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, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes___ No X
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 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"). Net proceeds to the Partnership
from its offering of Units, after deduction of organizational and offering
expenses, totalled $30,810,000 and were used 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. As of
December 31, 1999, the Partnership owned 24 Properties, either directly or
indirectly through joint venture or tenancy in common arrangements. 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, 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. In January 2002 the Partnership reinvested a portion of the net
sales proceeds from the sale of the Property in Santa Rosa, California in a
Property in Houston, Texas and 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. During 2002, the Partnership sold its
two Properties in San Antonio, Texas and its Property in Raleigh, North Carolina
and reinvested the majority of the net sales proceeds from the sale of the two
San Antonio Properties in another Property in San Antonio, Texas. As of December
31, 2002, the Partnership owned 18 Properties directly, and five Properties
indirectly through joint venture or tenancy in common arrangements. The 18
Properties include one Property consisting of land only. In general, the
Partnership leases the Properties on a triple-net basis with the lessees
responsible for all repairs and maintenance, property taxes, insurance and
utilities.
The Partnership holds its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners consider factors such as potential capital
appreciation, net cash flow and federal income 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.
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 2020. 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 15 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 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.
During 2002, the Partnership reinvested the net sales proceeds it
received from the sale of the Property in Santa Rosa, California, in a Property
in Austin, Texas, with CNL Income Fund X, Ltd., as tenants-in-common, and in a
wholly owned Property in Houston, Texas. In June 2002, the Partnership
reinvested the majority of the net sales proceeds from the sale of two
Properties in San Antonio, Texas in another Property in San Antonio, Texas. The
lease terms for these Properties are substantially the same as the Partnership's
other leases, as described above.
Effective May 2002, the lease relating to the Arby's Property in
Lexington, North Carolina was amended to eliminate guaranteed scheduled rent
increases. The General Partners do not believe that the rent reductions will
have a material adverse effect on the results of operations of the Partnership.
All other lease terms remain unchanged.
Major Tenants
During 2002, four lessees of the Partnership, Golden Corral
Corporation, Chevy's, Inc., Jack in the Box Inc., and S&A Properties 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 revenues (including the
Partnership's share of rental revenues from joint ventures and Properties held
as tenants-in-common with affiliates). As of December 31, 2002, Golden Corral
Corporation was the lessee relating to four leases, Chevy's Inc. was the lessee
relating to one lease, Jack in the Box Inc. was the lessee relating to three
leases, and Metromedia Restaurant Group was the lessee relating to two leases.
It is anticipated that based on the minimum rental payments required by the
leases, these four lessees will each continue to contribute more than ten
percent of the Partnership's total rental revenues (including the Partnership's
share of rental revenues from joint ventures and Properties held as
tenants-in-common with affiliates) in 2003. In addition, four Restaurant Chains,
Golden Corral, Chevy's, Jack in the Box, and Bennigan's, each accounted for more
than ten percent of the Partnership's total rental revenues (including the
Partnership's share of rental revenues from joint ventures and Properties held
as tenants-in-common with affiliates) during 2002. In 2003, it is anticipated
that these four Restaurant Chains will each contribute more than ten percent of
the Partnership's rental revenues (including the Partnership's share of rental
revenues from joint ventures and Properties held as tenants-in-common with
affiliates) 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 or
sell the Properties in a timely manner. As of December 31, 2002, Golden Corral
Corporation leased Properties with an aggregate carrying value in excess of 20%
of the total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into the following joint venture and
tenancy in common arrangements as of December 31, 2002:
Entity Name Year Ownership Partners Property
Columbus Joint Venture 1998 39.93 % CNL Income Fund XII, Ltd. Columbus, OH
CNL Income Fund XVI, Ltd.
CNL Portsmouth Joint 1999 57.20 % CNL Income Fund XI, Ltd. Portsmouth, VA
Venture
TGIF Pittsburgh Joint 2000 19.78% CNL Income Fund VII, Ltd. Homestead, PA
Venture CNL Income Fund XV, Ltd.
CNL Income Fund XVI, Ltd.
CNL Income Fund VIII, Ltd., 2001 80.70% CNL Income Fund VIII, Ltd. Denver, CO
and CNL Income Fund
XVIII, Ltd., Tenants in
Common
CNL Income Fund X, Ltd., and 2002 18.35% CNL Income Fund X, Ltd. Austin, TX
CNL Income Fund XVIII,
Ltd., Tenants in Common
Each of the joint ventures or tenancies in common was formed to hold
one Property. Each CNL Income Fund is an affiliate of the General Partners and
is a limited partnership organized pursuant to the laws of the state of Florida.
The Partnership shares management control equally with the affiliates of the
General Partners.
The joint venture and tenancy in common arrangements provide for the
Partnership and its partners to share in all costs and benefits in proportion to
each partner's percentage interest in the business entity. The Partnership and
its partners are also jointly and severally liable for all debts, obligations
and other liabilities of the joint venture or tenancy in common. Net cash flow
from operations is distributed to each joint venture or tenancy in common
partner in accordance with its respective percentage interest in the business
entity.
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 either joint venturer 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 partner to dissolve the joint
venture. Any liquidation proceeds, after paying joint venture debts and
liabilities and funding reserves for contingent liabilities, will be distributed
first to the joint venture partners with positive capital account balances in
proportion to such balances until such balances equal zero, and thereafter in
proportion to each joint venture partner's percentage interest in the joint
venture.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer to assign its joint venture or tenancy in
common interest without first offering it for sale to its partner, either upon
such terms and conditions as to which the parties may agree or, in the event the
parties cannot agree, on the same terms and conditions as any offer from a third
party to purchase such joint venture or tenancy in common interest.
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.
The Partnership entered into a long-term, triple-net lease for this Property
with terms substantially the same as its other leases.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Certain Management Services
RAI Restaurants, Inc. (formerly known as CNL Restaurants XVIII, Inc.),
an affiliate of the General Partners, provides certain services relating to
management of the Partnership and its Properties pursuant to a management
agreement with the Partnership. CNL APF Partners, LP assigned its rights in, and
its obligations under, the management agreement with the Partnership to CNL
Restaurants XVIII, Inc. ("Advisor") effective January 1, 2002. All of the terms
and conditions of the management agreement, including the payment of fees,
remained unchanged. Under this agreement, the Advisor is responsible for
collecting rental payments, inspecting the Properties and the tenants' books and
records, assisting the Partnership in responding to tenant inquiries and
notices, and providing information to the Partnership about the status of the
leases and the Properties. The Advisor also assists the General Partners in
negotiating the leases. For these services, the Partnership had agreed to pay
the Advisor an annual fee of one percent of the sum of gross rental revenues
from Properties wholly owned by the Partnership plus the Partnership's allocable
share of gross revenues of joint ventures in which the Partnership is a
co-venturer, but not in excess of competitive fees for comparable services.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
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, 2002, the Partnership owned 23 Properties. Of the 23
Properties, 18 are owned by the Partnership in fee simple, three are owned
through joint venture arrangements and two are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. 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, 2002, 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,
either directly or indirectly though joint venture or tenancy in common
arrangements as of December 31, 2002 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, 2002.
State Number of Properties
Arizona 1
California 1
Colorado 1
Florida 2
Illinois 1
Kentucky 1
Minnesota 1
New York 1
North Carolina 2
Ohio 2
Pennsylvania 1
Tennessee 1
Texas 7
Virginia 1
--------------
TOTAL PROPERTIES 23
==============
Buildings. Each of the Properties owned by the Partnership, either
directly or indirectly though joint venture or tenancy in common arrangements as
of December 31, 2002, 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 2,200 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, 2002, 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, 2002, the aggregate cost of the Properties owned by
the Partnership and joint ventures for federal income tax purposes was
$21,723,728 and $7,337,654, respectively.
The following table lists the Properties owned by the Partnership,
either directly or indirectly though joint venture or tenancy in common
arrangements as of December 31, 2002 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 2
Bennigan's 2
Boston Market 1
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
Taco Bell 1
Taco Cabana 3
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.
At December 31, 2002, 2001, 2000, 1999, and 1998 the Properties were
96%, 83%, 80%, 96%, and 96% occupied, respectively. The following is a schedule
of the average rent per Property for each of the years ended December 31:
2002 2001 2000 1999 1998
------------- ------------- --------------- -------------- -------------
Rental Revenues (1)(2) $ 2,653,429 $ 2,564,402 $ 2,888,408 $ 3,141,240 $ 2,953,285
Properties (2) 22 19 20 23 24
Average rent per
property $ 120,610 $ 134,969 $ 144,420 $ 136,576 $ 123,054
(1) Rental revenues includes the Partnership's share of rental revenues
from the Properties owned through joint venture and tenancy in common
arrangements.
(2) Excludes Properties that were vacant at December 31, and did not
generate rental revenues during the year ended December 31.
