Filed On 7/26/96 · SEC File 33-78790 · Accession Number 910650-96-11
As Of Filer Filing On/For/As Docs:Pgs Issuer Agent
7/26/96 CNL Restaurant Properties Inc POS AM 3:402 910650
Document/Exhibit Description Pages Size
1: POS AM Post-Effective Amendment 378± 1,950K
2: EX-10.2 Material Contract 23± 118K
3: EX-23.8 Consent of Experts or Counsel 1 5K
Registration No. 33-78790
As filed with the Securities and Exchange Commission on July 26, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. SIX
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
CNL AMERICAN PROPERTIES FUND, INC.
(Exact Name of Registrant as Specified in Charter)
400 East South Street, Suite 500
Orlando, Florida 32801
Telephone: (407) 422-1574
(Address of principal executive offices)
COPIES TO:
Thomas H. McCormick, ESQUIRE
EDMUND D. GRAFF, ESQUIRE
Shaw, Pittman, Potts & Trowbridge
2300 N Street, N.W.
Washington, D.C. 20037
CNL American Porperties Fund, Inc.
Supplement No. 6, dated July 26, 1996
to the Prospectus, dated April 26, 1996
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated April 26, 1996. This Supplement replaces all prior Supplements
to the Prospectus. Capitalized terms used in this Supplement have the same
meaning as in the Prospectus unless otherwise stated herein.
Information as to proposed properties for which the Company has received
initial commitments and as to the number and types of Properties acquired by the
Company is presented as of July 16, 1996, and all references to commitments or
Property acquisitions should be read in that context. Proposed properties for
which the Company receives initial commitments, as well as property acquisitions
that occur after July 16, 1996, will be reported in a subsequent Supplement.
THE OFFERING
As of July 16, 1996, the Company had received aggregate subscription
proceeds of $80,598,079 (8,059,808 Shares) from 4,663 stockholders, including
$243,167 (24,317 Shares) issued pursuant to the Reinvestment Plan. As of July
16, 1996, the Company had invested or committed for investment approximately
$66,000,000 of such proceeds in 72 Properties (including one Property through a
joint venture arrangement which consists of land and building, five Properties
which consist of building only, 33 Properties which consist of land only and 33
Properties which consist of land and building), in providing mortgage financing
to the tenants of the 33 Properties consisting of land only and to pay
Acquisition Fees and Acquisition Expenses, leaving approximately $4,200,000 in
offering proceeds available for investment in Properties and Mortgage Loans. As
of July 16, 1996, the Company had incurred $3,626,914 in Acquisition Fees to the
Advisor.
BUSINESS
PROPERTY ACQUISITIONS
Between April 10, 1996 and July 16, 1996, the Company acquired 24
Properties, including two Properties consisting of building only, 12 Properties
consisting of land and building and ten Properties consisting of land only. The
Properties are one TGI Friday's Property (in Hamden, Connecticut), three Wendy's
Properties (one in each of Knoxville and Sevierville, Tennessee, and Camarillo,
California), one Golden Corral Property (in Port Richey, Florida), two Denny's
Properties (one in each of Hillsboro and McKinney, Texas), four Boston Market
Properties (one in each of Ellisville, Missouri; Golden Valley, Minnesota;
Corvallis, Oregon; and Rockwall, Texas), two Jack in the Box Properties (in
Humble and Houston, Texas), one Arby's (in Kendallville, Indiana) and ten Pizza
Hut Properties (one in each of Beaver, Bluefield, Huntington, Hurricane, Milton,
Ronceverte, Beckley, Belle and Cross Lanes, West Virginia, and Marietta, Ohio)
(hereinafter referred to as the "Ten Pizza Hut Properties"). For information
regarding the 48 Properties acquired by the Company prior to April 10, 1996, see
the Prospectus dated April 26, 1996.
The Denny's Property in McKinney, Texas, was acquired from an Affiliate of
the Company. The Affiliate had purchased and temporarily held title to the
Property in order to facilitate the acquisition of the Property by the Company.
The Property was acquired by the Company for a purchase price of $977,256 from
an Affiliate of the Company. The Property was acquired at a cost equal to the
cost of the Property to the Affiliate (including carrying costs) due to the fact
that these amounts were less than the Property's appraised value.
In connection with the purchase of the TGI Friday's and the Wendy's
Properties in Hamden, Connecticut, and Sevierville, Tennessee, respectively,
which are building only, the Company, as lessor, entered into long-term lease
agreements with unaffiliated lessees. The general terms of the lease agreements
are described in the section of the Prospectus entitled "Business - Description
of Property Leases." In connection with the purchase of these Properties, which
a r e to be constructed, the Company has entered into development and
indemnification and put agreements with the lessees. The general terms of these
agreements are described in the section of the Prospectus entitled "Business -
Site Selection and Acquisition of Properties - Construction and Renovation." In
connection with these acquisitions, the Company has also entered into tri-party
agreements with the lessees and the owners of the land. The tri-party
agreements provide that the ground lessees are responsible for all obligations
under the ground leases and provide certain rights to the Company relating to
the maintenance of its interests in the buildings in the event of a default by
the lessees under the terms of the ground leases.
In connection with the purchase of the Wendy's Properties in Knoxville,
Tennessee, and Camarillo, California, the Golden Corral Property, the Denny's
Properties, the Boston Market Properties, the Jack in the Box Properties and the
Arby's Property, which are land and building, the Company, as lessor entered
into long-term lease agreements with unaffiliated lessees. The general terms of
the lease agreements are described in the section of the Prospectus entitled
"Business - Description of Property Leases." For the Properties that are to be
constructed, the Company has entered into development and indemnification and
put agreements with the lessees. The general terms of these agreements are
described in the section of the Prospectus entitled "Business - Site Selection
and Acquisition of Properties - Construction and Renovation."
In connection with the Ten Pizza Hut Properties, which are land only, the
Company acquired the land and is leasing these ten parcels to the lessee, Castle
Hill Holdings VI, L.L.C. ("Castle Hill"), pursuant to a master lease agreement
(the "Master Lease Agreement"). Castle Hill has subleased the Ten Pizza Hut
Properties to one of its affiliates, Midland Food Services L.L.C., which is the
operator of the restaurants. The general terms of the Master Lease Agreement
are similar to those described in the section of the Prospectus entitled
"Business - Description of Property Leases." If the lessee does not exercise
its option to purchase the Properties upon termination of the Master Lease
Agreement, the sublessee and lessee will surrender possession of the Properties
to the Company, together with any improvements on such Properties. The lessee
owns the buildings located on the Ten Pizza Hut Properties. In connection with
the acquisition of the Ten Pizza Hut Properties, the Company provided mortgage
financing of $3,888,000 to the lessee pursuant to a Mortgage Loan evidenced by a
master mortgage note (the "Master Mortgage Note") which is collateralized by the
building improvements on the Ten Pizza Hut Properties. The Master Mortgage Note
bears interest at a rate of 10.75% per annum and principal and interest are due
in equal monthly installments over 20 years starting July 1, 1996. The Master
Mortgage Note equals approximately 85 percent of the appraised value of the
related buildings. Management believes that, due to the fact that the Company
owns the underlying land relating to the Ten Pizza Hut Properties and due to
other underwriting criteria, the Company has sufficient collateral for the
Master Mortgage Note.
As of July 16, 1996, the Company had initial commitments to acquire 14
properties, including two properties which consist of building only and 12
properties which consist of land and building. The acquisition of each of these
properties is subject to the fulfillment of certain conditions, including, but
not limited to, a satisfactory environmental survey and property appraisal.
There can be no assurance that any or all of the conditions will be satisfied
or, if satisfied, that one or more of these properties will be acquired by the
Company. If acquired, the leases of all 14 of these properties are expected to
be entered into on substantially the same terms described in the Prospectus in
the section entitled "Business - Description of Property Leases," except as
described below.
In connection with the Golden Corral and the Wendy's properties in
Brooklyn, Ohio, and San Diego, California, respectively, the Company anticipates
owning only the buildings and not the underlying land. However, the Company
anticipates entering into tri-party agreements with the lessees and the
landlords of the land in order to provide the Company with certain rights with
respect to the land on which the buildings are located.
Set forth below are summarized terms expected to apply to the leases for
each of the properties. More detailed information relating to a property and
its related lease will be provided at such time, if any, as the property is
acquired.
· Enlarge/Download Table
Lease Term and
Property Renewal Options Minimum Annual Rent Percentage Rent Option to Purchase
Golden Corral (2) 14 years; no renewal 14.214% of the for each lease year, upon the expiration
Brooklyn, OH options Company's total cost (i) 4% of annual of the lease (4)
Existing restaurant to purchase the gross sales minus
building; increases by (ii) the minimum
10% after the fifth annual rent for such
lease year and after lease year (3)
every five years
thereafter during the
lease term
Applebee's 20 years; two five-year 11% of Total Cost (1); for each lease year, at any time after
Montclair, CA renewal options increases by 10% after (i) 5% of annual the fifth lease
Restaurant to be the fifth lease year gross sales minus year (5)
constructed and after every five (ii) the minimum
years thereafter annual rent for such
during the lease term lease year
Boston Market 15 years; five five-year 10.38% of Total Cost for each lease year at any time after
Richmond, VA renewal options (1); increases by 10% after the fifth lease the fifth lease
Existing restaurant after the fifth lease year, (i) 5% of year
year and after every annual gross sales
five years thereafter minus (ii) the
during the lease term minimum annual rent
for such lease year
Ryan's Family Steak 20 years; two five-year 10.875% of Total Cost for each lease year, at any time after
House renewal options (1); increases by 12% (i) 5% of annual the tenth lease
Spring Hill, FL after the fifth lease gross sales minus year
Restaurant to be year and after every (ii) the minimum
constructed five years thereafter annual rent for such
during the lease term lease year
Boston Market 15 years; five five-year 10.38% of Total Cost for each lease year at any time after
Atlanta, GA renewal options (1); increases by 10% after the fifth lease the fifth lease
Restaurant to be after the fifth lease year, (i) 5% of year
constructed year and after every annual gross sales
five years thereafter minus (ii) the
during the lease term minimum annual rent
for such lease year
Boston Market 15 years; five five-year 10.38% of Total Cost for each lease year at any time after
Merced, CA renewal options (1); increases by 10% after the fifth lease the fifth lease
Restaurant to be after the fifth lease year (i) 5% of annual year
constructed year and after every gross sales minus
five years thereafter (ii) the minimum
during the lease term annual rent for such
lease year
Jack in the Box 18 years; four five-year 10.75% of Total Cost for each lease year, at any time after
Houston, TX (#2) renewal options (1); increases by 8% (i) 5% of annual the seventh lease
Restaurant to be after the fifth lease gross sales minus year
constructed year and by 10% after (ii) the minimum
every five years annual rent for such
thereafter during the lease year
lease term
Jack in the Box 18 years; four five-year 10.75% of Total Cost for each lease year, at any time after
Humble, TX (#2) renewal options (1); increases by 8% (i) 5% of annual the seventh lease
Restaurant to be after the fifth lease gross sales minus year
constructed year and by 10% after (ii) the minimum
every five years annual rent for such
thereafter during the lease year
lease term
Shoney's 20 years; two five-year 11.75% of Total Cost for each lease year, at any time after
Fort Myers, FL renewal options (1); increases by 10% (i) 6% of annual the seventh lease
Restaurant to be after the fifth lease gross sales minus year
constructed year and after every (ii) the minimum
five years thereafter annual rent for such
during the lease term lease year
Wendy's 20 years; two five-year 10.25% of Total Cost for each lease year, at any time after
Madisonville, TN renewal options (1); increases to (i) 6% of annual the seventh lease
Restaurant to be 10.76% of Total Cost gross sales minus year
constructed during the fourth (ii) the minimum
through sixth lease annual rent for such
years, 11.95% of Total lease year
Cost during the
seventh through tenth
lease years, 12.70% of
Total Cost during the
eleventh through
fifteenth lease years,
and 13.97% of Total
Cost during the
sixteenth through
twentieth lease years
Wendy's (2) 15 years; three five- 13.26% of Total Cost for each lease year, upon the expiration
San Diego, CA year renewal options (1); increases by 8% (i) 6% of annual of the initial term
Restaurant to be after the fifth lease gross sales times the of the lease and
constructed year and after every Building Overage during any renewal
five years thereafter Multiplier (6) minus period thereafter
during the lease term (ii) the minimum (4)
annual rent for such
lease year
Burger King 20 years; two five-year 11% of Total Cost (1) for each lease year, None
Chattanooga, TN renewal options (i) 8.5% of annual
Restaurant to be gross sales minus
constructed (ii) the minimum
annual rent for such
lease year
Burger King 20 years; two five-year 11% of Total Cost (1) for each lease year, None
Chicago, IL renewal options (i) 8.5% of annual
Restaurant to be gross sales minus
constructed (ii) the minimum
annual rent for such
lease year
Boston Market 15 years; five five-year 10.38% of Total Cost for each lease year at any time after
Upland, CA renewal options (1); increases by 10% after the fifth lease the fifth lease
Restaurant to be after the fifth lease year (i) 5% of annual year
constructed year and after every gross sales minus
five years thereafter (ii) the minimum
during the lease term annual rent for such
lease year
<FN>
FOOTNOTES:
(1) The "Total Cost" is equal to the sum of (i) the purchase price of the
property, (ii) closing costs, and (iii) actual development costs incurred
under the development agreement.
