FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended September 30, 2003
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _____________________ to _____________________
Commission file number
0-24095
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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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ____
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act): Yes___ No X
CONTENTS
Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-12
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 12
Item 4. Controls and Procedures 12
Part II
Other Information 13-15
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
2003 2002
------------------ ------------------
ASSETS
Real estate properties with operating leases, net $ 17,192,450 $ 17,453,524
Net investment in direct financing leases 2,035,596 2,064,258
Real estate held for sale -- 1,420,626
Investment in joint ventures 3,171,845 3,185,337
Cash and cash equivalents 1,776,856 429,481
Receivables, less allowance for doubtful
accounts of $213,602 and $104,228, respectively 446 945
Accrued rental income 493,315 456,857
Other assets 19,504 10,504
------------------ ------------------
$ 24,690,012 $ 25,021,532
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 8,399 $ 4,178
Real estate taxes payable 6,620 12,204
Distributions payable 700,000 700,000
Due to related parties 71,203 17,762
Rents paid in advance 38,363 35,840
Deferred rental income 4,420 4,661
------------------ ------------------
Total liabilities 829,005 774,645
Partners' capital 23,861,007 24,246,887
------------------ ------------------
$ 24,690,012 $ 25,021,532
================== ==================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------------ -------------- -------------- --------------
Revenues:
Rental income from operating leases $ 486,773 $ 490,913 $ 1,452,771 $ 1,415,487
Earned income from direct financing leases 50,630 53,953 133,764 192,791
Interest and other income 3,536 1,769 10,406 4,219
------------ -------------- -------------- --------------
540,939 546,635 1,596,941 1,612,497
------------ -------------- -------------- --------------
Expenses:
General operating and administrative 38,403 42,672 132,975 155,144
Property related 16,035 13,574 40,455 122,544
Management fees to related parties 6,223 5,158 19,067 18,403
State and other taxes 100 -- 7,525 8,727
Depreciation and amortization 87,826 97,034 263,484 248,551
------------ -------------- -------------- --------------
148,587 158,438 463,506 553,369
------------ -------------- -------------- --------------
Income Before Loss on Sale of Assets and Equity
in Earnings of Joint Ventures 392,352 388,197 1,133,435 1,059,128
Loss on Sale of Assets -- -- -- (25,694 )
Equity in Earnings of Joint Ventures 75,560 77,652 230,872 233,473
------------ -------------- -------------- --------------
Income from Continuing Operations 467,912 465,849 1,364,307 1,266,907
------------ -------------- -------------- --------------
Discontinued Operations:
Income (Loss) from discontinued operations -- 25,214 75,937 (254,824 )
Gain on disposal of discontinued operations -- -- 273,876 --
------------ -------------- -------------- --------------
-- 25,214 349,813 (254,824 )
------------ -------------- -------------- --------------
Net Income $ 467,912 $ 491,063 $ 1,714,120 $ 1,012,083
============ ============== ============== ==============
Income (Loss) Per Limited Partner Unit:
Continuing operations $ 0.13 $ 0.13 $ 0.39 $ 0.36
Discontinued operations -- 0.01 0.10 (0.07 )
------------ -------------- -------------- --------------
$ 0.13 $ 0.14 $ 0.49 $ 0.29
============ ============== ============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 3,500,000 3,500,000 3,500,000 3,500,000
============ ============== ============== ==============
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
2003 2002
--------------------- -------------------
General partners:
Beginning balance $ (5,319 ) $ (5,319 )
Net income -- --
--------------------- -------------------
(5,319 ) (5,319 )
--------------------- -------------------
Limited partners:
Beginning balance 24,252,206 26,675,136
Net income 1,714,120 377,070
Distributions ($0.60 and $0.80 per
limited partner unit, respectively) (2,100,000 ) (2,800,000 )
--------------------- -------------------
23,866,326 24,252,206
--------------------- -------------------
Total partners' capital $ 23,861,007 $ 24,246,887
===================== ===================
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2003 2002
--------------- --------------
Net Cash Provided by Operating Activities $ 1,704,549 $ 1,591,031
--------------- --------------
Cash Flows from Investing Activities:
Decrease in restricted cash -- 1,663,401
