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, 2002
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 Section12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section12(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]
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Exchange Act Rule 12b-2): Yes___ No 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.
As of December 31, 1999, the Partnership owned 40 Properties directly
and three Properties indirectly through joint venture or tenancy in common
arrangements. During 2000, the Partnership reinvested the net sales proceeds
from the 1999 sale of the Property in Lawrence, Kansas in TGIF Pittsburgh Joint
Venture, with affiliates of the General Partners, to purchase and hold one
restaurant Property. 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.
During 2002, the Partnership sold its Properties in Rancho Cordova, California,
Mesquite, Texas, and Bucyrus, Ohio. The Partnership reinvested the net sales
proceeds from the sales of the Properties in Rancho Cordova, California, and
Mesquite, Texas in a Property in Austin, Texas and in Arlington Joint Venture.
The Partnership intends to reinvest the proceeds from the sale of the Property
in Bucyrus, Ohio in an additional Property. As of December 31, 2002, the
Partnership owned 35 Properties directly and six Properties indirectly through
joint venture or tenancy in common arrangements. The 35 Properties owned
directly include six Properties consisting of land only. 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 holds 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 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.
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 9 to 20 years (the average being 18
years) and expire between 2008 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 $25,100 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 28 of the Partnership's 41 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 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 leases 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 10, 2003, the Partnership has continued to receive the reduced rental
payments relating to these Properties and has collected a portion of the
deferrals, in accordance with the 1999 agreement. The General Partners do not
believe that the rent deferrals will have a material adverse effect on the
results of operations of the Partnership.
The tenant of the Property in Celina, Ohio exercised its option to
extend the lease for an additional five years beginning in March 2003. All other
lease terms remained unchanged and are substantially the same as the
Partnership's other leases as described above.
During 2001, Phoenix Restaurant Group, Inc. ("PRG") filed for
bankruptcy and rejected two of the four leases it had with the Partnership. In
May and June 2002, the bankruptcy court assigned the two leases not rejected by
PRG relating to the properties Branson, Missouri and Temple, Texas to CherryDen,
LLC and Seana, LLC, respectively. CherryDen, LLC is an affiliate of the General
Partners. All other lease terms remained the same.
During 2002, the Partnership reinvested the net sales proceeds from the
sale of the Properties in Rancho Cordova, California, and Mesquite, Texas in a
Property in Austin, Texas and in Arlington Joint Venture, which acquired a
Property in Arlington, Texas. The lease terms for these Properties are
substantially the same as the Partnership's other leases.
Major Tenants
During 2002, 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 rental revenues (including the Partnership's share of
rental revenues from Properties owned by joint ventures and the Properties held
as tenants-in-common with affiliates). As of December 31, 2002, 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 five 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 rental revenues in 2003. 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
rental revenues (including the Partnership's share of rental revenues from
Properties owned by joint ventures and the Properties held as tenants-in-common
with affiliates). In 2003, it is anticipated that each of these Restaurant
Chains will continue to contribute more than ten percent of the Partnership's
rental revenues 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, 2002, Golden Corral
Corporation 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 the following joint venture and
tenancy in common arrangements as of December 31, 2002:
Entity Name Year Ownership Partners Property
CNL Income Fund XVI, Ltd and 1996 80.44% CNL Income Fund XVII, Ltd. Fayetteville, NC
CNL Income Fund XVII,
Ltd. Tenants in Common
CNL Income Fund II, Ltd., CNL 1998 40.42% CNL Income Fund II, Ltd. Memphis, TN
Income Fund VI, Ltd. and CNL Income Fund VI, Ltd.
CNL Income Fund XVI,
Ltd. Tenants in Common
Columbus Joint Venture 1998 32.35% CNL Income Fund XII, Ltd. Columbus, OH
CNL Income Fund XVIII, Ltd.
TGIF Pittsburgh Joint Venture 2000 19.72% CNL Income Fund VII, Ltd. Homestead, PA
CNL Income Fund XV, Ltd.
CNL Income Fund XVIII, Ltd.
CNL Income Fund VIII, Ltd., 2001 83.00% CNL Income Fund VIII, Ltd. Walker, LA
and CNL Income Fund XVI,
Ltd. Tenants in Common
Arlington Joint Venture 2002 21.00% CNL Income Fund VII, Ltd. Arlington, TX
Each of the joint ventures or tenancies in common were 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 Partnership shares management control equally with the affiliates of the
General Partners.
The joint venture and tenancy in common arrangements provide for the
Partnership and its joint venture or tenancy in common partners to share in all
costs and benefits in proportion to each partner's percentage interest in the
business entity. The Partnership and its partners are also jointly and severally
liable for all debts, obligations and other liabilities of the joint venture or
tenancy in common. Net cash flow from operations is distributed to each joint
venture or tenancy in common partner in accordance with its respective
percentage interest in the business entity.
Arlington Joint Venture has an initial term of 30 years, each of the
other joint ventures 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.
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.
The joint venture and tenancy in common agreements restrict each
party's ability to sell, transfer to assign its joint venture or tenancy in
common interest without first offering it for sale to its partner, either upon
such terms and conditions as to which the parties may agree or, in the event the
parties cannot agree, on the same terms and conditions as any offer from a third
party to purchase such joint venture or tenancy in common interest.
During 2002, the Partnership reinvested a portion of the net sales
proceeds from the sale of the Property in Mesquite, Texas in Arlington Joint
Venture, to purchase and hold one Property.
