 26,669,817 28,301,052
------------------- ------------------
$ 27,511,695 $29,112,352
=================== ==================
See accompanying notes to financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
------------------ --------------- ---------------
Revenues:
Rental income from operating leases $ 2,067,066 $ 2,327,142 $ 2,444,692
Earned income from direct financing leases 398,449 445,348 626,537
Lease termination income -- 100,000 --
Interest and other income 18,756 35,772 59,486
------------------ --------------- ---------------
2,484,271 2,908,262 3,130,715
------------------ --------------- ---------------
Expenses:
General operating and administrative 521,346 229,811 142,554
Provision for doubtful accounts -- 2,973 --
Professional services 163,585 35,304 61,288
Management fees to related party 24,943 27,875 30,235
Real estate taxes 121,188 87,603 --
State and other taxes 22,252 17,604 21,983
Depreciation and amortization 379,899 397,175 392,521
Provisions for write-down of assets 708,377 993,178 --
Transaction costs -- 27,532 74,734
------------------ --------------- ---------------
1,941,590 1,819,055 723,315
------------------ --------------- ---------------
Income Before Gain on Sale of Assets, Termination
Refund to Tenant, and Equity in Earnings of Joint
Ventures 542,681 1,089,207 2,407,400
Gain on Sale of Assets 429,072 -- 46,300
Termination Refund to Tenant -- (84,873 ) --
Equity in Earnings of Joint Ventures 197,012 112,863 61,656
------------------ --------------- ---------------
Net Income $ 1,168,765 $ 1,117,197 $ 2,515,356
================== =============== ===============
Allocation of Net Income:
General partners $ -- $ -- $ (3,309 )
Limited partners 1,168,765 1,117,197 2,518,665
------------------ --------------- ---------------
$ 1,168,765 $ 1,117,197 $ 2,515,356
================== =============== ===============
Net Income Per Limited Partner Unit $ 0.33 $ 0.32 $ 0.72
================== =============== ===============
Weighted Average Number of
Limited Partner Units Outstanding 3,500,000 3,500,000 3,500,000
================== =============== ===============
See accompanying notes to financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001, 2000 and 1999
General Partners Limited Partners
----------------------------------- -----------------------------------------------------
Accumulated Accumulated
ntributions Earnings Contributions Distributions Earnings
-------------- ----------------- ----------------- --------------- ----------------
Balance, December 31, 1998 $ 1,000 $ (3,010 ) $ 35,000,000 $ (4,026,495 ) $ 3,487,002
Distributions to limited partners
($0.80 per limited partner unit) -- -- -- (2,799,998 ) --
Net income -- (3,309 ) -- -- 2,518,665
-------------- ----------------- ----------------- --------------- ----------------
Balance, December 31, 1999 1,000 (6,319 ) 35,000,000 (6,826,493 ) 6,005,667
Contributions from limited partners
Distributions to limited partners
($0.80 per limited partner unit) -- -- -- (2,800,000 ) --
Net income -- -- -- -- 1,117,197
-------------- ----------------- ----------------- --------------- ----------------
Balance, December 31, 2000 1,000 (6,319 ) 35,000,000 (9,626,493 ) 7,122,864
Contributions from limited partners
Distributions to limited partners
($0.80 per limited partner unit) -- -- -- (2,800,000 ) --
Net income -- -- -- -- 1,168,765
-------------- ----------------- ----------------- --------------- ----------------
Balance, December 31, 2001 $ 1,000 $ (6,319 ) $ 35,000,000 $ (12,426,493 ) $ 8,291,629
============== ================= ================= =============== ================
See accompanying notes to financial statements.
- ------------------
Syndication
Costs Total
--------------- -------------
$ (4,190,000 ) $30,268,497
-- (2,799,998 )
-- 2,515,356
--------------- -------------
(4,190,000 ) 29,983,855
-- (2,800,000 )
-- 1,117,197
--------------- -------------
(4,190,000 ) 28,301,052
-- (2,800,000 )
-- 1,168,765
--------------- -------------
$ (4,190,000 ) $26,669,817
=============== =============
See accompanying notes to financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
--------------- -------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 2,281,026 $ 2,738,192 $ 2,930,415
Distributions from joint ventures 203,437 97,264 60,076
Interest received 17,822 41,937 53,448
Cash paid for expenses (817,374 ) (482,469 ) (246,899 )
Lease termination refund -- (84,873 ) --
--------------- -------------- ---------------
Net cash provided by operating activities 1,684,911 2,310,051 2,797,040
--------------- -------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 4,291,443 -- 688,997
Additions to land and buildings on operating
leases -- -- (25,792 )
Investment in joint ventures (1,766,420 ) (1,001,558 ) (526,138 )
Decrease (increase) in restricted cash (1,663,401 ) 688,997 (688,997 )
Other -- -- (117 )
--------------- -------------- ---------------
Net cash provided by (used in) investing
activities 861,622 (312,561 ) (552,047 )
--------------- -------------- ---------------
Cash Flows from Financing Activities:
Reimbursement of acquisition and syndication
costs paid by related parties on behalf of
the Partnership -- -- (2,495 )
Proceeds from loan from corporate general
partner 75,000 -- --
Repayment of loan from corporate general
partner (75,000 ) -- --
Distributions to limited partners (2,800,000 ) (2,800,000 ) (2,799,998 )
--------------- -------------- ---------------
Net cash used in financing activities (2,800,000 ) (2,800,000 ) (2,802,493 )
--------------- -------------- ---------------
Net Decrease in Cash and Cash Equivalents (253,467 ) (802,510 ) (557,500 )
Cash and Cash Equivalents at Beginning of Year 479,603 1,282,113 1,839,613
--------------- -------------- ---------------
Cash and Cash Equivalents at End of Year $ 226,136 $ 479,603 $ 1,282,113
=============== ============== ===============
See accompanying notes to financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2001 2000 1999
--------------- ---------------- ---------------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 1,168,765 $ 1,117,197 $ 2,515,356
--------------- ---------------- ---------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 376,679 395,565 386,932
Amortization 3,220 1,610 5,589
Provision for doubtful accounts -- (2,973 ) --
Equity in earnings of joint ventures net
of distributions 6,425 (15,599 ) (1,580 )
Provision for write-down of assets 708,377 993,178 --
Gain on sale of assets (429,072 ) -- --
Decrease in net investment in direct
financing leases 41,450 70,178 38,556
Decrease (increase) in receivables (11,003 ) 32,552 (29,925 )
Increase in accrued rental income (218,691 ) (196,435 ) (152,726 )
Decrease (increase) in other assets 6,983 (14,371 ) (5,688 )
Increase (decrease) in accounts payable
and 61,038 (40,947 ) 83,736
escrowed real estate taxes payable
Increase (decrease) in due to related (32,908 ) 16,444 6,457
parties acquisition costs paid on b
Increase (decrease) in rents paid in
advance 3,967 (6,495 ) 6,618
Decrease (increase) in deferred rental (319 ) (39,853 ) (56,285 )
income
--------------- ---------------- ---------------
Total adjustments 516,146 1,192,854 281,684
--------------- ---------------- ---------------
Net Cash Provided by Operating Activities $ 1,684,911 $ 2,310,051 $ 2,797,040
=============== ================ ===============
Supplemental Schedule of Non-Cash Financing Activities:
Distributions declared and unpaid at December 31 $ 700,000 $ 700,000 $ 700,000
=============== ================ ===============
See accompanying notes to financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund XVIII, 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.