The following is a schedule of lease expirations for leases in place as
of December 31, 2002 for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2003 -- -- --
2004 -- -- --
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 -- -- --
2009 -- -- --
2010 -- -- --
2011 -- -- --
2012 4 $ 762,097 27.70%
Thereafter 18 1,989,638 72.30%
---------- ------------- -------------
Total (1) 22 $ 2,751,735 100.00%
========== ============= =============
(1) Excludes one Property which was vacant at December 31, 2002.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants, as of December 31, 2002 (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 $122,100 (ranging from approximately
$84,000 to $142,800).
Metromedia Restaurant Group leases two Bennigan's restaurants. The
initial term of one lease is 18 years (expiring in 2019) and the initial term of
the other lease is 20 years (expiring in 2018) and the average minimum base
annual rent is approximately $218,400 (ranging from approximately $200,200 to
$236,600).
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 the Partnership, 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 the Partnership 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 the Partnership. On
May 4, 2001, the District Court awarded a judgment of approximately $85,400 to
the plaintiff, which the Partnership has paid. The Partnership appealed the
judgment but lost. The Partnership and DJD Partners VII, LLC have certain
unresolved legal issues relating to this Property. Among other things, DJD
Partners VII, LLC claims to have a right to repurchase the Property for an
unlimited duration, which may prevent the Partnership from selling or re-leasing
the Property.
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 10, 2003, there were 1,554 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 2002, 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,
2002 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 2002 and 2001 other than
pursuant to the Plan, net of commissions.
2002 (1) 2001(1)
-------------------------------------- ------------------------------------------
High Low Average High Low Average
---------- ---------- ------------- ------------- ----------- -------------
First Quarter 6.57 6.00 6.36 $6.86 $ 6.80 $ 6.83
Second Quarter (2 ) (2 ) (2 ) 6.57 6.57 6.57
Third Quarter 6.43 6.43 6.43 6.30 6.30 6.30
Fourth Quarter 7.90 6.56 7.17 8.00 8.00 8.00
(1) A total of 5,986 and 22,500 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2002 and 2001,
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, 2002 and 2001, 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 2002 and 2001, 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, 2002 and 2001, are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the Limited Partners' return on their adjusted capital contributions. 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. If the General Partners do not elect to
make additional capital contributions or loans to the Partnership, the
Partnership may consider lowering the distribution rate.
(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.
2002 2001 2000 1999 1998
------------ -------------- -------------- --------------- -------------
Year Ended December 31:
Continuing Operations (5):
Revenues $2,289,032 $ 2,483,770 $ 2,629,592 $ 2,909,581 $ 2,857,028
Equity earnings of joint
ventures 308,632 197,013 112,863 61,656 --
Income from continuing
operations (2) (3) 730,714 1,616,472 1,245,394 2,321,606 2,088,903
Discontinued Operations (5):
Revenues -- 500 278,670 221,134 240,729
Income (loss) from
discontinued operations (4) (353,644 ) (447,707 ) (128,197 ) 193,750 213,419
Net income 377,070 1,168,765 1,117,197 2,515,356 2,302,322
Net income (loss) per Unit:
Continuing operations $ 0.21 $ 0.45 $ 0.36 $ 0.66 $ 0.60
Discontinued operations (0.10 ) (0.12 ) (0.04 ) 0.06 0.06
------------ -------------- -------------- --------------- -------------
Total $ 0.11 $ 0.33 $ 0.32 $ 0.72 $ 0.66
============ ============== ============== =============== =============
Cash distributions declared $2,800,000 $ 2,800,000 $ 2,800,000 $ 2,799,998 $ 2,657,764
Cash distributions declared
per Unit: 0.80 0.80 0.80 0.80 0.76
Weighted average number
of Limited Partner
Units outstanding (1) 3,500,000 3,500,000 3,500,000 3,500,000 3,495,278
At December 31:
Total assets $25,021,532 $ 27,511,695 $29,112,352 $ 30,866,006 $31,112,617
Total partners' capital 24,246,887 26,669,817 28,301,052 29,983,855 30,268,497
(1) Represents the weighted average number of Units outstanding during the
period the Partnership was operational.
(2) Income from continuing operations includes $1,052,735, $321,239,
$635,615 and $197,466, for the years ended December 31, 2002, 2001,
2000, and 1998, respectively, from provisions for write-down of assets.
(3) Income from continuing operations includes gains on sale of assets of
$429,072 and $46,300 for the years ended December 31, 2001 and 1999,
respectively, and a loss on sale of assets of $25,694 for the year
ended December 31, 2002. Income from continuing operations includes a
termination refund to the tenant of $84,873 for the year ended December
31, 2000.
(4) Net income (loss) from discontinued operations includes provisions for
write-down of assets of $322,472, $387,138, and $357,563 for the years
ended December 31, 2002, 2001, and 2000, respectively.
(5) Certain items in the prior years' financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on net income. The results of operations relating to
Properties that were either disposed of or were classified as held for
sale as of December 31, 2002 are reported as discontinued operations.
The results of operations relating to Properties that were identified
for sale as of December 31, 2001 but sold subsequently are reported as
continuing operations.
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 of tenancy in common
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. 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. As of December 31, 2002, the Partnership owned 18
Properties directly and five Properties indirectly through joint venture or
tenancy in common arrangements. As of December 31, 2001, the Partnership owned
19 Properties directly and four Properties indirectly through joint venture or
tenancy in common arrangements. As of December 31, 2000, the Partnership owned
22 Properties directly and three Properties indirectly through joint venture
arrangements.
Capital Resources
Cash from operating activities was $2,080,057, $1,684,911, and
$2,310,051, for the years ended December 31, 2002, 2001 and 2000, respectively.
The increase in cash from operating activities during the year ended December
31, 2002, and the decrease in cash from operating activities during the year
ended December 31, 2001, each as compared to the previous year, was primarily a
result of changes in income and expenses.
Other sources and uses of cash included the following during the years
ended December 31, 2002, 2001, and 2000.
In June 2000, the Partnership reinvested the net sales proceeds from
the 1999 sale of the Property in Atlanta, Georgia 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 then current
carrying value, no gain or loss was recognized. As of December 31, 2002, the
Partnership had a remaining investment of approximately $501,500 in TGIF
Pittsburgh 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.
During 2001, the Partnership sold its Properties in Timonium, Maryland;
Henderson, Nevada; and Santa Rosa, California, each to a third party. The
Partnership received total net sales proceeds of approximately $3,791,400,
resulting in a net gain of approximately $429,100. In July 2001, the Partnership
reinvested the net sales proceeds from the sale of the Timonium and Henderson
Properties 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, 2002, the Partnership had contributed
approximately $1,766,400 for an 80.7% interest in the profits and losses of the
Property. In January 2002, the Partnership reinvested a portion of the net sales
proceeds from the sale of the Santa Rosa Property 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. As of December 31, 2002,
the Partnership had contributed approximately $205,700 for an 18.35% interest in
the profits and losses of the Property. The Partnership acquired the Properties
in Austin and Houston, Texas from CNL Funding 2001-A, LP, a Delaware limited
partnership and an affiliate of the General Partners. CNL Funding 2001-A, LP had
purchased and temporarily held title to the Properties in order to facilitate
the acquisition of the Properties by the Partnership. The purchase prices paid
by the Partnership represented the costs incurred by CNL Funding 2001-A, LP to
acquire the Properties.
In 2001, the Partnership entered into 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. During the year ended
December 31, 2002, the Partnership entered into three promissory notes with the
corporate General Partner for loans in connection with the operations of the
Partnership. The loans were uncollateralized, non-interest bearing and due on
demand. As of December 31, 2002, the Partnership had repaid these loans in full
to the corporate General Partner.
During 2002, the Partnership sold its On the Border Property in San
Antonio, Texas and its Boston Market Properties in San Antonio, Texas and
Raleigh, North Carolina, each to a third party. As of December 31, 2001, the
Partnership had identified the On the Border Property for sale. The Partnership
received total net sales proceeds of approximately $1,565,725, resulting in a
loss on sale of assets of approximately $25,700 relating to the On the Border
Property in San Antonio, Texas and a loss on disposal of assets of approximately
$322,500 relating to the Boston Market Property in Raleigh, North Carolina. In
June 2002, the Partnership reinvested the net sales proceeds from the sale of
the Properties in San Antonio, Texas in a Property in Houston, Texas at an
approximate cost of $896,500. The Partnership acquired this Property from CNL
Funding 2001-A, LP, a Delaware limited partnership and an affiliate of the
General Partners. CNL Funding 2001-A, LP had purchased and temporarily held
title to the Property in order to facilitate the acquisition of the Property by
the Partnership. The purchase price paid by the Partnership represented the
costs incurred by CNL Funding 2001-A, LP to acquire the Property.
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.
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
reinvestment in additional Properties, paying Partnership expenses or making
distributions to the partners. At December 31, 2002, the Partnership had
$429,481 invested in such short-term investments, as compared to $226,136 at
December 31, 2001. As of December 31, 2002, the average interest rate earned on
the rental income deposited in demand deposit accounts at commercial banks was
approximately one percent annually. The funds remaining at December 31, 2002
will be used to pay distributions and other liabilities of the Partnership.
