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, 2004
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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
---------------------------------------
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
- ----------------------------------------- ---------------------------------
(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 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-10
Item 3. Quantitative and Qualitative Disclosures about
Market Risk 10
Item 4. Controls and Procedures 10
Part II
Other Information 11-12
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
2004 2003
------------------- ------------------
ASSETS
Real estate properties with operating leases, net $ 17,685,780 $ 17,959,319
Net investment in direct financing leases 1,786,501 1,801,248
Real estate held for sale -- 750,329
Investment in joint ventures 2,415,402 2,428,342
Cash and cash equivalents 2,035,077 1,650,686
Receivables, less allowance for doubtful
accounts of $352,662 and $260,198, respectively 50,159 18,003
Due from related parties 51 --
Accrued rental income 612,892 578,407
Other assets 74,072 58,297
------------------- ------------------
$ 24,659,934 $ 25,244,631
=================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 57,791 $ 4,971
Real estate taxes payable 4,557 13,600
Distributions payable 700,000 700,000
Due to related parties 105,251 64,833
Rents paid in advance 43,687 43,687
Deferred rental income 4,068 4,309
------------------- ------------------
Total liabilities 915,354 831,400
Minority interests 767,033 772,114
Partners' capital 22,977,547 23,641,117
------------------- ------------------
$ 24,659,934 $ 25,244,631
=================== ==================
See accompanying notes to condensed financial statements.
1
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------------ ------------- ------------- -------------
Revenues:
Rental income from operating leases $ 485,860 $ 511,626 $ 1,480,608 $ 1,534,442
Earned income from direct financing leases 43,894 44,371 132,050 133,446
Interest and other income -- 536 1,052 7,406
------------ ------------- ------------- -------------
529,754 556,533 1,613,710 1,675,294
------------ ------------- ------------- -------------
Expenses:
General operating and administrative 81,313 38,208 213,579 132,975
Property related 22,634 16,422 58,148 35,886
Management fees to related party 5,855 6,223 17,983 19,067
State and other taxes -- 100 28,611 7,525
Depreciation and amortization 91,981 91,981 275,949 275,949
------------ ------------- ------------- -------------
201,783 152,934 594,270 471,402
------------ ------------- ------------- -------------
Income before minority interests and equity in
earnings of unconsolidated joint ventures 327,971 403,599 1,019,440 1,203,892
Minority interests (18,101) (18,116) (54,304) (54,432)
Equity in earnings of unconsolidated joint
ventures 60,815 59,032 182,591 181,180
------------ ------------- ------------- -------------
Income from continuing operations 370,685 444,515 1,147,727 1,330,640
------------ ------------- ------------- -------------
Discontinued operations:
Income from discontinued operations 19,286 23,397 59,812 109,604
Gain on disposal of discontinued operations 228,891 -- 228,891 273,876
------------ ------------- ------------- -------------
248,177 23,397 288,703 383,480
------------ ------------- ------------- -------------
Net income $ 618,862 $ 467,912 $ 1,436,430 $ 1,714,120
============ ============= ============= =============
Income per limited partner unit:
Continuing operations $ 0.11 $ 0.13 $ 0.33 $ 0.38
Discontinued operations 0.07 -- 0.08 0.11
------------ ------------- ------------- -------------
$ 0.18 $ 0.13 $ 0.41 $ 0.49
============ ============= ============= =============
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.
2
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
2004 2003
--------------------- -------------------
General partners:
Beginning balance $ (5,319) $ (5,319)
Net income -- --
--------------------- -------------------
(5,319) (5,319)
--------------------- -------------------
Limited partners:
Beginning balance 23,646,436 24,252,206
Net income 1,436,430 2,194,230
Distributions ($0.60 and $0.80 per
limited partner unit, respectively) (2,100,000) (2,800,000)
--------------------- -------------------
22,982,866 23,646,436
--------------------- -------------------
Total partners' capital $ 22,977,547 $ 23,641,117
===================== ===================
See accompanying notes to condensed financial statements.