Under the terms of a registration statement filed with the Securities
and Exchange Commission, the Partnership was authorized to sell a
maximum of 3,500,000 units ($35,000,000) of limited partnership
interest. A total of 3,500,000 units ($35,000,000) of limited
partnership interest had been sold as of December 31, 1998.
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
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated 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. The
leases are accounted for using the direct financing or operating
methods. Such methods are described below:
Direct financing method - The 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) (see Note 4). 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 net
investment in the leases.
Operating method - Land and building 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 (including rental payments, if
any, required during the construction of a property) vary
during the lease term, income is recognized on a straight-line
basis
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
so as to produce a constant periodic rent over the lease term
commencing on the date the property is placed in service.
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. Whenever a tenant defaults under the
terms of its lease, or events or changes in circumstance
indicate that the tenant will not lease the property through
the end of the lease term, the Partnership either reserves or
reverses the cumulative accrued rental income balance.
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, 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. If an impairment is indicated, the assets are
adjusted to the fair value. Although the general partners have made
their best estimate of these factors based on current conditions, it is
reasonably possible that changes could occur in the near term which
could adversely affect the general partners' estimate of net cash flows
expected to be generated from its properties and the need for asset
impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
although the Partnership continues to pursue collection of such
amounts. If amounts are subsequently determined to be uncollectible,
the corresponding receivable and allowance for doubtful accounts are
decreased accordingly.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
Investment in Joint Ventures - The Partnership's investments in
Columbus Joint Venture, CNL Portsmouth Joint Venture and TGIF
Pittsburgh Joint Venture and the property in Denver Colorado, which is
held as tenants-in-common, are accounted for using the equity method
since the 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 (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the 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 are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment. See "Income Taxes"
footnote for a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
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. Rents paid in advance
include "interim rent" payments required to be paid under the terms of
certain leases for construction properties equal to a pre-determined
rate times the amount funded by the Partnership during the period
commencing with the effective date of the lease to the date minimum
annual rent becomes payable. Once minimum annual rent becomes payable,
the "interim rent" payments are amortized and recorded as income either
(i) over the lease term so as to produce a constant periodic rate of
return for leases accounted for using the direct financing method, or
(ii) over the lease term using the straight-line method for leases
accounted for using the operating method, whichever is applicable.
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. Actual results could differ from those
estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2001 presentation.
These reclassifications had no effect on total partners' capital or net
income.
Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Partnership
to defer recognition of certain percentage rental income until certain
defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material
impact on the Partnership's results of operations.
Statement of Financial Accounting Standards No. 141 ("FAS 141") and
Statement of Financial Accounting Standards No. 142 ("FAS 142") - - In
July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" (FAS
141) and Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" (FAS 142). The Partnership has reviewed
both statements and has determined that both FAS 141 and FAS 142 do not
apply to the Partnership as of December 31, 2001.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
Statement of Financial Accounting Standards No. 144 ("FAS 144") - In
October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement requires
that a long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this
Statement retained the fundamental provisions of FAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of".
2. Leases:
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." Some of the Partnership's
leases are classified as operating leases and some of the leases have
been classified as direct financing leases. For the leases classified
as direct financing leases, the building portions of the property
leases are accounted for as direct financing leases while the land
portions of the majority of the leases are operating leases. The leases
have initial terms of 15 to 20 years and the majority of the leases
provide for minimum and contingent rentals. In addition, the tenant
generally pays all property taxes and assessments, fully maintains the
interior and exterior of the building and carries insurance coverage
for public liability, property damage, fire and extended coverage. The
lease options generally allow the tenants to renew the leases for two
to five successive five-year periods subject to the same terms and
conditions as 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.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
2001 2000
-------------------- --------------------
Land $ 9,707,338 $ 11,670,473
Buildings 10,749,500 12,046,303
-------------------- --------------------
20,456,838 23,716,776
Less accumulated depreciation (1,539,249 ) (1,295,350 )
-------------------- --------------------
$ 18,917,589 $ 22,421,426
==================== ====================
During the year ended December 31, 2000, the Partnership recorded a
provision for write-down of assets of $656,409 relating to the
properties located in Raleigh, North Carolina and Timonium, Maryland.
