UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(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 001-15581
CNL AMERICAN PROPERTIES FUND, INC.
(Exact name of registrant as specified in its charter)
Florida 59-3239115
(State or other jurisdiction of (I.R.S. EmployerIdentification 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:
Common Stock, $0.01 par value per share
(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. |_|
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant has made three offerings of Shares of common stock
(the "Shares") on Form S-11 under the Securities Act of 1933, as amended. The
number of Shares held by non-affiliates as of March 15, 2002 was 38,784,588.
Since no established market for such Shares exists, there is no market value for
such Shares. Each Share was originally sold at $20 per Share.
The number of Shares of common stock outstanding as of March 28, 2002 was
44,075,641.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant incorporates by reference portions of the CNL American
Properties Fund, Inc. Definitive Proxy Statement for the 2002 Annual Meeting of
Stockholders (Items 10, 11, 12 and 13 of Part III) to be filed no later
than April 30, 2002.
PART I
Item 1. Business
CNL American Properties Fund, Inc., a Maryland corporation, is a
self-advised real estate investment trust ("REIT"). The Company's operations are
divided into two business segments, real estate and specialty finance. The real
estate segment operates principally through CNL Restaurant Properties, Inc.
("CNL-RP"), a wholly owned subsidiary of the Company, and CNL APF Partners, LP,
a limited partnership wholly owned by CNL-RP and in which CNL APF GP Corp. and
CNL APF LP, subsidiaries of the Company, serve as general and limited partner,
respectively. The specialty finance segment operates through the Company's
wholly-owned subsidiary CNL Franchise Network Corp and a partnership between the
Company and Bank of America, CNL Franchise Network, LP ("CNL-FN"). The Company's
subsidiaries also include CNL Fund Advisors, Inc., CNL Financial GP Holding
Corp., CNL Financial LP Holding, LP, CNL Financial Services GP Corp. and CNL
Financial Services, LP. The term "Company" includes, unless the context
otherwise requires, CNL American Properties Fund, Inc. and its direct and
indirect subsidiaries. Please see note 13 of the Company's Consolidated
Financial Statements appearing in Item 8 of this report for certain financial
information about the Company's two business segments.
The Company provides a complete range of financial, development, advisory
and other real estate services to operators of national and regional restaurant
chains. The Company's ability to offer complete "turn-key," build-to-suit
development services, from site selection to construction management, together
with its ability to provide its customers with financing options, such as
triple-net leasing, mortgage loans and secured equipment financing, makes the
Company a preferred provider for all of the real estate related business needs
of operators of national and regional restaurant chains. At December 31, 2001,
the Company has financial interests in over 1200 properties diversified among
more than 100 concepts in 47 states. The Company's servicing portfolio of net
lease properties and mortgages includes over 2,500 units of which over 1,300 are
serviced on behalf of third parties.
The Company was formed in May 1994, at which time it received initial
capital contributions of $200,000 for 10,000 shares of the Company's common
stock, par value $0.01 per share ("Company Shares"). Since inception, the
Company has completed three separate public offerings of Company Shares. The
Company received the final proceeds of $210,736 from its third public offering
of Company Shares in January 1999, at which point the Company had received
aggregate subscription proceeds from its three offerings of $747,464,420
(37,373,221 Company Shares), including $5,572,261 (278,613 Company Shares)
issued through the Company's reinvestment plan. Net proceeds to the Company from
its three offerings and the initial capital contributions, after deduction of
stock issuance costs, totaled $670,351,200, all of which have been invested in
properties or mortgage loans.
The Company's goal is to be a leading provider of financial, development,
advisory and other real estate services to operators of national and regional
restaurant chains. In furtherance of this goal, on September 1, 1999, the
Company became internally advised and gained complete acquisition, development
and in-house management functions by acquiring its external advisor, CNL Fund
Advisors, Inc. (the "Advisor"). Prior to September 1, 1999, the Company had no
employees, so the Advisor provided these functions on behalf of the Company and
was responsible for the day-to-day operations of the Company, including raising
capital, investment analysis, acquisitions, due diligence, asset management and
accounting services. The acquisition of the Advisor also provided the Company
with restaurant development capabilities including site selection, construction
management and build-to-suit development.
At the same time that it acquired the Advisor, the Company acquired CNL
Financial Corporation and CNL Financial Services, Inc. which are referred to,
together, as the CNL Restaurant Financial Services Group, to increase its
financing capabilities and expand its mortgage loan portfolio. The CNL
Restaurant Financial Services Group makes and services mortgage loans, and
securitizes a portion of such loans, to operators of national and regional
restaurant chains comparable to the restaurant chain operators that currently
are tenants of the Company.
Upon consummation of the mergers on September 1, 1999, all employees of the
acquired entities became employees of the Company, and any obligations for the
Company to pay fees to the Advisor (such as acquisition fees and asset
management fees) under the advisory agreement between the Company and the
Advisor terminated.
Subsequent to acquiring the Advisor, the Company examined various
alternatives to improve its capital position and to further diversify its
business platform in an attempt to maximize stockholder value over the
long-term. The Company adopted a new strategy to service the franchise
restaurant marketplace made possible by the REIT Modernization Act. The
Company's new strategy focused on two segments of the Company's operations - the
Company's existing real estate segment and a specialty finance segment allied
with a major financial institution as its strategic partner. In June 2000, the
Company formed a partnership, CNL Franchise Network, L.P. ("CNL-FN" or the
"Partnership") and contributed certain assets and operations in exchange for an
84.39% interest. Bank of America, contributed its franchise finance originations
group in exchange for a 9.18% non-voting redeemable interest in the Partnership.
Bank of America also served as lender at the time of alliance on a $500 million
warehouse credit facility and a $43.75 million subordinated debt facility (the
"Subordinated Note Payable"), as well as administrative agent on a $125 million
revolving credit facility and as provider of a $175 million bridge financing.
Bank of America's interest in the Partnership on a fully diluted basis after a
conversion of the fully committed Subordinated Note Payable is 29.12%. The
strategic alliance with Bank of America reduces the Company's reliance on public
markets to raise capital by broadening the Company's financial products and
offerings and enhancing the Company's securitization platform.
The Company also issued a 6.43% limited partnership interest in CNL-FN to
CNL Financial Group, Inc., an affiliate of a director of the Company, in
exchange for the operations of CNL Advisory Services, Inc. ("CAS"). CAS
specializes in providing merger, acquisition and other advisory services to
restaurant operators and expands the Company's services to the sector.
The Company has also explored alternatives in which to direct its existing
loan and lease assets, including the tax-deferred real estate exchange market.
While asset securitization is one sales channel for loans or leases, another is
the tax-deferred real estate exchange market allowed under Section 1031 of the
Internal Revenue Code ("Section 1031 Exchanges"). Generally, Section 1031
Exchanges allow an investor who realizes a gain from selling appreciated real
estate to defer paying taxes on such gain by reinvesting the sales proceeds in
like-kind real estate. The Company conducts Section 1031 Exchanges through its
CNL-FN subsidiary and through a partnership with a third party client. The
Company and its partnership sold approximately $108.0 million of real estate in
Section 1031 exchanges, generating $9.1 million in gains in 2001. The Company
expects this sales channel to grow significantly in 2002. In addition, CNL-FN
will continue to investigate other sales channels in which to direct its
existing loan and lease assets while the securitization market remains
unappealing.
The Company's Second Amended and Restated Articles of Incorporation require
it to provide stockholder liquidity by December 31, 2005, either by listing on a
national exchange, by merging with another public company or by liquidating. The
Company's shares, while public, are not listed on a national exchange. The
Company pursued but eventually abandoned a listing strategy in 1999 because of
unsatisfactory market conditions in the publicly traded REIT market. Instead,
the Company entered into a partnership with Bank of America, building an
origination and securitization business that enabled it to not have to rely on
the public equity markets.
The Company continues to monitor the public markets and intends to either
list on a national exchange or merge with another company by December 31, 2005.
The Company's Board of Directors does not intend to liquidate the Company. To
comply with certain tax guidelines governing taxable REIT subsidiaries, the
Company may pursue other alternatives related to CNL-FN that would provide
stockholder liquidity for all or a portion of the Company's investment by
December 31, 2005.
The Company's customer base is characterized by a large number of
individual customers, each with divergent needs and most enjoying multiple
relationships with the Company. Management identified a need to upgrade its
information systems in order to integrate its services more efficiently. During
2000, the Company invested $4 million to upgrade its information systems. The
implementation of these changes became effective in the fourth quarter of 2000.
In addition, the Company spent $1.2 million in research and evaluation of an
e-commerce presence for the purchase and sale of real estate and related Company
services. The Company expects that its updated systems and technology will
enable it to serve restaurant operators more efficiently. Management did not
incur similar types or amounts of capital expenditures in 2001.
