ITEM 1. BUSINESS
CNL Income Fund V, Ltd. (the "Registrant" or the "Partnership") is a limited partnership which was organized pursuant to the laws of the State of Florida on August 17, 1988. 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 December 16, 1988, the Partnership offered for sale up to $25,000,000 in limited partnership interests (the "Units") (50,000 Units at $500 per Unit) pursuant to a registration statement on Form S-11 under the Securities Act of 1933, as amended. The offering terminated on June 7, 1989, as of which date the maximum offering proceeds of $25,000,000 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 and family-style restaurant chains (the "Restaurant Chains"). Net proceeds to the Partnership from its offering of Units, after deduction of organizational and offering expenses, totalled $22,125,000, and were used to acquire 30 Properties, including interests in three Properties owned by joint ventures in which the Partnership is a co-venturer. During the year ended December 31, 1995, the Partnership sold its Property in Myrtle Beach, South Carolina, to the tenant of this Property and accepted a promissory note for the full sales price of the Property. As a result of the above transaction, the Partnership currently owns 29 Properties, including interests in three Properties owned by joint ventures in which the Partnership is a co-venturer. Generally, the Properties are leased on a triple-net basis with the lessee responsible for all repairs and maintenance, property taxes, insurance and utilities.
The Partnership will hold its Properties until the General Partners determine that the sale or other disposition of the Properties is advantageous in view of the Partnership's investment objectives. In deciding whether to sell Properties, the General Partners will consider factors such as potential capital appreciation, net cash flow and federal income tax considerations. Certain lessees also have been granted options to purchase Properties, generally at the Property's then fair market value after a specified portion of the lease term has elapsed. In general, the General Partners plan to seek the sale of some of the Properties commencing seven to 12 years after their acquisition. 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 or joint venture purchase options granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the following is a summarized description of the general structure of the Partnership's leases. The leases of the Properties owned by the Partnership and the joint ventures in which the Partnership is a co-venturer provide for initial terms, ranging from seven to 20 years (the average being 18 years) and expire between 1997 and 2012. All leases are on a triple-net basis, with the lessee 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 $37,800 to $150,400. Generally, the leases provide for percentage rent, based on sales in excess of a specified amount, to be paid annually. In addition, a majority of the leases provide that, commencing in the sixth lease year, the percentage rent will be an amount equal to the greater of the percentage rent calculated under the lease formula or a specified percentage (ranging from one-fourth to five percent) of either the purchase price paid by the Partnership for the Property or gross sales.
Generally, the leases of the Properties provide for two to four five- year renewal options subject to the same terms and conditions as the initial lease. Certain lessees also have been granted options to purchase Properties at the Property's then fair market value, or pursuant to a formula based on the original cost of the Property, after a specified portion of the lease term has elapsed. Additionally, one lease provides the lessee an option to purchase up to a 49 percent interest in the Property, after a specified portion of the lease term has elapsed, at an option purchase price similar to those described above multiplied by the percentage interest in the Property with respect to which the option is being exercised.
The leases also generally provide that, in the event the Partnership wishes to sell the Property subject to that lease, the Partnership first must offer the lessee the right to purchase the Property on the same terms and conditions, and for the same price, as any offer which the Partnership has received for the sale of the Property.
During 1993, CNL/Longacre Joint Venture, in which the Partnership has a 66.5% interest, terminated its original lease relating to the Property in Lebanon, New Hampshire, and entered into a new lease with the same tenant. The new lease provided for reduced base rental amounts. The tenant defaulted under the terms of the lease and in February 1995, ceased operations of the restaurant on the Property. The Partnership is currently seeking a replacement tenant.
In February 1994, the tenant of the Properties in Belding and South Haven, Michigan, defaulted under the terms of its leases and a new operator began occupying the Properties on a month-to-month basis for reduced rental amounts. In October 1994, the new operator ceased operations of the Belding Property and in October 1995, the new operator of the South Haven Property ceased operations. The Partnership is currently seeking a replacement tenant for both Properties.
Major Tenants
During 1995, one lessee of the Partnership and its consolidated joint venture, Shoney's, Inc., contributed more than ten percent of the Partnership's total rental income (including rental income from the Partnership's consolidated joint venture and the Partnership's share of the rental income from two Properties owned by unconsolidated joint ventures). As of December 31, 1995, Shoney's, Inc. was the lessee under leases relating to four restaurants. It is anticipated that, based on the minimum rental payments required by the leases, Shoney's, Inc. will continue to contribute more than ten percent of the Partnership's total rental income in 1996 and subsequent years. In addition, three Restaurant Chains, Perkins, Denny's and Wendy's Old Fashioned Hamburger Restaurants, each accounted for more than ten percent of the Partnership's total rental income in 1995 (including rental income from the Partnership's consolidated joint venture and the Partnership's share of the rental income from two Properties owned by unconsolidated joint ventures). In subsequent years, it is anticipated that these three Restaurant Chains each will continue to account for more than ten percent of the total rental income to which the Partnership is entitled under the terms of the leases. Any failure of Shoney's, Inc. or these Restaurant Chains could materially affect the Partnership's income. No single tenant or group of affiliated tenants lease Properties with an aggregate carrying value, excluding acquisition fees and certain acquisition expenses, in excess of 20 percent of the total assets of the Partnership.
Joint Venture Arrangements
The Partnership has entered into three separate joint venture arrangements, CNL/Longacre Joint Venture, Cocoa Joint Venture and Halls Joint Venture, to purchase and hold three Properties through such joint ventures. Each joint venture arrangement provides for the Partnership and its joint venture partners to share in all costs and benefits associated with the joint venture in proportion to each partner's percentage interest in the joint venture. The Partnership and its joint venture partners are jointly and severally liable for all debts, obligations, and other liabilities of the joint ventures.
Each joint venture has an initial term of 20 to 30 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 or unless terminated 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.
The Partnership has management control of the CNL/Longacre Joint Venture and shares management control equally with affiliates of the General Partners for Cocoa Joint Venture and Halls Joint Venture. The joint venture agreements restrict each venturer's ability to sell, transfer or assign its joint venture interest without first offering it for sale to its joint venture partner, either upon such terms and conditions as to which the venturers may agree or, in the event the venturers cannot agree, on the same terms and conditions as any offer from a third party to purchase such joint venture interest.
Net cash flow from operations of CNL/Longacre Joint Venture, Cocoa Joint Venture and Halls Joint Venture is distributed 66.5%, 43.0% and 49.0%, respectively, to the Partnership and the balance is distributed to each of the other joint venture partners. 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.
Certain Management Services
CNL Investment Company, an affiliate of the General Partners, provided certain services relating to management of the Partnership and its Properties pursuant to a management agreement with the Partnership through December 31, 1994. Under this agreement, CNL Investment Company was 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. CNL Investment Company also assisted the General Partners in negotiating the leases. For these services, the Partnership had agreed to pay CNL Investment Company an annual fee of one percent of the sum of gross operating 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. Under the management agreement, the management fee is subordinated to receipt by the Limited Partners of an aggregate, ten percent, cumulative, noncompounded annual return on their adjusted capital contributions (the "10% Preferred Return"), calculated in accordance with the Partnership's limited partnership agreement (the "Partnership Agreement").
Effective January 1, 1995, certain officers and employees of CNL Investment Company became officers and employees of CNL Income Fund Advisors, Inc., an affiliate of the General Partners, and CNL Investment Company assigned its rights in, and its obligations under, the management agreement with the Partnership to CNL Income Fund Advisors, Inc. In addition, effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its rights in, and its obligations under, the management agreement with the Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the management agreement, including the payment of fees, as described above, remain unchanged.
The management agreement continues until the Partnership no longer owns an interest in any Properties unless terminated at an earlier date upon 60 days' prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by intense competition. The restaurants on the Partnership's Properties compete with independently owned restaurants, restaurants which are part of local or regional chains, and restaurants in other well-known national chains, including those offering different types of food and service.
At the time the Partnership elects to dispose of its Properties, other than as a result of the exercise of tenant options to purchase Properties, the Partnership will be in competition with other persons and entities to locate purchasers for its Properties.
Employees
The Partnership has no employees. The officers of CNL Realty Corporation and the officers and employees of CNL Fund Advisors, Inc. 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 Group, Inc., a diversified real estate company, and its affiliates, who may also perform certain services for the Partnership.
ITEM 2.
ITEM 2. PROPERTIES
As of December 31, 1995, the Partnership owned, either directly or through joint venture arrangements, 29 Properties located in 12 states. Reference is made to the Schedule of Real Estate and Accumulated Depreciation filed with this report for a listing of the Properties and their respective costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 12,300 to 135,000 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.
Buildings. Generally, each of the Properties owned by the Partnership includes a building that is one of a Restaurant Chain's approved designs. The buildings generally are rectangular and are constructed from various combinations of stucco, steel, wood, brick and tile. Building sizes range from approximately 1,700 to 10,100 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.
Generally, a lessee is required, under the terms of its lease agreement, to make such capital expenditures as may be reasonably necessary to refurbish buildings, premises, signs and equipment so as to comply with the lessee's obligations, if applicable, under the franchise agreement to reflect the current commercial image of its Restaurant Chain. These capital expenditures are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of each of the leases with the Partnership's major tenant as of December 31, 1995 (see Item 1. Business - Major Tenants), are substantially the same as those described in Item 1. Business - Leases.
Shoney's, Inc. leases two Shoney's restaurants and two Captain D's restaurants with an initial term of 20 years (expiring in 2008) and average minimum base annual rent of approximately $63,000 (ranging from approximately $49,000 to $84,700).