The use of joint venture 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 venture 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
RAI Restaurants, Inc. (formerly known as CNL Restaurants XVIII, Inc.),
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. CNL APF Partners, LP assigned its rights in, and
its obligations under, the management agreement with the Partnership to RAI
Restaurants, Inc. ("Advisor") effective January 1, 2002. All of the terms and
conditions of the management agreement, including the payment of fees, remained
unchanged. Under this agreement, 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 had 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.
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 CNL American Properties, Inc.
("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, 2002, the Partnership owned 41 Properties. Of the 41
Properties, 35 are owned by the Partnership in fee simple, three 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,
either directly or indirectly through joint venture or tenancy in common
arrangements, as of December 31, 2002 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 1
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 3
Pennsylvania 1
Tennessee 1
Texas 11
Utah 1
-----------------
TOTAL PROPERTIES 41
=================
Buildings. Each of the Properties owned by the Partnership, either
directly or indirectly through joint venture or tenancy in common arrangements,
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,
2002, 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, 2002, 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 $32,441,035 and
$8,290,050, respectively.
The following table lists the Properties owned by the Partnership,
either directly or indirectly through joint venture or tenancy in common
arrangements, as of December 31, 2002 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 2
Boston Market 2
Checkers 6
Denny's 6
Golden Corral 6
IHOP 2
Jack in the Box 5
KFC 1
Long John Silver's 4
T.G.I. Friday's 1
Taco Cabana 3
Wendy's 1
Other 2
---------------------
TOTAL PROPERTIES 41
=====================
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.
At December 31, 2002, 2001, 2000, 1999 and 1998, the properties were
98%, 93%, 98%, 95% and 89%, occupied, respectively. The following is a schedule
of the average rent per property for each of the years ended December 31:
2002 2001 2000 1999 1998
-------------- ------------- ------------- ------------- -------------
Rental Revenues (1)(2) $ 3,953,069 $ 3,398,196 $ 3,730,031 $ 4,033,287 $ 4,244,356
Properties (2) 40 39 42 43 44
Average Rent per Property $ 98,827 $ 87,133 $ 88,810 $ 93,797 $ 96,463
(1) Rental revenues includes the Partnership's share of rental revenues from
the Properties owned through joint venture arrangements and the Properties
owned through tenancy in common arrangements.
(2) Excludes Properties that were vacant at December 31, and did not generate
rental revenues during the year ended December 31.
The following is a schedule of lease expirations for leases in place as
of December 31, 2002 for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2003 -- -- --
2004 -- -- --
2005 -- -- --
2006 -- -- --
2007 -- -- --
2008 1 $ 25,056 0.65%
2009 2 255,371 6.59%
2010 4 498,615 12.87%
2011 3 339,320 8.76%
2012 2 251,950 6.50%
Thereafter 28 2,503,835 64.63%
---------- ------------ -------
Total (1) 40 $ 3,874,147 100.00%
========== ============ ======
(1) Excludes one Property which was vacant at December 31, 2002 and sold in
February 2003.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 2002 (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 2015) and the
average minimum base annual rent is approximately $155,400 (ranging from
approximately $138,000 to $192,900).
Jack in the Box Inc. leases six Jack in the Box restaurants. The
initial term of each lease is either 17 or 18 years (expiring between 2011 and
2019) and the average minimum base annual rent is approximately $113,900
(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 10, 2003, there were 3,012 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 2002, 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, 2002, 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 2002 and 2001 other than
pursuant to the Plan, net of commissions.
2002 (1) 2001 (1)
------------------------------------ -------------------------------------
High Low Average High Low Average
--------- -------- ----------- --------- -------- -----------
First Quarter $7.21 $ 6.00 $ 6.29 $9.51 $ 5.97 $ 7.81
Second Quarter 6.75 6.68 6.72 6.78 6.20 6.43
Third Quarter 7.33 6.00 6.39 6.70 6.70 6.70
Fourth Quarter 7.25 6.00 6.39 6.88 5.60 6.54
(1) A total of 39,922 and 31,096 Units were transferred other than pursuant to
the Plan for the years ended December 31, 2002 and 2001.
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, 2002 and 2001, 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, 2002 and
2001, 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
The following selected financial data should be read in conjunction
with the financial statements and related notes in Item 8. hereof.
2002 2001 2000 1999 1998
------------- -------------- -------------- -------------- -------------
Year ended December 31:
Continuing Operations (5):
Revenues $3,989,492 $ 2,924,556 $ 3,379,286 $3,508,929 $3,738,930
Equity in earnings of joint ventures 312,454 250,885 180,084 158,580 132,002
Income from continuing
operations (1) (2) 3,477,533 1,335,833 1,742,889 2,464,253 2,616,126
Discontinued Operations (5):
Revenues 45,532 150,277 326,869 392,301 407,192
Income (loss) from discontinued
operations (3) (4) (180,205 ) (1,195,965 ) 202,923 350,755 360,872
Net income 3,297,328 139,868 1,945,812 2,815,008 2,976,998
Net income (loss) per Unit:
Continuing operations $ 0.77 $ 0.30 $ 0.38 $ 0.55 $ 0.58
Discontinued operations (0.04 ) (0.27 ) 0.05 0.08 0.08
---------- ----------- ----------- ---------- ----------
Total $ 0.73 $ 0.03 $ 0.43 $ 0.63 $ 0.66
========== =========== =========== ========== ==========
Cash distributions declared $3,600,000 $ 3,600,000 $ 3,600,000 $3,600,000 $3,690,000
Cash distributions declared per
Unit 0.80 0.80 0.80 0.80 0.82
At December 31:
Total assets $34,019,581 $ 34,305,402 $37,936,084 $39,710,973 $40,188,641
Total partners' capital 32,989,940 33,292,612 36,752,744 38,406,932 39,191,924
(1) Income from continuing operations includes $1,132,394 and $926,805 in
provisions for write-down of assets for the years ended December 31,
2001 and 2000, respectively.
