UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-26218
CNL INCOME FUND XVI, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-3198891
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($10 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 4,500,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $10 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund XVI, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on September 2, 1993. 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 September 2, 1994, the
Partnership offered for sale up to $45,000,000 of limited partnership interests
(the "Units") (4,500,000 Units at $10 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended, effective
February 23, 1994. The offering terminated on June 12, 1995, at which date the
maximum offering proceeds of $45,000,000 had been received from investors who
were admitted to the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of national and regional fast-food and family-style restaurant chains
(the "Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totaled
$39,600,000 and were used to acquire 43 Properties, including seven Properties
consisting of land only.
During the year ended December 31, 1996, the Partnership sold a
Property in Appleton, Wisconsin, and used the net sales proceeds to acquire a
Boston Market Property located in Fayetteville, North Carolina, with an
affiliate of the General Partners as tenants-in-common. During the year ended
December 31, 1997, the Partnership sold a Property in Oviedo, Florida, and
during 1998 the Partnership reinvested the net sales proceeds from the sale of
this Property in a Property in Memphis, Tennessee, as tenants-in-common, with
affiliates of the General Partners. In addition, during 1998, the Partnership
received a reimbursement from the developer of the Property in Farmington, New
Mexico upon final reconciliation of total construction costs. In August 1998,
the Partnership used these proceeds to enter into a joint venture arrangement,
Columbus Joint Venture, with affiliates of the General Partners, to construct
and hold one restaurant Property. During 1999, the Partnership sold a Property
in Lawrence, Kansas. During 2000, the Partnership reinvested the majority of
these net sales proceeds in TGIF Pittsburgh Joint Venture, with affiliates of
the General Partners, to purchase and hold one restaurant Property. In addition,
during 2000, the Partnership sold its Property in Columbia Heights, Minnesota.
During 2001, the Partnership sold its Properties in Marana, Arizona, St. Cloud,
Minnesota, and Las Vegas, Nevada and reinvested the majority of the net sales
proceeds in a Property in San Antonio, Texas and a Property in Walker,
Louisiana, with CNL Income Fund VIII, Ltd., a Florida limited partnership and an
affiliate of the General Partners, as tenants-in-common.
As a result of the above transactions, as of December 31, 2001, the
Partnership owned 42 Properties. The 42 Properties include six Properties
consisting of land only, interests in two Properties owned through joint
ventures in which the Partnership is a co-venturer and three Properties owned
with affiliates of the General Partners as tenants-in-common. The lessee of the
six Properties consisting of only land owns the buildings currently on the land
and has the right, if not in default under the lease, to remove the buildings
from the land at the end of the lease terms. In general, the Partnership leases
the Properties on a triple-net basis with the lessees 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. 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
purchase options granted to certain lessees.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had mutually
agreed to terminate the Agreement and Plan of Merger. The agreement to terminate
the Agreement and Plan of Merger was based, in large part, on the General
Partners' concern that, in light of market conditions relating to publicly
traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General Partners, ability to
unequivocally recommend voting for the transaction, in the exercise of their
fiduciary duties, had become questionable. The General Partners are continuing
to evaluate strategic alternatives for the Partnership, including alternatives
to provide liquidity to the Limited Partners.
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, the
Properties owned by joint ventures in which the Partnership is a co-venturer and
Properties owned as tenants-in-common with affiliates of the General Partners
provide for initial terms ranging from 4 to 20 years (the average being 18
years) and expire between 2003 and 2020. The leases are generally on a
triple-net basis, with the lessees 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 $24,000 to $259,900. The majority of the leases
provide for percentage rent, based on sales in excess of a specified amount. In
addition, the majority of the leases provide that, commencing in specified lease
years (generally the sixth lease year), the annual base rent required under the
terms of the lease will increase.
Generally, the leases of the Properties provide for two to five
five-year renewal options subject to the same terms and conditions as the
initial lease. Lessees of 33 of the Partnership's 42 Properties also have been
granted options to purchase Properties at the Property's then fair market value
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to that lease, the Partnership first must
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
In August 1999, the lease relating to the Long John Silver's Properties
in Silver City and Clovis, New Mexico and Copperas Cove, Texas were amended to
provide rent deferrals. All other lease terms remained unchanged. As of March
15, 2002, the Partnership has continued to receive the reduced rental payments
relating to these Properties. The General Partners do not believe that the rent
deferrals will have a material adverse effect on the results of operations of
the Partnership.
In January 2001, the leases relating to the Properties in Idaho Falls,
Idaho and Moab, Utah were assigned to another tenant and amended to provide for
a reduction in rents for a two-year period. All other lease terms remained
unchanged. The General Partners do not anticipate that any decrease in rental
income relating to these amendments will have a material adverse affect on the
Partnership's financial position or results of operations.
In addition, the tenant of the Property in Celina, Ohio exercised its
option to extend the lease for an additional two years beginning in March 2001.
All other lease terms remained unchanged and are substantially the same as the
Partnership's other leases as described above.
In October 2001, Phoenix Restaurant Group, Inc. and its Subsidiaries
(collectively referred to as "PRG") a tenant of the Partnership, filed for
Chapter 11 bankruptcy protection, and rejected the leases relating to two of the
four properties it leased from the Partnership. While PRG has not rejected or
affirmed the remaining two leases, there can be no assurance that one or both of
these leases will not be rejected in the future. The Partnership has received
rental payments relating to the two Properties not rejected by the tenant from
the bankruptcy date through March 15, 2002. The lost revenues resulting from the
rejection of the two leases and the possible rejection of the two other leases
could have an adverse effect on the results of operations of the Partnership if
the Partnership is unable to re-lease the Properties in a timely manner. The
Partnership will not recognize any rental and earned income from the two vacant
properties until new tenants for the properties are located, or until the
properties are sold and the proceeds from such sales are reinvested in
additional properties.