Leases
As of December 31, 2001, the Company had acquired, either directly or
indirectly through joint venture arrangements, 651 properties, which are
generally subject to long-term, triple-net leases. Although there are variations
in the specific terms of the leases, the following summarizes the general
structure of the Company's leases. The leases of the properties owned by the
Company and the joint ventures in which the Company is a co-venturer provide for
initial terms generally ranging from 13 to 25 years and expire between 2006 and
2024. The leases are on a triple-net basis which means the lessee is 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 $31,000 to
$369,000. In addition, certain 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 Company's property leases provide for two to five five-year
or ten-year renewal options subject to the same terms and conditions as the
initial lease. Lessees of 520 of the Company's 651 properties also have been
granted options to purchase the property 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. The
option purchase price may equal the Company'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 Company'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 Company wishes to
sell the property subject to that lease, the Company 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 Company has received for the sale of the
property.
Major Tenants
During 2001, no single lessee, borrower or restaurant chain contributed
more than ten percent of the Company's total rental, earned, investment income
and interest income relating to its properties, mortgage loans, secured
equipment leases and certificates. In the event that certain lessees, borrowers
or restaurant chains contribute more than ten percent of the Company's rental,
earned, investment income and interest income in future years, any failure of
such lessees, borrowers or restaurant chains could materially affect the
Company's income. As of December 31, 2001, no single lessee or borrower, or
group of affiliated lessees or borrowers, leased properties or was the borrower
under mortgage loans with an aggregate carrying value in excess of 20 percent of
total assets of the Company.
Real Estate Held for Sale
The Company has developed a program through which it may profitably sell
certain real estate properties to private investors as an alternative to either
retaining the properties as a long-term investment or offering to sell net lease
cash flows in the securitization marketplace. As of December 31, 200l, the
Company has a total of $171.6 million assets classified as Real Estate Held for
Sale. For the twelve months ended December 31, 2001, the total gross proceeds
from real estate sales aggregated to $105.6 million; cost of sales to $97.6
million. The accounting for these properties differs from that of similar
properties without this designation as the Company does not record depreciation
or accrued rent on these properties. The properties held for sale are
contemplated being sold within the first year.
From time to time, certain properties classified as long-term investments
may be subsequently re-designated to held for sale classification. The company
has re-designated 93 properties with a net book value of $115.7 million during
2001.
Mortgage Loans
Mortgage loans held for sale are wholly or partially collateralized by
first mortgages on the land and/or buildings of franchised restaurant businesses
and consist of approximately $300.2 million in fixed-rate loans and
approximately $6.7 million in variable-rate loans at December 31, 2001. The
fixed-rate loans carry a weighted average interest rate of 9.59 percent and the
variable-rate loans carry interest rates that adjust monthly based on
fluctuations in 30-day LIBOR (averaging 8.43 percent throughout 2001). The
mortgage loans are due in monthly installments with maturity dates ranging from
2002 to 2021. The fixed-rate mortgage loans generally prohibit prepayment for
certain periods or include prepayment penalties.
Competition
The fast-food, family-style and casual dining restaurant business is
characterized by intense competition. The operators of the restaurants located
on the Company'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.
Local competition may enhance a restaurant's success rather than detract
from it. Many successful fast-food, family-style and casual dining restaurants
are located in "eating islands", areas within which a variety of restaurants
operate. This variety allows diners an opportunity to diversify their eating
habits, giving them an incentive to return in the future. As a result, fast
food, family style and casual dining restaurants frequently experience better
operating results when there are other restaurants in the area.
The Company competes with other persons and entities in locating suitable
properties to acquire and in locating purchasers for properties held for sale.
The Company also competes with other financing sources such as banks, mortgage
lenders and sale/leaseback companies for suitable tenants for its properties,
borrowers for its mortgage loans and lessees and borrowers for its Secured
Equipment Leases.
The recessionary economy and historically low interest rates at which
mortgage financing could be accessed contributed to a decline in net lease
volume in 2001 while the low interest rates made loan referrals to portfolio
providers more attractive. Management believes that the Company's volume levels
may increase in 2002 due to the projected rebound in the economy as well as the
opportunities afforded by the continued consolidation in the financing arena and
the Company's ability to provide a diverse array of financial products to meet
client's needs. Competition in the financing arena continues to be fierce
despite the exit of numerous competitors, as remaining competitors appear well
capitalized and provide meaningful competition. The Company believes that the
rationalization in the financing marketplace will be of long term benefit to the
company as well as other experienced, well capitalized competitors.
The Company recycles its capital by periodically conducting securitizations
of loans and net leases, by conducting whole loan sales and by selling select
properties to private investors. By recycling its capital, the Company believes
that it maintains brand loyalty and fosters ongoing client relationships by
providing the Company with an opportunity to offer a variety of financing
solutions to the sector. While consolidation in the industry has created an
opportunity to potentially increase volume, it has also led to increased
investor scrutiny of franchise-backed securities issued in a securitization. In
order to mitigate the volatility in the securitization market the Company has
engaged in a strategy to diversify its capital sources. Alternative capital
strategies include whole loan sales, structured note offerings and increased
loan referrals to portfolio providers as well as the sale of select properties
to private investors. The creation of diversified capital channels will enable
the Company to provide a diverse array of financial products to satisfy the
needs of its clients. In addition, management believes that it will create the
most stable platform for long-term growth and profitability by diversifying its
capital sources and products.
Employees
As of December 31, 2001, the Company employed 132 associates.
Item 2. Properties
As of December 31, 2001, the Company owned, either directly or indirectly
through joint venture arrangements, 651 properties, located in 40 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the properties and their respective
costs, including acquisition fees and certain acquisition expenses.
As of December 31, 2001, the Company owned 562 of the 651 properties in fee
simple and ten properties through joint venture arrangements.
As of December 31, 2001, 36 of the 651 properties owned by the Company
consisted of building only. The Company does not own the underlying land. In
connection with the acquisition of each of these properties, the Company entered
into either a tri-party agreement with the tenant and the owner of the land or
an assignment of interest in the ground lease with the landlord, as described in
Item 1. Business-Leases.
As of December 31, 2001, the Company had pledged 426 properties as
collateral related to the Secured Credit Facility and Bonds Payable.
Description of Properties
Land. The Company's property lot sizes range from approximately 4,000 to
199,000 square feet depending upon building size and local demographic factors.
Sites purchased by the Company 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 Company 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 filed with this report.
Total Number of
State Restaurant Properties
Alabama 23
Arizona 18
California 35
Colorado 13
Connecticut 1
Delaware 1
Florida 84
Georgia 23
Idaho 3
Illinois 27
Indiana 9
Iowa 7
Kansas 8
Kentucky 9
Louisiana 11
Maryland 7
Michigan 13
Minnesota 10
Mississippi 9
Missouri 28
Nebraska 3
Nevada 4
New Hampshire 3
New Jersey 6
New Mexico 4
New York 4
North Carolina 23
Ohio 52
Oklahoma 10
Oregon 6
Pennsylvania 11
Rhode Island 1
South Carolina 13
Tennessee 33
Texas 85
Utah 4
Virginia 22
Washington 14
West Virginia 11
Wisconsin 3
--------------
TOTAL PROPERTIES 651
==============
Buildings. The buildings generally are rectangular and are constructed from
various combinations of stucco, steel, wood, brick and tile. Building sizes
range from approximately 1,000 to 12,700 square feet. Generally, buildings on
properties owned by the Company are freestanding and are 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, two of the Company's properties were under construction
or renovation. Depreciation expense is computed for buildings and improvements
using the straight-line method using a depreciable life of 39 years for federal
income tax purposes. As of December 31, 2001, the aggregate depreciated cost
basis of the properties owned by the Company (including properties owned through
joint ventures) for federal income tax purposes was $443.0 million.
The following table lists the properties owned by the Company as of
December 31, 2001 by restaurant chain.
Restaurant Chain Number of Properties
Jack in the Box 62
International House of Pancakes 48
Golden Corral 47
Pizza Hut 44
Arby's 38
Burger King 36
Bennigan's 27
Chevy's Fresh Mex 25
Black Eyed Pea 25
Steak & Ale 20
Denny's 19
Ruby Tuesday 18
Baker's Square 17
Applebee's 15
Darryl's 15
Other 195
-----
TOTAL: 651
=====
Management considers the properties to be well maintained and sufficient
for the Company's operations.
Management believes that the properties are adequately covered by
insurance. In addition, the Company has obtained contingent liability and
property coverage. This insurance is intended to reduce the Company'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 Company 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 restaurant 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 Company are described in Item 1. Business - Leases.
At December 31, 2001, 2000, 1999, 1998 and 1997, the properties were 92%,
95%, 97%, 99% and 100% occupied, respectively. The following is a schedule of
the average rent per property for the years ended December 31:
2001 2000 1999 1998 1997
-------------- -------------- --------------- -------------- --------------
Rental Revenues (1) $ 84,775,244 $ 91,520,103 $ 61,907,812 $ 33,129,661 $ 15,490,615
Properties (2) 644 725 642 408 244
Average Rent Per Property $ 131,639 $ 126,235 $ 96,430 $ 81,200 $ 63,486
(1) Rental income includes the Company's share of rental income from the
properties owned through joint venture arrangements. Rental revenues have
been adjusted, as applicable, for any amounts for which the Company has
established an allowance for doubtful accounts. Rents do not include
properties under construction at December 31, 2001.
(2) Excludes properties that were vacant at December 31 and that did not
generate rental revenues during the year.