The tenant of the property in Raleigh, North Carolina terminated its
lease. The tenant of the property in Timonium, Maryland filed for
bankruptcy in October 1998 and rejected the lease relating to this
property in June 2000. The provisions represented the difference
between the net carrying value of the properties, including the
accumulated accrued rental income balance, at December 31, 2000, and
the general partners' estimated net realizable value for the
properties. In June 2001, the Partnership sold this property to an
unrelated third party for $875,000 and received net sales proceeds of
approximately $848,600, resulting in an additional loss of $18,855. In
July 2001, the Partnership reinvested the majority of these sales
proceeds in a Bennigan's property in Denver, Colorado, as
tenants-in-common, with CNL Income Fund VIII, Ltd., a Florida limited
partnership and an affiliate of the general partners (see Note 5).
In July 2001, the Partnership sold its property in Henderson, Nevada to
an unrelated third party for approximately $1,314,700 and received net
sales proceeds of approximately $1,278,000 resulting in a gain of
approximately $177,900. In July 2001, the Partnership reinvested the
majority of these sales proceeds in a Bennigan's property in Denver,
Colorado, as tenants-in-common, with CNL Income Fund VIII, Ltd., a
Florida limited partnership and an affiliate of the general partners
(see Note 5).
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
In December 2001, the Partnership sold its property in Santa Rosa,
California for which the building was classified as a direct financing
lease (see Note 4) to an unrelated third party for approximately
$1,718,800 and received net sales proceeds of approximately $1,664,800
resulting in a gain of approximately $270,100. In January 2002, the
Partnership reinvested a portion of these net sales proceeds in a
property in Houston, Texas (see Note 14). In addition, in January 2002,
the Partnership reinvested a portion of these net sales proceeds in a
property in Austin, Texas, as tenants-in-common with CNL Income Fund X,
Ltd. (see Note 14).
During the years ended December 31, 2001 and 2000, the Partnership
recorded a provision for write-down of assets of $387,138 and $36,920,
respectively, relating to the Boston Market property in San Antonio,
Texas. The tenant of this property filed for bankruptcy in October
1998, and during 2000, rejected the lease relating to the property. The
provision represented the difference between the carrying value of the
property, including the accumulated accrued rental income balance, and
the general partners' estimated net realizable value of each property.
In addition, the Partnership recorded a provision for write-down of
assets of $321,239 relating to the On the Border property in San
Antonio, Texas. The tenant of this property defaulted under the terms
of its lease, vacated the property and ceased restaurant operations.
The provision represented the difference between the carrying value of
the property at December 31, 2001 and the estimated net sales proceeds
from the anticipated sale of the property based on a purchase and sales
contract with an unrelated third party (see Note 13).
Generally, the leases provide for escalating guaranteed minimum rents
throughout the lease term. Income from these scheduled rent increases
is recognized on a straight-line basis over the terms of the leases.
For the years ended December 31, 2001, 2000 and 1999, the Partnership
recognized $169,007, $95,700, and $196,020, respectively, of such
rental income.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
The following is a schedule of the future minimum lease payments to be
received on the noncancellable operating leases at December 31, 2001:
2002 $1,791,340
2003 1,838,961
2004 1,850,564
2005 1,850,564
2006 1,851,747
Thereafter 15,692,440
----------------
$24,875,616
================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease term. In addition, this table does not include
any amounts for future contingent rentals which may be received on the
leases based on a percentage of tenant's gross sales.
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
2001 2000
----------------- -----------------
Minimum lease payments
receivable $ 5,823,294 $ 7,689,932
Estimated residual values 1,205,840 1,420,667
Less unearned income (3,884,036 ) (5,126,303 )
----------------- -----------------
Net investment in direct
financing leases $ 3,145,098 $ 3,984,296
================= =================
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Net Investment in Direct Financing Leases - Continued:
During 2000, the Partnership recorded a provision for write-down on
assets of $299,849 relating to the On the Border property located in
San Antonio, Texas. In June 2000, the tenant of this property defaulted
under the terms of its lease, vacated the property and ceased
operation. As a result, the Partnership reclassified the related assets
from net investment in direct financing leases to land and building on
operating leases. In accordance with Statement of Financial Accounting
Standards No. 13, "Accounting for Leases," the Partnership recorded the
reclassified asset at the lower of original cost, present fair value,
or present carrying value. No loss on termination of direct financing
leases was recorded during 2001 and 2000.
In December 2001, the Partnership sold its property in Santa Rosa,
California for which building portion was classified as a direct
financing lease. In connection with the sale, the gross investment
(minimum lease payments receivable and the estimated residual value)
and unearned income relating to the assets classified as a direct
financing lease, were removed from the accounts (see Note 3).
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2001:
2002 $ 354,046
2003 362,451
2004 362,451
2005 362,451
2006 362,451
Thereafter 4,019,444
----------------
$5,823,294
================
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (See Note 3).
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures:
In August 1998, the Partnership entered into a joint venture
arrangement, Columbus Joint Venture, with CNL Income Fund XII, Ltd. and
CNL Income Fund XVI, Ltd., each of which is a Florida limited
partnership and an affiliate of the general partners, to construct and
hold one restaurant property. During 1999 and 1998, the Partnership
contributed $195,700 and $166,025, respectively, to purchase land and
pay construction costs relating to the Property owned by the joint
venture. As of December 31, 2001, the Partnership had a 39.93% interest
in the profits and losses of the joint venture.
In February 1999, the Partnership entered into a joint venture
arrangement, CNL Portsmouth Joint Venture, with CNL Income Fund XI,
Ltd., a Florida limited partnership and an affiliate of the general
partners, to own and lease one restaurant property. As of December 31,
2001, the Partnership had contributed approximately $330,500 to the
joint venture and owned a 57.2% interest in this joint venture.
In June 2000, the Partnership used the net sales proceeds from the 1999
sale of the property in Atlanta, Georgia, along with additional funds,
to invest in a joint venture arrangement, TGIF Pittsburgh Joint
Venture, with CNL Income Fund VII, Ltd., CNL Income Fund XV, Ltd., and
CNL Income Fund XVI, Ltd., each a Florida limited partnership and
affiliate of the general partners, to own and lease one restaurant
property. As of December 31, 2000, the Partnership had contributed
approximately $1,001,600 to the joint venture and owned a 39.5%
interest in this joint venture. In January 2001, the Partnership sold a
portion of its interest in TGIF Pittsburgh Joint Venture to CNL Income
Fund VII, Ltd., for approximately $500,000. Because the Partnership
sold 50% of its interest in TGIF Pittsburgh Joint Venture at its
current carrying value, no gain or loss was recognized. As of December
31, 2001, the Partnership had a remaining investment of approximately
$501,500 in the joint venture representing a 19.78% interest in this
joint venture.