The General Partners consider the Properties to be well-maintained and sufficient for the Partnership's operations.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Neither the Partnership, nor its General Partners or any affiliate of the General Partners, nor any of their respective properties, is a party to, or subject to, any material pending legal proceedings.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of February 29, 1996, there were 2,507 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. Limited Partners who wish to sell their Units may offer the Units for sale pursuant to the Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners who wish to have their distributions used to acquire additional Units (to the extent Units are available for purchase), may do 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 has been $475 per Unit. The price to be paid for any Unit transferred other than pursuant to the Plan is 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 1995 and 1994 other than pursuant to the Plan, net of commissions (which ranged from zero to 19 percent).
1995 (1) 1994 (1) --------------------- --------------------- High Low Average High Low Average ------ ----- ------- ------ ----- ------- First Quarter $475 $450 $472 $460 $381 $424 Second Quarter 475 440 452 383 327 355 Third Quarter 475 415 442 475 460 470 Fourth Quarter 475 340 460 475 396 432
(1) A total of 1,133 and 211 Units were transferred other than pursuant to the Plan for the years ended December 31, 1995 and 1994, respectively.
The capital contribution per Unit was $500. 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, 1995 and 1994, the Partnership declared cash distributions of $2,300,000 to the Limited Partners. Distributions of $575,000 were declared at the close of each of the Partnership's calendar quarters during 1995 and 1994 to the Limited Partners. These amounts include monthly distributions made in arrears for the Limited Partners electing to receive distributions on this basis. No amounts distributed to partners for the years ended December 31, 1995 and 1994, 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.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
(1) Revenues include equity in earnings of unconsolidated joint ventures and minority interest in income or loss of the consolidated joint venture.
(2) Net income for the year ended December 31, 1995, includes $5,924 from a gain on sale of land and building.
The above selected financial data should be read in conjunction with the financial statements and related notes contained in Item 8 hereof.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Partnership was organized on August 17, 1988, to acquire for cash, either directly or through joint venture arrangements, both newly constructed and existing restaurant Properties, as well as land upon which restaurant Properties were to be constructed, which are leased primarily to operators of selected national and regional fast-food and family-style Restaurant Chains. The leases are triple-net leases, with the lessee generally responsible for all repairs and maintenance, property taxes, insurance and utilities. As of December 31, 1995, the Partnership owned 29 Properties, either directly or indirectly through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended December 31, 1995, 1994 and 1993, was cash from operations (which includes cash received from tenants, distributions from joint ventures and interest received, less cash paid for expenses). Cash from operations was $2,142,918, $2,177,079 and $2,215,658 for the years ended December 31, 1995, 1994 and 1993, respectively. The decrease in cash from operations during 1995 and 1994, as compared to the previous year, is primarily a result of changes in income and expenses as discussed in "Results of Operations" below and changes in the Partnership's working capital, during each of the respective years. Cash from operations was also affected by the following during the years ended December 31, 1995, 1994 and 1993.
During 1994, the tenant of the Properties in Belding and South Haven, Michigan, continued to be in default under the terms of a promissory note with the Partnership. In addition, in February 1994, the tenant defaulted under the terms of its leases with the Partnership and vacated the Properties. As a result, the Partnership established an allowance for doubtful accounts of $138,716 for amounts relating to the note and other rental payments due to the Partnership for these two Properties and a new operator began operating the Properties on a month-to-month basis for reduced rental amounts. The new operator ceased operations and rental payments in October 1994 and October 1995 for the Properties in Belding and South Haven, Michigan, respectively. Due to the fact that the Partnership does not expect to receive any additional amounts from the original tenant of these Properties, the Partnership reversed all past due rental and other amounts relating to these two Properties, and the related allowance for doubtful accounts of $138,716 during 1995.
Other sources and uses of capital included the following during the years ended December 31, 1995, 1994 and 1993.
In August 1995, the Partnership sold its Property in Myrtle Beach, South Carolina, to the tenant of the Property for $1,040,000, and in connection therewith, accepted a promissory note in the principal sum of $1,040,000, collateralized by a mortgage on the Property. The note bears interest at a rate of 10.25% per annum and is being collected in 59 equal monthly installments of $9,319, with a balloon payment of $1,006,004 due in July 2000. Collections commenced August 1, 1995. In accordance with Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate," the Partnership recorded the sale of the Property using the installment sales method. Therefore, the gain on the sale of the Property was deferred and is being recognized as income proportionately as payments under the mortgage note are collected. The Partnership recognized a gain of $1,571 for financial reporting purposes for the year ended December 31, 1995, and had a deferred gain in the amount of $141,641 at December 31, 1995. The mortgage note receivable balance at December 31, 1995, was $895,736 including accrued interest of $8,786 and net of the remaining deferred gain of $141,641. The General Partners anticipate that payments collected under the mortgage note will be reinvested in additional Properties or used for other Partnership purposes.
In October 1995, the Partnership sold a portion of the land relating to its Property in Daleville, Indiana, as the result of a right of way taking. In connection therewith, the Partnership received sales proceeds of $7,625 and recognized a gain of $4,353 for financial reporting purposes for the year ended December 31, 1995.
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. During the year ended December 31, 1995, the corporate General Partner contributed $31,500 in connection with the operations of the Partnership. No such contributions were made during the years ended December 31, 1994 and 1993. In addition, in January 1996, the corporate General Partner contributed capital of $100,000 in connection with the operations of the Partnership.
Currently, rental income from the Partnership's Properties is invested in money market accounts or other short-term, highly liquid investments pending the Partnership's use of such funds to pay Partnership expenses or to make distributions to the partners. At December 31, 1995, the Partnership had $319,052 invested in such short-term investments as compared to $425,600 at December 31, 1994. The balance of funds at December 31, 1995, will be used for the payment of distributions and other liabilities.
None of the Properties owned by the Partnership or the joint ventures in which the Partnership owns an interest is or may be encumbered. Under its Partnership Agreement, the Partnership is prohibited from borrowing for any purpose; provided, however, that the General Partners or their affiliates are entitled to reimbursement, at cost, for actual expenses incurred by the General Partners or their affiliates on behalf of the Partnership. 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.
During 1995, 1994 and 1993, affiliates of the General Partners incurred on behalf of the Partnership $114,204, $126,417 and $107,496, respectively, for certain operating expenses. As of December 31, 1995 and 1994, the Partnership owed $61,519 and $19,934, respectively, to affiliates for such amounts and accounting and administrative services. Amounts payable to other parties, including distributions payable, increased to $673,098 at December 31, 1995, from $663,368 at December 31, 1994. Liabilities at December 31, 1995, to the extent they exceed cash and cash equivalents at December 31, 1995, will be paid from future cash from operations, from General Partner capital contributions of $100,000 received in January 1996, from amounts collected under the mortgage note described above or, in the event the General Partners elect to make additional capital contributions, from future General Partner contributions.
Based primarily on current and anticipated future cash from operations, and to a lesser extent additional capital contributions from the General Partners, the Partnership declared distributions to the Limited Partners of $2,300,000 for each of the years ended December 31, 1995, 1994 and 1993. This represents distributions of $46 per Unit for each of the years ended December 31, 1995, 1994 and 1993. The Partnership intends to continue to make distributions of cash available for distribution to the Limited Partners on a quarterly basis.
The General Partners believe that the Properties are adequately covered by insurance. In addition, during 1995, the General Partners obtained contingent liability and property coverage for the Partnership. This insurance policy 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.
The Partnership's investment strategy of acquiring Properties for cash and generally leasing them under triple-net leases to operators who generally meet specified financial standards minimizes the Partnership's operating expenses. The General Partners believe that the leases will continue to generate cash flow in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General Partners do not believe that working capital reserves are necessary at this time. In addition, because all leases of the Partnership's Properties are on a triple-net basis, it is not anticipated that a permanent reserve for maintenance and repairs will be established 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.
Results of Operations
During 1995, 1994 and 1993, the Partnership owned and leased 27 wholly owned Properties (including one Property in Myrtle Beach, South Carolina, which was sold in August 1995). In addition, during 1995, 1994 and 1993, the Partnership was a co-venturer in three separate joint ventures that each owned and leased one Property. As of December 31, 1995, the Partnership owned, either directly or through joint venture arrangements, 29 Properties which are, in general, subject to long-term, triple-net leases. The leases of the Properties provide for minimum base annual rental amounts (payable in monthly installments) ranging from approximately $37,800 to $150,400. Generally, the leases provide for percentage rent based on sales in excess of a specified amount to be paid annually. In addition, a majority of the leases provide that, commencing in the sixth lease year, the percentage rent will be an amount equal to the greater of the percentage rent calculated under the lease formula or a specified percentage (ranging from one-fourth to five percent) of either the purchase price paid by the Partnership for the Property or gross sales. For further description of the Partnership's leases and Properties, see Item 1. Business - Leases and Item 2. Properties, respectively.
During the years ended December 31, 1995, 1994 and 1993, the Partnership and its consolidated joint venture, CNL/Longacre Joint Venture, earned $2,068,342, $2,174,472 and $2,230,589, respectively, in rental income from operating leases and earned income from direct financing leases. Rental income in 1995, as compared to 1994, decreased approximately $51,400 as a result of the sale of its Property in Myrtle Beach, South Carolina, in August 1995, as described above in "Liquidity and Capital Resources."
In addition, rental and earned income in 1995 and 1994, each as compared to the prior year, decreased approximately $51,000 and $36,700, respectively, as a result of the fact that in February 1994, the former tenant of the Properties in Belding and South Haven, Michigan, defaulted under the terms of its leases and the Partnership began accepting reduced rent on a month-to- month basis from a new operator as discussed above in Item 1. Business - Leases. The new operator ceased operations and rental payments for the Property in Belding, Michigan, in October 1994. In addition, in October 1995, the new operator ceased operations of the Property in South Haven, Michigan, after becoming delinquent with its rental payments. Due to the fact that the Partnership does not expect to receive any additional amounts from the original tenant of these Properties, the Partnership reversed all past due rental and other amounts relating to these two Properties, and the related allowance for doubtful accounts of approximately $153,800 for the year ended December 31, 1995. The Partnership currently is not receiving any rental income relating to these two Properties and the General Partners are seeking replacement tenants for these Properties.