The following table lists properties owned by the Company as of December
31, 2001 by tenant and includes average age of buildings, annualized total
rental revenue and percent of total revenue. To calculate annualized total
rental revenue, the Company multiplied the monthly rental revenue for each
restaurant property owned and leased at December 31, 2001 by 12 to present the
annualized rental revenues for a 12 month period. The Company has not included
any contingent rental income in the calculation of annualized total rental
revenue.
Total Number
of Annualized
Tenant Restaurant Average Age Total Percent of
- ------ Properties of Buildings Rental Total Rental
(1) (years) Revenue(2) Revenue
-------------- -------------- ------------- --------------
IHOP Properties, Inc. 48 4.4 $ 5,654,967 7.49%
Jack in the Box Eastern Division, L.P. 33 3.0 3,387,158 4.49%
Jack in the Box, Inc. 30 3.1 3,595,382 4.76%
Golden Corral Corporation 40 3.3 6,404,451 8.48%
S&A Properties Corporation 40 20.2 6,803,726 9.01%
Castle Hill Holdings V, L.L.C. 20 18.0 450,472 0.60%
Houlihan's Restaurants, Inc. 19 21.3 2,785,195 3.69%
Vicorp Restaurant, Inc. 18 19.7 2,418,886 3.20%
Rio Bravo Acquisitions, Inc. 15 2.0 3,670,320 4.86%
Other 339 7.9 40,329,913 53.42%
----- ------------- ------------
Total 602 $75,500,470 100.00%
===== ============= ============
(1) Excludes properties that were vacant at December 31, 2001 and that did not
generate rental revenues during the year.
(2) The Company has straight-lined the contractual increases in rental income
over the life of each of the leases in order to calculate rental revenue in
accordance with generally accepted accounting principles.
The following table shows the aggregate number of leases in the Company's
property portfolio which expire each calendar year through the year 2016, as
well as the number of leases which expire after December 31, 2016. The table
does not reflect the exercise of any of the renewal options provided to the
tenant under the terms of such leases.
Base Rent
--------------------------------------------
Year Number (1) Amount(2) Percent
----
------------------ ------------------ -------------------
2002 12 $ 700,154 0.89%
2003 -- -- --
2004 1 100,935 0.13%
2005 8 892,500 1.14%
2006 7 679,942 0.87%
2007 -- -- --
2008 2 217,492 0.28%
2009 2 179,208 0.23%
2010 13 1,339,350 1.71%
2011 19 2,452,643 3.13%
2012 33 4,645,518 5.93%
2013 39 4,591,102 5.86%
2014 87 14,018,265 17.89%
2015 37 4,657,197 5.94%
2016 70 4,939,217 6.30%
Thereafter 299 38,934,403 49.70%
--------- --------------- ----------
Total 629 $78,347,926 100.00%
========= =============== ==========
(1) Excludes properties for which the leases have been terminated.
(2) The Company has straight-lined the contractual increases in rental income
over the life of each of the leases in order to calculate rental revenue in
accordance with generally accepted accounting principles.
Item 3. Legal Proceedings
As of December 31, 2001, neither the Company nor any of its properties was
a party to or the subject of any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 15, 2002, there were 32,357 stockholders of record of common
stock. There is no public trading market for the Company Shares, and even though
the Company intends to list the Company Shares on the New York Stock Exchange or
other national securities exchange or over-the-counter market no later than
December 31, 2005, there is no assurance that listing will occur. If listing
occurs, there is no assurance that a public market for the Company Shares will
develop. In October 1998, the Board of Directors elected to implement the
Company's redemption plan. Under the redemption plan, the Company elected to
redeem Company Shares, subject to certain conditions and limitations. During
1999, the Company terminated the redemption plan. As of December 31, 2001, the
Company estimates that the fair value per share is $17.13. (For Florida
intangible tax purposes, this is the equivalent of the Just Value per share.)
The Company obtained this valuation from a third party firm, which based its
valuation on an analysis of comparable publicly traded real estate investment
trusts and a discounted cash flow analysis. Because the Company Shares are not
publicly traded, investors are cautioned that the estimated fair value of the
shares may not be realized upon sale of the shares.
The Company expects to make distributions to the stockholders pursuant to
the provisions of the Articles of Incorporation. For the years ended December
31, 2001 and 2000, the Company declared cash distributions of $66.5 million and
$66.3 million, respectively, to stockholders. For federal income tax purposes,
20 percent and 40 percent of distributions paid in 2001 and 2000, respectively,
were considered to be ordinary income and 80 percent and 60 percent,
respectively, were considered to be a return of capital. No amounts distributed
to stockholders for the years ended December 31, 2001 and 2000 are required to
be or have been treated by the Company as a return of capital for purposes of
calculating the stockholders' return on their invested capital. The following
table presents total distributions and distributions per Company Share (In
Thousands, except for per share data):
First Second Third Fourth Year
-------------- --------------- -------------- --------------- ---------------
2001 Quarter
Total distributions
declared $16,582 $16,582 $16,582 $16,720 $66,467
Distributions per
Share 0.38 0.38 0.38 0.38 1.52
2000 Quarter
Total distributions
declared $16,582 $16,582 $16,582 $16,582 $66,330
Distributions per
Share 0.38 0.38 0.38 0.38 1.52
In March 2002, the Company declared distributions to stockholders of $16.8
million ($0.38124 per Share) payable in March 2002.
The Company intends to continue to declare distributions of cash to the
stockholders.
Item 6. Selected Financial Data (In Thousands)
2001 2000 1999 1998 1997
-------------- -------------- -------------- -------------- ------------
Year ended December 31:
Revenues $ 264,815 $ 116,633 $ 75,501 $ 42,187 $19,458
Net earnings/(loss) (24,452) 2,927 (49,837) 32,152 15,564
Cash distributions declared 66,466 66,329 60,079 39,449 16,854
Funds from operations (2) 32,080 32,688 45,455 37,191 17,733
Earnings/(loss) per Share (1) (0.56) 0.07 (1.26) 1.21 1.33
Cash distributions declared
per Share (1) 1.52 1.52 1.52 1.52 1.49
Weighted average number
of shares outstanding (1) 43,590 43,496 39,403 26,648 11,712
At December 31:
Total assets $ 1,559,114 $ 1,599,503 $1,138,193 $680,352 $339,078
Long-term obligations 484,815 312,484 -- -- --
Total stockholders' equity (3) 526,182 607,738 672,214 660,810 321,638
(1) All Share and per Share amounts have been restated herein to reflect the
one-for-two reverse stock split.
(2) Funds from operations are net earnings determined in accordance with
Generally Accepted Accounting Principles ("GAAP") excluding depreciation
and amortization, gains and losses on sale of real estate, impairment
provisions and nonrecurring items of income and expense of the Company.
Funds from operations are generally considered by industry analysts to be
the most appropriate measure of performance. FFO (i) does not represent
cash generated from operating activities determined in accordance with GAAP
(which, unlike FFO, generally reflects all cash effects of transactions and
other events that enter into the determination of net earnings), (ii) is
not necessarily indicative of cash flow available to fund cash needs and
(iii) should not be considered as an alternative to net earnings determined
in accordance with GAAP as an indication of the Company's operating
performance, or to cash flow from operating activities determined in
accordance with GAAP as a measure of either liquidity or the Company's
ability to make distributions. Accordingly, the Company believes that in
order to facilitate a clear understanding of the consolidated historical
operating results of the Company, FFO should be considered in conjunction
with the Company's net earnings and cash flows as reported in the
accompanying consolidated financial statements and notes thereto. However,
the Company's measure of FFO may not be comparable to similarly titled
measures of other REITS because these REITS may not apply the definition of
FFO in the same manner as the Company.
(3) Includes subscriptions received of $0, $0, $210,736, $385,523,966 and
$222,482,560, net of stock issuance costs of $1,493,437, $1,493,436,
$1,662,749, $38,415,512 and $22,422,045 for the years ended December 31,
2001, 2000, 1999, 1998 and 1997, respectively, and net of $50,891 and
$639,528 of common stock shares retired for the years ended December 31,
1999 and 1998, respectively. Stock issuance costs consist of selling
commissions, marketing support and due diligence expense reimbursement
fees, soliciting dealer servicing fees and organizational and offering
expenses. The ratio of stock issuance costs to subscriptions received was
0, 0, 1:0.13, 1:10 and 1:10 during 2001, 2000, 1999, 1998 and 1997,
respectively.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
The following information, including, without limitation, the Quantitative
and Qualitative Disclosures About Market Risk that are not historical facts, may
be forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
These statements generally are characterized by the use of terms such as
"believe," "expect" and "may." Although the company believes that the
expectations reflected in such forward-looking statements are based upon
reasonable assumptions, the company's actual results could differ materially
from those set forth in the forward-looking statements. Factors that might cause
such a difference include: changes in general economic conditions, changes in
real estate conditions, availability of capital from borrowings under the
company's credit facilities, the availability of other debt and equity financing
alternatives, changes in interest rates under the company's current credit
facilities and under any additional variable rate debt arrangements that the
company may enter into the future, the ability of the company to refinance
amounts outstanding under its credit facilities at maturity on terms favorable
to the company, the ability of the company to locate suitable tenants for its
restaurant properties and borrowers for its mortgage loans, the ability of
tenants and borrowers to make payments under their respective leases, secured
equipment leases or mortgage loans, the ability of the company to re-lease
properties that are currently vacant or that become vacant and the ability of
the company to securitize or sell mortgage loans on a favorable and timely
basis. Given these uncertainties, readers are cautioned not to place undue
reliance on such statements.