In July 2001, the Partnership reinvested the sales proceeds it received
from the sale of property in Henderson, Nevada, in an additional
property in Denver, Colorado, as tenants-in-common, with CNL Income
Fund VIII, Ltd., a Florida limited partnership and affiliate of the
general partners. As of December 31, 2001, the Partnership had
contributed approximately $1,766,400 for an 80.7% interest in the
profits and losses of the property.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Investment in Joint Ventures - Continued:
As of December 31, 2001, Columbus Joint Venture, CNL Portsmouth Joint
Venture, TGIF Pittsburgh Joint Venture, and the Partnership and an
affiliate, as tenants-in-common, each owned and leased one property, to
operators of fast-food or family-style restaurants. The following
presents the combined, condensed financial information for the joint
ventures at December 31:
2001 2000
--------------- ---------------
Land and buildings on operating
leases, net $5,731,159 $3,632,190
Net investment in direct financing
lease 313,339 317,357
Accrued rental income 125,874 56,163
Cash 22,034 48,518
Receivables 8,368 --
Other assets 1,116 377
Liabilities 12,335 13,055
Partners' capital 6,189,555 4,041,550
Revenue 580,528 306,267
Net income 485,218 256,965
The Partnership recognized income totaling $197,012, $112,863 and
$61,656 during the years ended December 31, 2001, 2000 and 1999,
respectively, from these joint ventures.
6. Restricted Cash:
As of December 31, 2001, the net sales proceeds of $1,664,829 from the
sale of the property in Santa Rosa, California, less miscellaneous
escrow fees of $2,628 were being held in an interest-bearing escrow
account pending the release of funds by the escrow agent to acquire an
additional property. These funds were released by the escrow agent in
2002 and were used to acquire a property in Houston, Texas and an
interest in a property in Austin, Texas, with CNL Income Fund X, Ltd.,
a Florida limited partnership and an affiliate of the general partners'
(see Note 14).
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. Allocations and Distributions:
From inception through December 31, 1999, generally, 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 will be subordinated to receipt by the limited partners in
that year of an eight percent noncumulative, noncompounded return on
their aggregate invested capital contributions (the "Limited Partners'
8% Return").
From the 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.
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.
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 allocated first, on a pro rata
basis to the partners with positive balances in their capital accounts;
and thereafter, 95% 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
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. Allocations and Distributions - Continued:
allocations of net income, gains and/or losses, to the partners with
positive capital account 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 partner 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, 2000 and 2001.
During the years ended December 31, 2001, 2000 and 1999, the
Partnership declared distributions to the limited partners of
$2,800,000, $2,800,000, and $2,799,998, respectively. No distributions
have been made to the general partners to date.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. 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:
2001 2000 1999
-------------- -------------- ---------------
Net income for financial reporting purposes $ 1,168,765 $ 1,117,197 $ 2,515,356
Depreciation for tax reporting purposes less
than (inexcess of) depreciation for financial
reporting purposes (2,398 ) 2,804 (21,493 )
Amortization for tax reporting purposes
in excess of amortization for financial
reporting purposes (5,249 ) (7,088 ) (3,108 )
Equity in earnings of joint venture for tax
reporting purposes less than equity
in earnings of joint venture for financial
reporting purposes (20,397 ) (16,905 ) (8,745 )
Provision for write-down of assets 708,377 993,178 --
Direct financing leases recorded as operating
leases for tax reporting purposes 41,450 70,178 84,855
Capitalization (Deduction) of transaction costs
for tax -- (89,716 ) 74,734
reporting purposes
Provision for doubtful accounts (48,792 ) 112,821 (51,017 )
Gain on sale of assets for financial reporting
purposes (in excess of) less than gain
on sale for tax reporting purposes (742,359 ) -- 33,870
Accrued rental income (169,007 ) (196,435 ) (196,020 )
Accrued settlement charge on appeal 85,410 -- --
Deferred rental income (50,166 ) (39,853 ) (12,990 )
Rents paid in advance 3,967 (6,495 ) 6,618
Other 165 -- (540 )
-------------- -------------- ---------------
Net income for federal income tax purposes $ 969,766 $ 1,939,686 $ 2,421,520
============== ============== ===============
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
9. 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. (the "Advisor") is a wholly owned subsidiary
of CNL American Properties Fund, Inc., ("APF"). CNL Fund Advisors,
Inc., a majority owned subsidiary of CNL Financial Group, Inc. until it
merged with and into APF effective September 1, 1999, served as the
Partnership's advisor until it assigned its rights in and obligations
under a management agreement with the Partnership to the Advisor
effective July 1, 2000. The individual general partners are
stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with
the Partnership. In connection therewith , the Partnership agreed to
pay the Advisor an annual management fee 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.
The management fee, which will not exceed fees which are competitive
for similar 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 Advisor. All or 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 Advisor shall determine. For the years
ended December 31, 2001, 2000 and 1999, the Partnership incurred
$24,943, $27,875, and $30,235, respectively, for such management fees.
The Advisor is also entitle to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of 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 net 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 receipt by the limited
partners of their aggregate Limited Partners' 8% Return, plus their
invested capital contributions. No deferred, subordinated real estate
disposition fees have been incurred since inception.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
9. Related Party Transactions - Continued:
During the years ended December 31, 2001, 2000, and 1999, the Advisor
and its affiliates provided various administrative services to the
Partnership, including services related to accounting; financial, tax
and regulatory compliance and reporting; lease and loan compliance;
limited partners distributions and reporting; due diligence and
marketing; and investor relations (including administrative services in
connection with selling units of limited partnership interest), on a
day-to-day basis, including services during 2000 and 1999 relating to
the proposed and terminated merger. For the years ended December 31,
2001, 2000, and 1999, the Partnership incurred $207,702, $92,444, and
$82,382, respectively, for such expenses.
