Item 1. Business
CNL Income Fund VI, 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 June 8, 1989, the Partnership offered for sale up to $35,000,000 in limited partnership interests (the "Units") (70,000 Units at $500 per Unit) pursuant to a registration statement on Form S-11 under the Securities Act of 1933, as amended, effective December 16, 1988. The offering terminated on January 22, 1990, at which date the maximum offering proceeds of $35,000,000 had been received from investors who were admitted to the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and existing restaurant properties, as well as properties upon which restaurants were to be constructed (the "Properties"), which are leased primarily to operators of selected 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 $30,975,000, and were used to acquire 42 Properties, including interests in four Properties owned by joint ventures in which the Partnership is a co-venturer. During the year ended December 31, 1994, the Partnership sold its Properties in Batesville and Heber Springs, Arkansas, to the tenant and reinvested the net sales proceeds in a Jack in the Box Property in Dallas, Texas, and a Jack in the Box Property in Yuma, Arizona, which is owned as tenants-in-common with an affiliate of the General Partners. In addition, during the year ended December 31,1995, the Partnership sold its Property in Little Canada, Minnesota, and reinvested the majority of the net sales proceeds in a Denny's Property in Broken Arrow, Oklahoma. During the year ended December 31, 1996, the Partnership reinvested the remaining net sales proceeds from the sale of the Property in Little Canada, Minnesota, in a Property located in Clinton, North Carolina, with affiliates of the General Partners as tenants-in-common. Also, during the year ended December 31, 1996, the Partnership sold its Property in Dallas, Texas. As a result of the above transactions, as of December 31, 1996, the Partnership owned 42 Properties, including interests in four Properties owned by joint ventures in which the Partnership is a co-venturer and two Properties owned with affiliates as tenants-in-common. During February 1997, the Partnership reinvested the net sales proceeds from the sale of the Property in Dallas, Texas, in a Bertucci's Property located in Marietta, Georgia. 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 five to 20 years (the average being 18 years), and expire between 1998 and 2015. 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 $37,900 to $185,700. Generally, 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 fourth to 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 to five percent) of the purchase price or gross sales.
Generally, the leases of the Properties provide for two, three or 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 purchase price of the Property, after a specified portion of the lease term has elapsed.
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 1991, a restaurant on one of the Partnership's Properties, Captain D's in Chester, Pennsylvania, ceased operations. In September 1992, the tenant and a franchisee of a regional Restaurant Chain entered into a sublease agreement for this Property and operations of the restaurant resumed. During 1994, the franchisee ceased operations of the Property in Chester, Pennsylvania. The original tenant of the Property will continue to be responsible for complying with the lease terms. The Partnership agreed to accept reduced rent for this Property and the Property leased by the same tenant in Orlando, Florida. The difference between the rent due on these Properties under the lease agreements and the rent collected for the period December 1, 1992 to March 31, 1996, was deferred. During 1996, the Partnership entered into an agreement with the tenant to collect these deferred amounts in annual installments through 2002. In conjunction therewith, the tenant began paying full rent in accordance with the terms of the original lease agreement.
The term of the lease relating to the Property in Liverpool, New York, was terminated in December 1996. The Partnership is currently seeking a replacement tenant or purchaser for this Property.
Major Tenants
During 1996, three lessees of the Partnership and its consolidated joint venture, Golden Corral Corporation, Restaurant Management Services, Inc. and Mid-America Corporation, each contributed more than ten percent of the Partnership's total rental income (including rental income from the Partnership's consolidated joint venture in which the Partnership is a co-venturer and the Partnership's share of the rental income from the three Properties owned by unconsolidated joint ventures and two Properties owned with affiliates as tenants-in-common). As of December 31, 1996, Golden Corral Corporation was the lessee under leases relating to five restaurants, Restaurant Management Services, Inc. was the lessee under leases relating to eight restaurants and Mid-America Corporation was the lessee under leases relating to four restaurants. It is anticipated that, based on the minimum rental payments required by the leases, these three lessees each will continue to contribute more than ten percent of the Partnership's total rental income in 1997 and subsequent years. In addition, three Restaurant Chains, Golden Corral Family Steakhouse Restaurants, Hardee's and Burger King, each accounted for more than ten percent of the Partnership's total rental income in 1996 (including the Partnership's consolidated joint venture and the Partnership's share of the rental income from the three Properties owned by unconsolidated joint ventures in which the Partnership is a co-venturer and two Properties owned with affiliates as tenants-in-common). In subsequent years, it is anticipated that these three Restaurant Chains each will continue to account for more than ten percent of the Partnership's total rental income to which the Partnership is entitled under the terms of the leases. Any failure of these lessees or 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 a joint venture arrangement, Caro Joint Venture, with an unaffiliated entity to purchase and hold one Property. In addition, the Partnership has entered into three separate joint venture arrangements, Auburn Joint Venture, Show Low Joint Venture and Asheville Joint Venture, with affiliates of the General Partners, to purchase and hold three Properties through such joint ventures. The joint venture arrangements provide for the Partnership and its joint venture partners to share in all costs and benefits associated with the joint
venture in accordance with their respective percentage interests 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 venture.