Major Tenants
During 2001, two lessees of the Partnership, (i) Golden Corral
Corporation and (ii) Jack in the Box Inc. and Jack in the Box Eastern Division,
LP. (affiliated under common control of Jack in the Box Inc., herein after
referred to as "Jack in the Box Inc."), each contributed more than ten percent
of the Partnership's total rental and earned income. As of December 31, 2001,
Golden Corral Corporation was the lessee under leases relating to six
restaurants and Jack in the Box Inc. was the lessee under leases relating to six
restaurants. It is anticipated that based on the minimum rental payments
required by the leases these two lessees will each continue to contribute more
than ten percent of the Partnership's total rental and earned income in 2002. In
addition, three Restaurant Chains, Golden Corral Family Steakhouse Restaurants
("Golden Corral"), Jack in the Box, and Denny's, each accounted for more than
ten percent of the Partnership's total rental and earned income during 2001. In
2002, it is anticipated that each of these Restaurant Chains will continue to
contribute more than ten percent of the Partnership's 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 if
the Partnership is not able to re-lease the Properties in a timely manner. As of
December 31, 2001, no single tenant or group of affiliated tenants leased
Properties with an aggregate carrying value in excess of 20% of the total assets
of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into two joint venture arrangements,
Columbus Joint Venture, with CNL Income Fund XII, Ltd. and CNL Income Fund
XVIII, Ltd., and TGIF Pittsburgh Joint Venture, with CNL Income Fund VII, Ltd.,
CNL Income Fund XV, Ltd., and CNL Income Fund XVIII, Ltd. Each joint venture was
formed to hold one Property. Each CNL Income Fund is an affiliate of the General
Partners and is a limited partnership organized pursuant to the laws of the
state of Florida.
The joint venture arrangements provide for the Partnership and its
joint venture partners to share in all costs and benefits associated in the
joint venture in proportion to each partner's percentage interest in the joint
venture. The Partnership has a 32.35% interest in Columbus Joint Venture and a
19.72% interest in TGIF Pittsburgh Joint Venture. The Partnership and its joint
venture partners are also 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 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 shares management control equally with affiliates of
the General Partners for Columbus Joint Venture and TGIF Pittsburgh Joint
Venture. The joint venture agreements restrict each venturer's ability to sell,
transfer to 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 Columbus Joint Venture and TGIF
Pittsburgh Joint Venture is distributed 32.35% and 19.72%, 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 arrangements, the Partnership
has entered into an agreement to hold a Boston Market Property in Fayetteville,
North Carolina, as tenants-in-common, with CNL Income Fund XVII, Ltd., an
affiliate of the General Partners, and an IHOP Property in Memphis, Tennessee,
as tenants-in-common, with CNL Income Fund II, Ltd. and CNL Income Fund VI,
Ltd., each of which is 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 and net cash flow from the Properties, in proportion to
each party's percentage interest. The Partnership owns an 80.44% and a 40.42%
interest in the Property in Fayetteville, North Carolina and the Property in
Memphis, Tennessee, respectively.
In June 2001, the Partnership entered into an agreement to hold a Jack
in the Box Property, as tenants-in-common, with CNL Income Fund VIII, Ltd., an
affiliate of the General Partners. The agreement provides for the Partnership
and the affiliates to share in the profits and losses of the Property and net
cash flow from the Property, in proportion to each party's percentage interest.
The Partnership owns an 83% interest in this Property.
Each of the affiliates is a limited partnership organized pursuant to
the laws of the state of Florida. The tenancy in common agreement restricts each
party's ability to sell, transfer, or assign its interest in the tenancy in
common's Property without first offering it for sale to the remaining parties.
The use of joint ventures and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint ventures and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Certain Management Services
CNL APF Partners, LP, an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL APF Partners, LP (the "Advisor") is 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. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor 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, but not in
excess of competitive fees for comparable services.
During, 2000, CNL Fund Advisors, Inc. assigned its rights in, and its
obligations under, the management agreement with the Partnership to CNL APF
Partners, LP. 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.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of APF, the parent company of the
Advisor, 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 Financial Group, Inc., a diversified real estate company, and
its affiliates, who may also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2001, the Partnership owned 42 Properties. Of the 42
Properties, 37 are owned by the Partnership in fee simple, two are owned through
joint venture arrangements and three are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation 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 16,600
to 104,800 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.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation.
State Number of Properties
----- --------------------
California 2
Colorado 1
Washington, D.C. 1
Florida 5
Georgia 1
Idaho 1
Indiana 2
Kansas 1
Louisiana 1
Missouri 4
New Mexico 3
North Carolina 3
Ohio 4
Pennsylvania 1
Tennessee 1
Texas 10
Utah 1
-----------------
TOTAL PROPERTIES 42
=================
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. However, the
buildings located on the six Checkers Properties are owned by the tenant while
the land parcels are owned by the Partnership. The buildings generally are
rectangular and are constructed from various combinations of stucco, steel,
wood, brick and tile. The sizes of the buildings owned by the Partnership range
from approximately 2,000 to 11,100 square feet. All buildings on Properties 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. As of December 31, 2001, the Partnership
had no plans for renovation of the Properties. Depreciation expense is computed
for buildings and improvements using the straight line method using a
depreciable life of 40 years for federal income tax purposes.
As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and joint ventures (including Properties owned through tenancy
in common arrangements) for federal income tax purposes was $34,095,784 and
$7,275,243, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.
Restaurant Chain Number of Properties
---------------- --------------------
Arby's 2
Boston Market 2
Checkers 6
Denny's 8
Golden Corral 6
IHOP 2
Jack in the Box 6
Japan Express 1
KFC 1
Long John Silver's 4
T.G.I. Friday's 1
Taco Cabana 1
Wendy's 1
Other 1
---------------------
TOTAL PROPERTIES 42
=====================
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
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.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. 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. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
At December 31, 2001, 2000, 1999, 1998 and 1997, the properties were
93%, 98%, 95%, 89%, and 100%, occupied, respectively. The following is a
schedule of the average rent per property for each of the years ended December
31:
2001 2000 1999 1998 1997
-------------- ------------- ------------- ------------- -------------
Rental Revenues (1)(2) $ 3,398,196 $ 3,730,031 $ 4,033,287 $ 4,244,356 $ 4,392,092
Properties (2) 39 42 43 44 42
Average Rent per Property $ 87,133 $ 88,810 $ 93,797 $ 96,463 $ 104,574
(1) Rental income includes the Partnership's share of rental income from the
Properties owned through joint venture arrangements and the Properties
owned through tenancy in common arrangements. Rental revenues have been
adjusted, as applicable, for any amounts for which the Partnership has
established an allowance for doubtful accounts.
(2) Excludes Properties that were vacant at December 31, and did not
generate rental revenues during the year ended December 31.
(3)
The following is a schedule of lease expirations for leases in place as
of December 31, 2001 for the next ten years and thereafter.
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
----------------- ------------- ------------------ -------------------
2002 -- $ -- --
2003 1 23,722 0.62%
2004 -- -- --
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 -- -- --
2009 3 441,319 11.61%
2010 4 498,615 13.11%
2011 5 524,537 13.79%
Thereafter 26 2,314,270 60.87%
---------- ------------- -------------
Total (1) 39 $ 3,802,463 100.00%
========== ============= =============
(1) Excludes three Properties that were vacant at December 31, 2001.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2001 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases six Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2009 and 2011) and the
average minimum base annual rent is approximately $155,400 (ranging from
approximately $113,300 to $192,900).