Addition to real estate properties with operating leases -- (2,090,604 )
Proceeds from sale of assets 1,742,826 1,565,681
Investment in joint ventures -- (215,191 )
--------------- --------------
Net cash provided by investing activities 1,742,826 923,287
--------------- --------------
Cash Flows from Financing Activities:
Loans from corporate general partner 650,000 875,000
Repayment of loans from corporate general partner (650,000 ) (875,000 )
Distributions to limited partners (2,100,000 ) (2,100,000 )
--------------- --------------
Net cash used in financing activities (2,100,000 ) (2,100,000 )
--------------- --------------
Net Increase in Cash and Cash Equivalents 1,347,375 414,318
Cash and Cash Equivalents at Beginning of Period 429,481 226,136
--------------- --------------
Cash and Cash Equivalents at End of Period $ 1,776,856 $ 640,454
=============== ==============
Supplemental Schedule of Non-Cash Investing and Financing
Activities:
Real estate disposition fee incurred and unpaid at end of period $ 54,000 $ --
=============== ==============
Distributions declared and unpaid at end of period $ 700,000 $ 700,000
=============== ==============
See accompanying notes to condensed financial statements.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
1. Basis of Presentation
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of the general partners, necessary for a fair
statement of the results for the interim periods presented. Operating
results for the quarter and nine months ended September 30, 2003 may
not be indicative of the results that may be expected for the year
ending December 31, 2003. Amounts as of December 31, 2002, included in
the financial statements, have been derived from audited financial
statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XVIII, Ltd. (the "Partnership") for the year ended December
31, 2002.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of
Variable Interest Entities" to expand upon and strengthen existing
accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with
variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be consolidated by a company
if that company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. The consolidation
requirements of FIN 46 apply immediately to variable interest entities
created after January 31, 2003, and to older entities, in the first
fiscal year or interim period ending after December 15, 2003. The
general partners believe adoption of this standard may result in either
consolidation or additional disclosure requirements of the
Partnership's unconsolidated joint ventures, which are currently
accounted for under the equity method. However, such consolidation is
not expected to significantly impact the Partnership's results of
operations.
In May 2003, the FASB issued FASB Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities
and Equity" ("FAS 150"). FAS 150 establishes standards for how an
issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. FAS 150 will require
issuers to classify certain financial instruments as liabilities (or
assets in some circumstances) that previously were classified as
equity. One requirement of FAS 150 is that minority interests for
majority owned finite lived entities be classified as a liability and
recorded at fair market value. FAS 150 initially applied immediately to
all financial instruments entered into or modified after May 31, 2003,
and otherwise was effective at the beginning of the first interim
period beginning after June 15, 2003. Effective October 29, 2003, the
FASB deferred implementation of FAS 150 as it applies to minority
interests of finite lived Partnerships. The deferral of these
provisions is expected to remain in effect while these interests are
addressed in either Phase II of the FASB's Liabilities and Equity
project or Phase II of the FASB's Business Combinations project;
therefore, no specific timing for the implementation of these
provisions has been stated. The implementation of the currently
effective aspects of FAS 150 did not have an impact on the
Partnership's results of operations.
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
2. Reclassification
Certain items in the prior year's financial statements have been
reclassified to conform to 2003 presentation. These reclassifications
had no effect on total partners' capital or net income.
3. Discontinued Operations
During 2002, the Partnership identified and sold two properties that
were classified as Discontinued Operations in the accompanying
financial statements. Both of the properties became vacant prior to
2002. In addition, in June 2003, the Partnership sold its property in
Destin, Florida and recorded a gain on disposal of assets of
approximately $273,900 during the nine months ended September 30, 2003.