Each joint venture has an initial term of 20 years and, after the expiration of the initial term, continues in existence from year to year unless terminated at the option of either joint venturer or 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 Caro Joint Venture and shares management control equally with affiliates of the General Partners for Auburn Joint Venture, Show Low Joint Venture and Asheville 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 Auburn Joint Venture, Show Low Joint Venture, Caro Joint Venture and Asheville Joint Venture is distributed 3.9%, 36.0%, 66.0% and 14.0%, respectively, to the Partnership and the balance is distributed to each of the other joint venture partners in accordance with its respective percentage interest in the joint venture. Any liquidation proceeds, after paying joint venture debts and liabilities and funding reserves for contingent liabilities, will be distributed first to the joint venture partners with positive capital account balances in proportion to such balances until such balances equal zero, and thereafter in proportion to each joint venture partner's percentage interest in the joint venture.
In addition to the above joint venture agreements, the Partnership entered into an agreement to hold a Jack in the Box Property as tenants-in-common with an affiliate of the General Partners. The agreement provides for the Partnership and the affiliate to share in the profits and losses of the Property in proportion to each co-venturer's percentage interest. The Partnership owns a 51.67% interest in this Property.
In addition, in January 1996, the Partnership entered into an agreement to hold a Golden Corral Property as tenants-in-common with affiliates of the General Partners. The agreement provides for the Partnership and the affiliates to share in the profits and losses of the Property in proportion to each co-venturer's percentage interest. The Partnership owns a 17.93% interest in this Property.
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 rental revenues from Properties wholly owned by the Partnership plus the Partnership's allocable share of gross revenues of joint ventures in which the Partnership is a co-venturer and the Property held as tenants-in-common with an affiliate, 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, 1996, the Partnership owned, either directly or through joint venture arrangements, 42 Properties located in 16 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 10,000 to 88,200 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. 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 1,200 to 10,700 square feet. All buildings on Properties acquired by the Partnership are freestanding and surrounded by paved parking areas. Buildings are suitable for conversion to various uses, although modifications may be required prior to use for other than restaurant operations.
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 tenants as of December 31, 1996 (see Item 1. Business - Major Tenants), are substantially the same as those described in Item 1. Business - Leases.
Restaurant Management Services leases five Popeyes restaurants, one Shoney's restaurant, one Church's Fried Chicken restaurant and one other restaurant (formerly operated as a Captain D's). The initial term of each lease is 20 years (expiring between 2009 and 2010) and the average minimum base annual rent is approximately $61,600 (ranging from approximately $46,000 to $121,300).
Golden Corral Corporation leases four Golden Corral restaurants. The initial term of each lease is 15 years (expiring between 2004 and 2011) and the average minimum base annual rent is approximately $152,900 (ranging from approximately $88,000 to $185,700).
Mid-America Corporation leases four Burger King restaurants. The initial term of each lease is between 14 and 16 years (expiring between 2004 and 2006) and the average minimum base annual rent is approximately $102,200 (ranging from approximately $100,000 to $103,000).
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 28, 1997, there were 2,997 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 1996 and 1995 other than pursuant to the Plan, net of commissions (which ranged from zero to 15.5 percent).
(1) A total of 664 and 1,203 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 $500. 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 $3,220,000 and $3,150,000, respectively, to the Limited Partners. For the quarter ended December 31, 1996, the Partnership declared a special distribution to the Limited Partners of $70,000, which represented cumulative excess operating reserves. 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 $787,500 $787,500 June 30 787,500 787,500 September 30 787,500 787,500 December 31 (1) 857,500 787,500
(1) Includes a special distribution to Limited Partners of $70,000, for the quarter ended December 31, 1996.
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 of the consolidated joint venture.
(2) Net income for the year ended December 31, 1996, includes provision for loss on land and building of $77,023. In addition, net income for the years ended December 31, 1996 and 1995, includes $1,706 and $7,370, respectively, from a loss on sale of land and buildings. Net income for the years ended December 31, 1995 and 1994, also includes $103,283 and $332,664, respectively, from gains on sale of land and buildings.
(3) Distributions for the year ended December 31, 1996, include a special distribution to the Limited Partners of $70,000, 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.
