Item 1. Business - Leases.
Golden Corral Corporation leases four Golden Corral restaurants. The initial term of each lease is 15 years (expiring between 2004 and 2005) and the average minimum base annual rent is approximately $147,800 (ranging from approximately $137,100 to $166,700).
Restaurant Management Services, Inc. leases five Popeyes restaurants, one Shoney's restaurant, one Church's Fried Chicken restaurant and one site currently consisting of land only (formerly operated as a Church's Fried Chicken). The initial term of each lease is 20 years (expiring between 2009 and 2010) and the average minimum base annual rent is approximately $53,700 (ranging from approximately $22,100 to $121,000).
Flagstar Enterprises, Inc. leases six Hardee's restaurants. The initial term of each lease is 20 years (expiring between 2010 and 2012) and the average minimum base annual rent is approximately $78,900 (ranging from approximately $68,400 to $89,400).
The General Partners consider the Properties to be well-maintained and sufficient for the Partnership's operations.
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. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of February 28, 1997, there were 3,174 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. Since inception, the price paid for any Unit transferred pursuant to the Plan has been $.95 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 1996 and 1995 other than pursuant to the Plan, net of commissions (which ranged from zero to 17.2%).
1996 (1) 1995 (1) --------------------- --------------------- High Low Average High Low Average ------ ----- ------- ------ ----- ------- First Quarter $ .88 $ .79 $ .84 $ .95 $ .85 $ .90 Second Quarter .95 .82 .94 .77 .77 .77 Third Quarter .95 .91 .93 .82 .80 .81 Fourth Quarter .78 .75 .76 .95 .88 .93
(1) A total of 153,050 and 74,371 Units were transferred other than pursuant to the Plan for the years ended December 31, 1996 and 1995, respectively.
The capital contribution per Unit was $1. All cash available for distribution will be distributed to the partners pursuant to the provisions of the Partnership Agreement.
For the years ended December 31, 1996 and 1995, the Partnership declared cash distributions of $2,700,000 and $2,700,002, respectively, to the Limited Partners. No amounts distributed to partners for the years ended December 31, 1996 and 1995, 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. As indicated in the chart below, these distributions were declared at the close of each of the Partnership's calendar quarters. These amounts include monthly distributions made in arrears for the Limited Partners electing to receive distributions on this basis.
Quarter Ended 1996 1995 ------------- -------- -------- March 31 $675,000 $675,000 June 30 675,000 675,001 September 30 675,000 675,001 December 31 675,000 675,000
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. SELECTED FINANCIAL DATA
(1) Revenues include equity in earnings of unconsolidated joint ventures and minority interest in income of the consolidated joint venture.
(2) Net income for the years ended December 31, 1996, 1995, 1994 and 1992, includes $195,675, $1,421, $77,379 and $110,344, respectively, from gains on dispositions of land and buildings. Net income for the year ended December 31, 1996, includes a loss on sale of land and building of $235,465. In addition, net income for the year ended December 31, 1995, includes a loss on demolition of building and a loss on sale of land and building of $174,466 and $6,556, respectively.
(3) Distributions for the year ended December 31, 1994, include a special distribution to the Limited Partners of $60,000 which represented cumulative excess operating reserves.
The above selected financial data should be read in conjunction with the financial statements and related notes contained in Item 8 hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Partnership was organized on August 18, 1989, 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, 1996, the Partnership owned 40 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, 1996, 1995 and 1994, 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 $2,670,869, $2,484,538 and $2,734,382 for the years ended December 31, 1996, 1995 and 1994, respectively. The increase in cash from operations during 1996, and the decrease in 1995, each as compared to the prior year, are 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.
Other sources and uses of capital included the following during the years ended December 31, 1996, 1995 and 1994.
In May 1994, the Partnership sold its Property in St. Paul, Minnesota, for $871,322 and received net sales proceeds of $869,036, resulting in a gain of $77,379 for financial reporting purposes. The Property was originally acquired by the Partnership in August 1990, and had a cost of approximately $750,100, excluding acquisition fees and miscellaneous acquisition expenses; therefore, the Partnership sold the Property for approximately $118,900 in excess of its original purchase price. In July 1994, the Partnership reinvested approximately $426,000 of the net sales proceeds in a Property in Yuma, Arizona, as tenants-in-common with an affiliate of the General Partners. In addition, in July 1994, the Partnership reinvested approximately $397,500 in a Property in Winter Springs, Florida, in which the tenant owns the building currently on the land. The remaining net sales proceeds were used for other Partnership purposes.
In August 1995, the Partnership sold its Property in Florence, South Carolina, to the tenant for $1,160,000, and in connection therewith, accepted a promissory note in the principal sum of $1,160,000, 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 $10,395, with a balloon payment of $1,106,657 due in July 2000. Collections commenced August 10, 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 $836 and $1,421 for financial reporting purposes for the years ended December 31, 1996 and 1995, respectively, and had a deferred gain in the amount of $127,229 and $128,065 at December 31, 1996 and 1995, respectively. The mortgage notes receivable balance at December 31, 1996 and 1995, include principal of $1,139,788 and $1,147,275, respectively, and accrued interest of $6,281 and $6,639, respectively, and are shown net of the deferred gain of $127,229 and $128,065, respectively. Proceeds received from the sale of this Property will be reinvested in additional Properties or used for other Partnership purposes.
In November 1994, the Partnership received notice from the subtenant of its Property in Jacksonville, Florida, that it intended to exercise its option to purchase the Property in accordance with the terms of its sublease agreement. In December 1995, the Partnership sold its Property in Jacksonville, Florida, to the subtenant for $240,000, and in connection therewith, accepted a promissory note in the principal sum of $240,000, collateralized by a mortgage on the Property. The note bears interest at a rate of ten percent per annum and is being collected in 119 equal monthly installments of $2,106, with a balloon payment of $218,252 due December 2005. Collections commenced in January 1996. As a result of the sale of the Property, the Partnership recognized a loss of $6,556 for financial reporting purposes for the year ended December 31, 1995. The mortgage notes receivable balance at December 31, 1996 and 1995, include principal of $238,666 and $240,000, respectively, and accrued interest of $1,989 and $2,000, respectively. Proceeds received from the sale of this Property will be distributed to the Limited Partners or will be used for other Partnership purposes.