Rental income in 1994, as compared to 1993, also decreased approximately $58,800 as a result of the Partnership's consolidated joint venture increasing its allowance for doubtful accounts for rental amounts unpaid by the tenant of the Property in Lebanon, New Hampshire. The tenant defaulted under the terms of the lease and in February 1995, ceased operations of the restaurant on the Property; therefore, the General Partners are currently seeking a replacement tenant for this Property. Due to the fact that the joint venture does not expect to receive any additional amounts relating to this Property from the former tenant, the joint venture reversed all past due rental and other amounts relating to this Property, and the related allowance for doubtful accounts of approximately $275,500 during 1995.
Rental and earned income for 1996 are expected to remain at reduced amounts until such time as the Partnership executes new leases for its Properties in Belding and South Haven, Michigan, and Lebanon, New Hampshire.
Rental and earned income also decreased approximately $16,300 during 1994, as compared to 1993, due to the fact that effective January 1994, the leases relating to the Properties in Daleville and New Castle, Indiana, were amended to provide for the payment of reduced annual rent with no scheduled rent increases. However, the lease amendments provide for lower percentage rent breakpoints, as compared to the original lease agreements, a change that is designed to result in higher annual percentage rent payments at any time that percentage rent becomes due. The General Partners anticipate that total rental payments under the amended leases will be equal to or greater than the original leases during the terms of the leases. As a result of the lease amendments, the lease relating to the Property in New Castle, Indiana, was reclassified from a direct financing lease to an operating lease during 1994.
The decrease in rental and earned income during 1994, was partially offset by (i) an increase of approximately $18,000 due to the fact that during 1993 the Partnership reversed accrued rental income previously recorded and associated with the former tenant of the Property in Franklin, Tennessee, and (ii) an increase of approximately $31,600 due to the fact that the Partnership entered into a new lease relating to this Property in August 1993, which resulted in a full year of rental income during 1994.
For the years ended December 31, 1995, 1994 and 1993, the Partnership earned $104,455, $115,011 and $113,375, respectively, in contingent rental income. The decrease in contingent rental income during 1995, as compared to 1994, is primarily attributable to a decrease in gross sales of certain restaurant Properties whose leases require the payment of contingent rental income. However, contingent rental income increased approximately $7,700 and $3,900 in 1995 and 1994, respectively, each as compared to the prior year, as a result of the lower percentage rent breakpoints provided for in the lease amendments for the Properties in Daleville and New Castle, Indiana, as described above. The increase in contingent rental income during 1994 was partially offset by a decrease as a result of (i) decreased gross sales relating to certain restaurant Properties and (ii) the default of the tenant of the Properties in Belding and South Haven, Michigan.
During the years ended December 31, 1995, 1994 and 1993, the Partnership earned $83,180, $11,002 and $14,252 in interest and other income. The increase in interest and other income during 1995, as compared to 1994, was primarily attributable to the interest earned on the mortgage note receivable accepted in connection with the sale of the Property in Myrtle Beach, South Carolina, in August 1995. Interest and other income also increased during 1995, as compared to 1994, as the result of recognizing storage income from holding the restaurant equipment of the former tenant of the Property in Lebanon, New Hampshire, on behalf of the tenant's lender, who repossessed the restaurant equipment from the tenant.
In addition, for the years ended December 31, 1995, 1994 and 1993, the Partnership earned $47,018, $47,219 and $45,711, respectively, attributable to net income earned by unconsolidated joint ventures in which the Partnership is a co-venturer.
During the years ended December 31, 1995, 1994 and 1993, one lessee of the Partnership and its consolidated joint venture, Shoney's, Inc., contributed more than ten percent of the Partnership's total rental income (including rental income from the Partnership's consolidated joint venture and the Partnership's share of the rental income from two Properties owned by unconsolidated joint ventures). As of December 31, 1995, Shoney's, Inc. was the lessee under leases relating to four restaurants. It is anticipated that, based on the minimum rental payments required by the leases, Shoney's, Inc. will continue to contribute more than ten percent of the Partnership's total rental income during 1996 and subsequent years. In addition, three Restaurant Chains, Perkins, Denny's and Wendy's Old Fashioned Hamburger Restaurants, each accounted for more than ten percent of the Partnership's total rental income in 1995 (including rental income from the Partnership's consolidated joint venture and the Partnership's share of the rental income from two Properties owned by unconsolidated joint ventures). In subsequent years, it is anticipated that these three Restaurant Chains each will continue to account for more than ten percent of the total rental income to which the Partnership is entitled under the terms of the leases. Any failure of Shoney's, Inc. or these Restaurant Chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense, were $640,922, $611,952 and $626,892 for the years ended December 31, 1995, 1994 and 1993, respectively. Operating expenses increased during 1995 primarily as the result of an increase in (i) accounting and administrative expenses associated with operating the Partnership and its Properties and (ii) insurance expense as a result of the General Partners' obtaining contingent liability and property coverage for the Partnership as discussed above in "Liquidity and Capital Resources."
The decrease in operating expenses during 1994, as compared to 1993, was partially attributable to the fact that in 1993, CNL/Longacre Joint Venture incurred taxes relating to the filing of various state tax returns and the Partnership incurred expenses in locating a new tenant for the Property in Franklin, Tennessee. In addition, during 1993, the Partnership expensed approximately $17,700 in unamortized lease costs relating to the lease with the former tenant of the Property in Franklin, Tennessee. No such amounts were incurred in 1994 or 1995.
During the year ended December 31, 1994, the Partnership recorded a loss upon the termination of the leases relating to the Properties in Belding and South Haven, Michigan. As a result of the lease terminations, the Partnership reclassified these leases from direct financing leases to operating leases, whereby the Properties were recorded at cost. Due to the fact that the net carrying value of the Properties as direct financing leases exceeded the cost of the Properties, the Partnership recognized a loss during 1994 for financial reporting purposes only. In addition, the Partnership accrued approximately $26,500, $38,900 and $22,700 during the years ended December 31, 1995, 1994 and 1993, for real estate taxes relating to these two Properties. The Partnership expects to continue to incur real estate tax and other expenses relating to these two Properties until such time as new leases are executed for such Properties.
Operating expenses during 1995 and 1993 also included approximately $20,600 and $48,400, respectively, in real estate taxes relating to the Property in Lebanon, New Hampshire, as to which the tenant defaulted under the terms of its lease and in February 1995, ceased operations of the restaurant Property. The tenant was responsible for payment of the taxes; however, the Partnership accrued amounts in 1993 relating to the current and prior years due to the fact that the tenant had not paid the taxes. During 1994, the Partnership collected escrowed real estate taxes from the tenant sufficient to pay the 1994 taxes; therefore, no expense was recorded for 1994. The Partnership expects to continue to incur real estate tax and other expenses relating to the Property in Lebanon, New Hampshire, until such time as a new lease is executed for such Property.
Depreciation expense decreased during 1995, as compared to 1994, as a result of the sale of the Property in Myrtle Beach, South Carolina. In addition, depreciation expense increased during 1994, as compared to 1993, due to the reclassification of the leases relating to the Properties in New Castle, Indiana, and Belding and South Haven, Michigan, from direct financing leases to operating leases during 1994.
In addition, in connection with the sale of its Property in Myrtle Beach, South Carolina, as described above in "Liquidity and Capital Resources," for $1,040,000, the Partnership recognized a gain for financial reporting purposes of $1,571 for the year ended December 31, 1995. In accordance with Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate," the Partnership recorded the sale using the installment sales method. As such, the gain on sale was deferred and is being recognized as income proportionately as payments under the mortgage note are collected. Therefore, the balance of the deferred gain of $141,641 at December 31, 1995, will be recognized as income in future periods as payments are collected. For federal income tax purposes, a gain of approximately $136,900 from the sale of this Property was also deferred and is being recognized as payments under the mortgage note are collected. In October 1995, the Partnership also sold a portion of the land relating to its Property in Daleville, Indiana, as the result of a right of way taking and recognized a gain for financial reporting purposes of $4,353 during the year ended December 31, 1995. No Properties were sold during the years ended December 31, 1994 and 1993.
In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The Statement, which is effective for fiscal years beginning after December 15, 1995, requires that an entity review long-lived assets and certain identifiable intangibles, to be held and used, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Partnership will adopt this standard in 1996. The General Partners believe that adoption of this standard currently would not have had a material effect on the Partnership's financial position or results of operations.
The Partnership's leases as of December 31, 1995, are, in general, triple-net leases and contain provisions that the General Partners believe mitigate the adverse effect of inflation. Such provisions include clauses requiring the payment of percentage rent based on certain restaurant sales above a specified level and/or automatic increases in base rent at specified times during the term of the lease. Management expects that increases in restaurant sales volumes due to inflation and real sales growth should result in an increase in rental income over time. Continued inflation also may cause capital appreciation of the Partnership's Properties. Inflation and changing prices, however, also may have an adverse impact on the operating margins of the restaurants and on potential capital appreciation of the Properties.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CNL INCOME FUND V, LTD. (A Florida Limited Partnership)
CONTENTS --------
Page ----
Report of Independent Accountants 13
Financial Statements:
Balance Sheets 14
Statements of Income 15
Statements of Partners' Capital 16
Statements of Cash Flows 17
Notes to Financial Statements 20
Report of Independent Accountants ---------------------------------
To the Partners CNL Income Fund V, Ltd.