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, 1996, the Partnership owned 42 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 $3,310,762, $3,222,430 and $3,253,674 for the years ended December 31, 1996, 1995 and 1994, respectively. The increase in cash from operations during 1996, as compared to 1995, and the decrease during 1995, as compared to 1994, 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 Properties in Batesville and Heber Springs, Arkansas, for a total of $1,432,178 and received net sales proceeds of $1,429,481, resulting in a gain for financial reporting purposes of $332,664. These Properties were originally acquired by the Partnership in November 1989 and February 1990 and had a combined, total cost of approximately $1,148,100, excluding acquisition fees and miscellaneous acquisition expenses; therefore, the Partnership sold the Properties for approximately $281,400 in excess of their original purchase prices. The sale of these Properties was structured to qualify as like-kind exchange transactions in accordance with Section 1031 of the Internal Revenue Code. As a result, no gain or loss 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 these two Properties to the Limited Partners for the purposes of paying federal and state income taxes. In June 1994, the Partnership reinvested $846,596 of the net sales proceeds in a Jack in the Box Property in Dallas, Texas, that was under construction. Construction was completed in September 1994, and the Partnership funded additional construction costs of $134,308. In July 1994, the Partnership reinvested the remaining net sales proceeds in a Jack in the Box Property in Yuma, Arizona, as tenants-in-common with an affiliate of the General Partners.
In June 1995, the Partnership sold its Property in Little Canada, Minnesota, for $904,000 and received net sales proceeds of $899,503, resulting in a gain of $103,283 for financial reporting purposes. This Property was originally acquired by the Partnership in October 1989 and had a cost of approximately $823,900, excluding acquisition fees and miscellaneous acquisition expenses; therefore, the Partnership sold the Property for approximately $75,600 in excess of its original purchase price. In August 1995, the Partnership reinvested $724,612 in a Property in Broken Arrow, Oklahoma. In addition, in August 1995, the Partnership sold a small parcel of vacant land adjacent to its Property in Orlando, Florida, for $7,500, resulting in a loss of $7,370 for financial reporting purposes. In connection therewith, the Partnership accepted a promissory note for $6,000. The promissory note was collateralized by a mortgage on the Property, bore interest at a rate of nine percent per annum and was scheduled to be collected in six monthly installments of $1,026, with collections commencing September 1995. Receivables include $3,056 from the note at December 31, 1995. The receivable was collected in full during 1996.
In January 1996, the Partnership reinvested the remaining net sales proceeds from the 1995 sale of the Property in Little Canada, Minnesota, in a Golden Corral Property located in Clinton, North Carolina, with affiliates of the General Partners as tenants-in-common. In connection therewith, the Partnership and its affiliates entered into an agreement whereby each co-venturer will share in the profits and losses of the Property in proportion to its applicable percentage interest. As of December 31, 1996, the Partnership owned a 17.93% interest in this property.
In March 1996, the Partnership entered into an agreement with the tenant of the Properties in Chester, Pennsylvania, and Orlando, Florida, for payment of certain rental payment deferrals the Partnership had granted to the tenant through March 31, 1996. Under the agreement, the Partnership agreed to abate approximately $42,700 of the rental payment deferral amounts. The tenant made the first payment of approximately $18,600 in April 1996 in accordance with the terms of the agreement, and has agreed to pay the Partnership the remaining balance due of approximately $109,500 in six remaining annual installments through 2002.
In December 1996, the Partnership sold its Property in Dallas, Texas, to an unrelated third party for $1,016,000 and received net sales proceeds of $982,980. This Property was originally acquired by the Partnership in June 1994 and had a cost of approximately $980,900, excluding acquisition fees and miscellaneous acquisition expenses; therefore, the Partnership sold the Property for approximately $2,100 in excess of its original purchase price. Due to the fact that the Partnership had recognized accrued rental income since the inception of the lease relating to the straight-lining of future scheduled rent increases in accordance with generally accepted accounting principles, the Partnership wrote-off the cumulative balance of such accrued rental income at the time of the sale of this Property, resulting in a loss on land and building of $1,706 for financial reporting purposes. Due to the fact that the straight-lining of future rent increases over the term of the lease is a non-cash accounting adjustment, the write-off of these amounts is a loss for financial statement purposes only. As of December 31, 1996, the net sales proceeds of $977,017, plus accrued interest of $739, were being held in an interest bearing escrow account pending the release of funds by the escrow agent to acquire an additional Property. The sale of this Property 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 purposes of paying federal and state income taxes. In February 1997, the Partnership reinvested the net sales proceeds, along with additional funds, in a Bertucci's Property located in Marietta, Georgia.
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 to make distributions to the partners. At December 31, 1996, the Partnership had $1,127,930 invested in such short-term investments as compared to $1,120,999 at December 31, 1995. The funds remaining at December 31, 1996, after payment of distributions and other liabilities, will be used to invest in an additional Property as discussed above and 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 $96,112, $95,898 and $87,733, respectively, for certain operating expenses. As of December 31, 1996 and 1995, the Partnership owed $2,633 and $6,024, 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. Other liabilities of the Partnership, including distributions payable, increased to $917,704 at December 31, 1996, from $822,187 at December 31, 1995. The increase in other liabilities is primarily attributable to the Partnership accruing a special distribution payable to the Limited Partners of $70,000 at December 31, 1996, from excess operating reserves. The General Partners believe that the Partnership has sufficient cash on hand to meet its current working capital needs.