(2) Income from continuing operations includes $383,637 and $88,661 in
gains on sale of assets for the years ended December 31, 2001 and
2000, respectively. Income from continuing operations includes $84,478
in loss on sale of assets for the year ended December 31, 1999.
(3) Income (loss) from discontinued operations includes $556,884,
$1,158,159, $36,166 and $450,625 in provisions for write-down of
assets for the years ended December 31, 2002, 2001, 2000 and 1998,
respectively.
(4) Income (loss) from discontinued operations includes $396,382 in gains
on sale of assets for the year ended December 31, 2002.
(5) Certain items in prior years' financial statements have been
reclassified to conform to 2002 presentation. These reclassifications
had no effect on total net income. The results of operations relating
to Properties that were either disposed of or were classified as held
for sale as of December 31, 2002 are reported as discontinued
operations. The results of operations relating to Properties that were
identified for sale as of December 31, 2001 but sold subsequently are
reported as continuing operations.
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. The
leases provide for minimum base annual rental amounts (payable in monthly
installments) ranging from approximately $25,100 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. As of December 31, 2000,
the Partnership owned 39 Properties directly and four Properties indirectly
through joint venture or tenancy in common arrangements. As of December 31,
2001, the Partnership owned 37 Properties directly and five Properties
indirectly through joint venture or tenancy in common arrangements. As of
December 31, 2002, the Partnership owned 35 Properties directly and six
Properties indirectly through joint venture or tenancy in common arrangements.
Capital Resources
Cash from operating activities was $3,878,671, $2,723,368, and
$3,165,697, for the years ended December 31, 2002, 2001, and 2000, respectively.
The increase in cash from operating activities during the year ended December
31, 2002, as compared to the previous year, and the decrease during 2001, as
compared to 2000, was primarily a result of changes in income and expenses.
Other sources and uses of cash included the following during the years
ended December 31, 2002, 2001, and 2000.
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 represented receivables for which the Partnership had
established a provision for doubtful accounts. Payments were 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 a provision for doubtful accounts. 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. During 2002, the Partnership ceased collection efforts
and wrote off the balance of 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 June 2000, the Partnership used the net sales proceeds from the 1999
sale of the Property in Lawrence, Kansas 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, 2002, the Partnership owned a 19.72%
interest in the profits and losses of the joint venture.
During 2000, the Partnership sold its Property in Columbia Heights,
Minnesota, to a third party and received net sales proceeds of approximately
$575,800, resulting in a gain of approximately $88,700.
During 2001, the Partnership sold its Properties in Marana, Arizona, Las
Vegas, Nevada, and St. Cloud, Minnesota, each to a third party, and received net
sales proceeds of approximately $2,851,700, resulting in a net gain on sale of
assets of approximately $383,700. During 2001, the Partnership reinvested the
net sales proceeds from the sale of the Property in Marana, Arizona in a
Property in Walker, Louisiana, as tenants-in-common, with CNL income Fund VIII,
Ltd., a Florida limited partnership, and an affiliate of the General Partners.
As of December 31, 2002, the Partnership had contributed approximately
$1,144,200 for an 83% interest in the profits and losses of the Property. During
2001, the Partnership reinvested the net sales proceeds from the sale of the
Property in Las Vegas, Nevada in a Property in San Antonio, Texas.
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.
During 2002, the Partnership sold its Properties Rancho Cordova,
California, Mesquite, Texas, and Bucyrus, Ohio, each to a third party, and
received net sales proceeds of approximately $1,918,700, resulting in a net gain
on discontinued operations of approximately $396,400. The Partnership reinvested
the sales proceeds from the sales of the properties in Rancho Cordova,
California and Mesquite, Texas in a Property in Austin, Texas and in Arlington
Joint Venture, with CNL Income Fund VII, Ltd., a Florida limited partnership and
an affiliate of the General Partners. The joint venture acquired a Property in
Arlington, Texas. As of December 31, 2002, the Partnership had contributed
approximately $210,800 for a 21% interest in this joint venture The Partnership
intends to reinvest the net sales proceeds from the sale of the Property in
Bucyrus, Ohio in an additional Property.
The Partnership and the joint venture acquired the Properties in San
Antonio, Texas, Austin, Texas and Arlington, Texas 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 Properties in
order to facilitate the acquisition of the Properties by the Partnership and the
joint venture. The purchase prices paid by the Partnership and the joint venture
represented the costs incurred by CNL Funding 2001-A, LP to acquire the
Properties. These transactions, or a portion thereof, relating to the sale of
Properties in Las Vegas, Nevada and Rancho Cordova, California and the
reinvestment of the net sales proceeds in the Properties in San Antonio and
Austin, Texas qualified as a like-kind transaction for federal income tax
purposes.
In December 2002, the Partnership entered into an agreement with a third
party to sell the Property in Salina, Kansas. In February 2003, the Partnership
sold this Property and received net sales proceeds of approximately $154,500,
resulting in a loss on sale of discontinued operations of approximately
$536,600, which the Partnership recorded as of December 31, 2002. The
Partnership anticipates it will reinvest these proceeds in an additional
Property.