The amounts due to related parties at December 31, 2001 and 2000,
totaled $20,273 and $53,181, respectively.
10. Concentration of Credit Risk:
The following schedule presents total rental and earned income
(including the Partnership's share of total rental and earned income
from joint ventures and the property held with an affiliate as
tenants-in common) from individual lessees, each representing more than
ten percent of the Partnership's total rental and earned income for
each of the years ended December 31:
2001 2000 1999
---------------- ---------------- ---------------
Golden Corral Corporation $ 657,612 $ 657,612 $ 657,612
Jack in the Box Inc.
(formerly Foodmaker,
Inc. in 1999) 492,127 509,456 509,456
Metromedia Restaurant
Group (S&A Properties
Corporation and Steak
and Ale of Colorado,
Inc.) 332,616 N/A N/A
IHOP Properties, Inc. 280,171 N/A N/A
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
10. Concentration of Credit Risk - Continued:
In addition, the following schedule presents total rental and earned
income (including the Partnership's share of total rental and earned
income from joint ventures and the property held with an affiliate as
tenants-in-common) from individual restaurant chains, each representing
more than ten percent of the Partnership's total rental and earned
income for each of the years ended December 31:
2001 2000 1999
---------------- ---------------- ---------------
Golden Corral $ 657,612 $ 657,612 $ 908,481
Jack in the Box 492,127 509,456 509,456
Bennigan's 332,616 N/A N/A
IHOP 280,171 N/A N/A
Boston Market N/A N/A 350,901
The information denoted by N/A indicates that for each period
presented, the tenant or chain did not represent more than ten percent
of the Partnership's total rental, earned income and interest income.
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 one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
In 1998, Boston Chicken, Inc., Finest Foodservice, L.L.C., and WMJ
Texas, Inc., the tenants of three of the Boston Market properties filed
for bankruptcy and rejected the lease relating to one property. In
2000, the tenants rejected the two remaining leases. In June 2001, one
of the properties with a rejected lease was sold. The Partnership will
not recognize any rental income relating to the remaining vacant
properties until new tenants for the properties are located, or until
the properties are sold and the proceeds from such a sale are
reinvested in additional properties. The lost revenues resulting from
the remaining vacant properties, could have an adverse effect on the
results of operations of the Partnership if the Partnership is unable
to re-lease these Properties in a timely manner. The general partners
are currently seeking either new tenants or purchasers for these
Properties.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
11. Litigation Settlement:
In July 1998, DJD Partners VII, LLC filed a lawsuit against Finest
Foodservice, LLC and the Partnership, alleging a breach of contract
that was originally entered into by Finest Foodservice, LLC and later
assigned to the Partnership, in connection with the construction of a
Boston Market property in Minnetonka, Minnesota. In October 1998,
Finest Foodservice, LLC, the former tenant of the site in Minnetonka,
Minnesota, filed for bankruptcy and rejected its lease, causing the
obligations of the contract to become the responsibility of the
Partnership. In May 2001, the District Court awarded a judgment of
approximately $85,400 to DJD Partners VII, LLC against the Partnership,
as a result of the breach of contract by Finest Foodservice, LLC. The
Partnership accrued this amount as a general and administrative expense
as of December 31, 2001. A motion for reconsideration and a new trial
was filed and denied. The Partnership is appealing the District Court's
judgment.
12. Selecting Data:
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2001 and
2000.
2001 Quarter First Second Third Fourth Year
------------------------ --------------- -------------- -------------- --------------- ---------------
Revenue (1)(2) $ 654,648 $ 657,078 $ 706,261 $ 663,296 $ 2,681,283
Net income (loss) 203,872 (221,224 ) 477,621 708,496 1,168,765
Net income (loss)
per limited
partner unit 0.06 (0.06 ) 0.14 0.19 0.33
2000 Quarter First Second Third Fourth Year
------------------------ --------------- -------------- -------------- --------------- ---------------
Revenue (1)(2) $ 776,928 $ 747,892 $ 686,946 $ 809,359 $ 3,021,125
Net income (loss) 602,591 397,789 224,681 (107,864 )) 1,117,197
Net income (loss)
per limited
partner unit 0.17 0.11 0.06 (0.02 )) 0.32
(1) Revenues include equity in earnings of unconsolidated joint ventures,
lease termination income and interest and other income.
(2) Revenues have been adjusted to reclassify any reversals of accrued
rental income to provisions for write-down of assets. This
reclassification had no effect on total net income.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
13. Commitment:
In November 2001, the Partnership entered into an agreement with an
unrelated third party to sell the On the Border property in San
Antonio, Texas. At December 31, 2001, the Partnership established a
provision for write-down on assets related to the anticipated sale of
this property (see Note 3). As of March 15, 2002 the sale had not
occurred.
14. Subsequent Events:
In January 2002, the Partnership reinvested a portion of the sales
proceeds from the 2001 sale of the property in Santa Rosa, California
in a property in Houston, Texas. In addition, in January 2002, the
Partnership reinvested the remaining net sales proceeds in a property
in Austin, Texas, as tenants-in-common, with CNL Income Fund X, Ltd., a
Florida limited partnership and an affiliate of the general partners.
The Partnership entered into a separate long-term, triple-net lease
with terms substantially the same as its other leases for each
property.
In January 2002, the Partnership entered into a promissory note with
the corporate general partner for a loan in the amount of $125,000 in
connection with the operations of the Partnership. The loan is
uncollateralized, non-interest bearing and due on demand. As of
February 7, 2002, the Partnership had repaid the entire loan to the
corporate general partner.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The 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 Fund Advisors, Inc., CNL Financial Group, Inc.
and their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 55. 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 American Properties Fund,
Inc. ("APF"), a public, unlisted real estate investment trust, since 1994. Mr.