(2) The Company anticipates owning the building only for this property. The
C o mpany will not own the underlying land; although, the Company
anticipates entering into a tri-party agreement with the lessee and the
landlord of the land in order to provide the Company with certain rights
with respect to the land on which the building is located.
(3) Percentage rent shall be calculated on a calendar year basis (January 1 to
December 31).
(4) In the event that the aggregate amount of percentage rent paid by the
lessee to the Company over the term of the lease shall equal or exceed 15%
of the purchase price paid by the Company, then the option purchase price
shall equal one dollar. In the event that the aggregate percentage rent
paid shall be less than 15% of the purchase price paid by the Company,
then the option purchase price shall equal the difference of 15% of the
purchase price, less the aggregate percentage rent paid to the landlord by
the lessee under the lease.
(5) The lessee also has the option to purchase the property after the
seller/lessee operates at least five Applebee's restaurants owned by the
Company.
(6) The "Building Overage Multiplier" is calculated as follows:
B u ilding Overage Multiplier = (purchase price of the
building)/[purchase price of the building + (annual rent due under
the land lease/land lease cap rate)]
The following table sets forth the location of the 24 Properties acquired
by the Company, including the Ten Pizza Hut Properties in which the Company
acquired the land only, 12 Properties in which the Company acquired the land and
building and the two Properties in which the Company acquired the building only,
from April 10, 1996 through July 16, 1996, a description of the competition, and
a summary of the principal terms of the acquisition and lease of each Property.
· Enlarge/Download Table
PROPERTY ACQUISITIONS
From April 10, 1996 through July 16, 1996
Lease
Date Expira- Minimum Option
Property Location and Purchase Acquired tion and Annual Rent (2) Percentage To Purchase
Competition Price Renewal Rent
(1) Options
TGI FRIDAY'S (3) 04/24/96 09/2008; no 15.043% of Total Cost None at any time
(the "Hamden Property") (3) renewal (4); increases by 10% after the
Restaurant to be constructed options after the fifth lease third lease
year and after every year (5)
The Hamden Property is located five years thereafter
at the southeast quadrant of during the lease term
Skiff Street and Route 10 in
Hamden, New Haven County,
Connecticut, in an area of
mixed retail, commercial, and
residential development.
Other fast-food and family-
style restaurants located in
proximity to the Hamden
Property include a China
Buffet, a Chili's, a Red
Lobster, a McDonald's, a
Wendy's, and several local
restaurants.
WENDY'S (14) $322,292 05/08/96 05/2016; two 10.25% of Total Cost; for each at any
(the "Knoxville Property") (excluding five-year increases to 10.76% of lease year, time
Restaurant to be constructed closing renewal Total Cost during the (i) 6% of after the
and options fourth through sixth annual gross seventh
The Knoxville Property is development lease years, increases sales minus lease
located on the north side of costs) to 11.95% of Total (ii) the year
Western Avenue in Knoxville, (3) Cost during the minimum
Knox County, Tennessee, in an seventh through tenth annual rent
area of mixed retail, lease years, increases for such
commercial, and residential to 12.70% of Total lease year
development. Other fast-food Cost during the
and family-style restaurants eleventh through
located in proximity to the fifteenth lease years
Knoxville Property include a and increases to
KFC, a McDonald's, a Taco 13.97% of Total Cost
Bell, a Kenny Rogers Roasters, during the sixteenth
a Long John Silver's, a through twentieth
Krystal, a Hardee's, a lease years (4)
Shoney's, and several local
restaurants.
GOLDEN CORRAL $586,687 05/08/96 10/2011; two 11.25% of Total Cost for each during the
(the "Port Richey Property") (excluding five-year (4); increases by 8% lease year, eighth and
Restaurant to be constructed closing renewal after the fifth lease commencing ninth lease
and options year and after every in the years only
The Port Richey Property is development five years thereafter second lease (7)
located on the southeast costs) during the lease term year (i) 5%
quadrant of the intersection (3) of annual
of U.S. 19 and Stone Road, gross sales
Port Richey, Pasco County, minus (ii)
Florida, in an area of mixed the minimum
retail, commercial, and annual rent
residential development. for such
Other fast-food and family- lease year
style restaurants located in (6)
proximity to the Port Richey
Property include a Boston
Market, a Morrison's, a Burger
King, a Checkers, a Bob Evans,
a Wendy's, a KFC, a Chili's,
and several local restaurants.
TEN PIZZA HUT PROPERTIES - $1,512,000 05/17/96 05/2016; two $166,320; increases by None at any
Land only - (8)(10) located in ten-year 10% after the fifth time
Beaver, West Virginia (the (excluding renewal and tenth lease years after the
"Beaver Property"), Bluefield, closing options and 12% after the seventh
West Virginia (the "Bluefield costs) fifteenth lease year lease
Property"), Huntington, West (9) year
Virginia (the"Hunting- ton
Property"), Hurricane, West
Virginia (the "Hurricane
Property"), Milton, West
Virginia (the "Milton
Property"), Ronceverte, West
Virginia (the "Ronceverte
Property"), Beckley, West
Virginia (the "Beckley
Property"), Belle, West
Virginia (the "Belle
Property"), Cross Lanes, West
Virginia (the "Cross Lanes
Property") and Marietta, Ohio
(the "Marietta Property").
The Beaver Property is located
on the north side of U.S.
Route 19 in Beaver, Raleigh
County, West Virginia, in an
area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Beaver Property include a
McDonald's, a Hardee's, a
Wendy's, and a Long John
Silver's.
The Bluefield Property is
located on the north side of
Bluefield Avenue in Bluefield,
Mercer County, West Virginia,
in an area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Bluefield Property include a
McDonald's, a Hardee's, a
Captain D's, and a Shoney's.
(11)
The Huntington Property is
located on the south side of
Madison Avenue in Huntington,
Cabell County, West Virginia,
in an area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Huntington Property include an
Arby's, three Burger Kings, a
Chi Chi's, two Dairy Queens, a
Hardee's, a KFC, a Long John
Silver's, two McDonald's, a
Papa John's, a Rax, a Red
Lobster, a Steak & Ale, a Taco
Bell, and several local
restaurants.
The Hurricane Property is
located on the southwest side
of Hurricane Creek Road in
Hurricane, Putnam County, West
Virginia, in an area of mixed
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in
proximity to the Hurricane
Property include a McDonald's,
a Subway Sandwich Shop, and
several local restaurants.
(11)
The Milton Property is located
on the northeast corner of
East Main Street and Brickyard
Avenue in Milton, Cabell
County, West Virginia, in an
area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Milton Property include a
McDonald's, a Subway Sandwich
Shop, a Dairy Queen, and
several local restaurants.
The Ronceverte Property is
located on the north side of
Seneca Trail in Ronceverte,
Greenbrier County, West
Virginia, in an area of mixed
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in
proximity to the Ronceverte
Property include a KFC, a Long
John Silver's, a Subway
Sandwich Shop, and several
local restaurants.
The Beckley Property is
located on the north side of
Harper Road in Beckley,
Raleigh County, West Virginia,
in an area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Beckley Property include a
McDonald's, a Long John
Silver's, a Wendy's, a
Shoney's, a Bob Evans, a
Subway Sandwich Shop, a
Hardee's, and several local
restaurants.
The Belle Property is located
on the southwest side of
Dupont Avenue in Belle,
Kanawha County, West Virginia,
in an area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Belle Property include
several local restaurants.
The Cross Lanes Property is
located on the northwest side
of Goff Mountain Road in Cross
Lanes, Kanawha County, West
Virginia, in an area of mixed
retail, commercial, and
residential development.
Other fast-food and family-
style restaurants located in
proximity to the Cross Lanes
Property include a Hardee's, a
Papa John's, a Captain D's, a
McDonald's, a Taco Bell, a Bob
Evans, a Wendy's, a Shoney's a
KFC, and several local
restaurants.
The Marietta Property is
located on the east side of
Acme Street in Marietta,
Washington County, Ohio, in an
area of mixed retail,
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Marietta Property include a
Burger King, a Captain D's, a
Dairy Queen, an Elby's Big
Boy, a KFC, a Long John
Silver's, a McDonald's, a Papa
John's, a Subway Sandwich
Shop, a Taco Bell, a Wendy's,
and several local restaurants.