In March 1996, the Partnership entered into an agreement with the tenant of the Property in Daytona Beach, Florida, for payment of certain rental payment deferrals the Partnership had granted to the tenant. Under the agreement, the Partnership agreed to abate approximately $13,200 of the rental payment deferral amounts. The tenant made the first payment of approximately $5,700 in April 1996 in accordance with the terms of the agreement, and has agreed to pay the Partnership the remaining balance due of approximately $33,700 in six remaining annual installments through 2002.
In July 1996, the Partnership sold its Property in Colorado Springs, Colorado, for $1,075,000, and received net sales proceeds of $1,044,909, resulting in a gain of $194,839 for financial reporting purposes. This Property was originally acquired by the Partnership in July 1990 and had a cost of approximately $900,900, excluding acquisition fees and miscellaneous acquisition expenses; therefore, the Partnership sold the Property for approximately $144,000 in excess of its original purchase price. In October 1996, the Partnership reinvested the net sales proceeds, along with additional funds, in a Boston Market Property located in Marietta, Georgia. The sale of the Property in Colorado Springs, Colorado, was structured to qualify as a like-kind exchange transaction in accordance with Section 1031 of the Internal Revenue Code. As a result, no gain was recognized for federal income tax purposes. Therefore, the Partnership was not required to distribute any of the net sales proceeds from the sale of this Property to Limited Partners for the purpose of paying federal and state income taxes.
In addition, in October 1996, the Partnership sold its Property in Hartland, Michigan, for $625,000 and received net sales proceeds of $617,035, resulting in a loss of approximately $235,465, for financial reporting purposes. In February 1997, the Partnership reinvested the net sales proceeds in CNL Mansfield Joint Venture, with an affiliate of the General Partners, in exchange for a 79 percent interest in the joint venture.
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.
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 make distributions to the partners. At December 31, 1996, the Partnership had $1,305,429 invested in such short-term investments, as compared to $725,074 at December 31, 1995. The increase in the amount invested in short-term investments is primarily a result of the receipt of the net sales proceeds from the sale of the Property in Hartland, Michigan, which had not been reinvested as of December 31, 1996. The net sales proceeds were reinvested in
February 1997, as discussed above. The funds remaining at December 31, 1996, after payment of distributions and other liabilities, will be used to meet the Partnership's working capital and other needs.
During 1996, 1995 and 1994, affiliates of the General Partners incurred on behalf of the Partnership $97,288, $94,618 and $83,868, respectively, for certain operating expenses. As of December 31, 1996 and 1995, the Partnership owed $1,867 and $6,111, respectively, to affiliates for such amounts and accounting and administrative services. As of February 28, 1997, the Partnership had reimbursed the affiliates all such amounts. In addition, during the year ended December 31, 1995, the Partnership incurred $7,200 in real estate disposition fees due to an affiliate as a result of its services in connection with the sale of the Property in Jacksonville, Florida. The payment of such fees is deferred until the Limited Partners have received the sum of their 10% Preferred Return and their adjusted capital contributions. Amounts payable to other parties, including distributions payable, of the Partnership decreased to $685,694 at December 31, 1996, from $725,766 at December 31, 1995, primarily as a result of a decrease in accrued real estate taxes payable relating to two of the Partnership's Properties as of December 31, 1996, as discussed in "Results of Operations" below. Liabilities at December 31, 1996, to the extent they exceed cash and cash equivalents at December 31, 1996, will be paid from future cash from operations, from amounts collected under the mortgage notes 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 cumulative excess operating reserves for the year ended December 31, 1994, the Partnership declared distributions to the Limited Partners of $2,700,000, $2,700,002 and $2,760,002 for the years ended December 31, 1996, 1995 and 1994, respectively. This represents distributions of $0.090 per Unit for each of the years ended December 31, 1996 and 1995 and $0.092 per Unit for the year ended December 31, 1994. No amounts distributed or to be distributed to the Limited Partners for the years ended December 31, 1996, 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. 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, the General Partners have obtained contingent liability and property coverage for the Partnership. This insurance is intended to reduce the Partnership's exposure in the unlikely event a tenant's insurance policy lapses or is insufficient to cover a claim relating to the Property.
The Partnership's investment strategy of acquiring Properties for cash and leasing them under triple-net leases to operators who generally meet specified financial standards minimizes the Partnership's operating expenses. The General Partners believe that the leases will continue to generate cash flow in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General Partners believe that the Partnership has sufficient working capital reserves 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.
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.
Results of Operations
During 1994, the Partnership owned and leased 34 wholly owned Properties (including one Property in St. Paul, Minnesota, which was sold in May 1994), during 1995, the Partnership owned and leased 33 wholly owned Properties (including two Properties in Florence, South Carolina, and Jacksonville, Florida, which were sold in August and December 1995, respectively) and during 1996, the Partnership owned and leased 33 wholly owned Properties (including two Properties in Colorado Springs, Colorado, and Hartland, Michigan, which were sold in July and October 1996, respectively). In addition, during 1996, 1995 and 1994, the Partnership was a co-venturer in four separate joint ventures which owned and leased nine Properties and one Property the Partnership owned and leased
with an affiliate as tenants-in-common. As of December 31, 1996, the Partnership and its consolidated joint venture, San Antonio #849 Joint Venture, owned (either directly, as tenants-in-common with an affiliate or through joint venture arrangements) 40 wholly owned 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 $22,100 to $166,700. All of the leases provide for percentage rent based on sales in excess of a specified amount. In addition, some of the leases provide that, commencing in the specified lease years (generally ranging from the sixth to the eleventh lease year), the annual base rent required under the terms of the lease will increase. For further description of the Partnership's leases and Properties, see Item 1. Business - Leases and Item 2.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants 14
Financial Statements:
Balance Sheets 15
Statements of Income 16
Statements of Partners' Capital 17
Statements of Cash Flows 18
Notes to Financial Statements 21
Report of Independent Accountants
To the Partners CNL Income Fund VII, Ltd.