Seneff served as Chief Executive Officer of APF from 1994 through August 1999,
and has served as Co-Chief Executive Officer of APF since December 2000. Mr.
Seneff served as Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors, Inc., formerly the Partnership's advisor, until it merged with a
wholly-owned subsidiary of APF in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. 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 its formation in 1980. CNL Financial Group, Inc. 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.
Mr. Seneff also serves as a Director, Chairman of the Board and Chief Executive
Officer of CNL Hospitality Properties, Inc., a public, unlisted real estate
investment trust, as well as, CNL Hospitality Corp., its advisor. In addition,
he serves as a Director, Chairman of the Board and Chief Executive Officer of
CNL Retirement Properties, Inc., a public, unlisted real estate investment trust
and its advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has also served as
a Director, Chairman of the Board and Chief Executive Officer of Commercial Net
Lease Realty, Inc., a public real estate investment trust that is listed on the
New York Stock Exchange. Mr. Seneff has also served as a Director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a Director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNL 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 more
than $60 billion of retirement funds. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 54. 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 is
Director of the Board of Directors of APF. Mr. Bourne served as President of APF
from 1994 through February 1999. He also served as Treasurer from February 1999
through August 1999 and from May 1994 through December 1994. He also served in
various executive positions with CNL Fund Advisors, Inc. prior to its merger
with a wholly-owned subsidiary of APF 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.; Director, Vice Chairman of
the Board, President and Treasurer of CNL Hospitality Properties, Inc., a
public, unlisted real estate investment trust; as well as, Director, Vice
Chairman of the Board, President and Treasurer of CNL Hospitality Corp., its
advisor. In addition, Mr. Bourne serves as Director, Vice Chairman of the Board,
President and Treasurer of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust; as well as, a Director, Vice Chairman of the
Board, President and Treasurer of its advisor, CNL Retirement Corp. Mr. Bourne
also serves as a Director of CNL Bank. He has 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., a public real estate investment trust
listed on the New York Stock Exchange. Mr. Bourne also 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., a registered investment advisor for pension plans. 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 46. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as Chief
Executive Officer from September 1999 through December 2000. Prior to the
acquisition of CNL Fund Advisors, Inc., Mr. McWilliams served as President of
APF from February 1999 until September 1999. From February 1998 to February
1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL
Financial Group, Inc. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc. from April
1997 until the acquisition of such entities by wholly-owned subsidiaries of APF
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 38. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF 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.
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
As of March 15, 2002, 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 15, 2002, the beneficial
ownership interests of the General Partners in the Registrant.
Amount and Nature of
Title of Class Name of Partner Beneficial Ownership Percent of Class
- --------------------------------- ------------------------- -------------------------- -----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
---------------
100%
===============
Limited Partnership Interest Robert A. Bourne 2,500 Units 0.07%
---------------
0.07%
===============
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
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, 2001, exclusive of any distributions to which the General
Partners or their affiliates may be entitled in the event they purchase Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and
operating expenses the lower of cost or 90% of the administra-tive services:
prevailing rate at which comparable $207,702
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 $24,943
affiliates revenues (excluding noncash 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 or 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, 2001
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee payable disposition fee, payable upon sale
to the 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 the
Affiliates provides 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.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership 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
Partnership 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 proceeds 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.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2001 and 2000
Statements of Income for the years ended December 31, 2001,
2000, and 1999
Statements of Partners' Capital for the years ended December
31, 2001, 2000, and 1999
Statements of Cash Flows for the years ended December 31,
2001, 2000, and 1999
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2001, 2000, and 1999
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2001
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2001
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 XVIII, Ltd. (Filed as Exhibit 3.2 to
the Registrant's Registration Statement on Form S-11,
No. 33-90998-01, incorporated herein by reference.)
**3.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XVIII, 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 XVIII, Ltd. (Filed as Exhibit 3.2 to
Registrant's Registration Statement on Form S-11, No.
33-90998-01 and incorporated herein by reference.)
**4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XVIII, 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.)
**5.1 Opinion of Baker & Hostetler as to the legality of
the securities being registered by CNL Income Fund
XVIII, Ltd. (Filed as Exhibit 5.2 to Amendment No.
Three to the Registrant's Registration Statements on
Form S-11, No. 33-90998, incorporated herein by
reference.)
**8.1 Opinion of Baker & Hostetler regarding certain
material tax issues relating to CNL Income Fund
XVIII, Ltd. (Filed as Exhibit 8.1 to Amendment No.
Three to the Registrant's Registration Statement on
Form S-11, No. 33-90998, incorporated herein by
reference.)
**8.2 Opinion of Baker & Hostetler regarding certain
material issues relating to the Distribution
Reinvestment Plan of CNL Income Fund XVIII, Ltd.
(Filed as Exhibit 8.4 to Amendment No. Three to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**8.3 Amended Opinion of Baker & Hostetler regarding
certain material issues relating to CNL Income Fund
XVIII, Ltd. (Filed as Exhibit 8.5 to Post-Effective
Amendment No. Four 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 XVIII,
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 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Filed as
Exhibit 10.2 to Form 10-Q filed with the Securities
and Exchange Commission on August 9, 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.)
(b) The Registrant filed no reports on Form 8-K during the period October
1, 2001 through December 31, 2001.
(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% of the Partnership's total assets for the
year ended December 31, 2001. 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 27th day of
March, 2002.