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 reinvestment in additional Properties,
paying Partnership expenses, or making distributions to partners. At December
31, 2002, the Partnership had $1,343,836 invested in such short-term investments
as compared to $774,673 at December 31, 2001. The increase in cash was primarily
a result of the Partnership holding sales proceeds at December 31, 2002, pending
reinvestment in additional Properties. As of December 31, 2002, the average
interest rate earned on the rental income deposited in demand deposit accounts
at commercial banks was approximately one percent annually. The funds remaining
at December 31, 2002, will be used to invest in an additional Property, and
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 net cash
flow in excess of operating expenses.
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.
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 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, 2002, 2001, and 2000. This represents
distributions of $0.80 per Unit for each of the years ended December 31, 2002,
2001, and 2000. No distributions were made to the General Partners during the
years ended December 31, 2002, 2001, and 2000. No amounts distributed to the
Limited Partners for the years ended December 31, 2002, 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. 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 during the years ended December 31,
2002, 2001 and 2000.
As of December 31, 2002 and 2001, the Partnership owed $18,292 and
$17,331, respectively, to related parties for accounting and administrative
services and management fees. As of March 10, 2003, the Partnership had
reimbursed the affiliates these amounts. Other liabilities, including
distributions payable, were $1,011,349 at December 31, 2002, as compared to
$995,459 at December 31, 2001. The General Partners believe that the Partnership
has sufficient cash on hand to meet its current working capital needs.
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 the Partnership's Properties and investments in
unconsolidated entities periodically for impairment at least once a year or
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. The assessment is based on the carrying amount
of the Property or investment at the date it is tested for recoverability
compared to the sum of the estimated future cash flows expected to result from
its operation and sale through the expected holding period. If an impairment is
indicated, the asset is adjusted to its estimated fair value.
When the Partnership makes the decision to sell or commits to a plan to
sell a Property within one year, its operating results are reported as
discontinued operations.
Results of Operations
Comparison of year ended December 31, 2002 to year ended December 31, 2001
Total rental revenues, including contingent rental income, were
$3,930,584 during the year ended December 31, 2002, as compared to $2,883,920
during the same period of 2001. Rental revenues were lower during the year ended
December 31, 2001 as compared to the same period of 2002, because the
Partnership stopped recording rental revenues in March 2001 when the tenant,
PRG, was experiencing financial difficulties and ceased rental payments relating
to two Denny's Properties. In October 2001, PRG filed for bankruptcy. During
2002, the Partnership received payment of past due rents of approximately
$522,800 relating to these two Properties, which were not rejected by PRG, and
recorded the rental revenues. During 2002, the bankruptcy court assigned these
two leases to new tenants and all other lease terms remained the same. One of
the new tenants, CherryDen, LLC, is a Delaware limited liability company and an
affiliate of the General Partners.
In addition, the Partnership stopped recording rental revenues when the
tenant of the Las Vegas, Nevada Property vacated the Property and ceased
restaurant operations during the first quarter of 2001. The Partnership sold
this Property in December 2001 and used the proceeds, along with the sales
proceeds from the sale of a Property in Rancho Cordova, California, to acquire
two additional Properties. The increase in rental revenues during 2002 was also
partially due to the acquisition of these two Properties, one in December 2001
and one in June 2002.
The Partnership also earned $312,454 attributable to net income earned
by joint ventures during the year ended December 31, 2002, as compared to
$250,885 during the same period of 2001. The increase in net income earned by
joint ventures during the year ended December 31, 2002, as compared to the same
periods of 2001, was primarily due to the fact that in June 2001, the
Partnership reinvested the net sales proceeds it received from the 2001 sale of
the Property in Marana, Arizona in a Property in Walker, Louisiana, as
tenants-in-common, with an affiliate of the General Partners. In addition, in
June 2002, the Partnership reinvested a portion of the net sales proceeds from
the sale of the Property in Mesquite, Texas in a joint venture arrangement,
Arlington Joint Venture.
During 2002, two lessees of the Partnership, Golden Corral Corporation
and Jack in the Box Inc., each contributed more than ten percent of the
Partnership's rental revenues (including the Partnership's share of rental
revenues from Properties owned by joint ventures and the Properties held as
tenants-in-common with affiliates). As of December 31, 2002, 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 five 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 rental revenues in 2003. 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 rental revenues (including the Partnership's share
of rental revenues from Properties owned by joint ventures and the Properties
held as tenants-in-common with affiliates). In 2003, it is anticipated that each
of these Restaurant Chains will continue to contribute more than ten percent of
the Partnership's rental revenues 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 $824,413 during the year ended December
31, 2002, as compared to $2,223,245 during the same period of 2001. Operating
expenses were higher during 2001 because the Partnership established a provision
for write-down of assets of approximately $1,132,400 relating to the vacant
Properties in Las Vegas, Nevada and St. Cloud, Minnesota and two Properties
leased by PRG. The provisions represented the difference between each Property's
net carrying value and its estimated fair value. During 2001, the Partnership
sold the two vacant Properties and assigned the leases of the other two
Properties to new tenants, as described above.
During the years ended December 31, 2002 and 2001, the Partnership
incurred Property related expenses, such as legal fees, repairs and maintenance,
insurance and real estate taxes relating to vacant Properties. In addition,
during 2001, the Partnership recorded a provision for doubtful accounts of
approximately $90,100 relating to the Properties leased to PRG. Between November
2001 and February 2003, the Partnership sold all of its vacant Properties and
re-leased the two PRG Properties to new tenants. The Partnership did not incur
any additional expenses relating to these Properties after the sale and re-lease
of each Property had occurred.