We have audited the financial statements and the financial statement schedules of CNL Income Fund VII, 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 VII, Ltd. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 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 February 5, 1997
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
BALANCE SHEETS
December 31, ASSETS 1996 1995 ----------- -----------
Land and buildings on operating leases, less accumulated depreciation $15,930,547 $16,401,919 Net investment in direct financing leases 4,098,192 4,676,119 Investment in joint ventures 1,789,238 1,823,158 Mortgage notes receivable, less deferred gain 1,259,495 1,267,849 Cash and cash equivalents 1,305,429 725,074 Receivables, less allowance for doubtful accounts of $43,234 and $461,143 63,386 48,191 Prepaid expenses 4,654 5,033 Accrued rental income, less allowance for doubtful accounts of $10,786 and $9,155 1,012,490 907,851 Other assets 60,422 60,422 ----------- -----------
$25,523,853 $25,915,616 =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 6,502 $ 3,655 Accrued and escrowed real estate taxes payable 4,192 47,111 Distributions payable 675,000 675,000 Due to related parties 9,067 13,311 Rents paid in advance 38,705 11,983 ----------- ----------- Total liabilities 733,466 751,060
Minority interest 148,617 149,649
Partners' capital 24,641,770 25,014,907 ----------- -----------
$25,523,853 $25,915,616 =========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31, 1996 1995 1994 ---------- ---------- ----------- Revenues: Rental income from operating leases $1,954,033 $1,888,830 $2,148,237 Earned income from direct financing leases 505,061 538,634 556,244 Contingent rental income 44,973 68,820 57,509 Interest and other income 240,079 84,390 31,165 ---------- ---------- ---------- 2,744,146 2,580,674 2,793,155 ---------- ---------- ---------- Expenses: General operating and administrative 159,001 146,747 100,873 Professional services 27,640 27,379 27,717 Bad debt expense - 2,584 4,928 Real estate taxes 9,010 46,512 - State and other taxes 2,448 2,562 6,327 Depreciation and amortization 317,957 329,350 351,565 ---------- ---------- ---------- 516,056 555,134 491,410 ---------- ---------- ---------- Income Before Minority Interest in Income of Consolidated Joint Venture, Equity in Earnings of Unconsolidated Joint Ventures, Gain (Loss) on Sale of Land and Building and Loss on Demolition of Building 2,228,090 2,025,540 2,301,745
Minority Interest in Income of Consolidated Joint Venture (18,691) (18,728) (18,798)
Equity in Earnings of Unconsoli- dated Joint Ventures 157,254 154,937 142,974
Gain (Loss) on Sale of Land and Buildings (39,790) (5,135) 77,379
Loss on Demolition of Building - (174,466) - ---------- ---------- ----------
Net Income $2,326,863 $1,982,148 $2,503,300 ========== ========== ==========
Allocation of Net Income: General partners $ 23,586 $ 20,784 $ 24,899 Limited partners 2,303,277 1,961,364 2,478,401 ---------- ---------- ----------
$2,326,863 $1,982,148 $2,503,300 ========== ========== ==========
Net Income Per Limited Partner Unit $ 0.077 $ 0.065 $ 0.083 ========== ========== ==========
Weighted Average Number of Limited Partner Units Outstanding 30,000,000 30,000,000 30,000,000 ========== ========== ==========
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31, 1996 1995 1994 ----------- ----------- -----------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows From Operating Activities: Cash received from tenants $ 2,549,406 $ 2,399,249 $ 2,666,534 Distributions from unconsolidated joint ventures 191,174 190,398 175,728 Cash paid for expenses (248,523) (174,993) (136,134) Interest received 178,812 69,884 28,254 ----------- ----------- ----------- Net cash provided by operating activities 2,670,869 2,484,538 2,734,382 ----------- ----------- -----------
Cash Flows From Investing Activities: Additions to land and buildings on opera- ting leases (1,041,555) - (397,536) Proceeds from sale of land and buildings 1,661,943 - 869,036 Investment in joint ventures - - (425,887) Collections on mortgage notes receivable 8,821 12,725 - ----------- ----------- ----------- Net cash provided by investing activities 629,209 12,725 45,613 ----------- ----------- -----------
Cash Flows From Financing Activities: Distributions to limited partners (2,700,000) (2,760,002) (2,700,002) Distributions to holder of minority interest (19,723) (17,240) (20,464) ----------- ----------- ----------- Net cash used in financing activities (2,719,723) (2,777,242) (2,720,466) ----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash Equivalents 580,355 (279,979) 59,529
Cash and Cash Equivalents at Beginning of Year 725,074 1,005,053 945,524 ----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 1,305,429 $ 725,074 $ 1,005,053 =========== =========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31, 1996 1995 1994 ----------- ----------- -----------
Reconciliation of Net Income to Net Cash Provided by Operating Activities:
Net income $ 2,326,863 $ 1,982,148 $ 2,503,300 ----------- ----------- ----------- Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 317,957 328,982 349,565 Amortization - 368 2,000 Minority interest in income of consoli- dated joint venture 18,691 18,728 18,798 Loss (gain) on sale of land and building 39,790 5,135 (77,379) Loss on demolition of building - 174,466 - Equity in earnings of unconsolidated joint ventures, net of distributions 33,920 35,461 32,754 Decrease (increase) in receivables (14,827) 799 38,492 Decrease (increase) in prepaid expenses 379 (3,320) 1,814 Decrease in net invest- ment in direct financing leases 70,329 70,872 62,904 Increase in accrued rental income (104,639) (169,520) (168,302) Increase (decrease) in accounts payable and accrued expenses (40,072) 46,367 (2,377) Increase (decrease) in due to related parties (4,244) 6,111 - Increase (decrease) in rents paid in advance 26,722 (12,059) (27,187) ----------- ----------- ----------- Total adjustments 344,006 502,390 231,082 ----------- ----------- -----------
Net Cash Provided by Operating Activities $ 2,670,869 $ 2,484,538 $ 2,734,382 =========== =========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31, 1996 1995 1994 ----------- ----------- ----------- Supplemental Schedule of Non-Cash Investing and Financing Activities:
Mortgage notes accepted in exchange for sale of land and buildings $ - $ 1,400,000 $ - =========== =========== ===========
Distributions declared and unpaid at December 31 $ 675,000 $ 675,000 $ 735,000 =========== =========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund VII, 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.