Based on cash from operations, and cumulative excess operating reserves for the year ended December 31, 1996, the Partnership declared distributions to the Limited Partners of $3,220,000 for the year ended December 31, 1996, and $3,150,000 for each of the years ended December 31, 1995 and 1994. This represents distributions of $46 per Unit for the year ended December 31, 1996, and $45 per Unit for each of the years ended December 31, 1995 and 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 do not believe that working capital reserves are necessary at this time. In addition, because the 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 39 wholly owned Properties (including two Properties in Batesville and Heber Springs, Arkansas, which were sold in May 1994), during 1995, the Partnership owned and leased 38 wholly owned Properties (including one Property in Little Canada, Minnesota, which was sold in June 1995), and during 1996, the Partnership owned and leased 37 wholly owned properties (including one Property in Dallas, Texas, which was sold in December 1996). In addition, during 1996, 1995 and 1994, the Partnership was a co-venturer in four separate joint ventures that each owned and leased one Property, and during 1995 and 1994, the Partnership owned and leased one Property with an affiliate as tenants-in-common. During 1996, the Partnership also owned and leased another Property with affiliates as tenants-in-common. As of December 31, 1996, the Partnership owned, either directly, as tenants-in-common with affiliates, or through joint venture arrangements, 42 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 $37,900 to $185,700. Generally, 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 fourth to 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 to five percent) of the purchase price 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, 1996, 1995 and 1994, the Partnership and its consolidated joint venture, Caro Joint Venture, earned $3,333,665, $3,207,860 and $3,235,244, respectively, in rental income from operating leases and earned income from direct financing leases. Rental and earned income increased approximately $43,700 and $33,400 for the years ended December 31, 1996 and 1995, respectively, due to the acquisition of a Property located in Broken Arrow, Oklahoma, in August 1995 with the net sales proceeds from the sale of the Property in Little Canada, Minnesota, in June 1995. The increase in rental income was partially offset by a decrease of approximately $6,800 and $83,600, respectively, during the years ended December 31, 1996 and 1995, due to the sale of the Property in Little Canada, Minnesota, in June 1995.
Rental and earned income also increased during the year ended December 31, 1996, as a result of the fact that the Partnership collected and recorded as income approximately $5,300 in rental payment deferrals for the two Properties leased by the same tenant in Chester, Pennsylvania, and Orlando, Florida. Previously, the Partnership had established an allowance for doubtful accounts for these amounts. These amounts were collected in accordance with the agreement entered into in March 1996, with the tenant to collect the remaining balance of the rental payment deferral amounts as discussed above in "Liquidity and Capital Resources." If such amounts are collected, the
Partnership will reverse the remaining related allowance for doubtful accounts and record such amounts as income. The increase in rental and earned income during 1996, as compared to 1995, was partially attributable to, and the decrease in 1995, as compared to 1994, was partially offset by, the fact that during the years ended December 31, 1995 and 1994 the Partnership established an allowance for doubtful accounts of approximately $52,900 and $82,400, respectively, for rental payment deferral amounts relating to these Properties deemed uncollectible. No such allowance was established during the year ended December 31, 1996.
Rental and earned income also decreased in 1995, as compared to 1994, by approximately $51,700 as a result of the fact that the tenant of the Property in Hermitage, Tennessee, elected to exercise its option to terminate its lease with the Partnership effective August 31, 1994, and the fact that the Partnership had established an allowance for doubtful accounts for rent receivable amounts relating to this Property. The increase in rental income during 1996, as compared to 1995, was partially attributable to, and the decrease in 1995, as compared to 1994, was partially offset by, an increase of approximately $35,300 and $48,500 during 1996 and 1995, respectively, due to the fact that in April 1995, the Partnership entered into a new lease for this Property, for which rent commenced in June 1995.
In addition, rental and earned income decreased by approximately $56,200 during 1995, as compared to 1994, as a result of the sale of the Properties in Batesville and Heber Springs, Arkansas, in May 1994. However, the decrease was partially offset by an increase of approximately $51,800 during 1995, as compared to 1994, due to the reinvestment of a portion of the net sales proceeds in a Property in Dallas, Texas, in June 1994. This Property was subsequently sold in December 1996, as discussed above in "Liquidity and Capital Resources," causing a $6,800 decrease in rental and earned income during 1996, as compared to 1995.
For the years ended December 31, 1996, 1995 and 1994, the Partnership also earned $110,073, $115,946 and $150,372, respectively, in contingent rental income. The decrease in contingent rental income during 1996 and 1995, each as compared to the prior year, is primarily attributable to decreases in gross sales relating to certain Properties.