In January 2003, the Partnership entered into a promissory note with
the corporate General Partner for a loan in the amount of $200,000 in connection
with the operations of the Partnership. The loan was uncollateralized,
non-interest bearing and due on demand. As of March 10, 2003, the Partnership
had repaid the loan in full to the corporate General Partner.
Short-Term Liquidity
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 net cash
flow in excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The General Partners have the right, but not the obligation, to make
additional capital contributions or loans if they deem it appropriate in
connection with the operations of the Partnership.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because 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 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 years ended December 31, 2002 and 2001 loans from the corporate General
Partner, the Partnership declared distributions to the Limited Partners of
$2,800,000, for each the years ended December 31, 2002, 2001, and 2000. This
represents distributions of $0.80 per Unit, for each of the years ended December
31, 2002, 2001 and 2000. No distributions were made to the General Partners for
the years ended December 31, 2002, 2001, or 2000. No amounts distributed or to
be distributed to the Limited Partners for the years ended December 31, 2002,
2001 or 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. 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. If the General
Partners do not elect to make additional capital contributions or loans to the
Partnership, the Partnership may consider lowering the distribution rate
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 during the years ended December 31,
2002, 2001 and 2000.
As of December 31, 2002 and 2001, the Partnership owed $17,762 and
$20,273, respectively, to related parties for operating expenses and accounting
and administrative services. As of March 14, 2003, the Partnership had
reimbursed the affiliates for these amounts. Other liabilities, including
distributions payable, were $756,883 at December 31, 2002, as compared to
$821,605 at December 31, 2001. Liabilities at December 31, 2002, to the extent
they exceed cash and cash equivalents at December 31, 2002, 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 the Partnership's Properties and investments in
unconsolidated entities periodically for impairment at least once a year or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The assessment is based on the carrying amount
of the Property or investment at the date it is tested for recoverability
compared to the sum of the estimated future cash flows expected to result from
its operation and sale through the expected holding period. If an impairment is
indicated, the asset is adjusted to its estimated fair value.
When the Partnership makes the decision to sell or commits to a plan to
sell a Property within one year, its operating results are reported as
discontinued operations.
Results of Operations
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Total rental revenues were $2,284,024 for the year ended December 31,
2002 as compared to $2,465,514 for the same period of 2001. Rental revenues were
lower during 2002 partially because the Partnership sold two Properties during
2001. In July 2001, the Partnership reinvested the net sales proceeds from one
of the sales in a Property in Denver, Colorado, as tenants-in-common, with CNL
Income Fund VIII, Ltd. In January 2002, the Partnership reinvested a portion of
the net sales proceeds from the other sale in a Property in Austin, Texas, as
tenants-in-common, with CNL Income Fund X, Ltd. Rental revenues are expected to
remain at reduced amounts while equity in earnings of joint ventures is expected
to increase because the Partnership reinvested the majority of these net sales
proceeds in two Properties with affiliates of the General Partners, as
tenants-in-common.
The Partnership used the remaining net sales proceeds along with the
net sales proceeds from the 2002 sales of the Properties in San Antonio, Texas
to acquire two Properties in Texas, one in San Antonio and the other in Houston.
The decrease in rental revenues during 2002 was partially offset by the rental
revenues from the two Properties acquired during 2002.
Rental revenues were lower during 2002, as compared to the same period
of 2001, because the Partnership stopped recording rental revenues relating to
the Partnership's Property in Stow, Ohio because the tenant was experiencing
financial difficulties. In addition, rental revenues remained at reduced amounts
during 2002 and 2001, because the Partnership stopped recording rental revenues
when the lease relating to the Boston Market Property in Minnetonka, Minnesota
was rejected by the tenant in 1998 in connection with the tenant's bankruptcy
proceedings, as described below. The lost revenues resulting from these two
Properties will continue to have an adverse effect on the results of operations
of the Partnership until the outstanding legal issues are resolved.
For the year ended December 31, 2002, the Partnership earned $308,632
in net income from joint ventures, as compared to $197,013 for the same period
of 2001. Net income earned by joint ventures was higher during 2002 because in
July 2001 and January 2002, the Partnership reinvested the majority of the net
sales proceeds from the 2001 sales of the Properties in Henderson, Nevada and
Santa Rosa, California, in a Property in Denver, Colorado and a Property in
Austin, Texas, respectively, each with an affiliate of the General Partners, as
tenants-in-common.
During 2002, four lessees of the Partnership, Golden Corral
Corporation, Chevy's, Inc., Jack in the Box Inc., Metromedia Restaurant Group,
each contributed more than ten percent of the Partnership's total rental
revenues (including the Partnership's share of rental revenues from joint
ventures and Properties held as tenants-in-common with affiliates). As of
December 31, 2002, Golden Corral Corporation was the lessee relating to four
leases, Chevy's Inc. was the lessee relating to one lease, Jack in the Box Inc.
was the lessee relating to three leases, and Metromedia Restaurant Group was the
lessee relating to two leases. It is anticipated that based on the minimum
rental payments required by the leases, these four lessees will each continue to
contribute more than ten percent of the Partnership's total rental revenues
(including the Partnership's share of rental revenues from joint ventures and
Properties held as tenants-in-common with affiliates) in 2003. In addition, four
Restaurant Chains, Golden Corral, Chevy's, Jack in the Box, and Bennigan's, each
accounted for more than ten percent of the Partnership's total rental revenues
(including the Partnership's share of rental revenues from joint ventures and
Properties held as tenants-in-common with affiliates) during 2002. In 2003, it
is anticipated that these four Restaurant Chains will each contribute more than
ten percent of the Partnership's rental revenues (including the Partnership's
share of rental revenues from joint ventures and Properties held as
tenants-in-common with affiliates) 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 year ended December 31, 2002, the Partnership earned $5,008
in interest and other income, as compared to $18,256 during the same period of
2001. Interest income was lower higher during 2002 because the Partnership
reinvested sales proceeds during 2002 that had been held in interest bearing
bank accounts in 2001.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $1,841,256 for the year ended December
31, 2002 as compared to $1,493,383 for the same period of 2001. Operating
expenses were higher during 2002 because the Partnership recorded a provision
for write-down of assets of approximately $1,052,700 relating to the Property in
Stow, Ohio. The provision represented the difference between the net carrying
value of the Property at December 31, 2002 and its estimated fair value. The
increase in operating expenses during 2002 was partially offset by a decrease in
the costs incurred for administrative expenses for servicing the Partnership and
its Properties and a decrease in state tax expenses.
The increase in operating expenses during 2002 was also partially
offset by lower Property expenses as a result of the sale of vacant Properties.
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 appealed the judgment but lost
and are considering their options. In addition, during 2001, the Partnership
incurred property expenses such as insurance, repairs and maintenance, legal
fees and real estate taxes relating to the vacant Properties. Between June 2001
and May 2002, the Partnership sold three of the vacant Properties and did not
incur any additional expenses relating to these Properties after the sales
occurred. However, the Partnership will continue to incur these expenses
relating to the vacant Property until the Property in Minnetonka, Minnesota
until the outstanding legal issues are resolved.
During 2002 and 2001, the Partnership incurred certain operating
expenses relating to the On the Border Property in San Antonio, Texas because
the Partnership owned the building and leased the land. In 2000, the tenant of
this Property 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 2002 and 2001, the Partnership incurred
approximately $46,200 and $135,900, respectively, in rent expense relating to
the ground lease of the Property. In addition, during 2001, the Partnership
recorded a provision for write-down of assets of $321,239 relating to this
Property. The provision represented the difference between the net carrying
value of the Property at December 31, 2001 and its estimated fair value. In May
2002, the Partnership sold this Property, and recorded an additional loss of
approximately $25,700. This Property had been identified for sale as of December
31, 2001
During 2001, the Partnership recognized total gains of $429,072 as a
result of the sales of three Properties. No Properties were sold during 2000.
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets." This statement requires that a long-lived asset
be tested for recoverability whenever events or changes in circumstances
indicate that its carrying amount may not be recoverable. The carrying amount of
a long-lived asset is not recoverable if it exceeds the sum of the undiscounted
cash flows expected to result from the use and eventual disposition of the
asset. The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when the
carrying amount of a long-lived asset exceeds its fair value. If an impairment
is recognized, the adjusted carrying amount of a long-lived asset is its new
cost basis. The statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
During the year ended December 31, 2002, the Partnership identified and
sold two vacant Properties that met the criteria of this standard and were
classified as Discontinued Operations in the accompanying financial statements.
The Partnership sold the Boston Market Properties in San Antonio, Texas and
Raleigh, North Carolina, and received net sales proceeds of approximately
$1,095,400. No gains or losses were recorded on the sales because the
Partnership had recorded a provision for write-down of assets of $322,472 for
the Property in Raleigh, North Carolina during prior quarters of 2002. The
Partnership had also recorded provisions for write-down of assets in previous
years, including approximately $387,100 and $36,900 during the years ended
December 31, 2001 and 2000, respectively, relating to the Property in San
Antonio, Texas and approximately $320,600 during the year ended December 31,
2000, relating to the Property in Raleigh, North Carolina. The financial results
for these Properties are reflected as Discontinued Operations in the
accompanying financial statements. The majority of the proceeds from the sales
were reinvested in income producing Properties.