Real Estate and Lease Accounting - The Partnership records the acquisition of land and buildings at cost, including acquisition and closing costs. Land and buildings are leased to unrelated third parties on a triple-net basis, whereby the tenant is generally responsible for all operating expenses relating to the property, including property taxes, insurance, maintenance and repairs. The leases are accounted for using either the direct financing or the operating methods. Such methods are described below:
Direct financing method - The leases accounted for using the direct financing method are recorded at their net investment (which at the inception of the lease generally represents the cost of the asset) (Note 4). Unearned income is deferred and amortized to income over the lease terms so as to produce a constant periodic rate of return on the Partnership's net investment in the leases.
Operating method - Land and building leases accounted for using the operating method are recorded at cost, revenue is recognized as rentals are earned and depreciation is charged to operations as incurred. Buildings are depreciated on the straight-line method over their estimated useful lives of 30 years. When scheduled rentals vary during the lease term, income is recognized on a straight-line basis so as to produce a constant periodic rent over the lease term commencing on the date the property is placed in service.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of income recognized on a straight-line basis in excess of scheduled rental payments to date.
When the properties are sold, the related cost and accumulated depreciation for operating leases and the net investment for direct financing leases, plus any accrued rental income, are removed from the accounts and gains or losses from sales are reflected in income. The general partners of the Partnership review properties for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through operations. The general partners determine whether an impairment in value has occurred by comparing the estimated future undiscounted cash flows, including the residual value of the property, with the carrying cost of the individual property. Although the general partners have made their best estimate of these factors based on current conditions, it is reasonably possible that changes could occur in the near term which could adversely affect the general partners' estimate of net cash flows expected to be generated from its properties and the need for asset impairment write- downs. If an impairment is indicated, a loss will be recorded for the amount by which the carrying value of the asset exceeds its fair market value.
When the collection of amounts recorded as rental or other income is considered to be doubtful, an adjustment is made to increase the allowance for doubtful accounts, which is netted against receivables, 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 83 percent interest in San Antonio #849 Joint Venture 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 Halls Joint Venture, CNL Restaurant Investments II, Des Moines Real Estate Joint
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
Venture and a property in Yuma, Arizona, held as tenants-in-common with an affiliate 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 and money market funds (some of which are backed by government securities). Cash equivalents are stated at cost plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand deposits at commercial banks and money market funds may exceed federally insured levels; however, the Partnership has not experienced any losses in such accounts. 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 property.
Additionally, for tax purposes, syndication costs are included in Partnership equity and in the basis of each partner's investment. For financial reporting purposes, syndication costs are netted against partners' capital and represent a reduction of Partnership equity and a reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. The more significant areas requiring the use of management estimates relate to the allowance for doubtful accounts and future cash flows associated with long-lived assets. Actual results could differ from those estimates.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
Reclassification - Certain items in the prior years' financial statements have been reclassified to conform to 1996 presentation. These reclassifications had no effect on partners' capital or net income.
New Accounting Standard - Effective January 1, 1996, the Partnership adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." This statement 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. Adoption of this standard had no material effect on the Partnership's financial position or results of operations.
2. Leases:
The Partnership leases its land or 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, ten leases have been classified as direct financing leases. For the leases classified as direct financing leases, the building portions of the property leases are accounted for as direct financing leases while the land portions of eight of these leases are operating 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.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at December 31:
1996 1995 ----------- -----------
Land $ 8,673,793 $ 8,866,709 Buildings 9,121,968 9,221,329 ----------- ----------- 17,795,761 18,088,038 Less accumulated depreciation (1,865,214) (1,686,119) ----------- -----------
$15,930,547 $16,401,919 =========== ===========
During 1994, the Partnership sold its property in St. Paul, Minnesota, for $871,322 and received net sales proceeds of $869,036, resulting in a gain of $77,379 for financial reporting purposes. This property was originally acquired by the Partnership in August 1990, and had a cost of approximately $750,100, excluding acquisition fees and miscellaneous acquisition expenses; therefore, the Partnership sold the property for approximately $118,900 in excess of its original purchase price. In July 1994, the Partnership reinvested $397,536 of the net sales proceeds in land of a Checkers property in Winter Springs, Florida.
In April 1995, the building located on the Partnership's property in Daytona Beach, Florida, was demolished in accordance with a condemnation agreement. As a result, the Partnership recognized a loss for the undepreciated cost of the building of $174,466 for financial reporting purposes. Currently, the existing tenant remains responsible for complying with the terms of the lease.
In August 1995, the Partnership sold its property in Florence, South Carolina, to the tenant for $1,160,000 and accepted the sales proceeds in the form of a promissory note (see Note 6). The total carrying value of the property was $1,030,515, including acquisition fees, 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, the Partnership recognized a gain of $836 and $1,421 for the years ended December 31, 1996 and 1995, respectively, and had a deferred gain in the amount of $127,229 and $128,065 at December 31, 1996 and 1995, respectively (see Note 6).