Jack in the Box Inc. leases six Jack in the Box restaurants. The
initial term of each lease is 18 years (expiring between 2011 and 2019) and the
average minimum base annual rent is approximately $111,400 (ranging from
approximately $96,300 to $136,500).
Item 3. Legal Proceedings
Neither the Partnership, not its General Partners or any affiliate of
the General Partners, nor any of their respective Properties is party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 15, 2002, there were 3,025 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. During 2001, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase) may have done so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units. From
inception through December 31, 2001, the price paid for any Unit transferred
pursuant to the Plan ranged from $8.62 to $9.50 per Unit. The price paid for any
Unit transferred other than pursuant to the Plan was 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 2001 and 2000 other than
pursuant to the Plan, net of commissions.
2001 (1) 2000 (1)
------------------------------------ -------------------------------------
High Low Average High Low Average
--------- -------- ----------- --------- -------- -----------
First Quarter $9.51 $ 5.97 $ 7.81 (2) (2) (2)
Second Quarter 6.78 6.20 6.43 $9.30 $ 6.47 $ 8.12
Third Quarter 6.70 6.70 6.70 7.51 5.55 7.22
Fourth Quarter 6.88 5.60 6.54 7.16 5.55 6.84
(1) A total of 31,096 and 41,725 Units were transferred other than pursuant
to the Plan for the years ended December 31, 2001 and 2000.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $10. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 2001 and 2000, the Partnership
declared cash distributions of $3,600,000 to the Limited Partners. No amounts
distributed to the Limited Partners for the years ended December 31, 2001 and
2000, 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. Distributions of $900,000 were declared at the close of each
of the Partnership's calendar quarters. This amount includes monthly
distributions made in arrears for the Limited Partners electing to receive such
distributions on this basis.
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.
(b) Not applicable
Item 6. Selected Financial Data
2001 2000 1999 1998 1997
-------------- --------------- --------------- -------------- ---------------
Year ended December 31:
Revenues (1) $3,325,718 $3,886,239 $4,059,810 $4,278,124 $4,455,994
Net income (2) 139,868 1,945,812 2,815,008 2,976,998 3,660,327
Cash distributions
declared (3) 3,600,000 3,600,000 3,600,000 3,690,000 3,600,000
Net income per Unit (2) 0.03 0.43 0.62 0.65 0.81
Cash distributions
declared per Unit (3) 0.80 0.80 0.80 0.82 0.80
At December 31:
Total assets $34,305,402 $37,936,084 $39,710,973 $40,188,641 $40,938,320
Partners' capital 33,292,612 36,752,744 38,406,932 39,191,924 39,904,926
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the years ended December 31, 2001 and 2000, includes
$383,637 and $88,661, respectively, from gain on sale of assets. Net
income for the years ended December 31, 2001, 2000 and 1998 includes
$2,290,553, $962,971 and $450,625, respectively, for provision for
write-down of assets. Net income for the year ended December 31, 1999,
includes $84,478 from loss on sale of assets.
(3) Distributions for the year ended December 31, 1998 include a special
distribution to the Limited Partners of $90,000, which represented
cumulative excess operating reserves.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on September 2, 1993, 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, to be leased primarily to
operators of selected national and regional fast-food and family-style
Restaurant Chains. The leases are generally triple-net leases, with the lessees
generally responsible for all repairs and maintenance, property taxes, insurance
and utilities. As of December 31, 2001, the Partnership owned 42 Properties,
either directly or indirectly through joint venture or tenancy in common
arrangements.
Capital Resources
Currently, the Partnership's primary source of capital is cash from
operations (which includes cash received from tenants, distributions from the
joint venture and interest received, less cash paid for expenses). Cash from
operations was $2,723,368, $3,165,697, and $3,151,231, for the years ended
December 31, 2001, 2000, and 1999, respectively. The decrease in cash from
operations during 2001, as compared to 2000, and the increase in cash from
operations during 2000, as compared to 1999, was primarily a result of changes
in the Partnership's working capital and changes in income and expenses as
described in "Results of Operations," below.
Other sources and uses of capital included the following during the
years ended December 31, 2001, 2000 and 1999.
During the year ended December 31, 1999, the Partnership accepted a
promissory note from the former tenant of the Shoney's Property in Las Vegas,
Nevada, in the amount of $52,191, representing past due rental and other
amounts. The note represents receivables for which the Partnership had
established an allowance for doubtful accounts, and real estate taxes previously
recorded as an expense by the Partnership. Payments are due in 60 monthly
installments of $1,220 including interest at a rate of ten percent per annum,
which were scheduled to commence on March 1, 2000, at which time the accrued and
unpaid interest of $5,219 was capitalized into the principal balance of the
note. Due to the uncertainty of the collectibility of the note, the Partnership
established an allowance for doubtful accounts and is recognizing income as
collected. As of December 31, 2001 and 2000, the balance in the allowance for
doubtful accounts relating to this promissory note was $63,954 and $62,751,
respectively, including accrued interest of $6,117 and $4,914, respectively. The
Partnership has ceased collection efforts on the remaining past due receivables
not converted into the promissory note.
In February 1999, the Partnership entered into a new lease for the
Property in Las Vegas, Nevada. In connection therewith, the Partnership incurred
$183,500 in renovation costs which were completed in November 2000.
In November 1999, the Partnership sold its Property in Lawrence,
Kansas, to a third party for $690,000 and received net sales proceeds of
$667,311. As a result of this transaction, the Partnership recognized a loss of
$84,478. In June 2000, the Partnership used the majority of these net sales
proceeds to invest in a joint venture arrangement, TGIF Pittsburgh Joint
Venture, with CNL Income Fund VII, Ltd., CNL Income Fund XV, Ltd., and CNL
Income Fund XVIII, Ltd., each a Florida limited partnership and an affiliate of
the General Partners, to purchase and hold one restaurant Property. As of
December 31, 2001, the Partnership owned a 19.72% interest in the profits and
losses of the joint venture.
In September 2000, the Partnership sold its Property in Columbia
Heights, Minnesota, to a third party for $584,000 and received net sales
proceeds of approximately $575,800, resulting in a gain of approximately $88,700
for the financial reporting purposes. The Partnership distributed amounts
sufficient to enable the Limited Partners to pay federal and state income taxes,
if any (at a level reasonably assumed by the General Partners), resulting from
the sale.