(11)
DENNY'S $367,672 06/05/96 06/2016; two 10.625% of Total Cost for each during
(the "Hillsboro Property") (excluding five-year (4); increases by 11% lease year, the
Restaurant to be constructed closing renewal after the fifth lease (i) 5% of eighth,
and options year and after every annual gross tenth,
The Hillsboro Property is development five years thereafter sales minus and
located on the south side of costs) during the lease term (ii) the twelfth
Highway 22 in Hillsboro, Hill (3) minimum lease
County, Texas, in an area of annual rent years
mixed retail, commercial, and for such only
residential development. lease year
Other fast-food and family-
style restaurants located in
proximity to the Hillsboro
Property include a McDonald's,
an Arby's, a Whataburger, a
KFC, a Golden Corral, and a
Grandy's.
DENNY'S $977,256 06/05/96 12/2015; two $104,013; increases by for each during the
(the "McKinney Property") (excluding five-year 11% after the fifth lease year, eighth,
Existing restaurant closing renewal lease year and after (i) 5% of tenth, and
costs) options every five years annual gross twelfth
The McKinney Property is thereafter during the sales minus lease years
located at the southwest lease term (ii) the only
quadrant of the intersection minimum
of White Avenue and U.S. 75 in annual rent
McKinney, Collin County, for such
Texas, in an area of mixed lease year
retail, commercial, and (6)
residential development.
Other fast-food and family-
style restaurants located in
proximity to the McKinney
Property include an
Applebee's, an Arby's, a
Boston Market, a Jack in the
Box, a Chili's, a Dairy Queen,
an IHOP, a Golden Corral, a
Pizza Hut, and several local
restaurants.
WENDY'S (14) $586,143 06/05/96 06/2016; two 10.25% of Total Cost; for each at any
(the "Camarillo Property") (excluding five-year increases to 10.76% of lease year, time
Restaurant to be constructed closing renewal Total Cost during the (i) 6% of after the
and options fourth through sixth annual gross seventh
The Camarillo Property is development lease years, increases sales minus lease
located at the southwest costs) to 11.95% of Total (ii) the year
quadrant of Las Posas Road and (3) Cost during the minimum
the Ventura Freeway in seventh through tenth annual rent
Camarillo, Ventura County, lease years, increases for such
California, in an area of to 12.70% of Total lease year
mixed retail, commercial, and Cost during the
residential development. eleventh through
Other fast-food and family- fifteenth lease years
style restaurants located in and increases to
proximity to the Camarillo 13.97% of Total Cost
Property include an during the sixteenth
Applebee's, a Del Taco, a through twentieth
McDonald's, and several local lease years (4)
restaurants.
WENDY'S (14) $66,153 06/05/96 05/2015; two 12.204% of Total Cost for each upon the
(the "Sevierville Property") (excluding (3) five-year (4); increases by 8% lease year, expiration
Restaurant to be constructed closing renewal after the fifth lease (i) 6% of of the
and options year and after every annual gross initial term
The Sevierville Property is development followed by five years thereafter sales times of the lease
located on the west side of costs) one fifteen- during the lease term the Building and during
Highway 441 in Sevierville, (3) year renewal Overage any renewal
Sevier County, Tennessee, in option Multiplier period
an area of mixed retail, (12) minus thereafter
commercial, and residential (ii) the (13)
development. Other fast-food minimum
and family-style restaurants annual rent
located in proximity to the for such
Sevierville Property include a lease year
Damon's Ribs, an IHOP, a Ruby
Tuesday's, and several local
restaurants.
BOSTON MARKET (15) $408,879 06/18/96 06/2011; 10.40% of Total Cost for each at any
(the "Ellisville Property") (excluding five five- (4); increases by 10% lease year time
Restaurant to be constructed closing year renewal after the fifth lease after the after the
and options year and after every fifth lease fifth
The Ellisville Property is development five years thereafter year, (i) 5% lease
located on the north side of costs) during the lease term of annual year
Manchester Road, in (3) gross sales
Ellisville, St. Louis County, minus (ii)
Missouri, in an area of mixed the minimum
retail, commercial, and annual rent
residential development. for such
Other fast-food and family- lease year
style restaurants located in
proximity to the Ellisville
Property include a KFC, a
Burger King, a Ponderosa, a
Taco Bell, a McDonald's, a
Long John Silver's, a Pizza
Hut, a Hardee's, a Steak and
Shake, a Red Lobster, and
several local restaurants.
BOSTON MARKET (15) $603,386 06/19/96 06/2011; 10.40% of Total Cost for each at any time
(the "Golden Valley Property") (excluding five five- (4); increases by 10% lease year after the
Restaurant to be constructed closing year renewal after the fifth lease after the fifth lease
and options year and after every fifth lease year
The Golden Valley Property is development five years thereafter year, (i) 5%
located on the north side of costs) during the lease term of annual
Highway 55 at Rhode Island (3) gross sales
Avenue in Golden Valley, minus (ii)
Hennepin County, Minnesota, in the minimum
an area of mixed retail, annual rent
commercial, and residential for such
development. Other fast-food lease year
and family-style restaurants
located in proximity to the
Golden Valley Property include
a McDonald's, a Perkins, and
several local restaurants.
JACK IN THE BOX (16) $396,646 06/19/96 06/2014; 10.75% of Total Cost for each at any
(the "Humble #1 Property") (excluding four five- (4); increases by 8% lease year, time
Restaurant to be constructed closing year renewal after the fifth lease (i) 5% of after the
and options year and by 10% after annual gross seventh
The Humble #1 Property is development every five years sales minus lease
located at the north side of costs) thereafter during the (ii) the year
FM 1960 East in Humble, Harris (3) lease term minimum
County, Texas, in an area of annual rent
mixed retail, commercial, and for such
residential development. lease year
Other fast-food and family- (6)
style restaurants located in
proximity to the Humble
Property include a KFC, a
McDonald's, a Taco Bell, a
Wendy's, and a Burger King.
BOSTON MARKET $350,358 07/09/96 07/2011; 10.38% of Total Cost for each at any
(the "Corvallis Property") (excluding five five- (4); increases by 10% lease year time
Restaurant to be constructed closing year renewal after the fifth lease after the after the
and options year and after every fifth lease fifth
development five years thereafter year, (i) 5% lease
The Corvallis Property is costs) during the lease term of annual year
located at the southeast (3) gross sales
quadrant of the intersection minus (ii)
of Highway 99 and Northeast the minimum
Circle Boulevard in Corvallis, annual rent
Benton County, Oregon, in an for such
area of mixed retail, lease year
commercial, and residential
development. Other fast-food
and family-style restaurants
located in proximity to the
Corvallis Property include a
KFC, a Wendy's, a Subway
Sandwich Shop, a Sizzler, a
McDonald's, a Burger King, a
Taco Bell, and several local
restaurants.
JACK IN THE BOX (16) $343,160 07/09/96 07/2014; 10.75% of Total Cost for each at any
(the "Houston #1 Property") (excluding four five- (4); increases by 8% lease year, time
Restaurant to be constructed closing year renewal after the fifth lease (i) 5% of after the
and options year and by 10% after annual gross seventh
The Houston #1 Property is development every five years sales minus lease
located on the east side of costs) thereafter during the (ii) the year
Veterans Memorial Drive with (3) lease term minimum
an access easement on Beltway annual rent
8 in Houston, Harris County, for such
Texas, in an area of mixed lease year
retail, commercial, and (6)
residential development.
Other fast-food and family-
style restaurants located in
proximity to the Houston #1
Property include a
Whataburger, an Arby's, a KFC,
a Burger King, and several
local restaurants.
ARBY'S $739,628 07/10/96 07/2016; two $75,812; increases by for each during
(the "Kendallville Property") (excluding five-year 4.14% after the third lease year, the
Existing restaurant g closing renewal lease year and after (i) 4% of seventh
costs) options every three years annual gross and tenth
The Kendallville Property is thereafter during the sales minus lease
located on the north side of lease term (ii) the years
West North Street in minimum only
Kendallville, Noble County, annual rent
Indiana, in an area of mixed for such
retail, commercial and lease year
residential development.
Other fast-food and family-
style restaurants located in
proximity to the Kendallville
Property include a KFC, a
McDonald's, a Wendy's, a Pizza
Hut, a Subway Sandwich Shop,
and several local restaurants
BOSTON MARKET $499,820 07/15/96 07/2011; 10.38% of Total Cost for each at any
(the "Rockwall Property") (excluding five five- (4); increases by 10% lease year time
Restaurant to be constructed closing year renewal after the fifth lease after the after the
and options year and after every fifth lease fifth
The Rockwall Property is development five years thereafter year, (i) 4% lease
located on the northeast costs) during the lease term of annual year
corner of FM 740 and the to be (3) gross sales
constructed Steger Town Drive minus (ii)
in Rockwall, Rockwall County, the minimum
Texas, in an area of mixed annual rent
retail, commercial, and for such
residential development. lease year
Other fast-food and family-
style restaurants located in
proximity to the Rockwall
Property include an Arby's, a
Jack in the Box, a Dairy
Queen, a KFC, a McDonald's, a
Pizza Hut, a Sonic Drive-In, a
Whataburger, a Wendy's, a
Chili's, a Taco Bell, and
several local restaurants.
<FN>
FOOTNOTES:
(1) The estimated federal income tax basis of the depreciable portion (the
building portion) of each of the Properties acquired, and for construction
Properties, once the buildings are constructed, is set forth below:
Property Federal Tax Basis Property Federal Tax Basis
Hamden Property $1,195,000 Ellisville Property 635,000
Knoxville Property 510,000 Golden Valley Property 529,000
Port Richey Property 1,208,000 Humble #1 Property 610,000
Hillsboro Property 742,000 Corvallis Property 624,000
McKinney Property 627,000 Houston #1 Property 620,000
Camarillo Property 672,000 Kendallville Property 304,000
Sevierville Property 519,000 Rockwall Property 422,000
(2) Minimum annual rent for each of the Properties became payable on the
effective date of the lease, except as indicated below. For the Hamden
and Port Richey Properties, minimum annual rent will become due and
payable on the earlier of (i) the date the certificate of occupancy for
the restaurant is issued, (ii) the date the restaurant opens for business
to the public or (iii) 150 days after execution of the lease. For the
Knoxville, Camarillo and Sevierville Properties, minimum annual rent will
become due and payable on (i) the date the certificate of occupancy for
the restaurant is issued, (ii) the date the restaurant opens for business
to the public, (iii) 120 days after execution of the lease or (iv) the
date the tenant receives from the landlord its final funding of the
construction costs. For the Hillsboro Property, minimum annual rent will
become due and payable on the earlier of (i) the date the certificate of
occupancy for the restaurant is issued, (ii) the date the restaurant opens
for business to the public or (iii) 180 days after execution of the lease.
For the Corvallis, Ellisville, Golden Valley and Rockwall Properties,
minimum annual rent will become due and payable on the earlier of (i) 180
days after execution of the lease or (ii) the date the tenant receives
from the landlord its final funding of the construction costs. For the
Humble #1 and Houston #1 Properties, minimum annual rent will become due
and payable on the earlier of (i) the date the restaurant opens for
business to the public or (ii) 180 days after the execution of the lease.