We have audited the financial statements and the financial statement schedules of CNL Income Fund V, Ltd. (a Florida limited partnership) listed in Item 14(a) of this Form 10-K. 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 in accordance with generally accepted auditing standards. Those standards 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CNL Income Fund V, Ltd. as of December 31, 1995 and 1994, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
/s/Coopers & Lybrand L.L.P.
Orlando, Florida January 20, 1996
CNL INCOME FUND V, LTD. (A Florida Limited Partnership)
BALANCE SHEETS --------------
December 31, ASSETS 1995 1994 ----------- -----------
Land and buildings on operating leases, less accumulated depreciation $16,640,635 $17,935,158 Net investment in direct financing leases 1,987,793 2,033,245 Investment in joint ventures 473,138 479,525 Mortgage note receivable, less deferred gain 895,736 - Cash and cash equivalents 319,052 425,600 Receivables, less allowance for doubtful accounts of $4,490 and $430,464 68,204 81,731 Prepaid expenses 11,921 11,387 Accrued rental income 309,357 278,873 Other assets 54,346 54,346 ----------- -----------
$20,760,182 $21,299,865 =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 13,963 $ 4,562 Accrued and escrowed real estate taxes payable 84,135 83,806 Distributions payable 575,000 575,000 Due to related parties 61,519 19,934 Rents paid in advance 29,370 19,865 ----------- ----------- Total liabilities 763,987 703,167
Minority interest 301,435 313,258
Partners' capital 19,694,760 20,283,440 ----------- -----------
$20,760,182 $21,299,865 =========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND V, LTD. (A Florida Limited Partnership)
STATEMENTS OF INCOME --------------------
Year Ended December 31, 1995 1994 1993 ---------- ---------- ----------
Revenues: Rental income from operating leases $1,878,584 $1,980,954 $1,858,993 Earned income from direct financing leases 189,758 193,518 371,596 Contingent rental income 104,455 115,011 113,375 Interest and other income 83,180 11,002 14,252 ---------- ---------- ---------- 2,255,977 2,300,485 2,358,216 ---------- ---------- ----------
Expenses: General operating and administra- tive 157,741 94,279 110,863 Professional services 20,741 24,641 37,231 Bad debt expense 1,541 4,788 - Real estate taxes 47,182 36,926 71,907 State and other taxes 15,982 17,740 44,472 Loss on termination of direct financing leases - 30,431 - Depreciation and amortization 397,735 403,147 362,419 ---------- ---------- ---------- 640,922 611,952 626,892 ---------- ---------- ----------
Income Before Minority Interest in Loss of Consolidated Joint Venture, Equity in Earnings of Unconsolidated Joint Ventures and Gain on Sale of Land and Building 1,615,055 1,688,533 1,731,324
Minority Interest in Loss of Consolidated Joint Venture 11,823 7,277 17,859
Equity in Earnings of Unconsoli- dated Joint Ventures 47,018 47,219 45,711
Gain on Sale of Land and Building 5,924 - - ---------- ---------- ----------
Net Income $1,679,820 $1,743,029 $1,794,894 ========== ========== ==========
Allocation of Net Income: General partners $ 16,754 $ 17,430 $ 17,949 Limited partners 1,663,066 1,725,599 1,776,945 ---------- ---------- ----------
$1,679,820 $1,743,029 $1,794,894 ========== ========== ==========
Net Income Per Limited Partner Unit $ 33.26 $ 34.51 $ 35.54 ========== ========== ==========
Weighted Average Number of Limited Partner Units Outstanding 50,000 50,000 50,000 ========== ========== ==========
See accompanying notes to financial statements.
CNL INCOME FUND V, LTD. (A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS ------------------------
Year Ended December 31, 1995 1994 1993 ----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities: Cash received from tenants $ 2,216,111 $ 2,272,510 $ 2,349,015 Distributions from uncon- solidated joint ventures 53,405 52,701 52,571 Cash paid for expenses (173,597) (155,948) (196,578) Interest received 46,999 7,816 10,650 ----------- ----------- ----------- Net cash provided by operating activities 2,142,918 2,177,079 2,215,658 ----------- ----------- -----------
Cash Flows from Investing Activities: Proceeds from sale of portion of land for right of way purposes 7,625 - - Collections on mortgage note receivable 11,409 - - ----------- ----------- ----------- Net cash provided by investing activities 19,034 - - ----------- ----------- -----------
Cash Flows from Financing Activities: Contributions from general partner 31,500 - - Distributions to limited partners (2,300,000) (2,300,000) (1,735,129) Distributions to holder of minority interest - - (10,725) ----------- ----------- ----------- Net cash used in financing activities (2,268,500) (2,300,000) (1,745,854) ----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents (106,548) (122,921) 469,804
Cash and Cash Equivalents at Beginning of Year 425,600 548,521 78,717 ----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 319,052 $ 425,600 $ 548,521 =========== =========== ===========
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Net income $ 1,679,820 $ 1,743,029 $ 1,794,894 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Loss on termination of direct financing leases - 30,431 - Depreciation 397,735 402,980 341,680 Minority interest in loss of consolidated joint venture (11,823) (7,277) (17,859) Amortization - 167 20,739 Equity in earnings of unconsolidated joint ventures, net of distributions 6,387 5,482 6,860 Gain on sale of land and building (5,924) - - Increase in accrued interest on mortgage note receivable (8,786) - - Decrease in receivables 13,527 13,656 15,871 Decrease (increase) in prepaid expenses (534) 1,383 (4,262) Decrease in net investment in direct financing leases 42,180 38,532 24,185 Increase in accrued rental income (30,484) (64,929) (36,637) Increase in accounts payable and accrued expenses 9,730 3,982 64,276 Increase in due to related parties 41,585 10,513 5,334 Increase (decrease) in rents paid in advance 9,505 (870) 577 ----------- ----------- ----------- Total adjustments 463,098 434,050 420,764 ----------- ----------- -----------
Net Cash Provided by Operating Activities $ 2,142,918 $ 2,177,079 $ 2,215,658 =========== =========== ===========
Supplemental Schedule of Non-Cash Investing and Financing Activities:
Net investment in direct financing leases reclassi- fied to land and buildings on operating leases as a result of lease amendment or termination $ - $ 1,987,609 $ - =========== =========== ===========
Mortgage note accepted in connection with sale of land and building $ 1,040,000 $ - $ - =========== =========== ===========
Distributions declared and unpaid at December 31 $ 575,000 $ 575,000 $ 575,000 =========== =========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND V, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS -----------------------------
Years Ended December 31, 1995, 1994 and 1993
1. Significant Accounting Policies: -------------------------------
Organization and Nature of Business - CNL Income Fund V, 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 and family-style restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the "Corporate General Partner"), James M. Seneff, Jr. and Robert A. Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of the Corporate General Partner. The general partners have responsibility for managing the day-to-day operations of the Partnership.
Land and Buildings on Operating Leases - Generally, land and buildings on operating leases are stated at cost. Buildings are depreciated using the straight-line method over their estimated useful lives ranging from 25 to 30 years. When properties are sold, the related cost and accumulated depreciation are removed from the accounts and gains and losses from sales are reflected in income in accordance with Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate." For any sales in which the installment sales method applies, gain resulting from the sale of land and building is deferred and the gain is recognized proportionately as the sales value is collected. For any sales in which the full accrual method applies, gain resulting from the sale of land and building is recognized at the date of sale and is reflected in income.
The properties will be written down to net realizable value in the event the general partners believe that the undepreciated cost cannot be recovered through operations. The general partners determine whether an impairment in value has occurred by comparing the estimated undiscounted future cash flows with the carrying cost of the individual properties.
Lease Accounting and Rental Income - Land and buildings are leased to others on a triple-net lease basis, whereby the tenant is generally responsible for all operating expenses relating to the property, including property taxes, insurance, maintenance and repairs.
The leases are accounted for using either the direct financing or the operating method. Such methods are described below:
Direct financing method - Leases accounted for using the direct financing method are recorded at their net investment (Note 4). Unearned income is deferred and amortized to income over the lease terms so as to produce a constant periodic rate of return on the Partnership's net investment in the lease.
Operating method - Generally, land and buildings are recorded at cost, revenue is recognized as rentals are earned and depreciation is charged to operations as incurred. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis over the lease term so as to produce a constant periodic rent. Accrued rental income is the aggregate difference between the scheduled rents which vary during the lease term and the income recognized on a straight-line basis.
When the collection of amounts recorded as rental or other income are considered to be doubtful, an adjustment is made to increase the allowance for doubtful accounts, which is netted against receivables, and to decrease rental or other income or increase bad debt expense for the current period, although the Partnership continues to pursue collection of such amounts. If amounts are subsequently determined to be uncollectible, the corresponding receivable and allowance for doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its 66.5% interest in CNL/Longacre Joint Venture, a Florida general partnership, using the consolidation method. Minority interest represents the minority joint venture partner's proportionate share of the equity in the Partnership's consolidated joint venture. All significant intercompany accounts and transactions have been eliminated.
The Partnership's investments in Cocoa Joint Venture and Halls Joint Venture are accounted for using the equity method since the Partnership shares control with affiliates which have the same general partners.
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, money market funds and overnight repurchase agreements 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. The Partnership limits investment of temporary cash investments to financial institutions with high credit standing; therefore, the Partnership believes it is not exposed to any significant credit risk on cash and cash equivalents.
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 properties.
Additionally, for tax purposes, syndication costs are included in Partnership equity and in the basis of each partner's investment. For financial reporting purposes, syndication costs are netted against partners' capital and represent a reduction of Partnership equity and a reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial statements have been reclassified to conform to 1995 presentation. These reclassifications had no effect on partners' capital or net income.