In March 2001, the Partnership sold its Property in Marana, Arizona, to
an unrelated third party for a total of approximately $1,151,000 and received
net sales proceeds totaling approximately $1,145,000, resulting in a gain of
approximately $281,100. In June 2001, the Partnership reinvested the net sales
proceeds in an additional Property in Walker, Louisiana, with CNL Income Fund
VIII, Ltd., a Florida limited partnership and an affiliate of the General
Partners, as tenants-in-common. As of December 31, 2001, the Partnership had
contributed approximately $1,134,100 for an 83% interest in the profits and
losses of the Property. The General Partners believe that this transaction, or a
portion thereof, relating to the sale of this Property and the reinvestment of
the net sales proceeds will qualify as a like-kind transaction for federal
income tax purposes. However, the Partnership will distribute amounts sufficient
to enable the Limited Partners to pay federal and state income taxes, if any (at
a level reasonably assumed by the General Partners), resulting from the sale.
In October 2001, the Partnership entered into a promissory note with
the corporate General Partner in the amount of $300,000 in connection with the
operations of the Partnership. The loan was uncollateralized, non-interest
bearing and due on demand. As of December 31, 2001, the Partnership had repaid
the loan in full to the corporate General Partner.
In November 2001, the Partnership sold its Property in St. Cloud,
Minnesota to an unrelated third party for approximately $664,500 and received
net sales proceeds of approximately $647,400, resulting in a gain on sale of
assets of $100,672. The Partnership will distribute amounts sufficient to enable
the Limited Partners to pay federal and state income taxes, if any (at a level
reasonably assumed by the General Partners), resulting from the sale.
In December 2001, the Partnership sold its Property in Las Vegas,
Nevada to an unrelated third party for approximately $1,094,000 and received net
sales proceeds of approximately $1,059,300, resulting in a gain on sale of
assets of $1,902. In December 2001, the Partnership reinvested these net sales
proceeds in a property in San Antonio, Texas at an approximate cost of
$1,147,900. The Partnership acquired this property from CNL Funding 2001-A, LP,
a Delaware limited partnership and an affiliate of the General Partners. CNL
Funding 2001-A, LP had purchased and temporarily held title to the Property in
order to facilitate the acquisition of the Property by the Partnership. The
purchase price paid by the Partnership represented the costs incurred by CNL
Funding 2001-A, LP to acquire and carry the Property, including closing costs.
None of the Properties owned by the Partnership, or the joint venture
or tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Subject to certain restrictions on borrowing, however, the
Partnership may borrow funds but will not encumber any of the Properties in
connection with any such borrowing. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners. The Partnership will not
borrow under arrangements that would make the Limited Partners liable to
creditors of the Partnership. The General Partners further have represented that
they will use their reasonable efforts to structure any borrowing so that it
will not constitute "acquisition indebtedness" for federal income tax purposes
and also will limit the Partnership's outstanding indebtedness to three percent
of the aggregate adjusted tax basis of its Properties. In addition, the
Partnership will not borrow unless it first obtains an opinion of counsel that
such borrowing will not constitute acquisition indebtedness. 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 and net
sales proceeds from the sale of Properties are invested in money market accounts
or other short-term, highly liquid investments such as demand deposit accounts
at commercial banks, money market accounts and certificates of deposit with less
than a 90-day maturity date, pending the Partnership's use of such funds to
reinvest in additional Properties, to pay Partnership expenses, or to make
distributions to partners. At December 31, 2001, the Partnership had $774,673
invested in such short-term investments as compared to $1,081,650 at December
31, 2000. As of December 31, 2001, the average interest rate earned on the
rental income deposited in demand deposit accounts at commercial banks was
approximately 2.5% annually. The funds remaining at December 31, 2001, will be
used toward the payment of distributions and other liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
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 ongoing operating expenses and cash flow, the General
Partners believe that the Partnership has sufficient working capital reserves at
this time. In addition, because the majority of 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 to cause the Partnership to maintain additional
reserves if, in their discretion, they determine such reserves are required to
meet the Partnership's working capital needs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based on current and anticipated future cash from operations, and
for the year ended December 31, 2001, a loan from the corporate General Partner,
the Partnership declared distributions to the Limited Partners of $3,600,000,
for each of the years ended December 31, 2001, 2000, and 1999. This represents
distributions of $0.80 per Unit for each of the years ended December 31, 2001,
2000, and 1999. No distributions were made to the General Partners during the
years ended December 31, 2001, 2000, and 1999. No amounts distributed to the
Limited Partners for the years ended December 31, 2001, 2000, and 1999, 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 Limited Partners on a quarterly basis.
During 2000, the general partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the general
partners' capital account as of December 31, 1999. Accordingly, the general
partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2001 and 2000.
As of December 31, 2001 and 2000, the Partnership owed $17,331 and
$152,957, respectively, to related parties for such amounts as accounting and
administrative services and management fees. As of March 15, 2002, the
Partnership had reimbursed the affiliates all such amounts. Other liabilities,
including distributions payable, decreased to $995,459 at December 31, 2001,
from $1,030,383 at December 31, 2000. Liabilities at December 31, 2001, to the
extent they exceed cash and cash equivalents at December 31, 2001, will be paid
from anticipated future cash from operations.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for using either the direct financing or the operating
method. FAS 13 requires management to estimate the economic life of the leased
property, the residual value of the leased property and the present value of
minimum lease payments to be received from the tenant. In addition, management
assumes that all payments to be received under its leases are collectible.
Changes in management's estimates or assumption regarding collectibility of
lease payments could result in a change in accounting for the lease at the
inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews it Properties and investments in unconsolidated
entities periodically (no less than once per year) for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through operations. Management determines whether
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. If an impairment is indicated, the assets are
adjusted to their fair value.
Results of Operations
During 1999, the Partnership owned and leased 41 wholly owned
Properties (including one Property which was sold in November 1999), during
2000, the Partnership owned and leased 40 wholly owned Properties (including one
Property which was sold in September 2000) and during 2001, the Partnership
owned and leased 40 wholly owned Properties (including three Properties which
were sold during 2001). In addition, during 1999, the Partnership was a
co-venturer in a joint venture arrangement that owned and leased one Property,
and during 2001, and 2000, the Partnership was a co-venturer in an additional
joint venture arrangement that owned and leased one Property. In addition,
during 2001, 2000, and 1999, the Partnership owned and leased two Properties
with affiliates of the General Partners, as tenants-in-common. In addition,
during 2001, the Partnership owned and leased one additional Property with an
affiliate, as tenants-in-common. As of December 31, 2001, the Partnership owned,
either directly, as tenants-in-common or through a joint venture arrangement, 42
Properties which are generally subject to long-term, triple-net leases that
provide for minimum base annual rental amounts (payable in monthly installments)
ranging from approximately $24,000 to $259,900. The majority of the leases
provide for percentage rent based on sales in excess of a specified amount. In
addition, the majority of the leases provide that, commencing in specified lease
years (generally the sixth lease year), the annual base rent required under the
terms of the lease will increase. For a 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, 2001, 2000, and 1999, the
Partnership earned $2,999,582, $3,654,260, and $3,839,624, respectively, in
rental income from operating leases, earned income from direct financing leases
and contingent rental income from Properties wholly owned by the Partnership.