In addition, for the years ended December 31, 1996, 1995 and 1994, the Partnership earned $97,381, $83,483 and $70,499, respectively, attributable to net income earned by joint ventures in which the Partnership is a co-venturer. The increase in net income earned by these joint ventures during 1996, as compared to 1995, is primarily attributable to the fact that in January 1996, the Partnership acquired an interest in a Golden Corral Property in Clinton, North Carolina, with affiliates as tenants-in-common, as described above in "Liquidity and Capital Resources." The increase in 1995, as compared to 1994, is primarily attributable to the acquisition in July 1994, of a Property in Yuma, Arizona, with an affiliate as tenants-in-common.
During the years ended December 31, 1996, 1995 and 1994, three of the Partnership's lessees, Golden Corral Corporation, Restaurant Management Services, Inc. and Mid-America Corporation, each 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 the three Properties owned by unconsolidated joint ventures in which the Partnership is a co-venturer and two Properties owned with affiliates as tenants-in-common). As of December 31, 1996, Golden Corral Corporation was the lessee under leases relating to five restaurants, Restaurant Management Services, Inc. was the lessee under leases relating to eight restaurants and Mid-America Corporation was the lessee under leases relating to four restaurants. It is anticipated that, based on the minimum annual rental payments required by the leases, these three lessees each will continue to contribute more than ten percent of the Partnership's total rental income during 1997 and subsequent years. In addition, three Restaurant Chains, Golden Corral Family Steakhouse Restaurants, Hardee's and Burger King, each accounted for more than ten percent of the Partnership's total rental income in 1996, 1995 and 1994 (including the Partnership's consolidated joint venture and the Partnership's share of the rental income from the three Properties owned by unconsolidated joint ventures in which the Partnership is a co-venturer and two Properties owned with affiliates as tenants-in-common). In subsequent years, it is anticipated that these three Restaurant Chains each will continue to account for more than ten percent of the Partnership's total rental income to which the Partnership is entitled under the terms of the leases. Any failure of these lessees or Restaurant Chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense, were $683,163, $672,818 and $706,533 for the years ended December 31, 1996, 1995 and 1994, respectively. The increase in operating expenses
during 1996, as compared to 1995, was partially a result of, and the decrease during 1995, as compared to 1994, was partially offset by, an increase in accounting and administrative expenses associated with operating the Partnership and its Properties and an increase in 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 in 1995, as compared to 1994, is partially attributable to the Partnership's establishing an allowance for doubtful accounts of approximately $43,400 for amounts previously recorded as income relating to the Properties in Chester, Pennsylvania, and Little Canada, Minnesota, during the year ended December 31, 1994. In addition, operating expenses decreased during 1995, as compared to 1994, due to the fact that the tenant of the Property in Hermitage, Tennessee, elected to exercise its option to terminate its lease with the Partnership, effective August 31, 1994. In connection therewith, the Partnership expensed approximately $9,600 in unamortized lease costs relating to this lease and incurred certain expenses relating to this Property, such as real estate taxes, during the year ended December 31, 1994. In April 1995, the Partnership entered into a new lease for this Property.
Depreciation expense decreased during 1996 and 1995, each as compared to the prior year, as a result of the sale of the Properties in Dallas, Texas, in December 1996, and Little Canada, Minnesota, in June 1995.
As a result of the sale of the Property in Dallas, Texas, in December 1996, the Partnership recognized a loss for financial reporting purposes of $1,706, for the year ended December 31, 1996, as discussed above in "Liquidity and Capital Resources." In addition, as a result of the sale of the Property in Little Canada, Minnesota, the Partnership recognized a gain of $103,283, and as a result of the sale during 1995, of a portion of the land of the Property in Orlando, Florida, the Partnership recognized a loss of $7,370, for the year ended December 31, 1995, as discussed above in "Liquidity and Capital Resources." In addition, as a result of the sale of the Properties in Batesville and Heber Springs, Arkansas, during 1994, the Partnership recognized a gain of $332,664 for the year ended December 31, 1994, as discussed above in "Liquidity and Capital Resources."
In addition, during 1996, the Partnership established an allowance for loss on land and building for its Property in Liverpool, New York. The allowance of $77,023, represents the difference between the Property's carrying value at December 31, 1996, and the sales value of the Property based on an anticipated sales price of this Property to an interested and unrelated third party.
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." The 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 currently had no material effect on the Partnership's financial position or results of operations.
The Partnership's leases as of December 31, 1996, are 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 sales of the restaurants and on potential capital appreciation of the Properties.
Item 8.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND VI, 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 VI, Ltd.
We have audited the financial statements and the financial statement schedules of CNL Income Fund VI, 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 VI, 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.
Orlando, Florida January 30, 1997
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
BALANCE SHEETS
See accompanying notes to financial statements.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
STATEMENTS OF INCOME
See accompanying notes to financial statements.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1996, 1995 and 1994
See accompanying notes to financial statements.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
See accompanying notes to financial statements.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
See accompanying notes to financial statements.