During the period commencing with the effective date of the lease to the
date minimum annual rent becomes payable for the Knoxville, Camarillo and
Sevierville Properties, as described above, the tenant shall pay monthly
"interim rent" equal to 10.25% per annum of the amount funded by the
C o mpany in connection with the purchase and construction of the
Properties. During the period commencing with the effective date of the
lease to the date minimum rent becomes payable for the Corvallis and
Rockwall Properties, as described above, the tenant shall pay monthly
"interim rent" equal to 10.38% per annum of the amount funded by the
C o mpany in connection with the purchase and construction of the
Properties. During the period commencing with the effective date of the
lease to the date minimum rent becomes payable for the Ellisville and
Golden Valley Properties, as described above, the tenant shall pay monthly
"interim rent" equal to 10.40% per annum of the amount funded by the
C o mpany in connection with the purchase and construction of the
Properties. During the period commencing with the effective date of the
lease to the date minimum annual rent becomes payable for the Humble #1
and Houston #1 Properties, as described above, the tenant shall pay
monthly "interim rent" equal to 10.75% per annum of the amount funded by
the Company in connection with the purchase and construction of the
Properties.
(3) The Company accepted an assignment of an interest in the ground lease
relating to the Hamden and Sevierville Properties effective April 24, 1996
and June 5, 1996, respectively, in consideration of its funding of certain
preliminary development costs and its agreement to fund remaining
development costs not in excess of the amounts specified below. The
development agreements for the Properties which are to be constructed
provide that construction must be completed no later than the dates set
forth below. The maximum cost to the Company, (including the purchase
price of the land (if applicable), development costs (if applicable), and
closing and acquisition costs) is not expected to, but may, exceed the
amounts set forth below:
Property Estimated Maximum Cost Estimated Final Completion Date
Hamden Property $1,200,972 September 21, 1996
Knoxville Property 830,966 September 5, 1996
Port Richey Property 1,675,000 October 5, 1996
Hillsboro Property 1,119,248 December 2, 1996
Camarillo Property 1,264,789 October 3, 1996
Sevierville Property 517,571 October 3, 1996
Ellisville Property 1,026,746 December 15, 1996
Golden Valley Property 1,128,899 December 16, 1996
Humble #1 Property 949,413 December 16, 1996
Corvallis Property 952,684 January 5, 1997
Houston #1 Property 926,397 January 5, 1997
Rockwall Property 795,087 January 11, 1997
(4) The "Total Cost" is equal to the sum of (i) the purchase price of the
Property, (ii) closing costs, and (iii) actual development costs incurred
under the development agreement, and in the case of the Hamden, Port
Richey and Hillsboro Properties, (iv) "construction financing costs"
during the development period.
(5) If the lessee exercises its purchase option after the third lease year and
before the eleventh lease year, the purchase price to be paid by the
lessee shall be equal to the net present value of the monthly lease rental
payments for the remainder of the lease term (including previous and
scheduled rent increases) discounted at the lesser of (i) 11% per annum,
or (ii) the then-current annual yield on 7-year Treasury securities plus
4.5%, plus the full amount of any late fees, default interest, enforcement
costs or other sums otherwise due or payable by the lessee under the
lease. If the lessee exercises its option after the tenth lease year, the
purchase price to be paid by the lessee shall be equal to the net present
value of the monthly lease payments for the remainder of the lease term
(based, however, for purposes hereof on the initial monthly installment
amount of annual rental and not including previous and scheduled
increases) discounted at 11% per annum, plus the full amount of any late
fees, default interest, enforcement costs or other sums otherwise due or
payable by the lessee under the lease.
(6) Percentage rent shall be calculated on a calendar year basis (January 1 to
December 31).
(7) If the Property is not producing percentage rent and the lessee
determines, in good faith, that the restaurant has become uneconomic and
unsuitable the lessee may elect, during the first through seventh and
again during the tenth through 15th lease years:
(i) to purchase the Property for a purchase price, net of closing costs,
equal to the greater of (a) the then fair-market value of the Property as
determined by an independent appraisal, or (b) 100% of the Company's
o r iginal cost for the Property if the Company is successful in
effectuating the lessee's purchase through a tax-free ``like-kind''
exchange, or 120% of the Company's original cost for the Property if a
tax-free, ``like-kind'' exchange is not effectuated; or
(ii) to sublet the Property as described in the section of the Prospectus
entitled ``Description of Property Leases - Assignment and Sublease;'' or
(iii) to substitute the Property for another Golden Corral restaurant
property on terms similar to those described in the section of the
Prospectus entitled ``Description of Property Leases - Substitution of
Properties.''
(8) The lease relating to this Property is a land lease only. The Company
entered into a Mortgage Loan evidenced by a Master Mortgage Note for
$3,888,000 collateralized by building improvements. The Master Mortgage
Note bears interest at a rate of 10.75% per annum and principal and
interest will be collected in equal monthly installments over 20 years
beginning in July 1996.
(9) If the lessee exercises one or both of its renewal options, minimum annual
rent will increase by 12% after the expiration of the original lease term
and after five years thereafter during any subsequent lease term.
(10) The Company entered into a Master Lease Agreement for the Beaver,
Bluefield, Huntington, Hurricane, Milton, Ronceverte, Beckley, Belle,
Cross Lanes and Marietta Properties.
(11) The Company and the lessee entered into remediation and indemnity
agreements on May 17, 1996, with the seller of the land and an adjacent
site owner/operator (the "Indemnitors") due to Phase I and Phase II
environmental testing results indicating that there were action levels of
environmental contamination on the Bluefield, Hurricane and Marrieta
Properties relating to underground gasoline storage tanks from one
property adjacent to the Hurricane Property and past use of the other two
P r operties. Under the remediation and indemnity agreements, the
Indemnitors have agreed to notify all applicable federal, state, or local
government agencies or authorities of the environmental contamination, to
undertake all remediation work on these sites at no expense to the Company
or lessee, and to indemnify, defend and hold harmless the Company, the
lessee and investors from losses arising out of or related to any claim,
action, proceeding, lawsuit, notice of violation or demand by any
(i) governmental authority in connection with the presence of any
environmental contamination, (ii) failure of the Indemnitors to notify any
applicable governmental authorities, (iii) remediation work, and (iv)
claim, action, proceeding, lawsuit, or demand by third parties who are not
the successors in interest of the indemnified parties and are not
affiliated with the indemnified parties. If as to any of the affected
sites, the remediation work is not satisfactorily completed within two
years after the effective date, such that the Company is willing, in its
discretion, to remain the owner of a particular affected site, the Company
may "put" the particular affected site back to the seller, and the seller
will purchase the Company's ownership interest in the affected site.
(12) The "Building Overage Multiplier" is calculated as follows:
B u ilding Overage Multiplier = (purchase price of the
building)/[purchase price of the building + (annual rent due under
the land lease/land lease cap rate)]
(13) In the event that the aggregate amount of percentage rent paid by the
lessee to the Company over the term of the lease shall equal or exceed 15%
of the purchase price paid by the Company, then the option purchase price
shall equal one dollar. In the event that the aggregate percentage rent
paid shall be less than 15% of the purchase price paid by the Company,
then the option purchase price shall equal the difference of 15% of the
purchase price, less the aggregate percentage rent paid to the landlord by
the lessee under the lease.
(14) The lessee of the Knoxville, Camarillo, and Sevierville Properties is the
same unaffiliated lessee.
(15) The lessee of the Ellisville and Golden Valley Properties is the same
unaffiliated lessee.
(16) The lessee of the Humble #1 and Houston #1 Properties is the same
unaffiliated lessee.
BORROWING AND SECURED EQUIPMENT LEASES
Between April 10, 1996 and July 16, 1996, the Company obtained three
advances totaling $1,642,788 under its $15,000,000 Loan. The advances are fully
amortizing term loans repayable over six years and bear interest at a rate per
annum equal to 215 basis points above the Reserve Adjusted LIBOR Rate (as
defined in the Loan). The proceeds of the advances were used to acquire
Equipment for three restaurant properties at a cost of approximately $1,609,000
and to pay Secured Equipment Lease Servicing Fees of $32,175 to the Advisor. In
connection with the acquisition of the Equipment for one restaurant property,
the Company, as lessor, entered into a Secured Equipment Lease with an
unaffiliated lessee that leases the restaurant property from an Affiliate of the
Advisor. The following table sets forth a summary of the principal terms of the
acquisition and lease of the Equipment.
· Enlarge/Download Table
SECURED EQUIPMENT LEASES
From April 10, 1996 through July 16, 1996
Option
Description Purchase Price Date Acquired Lease Annual Rent (2) To Purchase
(1) Expiration
EQUIPMENT FOR GOLDEN $538,790 06/14/96 06/2003 $109,617 (3)
CORRAL RESTAURANT IN (excluding
MIDDLEBURG HEIGHTS, OHIO closing costs
(5) and Secured
(The "Middleburg Heights Equipment
Secured Equipment Lease") Lease
Servicing Fee)
EQUIPMENT FOR GOLDEN $560,411 07/02/96 07/2003 $113,994 (3)
CORRAL RESTAURANT IN (excluding
BROOKLYN, closing costs
OHIO (5) (The "Brooklyn and Secured
Secured Equipment Lease") Equipment
Lease
Servicing Fee)
EQUIPMENT FOR TGI $509,573 07/15/96 07/2001 $132,664 (4)
FRIDAY'S (excluding
RESTAURANT IN HAZLET, NEW closing costs
JERSEY and Secured
(The "Hazlet Secured Equipment
Equipment Lease") Lease
Servicing Fee)
<FN>
(1) The Secured Equipment Lease is expected to be treated as a loan secured by
personal property for federal income tax purposes.
(2) Rental payments due under the Secured Equipment Lease are payable monthly,
commencing on the effective date of the lease.
(3) At the end of the lease term, if no event of default has occurred under
the terms of the Secured Equipment Lease, the lessee will have the option
to purchase the Equipment for $1.
(4) Lessee may purchase the Equipment prior to the expiration of the Secured
Equipment Lease, at the then present value of the remaining rental
payments, discounted at a rate of ten percent per annum.
(5) The lessee of the Middleburg Heights and Brooklyn Secured Equipment Leases
is the same unaffiliated lessee.
MANAGEMENT COMPENSATION
FEES AND EXPENSES PAID TO THE
ADVISOR AND ITS AFFILIATES
SELLING COMMISSIONS AND MARKETING SUPPORT AND DUE DILIGENCE EXPENSE
REIMBURSEMENT FEE. In connection with the formation of the Company and the
offering of the Shares, the Managing Dealer will receive Selling Commissions of
7.5% (a maximum of $11,250,000 if 15,000,000 Shares are sold), and a marketing
support and due diligence expense reimbursement fee of 0.5% (a maximum of
$750,000 if 15,000,000 Shares are sold), of the total amount raised from the
sale of Shares, computed at $10.00 per Share sold ("Gross Proceeds"). The
Managing Dealer in turn may reallow Selling Commissions of up to 7% on Shares
sold, and all or a portion of the 0.5% marketing support and due diligence
expense reimbursement fee to certain Soliciting Dealers, who are not Affiliates
of the Company. As of March 31, 1996, the Company had incurred $4,128,141 for
S e lling Commissions due to the Managing Dealer, a substantial portion
($3,909,808) of which has been paid as commissions to other Soliciting Dealers.