Operating expenses were lower during the year ended December 31, 2002,
due to a decrease in the costs incurred for administrative expenses for
servicing the Partnership and its Properties and a decrease in the amount of
state tax expense relating to several states in which the Partnership conducts
business.
Effective January 1, 2002, the Partnership adopted 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 statement also requires that the results of operations of a
component of an entity that either has been disposed of or is classified as held
for sale be reported as a discontinued operation if the disposal activity was
initiated subsequent to the adoption of the Standard.
As a result of the 2001 sales of the Properties in Marana, Arizona, Las
Vegas, Nevada, and St. Cloud, Minnesota, the Partnership recognized gains
totaling approximately $383,600 during the year ended December 31, 2001.
During the year ended December 31, 2002, the Partnership identified four
Properties that met the criteria of this standard and were classified as
Discontinued Operations in the accompanying financial statements. The
Partnership sold its Properties in Rancho Cordova, California, Mesquite, Texas,
and Bucyrus, Ohio, resulting in a net gain on discontinued operations of
approximately $396,400. The Partnership had recorded provisions for write-down
of approximately $20,300, $899,900 and $36,200 during the years ended December
31, 2002, 2001 and 2000, respectively, relating to the Properties in Mesquite,
Texas, and Bucyrus, Ohio. The Partnership reinvested the sales proceeds from the
sales of the Properties in Rancho Cordova, California and Mesquite, Texas in a
Property in Austin, Texas and in Arlington Joint Venture. During 2002, the
Partnership entered into an agreement with a third party to sell the Property in
Salina, Kansas. In connection with the anticipated sale of the Property, the
Partnership recorded a provision for write-down of assets of approximately
$536,600 during the year ended December 31, 2002. The Partnership had recorded a
provision for write-down of assets in previous years, including approximately
$258,300 during the year ended December 31, 2001 relating to this Property. In
February 2003, the Partnership sold this Property. PRG, the tenant of the
Properties in Mesquite, Texas, Bucyrus, Ohio and Salina, Kansas, experienced
financial difficulties in March 2001 and terminated the lease relating to the
Property in Bucyrus, Ohio. In October 2001, PRG filed for bankruptcy and
rejected the leases relating to the other two Properties. The provisions
represented the difference between each Property's net carrying value and its
estimated fair value. The Partnership intends to reinvest the net sales proceeds
from the sale of the Properties in Bucyrus, Ohio and Salina, Kansas in
additional Properties.
Comparison of year ended December 31, 2001 to year ended December 31, 2000
Total rental revenues, including contingent rental income, were
$2,883,920 during the year ended December 31, 2001, as compared to $3,330,684
during the same period of 2000. Rental revenues were lower during 2001 because
PRG experienced financial difficulties during 2001 and filed for bankruptcy, as
described above. As a result, the Partnership stopped recording rental revenues
relating to two Properties. The Partnership also had a vacant Property during
2001 resulting from a bankruptcy of a tenant in 1998. During 2001, the
Partnership sold this vacant Property.
Rental revenues were lower during 2001 because the Partnership sold its
Property in Marana, Arizona. In addition, rental revenues are lower during 2001
because the Partnership stopped recording rental revenues when the tenant of the
Property in Las Vegas, Nevada ceased restaurant operations and vacated the
Property. The Partnership sold this Property during 2001. The decrease in rental
revenues was partially offset by an increase in contingent rental income
resulting from increased gross sales of certain restaurant properties, the
leases of which require the payment of contingent rental income.
The Partnership also earned $250,885 in net income from joint ventures
during the year ended December 31, 2001, as compared to $180,084 during the same
period of 2000. Net income earned by joint ventures was higher during 2001, as
compared to 2000, because the Partnership reinvested the net sales proceeds from
the sale of the Property in Marana, Arizona in Property in Walker, Louisiana, as
tenants-in-common, with an affiliate of the General Partners.
Operating expenses, including depreciation and amortization expense and
provision for write-down of assets were $2,223,245 during the year ended
December 31, 2001, as compared to $1,905,142 during the same period of 2000.
Operating expenses were higher during 2001 because the Partnership established a
provision for write-down of assets of approximately $1,132,400, as described
above, during 2001, as compared to approximately $926,800 in 2000, relating to
the vacant Properties described above. The Partnership incurred expenses, such
as legal fees, repairs and maintenance, insurance and real estate taxes relating
to these vacant Properties. In addition, the Partnership recorded a provision
for doubtful accounts of approximately $90,100 relating to the Properties leased
to PRG during 2001, as compared to approximately $33,500 during 2000 relating to
the vacant Property in Las Vegas, Nevada. The Partnership has sold all of its
vacant Properties and re-leased the two PRG Properties to new tenants, as
described above. The Partnership did not incur any additional expenses relating
to these Properties after the sale and re-lease of each Property had occurred.
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.
During 2000, the Partnership incurred $32,580 in transaction costs
related 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 merger discussions were terminated.
As a result of the 2000 sale of the Property in Columbia Heights,
Minnesota, the Partnership recognized a gain on sale of assets of approximately
$88,700, during 2000.
The restaurant industry has been relatively resilient during this
volatile time with steady performance during 2002. However, the industry remains
in a state of cautious optimism. Restaurant operators expect their business to
be better in 2003, according to a nationwide survey conducted by the National
Restaurant Association, but are concerned by the budget deficits being
experienced by many states and the potential of new taxes on the industry to
alleviate the situation.