Comparison of year ended December 31, 2001 to year ended December 31, 2000
Total rental revenues were $2,465,514 for the year ended December 31,
2001 as compared to $2,593,820 for the same period of 2000. Rental revenues were
lower during the year ended December 31, 2001, as compared to the same period of
2000, because the tenants of two Boston Market Properties 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 lease that was not rejected
until June 2000, at which time the other tenant rejected the lease and ceased
making rental payments. In June 2001, the Partnership sold this Property and
reinvested the net sales proceeds in a Property in Denver, Colorado, as
tenants-in-common, with CNL Income Fund VIII, Ltd. The Property in Minnetonka,
Minnesota is still vacant, as described above. Rental revenues were also lower
during 2001 because the tenant of the On the Border Property in San Antonio,
Texas defaulted under the terms of its lease, vacated the Property, and
discontinued rental payments, as described above. In May 2002, the Partnership
sold this Property.
For the year ended December 31, 2001, the Partnership earned $197,013
in net income from joint ventures, as compared to $112,863 for the same period
of 2000. Net income earned by joint ventures was higher during 2001 because in
July 2001, the Partnership reinvested the majority of the net sales proceeds
from the 2001 sale of the Property in Henderson, Nevada in a Property in Denver,
Colorado, as described above.
During the year ended December 31, 2001, the Partnership earned $18,256
in interest and other income, as compared to $35,772 during the same period of
2000. Interest income was lower during 2001 because the Partnership reinvested
in Properties sales proceeds that it was holding in interest bearing bank
accounts.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets, were $1,493,383 for the year ended December
31, 2001 as compared to $1,412,188 for the same period of 2000. Operating
expenses were higher during 2001 because the Partnership recorded a provision
for write-down of assets of $321,239 and $635,615 during the years ended
December 31, 2001 and 2000, respectively, relating to the Boston Market Property
in Timonium, Maryland and the On the Border Property in San Antonio, Texas. The
provisions represented the difference between the net carrying value of each
Property and its estimated fair value. In June 2001, the Partnership sold the
Timonium, Maryland Property and in May 2002, the Partnership sold the San
Antonio, Texas Property, as described above. Operating expenses were also higher
during 2001 because the Partnership incurred approximately $85,400 pursuant to a
judgment entered against the Partnership in a lawsuit relating to the Property
in Minnetonka, Minnesota, as described above. 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 On the Border
Property in San Antonio, Texas. The Partnership sold this Property in May 2002.
In addition, the Partnership incurred expenses such as insurance, repairs and
maintenance, legal fees and real estate taxes relating to the vacant Properties.
Operating expenses were also higher during 2001, due to an increase in
the costs incurred for administrative expenses for servicing the Partnership and
its Properties. The increase in operating expenses during 2001, 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.
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.
The restaurant industry has been relatively resilient during this
volatile time with steady performance during 2002. However, the industry remains
in a state of cautious optimism. Restaurant operators expect their business to
be better in 2003, according to a nationwide survey conducted by the National
Restaurant Association, but are concerned by the budget deficits being
experienced by many states and the potential of new taxes on the industry to
alleviate the situation.
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 January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be considered by a company if that company is subject to a majority risk of loss
from the variable interest entity's activities or entitled to receive a majority
of the entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. Consolidation of variable
interests entities will provide more complete information about the resources,
obligations, risks and opportunities of the consolidated company. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003, and to older entities in the first
fiscal year or interim period beginning after June 15, 2003. Management believes
adoption of this standard may result in either consolidation or additional
disclosure requirements with respect to the Partnership's unconsolidated joint
ventures or Properties held with affiliates of the General Partners as
tenants-in-common, which are currently accounted for under the equity method.
However, such consolidation is not expected to significantly impact the
Partnership's results of operations.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND 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 24-37
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, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002 in conformity with accounting principles generally accepted in
the United States of America. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 15(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and 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.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
January 31, 2003
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2002 2001
------------------- ------------------
ASSETS
Real estate properties with operating leases, net $ 18,874,150 $ 17,494,535
Net investment in direct financing leases 2,064,258 3,145,098
Real estate held for sale -- 1,423,054
Investment in joint ventures 3,185,337 3,011,159
Cash and cash equivalents 429,481 226,136
Restricted cash -- 1,662,201
Receivables, less allowance for doubtful accounts of
$104,228 and $75,201,respectively 945 19,767
Accrued rental income 456,857 513,016
Other assets 10,504 16,729
------------------- ------------------
$ 25,021,532 $ 27,511,695
=================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4,178 $ 92,368
Real estate taxes payable 12,204 12,817
Distributions payable 700,000 700,000
Due to related parties 17,762 20,273
Rents paid in advance 35,840 11,441
Deferred rental income 4,661 4,979
------------------- ------------------
Total liabilities 774,645 841,878
Partners' capital 24,246,887 26,669,817
------------------- ------------------
$ 25,021,532 $ 27,511,695
=================== ==================
See accompanying notes to financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2002 2001 2000
------------------ --------------- ---------------
Revenues:
Rental income from operating leases $ 2,063,604 $ 2,067,065 $ 2,148,472
Earned income from direct financing leases 220,420 398,449 445,348
Interest and other income 5,008 18,256 35,772
------------------ --------------- ---------------
2,289,032 2,483,770 2,629,592
------------------ --------------- ---------------
Expenses:
General operating and administrative 199,341 269,358 145,191
Property expenses 177,799 491,360 188,620
Management fees to related party 25,379 24,943 27,875
State and other taxes 8,477 22,252 17,604
Depreciation and amortization 377,525 364,231 369,751
Provisions for write-down of assets 1,052,735 321,239 635,615
Transaction costs -- -- 27,532
------------------ --------------- ---------------
1,841,256 1,493,383 1,412,188
------------------ --------------- ---------------
Income Before Gain (Loss) on Sale of Assets, Termination
Refund to Tenant, and Equity in Earnings of Joint
Ventures 447,776 990,387 1,217,404
Gain (Loss) on Sale of Assets (25,694 ) 429,072 --
Termination Refund to Tenant -- -- (84,873 )
Equity in Earnings of Joint Ventures 308,632 197,013 112,863
------------------ --------------- ---------------
Income from Continuing Operations 730,714 1,616,472 1,245,394
Discontinued Operations (Note 8):
Loss from discontinued operations (353,644 ) (447,707 ) (128,197 )
------------------ --------------- ---------------
Net Income $ 377,070 $ 1,168,765 $ 1,117,197
================== =============== ===============
Income (Loss) Per Limited Partner Unit
Continuing Operations $ 0.21 $ 0.46 $ 0.36
Discontinued Operations (0.10 ) (0.13 ) (0.04 )
------------------ --------------- ---------------
Total $ 0.11 $ 0.33 $ 0.32
================== =============== ===============
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, 2002, 2001 and 2000
General Partners Limited Partners
------------------------------- ---------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs
---------------- ------------- ------------- ------------- ----------- ----------
Balance, December 31, 1999 $ 1,000 $ (6,319 ) $ 35,000,000 $ (6,826,493 ) $ 6,005,667 $ (4,190,000 )
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 (4,190,000 )
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 (4,190,000 )
Contributions from limited partners
Distributions to limited partners
($0.80 per limited partner unit) -- -- -- (2,800,000 ) -- --
Net income -- -- -- -- 377,070 --
------------ ------------- -------------- --------------- ------------- -------------
Balance, December 31, 2002 $ 1,000 $ (6,319 ) $ 35,000,000 $ (15,226,493 ) $ 8,668,699 $ (4,190,000 )
============ ============= ============== =============== ============= =============
Total
-----------
$29,983,855
(2,800,000 )
1,117,197
-------------
28,301,052
(2,800,000 )
1,168,765
-------------
26,669,817
(2,800,000 )
377,070
-------------
$24,246,887
=============
See accompanying notes to financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2002 2001 2000
--------------- ---------------- ---------------
Cash Flows from Operating Activities:
Net income $ 377,070 $ 1,168,765 $ 1,117,197
--------------- ---------------- ---------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 379,016 376,679 395,565
Amortization of investment in direct
financing leases 29,295 41,450 70,178
Amortization 3,221 3,220 1,610
Provision for doubtful accounts -- -- (2,973 )
Equity in earnings of joint ventures net
of distributions 46,210 6,425 (15,599 )
Provision for write-down of assets 1,375,207 708,377 993,178
Loss (Gain) on sale of assets 26,189 (429,072 ) --
Decrease (increase) in receivables 9,204 (11,003 ) 32,552
Increase in accrued rental income (104,347 ) (218,691 ) (196,435 )
Decrease (increase) in other assets 6,225 6,983 (14,371 )
Increase (decrease) in accounts payable and
real estate taxes payable (88,803 ) 61,038 (40,947 )
Increase (decrease) in due to related parties (2,511 ) (32,908 ) 16,444
Increase (decrease) in rents paid in advance 24,399 3,967 (6,495 )
Increase in deferred rental income (318 ) (319 ) (39,853 )
--------------- ---------------- ---------------
Total adjustments 1,702,987 516,146 1,192,854
--------------- ---------------- ---------------
Net Cash Provided by operating activities 2,080,057 1,684,911 2,310,051
--------------- ---------------- ---------------
Cash Flows from Investing Activities:
Decrease (Increase) in restricted cash 1,663,401 (1,663,401 ) 688,997
Additions to real estate properties on
operating leases (2,090,604 ) -- --
Proceeds from sale of assets 1,565,681 4,291,443 --
Investment in joint ventures (215,191 ) (1,766,420 ) (1,001,558 )
--------------- ---------------- ---------------
Net cash provided by (used in) investing
activities 923,287 861,622 (312,561 )
--------------- ---------------- ---------------
Cash Flows from Financing Activities:
Proceeds from loans from corporate general partner 875,000 75,000 --
Repayment of loans from corporate general partner (875,000 ) (75,000 ) --
Distributions to limited partners (2,800,000 ) (2,800,000 ) (2,800,000 )
--------------- ---------------- ---------------
Net cash used in financing activities (2,800,000 ) (2,800,000 ) (2,800,000 )
--------------- ---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents 203,344 (253,467 ) (802,510 )
Cash and Cash Equivalents at Beginning of Year 226,136 479,603 1,282,113
--------------- ---------------- ---------------
Cash and Cash Equivalents at End of Year $ 429,480 $ 226,136 $ 479,603
=============== ================ ===============
See accompanying notes to financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2002 2001 2000
--------------- ---------------- ---------------
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, 2002, 2001, and 2000
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 real estate properties at cost, including acquisition
and closing costs. Real estate properties are leased to third parties
generally on a triple-net basis, whereby the tenant is generally
responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance and repairs. During
the years ended December 31, 2002, 2001, and 2000, tenants paid
directly to real estate taxing authorities approximately $382,200,
$364,000, and $338,600, respectively, in real estate taxes in
accordance with the terms of their triple net leases with the
Partnership.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met. The leases are accounted for using the direct
financing or operating methods. Such methods are described below:
Direct financing method - Leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset). Unearned income is deferred and amortized
to income over the lease terms so as to produce a constant
periodic rate of return on the Partnership's net investment in
the 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.