Rental and earned income remained at reduced amounts during 2001 and 2000, due
to the fact that PRG, the tenant of five of the Partnership's Properties,
experienced financial difficulties during 2000. In January 2001, PRG terminated
the lease relating to the Bucyrus, Ohio Property. As a result, at December 31,
2000, the Partnership reclassified the asset from net investment in direct
financing leases to land and buildings on operating leases. In accordance with
Statement of Financial Accounting Standards No. 13, "Accounting for Leases," the
Partnership recorded the reclassified asset at the lower of original cost,
present fair value, or present carrying amount, which resulted in a loss on
termination of direct financing lease of $31,215 during the year ended December
31, 2000. In October 2001, PRG filed for bankruptcy and rejected two of the
remaining four leases it had with the Partnership. As a result, the Partnership
stopped recording rental revenue relating to these two Properties. The
Partnership will not recognize any rental and earned income from these vacant
Properties until the Properties are re-leased or the Properties are sold and the
proceeds are reinvested in additional Properties. While PRG has not rejected or
affirmed the remaining two leases, there can be no assurance that one or both of
these leases will not be rejected in the future. The Partnership has received
rental payments relating to the two Properties not rejected by the tenant from
the bankruptcy date through March 15, 2002. The lost revenues resulting from the
rejection of the two leases and the possible rejection of the two other leases
could have an adverse effect on the results of operations of the Partnership if
the Partnership is unable to re-lease the Properties in a timely manner. The
General Partners are currently seeking replacement tenants or purchasers for the
two vacant Properties.
In addition, rental and earned income decreased during 2001, as
compared to 2000, due to the fact that in March 2001, the tenant of the Property
in Las Vegas, Nevada vacated the Property and ceased restaurant operations. As a
result, during 2001, the Partnership stopped recording rental revenue relating
to this Property. In December 2001, the Partnership sold this Property and
reinvested the majority of the net sales proceeds in an additional Property in
San Antonio, Texas, as described above in "Capital Resources."
In addition, rental and earned income decreased during 2001, as
compared to 2000, as a result of the sale of the Partnership's Property in
Marana, Arizona, as described in "Capital Resources." Rental and earned income
are expected to remain at reduced amounts while equity in earnings of joint
ventures is expected to increase due to the fact that the Partnership reinvested
these net sales proceeds in a Property with an affiliate of the General
Partners, as tenants-in-common, as described above in "Capital Resources."
The decrease in rental and earned income during 2001, was partially
offset by an increase of approximately $81,500 during 2001 in contingent rental
income as a result of an increase in the gross sales of certain restaurant
properties, the leases of which require the payment of contingent rental income.
The decrease in rental and earned rental income in 2001 and 2000, each
as compared to the previous year, is partially attributable to the fact that in
1998 three tenants filed for bankruptcy and between 1998 and 2000 rejected the
leases relating to a total of five of the seven Properties leased by these
tenants. As a result, these tenants ceased making rental payments on the five
rejected leases. The Partnership has continued receiving rental payments
relating to the two leases not rejected by the tenants. In March 1999, the
Partnership entered into a new lease with a new tenant for another one of the
vacant Properties; rental payments commenced in April 1999. In November 1999,
the Partnership entered into a new lease with a new tenant for one of the vacant
Properties; rental payments commenced in the first quarter of 2000, thereby
partially offsetting the decrease in rental and earned income. In addition,
between November 1999 and November 2001, the Partnership sold three of the
vacant Properties. In June 2000, the Partnership reinvested the majority of the
net sales proceeds from the 1999 sale in TGIF Pittsburgh Joint Venture, as
described in "Capital Resources." Rental and earned income were higher during
2000, as compared to 2001, due to the fact that during 2000, the Partnership
collected and recognized as income past due rental amounts received from Long
John Silver's, Inc., which filed for bankruptcy during 1998 and rejected the
leases relating to two of the three Properties it leased. No such amounts were
collected in 2001 or 1999. In August 1999 and June 2000, Long John Silver's,
Inc. and Boston Chicken, Inc. each assumed and affirmed its one remaining lease,
and the Partnership has continued receiving rental payments relating to these
leases.
In addition, for the years ended December 31, 2001, 2000, and 1999, the
Partnership earned $250,885, $180,084, and $158,580, respectively, attributable
to net income earned by joint ventures. The increase in net income earned by
joint ventures during 2001, as compared to 2000, was partially attributable to
the fact that in June 2001, the Partnership reinvested the net sales proceeds
from the sale of the Property in Marana, Arizona in an additional Property in
Walker, Louisiana, with an affiliate of the General Partners, as described in
"Capital Resources." In addition, the increase in net income earned by joint
ventures during 2001 and 2000, each as compared to the previous year, was
primarily attributable to the fact that in June 2000, the Partnership reinvested
the net sales proceeds it received from the 1999 sale of the Property in
Lawrence, Kansas in TGIF Pittsburgh Joint Venture with affiliates of the General
Partners as described in "Capital Resources."
During 2001, two lessees of the Partnership, Golden Corral Corporation
and Jack in the Box Inc., each contributed more than ten percent of the
Partnership's total rental and earned income. As of December 31, 2001, Golden
Corral Corporation was the lessee under leases relating to six restaurants and
Jack in the Box Inc. was the lessee under leases relating to six restaurants. It
is anticipated that based on the minimum rental payments required by the leases
that these two tenants will each continue to contribute more than ten percent of
the Partnership's total rental and earned income in 2002. In addition, three
Restaurant Chains, Golden Corral, Jack in the Box, and Denny's, each accounted
for more than ten percent of the Partnership's total rental and earned income
during 2001. In 2002, it is anticipated that each of these Restaurant Chains
will continue to contribute more than ten percent of the Partnership's 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 if the Partnership is not able to re-lease the Properties
in a timely manner.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets were $3,569,487, $2,029,088, and $1,160,324,
for the years ended December 31, 2001, 2000, and 1999, respectively. The
increase in operating expenses during 2001 and 2000, each as compared to the
previous year, was partially due to the fact that the Partnership recorded a
provision for write-down of assets of $2,290,553 and $962,971 during 2001 and
2000, respectively, relating to the vacant Properties, as described above. The
provisions represented the difference between each Property's carrying value,
including the accumulated accrued rental income balance, and the General
Partners' estimated net realizable value for the Property. As of December 31,
2001, the Partnership has five remaining vacant Properties and is seeking
replacement tenants or purchasers for these Properties.