CNL INCOME FUND VI, 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 VI, 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 method. 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 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 VI, 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 the 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' best 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 accrued rental income, 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 percent interest in Caro Joint Venture, a Florida general partnership, using the consolidation method. Minority interest represents the minority joint venture partner's proportionate share of equity in the Partnership's consolidated joint venture. All significant intercompany accounts and transactions have been eliminated.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
The Partnership's investments in Auburn Joint Venture, Show Low Joint Venture, Asheville Joint Venture,a property in Yuma, Arizona, held as tenants-in-common with an affiliate, and a property in Clinton, North Carolina, 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.
Lease Costs - Brokerage fees and lease incentive costs incurred in finding new tenants and negotiating new leases for the Partnership's properties are amortized over the terms of the new leases using the straight-line method.
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.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
Use of Estimates - The general partners of the Partnership have made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare these financial statements in conformity with generally accepted accounting principles. The more significant areas requiring the use of management estimates relate to the allowance for doubtful accounts and future cash flows associated with long-lived assets. Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial statements have been reclassified to conform to 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 LongLived Assets and for Long-Lived Assets to Be Disposed Of." The 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 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, nine 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 four 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 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
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
2. Leases - Continued:
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:
1996 1995 ----------- -----------
Land $10,364,275 $10,880,540 Buildings 13,983,253 14,447,892 ----------- ----------- 24,347,528 25,328,432 Less accumulated depreciation (3,165,150) (2,717,746) ----------- ----------- 21,182,378 22,610,686 Less allowance for loss on land and building (77,023) - ----------- ----------
$21,105,355 $22,610,686 =========== ===========
In May 1994, the Partnership sold its properties in Batesville and Heber Springs, Arkansas, for a total of $1,432,178 and received net sales proceeds of $1,429,481, resulting in a gain of $332,664 for financial reporting purposes. These properties were originally acquired by the Partnership in November 1989 and February 1990 and had combined, total cost of approximately $1,148,100, excluding acquisition fees and miscellaneous acquisition expenses; therefore, the Partnership sold the properties for approximately $281,400 in excess of their original purchase price. The Partnership reinvested $980,904 of the net sales proceeds in a property in Dallas, Texas.
In addition, in June 1995, the Partnership sold its property in Little Canada, Minnesota, for $904,000 and received net sales proceeds of $899,503, resulting in a gain of $103,283 for financial reporting purposes. This property was originally acquired by the Partnership in October 1989 and had a cost of approximately $823,900, excluding acquisition fees and miscellaneous acquisition expenses; therefore, the Partnership sold the property for approximately $75,600 in excess of its original purchase price. In August 1995, the Partnership reinvested $724,612 of the net sales proceeds in
CNL INCOME FUND VI, 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:
a property in Broken Arrow, Oklahoma. Also, in August 1995, the Partnership sold a small parcel of vacant land adjacent to its property in Orlando, Florida, for $7,500, resulting in a loss of $7,370 for financial reporting purposes. In connection therewith, the Partnership accepted a promissory note for $6,000 (see Note 6).
In December 1996, the Partnership sold its property in Dallas, Texas, to an unrelated third party for $1,016,000 and received net sales proceeds of $982,980. This property was originally acquired by the Partnership in June 1994 and had a cost of approximately $980,900, excluding acquisition fees and miscellaneous acquisition expenses; therefore, the Partnership sold the property for approximately $2,100 in excess of its original purchase price. Due to the fact that the Partnership had recognized accrued rental income since the inception of the lease relating to the straight-lining of future scheduled rent increases in accordance with generally accepted accounting principles, the Partnership wrote-off the cumulative balance of such accrued rental income at the time of the sale of this property, resulting in a loss on land and building of $1,706 for financial reporting purposes. Due to the fact that the straight-lining of future rent increases over the term of the lease is a non-cash accounting adjustment, the write-off of these amounts is a loss for financial statement purposes only.
At December 31, 1996, the Partnership established an allowance for loss on land and building in the amount of $77,023 for financial reporting purposes for the property in Liverpool, New York. The allowance represents the difference between (i) the property's carrying value at December 31, 1996, and (ii) the general partners' estimate of the net realizable value of the property based on an anticipated sales price of this property to an interested and unrelated third party.
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 $103,935, $131,428 and $169,433, respectively, of such rental income.