The operating results of the discontinued operations for the these
properties are as follows:
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
3. Discontinued Operations - Continued
Quarter Ended Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
------------- -------------- --------------- --------------
Rental revenues $ -- $ 41,076 $ 82,119 $ 123,226
Expenses -- (15,862 ) (6,182 ) (55,578 )
Provision for write-down of assets -- -- -- (322,472 )
------------- -------------- --------------- --------------
Income (loss) from discontinued
operations $ -- $ 25,214 $ 75,937 $ (254,824 )
============= ============== =============== ==============
4. Related Party Transactions
An affiliate of the Partnership is entitled to receive a deferred,
subordinated real estate disposition fee, payable upon the sale of one
or more properties, based on the lesser of one-half of a competitive
real estate commission or three percent of the sales price if the
affiliate provides a substantial amount of services in connection with
the sales. 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 the receipt by the limited partners of their
aggregate, 8% Return, plus their invested capital contributions. During
the nine months ended September 30, 2003, the Partnership incurred a
deferred, subordinated real estate disposition fee of $54,000 as a
result of the Partnership's sale of the property in Destin, Florida.
5. Concentration of Credit Risk
The following schedule presents total rental revenues from individual
lessees, each representing more than 10% of the Partnership's total
rental revenues (including the Partnership's share of rental revenues
from joint ventures and the properties held as tenants-in-common with
affiliates of the general partners) for each of the periods ended
September 30:
2003 2002
--------------- ---------------
Golden Corral Corporation $ 450,846 $ 493,209
Metromedia Restaurant Group (S&A
Properties Corporation and Steak
and Ale of Colorado, Inc.) 338,402 337,567
Jack in the Box Inc. 288,584 289,268
Carrols Corp. and Texas Taco Cabana,
LP (under common control of
Carrols Corp.) 244,293 220,846
Chevy's, Inc. 201,589 201,589
In addition, the following schedule presents total rental revenues from
individual restaurant chains, each representing more than 10% of the
Partnership's total rental revenues (including the Partnership's share
of rental revenues from joint ventures and the properties held as
tenants-in-common with affiliates of the general partners) for each of
the periods ended September 30:
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2003 and 2002
5. Concentration of Credit Risk - Continued
2003 2002
------------ -----------
Golden Corral Family Steakhouse
Restaurants $ 450,846 $ 493,209
Bennigan's 338,402 337,567
Jack in the Box 288,584 289,268
Chevy's Fresh Mex 201,589 201,589
Although the Partnership's properties have some geographical diversity
in the United States and the Partnership's lessees operate a variety of
restaurant concepts, default by any one of these lessees or restaurant
chains will significantly impact the Partnership's operating results if
the Partnership is not able to re-lease the properties in a timely
manner.
6. Subsequent Event
In October 2003, Chevy's, Inc., a tenant of the Partnership, filed for
Chapter 11 bankruptcy protection. Chevy's, Inc. leases one property
from the Partnership. As of November 7, 2003, Chevy's, Inc. had neither
rejected nor affirmed the lease related to this property.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XVIII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on February 10, 1995, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed (collectively, the "Properties"), which are leased primarily to
operators of selected national and regional fast-food, family-style and casual
dining restaurant chains. The leases generally are triple-net leases, with the
lessees responsible for all repairs and maintenance, property taxes, insurance
and utilities. As of September 30, 2002, the Partnership owned 18 Properties
directly and five Properties indirectly through joint venture or tenancy in
common arrangements. As of September 30, 2003, the Partnership owned 17
Properties directly and five Properties indirectly through joint venture or
tenancy in common arrangements.
Capital Resources
Cash from operating activities was $1,704,549 for the nine months ended
September 30, 2003, as compared to $1,591,031 during the same period of 2002.
Other sources and uses of cash included the following during the nine months
ended September 30, 2003.
In June 2003, the Partnership sold its Property in Destin, Florida, to
a third party and received net sales proceeds of approximately $1,742,800,
resulting in a gain on disposal of assets of approximately $273,900. In
connection with the sale, the Partnership incurred a deferred, subordinated real
estate disposition fee of $54,000 which is payable to an affiliate of the
Partnership. Payment of the real estate disposition fee is subordinated to the
receipt by the limited partners of their aggregate 8% Return, plus their
invested capital contributions. The Partnership intends to use the net sales
proceeds to pay liabilities of the Partnership, including distributions to the
limited partners.