New Accounting Standard - In March 1995, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long- Lived Assets to Be Disposed Of." The Statement, which is effective for fiscal years beginning after December 15, 1995, requires that an entity review long-lived assets and certain identifiable intangibles, to be held and used, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. The Partnership will adopt this standard in 1996. The general partners believe that adoption of this standard currently would not have had a material effect on the Partnership's financial position or results of operations.
2. Leases: ------
The Partnership leases its land and buildings primarily to operators of national and regional fast-food and family-style restaurants. The leases are accounted for under the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases." The leases generally are classified as operating leases; however, four leases have been classified as direct financing leases. Substantially all leases are for 15 to 20 years and provide for minimum and contingent rentals. In addition, the tenant generally pays all property taxes and assessments, fully maintains the interior and exterior of the building and carries insurance coverage for public liability, property damage, fire and extended coverage. The lease options generally allow tenants to renew the leases for two to four 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.
3. Land and Buildings on Operating Leases: --------------------------------------
Land and buildings on operating leases consisted of the following at December 31:
1995 1994 ----------- -----------
Land $ 7,666,704 $ 7,926,931 Buildings 11,102,384 11,881,287 ----------- ----------- 18,769,088 19,808,218 Less accumulated depreciation (2,128,453) (1,873,060) ----------- -----------
$16,640,635 $17,935,158 =========== ===========
In August 1995, the Partnership sold its property in Myrtle Beach, South Carolina, to the tenant for $1,040,000 and accepted the sales proceeds in the form of a promissory note (Note 6). The total carrying value of the property was $896,788, including acquisition fees and miscellaneous acquisition expenses and net of accumulated depreciation. As a result of this sale being accounted for using the installment sales method for financial reporting purposes as required by Statement of Financial Accounting Standards No. 66, "Accounting for Sales of Real Estate," the Partnership recognized a gain of $1,571 for the year ended December 31, 1995, and had a deferred gain in the amount of $141,641 at December 31, 1995 (Note 6).
Some leases provide for escalating guaranteed minimum rents throughout the lease terms. Income from these scheduled rent increases is recognized on a straight-line basis over the terms of the leases. For the years ended December 31, 1995, 1994 and 1993, the Partnership recognized $30,484, $64,929 and $36,637, respectively, of such rental income.
The following is a schedule of the future minimum lease payments to be received on noncancellable operating leases at December 31, 1995:
1996 $ 1,744,714 1997 1,727,951 1998 1,698,635 1999 1,708,363 2000 1,736,212 Thereafter 13,610,416 -----------
$22,226,291 ===========
4. Net Investment in Direct Financing Leases: -----------------------------------------
The following lists the components of the net investment in direct financing leases at December 31:
1995 1994 ----------- -----------
Minimum lease payments receivable $ 3,043,263 $ 3,275,201 Estimated residual values 828,783 832,055 Less unearned income (1,884,253) (2,074,011) ----------- -----------
Net investment in direct financing leases $ 1,987,793 $ 2,033,245 =========== ===========
The following is a schedule of future minimum lease payments to be received on direct financing leases at December 31, 1995:
1996 $ 231,938 1997 231,938 1998 231,938 1999 231,938 2000 231,938 Thereafter 1,883,573 ----------
$3,043,263 ==========
In October 1995, the Partnership sold a portion of land relating to its Property in Daleville, Indiana, in connection with a right of way taking and received sales proceeds of $7,625. In connection therewith, the Partnership recognized a gain of $4,353 for financial reporting purposes for the year ended December 31, 1995.
During the year ended December 31, 1994, two of the Partnership's leases were terminated. As a result of the lease terminations, the Partnership reclassified these leases from direct financing leases to operating leases, whereby the properties were recorded at cost. Due to the fact that the net carrying value of the properties as direct financing leases exceeded the cost of the properties, the Partnership recognized a loss of $30,431 for financial reporting purposes for the year ended December 31, 1994.
5. Investment in Joint Ventures: ----------------------------
The Partnership has a 43 percent and a 49 percent interest in the profits and losses of Cocoa Joint Venture and Halls Joint Venture, respectively. The remaining interests in these joint ventures are held by affiliates of the Partnership which have the same general partners.
Cocoa Joint Venture and Halls Joint Venture each own and lease one property to an operator of national fast-food or family-style restaurants. The following presents the joint ventures' combined, condensed financial information at December 31:
1995 1994 ---------- ---------- Land and buildings on operating leases, less accumulated depreciation $ 967,182 $ 987,958 Cash 112 373 Prepaid expenses 80 - Accrued rental income 58,970 52,035 Other assets - 11 Liabilities 447 644 Partners' capital 1,025,897 1,039,733 Revenues 124,356 124,058 Net income 100,215 100,632
The Partnership recognized income totalling $47,018, $47,219 and $45,711 for the years ended December 31, 1995, 1994 and 1993, respectively, from these joint ventures.
6. Mortgage Note Receivable: ------------------------
In connection with the sale of its property in Myrtle Beach, South Carolina, the Partnership accepted a promissory note in the principal sum of $1,040,000, collateralized by a mortgage on the property. The promissory note bears interest at 10.25% per annum and is being collected in 59 equal monthly installments of $9,319, with a balloon payment of $1,006,004 due in July 2000.
The mortgage note receivable consisted of the following at December 31, 1995:
Principal balance $1,028,591 Accrued interest receivable 8,786 Less deferred gain on sale of land and building (141,641) ----------
$ 895,736 ==========
Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments," requires disclosure of the year- end fair value of significant financial instruments. The general partners believe, based upon the current terms, that the estimated fair value of the Partnership's mortgage note receivable is $1,037,377. The difference between the carrying value and the estimated fair value of the mortgage note receivable represents the deferred gain on the sale of land and building that is being recognized as income proportionately as payments under the note are collected.
7. Allocations and Distributions: -----------------------------
All net income and net losses of the Partnership, excluding gains and losses from the sale of properties, are allocated 99 percent to the limited partners and one percent to the general partners. Distributions of net cash flow are made 99 percent to the limited partners and one percent to the general partners; provided, however, that the one percent of net cash flow to be distributed to the general partners is subordinated to receipt by the limited partners of an aggregate, ten percent, cumulative, noncompounded annual return on their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties, to the extent distributed, will be distributed first to the limited partners in an amount sufficient to provide them with their 10% Preferred Return, plus the return of their adjusted capital contributions. The general partners will then receive, to the extent previously subordinated and unpaid, a one percent interest in all prior distributions of net cash flow and a return of their capital contributions. Any remaining sales proceeds will be distributed 95 percent to the limited partners and five percent to the general partners.
Any gain from the sale of a property is,in general, allocated in the same manner as net sales proceeds are distributable. Any loss from the sale of a property is, in general, allocated first, on a pro rata basis, to partners with positive balances in their capital accounts; and thereafter, 95 percent to the limited partners and five percent to the general partners.
During each of the years ended December 31, 1995, 1994 and 1993, the Partnership declared distributions to the limited partners of $2,300,000. No distributions have been made to the general partners to date.
8. Income Taxes: ------------
The following is a reconciliation of net income for financial reporting purposes to net income for federal income tax purposes for the years ended December 31:
1995 1994 1993 ---------- ---------- ----------
Net income for financial reporting purposes $1,679,820 $1,743,029 $1,794,894
Depreciation for tax reporting purposes in excess of depreciation for financial reporting purposes (26,980) (31,009) (92,309)
Gain on disposition of land and building for financial reporting purposes in excess of gain for tax reporting purposes (69) - -
Direct financing leases recorded as operating leases for tax reporting purposes 42,180 38,532 24,185
Loss on termination of direct financing leases - 30,431 -
Equity in earnings of unconsolidated joint ventures for tax reporting purposes less than equity in earnings of unconsolidated joint ventures for financial reporting purposes (2,926) (3,954) (2,448)
Allowance for doubtful accounts (150,480) 35,321 8,239
Accrued rental income (30,484) (64,929) (36,637)
Rents paid in advance 9,505 (870) 577
Minority interest in timing differences of consolidated joint venture (370) (370) 36,952 ---------- ---------- ----------
Net income for federal income tax purposes $1,520,196 $1,746,181 $1,733,453 ========== ========== ==========
9. Related Party Transactions: --------------------------
One of the individual general partners, James M. Seneff, Jr., is one of the principal shareholders of CNL Group, Inc., the parent company of CNL Investment Company and CNL Fund Advisors, Inc. The other individual general partner, Robert A. Bourne, is the president of CNL Investment Company and CNL Fund Advisors, Inc. CNL Income Fund Advisors, Inc. was a wholly owned subsidiary of CNL Group, Inc. until its merger, effective January 1, 1996, with CNL Fund Advisors, Inc. During the years ended December 31, 1995, 1994 and 1993, CNL Investment Company, CNL Income Fund Advisors, Inc. and CNL Fund Advisors, Inc. (hereinafter referred to collectively as the "Affiliates") each performed certain services for the Partnership, as described below.
During the years ended December 31, 1995, 1994 and 1993, certain Affiliates acted as manager of the Partnership's properties pursuant to a management agreement with the Partnership. In connection therewith, the Partnership agreed to pay the Affiliates a 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, but not in excess of competitive fees for comparable services. These fees are payable only after the limited partners receive their 10% Preferred Return. Due to the subordinated nature of these fees, no management fees have been incurred since inception.
Certain Affiliates are also entitled to receive a deferred, subordinated real estate disposition fee, payable upon the sale of one or more properties based on the lesser of one-half of a competitive real estate commission or three percent of the sales price if the Affiliates provide a substantial amount of services in connection with the sale. In addition, the real estate disposition fee is subordinated to receipt by the limited partners of their aggregate 10% Preferred Return, plus their adjusted capital contributions. No deferred, subordinated real estate disposition fees have been incurred since inception.