CNL INCOME FUND XVIII, 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 27, 2002
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 27, 2002
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000, and 1999
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
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
1999 Allowance for
doubtful
accounts (a) $ 62,189 $ -- $ 6,392 (b) $ 9,987 (c) $ 47,422 $ 11,172
============== =============== ================ ============= ============ ============
2000 Allowance for
doubtful
accounts (a) $ 11,172 $ -- $ 131,350 (b) $ 18,529 (c) $ -- $ 123,993
============== =============== ================ ============= ============ ============
2001 Allowance for
doubtful
accounts (a) $ 123,993 $ -- $ 696 (b) $ 49,488 (c) $ -- $ 75,201
============== =============== ================ ============= ============ ============
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
Costs Capitalized
Subsequent To
Initial Cost Acquisition
---------------------- ------------------
Encum- Buildings& Improve- Carrying
brances Land Improvements ments Costs
--------- ---------- --------------------- ------
Properties the Partnership
has Invested in Under
Operating Leases:
Arby's Restaurant:
Lexington, North Caro-ina $210,977 - - -
Bennigan's Restaurant:
Sunrise, Florida - 1,147,705 925,087 - -
Boston Market Restaurants:
Raleigh, North Caroli-a (k) 702,215 599,388 - -
San Antonio, Texas (l- 677,584 - 223,333 -
Minnetonka, Minnesota-(i) 574,766 - 25,792 (h) -
Burger King Restaurant:
Kinston, North Caroli-a 262,498 663,421 - -
Chevy's Fresh Mex Restaurant:
Mesa, Arizona - 1,029,236 1,598,376 - -
Golden Corral Family
Steakhouse Restaurants:
Houston, Texas - 889,003 - 844,282 -
Galveston, Texas - 687,946 - 836,386 -
Elizabethtown, Ke-tucky 488,945 - 1,045,207 -
Destin, Florida - 565,354 - 1,022,196 -
Ground Round Restaurant:
Rochester, New York - 525,891 582,882 - -
Jack in the Box Restaurants:
Centerville, Texas - 261,913 - 543,079 -
Echo Park, California- 674,647 - 659,358 -
Houston, Texas - 778,706 - 589,840 -
NI's Interational Buffet
Restaurant:
Stow, Ohio - 489,799 - - -
On The Border Restaurant:
San Antonio, Texas (j- - - 855,435 -
Wendy's Restaurant:
Sparta, Tennessee - 221,537 - 432,842 -
---------- ---------- ---------- ------
$10,188,722 $4,369,154 $7,077,750 -
========== ========== ========== ======
Costs Capitalized
Subsequent To
Initial Cost Acquisition
---------------------- ------------------
Encum- Buildings aImprove- Carrying
brances Land Improvementsments Costs
--------- ---------- --------------------- ------
Properties the Partnership
Invested in Under
Direct Financing Leases:
Arby's Restaurant:
Lexington, North Ca-olina - $459,004 - -
IHOP Restaurants:
Bridgeview, Illinoi- 354,227 1,151,199 - -
NI's Interational Buffet
Restaurant:
Stow, Ohio - - 1,280,986 - -
---------- ------
---------- ----------
$354,227 $2,891,189 $0 -
========== ========== ========== ======
Property of Joint Venture
in Which the Partnership
has a 39.93% Interest
in Under an Operating Lease:
Arby's Restaurant:
Columbus, Ohio - $407,096 - $498,684 -
========== ========== ========== ======
Property of Joint Venture
in Which the Partnership
has a 57.20% Interest
in Under an Operating Lease:
Taco Bell Restaurant:
Portsmouth, Virginia - $254,046 - - -
========== ========== ========== ======
Property of Joint Venture
in Which the Partnership
has a 19.78% Interest
in Under an Operating Lease:
T.G.I.Friday's Restaurant:
Homestead, Pennsylvan-a $1,036,296 $1,499,296 - -
========== ========== ========== ======
Property of Joint Venture
in Which the Partnership
has a 80.70% Interest
in Under an Operating Lease:
Bennigan's
Denver, Colorado - $790,621 $1,398,252 - -
========== ========== ========== ======
Property of Joint Venture
in Which the Partnership
has a 57.20% Interest
in Under a Direct Financing Lease:
Taco Bell Restaurant
Portsmouth, Virginia - - $323,725 - -
========== ========== ========== ======
Net Amount at Which Life on Which
Carried at Close of Period (c) Depreciation in
- ------------------------------------ Date Latest Income
Buildings and Accumulatedof Con- Date Statement is
Land Improvements Total DepreciatiostructioAcquired Computed
- ------------ ---------------------- ---------------------------------------
$210,977 (f) $210,977 (d) 1997 07/97 (d)
1,147,705 925,087 2,072,792 109,194 1982 06/98 (b)
702,215 326,443 1,028,658 88,171 1994 01/97 (b)
367,874 145,905 513,779 31,210 1997 04/97 (b)
403,092 (h) - 403,092 - 1997 04/97
262,498 663,421 925,919 110,770 1994 12/96 (b)
1,029,236 1,598,376 2,627,612 213,224 1994 12/97 (b)
889,003 844,282 1,733,285 133,660 1997 12/96 (b)
687,946 836,386 1,524,332 128,754 1997 01/97 (b)
488,945 1,045,207 1,534,152 146,174 1997 05/97 (b)
565,354 1,022,196 1,587,550 132,850 1997 09/97 (b)
525,891 582,882 1,108,773 81,561 1981 10/97 (b)
261,913 543,079 804,992 85,054 1997 01/97 (b)
674,647 659,358 1,334,005 99,131 1997 01/97 (b)
778,706 589,840 1,368,546 83,987 1997 05/97 (b)
489,799 (f) 489,799 - 1997 04/97 (d)
- 534,196 534,196 32,853 1997 04/97 (j)
221,537 432,842 654,379 62,657 1997 04/97 (b)
- ------------ ---------- ---------- -----------
$9,707,338 $10,749,500 $20,456,839 $1,539,249
============ ========== ========== =========
Net Cost Basis at Which Life on Which
Carried at Close of Period (c) Depreciation in
- ------------------------------------ Date Latest Income
Buildings and Accumulatedof Con- Date Statement is
Land Improvements Total DepreciatiostructioAcquired Computed
- ------------ ---------------------- ---------------------------------------
- (f) (f) (d) 1997 07/97 (d)
(f) (f) (f) (d) 1972 07/97 (e)
- (f) (f) (d) 1997 04/97 (d)
$407,096 $498,684 $905,780 $50,561 1998 08/98 (b)
============ ========== ========== =========
$254,046 (g) $254,046 (d) 1997 02/99 (d)
============ ==========
$1,036,296 $1,499,296 $2,535,592 $79,267 2000 06/00 (b)
============ ========== ========== =========
$790,621 $1,398,252 $2,188,873 $23,304 2001 07/01 (b)
============ ========== ========== =========
- (f) (f) (d) 1997 02/99 (d)
============ ========== ========== =========
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(a) Transactions in real estate and accumulated depreciation during 2001,
2000, 1999, and 1998 are summarized as follows:
Accumulated
Cost Depreciation
---------------- -------------------
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 1998 $ 23,388,865 $ 512,853
Acquisitions 25,792 --
Depreciation expense -- 386,932
---------------- -----------------
Balance, December 31, 1999 23,414,657 899,785