The increase in operating expenses during 2001 and 2000, each as
compared to the previous year, was also partially due to the fact that the
Partnership incurred certain expenses, such as legal fees, real estate taxes,
insurance, and maintenance relating to the Properties leased by PRG, a Shoney's
Property, two Boston Market Properties and two Long John Silver's Properties
which became vacant during 1998, due to financial difficulties or bankruptcies,
as described above. The Partnership entered into new leases with new tenants for
the Shoney's Property in Las Vegas, Nevada and the Long John Silver's Properties
in Celina, Ohio and Charlotte, North Carolina in February, March and November
1999, respectively. The new tenants are responsible for real estate taxes,
insurance, and maintenance relating to these three Properties. In March 2001,
the tenant of the Property in Las Vegas, Nevada vacated the Property and ceased
restaurant operations. In December 2001, the Partnership sold this Property, as
described above in "Capital Resources." In addition, in November 1999, September
2000, and November 2001, the Partnership sold the Boston Market Properties in
Lawrence, Kansas, Columbia Heights, Minnesota, and St. Cloud, Minnesota,
respectively. The General Partners do not anticipate that the Partnership will
incur these expenses in the future for the two Properties that have been
re-leased to new tenants or the four Properties that have been sold. The General
Partners anticipate that the Partnership will continue to incur these expenses
related to the five remaining vacant Properties until such time as the
Partnership executes new leases for these Properties or until the Partnership
sells the Properties and the sales proceeds are reinvested in additional
Properties. The General Partners are currently seeking either new tenants or
purchasers for these vacant Properties.
The increase in operating expenses during 2001, as compared to 2000,
was partially attributable to the fact that during 2001, the Partnership
recorded a provision for doubtful accounts of $90,074 relating to the Properties
leased to PRG, which filed for bankruptcy, as described above. The General
Partners will continue to pursue collection of these past due amounts relating
to these Properties. During 2000, the Partnership recorded a provision for
doubtful accounts of $33,532 relating to the Property in Las Vegas, Nevada, in
accordance with the Partnership's policy. In March 2001, the tenant vacated the
Property and in December 2001, the Partnership sold the Property, as described
above. The increase in operating expenses during 2001 was also partially
attributable to an increase in the costs incurred for administrative expenses
for servicing the Partnership and its Properties, as permitted by the
Partnership agreement.
The increase in operating expenses during 2001 and 2000, each as
compared to the previous year, was partially offset by the fact that during 2000
and 1999, the Partnership incurred $32,580 and $212,093, respectively, in
transaction costs relating to the General Partners retaining financial and legal
advisors to assist them in evaluating and negotiating the proposed merger with
APF. On March 1, 2000, the General Partners and APF mutually agreed to terminate
the merger. No such expenses were incurred during 2001. The increase in
operating expenses during 2001 was partially offset by a decrease in
depreciation expense as a result of the sale of four Properties during 2000 and
2001, as described above in "Capital Resources." In January 2001, the tenant of
the Property in Bucyrus, Ohio terminated its lease due to financial difficulties
the tenant was experiencing. As a result, at December 31, 2000, the Partnership
reclassified the asset from net investment in direct financing leases to land
and buildings on operating leases. In accordance with Statement of Financial
Accounting Standards No. 13, "Accounting for Leases," the Partnership recorded
the reclassified asset at the lower of original cost, present fair value, or
present carrying amount, which resulted in a loss on termination of direct
financing lease of $31,215 during the year ended December 31, 2000. No such loss
was recorded in 2001 or 1999.
As a result of the 2001 sales of the Properties in Marana, Arizona, Las
Vegas, Nevada, and St. Cloud, Minnesota, and the 2000 sale of the Property in
Columbia Heights, Minnesota, as described above in "Capital Resources," the
Partnership recognized gains totaling of $383,637 and $88,661, during 2001 and
2000, respectively. As a result of the sale of the Property in Lawrence, Kansas,
as described above in "Capital Resources," the Partnership recognized a loss of
$84,478 during the year ended December 31, 1999.
The restaurant industry, as a whole, has been one of the many
industries affected by the general slowdown in the economy. While the
Partnership has experienced some losses due to the financial difficulties of a
limited number of restaurant operators, the General Partners remain confident in
the overall performance of the fast-food and family style restaurants, the
concepts that comprise the majority of the Partnership's portfolio. Industry
data shows that these restaurant concepts continue to outperform and remain more
stable than higher-end restaurants, which have been more adversely affected by
the slowing economy.
The Partnership's leases as of December 31, 2001, are generally
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. Inflation, overall, has had a minimal effect of
the results of operations of the Partnership. Continued inflation 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.
In December 1999, the Securities and Exchange Commission released SAB
101, which provides the staff's view in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 requires the
Partnership to defer recognition of certain percentage rental income until
certain defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
Partnership's results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" (FAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement requires
that a long-lived asset be tested for recoverability whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable. The
carrying amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. The assessment is based on the carrying amount of the
asset at the date it is tested for recoverability. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds its fair
value. If an impairment is recognized, the adjusted carrying amount of a
long-lived asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this Statement
retained the fundamental provisions of FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March 1,
2000, the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
----
Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22-24
Notes to Financial Statements 25-41
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund XVI, Ltd.