Operating method - Real estate property leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals (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, 2002, 2001, and 2000
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.
The leases have initial terms of 15 to 20 years and the majority of the
leases provide for minimum and contingent rentals. 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.
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.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision is made to increase the
allowance for doubtful accounts. If amounts are subsequently determined
to be uncollectible, the corresponding receivable and allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in
Columbus Joint Venture, CNL Portsmouth Joint Venture and TGIF
Pittsburgh Joint Venture and the properties in Denver, Colorado and
Austin, Texas, for which each property is held as tenants-in-common,
are accounted for using the equity method since each joint venture
agreement requires the consent of all partners on all key decisions
affecting the operations of the underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (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.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs represent a reduction
of Partnership equity and a reduction in the basis of each partner's
investment.
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. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2002 presentation,
including a change in presentation of the statement of cash flows from
the direct to the indirect method. These reclassifications had no
effect on total partners' capital, net income or cash flows.
Statement of Financial Accounting Standards No. 144 ("FAS 144") -
Effective January 1, 2002, the Partnership adopted Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment
or Disposal of Long-Lived Assets." This statement requires that a
long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
FASB Interpretation No. 46 ("FIN 46") - In January 2003, FASB issued
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting
guidance that addresses when a company should include the assets,
liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with
variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be considered by a company if
that company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. Consolidation of
variable interests entities will provide more complete information
about the resources, obligations, risks and opportunities of the
consolidated company. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31,
2003, and to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Management believes adoption of this
standard may result in either consolidation or additional disclosure
requirements with respect to the Partnership's unconsolidated joint
ventures or properties held with affiliates of the general partners as
tenants-in-common, which are currently accounted for under the equity
method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
2. Real Estate Properties with Operating Leases:
--------------------------------------------
Real estate properties with operating leases consisted of the following
at December 31:
2002 2001
-------------------- ------------------
Land $ 9,247,191 $ 8,637,251
Buildings 11,382,933 10,277,152
-------------------- ------------------
20,630,124 18,914,403
Less accumulated depreciation (1,755,974 ) (1,419,868 )
-------------------- ------------------
$ 18,874,150 $ 17,494,535
==================== ==================
During 2001, the Partnership sold its properties in Timonium, Maryland;
Henderson, Nevada; and Santa Rosa, California, each to a third party.
In previous years, the Partnership had recorded a provision for
write-down of assets relating to the Timonium, Maryland property. The
Partnership received total net sales proceeds of approximately
$3,791,400, resulting in a net gain of approximately $429,100. In July
2001, the Partnership reinvested the majority of the sales proceeds
from the Timonium and Henderson properties in a property in Denver,
Colorado, as tenants-in-common, with CNL Income Fund VIII, Ltd., an
affiliate of the general partners. In January 2002, the Partnership
reinvested a portion of the sales proceeds from the Santa Rosa property
in a Austin, Texas property, with CNL Income Fund X, Ltd., an affiliate
of the general partners. The remaining net sales proceeds from the
Santa Rosa property were used to acquire a property in Houston, Texas
at an approximate cost of $1,194,100. The Partnership acquired these
two properties from CNL Funding 2001-A, LP, an affiliate of the general
partners.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
2. Real Estate Properties with Operating Leases - Continued:
--------------------------------------------------------
During the year ended December 31, 2001, the Partnership recorded a
provision for write-down of assets of approximately $321,200 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 net carrying value of the property at December
31, 2001 and its estimated fair value. In May 2002, the Partnership
sold this property to a third party and received net sales proceeds of
approximately $470,300, resulting in an additional loss of
approximately $25,700. As of December 31, 2001, the Partnership had
identified this property for sale. In June 2002, the Partnership
reinvested the net sales proceeds from this sale, along with the
proceeds from the sale of the Boston Market property in San Antonio,
Texas, in another property in San Antonio, Texas, at an approximate
cost of $896,500. The Partnership acquired this property from CNL
Funding 2001-A, LP, an affiliate of the general partners.
During the year ended December 31, 2002, the Partnership recorded a
provision for write-down of assets of approximately $428,200 relating
to the property in Stow, Ohio. The provision represented the difference
between the net carrying value of the property at December 31, 2002 and
its estimated fair value.
The following is a schedule of the future minimum lease payments to be
received on the noncancellable operating leases at December 31, 2002:
2003 $ 2,091,437
2004 2,101,449
2005 2,101,449
2006 2,101,449
2007 2,147,822
Thereafter 16,826,795
----------------
$ 27,370,401
================
3. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2002 2001
----------------- -----------------
Minimum lease payments
receivable $ 4,152,883 $ 5,823,294
Estimated residual values 1,054,369 1,205,840
Less unearned income (3,142,994 ) (3,884,036 )
----------------- -----------------
Net investment in direct
financing leases $ 2,064,258 $ 3,145,098
================= =================
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.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
3. Net Investment in Direct Financing Leases - Continued:
-----------------------------------------------------
During the year ended December 31, 2002, the Partnership recorded a
provision for write-down of assets of approximately $624,600 relating
to the property in Stow, Ohio. The provision represented the difference
between the net carrying value of the property at December 31, 2002 and
its estimated fair value.
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2002:
2003 $ 314,868
2004 314,868
2005 314,868
2006 314,868
2007 321,472
Thereafter 2,571,939
----------------
$ 4,152,883
================
4. Investment in Joint Ventures:
----------------------------
The Partnership has a 39.93% and a 57.2% interest in the profits and
losses of Columbus Joint Venture and CNL Portsmouth Joint Venture,
respectively. The remaining interests in these joint ventures are held
by affiliates of the Partnership which have the same general partners.
As of December 31, 2000, the Partnership owned a 39.5% interest in the
profits and losses of TGIF Pittsburgh Joint Venture. In January 2001,
the Partnership sold a portion of its interest in this 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, 2002, the Partnership had a remaining 19.78% interest in
this joint venture. The remaining interests in this joint venture are
held by affiliates of the Partnership which have the same general
partners.
In July 2001, the Partnership reinvested the sales proceeds it received
from the 2001 sale of property in Henderson, Nevada, in a property in
Denver, Colorado, as tenants-in-common, with CNL Income Fund VIII,
Ltd., an affiliate of the general partners. The Partnership and CNL
Income Fund VIII, Ltd. entered into an agreement whereby each
co-venturer will share in the profits and losses of the property in
proportion to its applicable percentage interest in the property. As of
December 31, 2002, the Partnership had contributed approximately
$1,766,400 for an 80.7% interest in the profits and losses of the
property.