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
3. Land and Buildings on Operating Leases - Continued:
In December 1995, the Partnership sold its property in Jacksonville, Florida, to the subtenant and accepted a promissory note for the gross sales price of $240,000 (see Note 6), resulting in a loss, net of closing costs, of $6,556 for financial reporting purposes.
In July 1996, the Partnership sold its property in Colorado Springs, Colorado, for $1,075,000 and received net sales proceeds of $1,044,909, resulting in a gain of $194,839 for financial reporting purposes. This property was originally acquired by the Partnership in July 1990 and had a cost of approximately $900,900, excluding acquisition fees and miscellaneous acquisition expenses; therefore, the Partnership sold the property for approximately $144,000 in excess of its original purchase price. In October 1996, the Partnership reinvested the net sales proceeds along with additional funds, in a Boston Market property located in Marietta, Georgia.
In addition, in October 1996, the Partnership sold its property in Hartland, Michigan, for $625,000 and received net sales proceeds of $617,035, resulting in a loss of approximately $235,465 for financial reporting purposes.
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, 1996, 1995 and 1994, the Partnership recognized $104,639, $169,520 and $168,302, 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, 1996:
1997 $ 1,884,130 1998 1,878,860 1999 1,888,137 2000 1,922,102 2001 2,021,705 Thereafter 14,800,176 -----------
$24,395,110 ===========
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
3. Land and Buildings on Operating Leases - Continued:
Since lease renewal periods are exercisable at the option of the tenant, the above table only presents future minimum lease payments due during the initial lease terms. In addition, this table does not include any amounts for future contingent rentals which may be received on the leases based on a percentage of the tenant's gross sales.
4. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct financing leases at December 31:
1996 1995 ----------- ------------ Minimum lease payments receivable $ 7,824,101 $ 9,402,387 Estimated residual values 1,266,893 1,403,028 Less unearned income (4,992,802) (6,129,296) ----------- ------------
Net investment in direct financing leases $ 4,098,192 $ 4,676,119 =========== ============
The following is a schedule of future minimum lease payments to be received on direct financing leases at December 31, 1996:
1997 $ 570,486 1998 576,921 1999 576,921 2000 576,921 2001 578,078 Thereafter 4,944,774 ----------
$7,824,101 ==========
The above table does not include future minimum lease payments for renewal periods or for contingent rental payments that may become due in future periods (see Note 3).
5. Investment in Joint Ventures:
The Partnership has a 51 percent interest, an 18 percent interest and a 4.79% interest in the profits and losses of Halls Joint Venture, CNL Restaurant Investments II and Des Moines Real Estate Joint Venture, respectively. The remaining interests in these joint ventures are held by affiliates of
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
5. Investment in Joint Ventures - Continued:
the Partnership which have the same general partners. The Partnership also has a 48.33% interest in a property in Yuma, Arizona, with an affiliate of the Partnership that has the same general partners, as tenants-in-common. The Partnership accounts for its investment in this property using the equity method since the Partnership shares control with an affiliate. Amounts relating to its investment are included in investment in joint ventures. CNL Restaurant Investments II owns and leases six properties to an operator of national fast-food or family- style restaurants, and Halls Joint Venture, Des Moines Real Estate Joint Venture and the Partnership and an affiliate as tenants-in-common, each own and lease one property to an operator of national fast-food or family-style restaurants. The following presents the combined, condensed financial information for the joint ventures and the property held as tenants-in-common with an affiliate at December 31:
1996 1995 ----------- ----------- Land and buildings on operating leases, less accumulated depreciation $7,778,815 $7,992,548 Cash 1,106 875 Receivables 14,495 - Accrued rental income 154,782 123,354 Other assets 1,115 358 Liabilities 1,216 956 Partners' capital 7,949,097 8,116,179 Revenues 911,833 897,583 Net income 689,075 675,899
The Partnership recognized income totalling $157,254, $154,937 and $142,974 for the years ended December 31, 1996, 1995 and 1994, respectively, from these joint ventures and the property held as tenants-in-common with an affiliate.
6. Mortgage Notes Receivable:
In connection with the sale of its property in Florence, South Carolina, the Partnership accepted a promissory note in the principal sum of $1,160,000, collateralized by a mortgage on the property. The promissory note bears interest at a rate of 10.25% per annum and is being collected in 59 equal monthly installments of $10,395, with a balloon payment of $1,106,657 due in July 2000.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
6. Mortgage Notes Receivable - Continued:
In addition, the Partnership accepted a promissory note in the principal sum of $240,000 in connection with the sale of its property in Jacksonville, Florida. The note is collateralized by a mortgage on the property. The promissory note bears interest at a rate of ten percent per annum and is being collected in 119 equal monthly installments of $2,106, with a balloon payment of $218,252 due in December 2005.
The mortgage notes receivable consisted of the following at December 31:
1996 1995 ---------- ----------
Principal balance $1,378,454 $1,387,275 Accrued interest receivable 8,270 8,639 Less deferred gain on sale of land and building (127,229) (128,065) ---------- ----------
$1,259,495 $1,267,849 ========== ==========
The general partners believe that the estimated fair values of mortgage notes receivable at December 31, 1996 and 1995, approximate the outstanding principal amount based on estimated current rates at which similar loans would be made to borrowers with similar credit and for similar maturities.