In our opinion, the accompanying balance sheets and the related statements of
income, of partners' capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund XVI, Ltd. (a Florida limited
partnership) at December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement
schedules listed in the index appearing under item 14(a)(2) present fairly, in
all material respects, the information set forth therein when read in
conjunction with the related financial statements. 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 of these statements in accordance with auditing standards generally
accepted in the United States of America, which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 8, 2002
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------- -------------------
ASSETS
Land and buildings on operating leases, net $26,023,831 $28,488,803
Net investment in direct financing leases 2,713,964 3,887,824
Investment in joint ventures 3,248,973 2,143,328
Cash and cash equivalents 774,673 1,081,650
Receivables, less allowance for doubtful
accounts of $755,431 and $429,262,
respectively 61,512 440,739
Accrued rental income, less allowance for
doubtful accounts of $48,919 in 2001 and
2000 1,450,352 1,859,347
Other assets 32,097 34,393
------------------- -------------------
$34,305,402 $ 37,936,084
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 9,022 $ 30,429
Accrued and escrowed real estate taxes
payable 36,398 13,359
Distributions payable 900,000 900,000
Due to related parties 17,331 152,957
Rents paid in advance and deposits 50,039 86,595
-------------------
-------------------
Total liabilities 1,012,790 1,183,340
Partners' capital 33,292,612 36,752,744
------------------- -------------------
$34,305,402 $37,936,084
=================== ===================
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
---------------- ---------------- ---------------
Revenues:
Rental income from operating leases $ 2,733,412 $ 3,171,534 $ 3,281,281
Earned income from direct financing leases 266,170 482,726 558,343
Interest income 34,797 45,310 49,008
Other income 40,454 6,585 12,598
---------------- ---------------- ---------------
3,074,833 3,706,155 3,901,230
---------------- ---------------- ---------------
Expenses:
General operating and administrative 340,748 187,861 183,150
Provision for doubtful accounts 90,074 33,532 --
Professional services 110,378 80,343 53,282
Management fees to related parties 30,726 36,605 37,385
Real estate taxes 123,675 50,966 59,895
State and other taxes 30,716 27,356 25,599
Loss on termination of direct financing lease -- 31,215 --
Depreciation and amortization 552,617 585,659 588,920
Provision for write-down of assets 2,290,553 962,971 --
Transaction costs -- 32,580 212,093
---------------- ---------------- ---------------
3,569,487 2,029,088 1,160,324
---------------- ---------------- ---------------
Income (Loss) Before Gain (Loss) on Sale of Assets and
Equity in Earnings of Joint Ventures (494,654 ) 1,677,067 2,740,906
Gain (Loss) on Sale of Assets 383,637 88,661 (84,478 )
Equity in Earnings of Joint Ventures 250,885 180,084 158,580
---------------- ---------------- ---------------
Net Income $ 139,868 $ 1,945,812 $ 2,815,008
================ ================ ===============
Allocation of Net Income
General partners $ -- $ -- $ 28,717
Limited partners 139,868 1,945,812 2,786,291
---------------- ---------------- ---------------
139,868 $ 1,945,812 $ 2,815,008
================ ================ ===============
Net Income Per Limited Partner Unit $ 0.03 $ 0.43 $ 0.62
================ ================ ===============
Weighted Average Number of
Limited Partner Units Outstanding 4,500,000 4,500,000 4,500,000
================ ================ ===============
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001, 2000, and 1999
General Partners Limited Partners
-------------------------------------- ---------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 1998 $ 1,000 $ 130,300 $ 45,000,000 $ (13,423,017 ) $ 12,873,641
Distributions to limited
partners ($0.80 per
limited partner unit) -- -- -- (3,600,000 ) --
Net income -- 28,717 -- -- 2,786,291
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 1999 1,000 159,017 45,000,000 (17,023,017 ) 15,659,932
Distributions to limited
partners ($0.80 per
limited partner unit) -- -- -- (3,600,000 ) --
Net income -- -- -- -- 1,945,812
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2000 1,000 159,017 45,000,000 (20,623,017 ) 17,605,744
Distributions to limited
partners ($0.80 per
limited partner unit) -- -- -- (3,600,000 ) --
Net income -- -- -- -- 139,868
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2001 $ 1,000 $ 159,017 $ 45,000,000 $ (24,223,017 ) $ 17,745,612
================== ================ ================= ================ =================
Limited Partners
---------------
Syndication
Costs Total
-------------- --------------
$ (5,390,000 ) $39,191,924
-- (3,600,000 )
-- 2,815,008
-------------- --------------
(5,390,000 ) 38,406,932
-- (3,600,000 )
-- 1,945,812
-------------- --------------
(5,390,000 ) 36,752,744
-- (3,600,000 )
-- 139,868
-------------- --------------
$ (5,390,000 ) $33,292,612
============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
---------------- --------------- --------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 3,185,370 $3,366,743 $3,341,862
Distributions from joint venture 279,357 187,637 170,697
Cash paid for expenses (776,156 ) (428,209 ) (410,336 )
Interest received 34,797 39,526 49,008
---------------- --------------- --------------
Net cash provided by operating activities
2,723,368 3,165,697 3,151,231
---------------- --------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 2,851,675 575,778 667,311
Additions to land and buildings on operating
leases (1,147,903 ) (183,500 ) --
Investment in direct financing leases -- -- --
Investment in joint ventures (1,134,117 ) (500,021 ) (158,512 )
Payment of lease costs -- (14,057 ) (25,866 )
---------------- --------------- --------------
Net cash provided by (used in)
investing activities 569,655 (121,800 ) 482,933
---------------- --------------- --------------
Cash Flows from Financing Activities:
Proceeds from loan from corporate
general partner 300,000 -- --
Repayment of loan from corporate general
partner (300,000 ) -- --
Distributions to limited partners (3,600,000 ) (3,600,000 ) (3,600,000 )
---------------- --------------- --------------
Net cash used in financing activities (3,600,000 ) (3,600,000 ) (3,600,000 )
---------------- --------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents
(306,977 ) (556,103 ) 34,164
Cash and Cash Equivalents at Beginning of Year 1,081,650 1,637,753 1,603,589
---------------- --------------- --------------
Cash and Cash Equivalents at End of Year $ 774,673 $1,081,650 $1,637,753
================ =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2001 2000 1999
--------------- --------------- --------------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net Income $ 139,868 $1,945,812 $2,815,008
--------------- --------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 549,520 572,650 586,122
Amortization 3,097 13,009 2,798
Provision for doubtful accounts 90,074 33,532 --
Loss on termination of direct
financing lease -- 31,215 --
Equity in earnings of joint ventures,
net of distributions 28,472 7,553 12,117
Loss (gain) on sale of assets (383,637 ) (88,661 ) 84,478
Provision for write-down of assets 2,290,553 962,971 --
Decrease (increase) in receivables 289,153 (186,514 ) (220,782 )
Decrease in net investment in direct
financing leases 52,904 52,973 41,327
Decrease (increase) in accrued rental
income (165,285 ) (212,436 ) (327,785 )
Increase in other assets (801 ) 4,294 624
Increase (decrease) in accounts
payable and accrued and escrowed
real estate taxes payable 1,632 (93,185 ) 127,994
Increase (decrease) in due to related
parties (135,626 ) 79,104 47,377
Increase (decrease) in rents paid in
advance and deposits (36,556 ) 43,380 (18,047 )
--------------- --------------- --------------
Total adjustments 2,583,500 1,219,885 336,223
--------------- --------------- --------------
Net Cash Provided by Operating Activities $2,723,368 $3,165,697 $3,151,231
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31,
2001 2000 1999
--------------- --------------- --------------
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at
December 31 $ 900,000 $ 900,000 $ 900,000
=============== =============== ==============
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund XVI, 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% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (see Note 4). Unearned income is deferred
and amortized to income over the lease terms so as to produce
a constant periodic rate of return on the Partnership's net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method are recorded at cost, revenue is
recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30
years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce
a constant periodic rent over the lease term commencing on the
date the property is placed in service.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
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. Whenever a tenant defaults
under the terms of its lease, or events or changes in
circumstance indicate that the tenant will not lease the
property through the end of the lease term, the Partnership
either reserves or reverses the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, the assets are
adjusted to their fair value. 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.