The Partnership's leases as of December 31, 2002, 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 January 2003, FASB issued FASB Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities" to expand upon and strengthen
existing accounting guidance that addresses when a company should include the
assets, liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with variable
interest entities (more commonly referred to as special-purpose entities or
off-balance sheet structures), FIN 46 requires that a variable interest entity
be considered by a company if that company is subject to a majority risk of loss
from the variable interest entity's activities or entitled to receive a majority
of the entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only if it
controlled the entity through voting interests. Consolidation of variable
interests entities will provide more complete information about the resources,
obligations, risks and opportunities of the consolidated company. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003, and to older entities in the first
fiscal year or interim period beginning after June 15, 2003. Management believes
adoption of this standard may result in either consolidation or additional
disclosure requirements with respect to the Partnership's unconsolidated joint
ventures or Properties held with affiliates of the General Partners as
tenants-in-common, which are currently accounted for under the equity method.
However, such consolidation is not expected to significantly impact the
Partnership's results of operations.
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 22-23
Notes to Financial Statements 24-38
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, 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 2002 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 15(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.
As described in Note 1 to the financial statements, on January 1, 2002, the
Partnership adopted Statement of Financial Accounting Standard No. 144
"Accounting for the Impairment or Disposal of Long-Lived Assets."
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
January 31, 2003, except for Note 13, for which the date is February 2, 2003
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2002 2001
------------------- -------------------
ASSETS
Real estate properties with operating leases, net $ 24,762,953 $ 23,839,579
Net investment in direct financing leases 2,662,948 2,713,964
Real estate held for sale 153,500 2,252,023
Investment in joint ventures 3,446,648 3,248,973
Cash and cash equivalents 1,343,836 774,673
Receivables, less allowance for doubtful accounts
of $63,752 and $755,431, respectively 49,577 50,999
Due from related parties 18,966 10,513
Accrued rental income, less allowance for
doubtful accounts of $12,753 and $48,919, respectively 1,549,115 1,382,581
Other assets 32,038 32,097
------------- -------------
$ 34,019,581 $ 34,305,402
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable 3,505 $ 9,022
Real estate taxes payable 10,502 36,398
Distributions payable 900,000 900,000
Due to related parties 18,292 17,331
Rents paid in advance and deposits 97,342 50,039
-------------- -------------
Total liabilities 1,029,641 1,012,790
Commitment (Note 12)
Partners' capital 32,989,940 33,292,612
--------------- -------------
$ 34,019,581 $ 34,305,402
============= =============
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2002 2001 2000
---------------- ---------------- ---------------
Revenues:
Rental income from operating leases $ 3,608,380 $ 2,617,750 $ 2,965,627
Earned income from direct financing leases 322,204 266,170 365,057
Interest and other income 58,908 40,636 48,602
------------ ----------- -----------
3,989,492 2,924,556 3,379,286
------------ ----------- -----------
Expenses:
General operating and administrative 258,345 338,269 172,013
Property expenses 17,928 101,454 134,070
Provision for doubtful accounts -- 90,074 33,532
Management fees to related parties 41,568 30,726 36,605
State and other taxes 20,288 30,716 27,356
Depreciation and amortization 486,284 499,612 542,181
Provision for write-down of assets -- 1,132,394 926,805
Transaction costs -- -- 32,580
------------ ----------- -----------
824,413 2,223,245 1,905,142
------------ ----------- -----------
Income Before Gain on Sale of Assets and Equity in
Earnings of Joint Ventures 3,165,079 701,311 1,474,144
Gain on Sale of Assets -- 383,637 88,661
Equity in Earnings of Joint Ventures 312,454 250,885 180,084
------------ ----------- -----------
Income from Continuing Operations 3,477,533 1,335,833 1,742,889
------------ ----------- -----------
Discontinued Operations (Note 6)
Loss from discontinued operations (576,587) (1,195,965) 202,923
Gain on disposal of discontinued operations 396,382 -- --
------------ ----------- -----------
(180,205) (1,195,965) 202,923
------------ ----------- -----------
Net Income $ 3,297,328 $ 139,868 1,945,812
============ =========== ===========
Income (Loss) Per Limited Partner Unit
Continuing Operations 0.77 0.30 0.38
Discontinued Operations (0.04) (0.27) 0.05
------------ ----------- -----------
Total $ 0.73 $ 0.03 $ 0.43
============ =========== ===========
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, 2002, 2001, and 2000
General Partners Limited Partners
-------------------------------------- ------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------ ---------------- ----------------- ---------------- ---------------
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
Distributions to limited
partners ($0.80 per
limited partner unit) -- -- -- (3,600,000 ) --
Net income -- -- -- -- 3,297,328
------------- ------------ ------------- -------------- --------------
Balance, December 31, 2002 $ 1,000 $ 159,017 $ 45,000,000 $ (27,823,017 ) $ 21,042,940
============= ============ ============= ============== =============
Syndication
Costs Total
--------------- --------------
$ (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
-- (3,600,000 )
-- 3,297,328
------------ -----------
$ (5,390,000 ) $32,989,940
============ ===========
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2002 2001 2000
--------------- --------------- --------------
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities
Net Income $ 3,297,328 $ 139,868 $ 1,945,812
--------------- --------------- --------------
Adjustments to reconcile net income to net
cash provided by operating
activities:
Depreciation 504,712 549,520 572,650
Amortization of investment in direct
financing leases 51,016 52,904 52,973
Amortization 2,912 3,097 13,009
Equity in earnings of joint ventures,
net of distributions 23,729 28,472 7,553
Gain on sale of assets (396,382 ) (383,637 ) (88,661 )
Provision for write-down of assets 556,884 2,290,553 962,971
Provision of doubtful accounts -- 90,074 33,532
Loss on termination of direct financing
lease -- -- 31,215
Decrease (increase) in receivables (8,993 ) 289,153 (186,514 )
Increase in accrued rental (166,534 ) (165,285 ) (212,436 )
Decrease (increase) in other assets (2,852 ) (801 ) 4,294
Increase (decrease) in accounts