In addition, as of March 31, 1996, the Company had incurred $275,210 in
marketing support and due diligence expense reimbursement fees due to the
Managing Dealer. A portion of these fees has been reallowed to other Soliciting
Dealers, and all due diligence expenses will be paid from such fees.
SOLICITING DEALER SERVICING FEE. The Company will incur a Soliciting
Dealer Servicing Fee in the amount of .20% of Invested Capital (a maximum of
$300,000 if 15,000,000 Shares are sold). The Soliciting Dealer Servicing Fee
will be payable on December 31 of each year, commencing on December 31 of the
year following the year in which the offering terminates, and generally will be
payable to the Managing Dealer, which in turn may reallow all or a portion of
such fee to Soliciting Dealers whose clients held Shares on such date. The
Company has determined, however, that the Company may pay the Soliciting Dealer
Servicing Fee directly to any Soliciting Dealer exempt from registration as a
broker-dealer and whose clients held Shares on such date. As of March 31, 1996,
no such fees had been incurred by the Company.
ACQUISITION FEES. The Advisor is entitled to receive acquisition fees for
services in identifying the Properties and structuring the terms of the
acquisition and leases of the Properties equal to 4.5% of Gross Proceeds,
payable by the Company as Acquisition Fees. As of March 31, 1996, the Company
had incurred $2,476,885 in such acquisition fees payable to the Advisor.
Acquisition fees incurred by the Company as of March 31, 1996, are included as
part of the cost of land and buildings on operating leases, net investment in
direct financing lease and other assets.
DEVELOPMENT/CONSTRUCTION MANAGEMENT FEES TO AFFILIATES OF THE COMPANY. In
connection with the acquisition of Properties that have been constructed or
renovated by Affiliates, the Company will incur development/construction
management fees of generally 5% to 10% of the cost of constructing or renovating
a Property, payable to Affiliates of the Company as Acquisition Fees. Such fees
will be included in the purchase price of Properties purchased from developers
that are Affiliates of the Company. See "Business - Site Selection and
Acquisition of Properties." Development/construction management fees, which are
based on the number of Properties purchased from developers that are Affiliates
of the Company, the cost of construction or renovation of such Properties and
the percentage amount of each development/construction management fee, are not
determinable at this time. As of March 31, 1996, no such fees had been incurred
by the Company.
CONSTRUCTION FINANCING FEES TO AFFILIATES OF THE COMPANY. In connection
with the acquisition of Properties from affiliated or unaffiliated developers,
to whom Affiliates of the Company have provided construction financing, the
Company will incur construction financing fees, payable to Affiliates of the
Company as Acquisition Fees. Such fees will be in an amount equal to generally
1% to 2% of the total amount of each loan plus the difference between the
Affiliate - lender's cost of funds and the amount of interest charged to the
developer with such difference determined by applying an annual percentage rate
of generally 1.5% to 3% throughout the duration of the loan to the outstanding
amount of the loan. Such fees will be included in the purchase price of
Properties purchased from developers that receive such loans. See "Business -
Site Selection and Acquisition of Properties." Construction loan fees, which
are based on the number of Properties for which Affiliates of the Company
provide construction financing, the amount and duration of such loans and the
amount of each construction financing fee, are not determinable at this time.
As of March 31, 1996, no such fees had been incurred by the Company.
The total of all Acquisition Fees and Acquisition Expenses shall be
reasonable and shall not exceed an amount equal to 6% of the Real Estate Asset
Value of a Property unless a majority of the Board of Directors, including a
majority of the Independent Directors, not otherwise interested in the
transaction approves fees in excess of these limits subject to a determination
that the transaction is commercially competitive, fair and reasonable to the
Company.
ASSET MANAGEMENT FEE. For managing the Properties, the Advisor will be
entitled to receive a monthly Asset Management Fee of one-twelfth of .60% of the
Company's Real Estate Asset Value (generally, the total amount invested in the
Properties, exclusive of Acquisition Fees and Acquisition Expenses) as of the
end of the preceding month. As of March 31, 1996, the Company had incurred
$61,239 of such fees, $6,266 of which has been capitalized as part of the cost
of building for Properties under construction.
MORTGAGE MANAGEMENT FEE. For managing mortgage loans, the Advisor will be
entitled to receive a monthly Mortgage Management Fee of one-twelfth of .60% of
the total principal amount of the Mortgage Loans as of the end of the preceding
month. As of March 31, 1996, the Company had incurred $8,475 of such fees.
SECURED EQUIPMENT LEASE SERVICING FEE. For negotiating Secured Equipment
Leases and supervising the Secured Equipment Lease program, the Advisor will be
entitled to receive from the Company a one-time Secured Equipment Lease
Servicing Fee of 2% of the purchase price of the Equipment that is the subject
of a Secured Equipment Lease. As of March 31, 1996, no such fees had been
incurred by the Company.
REAL ESTATE DISPOSITION FEE. Prior to Listing, the Advisor may receive a
real estate disposition fee of 3% of the gross sales price of one or more
Properties for providing substantial services in connection with the Sale, which
will be deferred and subordinated until the stockholders have received
Distributions equal to the sum of 100% of the stockholders' aggregate Invested
Capital plus an aggregate, annual, cumulative, noncompounded 8% return on their
Invested Capital, excluding Distributions attributable to proceeds of the Sale
of a Property (the "Stockholders' 8% Return"). Upon Listing, if the Advisor has
accrued but not been paid such real estate disposition fee, then for purposes of
d e t e rmining whether the subordination conditions have been satisfied,
stockholders will be deemed to have received a Distribution in an amount equal
to the product of the total number of Shares outstanding and the average closing
prices of the Shares over a period, beginning 180 days after Listing, of 30 days
during which the Shares are traded. See "The Advisor and The Advisory Agreement
-The Advisory Agreement." As of March 31, 1996, no such fees had been incurred
by the Company.
SUBORDINATED SHARE OF NET SALES PROCEEDS. A subordinated share of Net
Sales Proceeds will be paid to the Advisor upon the Sale of one or more
Properties or Secured Equipment Leases in an amount equal to 10% of Net Sales
Proceeds. This amount will be subordinated and paid only after the stockholders
have received Distributions equal to the sum of 100% of the stockholders'
aggregate Invested Capital, plus the Stockholders' 8% Return. As of March 31,
1996, no such amounts had been incurred by the Company.
ADMINISTRATIVE AND OTHER EXPENSES. The Advisor provides accounting and
administrative services (including accounting and administrative services in
connection with the Offering of Shares) to the Company on a day-to-day basis.
As of March 31, 1996, the Company had incurred $942,218 of such costs that are
included in stock issuance costs and $142,048 of such costs that are included in
general and administrative expenses.
REIMBURSEMENT OF OUT-OF-POCKET EXPENSES. The Advisor and its Affiliates
are entitled to receive reimbursement, at cost, for expenses they incur for
Organizational and Offering Expenses, Acquisition Expenses and Operating
Expenses. As of March 31, 1996, the Advisor and its Affiliates had incurred
$2,830,495, $183,489, and $123,676 on behalf of the Company for Organizational
a n d O ffering Expenses, Acquisition Expenses, and Operating Expenses,
respectively.
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for CNL
American Properties Fund, Inc., and should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Financial Statements included in Exhibit B to this
Prospectus Supplement and Exhibit B to the Prospectus.
May 2,
1994 (Date
Quarter Ended of Inception)
March 31, Year Ended through
1996 December 31, December 31,
(Unaudited) 1995 1994
Revenues $1,059,879 $ 659,131 $ -
Net earnings 744,588 368,779 -
Cash distributions declared (1) 768,133 638,618 -
Funds from operations (2) 840,123 470,592 -
Earnings per Share 0.16 0.19 -
Cash distributions declared
per Share 0.17 0.34 -
Funds from operations per Share(2) 0.18 0.25 -
Weighted average number of Shares
outstanding (3) 4,649,040 1,898,350 -
March 31,
1996 December 31, December 31,
(Unaudited) 1995 1994
Total assets $48,909,495 $33,603,084 $929,585
Long-term obligations 53,500 - -
Total equity 46,745,744 31,980,648 200,000
(1) Approximately ten percent and 40 percent of cash distributions
($0.02 and $0.14 per Share) for the quarter ended March 31, 1996 and
the year ended December 31, 1995, respectively, represents a return
o f capital in accordance with generally accepted accounting
principles ("GAAP"). Cash distributions treated as a return of
capital on a GAAP basis represent the amount of cash distributions
in excess of accumulated net earnings on a GAAP basis. The Company
has not treated such amount as a return of capital for purposes of
calculating the stockholders' Invested Capital and the Stockholders'
8% Return, as described in the Prospectus.
(2) Funds from operations are net earnings, excluding depreciation of
$94,530 and $100,318 and amortization expense of joint venture
capitalized costs of $1,005 and $1,495 for the quarter ended
March 31, 1996 and the year ended December 31, 1995, respectively.
Funds from operations are generally considered by industry analysts
to be the most appropriate measure of performance and do not
necessarily represent cash provided by operating activities in
accordance with generally accepted accounting principles and are not
necessarily indicative of cash available to meed cash needs.
(3) The weighted average number of Shares outstanding is based upon the
period the Company was operational.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
INTRODUCTION
The Company is a Maryland corporation that was organized on May 2, 1994,
to acquire Properties, directly or indirectly through Joint Venture or co-
tenancy arrangements, to be leased on a long-term, "triple-net" basis to
operators of certain Restaurant Chains. In addition, the Company may provide
Mortgage Loans for the purchase of buildings, generally by tenants that lease
the underlying land from the Company. To a lesser extent, the Company intends
to offer Secured Equipment Leases to operators of Restaurant Chains. Secured
Equipment Leases will be funded from the proceeds of the Loan, in an amount up
to 10% of Gross Proceeds from the offering, which the Company has obtained.
As of March 31, 1996, the Company owned 43 Properties (including one
Property through a joint venture arrangement), four of which were under
construction at March 31, 1996. Of the 43 Properties, three consisted of
building only, 20 consisted of land only and 20 consisted of land and building.
LIQUIDITY AND CAPITAL RESOURCES
In April 1995, the Company commenced an offering of its Shares of common
stock. As of March 31, 1996, the Company had received subscription proceeds of
$55,041,881 (5,504,188 shares) from the offering, including $128,151 (12,815
shares) through the Reinvestment Plan.