CNL INCOME FUND VI, 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:
The following is a schedule of the future minimum lease payments to be received on noncancellable operating leases at December 31, 1996:
1997 $ 2,560,283 1998 2,544,073 1999 2,542,105 2000 2,662,772 2001 2,701,460 Thereafter 15,906,564 -----------
$28,917,257 ===========
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 $ 8,955,426 $ 9,577,697 Estimated residual values 1,704,299 1,704,299 Less unearned income (6,000,701) (6,554,795) ----------- -----------
Net investment in direct financing leases $ 4,659,024 $ 4,727,201 =========== ===========
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
4. Net Investment in Direct Financing Leases - Continued:
The following is a schedule of future minimum lease payments to be received on direct financing leases at December 31, 1996:
1997 $ 622,269 1998 622,269 1999 622,269 2000 624,409 2001 637,129 Thereafter 5,827,081 ---------- $8,955,426 ==========
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 3.9%, a 36 percent and a 14 percent interest in the profits and losses of Auburn Joint Venture, Show Low Joint Venture and Asheville Joint Venture, respectively. The remaining interests in these joint ventures are held by affiliates of the Partnership which have the same general partners. The Partnership also has a 51.67% 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.
In January 1996, the Partnership acquired a property in Clinton, North Carolina, as tenants-in-common with affiliates of the general partners. In connection therewith, the Partnership contributed $146,090 for a 17.93% interest in such property. The Partnership accounts for its investment in this property using the equity method since the Partnership shares control with affiliates, and amounts relating to its investment are included in investment in joint ventures.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
5. Investment in Joint Venture - Continued:
Auburn Joint Venture, Show Low Joint Venture, Asheville Joint Venture, and the Partnership and affiliates as tenants-in-common in two separate tenancy-in-common arrangements, each own and lease one property to an operator of national fast-food and family-style restaurants. The following presents the combined, condensed financial information for the joint ventures and the two properties held as two separate tenants-in-common with an affiliate at December 31:
1996 1995 ---------- ----------
Land and buildings on operating leases, less accumulated depreciation $3,463,093 $2,726,011 Net investment in direct financing lease 401,650 408,936 Cash 11,177 1,950 Receivables 21,826 18,298 Accrued rental income 191,594 170,695 Other assets 44,380 47,283 Liabilities 10,221 2,208 Partners' capital 4,123,499 3,370,965 Revenues 528,092 432,218 Net income 436,981 363,865
The Partnership recognized income totalling $97,381, $83,483, and $70,499 for the years ended December 31, 1996, 1995 and 1994, respectively, from these joint ventures and the properties held as tenants-in-common with affiliates.
6. Restricted Cash:
As of December 31, 1996, net sales proceeds of $977,017 from the sale of the property in Dallas, Texas, plus accrued interest of $739, were being held in an interest-bearing escrow account pending the release of funds by the escrow agent to acquire an additional property.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
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, 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 year ended December 31, 1996, the Partnership declared distributions to the limited partners of $3,220,000 and during each of the years ended December 31, 1995 and 1994, the Partnership declared distributions to the limited partners of $3,150,000. No distributions have been made to the general partners to date.
CNL INCOME FUND VI, 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 $2,803,601 $2,861,381 $3,095,028
Depreciation for tax reporting purposes in excess of depreci- ation for financial reporting purposes (104,412) (94,987) (92,651)
Allowance for loss on land and building 77,023 - -
Direct financing leases recorded as operating leases for tax reporting purposes 68,177 53,944 48,202
Gain and loss on sale of land and buildings for financial reporting purposes in excess of gain and loss on sale for tax reporting purposes 1,706 (2,914) (332,664)
Equity in earnings of unconsolidated joint ventures for financial reporting purposes in excess of equity in earnings of unconsolidated joint ventures for tax reporting purposes (49) (5,299) (3,031)
Allowance for doubtful accounts (78,517) 16,154 178,255
Accrued rental income (103,935) (131,428) (169,433)
Rents paid in advance 26,288 (36,699) 1,309
Minority interest in timing differences of consolidated joint venture 1,781 (200) (200) ---------- ---------- ----------
Net income for federal income tax purposes $2,691,663 $2,659,952 $2,724,815 ========== ========== ==========
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
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, 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 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 and the property held as tenants-in-common with an affiliate, 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 fact that these fees are noncumulative, 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. 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 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. No deferred, subordinated real estate disposition fees have been incurred since inception.
CNL INCOME FUND VI, 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, Affiliates provided accounting and administrative services to the Partnership on a day-to-day basis. The Partnership incurred $95,420, $81,847 and $49,761 for the years ended December 31, 1996, 1995 and 1994, respectively, for such services.
The due to related parties at December 31, 1996 and 1995, totalled $2,633 and $6,024, respectively.
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 (including the Partnership's share of total rental and earned income from joint ventures and the two properties held as tenants-in-common with affiliates), for the years ended December 31:
1996 1995 1994 -------- -------- ------
Golden Corral Corporation $758,348 $725,908 $747,050 Restaurant Manage- ment Services, Inc. 511,040 440,987 401,460 Mid-America Corporation 439,519 439,519 439,519
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 and the two properties held as tenants-in-common with affiliates), for the years ended December 31:
1996 1995 1994 -------- -------- ------
Golden Corral Family Steakhouse Restaurants $758,348 $725,908 $747,050 Burger King 455,764 455,820 455,820 Hardee's 410,951 431,465 576,633
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
10. Concentration of Credit Risk - Continued:
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.