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,
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's investments in TGIF
Pittsburgh Joint Venture and Columbus Joint Venture and the properties
in Fayetteville, North Carolina, Memphis, Tennessee, and Walker,
Louisiana each of which is held as tenants-in-common with affiliates,
are accounted for using the equity method since the joint venture
agreement requires the consent of all partners on all key decisions
affecting the operations of the underlying property.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
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.
Lease Costs - Other assets include brokerage fees associated with
negotiating a new lease which are amortized over the term of the new
lease 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. See "Income Taxes"
footnote for a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes.
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.
Reclassifications - Certain items in the prior year's financial
statements have been reclassified to conform to 2001 presentation.
These reclassifications had no effect on partners' capital or net
income.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Partnership
to defer recognition of certain percentage rental income until certain
defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material
impact on the Partnership's results of operations.
Statement of Financial Accounting Standards No. 141 ("FAS 141") and
Statement of Financial Accounting Standards No. 142 ("FAS 142") - In
July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" (FAS
141) and Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" (FAS 142). The Partnership has reviewed
both statements and has determined that both FAS 141 and FAS 142 do not
apply to the Partnership as of December 31, 2001.
Statement of Financial Accounting Standards No. 144 ("FAS 144") - In
October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement requires
that a long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this
Statement retained the fundamental provisions of FAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of".
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
2. Leases:
------
The Partnership leases its land or land and buildings primarily to
operators of national and regional fast-food and family-style
restaurants. The leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases." Some of the leases are classified as operating leases and some
of the 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 portion of some of the leases are operating leases. The
majority of the leases are for 15 to 20 years and provide for minimum
and contingent rentals. In addition, generally 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 five
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:
2001 2000
--------------- --------------
Land $ 13,669,798 $ 14,676,445
Buildings 15,651,741 16,773,771
--------------- --------------
29,321,539 31,450,216
Less accumulated depreciation (3,297,708 ) (2,961,413 )
--------------- --------------
$ 26,023,831 $ 28,488,803
=============== ==============
During the year ended December 31, 2000, the Partnership established a
provision for write-down of assets of $456,824 relating to a Boston
Market property located in St. Cloud, Minnesota. The tenant for this
property filed for bankruptcy and discontinued the payment of rents.
The provision represented the difference between the net carrying value
of the property at December 31, 2000 and the general partners'
estimated net realizable value for the property. During 2001, the
Partnership increased the provision by $25,305. In November 2001, the
Partnership sold this property to an unrelated third
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
party for approximately $664,500 and received net sales proceeds of
approximately $647,400, resulting in a gain on sale of assets of
$100,672.
During 2000, the Partnership established a provision for write-down of
assets of $400,492 relating to its Boston Market property in Columbia
Heights, Minnesota. The tenant of this property filed for bankruptcy
and discontinued the payment of rents. In September 2000, the
Partnership sold its property in Columbia Heights, Minnesota, to a
third party for $584,000 and received net sales proceeds of
approximately $575,800, resulting in a gain of approximately $88,700.
In March 2001, the Partnership sold its property in Marana, Arizona for
approximately $1,151,000 and received net sales proceeds of
approximately $1,145,000, resulting in a total gain of approximately
$281,100 (see Note 4).
During the year ended December 31, 2001, the Partnership established a
provision for write-down of assets of $382,366 relating to its property
in Bucyrus, Ohio. The tenant of this property vacated the property and
ceased restaurant operations. The provision represented the difference
between the net carrying value of the property and the general
partners' estimated net realizable value of the property.
During 2001, the Partnership established a provision for write-down of
assets of $248,802 relating to a Big Boy property in Las Vegas, Nevada.
The tenant of this property experienced financial difficulties, ceased
restaurant operations and vacated the property. The provision
represented the difference between the carrying value of the property,
including the accumulated accrued rental income balance and the general
partners' estimate of net realizable value for the property. In
December 2001, the Partnership sold this property to an unrelated third
party for approximately $1,094,000 and received net sales proceeds of
approximately $1,059,300, resulting in a gain on sale of assets of
$1,902. In December 2001, the Partnership reinvested these net sales
proceeds in a property in San Antonio, Texas at an approximate cost of
$1,147,900. The Partnership acquired this property from CNL Funding
2001-A, LP, an affiliate of the general partners (see Note 9).
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
In addition, during 2001, the Partnership established a provision for
write-down of assets of $1,469,778. The provision represented the
difference between the carrying value of each property, including the
accumulated accrued rental income balance and the general partners'
estimate of net realizable value for each respective property. The
tenant of these properties, Phoenix Restaurant Group, Inc. and its
subsidiaries (collectively referred to as "PRG"), experienced financial
difficulties and in October 2001, filed for Chapter 11 bankruptcy
protection and rejected the leases relating to the Properties in
Salina, Kansas and Mesquite, Texas.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2001:
2002 $ 2,917,934
2003 2,942,387
2004 2,978,828
2005 3,119,980
2006 3,155,690
Thereafter 22,209,320
------------------
$ 37,324,139
==================
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.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2001 2000
------------- ------------
Minimum lease payments
receivable $ 4,799,563 $ 7,496,712
Estimated residual values 957,216 1,261,543
Less unearned income (3,042,815 ) (4,870,431 )
-------------
------------
Net investment in direct
financing leases $ 2,713,964 $ 3,887,824
============= ============
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2001:
2002 $ 351,161
2003 355,644
2004 356,299
2005 356,961
2006 357,629
Thereafter 3,021,869
----------------
$4,799,563
================
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).
During the year ended December 31, 2000, the tenant of the Denny's
property in Bucyrus, Ohio terminated its lease due to financial
difficulties. As a result, the Partnership reclassified the asset from
net investment in direct financing leases to land and buildings on
operating leases. In accordance with Statement of Financial Accounting
Standards No. 13, "Accounting for Leases," the Partnership recorded the
reclassified asset at the lower of original cost, present fair value,
or present carrying amount. A loss on termination of direct financing
lease of $31,215 was recorded.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Net Investment in Direct Financing Leases:
-----------------------------------------
In March 2001, the Partnership sold its property in Marana, Arizona,
for which the buil