payable and real estate taxes payable (31,413 ) 1,632 (93,185 )
Increase (decrease) in due to related
parties 961 (135,626 ) 79,104
Increase (decrease) in rents paid in
advance and deposits 47,303 (36,556 ) 43,380
--------------- --------------- --------------
Total adjustments 581,343 2,583,500 1,219,885
--------------- --------------- --------------
Net Cash Provided by Operating Activities 3,878,671 2,723,368
3,165,697
--------------- --------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of assets 1,918,641 2,851,675 575,778
Additions to real estate properties with
operating leases (1,406,745 ) (1,147,903 ) (183,500 )
Investment in joint ventures (221,404 ) (1,134,117 ) (500,021 )
Payment of lease costs -- -- (14,057 )
--------------- --------------- --------------
Net cash provided by (used in)
investing activities 290,492 569,655 (121,800 )
--------------- --------------- --------------
Cash Flows from Financing Activities:
Proceeds from loan from corporate -- 300,000 --
general partner
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 569,163 (306,977 ) (556,103 )
Cash and Cash Equivalents at Beginning of Year 774,673 1,081,650 1,637,753
--------------- --------------- --------------
Cash and Cash Equivalents at End of Year $ 1,343,836 $ 774,673 $ 1,081,650
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at
December 31 $ 900,000 $ 900,000 900,000
=============== =============== ==============
See accompanying notes to financial statments.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
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 acquisitions
of real estate properties at cost, including closing costs. Real estate
properties are leased to 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. During the years ended December 31, 2002, 2001, and 2000,
tenants paid directly to real estate taxing authorities $456,800
$435,000, and $463,100, respectively, in real estate taxes in
accordance with the terms of their triple net leases with the
Partnership.
The leases of the Partnership provide for base minimum annual rental
payments payable in monthly installments. In addition, certain leases
provide for contingent rental revenues based on the tenants' gross
sales in excess of a specified threshold. The Partnership defers
recognition of the contingent rental revenues until the defined
thresholds are met.
The leases are accounted for using either the direct financing or the
operating methods. Such methods are described below:
Direct financing method - 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). 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. 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.
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.
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
The majority of the leases are for 15 to 20 years and provide for
minimum and contingent rentals. 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.
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 estimated fair value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, a provision adjustment is made to increase
the allowance for doubtful accounts. 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, Columbus Joint Venture and Arlington 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.
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 leases and 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.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2002, 2001, and 2000
1. Significant Accounting Policies - Continued:
-------------------------------------------
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 represent a reduction
of Partnership equity and a reduction in the basis of each partner's
investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassifications - Certain items in the prior year's financial
statements have been reclassified to conform to 2002 presentation,
including a change in presentation of the statement of cash flows from
the direct method to the indirect method. These reclassifications had
no effect on partners' capital, net income or cash flows.
Statement of Financial Accounting Standards No. 144 ("FAS 144") -
Effective January 1, 2002, the Partnership adopted 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 statement also requires that the
results of operations of a component of an entity that either has been
disposed of or is classified as held for sale be reported as a
discontinued operation if the disposal activity was initiated
subsequent to the adoption of the Standard.
FASB Interpretation No. 46 ("FIN 46") - In January 2003, FASB issued
FASB Interpretation No. 46 ("FIN 46"), "Consolidation of Variable
Interest Entities" to expand upon and strengthen existing accounting
guidance that addresses when a company should include the assets,
liabilities and activities of another entity in its financial
statements. To improve financial reporting by companies involved with
variable interest entities (more commonly referred to as
special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable interest entity be considered by a company if
that company is subject to a majority risk of loss from the variable
interest entity's activities or entitled to receive a majority of the
entity's residual returns or both. Prior to FIN 46, a company generally
included another entity in its consolidated financial statements only
if it controlled the entity through voting interests. Consolidation of
variable interests entities will provide more complete information
about the resources, obligations, risks and opportunities of the
consolidated company. The consolidation requirements of FIN 46 apply
immediately to variable interest entities created after January 31,
2003, and to older entities in the first fiscal year or interim period
beginning after June 15, 2003. Management believes adoption of this
standard may result in either consolidation or additional disclosure
requirements with respect to the Partnership's unconsolidated joint
ventures or properties held with affiliates of the general partners as
tenants-in-common, which are currently accounted for under the equity
method. However, such consolidation is not expected to significantly
impact the Partnership's results of operations.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
2. Real estate Properties with Operating Leases:
--------------------------------------------
Real estate Properties with operating leases consisted of the following
at December 31:
2002 2001
-------------- -------------
Land $ 13,323,055 $ 12,776,956
Buildings 14,927,816 14,067,169
-------------- ------------
28,250,871 26,844,125
Less accumulated depreciation (3,487,918 ) (3,004,546 )
-------------- ------------
$ 24,762,953 $ 23,839,579
============== =============
During the 2001, the Partnership sold its property in Marana, Arizona
and received net sales proceeds of approximately $1,145,000, resulting
in a total gain of approximately $281,100. The Partnership reinvested
these sales proceeds in a property in Walker, Louisiana, as
tenants-in-common, with CNL Income Fund VIII, Ltd., an affiliate of the
general partners.