In January 2002, the Partnership reinvested a portion of the net 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., an affiliate of the general partners. The Partnership
acquired this property from CNL Funding 2001-A, LP, an affiliate of the
general partners. The Partnership and CNL Income Fund X, Ltd. entered
into an agreement whereby each co-venturer will share in the profits
and losses of the property in proportion to its applicable percentage
interest in the property. As of December 31, 2002, the Partnership had
contributed approximately $205,700 for an 18.35% interest in this
property.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures - Continued:
----------------------------------------
As of December 31, 2002, Columbus Joint Venture, CNL Portsmouth Joint
Venture, and TFIG Pittsburgh Joint Venture each owned and leased one
property to operators of fast-food or family-style restaurants. In
addition, as of December 31, 2002, the Partnership had entered into two
separate tenancy-in-common arrangements, in each case with an affiliate
of the general partners, each of which owned and leased one property to
operators of fast-food or family-style restaurants. The following
presents the combined, condensed financial information for these joint
ventures and tenancy in common arrangements at:
December 31, December 31,
2002 2001
---------------- ----------------
Real estate properties on operating
leases, net $ 6,729,458 $ 5,731,159
Net investment in direct financing
lease 308,883 313,339
Cash 5,795 22,034
Accrued rental income 212,472 125,874
Accounts receivable -- 8,368
Other assets 122 1,116
Liabilities 11,583 12,335
Partners' Capital 7,245,147 6,189,555
Year Ended December 31,
------------------------------------------------
2002 2001 2000
--------------- ------------- ---------------
Revenues $ 827,363 $ 580,528 $ 306,267
Expenses (138,076 ) (95,310 ) (49,302 )
--------------- ------------- ---------------
Net Income $ 689,287 $ 485,218 $ 256,965
=============== ============= ===============
The Partnership recognized income of $308,632, $197,013 and $112,863
during the years ended December 31, 2002, 2001 and 2000, respectively,
from these joint ventures and tenancy in common arrangements.
5. 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.,
an affiliate of the general partners.
6. 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. However, for any particular year, the five
percent of net cash flow to be distributed to the general partners was
subordinated to receipt by the limited partners in that year of an
eight percent
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
6. Allocations and Distributions - Continued:
-----------------------------------------
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 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 during the years ended December 31, 2002, 2001, and
2000.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
6. Allocations and Distributions - Continued:
-----------------------------------------
During each of the years ended December 31, 2002, 2001 and 2000, the
Partnership declared distributions to the limited partners of
$2,800,000. No distributions have been made to the general partners to
date.
7. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2002 2001 2000
-------------- -------------- ---------------
Net income for financial reporting purposes $ 377,070 $ 1,168,765 $ 1,117,197
Effect of timing differences relating to
depreciation 39,094 (2,398 ) 2,804
Effect of timing differences relating to
amortization (2,744 ) (5,249 ) (7,088 )
Effect of timing differences relating to equity
in earnings of joint venture (28,678 ) (20,397 ) (16,905 )
Provision for write-down of assets 1,375,207 708,377 993,178
Direct financing leases recorded as operating
leases for tax reporting purposes 29,295 41,450 70,178
Deduction of transaction costs for tax
reporting purposes -- -- (89,716 )
Effect of timing differences relating to
provision for doubtful accounts 29,027 (48,792 ) 112,821
Effect of timing differences relating to
gains/losses on sales of red estate properties (1,373,802 ) (742,359 ) --
Accrued rental income (96,988 ) (169,007 ) (196,435 )
Legal settlement charge on appeal (85,410 ) 85,410 --
Deferred rental income (7,677 ) (50,166 ) (39,853 )
Rents paid in advance 24,399 3,967 (6,495 )
Other -- 165 --
-------------- -------------- ---------------
Net income for federal income tax purposes $ 278,793 $ 969,766 $ 1,939,686
============== ============== ===============
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
8. Discontinued Operations:
During 2002, the Partnership entered into two separate agreements, each
with a third party to sell the Boston Market properties in San Antonio,
Texas and Raleigh, North Carolina. In May and August 2002, the
Partnership sold these properties and received net sales proceeds of
approximately $1,095,400. No gains on losses were recorded on the sales
because the Partnership had recorded a provision for write-down of
assets of $322,472 during prior quarters of 2002 for the property in
Raleigh, North Carolina. The Partnership had also recorded provisions
for write-down of assets in previous years, including approximately
$387,100 and $36,900 during the years ended December 31, 2001, and
2000, respectively, relating to the property in San Antonio, Texas and
approximately $320,600 during the year ended December 31, 2000,
relating to the property in Raleigh, North Carolina. The financial
results for these properties are reflected as Discontinued Operations
in the accompanying financial statements.
The operating results of the discontinued operations for the above
properties are as follows:
Year Ended December 31,
2002 2001 2000
--------------- ------------- ---------------
Rental revenues $ -- $ 500 $ 178,670
Lease termination income -- -- 100,000
Expenses (31,172 ) (61,069 ) (49,304 )
Provision for write-down of assets (322,472 ) (387,138 ) (357,563 )
--------------- ------------- ---------------
Loss from discontinued operations $ (353,644 ) $ (447,707 ) $ (128,197 )
=============== ============= ===============
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, a wholly owned subsidiary of CNL American
Properties Fund, Inc. ("APF") served as the Partnership's advisor until
January 1, 2002, when it assigned its rights and obligations under a
management agreement to RAI Restaurants, Inc. (formerly known as CNL
Restaurants XVIII, Inc.). RAI Restaurants, Inc. ("the Advisor") is a
wholly owned subsidiary of APF. The individual general partners are
stockholders and directors of APF.
The Advisor provides services 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.
Any portion of the management fee not paid is deferred without
interest. For the years ended December 31, 2002, 2001 and 2000, the
Partnership incurred $25,379, $24,943, and $27,875, respectively, for
such management fees.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
9. Related Party Transactions - Continued:
--------------------------------------
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.
During the years ended December 31, 2002, 2001, and 2000, 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). For the
years ended December 31, 2002, 2001, and 2000, the Partnership incurred
$142,170, $207,702, and $92,444, respectively, for such expenses.
During 2002, the Partnership acquired a property in Houston, Texas, and
a property in San Antonio, Texas from CNL Funding 2001-A, LP. In
addition, in January 2002, the Partnership and CNL Income Fund X, Ltd,
as tenants-in-common, acquired a property in Austin, Texas, from CNL
Funding 2001-A, LP. CNL Funding 2001-A, LP is an affiliate of the
general partners. CNL Funding 2001-A, LP had purchased and temporarily
held title to the properties in order to facilitate the acquisition of
the properties by the Partnership. The purchase price paid by the
Partnership represented the costs incurred by CNL Funding 2001-A, LP to
acquire the properties.
The amounts due to related parties at December 31, 2002 and 2001,
totaled $17,762 and $20,273, respectively.
10. Concentration of Credit Risk:
----------------------------
The following schedule presents rental revenues (including the
Partnership's share of rental revenues from joint ventures and
properties held with affiliates as tenants-in common) from individual
lessees, each representing more than ten percent of the Partnership's
rental revenues for each of the years ended December 31:
2002 2001 2000
---------------- ---------------- ---------------
Golden Corral Corporation $ 657,612 $ 657,612 $ 657,612
Metromedia Restaurant
Group (S&A Properties
Corporation and Steak
and Ale of Colorado,
Inc.) 450,090 332,616 N/A
Jack in the Box Inc. 385,436 492,127 509,456
Chevy's, Inc. 268,786 N/A N/A
IHOP Properties, Inc. N/A 280,171 N/A
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
10. Concentration of Credit Risk - Continued:
----------------------------------------
In addition, the following schedule presents rental revenues (including
the Partnership's share of rental revenues from joint ventures and
properties held with affiliates as tenants-in-common) from individual
restaurant chains, each representing more than ten percent of the
Partnership's rental revenues for each of the years ended December 31:
2002 2001 2000
---------------- ---------------- ---------------
Golden Corral $ 657,612 $ 657,612 $ 657,612
Bennigan's 450,090 332,616 N/A
Jack in the Box 385,436 492,127 509,456
Chevy's 268,786 N/A N/A
IHOP N/A 280,171 N/A
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 revenues.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any 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.
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
during the year ended December 31, 2001. A motion for reconsideration
and a new trial was filed and denied. The Partnership and DJD Partners
VII, LLC have certain unresolved legal issues relating to this
property. Among other things, DJD Partners VII, LLC claims to have a
right to repurchase the property for an unlimited duration, which may
prevent the Partnership from selling or re-leasing the property.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
12. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2002 and
2001.