Organization and Business
CNL American Properties Fund, Inc. ("CNL-APF" or the "Company") is a
self-advised real estate investment trust ("REIT") operating as a holding
company for two primary subsidiary operating companies, CNL Restaurant
Properties, Inc. and CNL Franchise Network, Corp. The Company was founded in
1994 and at December 31, 2001, has financial interests in over 1,200 properties
diversified among more than 100 restaurant concepts in 47 states. The Company's
total real estate holdings subject to lease includes 800 properties of which
approximately 150 properties are classified as held for sale. At December 31,
2001, the servicing portfolio of net lease properties and mortgages included
over 2,500 units of which over 1,300 are serviced on behalf of third parties.
The Company's operations are divided into two business segments, real
estate and specialty finance. The real estate segment, operated principally
through the Company's wholly owned subsidiary CNL Restaurant Properties, Inc.
("CNL-RP") and its subsidiaries, is charged with overseeing and maximizing value
on a portfolio of primarily long-term triple-net lease properties. Those
responsibilities related to the real estate segment include portfolio
management, property management and dispositions. In addition, CNL-RP manages
approximately $649.9 million in affiliate portfolios and earns management fees
related thereto. The specialty finance segment, operated through the Company's
wholly-owned subsidiary CNL Franchise Network Corp ("CNL-FNC") and a partnership
with Bank of America, CNL Franchise Network, LP ("CNL-FN") and its subsidiaries,
delivers financial solutions in the forms of financing, servicing, development
and advisory services to national and regional restaurant operators.
Effective January 1, 2001, CNL-FNC elected to be treated as a taxable REIT
subsidiary ("TRS") pursuant to the provisions of the REIT Modernization Act. As
a TRS, CNL-FNC will be able to engage in activities that would previously have
caused income to the Company from CNL-FN to be disqualified from being eligible
REIT income under the federal income tax rules governing REITs. CNL-FNC
originates mortgages and triple-net lease properties for sale to third parties
and, in some cases, securitization. CNL-FNC also performs net lease and loan
servicing on behalf of third parties. While the Company intends to continue
managing its existing core portfolio of real estate leases and loans, management
expects that the activities of CNL-FNC will be an increasingly significant part
of the Company's business on a going-forward basis.
Liquidity and Capital Resources
CNL American Properties Fund, Inc.
CNL-APF is primarily a holding company that receives distributions from its
two primary subsidiaries, CNL-RP and CNL-FNC. In 2001, CNL-APF did not receive
any distributions from CNL-FNC. CNL-APF distributions to stockholders totaled
approximately $66.5 million in 2001, compared to $66.3 million and $60.1 million
in 2000 and 1999, respectively. The 2001 distribution was primarily funded
through distributions from CNL-RP, but also included a loan from an affiliate,
which was subsequently converted to stock, stock purchases by an affiliate and
borrowings on the Company's line of credit. No amounts distributed or to be
distributed to the stockholders as of March 15, 2002, are required to be or have
been treated by the Company as a return of capital for purposes of calculating
the stockholders' return on their invested capital.
Because the Company is committed to reinvest cash flow in the specialty
finance segment as opposed to distributing excess cash, the Company's Chairman,
through a private company affiliate, CNL Financial Group, Inc., advanced $12.4
million to the Company during 2001 to ensure that the Company could maintain its
historical distribution level to stockholders. The Company is pursuing a
strategy built around CNL-RP's strong capital base and stable cash flows coupled
with CNL-FNC's specialty finance growth business. In 2002, the Company intends
to reinvest the majority of excess cash flows or pay down debt in its specialty
finance business and not distribute those funds.
Specialty Finance Segment (CNL Franchise Network Corporation)
In June 2000 the Company divided its operations into the real estate and
specialty finance businesses. The objective of the Company was to combine the
real estate segment, an entity with a strong capital base and stable cash flows,
with a specialty finance growth business that could partner with a large
financial institution and provide an additional source of liquidity. The Company
and Bank of America entered into an alliance in June 2000 that provided a broad
product offering primarily focused on the origination of triple-net lease,
securitized debt and portfolio loan financing. The portfolio loan product
provided CNL-FN fees without assuming ownership risk. In forming the alliance,
the Company invested certain of its CNL-RP assets and operations into CNL-FN and
Bank of America provided CNL-FN with a $43.75 million subordinated debt facility
and a $500.0 million warehouse credit facility. The business strategy of CNL-FN
targeted the origination of triple-net leases and loans, temporarily putting
those assets on warehouse credit facilities and periodically securitizing those
assets. In a securitization the Company sells or transfers a pool of loans or
properties with triple-net leases to certain special purpose entities which, in
turn, issue to investors securities backed by an interest in the revenue
originating from the loans or triple-net leases. These transactions serve as a
way to recycle and diversify capital.
The Company expected to continue its business of originating securitized
loans and net leases and selling or refinancing these assets in future franchise
securitizations, having completed similar transactions in 1998 and 1999. In
August of 2000 the Company successfully completed the first securitization of
triple-net leases in the franchise asset class, which is a refinancing under
accounting rules. However, the franchise asset-backed securitization market
began to experience considerable volatility in late 2000 and throughout 2001 as
a result of rising delinquencies among previously securitized loan pools of
competitors. In addition, falling treasury rates, macroeconomic uncertainties
and sluggish restaurant sales contributed to market volatility. What resulted
were wider bond spreads that translated into investors demanding higher interest
rates on the securities issued in securitizations and an increase in ratings
actions. In public securitizations, the quality of the underlying loans is
periodically reviewed by rating agencies to affirm the ratings originally issued
on the bonds sold to investors. Should an issuer suffer a ratings action, it
could result in material adverse consequences impacting the issuer's ability to
successfully sell or refinance the loans underlying the securitization
transaction and thereby render future forays into securitization transactions
uneconomical. Many of the Company's competitors experienced downgrades or
ratings actions on bonds previously issued, and either shut down operations or
did not have the capital to continue to originate new financing. The Company to
date has avoided any rating action of previously securitized loan or lease
pools.
The events in the franchise finance sector resulted in CNL-FN using private
market sales channels to either refinance or sell approximately $162.5 million
in loans during 2001. At December 31, 2001, the Company is holding $430.2
million in debt from warehouse credit facilities. This debt was collateralized
by $315.8 million in mortgage loans held for sale and $171.6 million in real
estate held for sale. As a result of the market volatility, in October 2001 the
Company and Bank of America renegotiated certain terms of their strategic
alliance. The following points summarize the noteworthy developments:
o Bank of America agreed to provide a $10.0 million unsecured credit
facility (the "Liquidity Facility") to CNL-RP. The Liquidity Facility
is for a term of one year and contains an option to extend the facility
subject to renewal of the warehouse credit facility maintained by
CNL-FN. CNL-RP then entered into a $10.0 million unsecured credit
facility (the "Mirror Credit Facility") with CNL-FN that has
substantially the same terms as the Liquidity Facility. The purpose of
the Mirror Credit Facility is to augment the liquidity of CNL-FN for
working capital and meeting any margin calls on CNL-FN's warehouse
credit facilities.
o Bank of America agreed to provide a two-year $30.0 million unsecured
revolving credit facility (the "Revolver") to CNL-RP in connection with
the payoff of CNL-RP's then-current revolving credit facility.
o CNL-FN agreed to remove or sell by October 13, 2002 approximately
$187.0 million in restaurant loans currently held as collateral under
the Bank of America warehouse credit facility. CNL-FN and CNL-RP
provided a guarantee of $15.0 million, which will be reduced ratably as
certain conditions are met, including the removal or sale of the
restaurant loans. In the event a balance exists on October 13, 2002,
CNL-FN, or CNL-RP in the event CNL-FN does not have adequate liquidity,
will remit the balance of the guarantee to Bank of America as
additional enhancement capital against the remaining balance.
o CNL-FN and CNL-RP agreed to a $15.0 million guarantee on Bank of
America's subordinated debt facility, which consists of a note payable
having an outstanding amount of $43.75 million as of December 31, 2001.
The $15.0 million guarantee has provisions for its reduction tied to
achievement of an earnings target, full availability of the Liquidity
Facility and the removal of the $187.0 million in loans described
above. CNL-FN may also prepay the subordinated note. If the
subordinated note guarantee is not paid by October 13, 2002, Bank of
America will have a one-month option to convert the outstanding
guarantee to a preferred security of CNL-RP with a face value of 80
percent of the outstanding guarantee. The terms will be substantially
equivalent to the subordinated note.
o Bank of America agreed to forfeit a conversion feature on $15.0 million
of the $43.75 million subordinated note, which reduced their potential
ownership percentage of CNL-FN from 29.12 percent to 22.28 percent.
o Bank of America agreed to renew its warehouse credit facility with
CNL-FN. Step-down provisions take the facility from $325.0 million to
$275.0 million by April 1, 2002.