During the nine months ended September 30, 2003, the Partnership
entered into two different promissory notes, each with the corporate general
partner, for loans in the aggregate amount of $650,000 in connection with the
operations of the Partnership. The loans were uncollateralized, non-interest
bearing and due on demand. As of September 30, 2003, the Partnership repaid the
loans in full to the corporate general partner.
At September 30, 2003, the Partnership had $1,776,856 in cash and cash
equivalents, as compared to $429,481 at December 31, 2002. At September 30,
2003, these funds were held in a demand deposit account at a commercial bank.
The increase in cash and cash equivalents at September 30, 2003, as compared to
December 31, 2002, was due to the Partnership holding the sales proceeds from
the sale of the Property in Destin, Florida. The funds remaining at September
30, 2003, after the payment of distributions and other liabilities, will be used
to meet the Partnership's working capital needs.
In October 2003, Chevy's, Inc., a tenant of the Partnership, filed for
Chapter 11 bankruptcy protection. Chevy's, Inc. leases one Property from the
Partnership. The rental revenues from this lease represented more than 10% of
the Partnership's total rental revenues, as described below. As of November 7,
2003, Chevy's, Inc. had neither rejected nor affirmed the lease related to this
Property. The lost revenues that would result if the lease were to be rejected,
would have an adverse effect on the results of operations of the Partnership if
the Partnership is not able to re-lease or sell the Property in a timely manner.
Short-Term Liquidity
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will generate net cash flow in
excess of operating expenses.
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations and loans from the
corporate general partner, and for the nine months ended September 30, 2003, the
sales proceeds from the sale of the Property in Destin, Florida, the Partnership
declared distributions to limited partners of $2,100,000 for each of the nine
months ended September 30, 2003 and 2002, ($700,000 for each of the quarters
ended September 30, 2003 and 2002). This represents distributions of $0.60 per
unit for each of the nine months ended September 30, 2003 and 2002, ($0.20 per
unit for each applicable quarter). No distributions were made to the general
partners for the quarters and nine months ended September 30, 2003 and 2002. No
amounts distributed to the limited partners for the nine months ended September
30, 2003 and 2002 are required to be or have been treated by the Partnership as
a return of capital for purposes of calculating the limited partners' return on
their adjusted capital contributions. The Partnership intends to continue to
make distributions of cash available for distribution to the limited partners on
a quarterly basis. 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.
Total liabilities, including distributions payable, were $829,005 at
September 30, 2003, as compared to $774,645 at December 31, 2002. The increase
in liabilities at September 30, 2003, as compared to December 31, 2002, was due
to an increase in amounts payable to related parties at September 30, 2003, as
compared to December 31, 2002. The general partners believe that the Partnership
has sufficient cash on hand to meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
Total rental revenues were $1,586,535 during the nine months ended
September 30, 2003, as compared to $1,608,278 during the same period of 2002,
$537,403 and $544,866 of which were earned during the third quarters of 2003 and
2002, respectively. Rental revenues were lower during the quarter and nine
months ended September 30, 2003 because the Partnership stopped recording rental
revenues relating to the Property in Stow, Ohio when the tenant experienced
financial difficulties during 2002. During 2003, the Partnership began receiving
partial payments of past due rents and recognized these amounts as revenue.
During the quarters and nine months ended September 30, 2003 and 2002, the
Partnership did not record rental revenues relating to the Property in
Minnetonka, Minnesota because the tenant rejected the lease in 1998 in
connection with the tenant's bankruptcy proceedings. The lost revenues resulting
from these two Properties will continue to have an adverse effect on the cash
from operations and results of operations of the Partnership until the
Partnership is able to re-lease the Property in Stow, Ohio and resolve the
outstanding issues relating to the Property in Minnetonka, Minnesota. The
decrease in rental revenues was partially offset by the rental revenues from a
Property acquired in June 2002.