3
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2004 2003
--------------- --------------
Net cash provided by operating activities $ 1,543,776 $ 1,762,074
--------------- --------------
Cash flows from investing activities:
Proceeds from sale of assets 1,000,000 1,742,826
--------------- --------------
Net cash provided by investing activities 1,000,000 1,742,826
--------------- --------------
Cash flows from financing activities:
Proceeds from loans from corporate general partner -- 650,000
Repayment of loans from corporate general partner -- (650,000)
Distributions to limited partners (2,100,000) (2,100,000)
Distributions to holders of minority interests (59,385) (57,412)
--------------- --------------
Net cash used in financing activities (2,159,385) (2,157,412)
--------------- --------------
Net increase in cash and cash equivalents 384,391 1,347,488
Cash and cash equivalents at beginning of period 1,650,686 432,998
--------------- --------------
Cash and cash equivalents at end of period $ 2,035,077 $ 1,780,486
=============== ==============
Supplemental schedule of non-cash investing and financing activities:
Deferred real estate disposition fee incurred and
unpaid at end of period $ 30,000 $ 54,000
=============== ==============
Distributions declared and unpaid at end of period $ 700,000 $ 700,000
=============== ==============
See accompanying notes to condensed financial statements.
4
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
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, 2004 may
not be indicative of the results that may be expected for the year
ending December 31, 2004. Amounts as of December 31, 2003, 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, 2003.
The Partnership accounts for its 57.2% interest in Portsmouth Joint
Venture and its 39.93% interest in Columbus Joint Venture using the
consolidation method. Minority interests represent the minority joint
venture partners' proportionate share of the equity in the joint
ventures. All significant intercompany accounts and transactions have
been eliminated.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January
2003) ("FIN 46R"), "Consolidation of Variable Interest Entities"
requiring existing unconsolidated variable interest entities to be
consolidated by their primary beneficiaries. The primary beneficiary of
a variable interest entity is the party that absorbs a majority of the
entity's expected losses, receives a majority of its expected residual
returns, or both, as a result of holding variable interests, which are
the ownership, contractual, or other pecuniary interests in an entity
that change with changes in the fair value of the entity's net assets
excluding variable interests. Prior to FIN 46R, a company generally
included another entity in its financial statements only if it
controlled the entity through voting interests. Application of FIN 46R
is required in financial statements of public entities that have
interests in variable interest entities for periods ending after March
15, 2004. The Partnership adopted FIN 46R during the quarter ended
March 31, 2004, which resulted in the consolidation of previously
unconsolidated joint ventures, which were accounted for under the
equity method. FIN 46R does not require, but does permit restatement of
previously issued financial statements. The Partnership has restated
prior year's financial statements to maintain comparability between the
periods presented. Such consolidation resulted in certain assets and
minority interest, and revenues and expenses, of the entities being
reported on a gross basis in the Partnership's financial statements;
however, these restatements had no effect on partners' capital or net
income.
2. Discontinued Operations
In May 2004, the Partnership entered into an agreement to sell its
property in Stow, Ohio. In August, the Partnership sold this property
to a third party and received net sales proceeds of $1,000,000,
resulting in a gain on disposal of discontinued operations of
approximately $228,900. The Partnership recorded provisions for
write-down of assets in previous years relating to this property.
5
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2004 and 2003
2. Discontinued Operations - Continued
The following presents the operating results of the discontinued
operations for this property, along with the property in Destin,
Florida that was sold in June 2003.
Quarter Ended Nine Months Ended
September 30, September 30,
2004 2003 2004 2003
------------- -------------- --------------- --------------
Rental revenues $ 19,286 $ 23,397 $ 62,230 $ 120,718
Expenses -- -- (2,418) (11,114)
------------- -------------- --------------- --------------
Income from discontinued
operations $ 19,286 $ 23,397 $ 59,812 $ 109,604
============= ============== =============== ==============
3. Related Party Transaction
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 quarter and nine months ended September 30, 2004, the Partnership
incurred a deferred, subordinated real estate disposition fee of
$30,000 as a result of the Partnership's sale of the property in Stow,
Ohio.
4. Merger Transaction
On August 9, 2004, the Partnership entered into a definitive Agreement
and Plan of Merger pursuant to which the Partnership will be merged
with a subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The
merger is one of multiple concurrent transactions pursuant to which 17
other affiliated limited partnerships also will be merged with a
subsidiary of U.S. Restaurant Properties, Inc. and in which CNL
Restaurant Properties, Inc., an affiliate, also will be merged with
U.S. Restaurant Properties, Inc. CNL Restaurant Properties, Inc.
currently provides property management and other services to the
Partnership. The merger of the Partnership (and each of the 17 other
affiliated mergers) is subject to certain conditions including approval
by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as
measured by the value of the merger consideration) of all limited
partnerships, consummation of the merger between U.S. Restaurant
Properties, Inc. and CNL Restaurant Properties, Inc., approval of the
shareholders of U.S. Restaurant Properties, Inc., and availability of
financing. The transaction is expected to be consummated in the first
quarter of 2005.