During the years ended December 31, 1995, 1994 and 1993, the Affiliates provided accounting and administrative services to the Partnership on a day-to-day basis. The Partnership incurred $83,882, $47,314 and $42,252 for the years ended December 31, 1995, 1994 and 1993, respectively, for such services.
The due to related parties at December 31, 1995 and 1994 of $61,519 and $19,934, respectively, represents amounts due to Affiliates for accounting and administrative services and for expenditures incurred on behalf of the Partnership.
10. Concentration of Credit Risk: ----------------------------
For the years ended December 31, 1995, 1994 and 1993, total rental and earned income from Shoney's, Inc. was $247,353, $248,176 and $253,355, respectively, each representing more than ten percent of the Partnership's total rental and earned income (including the Partnership's share of total rental and earned income from joint ventures).
In addition, the following schedule presents total rental and earned income from individual restaurant chains, each representing more than ten percent of the Partnership's total rental and earned income (including the Partnership's share of total rental and earned income from joint ventures) for at least one of the years ended December 31:
1995 1994 1993 -------- -------- --------
Denny's $314,057 $307,596 $321,062 Wendy's Old Fashioned Hamburger Restaurant 278,127 280,075 293,096 Perkins 226,898 278,754 283,595 Hardees 183,123 237,671 273,317
Although the Partnership's properties are geographically diverse and the Partnership's lessees operate a variety of restaurant concepts, failure of any one of these lessees or restaurant chains, could significantly impact the results of operations of the Partnership. However, the general partners believe that the risk of such a default is reduced due to the essential or important nature of these properties for the on- going operations of the lessees.
11. Subsequent Event: ----------------
In January 1996, the corporate general partner contributed capital of $100,000 in connection with the operations of the Partnership.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10.
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 Investment Company, CNL Fund Advisors, Inc., and CNL Group, Inc. and its affiliates, all of which are affiliates of the General Partners. In addition, during 1995, the Partnership had available to it the services, personnel and experience of CNL Income Fund Advisors, Inc., prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996.
James M. Seneff, Jr., age 49, is a principal stockholder of CNL Group, Inc., a diversified real estate company, and has served as its Chairman of the Board of Directors and Chief Executive Officer since its formation in 1973. CNL Group, Inc. is the parent company of CNL Securities Corp., CNL Investment Company, CNL Fund Advisors, Inc., and prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors, Inc. Mr. Seneff has been a director and registered principal of CNL Securities Corp., which served as the managing dealer in the Partnership's offering of Units, since its formation in 1979. Mr. Seneff also has held the position of President and a director of CNL Management Company, a registered investment advisor, since its formation in 1976, has served as Chairman of the Board and Chief Executive Officer of CNL Investment Company and Chief Executive Officer and Chairman of the Board of Commercial Net Lease Realty, Inc. since 1992, has served as Chairman of the Board and Chief Executive Officer of CNL Realty Advisors, Inc. since its inception in 1991, served as Chairman of the Board and Chief Executive Officer of CNL Income Fund Advisors, Inc. since its inception in 1994 through December 31, 1995, has served as Chairman of the Board and Chief Executive Officer of CNL Fund Advisors, Inc. since its inception in 1994, and has held the position of Chief Executive Officer and a director of CNL Institutional Advisors, Inc., a registered investment advisor, since its inception in 1990. Mr. Seneff previously served on the Florida State Commission on Ethics and is a former member and past Chairman of the 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 $40 billion of retirement funds. 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 joint venturer in approximately 100 real estate ventures involved in the financing, acquisition, construction and rental of office buildings, apartment complexes, restaurants, hotels and other real estate. Included in these 100 real estate ventures are approximately 57 privately offered real estate limited partnerships in which Mr. Seneff, directly or through an affiliated entity, serves or has served as a general partner. Also included are CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd. (the "CNL Income Fund Partnerships"), public real estate limited partnerships with investment objectives similar to those of the Partnership, in which Mr. Seneff serves as a general partner. Mr. Seneff received his degree in Business Administration from Florida State University in 1968.
Robert A. Bourne, age 48, is President and Treasurer of CNL Group, Inc., President, a director and a registered principal of CNL Securities Corp., President and a director of CNL Investment Company, CNL Fund Advisors, Inc., and prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors, Inc., and President, Chief Investment Officer and a director of CNL Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne also has served as a director since 1992, as President from July 1992 to February 1996, as Vice Chairman of the Board of Directors, Secretary and Treasurer and since February 1996, of Commercial Net Lease Realty, Inc. In addition, Mr. Bourne has served as a director since its inception in 1991, as President from 1991 to February 1996, and as Secretary and Treasurer since February 1996, of CNL Realty Advisors, Inc. Upon graduation from Florida State University in 1970, where he received a B.A. in Accounting, with honors, Mr. Bourne worked as a certified public accountant and, from September 1971 through December 1978, was employed by Coopers & Lybrand, Certified Public Accountants, where he held the position of tax manager beginning in 1975. From January 1979 until June 1982, Mr. Bourne was a partner in the accounting firm of Cross & Bourne and from July 1982 through January 1987, he was a partner in the accounting firm of Bourne & Rose, P. A., Certified Public Accountants. Mr. Bourne, who joined CNL Securities Corp. in 1979, has participated as a general partner or joint venturer in approximately 100 real estate ventures involved in the financing, acquisition, construction and rental of office buildings, apartment complexes, restaurants, hotels and other real estate. Included in these 100 real estate ventures are approximately 57 privately offered real estate limited partnerships in which Mr. Bourne, directly or through an affiliated entity, serves or has served as a general partner. Also included are the CNL Income Fund Partnerships, public real estate limited partnerships with investment objectives similar to those of the Partnership, in which Mr. Bourne serves as a general partner.
CNL Realty Corporation is a corporation organized on November 26, 1985, under the laws of the State of Florida. Its sole directors and shareholders are James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL Realty Corporation was organized to serve as the corporate general partner of real estate limited partnerships, such as the Partnership, organized by one or both of the individual General Partners. CNL Realty Corporation currently serves as the corporate general partner of the CNL Income Fund Partnerships.
CNL Investment Company, which through December 31, 1994, provided certain management services in connection with the Partnership and its Properties, is a corporation organized in 1990 under the laws of the State of Florida. Its principal office is located at 400 East South Street, Suite 500, Orlando, Florida 32801. CNL Investment Company is a wholly owned subsidiary of CNL Group, Inc., a diversified real estate company, and was organized to perform property acquisition, property management and other services.
CNL Income Fund Advisors, Inc., for the period January 1, 1995 through September 30, 1995, provided certain management services in connection with the Partnership and its Properties following the assignment by CNL Investment Company of its rights and obligations under the management agreement. CNL Income Fund Advisors, Inc. was a corporation organized in 1994 under the laws of the State of Florida, and its principal office was located at 400 East South Street, Suite 500, Orlando, Florida 32801. CNL Income Fund Advisors, Inc. was a wholly owned subsidiary of CNL Group, Inc., a diversified real estate company, and was organized to perform property acquisition, property management and other services. CNL Income Fund Advisors, Inc. merged with CNL Fund Advisors, Inc. effective January 1, 1996.
CNL Fund Advisors, Inc., effective October 1, 1995, began providing certain management services in connection with the Partnership and its Properties following the assignment by CNL Income Fund Advisors, Inc. of its rights and obligations under the management agreement. CNL Fund Advisors, Inc. is a corporation organized in 1994 under the laws of the State of Florida, and its principal office located at 400 East South Street, Suite 500, Orlando, Florida 32801. CNL Fund Advisors, Inc. is a wholly owned subsidiary of CNL Group, Inc., a diversified real estate company, and was organized to perform property acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Investment Company and CNL Fund Advisors, Inc., is a diversified real estate corporation organized in 1980 under the laws of the State of Florida. Other subsidiaries and affiliates of CNL Group, Inc. include a property development and management company, two investment advisory companies, and six corporations organized as strategic business units. James M. Seneff, Jr., an individual General Partner of the Partnership, is the Chairman of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr. Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or its affiliates or subsidiaries in the discretion of the Boards of Directors of those companies, but, except as specifically indicated, do not serve as members of the Boards of Directors of those entities. The Boards of Directors have the responsibility for creating and implementing the policies of CNL Group, Inc. and its affiliated companies.
John T. Walker, age 37, joined CNL Group, Inc. in September 1994, as Senior Vice President, responsible for Research and Development. He currently serves as the Chief Operating Officer and Executive Vice President of CNL Fund Advisors, Inc. and CNL American Properties Fund, Inc. From May 1992 to May 1994, he was Executive Vice President for Finance and Administration and Chief Financial Officer of Z Music, Inc., a television network which was subsequently acquired by Gaylord Entertainment, where he was responsible for overall financial and administrative management and planning. From January 1990 through April 1992, Mr. Walker was Chief Financial Officer of the First Baptist Church in Orlando, Florida. From April 1984 through December 1989, he was a partner in the accounting firm of Chastang, Ferrell & Walker, P.A., where he was the partner in charge of audit and consulting services, and from 1981 to 1984, Mr. Walker was a Senior Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude graduate of Wake Forest University with a B.S. in Accountancy and is a Certified Public Accountant.