7. Allocations and Distributions:
Generally, 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,
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
7. Allocations and Distributions - Continued:
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 the years ended December 31, 1996, 1995 and 1994, the Partnership declared distributions to the limited partners of $2,700,000, $2,700,002 and $2,760,002, respectively. No distributions have been made to the general partners to date.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
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:
1996 1995 1994 ---------- ---------- ----------
Net income for financial reporting purposes $2,326,863 $1,982,148 $2,503,300
Depreciation for tax reporting purposes in excess of depreciation for financial reporting purposes (24,753) (36,960) (31,870)
Gain or loss on sale of land and buildings for financial reporting purposes in excess of gain or loss for tax reporting purposes (163,152) 174,513 (31,767)
Direct financing leases recorded as operating leases for tax reporting purposes 70,329 70,872 62,904
Equity in earnings of unconsolidated joint ventures for tax report- ing purposes in excess of (less than) equity in earnings of unconsoli- dated joint ventures for financial reporting purposes 1,420 (68) 740
Accrued rental income (104,639) (169,520) (168,302)
Rents paid in advance 26,722 (12,059) (27,187)
Minority interest in timing differences of consolidated joint venture 981 3,525 344
Other - (20,722) 20,722 ---------- ---------- ----------
Net income for federal income tax purposes $2,133,771 $1,991,729 $2,328,884 ========== ========== ==========
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.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
9. Related Party Transactions - Continued:
During the years ended December 31, 1996, 1995 and 1994, 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, 1996, 1995 and 1994, 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 an annual, noncumulative, subordinated 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 and the property held as tenants-in-common with an affiliate, but not in excess of competitive fees for comparable services. These fees will be incurred and will be payable only after the limited partners receive their 10% Preferred Return. Due to the fact that these fees are noncumulative, if the limited partners do not receive their 10% Preferred Return in any particular year, no management fee will be due or payable for such year. As a result of such threshold, no management fees were incurred during the years ended December 31, 1996, 1995 and 1994.
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. However, if the net sales proceeds are reinvested in a replacement property, no such real estate disposition fees will be incurred until such replacement property is sold and the net sales proceeds are distributed. The payment of the real estate disposition fee is subordinated to receipt by the limited partners of their aggregate 10% Preferred Return, plus their adjusted capital contributions. During the year ended December 31, 1995, the Partnership incurred $7,200 in deferred, subordinated real estate disposition fees as a result of the Partnership's sale of its property in Jacksonville, Florida. No deferred, subordinated real estate disposition fees were incurred for the years ended December 31, 1996 and 1994.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
9. Related Party Transactions - Continued:
During the years ended December 31, 1996, 1995 and 1994, the Affiliates provided accounting and administrative services to the Partnership on a day-to-day basis. The Partnership incurred $92,985, $81,259 and $46,469 for the years ended December 31, 1996, 1995 and 1994, respectively, for such services.
The due to related parties consisted of the following at December 31:
1996 1995 -------- -------- Due to Affiliates: Expenditures incurred on behalf of the Partnership $ 63 $ 2,697 Accounting and administrative services 1,804 3,414 Deferred, subordinated real estate disposition fee 7,200 7,200 ------- -------
$ 9,067 $13,311 ======= =======
During 1994, the Partnership and an affiliate of the general partners acquired a property as tenants-in-common for a purchase price of $881,033 (of which the Partnership contributed $425,887 or 48.33%) from CNL South Corp., an affiliate of the general partners. CNL South Corp. had purchased and temporarily held title to this property in order to facilitate the acquisition of the property by the Partnership and the affiliate. The purchase price paid by the Partnership and the affiliate represented the costs incurred by CNL South Corp. to acquire and carry the property, including closing costs.
10. Concentration of Credit Risk:
The following schedule presents total rental and earned income from individual lessees, each representing more than ten percent of the Partnership's total rental and earned income
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
10. Concentration of Credit Risk - Continues:
(including the Partnership's share of total rental and earned income from the unconsolidated joint ventures and the property held as tenants- in-common with an affiliate), for the years ended December 31:
1996 1995 1994 -------- -------- -------- Golden Corral Corporation $608,852 $618,413 $622,652 Flagstar Enterprises, Inc. 464,042 469,374 473,303 Restaurant Management Services, Inc. 446,867 446,279 420,925
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 the unconsolidated joint ventures and the property held as tenants- in-common with an affiliate) for at least one of the years ended December 31:
1996 1995 1994 --------- --------- --------- Golden Corral Family Steakhouse Restaurants $608,852 $618,413 $622,652 Hardees 524,625 548,221 606,270 Burger King 478,901 486,944 473,823 Shoney's 231,990 121,000 336,393
Although the Partnership's properties are geographically diverse throughout the United States and the Partnership's lessees operate a variety of restaurant concepts, default by any one of these lessees or restaurant chains could significantly impact the results of operations of the Partnership. 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.
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
11. Subsequent Event:
On February 5, 1997, the Partnership entered into a joint venture arrangement, CNL Mansfield Joint Venture, with an affiliate of the Partnership which has the same general partners, to hold one restaurant property, at a total cost of $780,209. The Partnership and its co- venture partner agreed to contribute approximately $616,245 and $163,964, respectively. The Partnership and its co-venture partner each expect to have a 79 percent and 21 percent interest, respectively, in the profits and losses of the joint venture. The Partnership will account for its investment in this joint venture under the equity method since the Partnership will share control with an affiliate.