Under the terms of the merger agreement, if the transaction is
approved, the limited partners will receive total consideration of
approximately $30.46 million, consisting of approximately $25.47
million in cash and approximately $4.99 million in U.S. Restaurant
Properties, Inc. Series A Convertible Preferred Stock that is listed on
the New York Stock Exchange. The general partners will receive total
consideration of approximately $33,000 consisting of approximately
$28,000 in cash and approximately $5,000 in preferred stock.
6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XVIII, Ltd. (the "Partnership," which may be referred
to as "we," "us," or "our") 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,
2003 we owned 17 Properties directly and five Properties indirectly through
joint venture or tenancy in common arrangements. As of September 30, 2004 we
owned 16 Properties directly and five Properties indirectly through joint
venture or tenancy in common arrangements.
Merger Transaction
The general partners believe their primary objective is to maintain
current operations with restaurant operators as successfully as possible, while
evaluating strategic alternatives, including alternatives that may provide
liquidity to the limited partners. Real estate markets are strong throughout
much of the nation, and the performance of restaurants has generally improved
after several challenging years. As a result, the general partners believe that
this is an attractive period for a strategic event to monetize the interests of
the limited partners.
In furtherance of this, on August 9, 2004, we entered into a definitive
Agreement and Plan of Merger pursuant to which we will be merged with a
subsidiary of U.S. Restaurant Properties, Inc. (NYSE: USV). The merger is one of
multiple concurrent transactions pursuant to which 17 other affiliated limited
partnerships also will be merged with a subsidiary of U.S. Restaurant
Properties, Inc. and in which CNL Restaurant Properties, Inc., an affiliate,
also will be merged with U.S. Restaurant Properties, Inc. Our merger (and each
of the 17 other affiliated mergers) is subject to certain conditions including
approval by a majority of the limited partners, consummation of a minimum number
of limited partnership mergers representing at least 75.0% in value (as measured
by the value of the merger consideration) of all limited partnerships,
consummation of the merger between U.S. Restaurant Properties, Inc. and CNL
Restaurant Properties, Inc., approval of the shareholders of U.S. Restaurant
Properties, Inc., and availability of financing. U.S. Restaurant Properties,
Inc. is a real estate investment trust (REIT) that focuses primarily on
acquiring, owning and leasing restaurant properties. The transaction is expected
to be consummated in the first quarter of 2005.
Under the terms of the merger agreement, if the transaction is
approved, our limited partners will receive total consideration of approximately
$30.46 million, consisting of approximately $25.47 million in cash and
approximately $4.99 million in U.S. Restaurant Properties, Inc. Series A
Convertible Preferred Stock that is listed on the New York Stock Exchange. The
general partners will receive total consideration of approximately $33,000
consisting of approximately $28,000 in cash and approximately $5,000 in
preferred stock.
We received an opinion from Wachovia Capital Markets, LLC that as of
August 9, 2004 the merger consideration to be received by the holders of our
general and limited partnership interests is fair, from a financial point of
view, to such holders.
As reflected above, the contemplated transactions are complex, and
contingent upon certain conditions. The restaurant marketplace, the real estate
industry, and the equities markets, all individually or taken as a whole, could
impact the economics of this transaction. As a result, there is no assurance
that we will be successful in completing the contemplated transaction.
Capital Resources
Net cash provided by operating activities was $1,543,776 and $1,762,074
for the nine months ended September 30, 2004 and 2003, respectively. The
decrease in net cash provided by operating activities during the nine months
ended September 30, 2004, was a result of changes in our working capital, such
as the timing of transactions relating to the collection of receivables and the
payment of expenses, and changes in income and expenses, such as changes in
rental revenues and changes in operating and property related expenses.
7
In August 2004, we sold the Property in Stow, Ohio to a third party and
received net sales proceeds of $1,000,000, resulting in a gain on disposal of
discontinued operations of approximately $228,900. We had recorded a provision
for write-down of assets in a previous year relating to this Property. In
connection with the sale, we incurred a deferred, subordinated real estate
disposition fee of $30,000. 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. We intend to use these
proceeds to pay liabilities as needed.