During 2001, recognizing the volatility in the franchise asset-backed
securitization market, the Company redirected the origination efforts of its
specialty finance segment to triple-net leases. A triple-net lease is a form of
financing to a restaurant operator whereby the Company purchases the real estate
and subsequently leases it to the restaurant operator under a long-term
triple-net lease. The triple-net lease is a long-term lease with periodic rent
increases and requires the tenant to pay expenses on the property. The lease
somewhat insulates the Company from requiring significant cash outflows for
maintenance, repair or insurance; however, if the tenant experiences financial
problems, rental payments could be interrupted.
The Company also explored alternatives in which to direct its existing loan
and lease assets, including the tax-deferred real estate exchange market. While
asset securitization is one sales channel for loans or leases, another is the
tax-deferred real estate exchange market allowed under Section 1031 of the
Internal Revenue Code ("Section 1031 Exchanges"). Generally, Section 1031
Exchanges allow an investor who realizes a gain from selling appreciated real
estate to defer paying taxes on such gain by reinvesting the sales proceeds in
like-kind real estate. In addition, the Company is a partner in a partnership
with a third party client through which similar activities are performed. The
Company and its partnership sold approximately $108.0 million generating $9.1
million in gains in Section 1031 exchanges in 2001. The Company expects this
sales channel to grow significantly in 2002. In addition, CNL-FN will continue
to investigate other sales channels in which to direct its existing loan and
lease assets while the securitization market remains unappealing.
In 2001, CNL-FNC's primary cash flows were derived from lease and interest
income earned in excess of interest expense paid ("net spread"), net gains from
Section 1031 Exchanges and servicing revenues. Significant cash outflows consist
of operating expenses and capital enhancements in the loan portfolio. Through
its warehouse credit facility provided by Bank of America and by another lender
to its subsidiary, CNL-FN, CNL-FNC enjoyed a credit capacity of $525.0 million
as of December 31, 2001. The facilities are periodically marked-to-market,
incorporating both asset securitization market assumptions, assumptions on the
Company's derivatives and delinquency assumptions. Primarily as a result of the
volatility in the franchise asset-backed sector in 2001, CNL-FN met $21.2
million in capital enhancements on its facilities. Over the course of the year,
CNL-FN had fully drawn its subordinated note payable and in February 2002, drew
$5.0 million on the Mirror Credit Facility.
In 2002, the Company intends to focus origination efforts within its
specialty finance segment on the triple-net lease financing product. CNL-FN's
warehouse facilities provide advances for approximately 95 percent of appraised
real estate value. The Company expects the remaining five percent to be provided
by cash flow from CNL-FN's operations. Cash from operations could be negatively
impacted if interest rates increased significantly, reducing the net spread.
At December 31, 2001, CNL-FN has approximately $51.9 million in capital
supporting its loan and lease portfolio. During 2002, as the loans are sold or
refinanced and the leased restaurant properties are sold, part of that capital
is expected to be released. CNL-FN expects to reinvest most of its capital in
new loans or triple-net leases in 2002. Should CNL-FN meet its financial
performance objectives in 2002, it will consider making a distribution to the
Company in the fourth quarter of 2002.
Liquidity risks within the Company's specialty finance segment include the
possible occurrence of economic events that could have a negative impact on the
franchise asset-backed securitization market and affect the quality or
perception of the loans or leases underlying CNL-FN's securitization
transactions. The quality of the securitized loans and leases is periodically
reviewed by rating agencies to affirm or alter the ratings originally issued on
the bonds sold to investors. Upon the occurrence of a significant amount of
delinquencies and/or defaults, one or more of the three rating agencies may
choose to place a specific transaction on ratings watch or even downgrade one or
more classes of securities to a lower rating. Conversely, upon above average
performance of the securities backed by a specific pool of loans or leases, one
or more rating agencies could also chose to upgrade a given transaction by
changing the original rating on one or more securities to a higher rating. The
predecessor to CNL-FN executed a public securitization in August 1998 and
subsequently CNL-FN executed a public securitization in November 1999 whereby
approximately $571.7 million in loans were sold to a third-party entity that
subsequently issued securities to investors. In addition, CNL-FN executed a
private structured note offering in 2001 that refinanced approximately $60.8
million in loans transferred to a consolidated special purpose entity. The
entity subsequently issued $42.6 million in securities to an investor. The
entities on all three of these transactions are bankruptcy remote entities and
are separate legal entities whose assets are not available to satisfy the claims
of creditors of the Company, any subsidiary or its affiliates. To date, the
ratings on the loans underlying the securities issued in all three of these
transactions have been affirmed. Should the loans underlying the securities
undergo a negative ratings action, CNL-FN could experience material adverse
consequences impacting its ability to successfully sell or refinance the $187.0
million in loans related to the $15.0 million guarantee in favor of Bank of
America, and could suffer effects limiting its ability to engage in future
securitization transactions. To potentially avoid those consequences, CNL-FN
could choose to contribute capital to serve as additional collateral supporting
one or more of these entities used to facilitate a securitization in order to
avoid a negative ratings action.
In summary, the Company's specialty finance segment expects to meet its
liquidity requirements in 2002 with a combination of cash from operations and
borrowings on the warehouse credit facilities. CNL-FN renews its warehouse
credit facilities annually and to date has been successful in doing so. CNL-FN's
longer-term liquidity requirements are expected to be met through the successful
renewal of its warehouse credit facilities, successful execution of the
Company's Section 1031 Exchange business, portfolio debt origination fees, asset
securitizations and augmented by operating cash flows provided by servicing and
advisory services. However, there can be no assurance that future expansion will
be successful due to competitive, regulatory, market, economic or other factors.
Real Estate Segment (CNL Restaurant Properties, Inc.)
CNL-RP operates as a real estate company and its cash flows primarily
consist of rental income from tenants on restaurant properties owned, interest
income on mortgage loans, dispositions of properties and income from holding
residual interests in prior loan securitizations. The Company's cash outflows
are predominantly interest expense, operating expenses, reinvestment of
disposition proceeds and distributions to the Company.
CNL-RP's short-term debt includes the $30.0 million Revolver entered into
in October 2001 and a $48.7 million secured note payable entered into in October
1999 (the "Secured Credit Facility"). The Secured Credit Facility matures on
February 18, 2003 and CNL-RP anticipates selling properties to pay off the note
during 2002. The Company, from time to time, utilizes the Revolver to manage the
timing of inflows and outflows. The Company's Revolver is a two-year facility,
maturing in October 2003, and includes a one-year renewal option. At December
31, 2001, the Revolver had an outstanding balance of $10.0 million.
CNL-RP also had medium-term and long-term bond financing. In October 2001,
CNL-RP issued $132.0 million in medium-term bonds, Series 2001. The bonds carry
an interest rate of LIBOR plus 48 basis points and mature in 2006. The bonds are
collateralized by 119 properties with a carrying value of approximately $179.6
million. Proceeds from the bond issuance were applied to pay down CNL-RP's
previous $125.0 million Revolver and the Secured Credit Facility by $45.0
million. In August 2000, CNL-RP issued Triple Net Lease Mortgage Bonds, Series
2000-A. The bonds had an aggregate principal balance of $280.9 million with
anticipated maturities of August 2009 (Class A-1) and April 2017 (Class A-2).
The debt is fixed at a rate of 7.925 percent. At December 31, 2001, the
outstanding principal balance on the Series 2000-A bonds was $270.4 million and
was collateralized by 257 properties with a carrying value of approximately
$332.6 million.
In 2002, CNL-RP's strategy for the Secured Credit Facility includes
refinancing the facility or selling properties, the proceeds of which will be
applied to pay off the Secured Credit Facility and principal obligations on the
Series 2001 and Series 2000-A long-term bond financings. In addition, CNL-RP
will continue to sell non-performing and under performing assets and will
reinvest those proceeds in higher-yielding investments.
Liquidity risks within the real estate business include the potential that
a tenant's financial condition could deteriorate, causing it to fail to make its
rent payments and thereby reducing CNL-RP's income. Generally, CNL-RP uses a
triple-net lease to lease its properties to its tenants. The triple-net lease is
a long-term lease with periodic rent increases and requires the tenant to pay
expenses on the property. The lease somewhat insulates CNL-RP from requiring
significant cash outflows for maintenance, repair or insurance; however, if the
tenant experiences financial problems, rental payments could be interrupted.
In addition, CNL-RP faces other liquidity risks, including the possibility
that it will be unable to meet its obligations under the Secured Credit Facility
and the possibility that it could be liable for the $15.0 million guarantee on
Bank of America's subordinated debt facility if CNL-FN fails to remove $187.0
million of restaurant loans currently residing on the Bank of America warehouse
credit facility by October 13, 2002. In the event that CNL-RP defaulted on its
obligations under the Secured Credit Facility, CNL-RP would have to pay the
outstanding balance, which could materially adversely affect the Company's
liquidity and capital resources.
CNL-RP believes the combination of availability on its line of credit and
the projected disposition volume in 2002 will permit it to meet its short-term
liquidity objectives. Long-term liquidity requirements will be met through a
combination of selectively disposing assets and reinvesting the proceeds in
higher-yielding investments and cash from operating activities.