2002 Quarter First Second Third Fourth Year
--------------------------------- ------------ -------------- ------------ ------------- -------------
Continuing Operations (1):
Revenues $ 589,354 $ 558,658 $ 587,711 $ 553,309 $2,289,032
Equity in earnings of joint
ventures 77,766 78,055 77,652 75,159 308,632
Income (Loss) from
continuing operations (2) 432,534 433,637 498,426 (633,883 ) 730,714
Discontinued Operations (1):
Revenues -- -- -- -- --
Loss from discontinued
Operations (7,077 ) (338,074 ) (7,363 ) (1,130 ) (353,644 )
Net Income (Loss) 425,457 95,563 491,063 (635,013 ) 377,070
Net Income (Loss) per limited partner unit:
Continuing operations $ 0.12 $ 0.12 $ 0.14 $ (0.17 ) $ 0.21
Discontinued operations -- (0.09 ) -- (0.01 ) (0.10 )
------------ -------------- ------------ ------------- -------------
Total $ 0.12 $ 0.03 $ 0.14 $ (0.18 ) $ 0.11
============ ============== ============ ============= =============
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
12. Selected Quarterly Financial Data - Continued:
---------------------------------------------
2001 Quarter First Second Third Fourth Year
-------------------------------- ------------- -------------- ------------ ------------- -------------
Continuing Operations (1):
Revenues $ 625,609 $ 628,536 $ 641,070 $ 588,555 $2,483,770
Equity in earnings of
joint ventures 29,039 28,542 65,191 74,241 197,013
Income from continuing
operations 220,292 183,177 501,801 711,202 1,616,472
Discontinued Operations (1):
Revenues -- -- -- 500 500
Loss from discontinued
operations (16,420 ) (404,401 ) (24,180 ) (2,706 ) (447,707 )
Net Income (Loss) 203,872 (221,224 ) 477,621 708,496 1,168,765
Net Income (Loss) per limited partner unit:
Continuing operations $ 0.06 $ 0.05 $ 0.15 $ 0.19 $ 0.45
Discontinued operations -- (0.11 ) (0.01 ) -- (0.12 )
------------- -------------- ------------ ------------- -------------
Total $ 0.06 $ (0.06 ) $ 0.14 $ 0.19 $ 0.33
============= ============== ============ ============= =============
(1) Certain items in the quarterly financial data have been reclassified to
conform to the 2002 presentation. These reclassifications had no effect
on net income. The results of operations relating to properties that
were either disposed of or were classified as held for sale as of
December 31, 2002 are reported as discontinued operations for all
periods presented. The results of operations relating to properties
that were identified for sale as of December 31, 2001 but sold
subsequently are reported as continuing operations.
(2) In December 2002, the Partnership recorded a provision for write-down
of assets of approximately $1,052,700 relating to the property in Stow,
Ohio. The tenant of this property experienced financial difficulties
and during the fourth quarter of 2002 stopped paying rents. The
provision represented the difference between the net carrying value of
the property at December 31, 2002 and its estimated fair value.
13. Subsequent Event:
----------------
In January 2003, the Partnership entered into a promissory note with
the Corporate General Partner for a loan in the amount of $200,000 in
connection with the operations of the Partnership. The loan is
uncollateralized, non-interest bearing and due on demand. As of March
10, 2003, 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 American Properties Fund, Inc. ("APF"), 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 56. 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 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. (formerly CNL 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., all
of which are engaged in the business of real estate finance. 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, an independent,
state-chartered commercial bank. Mr. Seneff previously served on the Florida
State Commission on Ethics and is a former member and past Chairman of the State
of Florida Investment Advisory Council, which recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration, Florida's principal investment advisory and
money management agency, oversees the investment of 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 55. 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 a
Director 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, and Treasurer , and from 1997 until June 2002 served as President, of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust;
as well as, Director, Vice Chairman of the Board, and Treasurer, and from 1997
until June 2002 served as President, of CNL Hospitality Corp., its advisor. In
addition, Mr. Bourne serves as Director, Vice Chairman of the Board, and
Treasurer, and from 1997 until June 2002 served as President, of CNL Retirement
Properties, Inc., a public, unlisted real estate investment trust; as well as, a
Director, Vice Chairman of the Board, and Treasurer, and from 1997 until June
2002 served as President, 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 47. 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., a
corporation engaged in the business of real estate financing, 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 39. 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.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the General Partners, the
officers of the corporate General Partner, and persons who own more than ten
percent of a registered class of the Partnership's equity securities
(collectively, the "Reporting Persons"), to file reports of ownership and
changes in ownership on Forms 3, 4 and 5 with the SEC. Reporting Persons are
required by SEC regulation to furnish the Partnership with copies of all Forms
3, 4 and 5 that they file.
Based solely on the General Partners' review of the copies of such
forms the Partnership has received and written representations from certain
Reporting Persons that they were not required to file Forms 5 for the last
fiscal year, the General Partners believe that all Reporting Persons complied
with all filing requirements applicable to them with respect to transactions
during fiscal 2002.
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 10, 2003, 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 10, 2003, 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 1,250 Units 0.04%
----------
0.04%
==========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
The Partnership does not have any equity compensation plans.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2002, 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, 2002
- --------------------------------- -------------------------------------- ------------------------------
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 $142,170
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 $25,379
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, 2002
- --------------------------------- -------------------------------------- ------------------------------
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.
During 2002, the Partnership acquired a Property in Houston, Texas, and a
Property in San Antonio, Texas from CNL Funding 2001-A, LP. In addition, in
January 2002, the Partnership and CNL Income Fund X, Ltd, as tenants-in-common,
acquired a Property in Austin, Texas, from CNL Funding 2001-A, LP. CNL Funding
2001-A, LP is an affiliate of the General Partners. CNL Funding 2001-A, LP had
purchased and temporarily held title to the Properties in order to facilitate
the acquisition of the Properties by the Partnership and the affiliate. The
purchase price paid by the Partnership and the affiliate represented the costs
incurred by CNL Funding 2001-A, LP to acquire the Properties.
Item 14. Controls and Procedures
The General Partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate General Partner have evaluated the
Partnership's disclosure controls and procedures within 90 days prior to the
filing of this Annual Report on Form 10-K and have determined that such
disclosure controls and procedures are effective.
Subsequent to the above evaluation, there were no significant changes
in internal controls or other factors that could significantly affect these
controls, including any corrective actions with regard to significant
deficiencies and material weaknesses.
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2002 and 2001
Statements of Income for the years ended December 31, 2002, 2001, and 2000
Statements of Partners' Capital for the years ended December 31, 2002, 2001, and 2000
Statements of Cash Flows for the years ended December 31, 2002, 2001, and 2000
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2002, 2001, and 2000
Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002
Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 2002
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 Assignment of Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and incorporated
herein by reference.)
**10.4 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.)
**10.5 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.)
**10.6 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.)
**10.7 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.)
**10.8 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.)
**10.9 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.)
**10.10 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.)
**10.11 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.)
**10.12 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.)
**10.13 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.)
**10.14 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.)
**10.15 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.)
99.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period
October 1, 2002 through December 31, 2002.
(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,
2002. 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 28th day of
March, 2003.
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 28, 2003
- ------------------------------------ (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 28, 2003
- ------------------------------------ (Principal Executive Officer)
James M. Seneff, Jr.
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty
Corporation, the corporate general partner of CNL Income Fund XVIII, Ltd. (the
"registrant"), certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ James M. Seneff, Jr.
- ---------------------------
James M. Seneff, Jr.
Chief Executive Officer
CERTIFICATION OF CHIEF FINANCIAL OFFICER
OF CORPORATE GENERAL PARTNER
PURSUANT TO RULE 13a-14 AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Robert A. Bourne, President and Treasurer of CNL Realty Corporation,
the corporate general partner of CNL Income Fund XVIII, Ltd. (the "registrant")
certify that:
1. I have reviewed this annual report on Form 10-K of the registrant;
2. Based on my knowledge, this annual report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this annual report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and have:
a. designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during
the period in which this annual report is being prepared;
b. evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this annual report (the "Evaluation
Date"); and
c. presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent functions):
a. all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this annual report whether or not there were significant changes in
internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: March 28, 2003
/s/ Robert A. Bourne
- ---------------------------
Robert A. Bourne
President and Treasurer
EXHIBIT INDEX
Exhibit Number
(a) 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 Assignment of Management Agreement from CNL APF Partners, LP
to CNL Restaurants XVIII, Inc. (Included as Exhibit 10.3 to
Form 10-Q filed with the Securities and Exchange Commission
on August 13, 2002, and incorporated herein by reference.)
**10.4 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.)
**10.5 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.)
**10.6 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.)
**10.7 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.)
**10.8 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.)
**10.9 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.)
**10.10 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.)
**10.11 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.)
**10.12 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.)
**10.13 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.)
**10.14 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.)
**10.15 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.)
99.1 Certification of Chief Executive Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(Filed herewith.)
99.2 Certification of Chief Financial Officer of Corporate General
Partner Pursuant to 18 U.S.C. Section 1350 as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(Filed herewith.)