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 Fund Advisors, Inc., CNL Group, Inc. and their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 50, is a principal stockholder of CNL Group, Inc., a diversified real estate company, and has served as its Chairman of the Board of Directors, director and Chief Executive Officer since its formation in 1980. 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 is Chief Executive Officer, and 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 Chief Executive Officer and Chairman of the Board of CNL Investment Company, and Chief Executive Officer and Chairman of the Board of Commercial Net Lease Realty, Inc. since 1992, has served as the Chairman of the Board and the 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. In addition, Mr. Seneff has served as Chairman of the Board and Chief Executive Officer of CNL American Properties Fund, Inc. since 1994, and has served as Chairman of the Board and Chief Executive Officer of CNL American Realty Fund, Inc. since 1996 and of CNL Real Estate Advisors, Inc. since January 1997. Mr. Seneff previously served on the Florida State Commission on Ethics and is a former member and past Chairman of the State of Florida Investment Advisory Council, which recommends to the Florida Board of Administration investments for various Florida employee retirement funds. The Florida Board of Administration, Florida's principal investment advisory and money management agency, oversees the investment of more than $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 over 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 real estate ventures are approximately 65 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 V, Ltd., CNL Income Fund VI, 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 49, 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, and since February 1996, as Vice Chairman of the Board of Directors, Secretary and Treasurer 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, as Secretary from February 1996 to July 1996, and since February 1996, as Treasurer and Vice Chairman of CNL Realty Advisors, Inc. In addition, Mr. Bourne has served as President and a director of CNL American Properties Fund, Inc. since 1994, and has served as President and a director of CNL American Realty Fund, Inc. since 1996 and of CNL Real Estate Advisors, Inc. since January 1997. 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 over 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 real estate ventures are approximately 64 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 Fund Advisors, Inc., provides certain management services in connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a corporation organized in 1994 under the laws of the State of Florida, and its principal office is 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 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 seven 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 38, 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. and serves as Executive Vice President of CNL American Realty Fund, Inc. and CNL Real Estate Advisors, 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 cable 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 48, a certified public accountant, has served as Chief Financial Officer of CNL Group, Inc. since December 1993, has served as Secretary of CNL Group, Inc. since 1987, and served as Controller of CNL Group, Inc. from 1987 until December 1993. In addition, Ms. Rose has served as Chief Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has served as Chief Operating Officer, Vice President and Secretary of CNL Corporate Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in 1990, a director of CNL Realty Advisors, Inc. since its inception in 1991, Secretary of CNL Realty Advisors, Inc. since its inception in 1991 (excluding February 1996 to July 1996), 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 a director, Secretary and Treasurer of CNL Fund Advisors, Inc. since 1994 and has served as a director, Secretary and Treasurer of CNL Real Estate Advisors, Inc. since January 1997. Ms. Rose also has served as Secretary and Treasurer of CNL American Properties Fund, Inc. since 1994, and has served as Secretary and Treasurer of CNL American Realty Fund, Inc. since 1996. Ms. Rose also currently serves as Secretary for approximately 50 additional corporations. Ms. Rose oversees the management information services, administration, legal compliance, accounting, tenant compliance, and reporting for over 250 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 38, 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 and sales 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 1994, and as Executive Vice President of CNL American Properties Fund, Inc. since 1994. In addition, Ms. Wall has served as Executive Vice President of CNL Real Estate Advisors, Inc. since January 1997 and as Executive Vice President of CNL American Realty Fund, Inc. since 1996. 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).
Steven D. Shackelford, age 33, has served as Chief Financial Officer of CNL Fund Advisors, Inc. since September 1996. Mr. Shackelford joined CNL Group, Inc. in September 1996. He also currently serves as the Chief Financial Officer of CNL American Properties Fund, Inc. From March 1995 to July 1996, he was a senior manager in the national office of Price Waterhouse where he was responsible for advising foreign clients seeking to raise capital and a public listing in the United States. From August 1992 to March 1995, he served as a manager in the Price Waterhouse, Paris, France office serving several multinational clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the Orlando, Florida office of Price Waterhouse. Mr Shackelford received a B.A. in Accounting, with honors, and a Masters of Business Administration from Florida State University and is a certified public accountant.
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 28, 1997, 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 28, 1997, 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, 1996, 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 31,1996 - ---------------------- ---------------------- ----------------------
Reimbursement to Operating expenses are Operating expenses affiliates for reimbursed at the incurred on behalf of operating expenses lower of cost or 90 the Partnership: percent of the $97,288 prevailing rate at which comparable Accounting and services could have administrative been obtained in the services: $92,985 same geographic area. Affiliates of the General Partners from time to time incur certain operating expenses on behalf of the Partnership for which the Partnership reimburses the affiliates without interest.
Amount Incurred Type of Compensation For the Year and Recipient Method of Computation Ended December 31,1996 - --------------------- ---------------------- ----------------------
Annual, subordinated One percent of the sum $ - 0 - manage-ment 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 and the Property owned with an affiliate as tenants-in-common, subordinated to certain minimum returns to the Limited Partners. The management fee will not exceed competitive fees for comparable services. Due to the fact that these fees are non-cumulative, if the Limited Partners do not receive their 10% Preferred Return in any particular year, no management fees will be due or payable for such year.
Deferred, subordinated A deferred, $ - 0 - real estate subordinated real disposition fee estate disposition payable to affiliates fee, payable upon sale 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. However, if the net sales proceeds are reinvested in a replacement property, no such real estate disposition fee will be incurred until such replacement property is sold and the net sales proceeds are distributed.
Amount Incurred Type of Compensation For the Year and Recipient Method of Computation Ended December 31,1996 - ---------------------- ---------------------- ----------------------
General Partners' A deferred, $ - 0 - deferred, sub- subordinated share ordinated share of equal to one percent Partnership net cash of Partnership flow distributions of net cash flow, subordinated to certain minimum returns to the Limited Partners.
General Partners' A deferred, $ - 0 - deferred, sub- subordinated share ordinated share of equal to five percent Partnership net sales of Partnership proceeds from a sale distributions of such or sales net sales proceeds, 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, 1996 and 1995
Statements of Income for the years ended December 31, 1996, 1995 and 1994
Statements of Partners' Capital for the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1996, 1995 and 1994
Schedule III - Real Estate and Accumulated Depreciation at December 31, 1996
Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 1996
Schedule IV - Mortgage Loans on Real Estate at December 31, 1996
All other Schedules are omitted as the required information is inapplicable or is presented in the financial statements or notes thereto.
3. Exhibits
3.1 Affidavit and Certificate of Limited Partnership of CNL Income Fund VII, Ltd. (Included as Exhibit 3.1 to Registration Statement No. 33-31482 on Form S-11 and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL Income Fund VII, Ltd. (Included as Exhibit 3.1 to Registration Statement No. 33-31482 on Form S-11 and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership of CNL Income Fund VII, Ltd. (Included as Exhibit 4.2 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund VII, Ltd. and CNL Investment Company (Included as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, 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. (Included as Exhibit 10.3 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, and incorporated herein by reference.)
(b) The Registrant filed no reports on Form 8-K during the period from October 1, 1996 through December 31, 1996.