Interest Rate Risk
Floating interest rates on the Revolver, Secured Credit Facility, Mortgage
Warehouse Facility and the 2001 Series bonds expose the Company to interest rate
risk. As of December 31, 2001, the Company had $10.0 million, $48.7 million,
$430.2 million and $130.4 million outstanding under its Revolver, Secured Credit
Facility, Mortgage Warehouse Facility and the 2001 Series bonds. The Company
believes it has mitigated this risk by entering into interest rate swap
agreements and an interest rate cap agreement, which the Company believes will
reduce the impact of fluctuating interest rates on its floating rate debt.
In addition, the Company invests in certain financial instruments that are
subject to various forms of market risk such as interest rate fluctuations,
credit risk and prepayment risk. Management believes that the value of its
mortgage loans held for sale and investments held for sale could potentially
change as a result of fluctuating interest rates, credit risk, market sentiment
and other external forces, which could materially adversely affect the Company's
liquidity and capital resources.
Generally, the Company uses derivative financial instruments (primarily
interest rate swap contracts) to hedge against fluctuations in interest rates
from the time it originates and holds fixed-rate mortgage loans until the time
it sells them. The Company will terminate certain of these contracts and both
the gain or loss on the sale of the loans and the additional gain or loss on the
termination of the interest rate swap contracts are measured and recognized in
the consolidated statement of operations. Under interest rate swaps, the Company
agrees with other parties to exchange, at specified intervals, the difference
between fixed-rate and floating-rate interest amounts calculated by reference to
an agreed upon notional principal amount.
Management estimates that a one-percentage point increase in long-term
interest rates as of December 31, 2001 would have resulted in a decrease in the
fair value of its fixed-rate loans of $14.6 million. This decline in fair value
would have been offset by an increase in the fair value of certain interest rate
swap positions of $11.8 million. In addition, a one-percentage point increase in
short-term interest rates for the year ended December 31, 2001 would have
resulted in additional interest costs of approximately $6.5 million. This
sensitivity analysis contains certain simplifying assumptions (for example, it
does not consider the impact of changes in prepayment risk or credit spread
risk). Therefore, although it gives an indication of the Company's exposure to
interest rate change, it is not intended to predict future results and the
Company's actual results will likely vary.
Management believes inflation has not significantly affected the Company's
earnings because the inflation rate has remained moderate. Additionally, the
Company's earnings primarily reflect long-term investments with fixed rents or
interest rates. The Company mainly finances these investments with a combination
of equity, senior notes and borrowings under the revolving lines of credit or
warehouse facilities. During inflationary periods, which generally are
accompanied by rising interest rates, the Company's ability to grow may be
adversely affected because the yield on new investments may increase at a slower
rate than new borrowing costs. However, sustained low inflation could lead to
net lease pricing pressure as tenants request decreasing rates for longer
maturities.
Critical Accounting Policies
The Company records the acquisition of land, buildings and equipment at
cost, including acquisition, closing and construction period interest costs.
Land and buildings are leased to restaurant operators generally on a triple-net
basis, which means that the tenant is responsible for all operating expenses
relating to the property, including property taxes, insurance, maintenance and
repairs. The property and secured equipment leases held for investment are
accounted for using either the direct financing or the operating method unless
the Company has classified these properties pursuant to their intent to sell. In
connection with lease accounting, management estimates residual values and
collectable rents.
Management reviews its properties and loans for impairment whenever events
or changes in circumstances indicate that the carrying amount of the assets may
not be recoverable. Management determines whether impairment in value has
occurred by comparing the estimated future undiscounted cash flows, including
the residual value of the property or collateral, with the carrying cost of the
individual asset. If impairment is indicated, the assets are adjusted to
estimated fair value.
Mortgage loans held for sale are loans originated that the Company intends
to sell or securitize. They are recorded at fair market value which is estimated
using quoted prices, the present value of the expected cash flows and the
estimated impact of any defaults, and may therefore be recorded at an amount
greater than cost. The Company utilizes derivative instruments to partially
offset the effect of fluctuating interest rates on the value of its mortgage
loans held for sale. As long as the Company qualifies for hedge accounting
treatment, valuation adjustments relating to these loans, including increases
above cost, and any gains or losses on related hedge instruments are reflected
in the statement of operations.
Certain loans originated by the Company were sold to independent trusts
that, in turn, issued securities to investors backed by these assets. The
Company retains the servicing rights and participates in certain cash flows from
the trusts. The present value of expected excess of net cash flows, after
payment of principal and interest to bond or other certificate holders, over the
estimated cost of servicing is recorded at the time of sale as a retained
interest. Retained interests in securitized assets are included in other
investments. Accounting for the retained interests requires that the Company
estimate, using market trends and historical experience, expected prepayments
and defaults. This information is considered, along with prevailing discount
rates and the terms of the bonds and certificates, to arrive at an initial value
and to periodically review the value for gains or losses. Permanent impairments,
representing the excess of carrying value over estimated current fair value, are
recorded as an expense. Unrealized gains and losses are not reflected in current
earnings but are reflected in stockholder's equity as part of other
comprehensive income (loss).
The Company has also entered into certain derivative contracts in order to
hedge its exposure to fluctuations in interest rates on variable rate debt. As
long as certain criteria for hedge accounting are met the changes in fair value
of these contracts is reflected in other comprehensive income (loss) and as a
component of stockholders' equity. If the requirements are not met changes in
the fair value of these contracts are reflected in earnings.
Results from Operations
The Company experienced a net loss of $24.5 million in 2001 compared to net
earnings of $2.9 million and a net loss of $49.8 million in 2000 and 1999,
respectively. The Company operated as one segment during 1999 and through June
2000, the date of its strategic alliance with Bank of America. Thereafter the
Company operated through its real estate and specialty finance segments. Because
of the lack of comparability, the discussion below focuses on the consolidated
financial performance of the Company. As appropriate, this discussion includes
information on segment operating results.
Revenues
Revenues in 2001 were $264.8 million compared to $116.6 million and $75.5
million in 2000 and 1999, respectively. Revenue from sales of real estate were
$105.6 million in 2001 compared to $0.0 in 2000 and 1999. During the year ended
December 31, 2001 CNL-FN began its program of selling real estate properties to
private investors in Section 1031 Exchanges, and as a result the gross proceeds
from Section 1031 Exchanges now appear as a component of operating revenues. The
costs associated with these sales were $97.6 million and they are now reflected
as a component of expenses. In addition, the Company is a partner in a
partnership with a third party client through which similar activities are
performed. During 2001, the Company and its partnership sold $108.0 million in
restaurant properties as a Section 1031 Exchange generating $9.1 million in net
gains or partnership earnings.
Rental income from operating leases, earned income from direct financing
leases and interest income from mortgage, equipment and notes receivables was
$140.3 million in 2001 compared to $107.4 million and $69.1 million in 2000 and
1999, respectively. The 2001 increase resulted from Company efforts to increase
its base of income earning leases and loans. The average yield on the loans and
leases in 2001 was 10.0 percent compared to 9.1 percent in 2000. The average
outstanding balance of loans and leases in 2001 was $1.4 billion compared to
$1.2 billion in 2000.
Investment and interest income was $5.8 million in 2001 compared to $8.2
million and $6.7 million in 2000 and 1999, respectively. From August 1999
through October 2000 the Company held a residual investment in a pool of loans
that was subsequently liquidated.
During the years ended December 31, 2001, 2000 and 1999 the Company earned
$13.9 million, $7.9 million and $0.3 million, respectively, in other income.
This increase is attributable to the inclusion of servicing operations revenue
associated with the Company's September 1999 acquisition of CNL Financial
Services, Inc., consulting revenues associated with the Company's June 2000
acquisition of the operations of CNL Advisory Services, Inc., construction
management services revenues associated with the Company's January 2001
acquisition of CNL Restaurant Property Services, Inc. and referral fees earned
from bank product referrals associated with the Company's June 2000 alliance
with Bank of America.
Expenses
General operating and administrative expenses were approximately $30.4
million, $24.9 million and $8.8 million for the years ended December 31, 2001,
2000 and 1999, respectively. Effective September 1, 1999, the Company became
internally advised and internal costs to acquire properties are generally
expensed. In addition, the Company developed its securitization and investment
sales strategies and incurred increased costs in managing a maturing portfolio
throughout 2000 and 2001. General and administrative expenses include amounts
associated with advisory activities subsequent to the acquisition of CAS in June
2000, reflecting a full year in 2001. Also, in January 2001 the Company acquired
the Development Company operations adding approximately $2.9 million in expenses
in this category during the year ended December 31, 2001.
Interest expense was $68.5 million, $47.6 million and $10.2 million for the
years ended December 31, 2001, 2000 and 1999, respectively. The Company has
continued to expand its operations through increased property acquisitions and
origination of mortgage loans substantially funded through the Company's
Mortgage Warehouse Facilities. The increase in interest expense corresponds to
revenue growth of $138.6 million between 2000 and 2001, and $38.3 million
between 1999 and 2000 as the Company leveraged additional volume. Maintaining
sufficient volume is key to the Company's ability to maintain its competitive
position in this business. The Company has also incurred debt to finance certain
transaction costs incurred in 1999 and 2000 associated with the Company's
strategic initiatives. These include expenses associated with the transition to
an internally advised REIT, the proposed merger with the CNL Income Funds and
with listing the Company's shares, both of which were subsequently withdrawn,
and costs associated with the strategic alliance with Bank of America as a
partner.