At September 30, 2004, we had $2,035,077 in cash and cash equivalents,
as compared to $1,650,686 at December 31, 2003. At September 30, 2004, these
funds were held in demand deposit accounts at a commercial bank. The increase in
cash and cash equivalents at September 30, 2004 was primarily a result of
holding sales proceeds. The funds remaining at September 30, 2004, after the
payment of distributions and other liabilities, will be used to meet our working
capital needs.
Short-Term Liquidity
Our investment strategy of acquiring Properties for cash and leasing
them under triple-net leases to operators who generally meet specified financial
standards minimizes our operating expenses. The general partners believe that
generally the leases will generate net cash flow in excess of operating
expenses.
Our short-term liquidity requirements consist primarily of our
operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions and loans if they deem it appropriate in
connection with our operations.
We generally distribute cash from operations remaining after the
payment of operating expenses, to the extent that the general partners determine
that such funds are available for distribution. Based on current and anticipated
future cash from operations, a portion of sales proceeds, from Property sales,
and for the nine months ended September 30, 2003, loans from the corporate
general partner, we declared distributions to limited partners of $2,100,000 for
each of the nine months ended September 30, 2004 and 2003, ($700,000 for each of
the quarters ended September 30, 2004 and 2003). This represents distributions
of $0.60 per unit for each of the nine months ended September 30, 2004 and 2003,
($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, 2004 and
2003. No amounts distributed to the limited partners for the nine months ended
September 30, 2004 and 2003 are required to be or have been treated as a return
of capital for purposes of calculating the limited partners' return on their
adjusted capital contributions. We intend to continue to make distributions of
cash to the limited partners on a quarterly basis.
Total liabilities, including distributions payable, were $915,354 at
September 30, 2004, as compared to $831,400 at December 31, 2003. The increase
in liabilities at September 30, 2004, as compared to December 31, 2003, was due
to an increase in accounts payable and accrued expenses and an increase in
amounts payable to related parties at September 30, 2004, as compared to
December 31, 2003. The general partners believe that we have sufficient cash on
hand to meet our current working capital needs.
Contractual Obligations, Contingent Liabilities, and Commitments
In May 2004, we entered into an agreement with a third party to sell
the Property in Stow, Ohio. In August 2004, we sold the Property.
Long-Term Liquidity
We have no long-term debt or other long-term liquidity requirements.
8
Results of Operations
Rental revenues from continuing operations were $1,612,658 during the
nine months ended September 30, 2004, as compared to $1,667,888 during the same
period of 2003, $529,754 and $555,997 of which were earned during the third
quarters of 2004 and 2003, respectively. The decrease in rental revenues from
continuing operations during the quarter and nine months ended September 30,
2004, was partially a result of American Hospitality Concepts, Inc., the parent
company of Ground Round, Inc., filing for Chapter 11 bankruptcy protection in
February 2004. As a result, we stopped recording rental revenues relating to the
one Property we leased to Ground Round, Inc. In April 2004, the tenant rejected
the lease. The lost revenues will have an adverse effect on the results of
operations until we are able to re-lease the Property.
In March 2004, we entered into an agreement, effective January 2004, to
provide temporary and partial rent deferral to a tenant who is experiencing
liquidity difficulties. The general partners anticipate that deferring a portion
of monthly rent through December 2004 on the one lease the tenant has with us
will provide the necessary relief to the tenant. Rental payment terms revert to
the original terms beginning in January 2005. Repayment of the deferred amounts
is secured by letters of credit and scheduled to begin in January 2005 and
continue for 60 months. The general partners do not believe that this temporary
decline in cash flows will have a material adverse effect on our operating
results.
During the quarters and nine months ended September 30, 2004 and 2003,
we 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 will continue to have an
adverse effect on our cash from operations and results of operations until we
are able to resolve the outstanding issues.
In October 2003, Chevy's, Inc., the tenant of the Property in Mesa,
Arizona filed for Chapter 11 bankruptcy protection. While the tenant has neither
rejected nor affirmed the one lease it has with us, there can be no assurance
that the lease will not be rejected in the future. As of November 5, 2004, we
have received substantially all of the rental payments relating to this lease.
The lost revenues that would result if the tenant were to reject this lease will
have an adverse effect on our results of operations if we are not able to
re-lease the Property in a timely manner.
We earned $182,591 attributable to net income earned by unconsolidated
joint ventures during the nine months ended September 30, 2004, as compared to
$181,180 during the same period of 2003, $60,815 and $59,032 of which were
earned during the third quarters of 2004 and 2003, respectively. These amounts
remained relatively constant, because the leased Property portfolio owned by the
joint ventures and the tenancies in common did not change.