As of March 31, 1996, net proceeds to the Company from its offering of
S h a res and capital contributions from the Advisor after deduction of
Selling Commissions, marketing support and due diligence expense reimbursement
fees and
Organizational and Offering Expenses, totalled $47,039,128. As of March 31,
1996, approximately $42,800,000 had been used to invest, or committed for
investment, in 43 Properties (four of which were undeveloped land on which a
restaurant was being constructed), including one Property owned by a Joint
Venture, three Properties consisting of building only and 20 Properties
consisting of land only, in providing mortgage financing of $8,475,000 to the
tenant of the 20 Properties consisting of land only and to pay Acquisition Fees
to the Advisor totalling $2,476,885 and certain Acquisition Expenses. The
Company acquired ten of the 43 Properties from Affiliates for purchase prices
t o t alling approximately $7,442,000. The Affiliates had purchased and
temporarily held title to these Properties in order to facilitate the
acquisition of the Properties by the Company. Each Property was acquired at a
cost no greater than the lesser of the cost of the Property to the Affiliate
(including carrying costs) or the Property's appraised value. The Company
expects to use Net Offering Proceeds from the sale of Shares to purchase
additional Properties, to fund construction costs relating to the Properties
under construction and to make Mortgage Loans. The Company expects to use the
proceeds of the Loan to fund the Secured Equipment Lease program, as described
above. The number of Properties to be acquired and Mortgage Loans to be entered
into will depend upon the amount of Net Offering Proceeds available to the
Company.
The Company has entered into various development agreements with tenants
which provide terms and specifications for the construction of buildings the
tenants have agreed to lease once construction is completed. The agreements
provide a maximum amount of development costs (including the purchase price of
the land and closing costs) to be paid by the Company. The aggregate maximum
development costs the Company had agreed to pay as of March 31, 1996, was
approximately $5,817,200, of which approximately $2,613,400 in land and other
costs had been incurred as of March 31, 1996. The buildings under construction
as of March 31, 1996, are expected to be operational by August 1996. In
connection with the purchase of each Property, the Company, as lessor, entered
into a long-term lease agreement.
During the period April 1, 1996 through July 16, 1996, the Company
acquired 29 additional Properties (two Properties consisting of land and
building, 14 Properties consisting of undeveloped land on which restaurants are
being constructed and 13 Properties consisting of land only) for cash at a total
cost of approximately $9,606,000, excluding development and closing costs. The
development costs (including the purchase of the land and closing costs) to be
paid by the Company relating to the 14 Properties under construction are
estimated to be approximately $14,874,000. The buildings under construction are
expected to be operational by January 1997. With regard to the 13 Properties
consisting of land only, the Company is leasing three of the parcels together
with 20 other land parcels to a single lessee pursuant to a master lease
agreement. The remaining ten parcels are also leased to a single lessee
pursuant to a master lease agreement. The lessees own the buildings located on
the 33 Properties.
In addition, during the period April 1, 1996 through July 16, 1996, the
Company entered into a Mortgage Loan in the principal sum of $3,888,000,
collateralized by a mortgage on the buildings relating to ten Pizza Hut
Properties. The Mortgage Loan bears interest at a rate of 10.75% per annum and
is being collected in 240 equal monthly installments of $39,472.
The Company presently is negotiating to acquire additional Properties or
invest in additional Mortgage Loans, but as of July 16, 1996, had not acquired
any such Properties or invested in any such Mortgage Loans.
As of July 16, 1996, the Company had received subscription proceeds of
$80,598,079 (8,059,808 Shares) from 4,663 stockholders, including $243,167
(24,317 Shares) issued pursuant to the Reinvestment Plan. As of July 16, 1996,
the Company had invested, or committed for investment, approximately $66,000,000
of such proceeds in 72 Properties, in providing mortgage financing to the
tenants of the 33 Properties consisting of land only through two Mortgage Loans,
and to pay Acquisition Fees and Acquisition Expenses, leaving approximately
$4,200,000 in Net Offering Proceeds available for investment in Properties and
Mortgage Loans. As of July 16, 1996, the Company had incurred $3,626,914 in
Acquisition Fees due to the Advisor.
On March 5, 1996, the Company entered into a line of credit and security
agreement (the "Loan") with a bank to be used by the Company to offer Secured
Equipment Leases. The Loan provides that the Company will be able to receive
advances of up to $15,000,000 until March 4, 1998. Generally, advances under
the Loan will be fully amortizing term loans repayable in terms equal to the
duration of the Secured Equipment Leases, but in no event greater than 72
months. In addition, advances for short-term needs (to acquire equipment to be
leased under Secured Equipment Leases) may be requested in an aggregate amount
which does not exceed the Revolving Sublimit (defined in the Loan as $1,000,000)
and such advances may be repaid and readvanced; provided, however, that advances
made pursuant to the Revolving Sublimit shall be converted to term loans the
earlier of (i) the end of each 60 day period following the closing date (defined
in the Loan as March 5, 1996), or (ii) when the aggregate amount outstanding
equals or exceeds $1,000,000. Interest on advances made pursuant to the
Revolving Sublimit shall be paid monthly in arrears. In addition, principal
amounts under advances pursuant to the Revolving Sublimit, if not sooner paid or
converted into term loans, shall be paid, together with any unpaid interest
relating to such advances, to the bank on March 5, 1998. Generally, all
advances under the Loan will bear interest at either (i) a rate per annum equal
to 215 basis points above the Reserve Adjusted LIBOR Rate (as defined in the
Loan) or (ii) a rate per annum equal to the bank's prime rate, whichever the
Company selects at the time advances are made. As a condition of obtaining the
Loan, the Company agreed to grant to the bank a first security interest in the
Secured Equipment Leases. In connection with the Loan, the Company incurred a
commitment fee, legal fees and closing costs of $53,500 relating to the Loan.
As of March 31, 1996, $53,500 had been advanced under the Loan to fund the
commitment fee, legal fees and closing costs related to the Loan. The Company
intends to limit advances under the Loan to 10% of Gross Proceeds of the
offering.
Between April 1, 1996 and July 16, 1996, the Company obtained three
advances totaling $1,642,788 under its $15,000,000 Loan. The advances are fully
amortizing term loans repayable over six years and bear interest at a rate per
annum equal to 215 basis points above the Reserve Adjusted LIBOR Rate (as
defined in the Loan). The proceeds of the advances were used to acquire
Equipment for three restaurant properties at a cost of approximately $1,609,000
and to pay Secured Equipment Lease Servicing Fees of $32,175 to the Advisor. In
connection with the acquisition of the Equipment for one restaurant property,
the Company, as lessor, entered into a Secured Equipment Lease with an
unaffiliated lessee that leases the restaurant property from an Affiliate of the
Advisor.
Properties are and will be leased on a triple-net basis, meaning that
tenants are generally required to pay all repairs and maintenance, property
taxes, insurance and utilities. Rental payments under the leases are expected
to exceed the Company's operating expenses. For these reasons, no short-term or
long-term liquidity problems currently are anticipated by management.
Until Properties are acquired, or Mortgage Loans are entered into, by the
Company, all offering proceeds are held in short-term, highly liquid investments
which management believes to have appropriate safety of principal. This
investment strategy provides high liquidity in order to facilitate the Company's
use of these funds to acquire Properties at such time as Properties suitable for
acquisition are located or to fund Mortgage Loans. At March 31, 1996, the
Company had $8,775,306 invested in such short-term investments as compared to
$11,508,445 at December 31, 1995. The decrease in the amount invested in short-
term investments reflects acquisition and lending activity during the quarter
ended March 31, 1996. These funds will be used primarily to purchase and
develop or renovate Properties (directly or indirectly through joint venture
arrangements), to make Mortgage Loans, to pay organization and offering and
acquisition costs, to pay Distributions to stockholders, to meet Company
expenses and, in management's discretion, to create cash reserves.
During the quarters ended March 31, 1996 and 1995, Affiliates of the
Company incurred on behalf of the Company $264,484 and $69,035, respectively,
for certain Organizational and Offering Expenses. In addition, during the
quarter ended March 31, 1996, Affiliates of the Company incurred on behalf of
the Company $51,860 for certain Acquisition Expenses and $69,442 for certain
Operating Expenses. As of March 31, 1996, the Company owed the Advisor $150,140
for such amounts and accounting and administrative expenses. In addition, as of
March 31, 1996, the Company owed the Advisor $143,485 and $20,515 for
Acquisition Fees and Asset Management Fees, respectively. As of April 30, 1996,
the Company had reimbursed all such amounts. The Advisor has agreed to pay or
reimburse to the Company all Organizational and Offering Expenses in excess of
three percent of gross offering proceeds. Other liabilities to unrelated
parties increased to $1,313,711 at March 31, 1996, from $1,173,776 at December
31, 1995, primarily as a result of the accrual of construction costs incurred
and unpaid as of March 31, 1996.
During the quarter ended March 31, 1996, the Company generated cash from
operations (which includes cash received from tenants and interest and other
income received, less cash paid for operating expenses) of $710,678. Based on
current and anticipated future cash from operations the Company declared
Distributions to the stockholders of $768,133 during the quarter ended March 31,
1996. No Distributions were paid or declared for the quarter ended March 31,
1995. On April 1, 1996, May 1, 1996 and June 1, 1996, the Company declared
Distributions to its stockholders totalling $323,748, $368,153 and $408,475,
respectively, payable in June 1996. In addition, on July 1, 1996, the Company
declared distributions to its stockholders totalling $458,646 payable in
September 1996. For the quarter ended March 31, 1996, approximately 90 percent
of the Distributions received by stockholders were considered to be ordinary
income and 10 percent were considered a return of capital for federal income tax
purposes. However, no amounts distributed or to be distributed to the
stockholders as of April 30, 1996, 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.
Management believes that the Properties are adequately covered by
insurance. During 1995, the Advisor obtained contingent liability and property
coverage for the Company. This insurance policy 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. The Company's
investment strategy of acquiring Properties for cash and leasing them under
triple-net leases to operators who meet specified financial standards is
expected to minimize the Company's Operating Expenses. Accordingly, management
believes that any anticipated decrease in the Company's liquidity in 1996, due
to its investment of available Net Offering Proceeds in Properties and Mortgage
Loans, will not have an adverse effect on the Company's operations. During the
operational stage, management believes that the leases will generate cash flow
in excess of Operating Expenses. Since the leases are expected generally to
have an initial term of 15 to 20 years, with two or more five-year renewal
options, and provide for specified percentage rent in addition to the annual
base rent and, in certain cases, increases in the base rent or the percentage
rent at specified times during the terms of the leases, it is anticipated that
rental income will increase over time.
Due to anticipated low Operating Expenses, rental income expected to be
obtained from Properties after they are acquired, and the fact that as of April
30, 1996, no significant amounts had been borrowed under the Loan for Secured
Equipment Leases and that the Company had not entered into any Secured Equipment
Leases, management does not believe that working capital reserves will be
necessary at this time. Management has the right to cause the Company to
maintain reserves if, in their discretion, they determine such reserves are
required to meet the Company's working capital needs.
Management expects that the cash generated from operations will be
adequate to pay Operating Expenses.