Expense categories such as property expenses, state taxes, and depreciation
and amortization expenses have reflected and will continue to reflect the level
of assets invested in leased properties. The Company has decreased certain
property expenses, in part, through decreasing the length of time necessary to
re-lease a defaulted tenant's property. In addition, this category includes
amortization on intangible assets, such as goodwill. During 2001, the Company
has amortized $3.1 million in goodwill pursuant to existing accounting
standards. 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"). FAS 141 requires business combinations initiated
after June 30, 2001 to be accounted for using the purchase method of accounting,
and broadens the criteria for recording intangible assets separate from
goodwill. Recorded goodwill and intangibles will be evaluated against the new
criteria and may result in certain intangibles being subsumed into goodwill, or
alternatively, amounts initially recorded as goodwill may be separately
identified and recognized apart from goodwill. FAS 142 requires the use of a
non-amortization approach to account for purchased goodwill and certain
intangibles. Under a non-amortization approach, goodwill and certain intangibles
will not be amortized into results of operations, but instead would be reviewed
for impairment and written down and charged to results of operations only in the
periods in which the recorded value of goodwill and certain intangibles is more
than its fair value. The Company expects that the adoption of these accounting
standards will have the impact of reducing its amortization of goodwill and
intangibles commencing January 1, 2002; however, impairment reviews may result
in future periodic write-downs.
The Company adopted Statement of Financial Accounting Standards No. 133
("FAS 133"), as amended, on January 1, 2001, which requires all derivative
instruments to be recorded on the balance sheet at fair value. Effective January
1, 2001, the Company recorded a cumulative effect adjustment loss of $21.2
million to recognize at fair value all derivative instruments at that are
designated as fair-value hedging instruments. The Company recorded an offsetting
cumulative effect adjustment gain of $17.4 million to recognize the difference
(attributable to the hedged risks) between the carrying values and fair values
of related hedged assets or liabilities. The adoption of FAS 133 thereby
resulted in a $3.8 million charge against Company earnings.
Effective January 1, 2001, the Company's subsidiary, CNL Franchise Network
Corp. ("CNL-FNC"), elected to be treated as a taxable REIT subsidiary ("TRS")
pursuant to the provisions of the REIT Modernization Act. As a TRS, its
operating partnership, CNL-FN, is able to engage in activities resulting in
income that previously would have been disqualified from being eligible REIT
income under the federal income tax regulations. The treatment of loan valuation
adjustments, loss reserves, loan fees, depreciation, and other items for federal
income tax purposes differs from the treatment of these items for financial
reporting purposes. In the aggregate, the Company has an excess of available
future deductible items over future taxable items and as such may benefit from
these items when the taxable subsidiaries produce a greater level of taxable
income. At present, the Company has not recorded this potential future benefit
because the subsidiaries involved do not have sufficient historical earnings on
which to base a potential future benefit.
Throughout 2001, many economic indicators suggested the U.S. economy was in
recession. On September 11, the country was challenged further by the tragic
events in New York, Washington D.C. and Pennsylvania. Throughout the period, the
government has responded with stimuli in various forms including action by U.S.
Federal Reserve policymakers to decrease interest rates. In addition, Congress
enacted legislation to decrease personal income tax rates. Management believes
that the Company will benefit from the stimuli as interest rates on short-term
borrowings have reached historic lows. In addition, the restaurant industry
should benefit from the economic stimuli. While certain restaurant chains and
franchise operators in 2001 experienced financial difficulties arising from
diverse factors including deterioration in operations, over leverage and the
general economy, management expects the Company's core customer - the casual
dining and quick service franchise operators - to sustain operations during this
downturn. While management believes its underwriting standards are effective in
assessing the credit strength and management of a restaurant operator, the
Company is not immune from the cyclical nature of the business and many of its
clients may continue to be affected by poor performance of some restaurant
chains. Although the Company's operating lease agreements and loans provide the
Company the right to terminate an investment, evict an operator, demand
immediate repayment, or take other remedies, bankruptcy laws afford certain
rights to a party that has filed for bankruptcy or reorganization. An operator
in bankruptcy may be able to restrict the Company's ability to collect unpaid
rent or interest and to collect interest during the bankruptcy proceeding.
Further, the Company may be required to fund certain expenses in order to retain
control of the property or to take possession of the property or even control
the franchise, which may expose the Company to successor liabilities and further
affect liquidity.
In 2001, the Company recorded $28.2 million in provision for loss on loans
compared to $1.8 million and $1.0 million in 2000 and 1999, respectively. In
addition the Company recorded $27.2 million in impairment provisions in 2001
compared to $2.6 million and $7.8 million in 2000 and 1999, respectively. The
provisions increased significantly in 2001 primarily as a result of Phoenix
Restaurant Group, Inc. and its subsidiaries (collectively referred to as "PRG")
filing bankruptcy on October 31, 2001. During 2001, an affiliate of the Company
advanced approximately $5.8 million to PRG. The proceeds were used to pay
outstanding obligations, including obligations to the Company. CNL-RP has
provided loans and equipment lease or triple-net lease financing to PRG of
approximately $61.2 million.
In the two weeks prior to the bankruptcy filing, PRG closed 40 operating
Black-Eyed Pea units as well as 25 operating Denny's units. With these
reductions, PRG now operates 44 Denny's and 48 Black-Eyed Peas. PRG is seeking
to reorganize while keeping some of its restaurants operating. In order to
permit continued operation of the open stores and preserve the value of its
investments with PRG, the Company entered into a commitment in November 2001 to
advance $3.5 million to PRG as interim financing, referred to as
debtor-in-possession financing. As of March 19, 2002, the Company had advanced
$3.25 million to PRG. CNL-RP is analyzing a variety of alternatives for
maximizing the value of the remaining investment.
On January 18, 2002 the Company filed an involuntary bankruptcy petition
against Roadhouse Grill, Inc., franchisor of the casual steak chain, Roadhouse
Grill. CNL-RP owns 13 Roadhouse Grill properties and CNL-FN owns one. Roadhouse
Grill has not submitted to the petition and ultimately, the Federal Bankruptcy
Court will rule on this matter. The bankruptcy filing is expected to result in
the return of one or two CNL-RP sites enabling management to sell or re-lease
the property. The Company's impairment provisions include $3.7 million for
Roadhouse Grill which was recorded in the fourth quarter of 2001.
In January 2002, Houlihan's Restaurant Group ("HRG") filed for voluntary
bankruptcy under the provisions of Chapter 11. HRG operates and franchises the
Houlihan's concept, operates the Darryl's and J. Gilbert's concepts and operates
five separately branded seafood restaurants. CNL-RP had financed 19 Houlihan's
or Darryl's units totaling $26.3 million. As of January 31, 2002 the leases were
current. Eleven of the 19 leases have been rejected. Condemnation proceeds are
in escrow for a partial taking on one of the eleven sites. The remaining 10
rejected sites have been retaken and marketing efforts are proceeding. All of
the sites not rejected are currently operating. The Company's impairment
provisions include $4.9 million for HRG which was recorded in the fourth quarter
of 2001.
Item 7a. Quantitative and Qualitative Disclosures About Market Risk
This information is described above in Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations.
Item 8. Financial Statements and Supplementary Data
Report of Independent Certified Public Accountants
To the Board of Directors and Stockholders of
CNL American Properties Fund, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and comprehensive
income/(loss), and of cash flows present fairly, in all material respects, the
financial position of CNL American Properties Fund, Inc. (a Maryland
corporation) and its subsidiaries at December 31, 2001 and 2000, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2001 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 apprearing 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 Company's management; our responsibility is to express an opinion on these
financial statements and financial statment 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 discussed in Note 1 to the consolidated financial statements, on January 1,
2001 the Company changed its method of accounting for derivative financial
instruments.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
March 19, 2002
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands except for per share data)
December 31,
2001 2000
--------------- ---------------
ASSETS
Real estate investment properties $ 652,218 $ 785,604
Net investment in direct financing leases 137,104 169,222
Real estate held for sale 171,564 ---
Mortgage loans held for sale 315,835 394,321
Mortgage, equipment and other notes receivable 103,962 72,771
Other investments 32,797 33,519
Cash and cash equivalents 19,333 23,772
Restricted cash 12,456 1,876
Receivables, less allowance for doubtful accounts
of $4,315 and $7,257, respectively 4,990 3,370
Accrued rental income 19,322 16,028
Intangibles and other assets 89,533 99,020
---------------- -----------------
$ 1,559,114 $ 1,599,503
================ =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Credit facility $ 10,000 $ 80,000
Note payable 48,731 85,617
Mortgage warehouse facilities 430,169 463,765
Subordinated note payable 43,750 34,000
Bonds payable 441,065 278,484
Due to related parties 5,201 6,569
Other payables 35,505 24,857
---------------- -----------------
Total liabilities 1,014,421 973,292
---------------- -----------------
Minority interests, including redeemable partnership interest 18,511 18,473
---------------- -----------------
Commitments and Contingencies (Note 14)
Stockholders' equity:
Preferred stock, without par value. Authorized
and unissued 3,000,000 shares -- --
Excess shares, $0.01 par value per share.