Lynn E. Rose, age 47, a certified public accountant, has served as Chief Financial Officer and Secretary of CNL Group, Inc. since December 1993, and served as Controller and Secretary of CNL Group, Inc. from 1987 until December 1993. She has served as Chief Operating Officer of CNL Corporate Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial Officer of CNL Institutional Advisors, Inc. since its inception in 1990, a director of CNL Realty Advisors, Inc. since its inception in 1991, Secretary and Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996, Secretary and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996, Secretary of CNL Income Fund Advisors, Inc. since its inception in 1994 to December 1995, and Secretary and Treasurer of CNL Fund Advisors, Inc. since its inception in 1994. Ms. Rose also has served as Chief Financial Officer, Secretary and Treasurer of CNL American Properties Fund, Inc. since its inception in 1994. In addition, Ms. Rose oversees the management information services, administration, legal compliance, accounting, tenant compliance, and reporting for over 200 corporations, partnerships, and joint ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A. Bourne in the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Ms. Rose holds a B.A. in Sociology from the University of Central Florida and is a registered financial and operations principal of CNL Securities Corp. She was licensed as a Certified Public Accountant in 1979.
Jeanne A. Wall, age 37, has served as Chief Operating Officer of CNL Investment Company and of CNL Securities Corp. since November 1994 and previously served as Executive Vice President of CNL Investment Company since January 1991. In 1984, Ms. Wall joined CNL Securities Corp. as its Partnership Administrator. In 1985, Ms. Wall became Vice President of CNL Securities Corp. and, in 1987, she became a Senior Vice President of CNL Securities Corp. In this capacity, Ms. Wall serves as national marketing director and oversees the national marketing plan for the CNL investment programs. In addition, Ms. Wall oversees the partnership administration and investor services for programs offered through participating brokers. Ms. Wall also has served as Senior Vice President of CNL Institutional Advisors, Inc., a registered investment advisor, from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its inception in 1991, as Vice President of Commercial Net Lease Realty, Inc. since 1992, as Executive Vice President of CNL Income Fund Advisors, Inc. from its inception in 1994 to December 1995, as Executive Vice President of CNL Fund Advisors, Inc. since its inception in 1994, and as Executive Vice President of CNL American Properties, Inc. since its inception in 1994. Ms. Wall holds a B.A. in Business Administration from Linfield College and is a registered principal of CNL Securities Corp. Ms. Wall currently serves as a trustee on the board of the Investment Program Association and on the Direct Participation Program committee for the National Association of Securities Dealers (NASD).
ITEM 11.
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.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 29, 1996, 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 February 29, 1996, the beneficial ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class -------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45% Robert A. Bourne 45% CNL Realty Corporation 10% ---- 100% ====
Neither the General Partners, nor any of their affiliates, owns any interest in the Registrant except as noted above. There are no arrangements which at a subsequent date may result in a change in control of the Registrant.
ITEM 13.
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, 1995, exclusive of any distributions to which the General Partners or their affiliates may be entitled by reason of their purchase and ownership of Units.
Amount Incurred Type of Compensation For the Year and Recipient Method of Computation Ended December 31, 1995 - --------------------- --------------------- -----------------------
Reimbursement to Operating expenses are Operating expenses affiliates for reimbursed at the lower incurred on behalf of operating expenses of cost or 90 percent of the Partnership: the prevailing rate at $114,204 which comparable services could have been Accounting and obtained in the same administrative services: geographic area. $83,882 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, subordinated One percent of the sum $ - 0 - management fee to of gross operating affiliates 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, subordinated to certain minimum returns to the Limited Partners. The management fee will not exceed competitive fees for comparable services.
Deferred, subordinated A deferred, subordinated $ - 0 - real estate real estate disposition disposition fee fee, payable upon sale payable to affiliates of one or more Properties, in an amount equal to the lesser of (i) one-half of a competitive real estate commission, or (ii) three percent of the sales price of such Property or Properties. Payment of such fee shall be made only if affiliates of the General Partners provide a substantial amount of services in connection with the sale of a Property or Properties and shall be subordinated to certain minimum returns to the Limited Partners.
General Partners' A deferred, subordinated $ - 0 - deferred, sub- share equal to one ordinated share of percent of Partnership Partnership net cash distributions of net flow cash flow, subordinated to certain minimum returns to the Limited Partners.
General Partners' A deferred, subordinated $ - 0 - deferred, sub- share equal to five ordinated share of percent of Partnership Partnership net sales distributions of such proceeds from a sale net sales proceeds, or sales subordinated to certain minimum returns to the Limited Partners.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1995 and 1994
Statements of Income for the years ended December 31, 1995, 1994 and 1993
Statements of Partners' Capital for the years ended December 31, 1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1995, 1994 and 1993
Schedule III - Real Estate and Accumulated Depreciation at December 31, 1995
Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 1995
Schedule IV - Mortgage Loan on Real Estate at December 31, 1995
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 Amended and Restated Affidavit and Certificate of Limited Partnership of CNL Income Fund V, Ltd. (Included as Exhibit 3.1 to Form 10-K filed with the Securities and Exchange Commission on March 31, 1994, and incorporated herein by reference.)
4.1 Amended and Restated Affidavit and Certificate of Limited Partnership of CNL Income Fund V, Ltd. (Included as Exhibit 3.1 and incorporated herein by reference.)
4.2 Amended and Restated Certificate and Agreement of Limited Partnership of CNL Income Fund V, Ltd. (Included as Exhibit 4.2 to Form 10-K filed with the Securities and Exchange Commission on March 31, 1994, and incorporated herein by reference.)
10.1 Management Agreement (Included as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on March 31, 1994, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL Investment Company to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to Form 10-K filed with the Securities and Exchange Commission on March 30, 1995, and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from October 1, 1995 through December 31, 1995.
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, 1996.
CNL INCOME FUND V, 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 March 28, 1996 - ------------------------ Director (Principal Robert A. Bourne Financial and Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer March 28, 1996 - ------------------------ and Director (Principal James M. Seneff, Jr. Executive Officer)
CNL INCOME FUND V, LTD. (A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS -----------------------------------------------
Years Ended December 31, 1995, 1994 and 1993
Additions ----------------------- Balance at Charged to Charged to Balance Beginning Costs and Other at End Year Description of Year Expenses Accounts Deductions of Year - ---- ----------- ---------- ---------- ----------- ----------- --------
1993 Allowance for doubtful accounts (a) $111,410 $19,210 $144,872(b) $ - $275,492 ======== ======= ======== ======== ========
1994 Allowance for doubtful accounts (a) $275,492 $ 4,788 $150,184(b) $ - $430,464 ======== ======= ======== ======== ========
1995 Allowance for doubtful accounts (a) $430,464 $ - $ 19,561(b) $445,535(c) $ 4,490 ======== ======= ======== ======== ========
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND V, LTD. (A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION -------------------------------------------------------
December 31, 1995
(A) (B) (C) (D) (E)
Costs Capitalized Subsequent Initial Cost To Acquisition ----------------------- ------------------- Buildings Encum- and Improve- Carrying brances Land Improvements ments Costs ------- ---------- ------------ ---------- --------
Properties the Partnership has Invested in Under Operating Leases:
Burger King Restaurant: Lawrenceville, GA - $ 482,070 $ - $ 368,416 $ -
Captain D's Restaurant: Belleville, IL - 186,050 383,781 - -
Denny's Restaurant: New Castle, Indiana - 117,394 471,340 - - Port Orange, FL - 530,689 506,630 53,247 -
Golden Corral Family Steakhouse Restaurants: Livingston, TX - 156,382 429,107 - - Victoria, TX - 504,787 742,216 - -
Hardee's Restaurants: Richmond, IN - 267,763 - 474,121 - Belding, MI - 113,884 564,805 - - Connorsville, IN - 279,665 - 466,137 - South Haven, MI - 120,847 599,339 - -
KFC Restaurant: Salem, NH - 654,024 - 511,053 -
Perkins Restaurants: Port St. Lucie, FL - 586,159 - 674,446 -
Pizza Hut Restaurant: Mexia, TX - 237,944 200,501 - -
Ponderosa Steakhouse Restaurant: St. Cloud, FL - 382,634 - 670,476 -
Shoney's Restaurant: Tyler, TX - 312,404 533,990 - -
Taco Bell Restaurants: Bountiful, UT - 330,164 - 319,511 - Centralia, WA - 215,302 - 378,836 -
Wendy's Old Fashioned Hamburger Restaurants: Tampa, FL - 336,218 462,400 - - Tampa, FL - 290,479 430,134 - - Endicott, NY - 277,965 243,839 - - Ithaca, NY - 310,462 208,618 - -
Other: Lebanon, NH (e) - 448,724 - 696,741 - Franklin, TN (f) - 524,694 - 712,700 - ---------- ---------- ---------- --------