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 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 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 1995 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.
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
Schedule III - Real Estate and Accumulated Depreciation at December 31, 1996
Notes to Schedule III - Real Estate and Accumulated Depreciation 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 Certificate of Limited Partnership of CNL Income Fund VI, Ltd. (Included as Exhibit 3.3 to Registration Statement No. 33-23892 on Form S-11 and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund VI, Ltd. (Included as Exhibit 4.2 to Registration Statement No. 33-23892 on Form S-11 and incorporated herein by reference.)
4.2 Agreement and Certificate of Limited Partnership of CNL Income Fund VI, 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 (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. (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.)
(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 VI, 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.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
(a) Deducted from receivables and accrued rental income on the balance sheet.
(b) Reduction of rental and other income.
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
CNL INCOME FUND VI, 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 (h) Depreciation -------- ------------
Properties the Partnership has Invested In Under Operating Leases:
Balance, December 31, 1993 $26,439,040 $1,942,633 Dispositions (1,228,109) (131,292) Acquisitions 980,904 - Depreciation expense - 496,384 ----------- ----------
Balance, December 31, 1994 26,191,835 2,307,725 Dispositions (889,049) (79,459) Additional costs capitalized 25,646 - Depreciation expense - 489,480 ----------- ----------
Balance, December 31, 1995 25,328,432 2,717,746 Disposition (980,904) (34,279) Depreciation expense - 481,683 ----------- ----------
Balance, December 31, 1996 $24,347,528 $ 3,165,150 =========== ===========
Property of Joint Venture in Which the Partnership has a 36% Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1993 $ 721,893 $ 106,226 Depreciation expense - 20,846 ----------- ----------
Balance, December 31, 1994 721,893 127,072 Depreciation expense - 20,847 ----------- ----------
Balance, December 31, 1995 721,893 147,919 Depreciation expense - 20,846 ----------- ----------
Balance, December 31, 1996 $ 721,893 $ 168,765 =========== ==========
CNL INCOME FUND VI, LTD. (A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
Accumulated Cost (h) Depreciation -------- ------------
Property of Joint Venture in Which the Partnership has a 3.9% Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1993 $ 484,362 $ - Depreciation expense (d) - - ----------- ---------
Balance, December 31, 1994 484,362 - Depreciation expense (d) - - ----------- ---------
Balance, December 31, 1995 484,362 - Depreciation expense (d) - ---------- ---------
Balance, December 31, 1996 $ 484,362 $ - =========== =========
Property of Joint Venture in Which the Partnership has a 14% Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1993 $ 889,127 $ 41,876 Depreciation expense - 15,015 ----------- ----------
Balance, December 31, 1994 889,127 56,891 Depreciation expense - 15,014 ----------- ----------
Balance, December 31, 1995 889,127 71,905 Depreciation expense - 15,014 ----------- ----------
Balance, December 31, 1996 $ 889,127 $ 86,919 =========== ==========
Property in Which the Partnership has a 51.67% 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 VI, LTD. (A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
Accumulated Cost (h) Depreciation -------- ------------
Property in Which the Partnership has a 17.93% Interest as Tenants-in-Common and has Invested in Under an Operating Lease:
Balance, December 31, 1995 $ - $ - Acquisitions 814,970 - Depreciation expense - 21,168 ----------- ----------
Balance, December 31, 1996 $ 814,970 $ 21,168 =========== ==========
(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 two Properties held as tenants-in-common) for federal income tax purposes was $27,956,036 and $4,042,142, 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 net investment in direct financing leases; therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and building has been recorded as a direct financing lease. The cost of the land and building has been included in net investment in direct financing leases; therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease relating to land and building have been recorded as a direct financing lease. Accordingly, costs relating to these components of this lease are not shown.
(g) The tenant of this property, Restaurant Management Services, Inc. subleased this property to a franchisee of a regional restaurant chain. The franchisee vacated the property; however, Restaurant Management Services, Inc. continues to be responsible for complying with all of the terms of the lease agreement and is continuing to pay rent on this property, subject to certain rent concessions, to the Partnership.
(h) For financial reporting purposes, the undepreciated cost of the Property in Liverpool, New York, was written down to net realizable value due to an anticipated impairment in value. The Partnership recognized the impairment by recording an allowance for loss on land and building in the amount of $77,023 at December 31, 1996. The impairment at December 31, 1996, represents difference between the property's carrying value and the General Partners' estimate of the net realizable value of the property based on an anticipated sales price of this Property to an interested and unrelated third party. The cost of the Property presented on this schedule is the gross amount at which the Property was carried at December 31, 1996, excluding the allowance for loss on land and building.
EXHIBITS
EXHIBIT INDEX
i