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 26th day of March, 1997.
CNL INCOME FUND VII, 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 26, 1997 - -------------------- Director (Principal Robert A. Bourne Financial and Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer March 26, 1997 - ----------------------- and Director (Principal James M. Seneff, Jr. Executive Officer)
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(a) Transactions in real estate and accumulated depreciation during 1996, 1995 and 1994, are summarized as follows:
Accumulated Cost Depreciation ----------- ------------ Properties the Partnership has Invested in Under Operating Leases:
Balance, December 31, 1993 $20,112,742 $1,244,505 Acquisitions 397,536 - Dispositions (809,934) (63,981) Depreciation expense - 349,565 ----------- ----------
Balance, December 31, 1994 19,700,344 1,530,089 Dispositions (1,612,306) (172,952) Depreciation expense - 328,982 ----------- ----------
Balance, December 31, 1995 18,088,038 1,686,119 Acquisitions 1,041,554 - Dispositions (1,333,831) (138,862) Depreciation expense - 317,957 ----------- ----------
Balance, December 31, 1996 $17,795,761 $1,865,214 =========== ==========
Property of Joint Venture in Which the Partnership has a 51% Interest and has Invested in Under an Operating Lease:
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 Depreciation expense - 14,347 ----------- ----------
Balance, December 31, 1996 $ 714,367 $ 98,994 =========== ==========
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
Accumulated Cost Depreciation ------------ ------------ Properties of Joint Venture in Which the Partnership has an 18% Interest and has Invested in Under Operating Leases:
Balance, December 31, 1993 $ 6,131,281 $ 344,288 Depreciation expense - 152,136 ----------- ----------
Balance, December 31, 1994 6,131,281 496,424 Depreciation expense - 152,137 ----------- ----------
Balance, December 31, 1995 6,131,281 648,561 Depreciation expense - 152,137 ----------- ----------
Balance, December 31, 1996 $ 6,131,281 $ 800,698 =========== ==========
Property of Joint Venture in Which the Partnership has a 4.79% Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1993 $ 1,114,384 $ 31,952 Depreciation expense - 26,389 ----------- ----------
Balance, December 31, 1994 1,114,384 58,341 Depreciation expense - 26,388 ----------- ----------
Balance, December 31, 1995 1,114,384 84,729 Depreciation expense - 26,389 ----------- ----------
Balance, December 31, 1996 $ 1,114,384 $ 111,118 =========== ==========
Property in Which the Partnership has a 48.33% Interest as Tenants-in-Common and has Invested in Under an Operating Lease:
Balance, December 31, 1993 $ - $ - Acquisitions 881,033 - Depreciation expense - 9,720 ----------- ----------
Balance, December 31, 1994 881,033 9,720 Depreciation expense - 20,860 ----------- ----------
Balance, December 31, 1995 881,033 30,580 Depreciation expense - 20,860 ----------- ----------
Balance, December 31, 1996 $ 881,033 $ 51,440 =========== ==========
CNL INCOME FUND VII, LTD. (A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
(b) Depreciation expense is computed for buildings and improvements based upon estimated lives of 30 years.
(c) As of December 31, 1996, the aggregate cost of the Properties owned by the Partnership and its consolidated joint venture, and the unconsolidated joint ventures (including the Property held as tenants- in-common) for federal income tax purposes was $22,136,938 and $8,706,529, respectively. All of the leases are treated as operating leases for federal income tax purposes.
(d) For financial reporting purposes, the portion of the lease relating to the building has been recorded as a direct financing lease. The cost of the building has been included in the net investment in direct financing lease; therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and building has been recorded as a direct financing lease. The cost of the land and building has been included in net investment in direct financing leases; therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease relating to land and building have been recorded as a direct financing lease. Accordingly, costs relating to these components of this lease are not shown.
(g) The building portion of this property is owned by the tenant; therefore, depreciation is not applicable.
(h) The tenant of this property, Restaurant Management Services, Inc., has subleased this property to a local, independent restaurant. Restaurant Management Services, Inc. continues to be responsible for complying with all the terms of the lease agreement and is continuing to pay rent on this property, subject to certain rent concessions, to the Partnership.
(i) The restaurant building was originally purchased with the intent to renovate it. As of December 31, 1995, such renovation has not occurred. Since the Partnership had allocated all of its costs incurred as of December 31, 1992, to land, depreciation has not been applicable to date.
(j) The building located on this property was demolished in 1995; therefore, depreciation is not applicable.
(1) Monthly payments of principal and interest at an annual rate of 10.25%, with a balloon payment at maturity of $1,106,657.
(2) Monthly payments of principal and interest at an annual rate of 10.00%, with a balloon payment at maturity of $218,252.
(3) The tax carrying value of the notes is approximately $1,289,662, which is net of deferred gain of $96,636.
(4) The changes in the carrying amounts are summarized as follows:
1996 1995 1994 ---------- ---------- ----------
Balance at beginning of period $1,267,849 $ - $ -
New mortgage loans - 1,400,000 -
Accrued interest - 8,639 -
Collection of accrued interest (369) - -
Collection of principal (8,821) (12,725) -
Deferred gain on sale of land and building - (128,065) -
Recognition of deferred gain on sale of land and building 836 - - ---------- ---------- ----------
Balance at end of period $1,259,495 $1,267,849 $ - ========== ========== ==========
EXHIBITS
EXHIBIT INDEX
Exhibit Number Page
3.1 Affidavit and Certificate of Limited Partnership of CNL Income Fund VII, Ltd. (Included as Exhibit 3.1 to Registration Statement No. 33-31482 on Form S-11 and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL Income Fund VII, Ltd. (Included as Exhibit 3.1 to Registration Statement No. 33-31482 on Form S-11 and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited Partnership of CNL Income Fund VII, Ltd. (Included as Exhibit 4.2 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund VII, Ltd. and CNL Investment Company (Included as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, 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. (Included as Exhibit 10.3 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
i