We earned $1,052 in interest and other income during the nine months
ended September 30, 2004, as compared to $536 and $7,406 during the quarter and
nine months ended September 30, 2003, respectively. Interest and other income
during 2003 included $5,000 relating to a right-of-way taking for a parcel of
land on the San Antonio, Texas Property.
Operating expenses, including depreciation and amortization expense,
were $594,270 during the nine months ended September 30, 2004, as compared to
$471,402 during the same period of 2003, $201,783 and $152,934 of which were
incurred during the third quarters of 2004 and 2003, respectively. Operating
expenses were higher during the quarter and nine months ended September 30, 2004
due to additional general operating and administrative expenses, including,
primarily, legal fees incurred in connection with the merger transaction
described above. Operating expenses were also higher during the nine months
ended September 30, 2004 due to an increase in state tax expense relating to
several states in which we conduct business. In addition, operating expenses
were higher during the quarter and nine months ended September 30, 2004 because
we incurred property related expenses such as insurance, repairs and
maintenance, legal fees and real estate taxes relating to the vacant Property in
Rochester, New York, which was previously leased by Ground Round, Inc. We will
continue to incur these expenses until the Property is re-leased.
During the quarters and nine months ended September 30, 2004 and 2003,
we incurred property related expenses such as insurance, repairs and
maintenance, legal fees and real estate taxes relating to the vacant Property in
Minnetonka, Minnesota. We will continue to incur these expenses until we are
able to resolve the outstanding issues.
9
We recognized income from discontinued operations (rental revenues less
property related expenses) of $109,604 relating to the Properties in Destin,
Florida and Stow, Ohio during the nine months ended September 30, 2003. We sold
the Property in Destin, Florida in June 2003, resulting in a gain on disposal of
discontinued operations of approximately $273,900. We recognized income from
discontinued operations of $59,812 during the nine months ended September 30,
2004 and income from discontinued operations of $19,286 and $23,397 during the
third quarters of 2004 and 2003, respectively, relating to the Property in Stow,
Ohio. We sold this Property in August 2004, resulting in a gain on disposal of
discontinued operations of approximately $228,900.
In December 2003, the Financial Accounting Standards Board issued a
revision to FASB Interpretation No. 46 (originally issued in January 2003) ("FIN
46R"), "Consolidation of Variable Interest Entities" requiring existing
unconsolidated variable interest entities to be consolidated by their primary
beneficiaries. The primary beneficiary of a variable interest entity is the
party that absorbs a majority of the entity's expected losses, receives a
majority of its expected residual returns, or both, as a result of holding
variable interests, which are the ownership, contractual, or other pecuniary
interests in an entity that change with changes in the fair value of the
entity's net assets excluding variable interests. Prior to FIN 46R, a company
generally included another entity in its financial statements only if it
controlled the entity through voting interests. Application of FIN 46R is
required in financial statements of public entities that have interests in
variable interest entities for periods ending after March 15, 2004. We adopted
FIN 46R during the quarter ended March 31, 2004, which resulted in the
consolidation of previously unconsolidated joint ventures, Portsmouth Joint
Venture and Columbus Joint Venture, which were accounted for under the equity
method. FIN 46R does not require, but does permit restatement of previously
issued financial statements. We restated prior year's financial statements to
maintain comparability between the periods presented. Such consolidation
resulted in certain assets and minority interest, and revenues and expenses, of
the entities being reported on a gross basis in our financial statements;
however, these restatements had no effect on partners' capital or net income.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE 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 our
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 our 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.
10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
------------------
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
------------------------------------------------------------
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
**2.1 Agreement and Plan of Merger among U.S. Restaurant
Properties, Inc., Ivanhoe Acquisition XVIII, LLC, and
CNL Income Fund XVIII, Ltd., dated as of August 9, 2004.
(Included as Exhibit 99.2 to Form 8-K filed with the
Securities and Exchange Commission on August 9, 2004,
and incorporated herein by reference.)
**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.)
11
**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.)
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.
12
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 11th day of November 2004.
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
Exhibits
**2.1 Agreement and Plan of Merger among U.S. Restaurant
Properties, Inc., Ivanhoe Acquisition XVIII, LLC, and
CNL Income Fund XVIII, Ltd., dated as of August 9, 2004.
(Included as Exhibit 99.2 to Form 8-K filed with the
Securities and Exchange Commission on August 9, 2004,
and incorporated herein by reference.)
**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.)
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