The Partnership also earned $230,872 attributable to net income earned
by joint ventures during the nine months ended September 30, 2003, as compared
to $233,473 during the same period of 2002, $75,560 and $77,652 of which were
earned during the third quarters of 2003 and 2002, respectively. Net income
earned by joint ventures during the quarter and nine months ended September 30,
2003, remained constant, as compared to the same periods of 2002, because there
were no changes in the leased Property portfolio owned by the joint ventures and
the tenancies in common.
During the nine months ended September 30, 2003, five lessees of the
Partnership, Golden Corral Corporation, S&A Properties Corporation and Steak and
Ale of Colorado, Inc. (under common control of Metromedia Restaurant Group,
hereinafter referred to as Metromedia Restaurant Group), Jack in the Box Inc.,
Carrols Corp. and Texas Taco Cabana, LP (which are affiliated entities under
common control, hereinafter referred to as Carrols Corp.), and Chevy's, Inc.
each contributed more than 10% of the Partnership's total rental revenues
(including the Partnership's share of rental revenues from Properties owned by
joint ventures and Properties owned with affiliates of the general partners as
tenants-in-common). It is anticipated that, based on the minimum rental payments
required by the leases, these five tenants will continue to contribute more than
10% of the Partnership's total rental revenues. In addition, four restaurant
chains, Golden Corral Family Steakhouse Restaurants, Bennigan's, Jack in the
Box, and Chevy's Fresh Mex, each accounted for more than 10% of the
Partnership's total rental revenues, (including the Partnership's share of the
rental revenues from Properties owned by joint ventures and Properties owned
with affiliates of the general partners as tenants-in-common). It is anticipated
that these four restaurant chains, each will continue to account for more than
10% of total rental revenues to which the Partnership is entitled under the
terms of the leases. Any failure of these lessees or any of these restaurant
chains will materially affect the Partnership's operating results, if the
Partnership is not able to re-lease these Properties in a timely manner.
Operating expenses, including depreciation and amortization expense,
were $463,506 during the nine months ended September 30, 2003, as compared to
$553,369 during the same period of 2002, $148,587 and $158,438 of which were
incurred during the third quarters of 2003 and 2002, respectively. Operating
expenses were lower during the nine months ended September 30, 2003, due to a
decrease in property expenses related to vacant Properties. During the nine
months ended September 30, 2002, 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 the nine months ended September
30, 2002, the Partnership incurred approximately $46,200 in rent expense
relating to the ground lease of the Property. In May 2002, the Partnership sold
this Property and did not incur additional expenses relating to this Property
once it was sold. The Partnership will continue to incur Property expenses
relating to the Properties in Minnetonka, Minnesota and Stow, Ohio until the
Partnership is able to re-lease the Property in Stow, Ohio and resolve the
outstanding issues relating to the Property in Minnetonka, Minnesota.
In addition, operating expenses were lower during the quarter and nine
months ended September 30, 2003 due to a decrease in the costs incurred for
administrative expenses for servicing the Partnership and its Properties. The
decrease was partially offset by an increase in depreciation expense related to
the acquisition of a Property in June 2002.
As a result of the sale of the On the Border Property in San Antonio,
Texas, the Partnership recognized a loss of approximately $25,700, during the
nine months ended September 30, 2002. This Property was identified for sale as
of December 31, 2001. Because this Property was identified for sale prior to the
January 2002 implementation of Statement of Financial Accounting Standards No.
144 "Accounting for the Impairment or Disposal of Long-Lived Assets", the
results of operations relating to this Property were included as Income from
Continuing Operations in the accompanying financial statements.
During the year ended December 31, 2002, the Partnership identified for
sale two Properties that were classified as Discontinued Operations in the
accompanying financial statements. Both Properties were vacant prior to 2002. In
addition, in March 2003, the Partnership identified for sale its Property in
Destin, Florida. The Partnership recognized net rental income (rental revenues
less Property related expenses and provision for write-down of assets) of
$25,214 during the quarter ended September 30, 2002 and a net rental loss of
$254,824 during the nine months ended September 30, 2002, relating to these
three Properties. The net rental loss during the nine months ended September 30,
2002 was a result of the Partnership recording a provision for write-down of
assets of approximately $322,500 in anticipation of the August 2002 sale of the
Property in Raleigh, North Carolina. The tenant of this Property terminated its
lease and vacated the Property in 2000. The provision represented the difference
between the net carrying value of the Property and its estimated fair value. The
Partnership sold the Boston Market Property in San Antonio, Texas in May 2002.