$7,666,704 $5,776,700 $5,325,684 $ - ========== ========== ========== ========
Property of Joint Venture in Which the Partnership has a 43% Interest and has Invested in Under an Operating Lease: Waffle House Restaurant: Cocoa, FL - $ 183,229 $ 192,857 $ - $ - ========== ========== ========== ========
Property of Joint Venture in Which the Partnership has a 49% Interest and has Invested in Under an Operating Lease:
Burger King Restaurant: Knoxville, TN - $ 283,961 $ 430,406 $ - $ - ========== ========== ========== ========
Properties the Partnership has Invested in Under Direct Financing Leases: Captain D's Restaurant: Zanesville, OH - $ 99,651 $ 390,518 $ - $ -
Denny's Restaurants: Dalesville, IN - 125,562 458,914 - - Huron, OH - 27,418 456,139 - -
Shoney's Restaurant: Smyrna, TN - 129,757 480,003 - - ---------- ---------- --------- --------
$ 382,388 $1,785,574 $ - $ - ========== ========== ========= ========
CNL INCOME FUND V, LTD. (A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED -------------------------------------------------------------------
December 31, 1995
(F) (G) (H) (I)
Gross Amount at Which Carried at Close of Period (c) ------------------------------------- Buildings and Accumulated Land Improvements Total Depreciation ---------- ------------ ----------- ------------
Properties the Partnership has Invested in Under Operating Leases:
Burger King Restaurant: Lawrenceville, GA $ 482,070 $ 368,416 $ 850,486 $ 79,824
Captain D's Restaurant: Belleville, IL 186,050 383,781 569,831 86,884
Denny's Restaurant: New Castle, IN 117,394 471,340 588,734 37,569 Port Orange, FL 530,689 559,877 1,090,566 119,212
Golden Corral Family Steakhouse Restaurants: Livingston, TX 156,382 429,107 585,489 90,587 Victoria, TX 504,787 742,216 1,247,003 149,295
Hardee's Restaurants: Richmond, IN 267,763 474,121 741,884 106,019 Belding, MI 113,884 564,805 678,689 43,129 Connorsville, IN 279,665 466,137 745,802 99,763 South Haven, MI 120,847 599,339 720,186 45,766
KFC Restaurant: Salem, NH 654,024 511,053 1,165,077 100,792
Perkins Restaurants: Port St. Lucie, FL 586,159 674,446 1,260,605 130,205
Pizza Hut Restaurant: Mexia, TX 237,944 200,501 438,445 45,113
Ponderosa Steakhouse Restaurant: St. Cloud, FL 382,634 670,476 1,053,110 140,614
Shoney's Restaurant: Tyler, TX 312,404 533,990 846,394 120,148
Taco Bell Restaurants: Bountiful, UT 330,164 319,511 649,675 67,896 Centralia, WA 215,302 378,836 594,138 76,819
Wendy's Old Fashioned Hamburger Restaurants: Tampa, FL 336,218 462,400 798,618 105,325 Tampa, FL 290,479 430,134 720,613 98,572 Endicott, NY 277,965 243,839 521,804 49,444 Ithaca, NY 310,462 208,618 519,080 42,302
Other: Lebanon, NH (e) 448,724 696,741 1,145,465 149,993 Franklin, TN (f) 524,694 712,700 1,237,394 143,182 ---------- ----------- ----------- ----------
$7,666,704 $11,102,384 $18,769,088 $2,128,453 ========== =========== =========== ==========
Property of Joint Venture in Which the Partnership has a 43% Interest and has Invested in Under an Operating Lease: Waffle House Restaurant: Cocoa, FL $ 183,229 $ 192,857 $ 376,086 $ 38,624 ========== =========== =========== ==========
Property of Joint Venture in Which the Partnership has a 49% Interest and has Invested in Under an Operating Lease: Burger King Restaurant: Knoxville, TN $ 283,961 $ 430,406 $ 714,367 $ 84,647 ========== =========== =========== ==========
Properties the Partnership has Invested in Under Direct Financing Leases: Captain D's Restaurant: Zanesville, OH (d) (d) (d) (d)
Denny's Restaurants: Dalesville, IN (d) (d) (d) (d) Huron, OH (d) (d) (d) (d)
Shoney's Restaurant: Smyrna, TN (d) (d) (d) (d)
CNL INCOME FUND V, LTD. (A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED -------------------------------------------------------------------
December 31, 1995
(J) (K) (L)
Life on Which Depreciation in Latest Date Income of Con- Date Statement is struction Acquired Computed --------- -------- ------------
Properties the Partnership has Invested in Under Operating Leases:
Burger King Restaurant: Lawrenceville, GA 1989 04/89 (b)
Captain D's Restaurant: Belleville, IL 1988 03/89 (b)
Denny's Restaurant: New Castle, IN 1989 02/89 (g) Port Orange, FL 1989 07/89 (b)
Golden Corral Family Steakhouse Restaurants: Livingston, TX 1986 09/89 (b) Victoria, TX 1989 12/89 (b)
Hardee's Restaurants: Richmond, IN 1989 02/89 (b) Belding, MI 1989 03/89 (h) Connorsville, IN 1989 03/89 (b) South Haven, MI 1989 03/89 (h)
KFC Restaurant: Salem, NH 1990 05/89 (b)
Perkins Restaurants: Port St. Lucie, FL 1990 11/89 (b)
Pizza Hut Restaurant: Mexia, TX 1985 03/89 (b)
Ponderosa Steakhouse Restaurant: St. Cloud, FL 1989 06/89 (b)
Shoney's Restaurant: Tyler, TX 1988 03/89 (b)
Taco Bell Restaurants: Bountiful, UT 1989 05/89 (b) Centralia, WA 1989 08/89 (b)
Wendy's Old Fashioned Hamburger Restaurants: Tampa, FL 1987 02/89 (b) Tampa, FL 1980 02/89 (b) Endicott, NY 1976 12/89 (b) Ithaca, NY 1977 12/89 (b)
Other: Lebanon, NH (e) 1989 03/89 (b) Franklin, TN (f) 1989 06/89 (b)
Property of Joint Venture in Which the Partnership has a 43% Interest and has Invested in Under an Operating Lease: Waffle House Restaurant: Cocoa, FL 1986 12/89 (b)
Property of Joint Venture in Which the Partnership has a 49% Interest and has Invested in Under an Operating Lease: Burger King Restaurant: Knoxville, TN 1985 01/90 (b)
Properties the Partnership has Invested in Under Direct Financing Leases: Captain D's Restaurant: Zanesville, OH 1988 03/89 (d)
Denny's Restaurants: Dalesville, IN 1974 02/89 (d) Huron, OH 1971 05/89 (d)
Shoney's Restaurant: Smyrna, TN 1988 03/89 (d)
CNL INCOME FUND V, LTD. (A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION ----------------------------------------------------------------
December 31, 1995
(a) Transactions in real estate and accumulated depreciation during 1994, 1993 and 1992, are summarized as follows:
Accumulated Cost Depreciation ----------- ------------
Properties the Partnership has Invested in Under Operating Leases:
Balance, December 31, 1992 $17,820,609 $1,128,400 Depreciation expense - 341,680 ----------- ----------
Balance, December 31, 1993 17,820,609 1,470,080 Reclassified from direct financing leases 1,987,609 - Depreciation expense - 402,980 ----------- ----------
Balance, December 31, 1994 19,808,218 1,873,060 Depreciation expense - 397,735 Dispositions (1,039,130) (142,342) ----------- ----------
Balance, December 31, 1995 $18,769,088 $2,128,453 =========== ==========
Property of Joint Venture in Which the Partnership has a 43% Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1992 $ 376,086 $ 19,338 Depreciation expense - 6,429 ----------- ----------
Balance, December 31, 1993 376,086 25,767 Depreciation expense - 6,428 ----------- ----------
Balance, December 31, 1994 376,086 32,195 Depreciation expense - 6,429 ----------- ----------
Balance, December 31, 1995 $ 376,086 $ 38,624 =========== ==========
Property of Joint Venture in Which the Partnership has a 49% Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1992 $ 714,367 $ 41,606 Depreciation expense - 14,347 ----------- ----------
Balance, December 31, 1993 714,367 55,953 Depreciation expense - 14,347 ----------- ----------
Balance, December 31, 1994 714,367 70,300 Depreciation expense - 14,347 ----------- ----------
Balance, December 31, 1995 $ 714,367 $ 84,647 =========== ==========
(b) Depreciation expense is computed for buildings and improvements based upon estimated lives of 30 years.
(c) As of December 31, 1995, the aggregate cost of the Properties owned by the Partnership and its consolidated joint venture, and the unconsolidated joint ventures for federal income tax purposes was $20,939,126 and $1,090,453, respectively. All of the leases are treated as operating leases for federal income tax purposes.
(d) 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, the cost is not shown. Depreciation is not applicable.
(e) The restaurant on the property in Lebanon, New Hampshire, was converted from a Ponderosa Steakhouse restaurant to a local, independent restaurant in 1992.
(f) The restaurant on the property in Franklin, Tennessee, was converted from a Po Folks restaurant to a local bank in 1993.
(g) Effective January 1, 1994, the lease for this property was amended, resulting in the reclassification of the building portion of the lease as an operating lease. The building was recorded at net book value as of January 1, 1994, and depreciated over its remaining estimated life of approximately 25 years.
(h) Effective February 1, 1994, the lease for this property was terminated, resulting in the lease's reclassification as an operating lease.
(1) The tax carrying value of the note is $901,994, which is net of a deferred gain of $135,383.
(2) Monthly payments of principal and interest at an annual rate of 10.25%, with a balloon payment at maturity of $1,006,004.
(3) The changes in the carrying amounts are summarized as follows:
1995 1994 1993 ---------- ---------- ----------
Balance at beginning of period $ - $ - $ -
New mortgage loan 1,040,000 - -
Accrued interest 8,786 - -
Collections of principal (11,409) - -
Deferred gain on sale of land and building (141,641) - - ---------- ---------- ----------
Balance at end of period $ 895,736 $ - $ - ========== ========== ==========
EXHIBITS
EXHIBIT INDEX
Exhibit Number - --------------
3.1 Amended and Restated Affidavit and Certificate of Limited Partnership of CNL Income Fund V, Ltd. (Included as Exhibit 3.1 to Form 10-K filed with the Securities and Exchange Commission on March 31, 1994, and incorporated herein by reference.)
4.1 Amended and Restated Affidavit and Certificate of Limited Partnership of CNL Income Fund V, Ltd. (Included as Exhibit 3.1 and incorporated herein by reference.)
4.2 Amended and Restated Certificate and Agreement of Limited Partnership of CNL Income Fund V, Ltd. (Included as Exhibit 4.2 to Form 10-K filed with the Securities and Exchange Commission on March 31, 1994, and incorporated herein by reference.)
10.1 Management Agreement (Included as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on March 31, 1994, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL Investment Company to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to Form 10-K filed with the Securities and Exchange Commission on March 30, 1995, and incorporated herein by reference.)
10.3 Assignment of Management Agreement from CNL Income Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Filed herewith.)