During the year ended December 31, 2001, the Partnership recorded a
provision for write-down of assets of approximately $25,300 relating to
a Boston Market property located in St. Cloud, Minnesota. The
Partnership had recorded provisions for write-down of assets in prior
years. During 1998, the tenant of this property filed for bankruptcy
and ceased making rental payments. The provisions represented the
difference between the net carrying value of the property and its
estimated fair value. In November 2001, the Partnership sold this
property to a third party and received net sales proceeds of
approximately $647,400, resulting in a gain on sale of assets of
approximately $100,700.
During the year ended December 31, 2001, the Partnership established a
provision for write-down of assets of approximately $248,800 relating
to the property Las Vegas, Nevada. The tenant of this property
experienced financial difficulties, ceased restaurant operations, and
vacated the property. In December 2001, the Partnership sold this
property to a third party and received net sales proceeds of
approximately $1,059,300, resulting in a gain of approximately $1,900.
In December 2001, the Partnership reinvested these sales proceeds in a
property in San Antonio, Texas. The Partnership acquired this property
from CNL Funding 2001-A, LP, an affiliate of the general partners.
In addition, during 2001, the Partnership established a provision for
write-down of assets of approximately $858,300 relating to two
properties leased by Phoenix Restaurant Group, Inc. ("PRG"). The
provision represented the difference between the net carrying value of
each property and their estimated fair value. PRG experienced financial
difficulties during 2001 and filed for Chapter 11 bankruptcy
protection. During 2002 the bankruptcy court assigned the two leases to
new tenants, one of which is an affiliate of the general partners.
During 2002, the Partnership reinvested a portion of the net sales
proceeds from the sale of a property in Mesquite, Texas and the
majority of the net sales proceeds from the sale of a property in
Rancho Cordova, California in a property in Austin, Texas for
approximately $1,406,700. The Partnership acquired this property from
CNL Funding 2001-A, LP, an affiliate of the general partners.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
2. Real Estate Properties with Operating Leases - Continued:
--------------------------------------------------------
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2002:
2003 $ 2,988,014
2004 3,014,551
2005 3,155,704
2006 3,191,414
2007 3,193,126
Thereafter 20,122,669
------------------
$ 35,665,478
==================
3. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
2002 2001
----------------- -----------------
Minimum lease payments
receivable $ 4,448,402 $ 4,799,563
Estimated residual values 957,216 957,216
Less unearned income (2,742,670 ) (3,042,815 )
-------------
-----------
Net investment in direct
financing leases $ 2,662,948 $ 2,713,964
============= ===========
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 2002:
2003 $ 355,644
2004 356,299
2005 356,961
2006 357,629
2007 358,304
Thereafter 2,663,565
--------------
$ 4,448,402
==============
In March 2001, the Partnership sold its property in Marana, Arizona,
for which the building portion had been classified as a direct
financing lease. In connection therewith, the gross investment (minimum
lease payments receivable and the estimated residual value) and
unearned income relating to the building were removed from the accounts
and the gain from the sale of the property was reflected in income.
CNL INCOME FUND XVI, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2002, 2001, and 2000
4. Investment in Joint Ventures:
----------------------------
The Partnership has a 32.35%,a 19.72% an 80.44%, and a 40.42% interest
in the profits and losses of Columbus Joint Venture, TGIF Pittsburgh
Joint Venture, a property in Fayetteville, North Carolina and a
property in Memphis, Tennessee, held as tenants-in-common,
respectively. The remaining interests in the joint ventures and the
properties held as tenants in common are held by affiliates of the
Partnership which have the same general partners.
In June 2001, the Partnership reinvested the sales proceeds it received
from the sale of property in Marana, Arizona, in an additional property
in Walker, Louisiana, as tenants-in-common, with CNL Income Fund VIII,
Ltd., an affiliate of the general partners. As of December 31, 2002,
the Partnership had contributed approximately $1,144,200 for an 83%
interest in the profit and losses of the property.
In June 2002, the Partnership reinvested a portion of the net sales
proceeds from the sale of the property in Mesquite, Texas, in a joint
venture arrangement, Arlington Joint Venture, with CNL Income Fund VII,
Ltd., an affiliate of the general partners. The joint venture acquired
a property in Arlington, Texas from CNL Funding 2001-A, LP, an
affiliate of the general partners for an aggregate cost of
approximately $1,003,600. The Partnership and CNL Income Fund VII, Ltd.
entered into an agreement whereby each co-venturer will share in the
profits and losses of the property in proportion to its applicable
percentage interest. As of December 31, 2002, the Partnership had
contributed approximately $210,800 for a 21% interest in this joint
venture.
Columbus Joint Venture, TGIF Pittsburgh Joint Venture, and Arlington
Joint Venture, each owned and leased one property to operators of
fast-food or family-style restaurants. In addition, the Partnership and
affiliates, in three separate tenancies in common, each owned and
leased one property to operators of fast-food or family-style
restaurants. The following presents the combined, condensed financial
information for the joint ventures at:
December 31, December 31,
2002 2001
------------------ ----------------
Real estate properties with
operating leases, net $ 7,783,964 $ 6,921,194
Cash 27,252 11,544
Accrued rental income 340,550 246,192
Other assets 188 1,160
Liabilities 30,893 23,698