RESULTS OF OPERATIONS
No significant operations commenced until the Company received the minimum
offering proceeds of $1,500,000 on June 1, 1995.
As of March 31, 1996, the Company and its consolidated joint venture had
purchased 43 Properties (including one which is owned through a Joint Venture),
including three Properties consisting of building only, 20 Properties
consisting of land only, and 20 properties consisting of land and building, and
had entered into lease agreements relating to these Properties. The
leases provide for minimum base annual rental payments (payable in monthly
installments) ranging from approximately $89,700 to $413,700. In addition, the
leases generally provide for percentage rent based on sales in excess of a
specified amount. The majority of the leases also provide that, commencing in
generally the sixth lease year, the annual base rent required under the terms of
the leases will increase.
During the quarter ended March 31, 1996, the Company and its consolidated
joint venture, CNL/Corral South Joint Venture, earned $799,081 in rental income
from operating leases and earned income from the direct financing lease from 41
Properties (excluding two of the Properties under construction as of March 31,
1996). Because the Company did not commence significant operations until it
received the minimum offering proceeds on June 1, 1995, and has not yet acquired
all of its Properties, revenues for the quarter ended March 31, 1996, represent
only a portion of revenues which the Company is expected to earn during a full
quarter in which the Company's Properties are operational.
During the quarter ended March 31, 1996, five lessees of the Company,
Golden Corral Corporation, Corral South Store I, Inc., Castle Hill Holdings V,
LLC, Foodmaker, Inc. and Northstar Restaurants, Inc., each contributed more than
ten percent of the Company's total rental income. Golden Corral Corporation was
the lessee under leases relating to six restaurants, Corral South Store I, Inc.
was the lessee under a lease relating to one restaurant, Castle Hill Holdings V,
LLC was the lessee under leases relating to 20 restaurants, Foodmaker, Inc. was
the lessee under leases relating to two restaurants, and Northstar Restaurants,
Inc. was the lessee under leases relating to three restaurants. During the
quarter ended March 31, 1996, the Company also earned $184,949 in interest
income from a mortgage note receivable under which Castle Hill Holdings V, LLC
is the borrower. In addition, four Restaurant Chains, Golden Corral Family
Steakhouse, Pizza Hut, Jack in the Box and Boston Market, each accounted for
more than ten percent of the Company's total rental income during the quarter
ended March 31, 1996. Because the Company has not completed its acquisition of
Properties as yet, it is not possible to determine which lessees or Restaurant
Chains will contribute more than ten percent of the Company's rental income
during the remainder of 1996 and subsequent years. In the event that certain
lessees, borrowers or Restaurant Chains contribute more than ten percent of the
Company's total income in the current and future years, any failure of such
lessees, borrowers or Restaurants Chains could materially affect the Company's
income.
During the quarter ended March 31, 1996, the Company entered into a
Mortgage Loan in the principal sum of $8,475,000, collateralized by a mortgage
on the buildings relating to 20 Pizza Hut Properties and three additional Pizza
Hut buildings. The Mortgage Loan bears interest at a rate of 10.75% per annum
and is being collected in 240 equal monthly installments of $86,041. In
connection therewith, the Company earned $184,949 in interest income relating to
such Mortgage Loan during the quarter ended March 31, 1996. In addition, the
Company also earned $74,600 in interest income from investments in money market
accounts or other short-term, highly liquid investments. Interest income is
expected to increase as the Company invests subscription proceeds in highly
liquid investments pending the acquisition of Properties. However, as Net
Offering Proceeds are invested in Properties and used to make mortgage loans,
interest income from investments in money market accounts or other short-term,
highly liquid investments is expected to decrease.
Operating expenses, including depreciation and amortization expense, were
$300,539 for the quarter ended March 31, 1996. Operating expenses, including
depreciation and amortization expense, also represent only a portion of
operating expenses which the Company is expected to incur during a full quarter
in which the Company's Properties are operational. The dollar amount of
operating expenses is expected to increase as the Company acquires additional
Properties.
THE ADVISOR AND THE ADVISORY AGREEMENT
THE ADVISORY AGREEMENT
The Advisory Agreement was renewed for a period of one year with the
unanimous approval of the Board of Directors, including the Independent
Directors, and shall expire on April 19, 1997, subject to successive one-year
renewals upon mutual consent of the parties.
ADDENDUM TO
EXHIBIT B
FINANCIAL INFORMATION
The updated pro forma financial statements and the unaudited financial
statements of CNL American Properties Fund, Inc. contained in this addendum
should be read in conjunction with Exhibit B to the attached prospectus
dated April 26, 1996.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
INDEX TO UPDATED FINANCIAL STATEMENTS
Page
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of March 31, 1996 B-2
Pro Forma Consolidated Statement of Earnings for the
quarter ended March 31, 1996 B-3
Pro Forma Consolidated Statement of Earnings for the
year ended December 31, 1995 B-4
Notes to Pro Forma Consolidated Financial Statements for
the quarter ended March 31, 1996 and the year ended
December 31, 1995 B-5
Updated Unaudited Condensed Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31,
1996 and December 31, 1995 B-9
Condensed Consolidated Statements of Earnings for the
quarters ended March 31, 1996 and 1995 B-10
Condensed Consolidated Statements of Stockholders'
Equity for the quarter ended March 31, 1996 and the
year ended December 31, 1995 B-11
Condensed Consolidated Statements of Cash Flows for
the quarters ended March 31, 1996 and 1995 B-12
Notes to Condensed Consolidated Financial Statements
for the quarters ended March 31, 1996 and 1995 B-14
PRO FORMA CONSOLIDATED FINANCIAL INFORMATION
The following Pro Forma Consolidated Balance Sheet of the Company gives
effect to (i) property acquisition transactions from inception through March 31,
1996, including the receipt of $55,041,881 in gross offering proceeds from the
sale of 5,504,188 shares of common stock pursuant to a Form S-11 under the
Securities Act of 1933, as amended, effective March 29, 1995, and the
application of such proceeds to purchase 43 properties (including 19 properties
which consist of land and building, one property through a joint venture
arrangement which consists of land and building, three properties which consist
of building only and 20 properties consisting of land only), four of which were
under construction at March 31, 1996, to provide mortgage financing to the
lessee of the 20 properties consisting of land only, and to pay organizational
and offering expenses, acquisition fees and miscellaneous acquisition expenses,
(ii) the receipt of $25,556,198 in gross offering proceeds from the sale of
2,555,620 additional shares of common stock during the period April 1, 1996
through July 16, 1996, and (iii) the application of such funds and $3,897,309 of
cash and cash equivalents at March 31, 1996, to purchase 29 additional
properties acquired during the period April 1, 1996 through July 16, 1996 (two
of which are under construction and consist of building only, 12 of which are
under construction and consist of land and building, 13 properties which consist
of land only and two properties which consists of land and building), to pay
additional costs for the four properties under construction at March 31, 1996,
to provide mortgage financing to the lessee of ten properties consisting of land
only, and to pay offering expenses, acquisition fees and miscellaneous
acquisition expenses, all as reflected in the pro forma adjustments described in
the related notes. The Pro Forma Consolidated Balance Sheet as of March 31,
1996, includes the transactions described in (i) above from its historical
consolidated balance sheet, adjusted to give effect to the transactions in (ii)
and (iii) above, as if they had occurred on March 31, 1996.
The Pro Forma Consolidated Statements of Earnings for the quarter ended
March 31, 1996 and the year ended December 31, 1995, include the historical
operating results of the properties described in (i) above from the dates of
their acquisitions plus operating results for the seven of the 72 properties
that were owned by the Company as of July 16, 1996, and had a previous rental
history prior to the Company's acquisition of such properties, from (A) the
later of (1) the date the property became operational as a rental property by
the previous owner or (2) June 2, 1995 (the date the Company became
operational), to (B) the earlier of (1) the date the property was acquired by
the Company or (2) the end of the pro forma period presented. No pro forma
adjustments have been made to the Pro Forma Consolidated Statements of Earnings
for the remaining 65 properties owned by the Company as of July 16, 1996, due to
the fact that these properties did not have a previous rental history.
This pro forma consolidated financial information is presented for
informational purposes only and does not purport to be indicative of the
Company's financial results or condition if the various events and transactions
reflected therein had occurred on the dates, or been in effect during the
periods, indicated. This pro forma consolidated financial information should
not be viewed as predictive of the Company's financial results or conditions in
the future.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
MARCH 31, 1996
Pro Forma
ASSETS Historical Adjustments Pro Forma
Land and buildings on operating
leases, less accumulated
depreciation $28,313,474 $16,059,451 (a) $44,372,925
Net investment in direct
financing leases (c) 1,360,414 6,264,957 (a) 7,625,371
Cash and cash equivalents 8,775,306 (3,707,897)(a)
(189,412)(b) 4,877,997
Receivables 462,110 462,110
Mortgage note receivable 8,540,712 3,888,000 (a) 12,428,712
Prepaid expenses 37,275 37,275
Organization costs, less accumulated
amortization 16,682 16,682
Loan costs, less accumulated
amortization 51,559 51,559
Accrued rental income 152,047 152,047
Other assets 1,199,916 14,886(a) 1,214,802
----------- ----------- -----------
$48,909,495 $22,329,985 $71,239,480
=========== ============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Note payable $ 53,659 $ 53,659
Accrued construction costs payable 1,197,682 $(1,005,913)(a)
(191,769)(b) -
Accounts payable and accrued expenses 106,333 106,333
Escrowed real estate taxes payable 9,696 9,696
Due to related parties 415,418 415,418
Deferred financing income 29,366 13,608 (a) 42,974
Rents paid in advance 58,268 58,268
----------- ----------- -----------
Total liabilities 1,870,422 (1,184,074) 686,348
----------- ----------- -----------
Minority interest 293,329 2,357 (b) 295,686
----------- ----------- -----------
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares - -
Excess shares, $.01 par value per
share. Authorized and unissued
23,000,000 shares - -
Common stock, $.01 par value per share.