Authorized and unissued 78,000,000 shares -- --
Common stock, $0.01 par value per share. Authorized
62,500,000 shares, issued 44,112,943 and 43,533,221
shares, respectively, outstanding 44,075,641 and
43,495,919 shares, respectively 441 435
Capital in excess of par value 798,154 789,926
Accumulated other comprehensive income 1,370 242
Accumulated distributions in excess of net earnings (273,783) (182,865)
---------------- -----------------
Total stockholders' equity 526,182 607,738
---------------- -----------------
$ 1,559,114 $ 1,599,503
================ =================
See accompanying notes to consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, except for per share data)
Year Ended December 31,
2001 2000 1999
-------------- -------------- -------------
Revenues:
Sale of real estate $ 105,645 $ -- $ --
Rental income from operating leases 82,339 69,717 49,755
Earned income from direct financing leases 15,145 16,064 12,153
Interest income from mortgage, equipment and other
notes receivables 42,855 21,589 7,203
Investment and interest income 5,845 8,205 6,683
Net decrease in value of mortgage loans
held for sale, net of related hedge (5,070) (6,855) (551)
Gain on sale of mortgage loans 4,120 -- --
Other income 13,936 7,913 258
--------------- --------------- --------------
264,815 116,633 75,501
--------------- --------------- --------------
Expenses:
Cost of real estate sold 97,587 -- --
General operating and administrative 30,388 24,946 8,820
Interest expense 68,542 47,612 10,205
Property expenses 2,919 2,598 1,316
State and other taxes 964 1,193 906
Depreciation and amortization 21,197 17,714 10,346
Transaction costs -- 10,315 6,799
Loss on investment in securities 122 5,348 --
Loss on termination of cash flow hedge accounting 8,060 -- --
Provision for loss on loans 28,200 1,804 1,037
Advisor acquisition expense -- -- 76,334
Impairment provisions 27,174 2,576 7,779
--------------- --------------
---------------
285,153 114,106 123,542
--------------- --------------- --------------
Earnings/(loss) before minority interest in (income)/
loss of consolidated joint ventures, equity in
earnings of unconsolidated joint venture and loss
on sales of assets (20,338) 2,527 (48,041)
Minority interest in (income)/loss of
consolidated joint ventures (242) 1,024 (41)
Equity in earnings of unconsolidated joint venture 1,106 97 97
Loss on sales of assets (1,137) (721) (1,852)
--------------- --------------- --------------
Earnings/(loss) before cumulative effect of accounting
change (20,611) 2,927 (49,837)
Cumulative effect of accounting change (3,841) -- --
--------------- --------------- --------------
Net earnings/(loss) $ (24,452) $ 2,927 $ (49,837)
=============== =============== ==============
Earnings/(loss) per share of common stock (basic and diluted):
Before cumulative effect of accounting change $ (0.47) $ 0.07 $ (1.26)
Cumulative effect of accounting change (0.09) -- --
--------------- --------------- --------------
Net earnings / (loss) $ (0.56) $ 0.07 $ (1.26)
=============== =============== ==============
Weighted average number of shares
of common stock outstanding 43,589,985 43,495,919 39,402,941
=============== =============== ==============
See accompanying notes to consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME/(LOSS)
Years Ended December 31, 2001, 2000 and 1999
(In Thousands)
Accumulated Accumulated
Common stock distributions other Compre-
----------------- Capital in in excess compre- hensive
Number Par excess of of net hensive Income/
of Shares value par value earnings income/(loss) Total (loss)
--------- ----- ---------- ------------- ------------- ------------ ----------
Balance at December 31, 1998 37,338 $ 373 $ 669,984 $ (9,547) -- $ 660,810 $ --
Subscriptions received for common
stock through public offering 11 -- 211 -- -- 211 --
Stock issuance costs -- -- (1,663) -- -- (1,663) --
Common stock issued
through merger 6,150 62 122,938 -- -- 123,000 --
Net loss -- -- -- (49,837) -- (49,837) (49,837)
Other comprehensive loss,
market revaluation on
available for sale securities -- -- -- -- (177) (177) (177)
----------
Total comprehensive loss -- -- -- -- -- -- $ (50,014)
==========
Retirement of common stock (3) -- (51) -- -- (51) --
Distributions declared and
paid ($1.52 per share) -- -- -- (60,079) -- (60,079) --
--------- ------ ---------- ------------- ------------- ------------
Balance at December 31, 1999 43,496 435 791,419 (119,463) (177) 672,214 --
Stock issuance costs -- -- (1,493) -- -- (1,493) --
Net earnings -- -- -- 2,927 -- 2,927 2,927
Other comprehensive income,
market revaluation on
available for sale securities -- -- -- -- 419 419 419
----------
Total comprehensive income -- -- -- -- -- -- $ 3,346
==========
Distributions declared and
paid ($1.52 per share) -- -- -- (66,329) -- (66,329)
--------- ------- ---------- ------------- ------------- ------------
Balance at December 31, 2000 43,496 $ 435 $ 789,926 $ (182,865) $ 242 $ 607,738
========= ======= ========== ============= ============= ============
See accompanying notes to consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME/(LOSS)
Years Ended December 31, 2001, 2000 and 1999
(In Thousands)
Accumulated Accumulated
Common stock distributions other Compre-
------------------ Capital in in excess compre- hensive
Number Par excess of of net hensive income/
of Shares value par value earnings income/(loss) Total (loss)
--------- ----- ---------- ------------- ------------- ---------- ----------
Balance at December 31, 2000 43,496 $ 435 $ 789,926 $ (182,865) $ 242 $ 607,738 $ --
Shares issued 580 6 9,722 -- -- 9,728 --
Stock issuance costs -- -- (1,494) -- -- (1,494) --
Net loss -- -- -- (24,452) -- (24,452) (24,452)
Other comprehensive income,
market revaluation on
available for sale securities -- -- -- -- 839 839 839
Cumulative effect adjustment
to recognize fair value of
cash flow hedges -- -- -- -- (5,172) (5,172) (5,172)
Reclassification of cash flow
hedge losses to statement of
operations -- -- -- -- 8,060 8,060 8,060
Current period adjustment to
recognize change in fair value
of cash flow hedges -- -- -- -- (2,599) (2,599) (2,599)
---------
Total comprehensive loss -- -- -- -- -- -- $ (23,324)
=========
Distributions declared and
paid ($1.52 per share) -- -- -- (66,466) -- (66,466)
--------- ----- ---------- ------------- ------------- ----------
Balance at December 31, 2001 44,076 $ 441 $ 798,154 $ (273,783) $ 1,370 $ 526,182
========= ===== ========== ============= ============= ==========
See accompanying notes to consolidated financial
statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
Year Ended December 31,
2001 2000 1999
------------ ----------- -----------
Cash Flows from Operating Activities:
Net earnings/(loss) $ (24,452) $ 2,927 $ (49,837)
------------ ----------- -----------
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization 21,197 17,714 10,346
Cumulative effect adjustment 3,841 -- --
Advisor acquisition expense -- -- 76,333
Impairment provisions 27,174 2,576 7,779
Provision for loss on loans 28,200 2,027 1,988
Loss on sales of assets 1,137 721 1,852
Gain on sale of mortgage loans (4,119) -- --
Increase in real estate held for sale (37,507) -- --
Loss on investment in securities 122 5,348 --
Net decrease in value of mortgage loans held for sale,
net of related hedge 5,070 6,855 551
Equity in earnings of joint venture, net of distributions (397) 7 28
Proceeds from sale of loans 105,975 -- 294,228
Proceeds from securitization transaction -- -- 257,812
Purchase of other investments -- -- (31,247)
Investment in mortgage loans held for sale (116,995) (205,584) (266,302)
Collection on mortgage loans held for sale 37,267 6,981 2,073
Changes in other operating assets and liabilities 1,689 4,466 1,657
------------ ----------- -----------
Total adjustments 72,654 (158,889) 357,098
------------ ----------- -----------
Net Cash Provided by (Used in) Operating Activities 48,202 (155,962) 307,261
------------ ----------- -----------
Cash Flows from Investing Activities:
Additions to real estate investment properties (26,052) (160,901) (286,411)
Investment in direct financing leases --- (15,369) (63,664)
Proceeds from sale of assets 12,659 15,869 7,555
Proceeds from sale or maturities of securities 982 7,721 ---
Investment in mortgage, equipment and other notes receivable (11,458) (11,131) (31,005)
Collection on mortgage, equipment and other notes receivable 9,325 8,335 3,894
Investment in joint venture (10) --- (187)
Purchase of other investments --- (2,832) ---
Redemption of certificates of deposit --- -- 2,000
Increase in restricted cash (10,580) (1,876) ---
Increase in intangibles and other assets --- (378) (1,862)
------------ --------------- -----------
Net cash used in investing activities