**previously filed
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2002, 2001, and 2000
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
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
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
============== =============== ================ ============= ============ ============
2002 Allowance for
doubtful
accounts (a) $ 75,201 $ -- $ 104,228 (b) $ 75,201 (c) $ -- $ 104,228
============== =============== ================ ============= ============ ============
(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, 2002
Costs Capitalized
Subsequent To
Initial Cost Acquisition
---------------------- ------------------
Encum- Buildings anImprove- Carrying
brances Land Improvementsments Costs
--------- ---------- --------------------- -------
Properties the Partnership
has Invested in Under
Operating Leases:
Arby's Restaurant:
Lexington, North Caro-ina (m) $210,977 - $426,982 -
Bennigan's Restaurant:
Sunrise, Florida - 1,147,704 925,086 - -
Boston Market Restaurants:
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- 674,648 - 659,359 -
Houston, Texas - 778,707 - 589,840 -
NI's Interational Buffet
Restaurant:
Stow, Ohio (l) - 489,799 - - -
Taco Cabana Restaurants:
Houston, Texas (n) - 524,910 669,154 - -
San Antonio, Texas (n- 352,699 543,841 - -
Wendy's Restaurant:
Sparta, Tennessee - 221,537 - 432,842 -
---------- ---------- --------- -------
$9,686,533 $4,982,760 $6,425,965 -
========== ========== ========= =======
Costs Capitalized
Subsequent To
Initial Cost Acquisition
---------------------- ------------------
Encum- Buildings anImprove- Carrying
brances Land Improvementsments Costs
--------- ---------- --------------------- -------
Properties the Partnership
Invested in Under
Direct Financing Leases:
IHOP Restaurants:
Bridgeview, Illinoi- 354,227 1,151,199 - -
NI's Interational Buffet
Restaurant:
Stow, Ohio (l) - - 1,280,986 - -
--------- -------
---------- ----------
$354,227 $2,432,185 - -
========== ========== ========= =======
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 in Which the Partnertship
has a 80.70% Interest
as Tenant-in-Common
and has Invested
in Under an Operating Lease:
Bennigan's
Denver, Colorado - $802,413 $1,398,252 - -
========== ========== ========= =======
Property in Which the Partnertship
has a 18.35% Interest
as Tenant-in-Common
and has Invested
in Under an Operating Lease:
Taco Cabana Restaurant:
Austin, Texas (o) - $486,896 $633,951 - -
========== ========== ========= =======
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 - -
========== ========== ========= =======
Life on Which
Net Amount at Which Depreciation in
Carried at Close of Period (c) Date Latest Income
- -------------------------------------
Buildings and Accumulatedof Con- Date Statement is
Land Improvements Total DepreciatiostructioAcquired Computed
- ------------ ----------------------- ----------------------------------------
$210,977 $426,982 $637,959 $11,314 1997 07/97 (m)
1,147,704 925,086 2,072,790 140,030 1982 06/98 (b)
403,092 - 403,092 - 1997 04/97
262,498 663,421 925,919 132,884 1994 12/96 (b)
1,029,236 1,598,376 2,627,612 266,503 1994 12/97 (b)
889,003 844,282 1,733,285 161,802 1997 12/96 (b)
687,946 836,386 1,524,332 156,633 1997 01/97 (b)
488,945 1,045,207 1,534,152 181,014 1997 05/97 (b)
565,354 1,022,196 1,587,550 166,924 1997 09/97 (b)
525,891 582,882 1,108,773 100,990 1981 10/97 (b)
261,913 543,079 804,992 103,157 1997 01/97 (b)
674,648 659,359 1,334,007 121,110 1997 01/97 (b)
778,707 589,840 1,368,547 103,648 1997 05/97 (b)
222,131 (f) 222,131 - 1997 04/97 (d)
524,910 $669,154 1,194,064 22,305 1990 1/02 (b)
352,699 $543,841 896,540 10,575 1994 6/02 (b)
221,537 432,842 654,379 77,085 1997 04/97 (b)
- ------------ ----------- ----------- -----------
$9,247,191 $11,382,933 $20,630,124 $1,755,974
============ =========== =========== ==========
Life on Which
Net Cost Basis at Which Depreciation in
Carried at Close of Period (c) Date Latest Income
- -------------------------------------
Buildings and Accumulatedof Con- Date Statement is
Land Improvements Total DepreciatiostructioAcquired Computed
- ------------ ----------------------- ----------------------------------------
(f) (f) (f) (e) 1972 07/97 (e)
- 656,426 656,426 (d) 1997 04/97 (d)
$407,096 $498,684 $905,780 $67,184 1998 08/98 (b)
============ =========== =========== ==========
$254,046 (g) $254,046 (d) 1997 02/99 (d)
============ ===========
$1,036,296 $1,499,296 $2,535,592 $129,244 2000 06/00 (b)
============ =========== =========== ==========
$802,413 $1,398,252 $2,200,665 $69,912 2001 07/01 (b)
============ =========== =========== ==========
$486,896 $633,951 $1,120,847 $21,132 1997 1/02 (b)
============ =========== =========== ==========
- (g) (g) (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, 2002
(a) Transactions in real estate and accumulated depreciation are summarized
below. The balances in 1999, 2000, and 2001 have been adjusted to
reflect the reclassification of properties accounted for as
discontinued operations.
Accumulated
Cost Depreciation
---------------- -------------------
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 1999 $ 21,212,139 $ 823,497
Reclassified from net investment in direct
financing lease (j) 855,436 --
Provision for write-down of assets (k) (280,372 ) --
Depreciation expense -- 368,141
---------------- -----------------
Balance, December 31, 2000 21,787,203 1,191,638
Provision for write-down of assets (j) (321,239 ) --
Disposition (2,551,561 ) (132,780 )
Depreciation expense -- 361,010
---------------- -----------------
Balance, December 31, 2001 18,914,403 1,419,868
Acquisitions (n) 2,090,604 --
Reclassified from net investment in direct
financing lease (m) 426,982 --
Provision for write-down of assets (l) (267,668 ) --
Disposition (534,197 ) (38,198 )
Depreciation expense -- 374,304
---------------- -----------------
Balance, December 31, 2002 $ 20,630,124 $ 1,755,974
================ =================
Property of Joint Venture in Which the Partnership has a 39.93%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1999 $ 905,780 $ 17,315
Depreciation expense -- 16,623
---------------- -----------------
Balance, December 31, 2000 905,780 33,938
Depreciation expense -- 16,623
---------------- -----------------
Balance, December 31, 2001 905,780 50,561
Depreciation expense -- 16,623
---------------- -----------------
Balance, December 31, 2002 $ 905,780 $ 67,184
================ =================
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
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, 1999 $ 254,046 $ --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2000 254,046 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2001 254,046 --
Depreciation expense (d) -- --
---------------- -----------------
Balance, December 31, 2002 $ 254,046 $ --
================ =================
Property of Joint Venture in Which the Partnership has a 19.78%
Interest and has Invested 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
Depreciation expense -- 49,977
---------------- -----------------
Balance, December 31, 2002 $ 2,535,592 $ 129,244
================ =================
Property in Which the Partnership has an 80.70% Interest as
Tenants-in Common and has Invested Under an Operating Lease:
Balance, December 31, 2000 $ -- $ --
Acquisition 2,188,873 --
Depreciation expense -- 23,304
---------------- -----------------
Balance, December 31, 2001 2,188,873 23,304
Acquisition 11,792 --
Depreciation expense -- 46,609
---------------- -----------------
Balance, December 31, 2002 $ 2,200,665 $ 69,913
================ =================
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
Accumulated
Cost Depreciation
---------------- -----------------
Property in Which the Partnership has an 18.35% Interest as
Tenants-in Common and has Invested Under an Operating Lease:
Balance, December 31, 2001 $ -- $ --
Acquisitions 1,120,847 --
Depreciation expense (o) -- 21,131
---------------- -----------------
Balance, December 31, 2002 $ 1,120,847 $ 21,131
================ =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2002, the aggregate cost of the Properties owned by
the Partnership and the joint ventures for federal income tax purposes
was $21,723,728 and $7,337,654, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
(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 net carrying value at December 31, 1998, and its estimated
fair value. 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 impairments have been recorded.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2002
(j) For financial reporting purposes, during 2000, the undepreciated cost
of the Property in San Antonio, Texas, was written down to its fair
value due to an impairment in value. The Partnership recognized the
impairment by recording a provision for write-down of assets in the
amount of $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 net carrying value and its estimated fair value.
The Property was sold in during 2002.
(k) For financial reporting purposes, the undepreciated cost of the
Property in Timonium, Maryland, 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 $280,372 at December 31, 2000. The impairment represented the
difference between the Property's net carrying value at December 31,
2000 and its estimated fair value. The Property was sold during 2001.
(l) For financial reporting purposes, the undepreciated cost of the
Property in Stow, Ohio, 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
approximately $892,200 at December 31, 2002. The impairment represented
the difference between the Property's net carrying value at December
31, 2002 and its estimated fair value. The cost of the Property
presented on this schedule is the net amount at which the Property was
carried at December 31, 2002, including the provision for write-down of
assets.
(m) Effective May 2002, the lease for this Property was amended, resulting
in the reclassification of the building portion of the lease to an
operating lease. The building was recorded at the net book value and
depreciated over its remaining life of approximately 25.16 years.
(n) During the year ended December 31, 2002, the Partnership purchased real
estate Properties from CNL Funding 2001-A, LP, an affiliate of the
General Partners, for an aggregate cost of approximately $2,090,600.
(o) During the year ended December 31, 2002, the Partnership, and an
affiliate as tenant-in-common, purchased a real estate property from
CNL Funding 2001-A, LP, an affiliate of the General Partners, for an
aggregate cost of approximately $1,120,800.
EXHIBIT 99.1
EXHIBIT 99.2