Reclassified from net investment in direct
financing lease (j) 855,436 --
Provision for loss (k) (553,317 ) --
Depreciation expense -- 395,565
---------------- -----------------
Balance, December 31, 2000 (i)(j)(k) 23,716,776 1,295,350
Provision for loss (j)(l) (708,377 ) --
Disposition (2,551,561 ) (132,780 )
Depreciation expense -- 376,679
---------------- -----------------
Balance, December 31, 2001 (j) $ 20,456,838 $ 1,539,249
================ =================
Property of Joint Venture in Which the Partnership has
a 39.93% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 875,700 $ --
Acquisitions 30,080 --
Depreciation expense -- 17,315
---------------- -----------------
Balance, December 31, 1999 905,780 17,315
Acquisitions -- --
Depreciation expense -- 16,623
---------------- -----------------
Balance, December 31, 2000 905,780 33,938
Depreciation expense -- 16,623
---------------- -----------------
Balance, December 31, 2001 $ 905,780 $ 50,561
================ =================
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
Accumulated
Cost Depreciation
---------------- -------------------
Property of Joint Venture in Which the Partnership has
a 57.20% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1998 $ 254,046 $ --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 1999 254,046 --
Depreciation expense (j) -- --
---------------- -----------------
Balance, December 31, 2000 254,046 --
Depreciation expense (j) -- --
---------------- -----------------
Balance, December 31, 2001 $ 254,046 $ --
================ =================
Property of Joint Venture in Which the Partnership has
a 19.78% Interest and has Invest in Under an
Operating Lease:
Balance, December 31, 1999 $ -- $ --
Acquisition 2,535,592 --
Depreciation expense -- 29,290
---------------- -----------------
Balance, December 31, 2000 2,535,592 29,290
Depreciation expense -- 49,977
---------------- -----------------
Balance, December 31, 2001 $ 2,535,592 $ 79,267
================ =================
Property of Joint Venture in Which the Partnership has
an 80.70% Interest and has Invested Under an
Operating Lease:
Balance, December 31, 2000 $ -- $ --
Acquisitions 2,188,873 --
Depreciation expense -- 23,304
---------------- -----------------
Balance, December 31, 2001 $ 2,188,873 $ 23,304
================ =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and the joint ventures for federal income tax purposes
was $23,240,960 and $6,205,016, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(d) For financial reporting purposes, the portion of the lease relating to
the building has been recorded as a direct financing leases. The cost
of the building has been included in net investment in direct financing
leases; therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and building
has been recorded as a direct financing lease. The cost of the land and
building has been included in net investment in direct financing
leases; therefore, depreciation is not applicable.
(f) For financial reporting purposes, 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.
(g) For financial reporting purposes, the portion of the lease relating to
the building has been recorded as a direct financing lease. Accordingly
costs relating to this component of this lease are not shown.
(h) Amount represents site improvements and is included in total land value
for this Property.
(i) For financial reporting purposes, the undepreciated cost of the
Property in Minnetonka, Minnesota, was written down to net realizable
value due to an anticipated impairment in value. The Partnership
recognized the impairment by recording a provision for write-down of
assets in the amount of $197,466 at December 31, 1998. The tenant of
this Property declared bankruptcy and rejected the lease relating to
this Property. The impairment represented the difference between the
Property's carrying value at December 31, 1998, and the General
Partners' estimated net realizable value of the Property. The cost of
the Property presented on this schedule is the net amount at which the
Property was carried, including the provision for write-down of assets.
No additional impairment was recorded for the years ended December 31,
2001 and 2000.
(j) For financial reporting purposes, during 2000, the undepreciated cost
of the Property in San Antonio, Texas, was written down to its
estimated net realizable 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 $299,849 at December 31, 2000.
The tenant of this Property vacated the Property and ceased restaurant
operations, resulting in a reclassification of the building portion of
the lease to an operating lease. The building was recorded at net book
value and depreciated over its remaining estimated life of
approximately 27.1 years. During 2001, the Partnership recognized an
additional provision for write-down of assets of $321,239. The total
impairment represented the difference between the Property's carrying
value and the estimated net sales proceeds from the anticipated sale of
the Property based on a purchase and sales contract with an unrelated
third party. The cost of the Property presented on this schedule is the
net amount at which the Property was carried at December 31, 2001,
including the provision for write-down of assets.
(k) For financial reporting purposes, the undepreciated cost of the
Property in Raleigh, North Carolina, was written down to net realizable
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 $272,945 at December 31, 2000. The impairment represented the
difference between the Property's carrying value and the General
Partners' estimated net realizable value of the Property at December
31, 2000. The cost of the Property presented on this schedule is the
net amount at which the Property was carried at December 31, 2001,
including the provision for write-down of assets.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(l) For financial reporting purposes, the undepreciated cost of the
Property in San Antonio, Texas, was written down to net realizable
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 $387,138 at December 31, 2001. The tenant of this Property
declared bankruptcy and rejected the lease relating to this Property.
The impairment represented the difference between the Property's
carrying value and the General Partners' estimated net realizable value
of the Property at December 31, 2001. The cost of the Property
presented on this schedule is the net amount at which the Property was
carried at December 31, 2001, including the provision for write-down of
assets.