Because the Partnership had recorded provisions for write-down of assets in
previous years, no gain or loss was recorded during the nine months ended
September 30, 2002 relating to the sale of this Property. In June 2003, the
Partnership sold the Property in Destin, Florida and recorded a gain on disposal
of discontinued operations of approximately $273,900. The Partnership recognized
net rental income of $75,937 during the nine months ended September 30, 2003,
relating to this Property.
In January 2003, the Financial Accounting Standards Board ("FASB")
issued FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting guidance
that addresses when a company should include the assets, liabilities and
activities of another entity in its financial statements. To improve financial
reporting by companies involved with variable interest entities (more commonly
referred to as special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be consolidated by a company if that
company is subject to a majority risk of loss from the variable interest
entity's activities or entitled to receive a majority of the entity's residual
returns or both. Prior to FIN 46, a company generally included another entity in
its consolidated financial statements only if it controlled the entity through
voting interests. The consolidation requirements of FIN 46 apply immediately to
variable interest entities created after January 31, 2003, and to older
entities, in the first fiscal year or interim period ending after December 15,
2003. The general partners believe adoption of this standard may result in
either consolidation or additional disclosure requirements of the Partnership's
unconsolidated joint ventures, which are currently accounted for under the
equity method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
In May 2003, the FASB issued FASB Statement No. 150, "Accounting for
Certain Financial Instruments with Characteristics of both Liabilities and
Equity" ("FAS 150"). FAS 150 establishes standards for how an issuer classifies
and measures certain financial instruments with characteristics of both
liabilities and equity. FAS 150 will require issuers to classify certain
financial instruments as liabilities (or assets in some circumstances) that
previously were classified as equity. One requirement of FAS 150 is that
minority interests for majority owned finite lived entities be classified as a
liability and recorded at fair market value. FAS 150 initially applied
immediately to all financial instruments entered into or modified after May 31,
2003, and otherwise was effective at the beginning of the first interim period
beginning after June 15, 2003. Effective October 29, 2003, the FASB deferred
implementation of FAS 150 as it applies to minority interests of finite lived
Partnerships. The deferral of these provisions is expected to remain in effect
while these interests are addressed in either Phase II of the FASB's Liabilities
and Equity project or Phase II of the FASB's Business Combinations project;
therefore, no specific timing for the implementation of these provisions has
been stated. The implementation of the currently effective aspects of FAS 150
did not have an impact on the Partnership's results of operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES
The general partners maintain a set of disclosure controls and
procedures designed to ensure that information required to be disclosed in the
Partnership's filings under the Securities Exchange Act of 1934 is recorded,
processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms. The principal executive
and financial officers of the corporate general partner have evaluated the
Partnership's disclosure controls and procedures as of the end of the period
covered by this Quarterly Report on Form 10-Q and have determined that such
disclosure controls and procedures are effective.
There was no change in internal control over financial reporting that
occurred during the most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, internal control over financial
reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
------------------
Item 2. Changes in Securities. Inapplicable.
----------------------
Item 3. Default upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
----------------------------------------------------
Item 5. Other Information. Inapplicable.
------------------
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
**3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund 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.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 2003.
**Previously filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 7th day of November, 2003.
CNL INCOME FUND XVIII, LTD.
By: CNL REALTY CORPORATION
General Partner
By:/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By:/s/ Robert A. Bourne
---------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
EXHIBIT INDEX
Exhibit Number
(c) Exhibits
**3.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund 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.)
31.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
31.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to Rule 13a-14 as Adopted
Pursuant to Section 302 of the Sarbanes-Oxley Act of
2002. (Filed herewith.)
32.1 Certification of Chief Executive Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
32.2 Certification of Chief Financial Officer of Corporate
General Partner Pursuant to 18 U.S.C. Section 1350 as
Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002. (Filed herewith.)
**Previously filed.
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2