Authorized 20,000,000 shares; issued
and outstanding 5,524,188 shares;
issued and outstanding, as adjusted,
8,079,808 shares 55,242 25,556 (a) 80,798
Capital in excess of par value 46,983,886 23,486,146 (a) 70,470,032
Accumulated distributions in excess
of net earnings (293,384) (293,384)
----------- ----------- -----------
46,745,744 23,511,702 70,257,446
----------- ----------- -----------
$48,909,495 $22,329,985 $71,239,480
=========== ============ ===========
See accompanying notes to unaudited pro forma consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
MARCH 31, 1996
Pro Forma
Historical Adjustments Pro Forma
Revenues:
Rental income from
operating leases $ 763,155 $ 41,157 (1) $ 804,312
Earned income from
direct financing lease (2) 35,926 35,926
Interest and other income 260,798 (12,544)(3) 248,254
---------- ---------- ----------
1,059,879 28,613 1,088,492
---------- ---------- ----------
Expenses:
General operating and
administrative 128,948 128,948
Professional services 29,692 29,692
Asset and mortgage management
fees to related party 40,370 2,714 (4) 43,084
State and other taxes 2,898 1,129 (5) 4,027
Interest expense 159 159
Depreciation and amortization 98,472 3,300 (6) 101,772
---------- ---------- ----------
300,539 7,143 307,682
---------- ---------- ----------
Earnings Before Minority
Interest in Earnings of
Consolidated Joint Venture 759,340 21,470 780,810
Minority Interest in Earnings of
Consolidated Joint Venture (14,752) (14,752)
---------- ---------- ----------
Net Earnings $ 744,588 $ 21,470 $ 766,058
========== ========== ==========
Earnings Per Share of
Common Stock $ .16 $ .16
========== ==========
Weighted Average Number of
Shares of Common Stock
Outstanding 4,649,040 4,649,040
========== ==========
See accompanying notes to unaudited pro forma consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
YEAR ENDED DECEMBER 31, 1995
Pro Forma
Historical Adjustments Pro Forma
Revenues:
Rental income from
operating leases $ 498,817 $ 96,945 (1) $ 595,762
Earned income from direct
financing leases (2) 28,935 28,935
Contingent rental income 12,024 12,024
Interest income 119,355 (29,664)(3) 89,691
--------- --------- ---------
659,131 67,281 726,412
--------- --------- ---------
Expenses:
General operating and
administrative 134,759 134,759
Professional services 8,119 8,119
Asset management fee to
related party 23,078 4,368 (4) 27,446
State taxes 20,189 1,769 (5) 21,958
Depreciation and amortization 104,131 14,700 (6) 118,831
--------- --------- ---------
290,276 20,837 311,113
--------- --------- ---------
Earnings Before Minority
Interest in Earnings of
Consolidated Joint Venture 368,855 46,444 415,299
Minority Interest in Earnings
of Consolidated Joint Venture (76) (76)
--------- --------- ---------
Net Earnings $ 368,779 $ 46,444 $ 415,223
========= ========== =========
Earnings Per Share of
Common Stock (7) $ .19 $ .22
========= =========
Weighted Average Number
of Shares of Common Stock
Outstanding (7) 1,898,350 1,905,970
========= =========
See accompanying notes to unaudited pro forma consolidated financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1996
AND THE YEAR ENDED DECEMBER 31, 1995
Pro Forma Consolidated Balance Sheet:
(a) Represents gross proceeds of $25,556,198 from the issuance of 2,555,620
shares of common stock during the period April 1, 1996 through July 16,
1996, proceeds of $13,608 of deferred financing income (loan origination
and commitment fees, net of legal fees) from the $3,888,000 mortgage
financing described below, and $3,707,897 of cash and cash equivalents at
March 31, 1996, used (i) to acquire 29 properties for $18,104,131 (of
which 13 properties consist of land only, two properties consist of
building only and 14 properties consist of land and building), (ii) to
fund estimated construction costs of $4,091,047 ($1,005,913 of which was
accrued as construction costs payable at March 31, 1996) relating to four
wholly-owned properties under construction at March 31, 1996, (iii) to pay
acquisition fees of $1,150,029 ($1,135,143 of which was allocated to
properties and $14,886 of which was classified as other assets and will be
allocated to future properties), (iv) to pay selling commissions and
offering expenses (stock issuance costs) of $2,044,496, which have been
netted against capital in excess of par value and (v) to provide mortgage
financing in the amount of $3,888,000 to the lessee of ten properties
consisting of land only.
The pro forma adjustments to land and buildings on operating leases and
net investment in direct financing leases as a result of the above
transactions were as follows:
· Download Table
Estimated
purchase price
(including con-
struction and Acquisition
closing costs) fees
and additional allocated
construction costs to property Total
Three Pizza Huts (land only)
in Ohio $ 489,117 $ 26,203 $ 515,320
Burger King in Indian Head
Park, IL 1,272,725 68,182 1,340,907
Burger King in Highland, IN 1,212,558 64,958 1,277,516
TGI Friday's in Hamden, CT 1,134,628 60,784 1,195,412
Wendy's in Knoxville, TN 790,984 42,375 833,359
Golden Corral in Port Richey, FL 1,705,448 91,364 1,796,812
Ten Pizza Huts (land only)
in West Virginia and Ohio 1,487,000 79,661 1,566,661
Denny's in Hillsboro, TX 1,053,088 56,416 1,109,504
Denny's in McKinney, TX 978,944 52,443 1,031,387
Wendy's in Camarillo, CA 1,204,026 64,502 1,268,528
Wendy's in Sevierville, TN 492,636 26,391 519,027
Boston Market in Ellisville, MO 977,279 52,354 1,029,633
Boston Market in Golden Valley, MN 1,074,707 57,574 1,132,281
Jack in the Box in Humble, TX 933,868 50,029 983,897
Boston Market in Corvallis, OR 906,684 48,573 955,257
Jack in the Box in Houston, TX 893,681 47,876 941,557
Arby's in Kendallville, IN 738,326 39,553 777,879
Boston Market in Rockwall, TX 758,432 40,630 799,062
Four wholly owned properties
under construction at
March 31, 1996 3,085,134 165,275 3,250,409
----------- ----------- -----------
$21,189,265 $ 1,135,143 $22,324,408
=========== =========== ===========
Adjustment classified
as follows:
Land and buildings on
operating leases $16,059,451
Net investment in
direct financing
leases 6,264,957
-----------
$22,324,408
===========
Pro Forma Consolidated Balance Sheet - Continued:
(b) Represents the use of $189,412 of the Company's net offering proceeds and
the assumed receipt of $2,357 in capital contributions from the Company's
co-venture partner in accordance with the joint venture agreement of
CNL/Corral South Joint Venture, to fund estimated construction costs of
$191,769 accrued as construction costs payable at March 31, 1996, relating
to the one property of the joint venture. The Company accounts for its
84.69% interest in the accounts of CNL/Corral South Joint Venture under
the full consolidation method. All significant intercompany accounts and
transactions have been eliminated.
(c) In accordance with generally accepted accounting principles, leases in
which the present value of future minimum lease payments equals or exceeds
90 percent of the value of the related properties are treated as direct
financing leases rather than as land and buildings. The categorization of
the leases has no effect on rental revenues received. The building
portions of eight of the properties have been classified as direct
financing leases.
Pro Forma Consolidated Statements of Earnings:
(1) Represents rental income from operating leases and earned income from
direct financing leases for the seven of the 72 properties acquired during
the period June 2, 1995 (the date the Company began operations) through
July 16, 1996 which had a previous rental history prior to the acquisition
of the property by the Company (the "Pro Forma Properties"), for the
period commencing (A) the later of (i) the date the Pro Forma Property
became operational as a rental property by the previous owner or (ii) June
2, 1995 (the date the Company became operational), to (B) the earlier of
(i) the date the Pro Forma Property was acquired by the Company or (ii)
the end of the pro forma period presented. Each of the seven Pro Forma
P r operties was acquired from an affiliate who had purchased and
temporarily held title to the property. The noncancellable leases for the
Pro Forma Properties in place during the period the affiliate owned the
properties were assigned to the Company at the time the Company acquired
the properties. The following presents the actual date the Pro Forma
Properties were acquired by the Company as compared to the date the Pro
Forma Properties were treated as becoming operational as a rental property
for purposes of the Pro Forma Consolidated Statements of Earnings.
Date Pro Forma
Date Placed Property Became
in Service Operational as
By the Company Rental Property
Jack in the Box in
Los Angeles, CA June 1995 June 1995
Kenny Rogers Roasters in
Grand Rapids, MI August 1995 June 1995
Kenny Rogers Roasters in
Franklin, TN August 1995 June 1995
Denny's in Pasadena, TX September 1995 August 1995
Denny's in Shawnee, OK September 1995 August 1995
Denny's in Grand Rapids, MI March 1996 September 1995
Denny's in McKinney, TX June 1996 December 1995
Pro Forma Consolidated Statements of Earnings - Continued:
In accordance with generally accepted accounting principles, lease revenue
from leases accounted for under the operating method is recognized over
the terms of the leases. For operating leases providing escalating
guaranteed minimum rents, income is reported on a straight-line basis over
the terms of the leases. For leases accounted for as direct financing
leases, future minimum lease payments are recorded as a receivable. The
difference between the receivable and the estimated residual values less
the cost of the properties is recorded as unearned income. The unearned
income is amortized over the lease terms to provide a constant rate of
return. Accordingly, pro forma rental income from operating leases and
earned income from direct financing leases does not necessarily represent
rental payments that would have been received if the properties had been
operational for the full pro forma period.
Generally, the leases provide for the payment of percentage rent in
addition to base rental income. However, due to the fact that no
percentage rent was due under the leases for the Pro Forma Properties
during the portion of 1996 and 1995 that the previous owners held the
properties, no pro forma adjustment was made for percentage rental income
for the quarter ended March 31, 1996 and the year ended December 31, 1995.
(2) See Note (c) under "Pro Forma Consolidated Balance Sheet" above for a
description of direct financing leases.
(3) Represents adjustment to interest income due to the decrease in the amount
of cash available for investment in interest bearing accounts during the
periods commencing (A) on the later of (i) the dates the Pro Forma
Properties became operational as rental properties by the previous owners
or (ii) June 2, 1995 (the date the Company became operational), through
(B) the earlier of (i) the actual dates of acquisition by the Company or
the end of the pro forma period presented, as described in Note (1) above.
The estimated pro forma adjustment is based upon the fact that interest
income on interest bearing accounts was earned at a rate of approximately
four percent per annum by the Company during the quarter ended March 31,
1996 and the year ended December 31, 1995.
(4) Represents incremental increase in asset management fees relating to the
Pro Forma Properties for the period commencing (A) on the later of (i) the
date the Pro Forma Properties became operational as rental properties by
the previous owners or (ii) June 2, 1995 (the date the Company became
operational), through (B) the earlier of (i) the date the Pro Forma
Properties were acquired by the Company or (ii) the end of the pro forma
period presented, as described in Note (1) above. Asset management fees
are equal to 0.60% of the Company's Real Estate Asset Value (estimated to
be approximately $6,219,000 and $5,241,000 for the Pro Forma Properties
for the quarter ended March 31, 1996 and the year ended December 31, 1995,
respectively), as defined in the Company's prospectus.
(5) Represents adjustment to state tax expense due to the incremental increase
in rental revenues of Pro Forma Properties. Estimated pro forma state tax
expense was calculated based on an analysis of state laws of the various
states in which the Company has acquired the Pro Forma Properties. The
estimated pro forma state taxes consist primarily of income and franchise
taxes ranging from zero to approximately five percent of the Company's pro
forma rental income of each Pro Forma Property. Due to the fact that the
Company's leases are triple net, the Company has not included any amounts
for real estate taxes in the pro forma statement of earnings.
Pro Forma Consolidated Statements of Earnings - Continued:
(6) Represents incremental increase in depreciation expense of the building
portions of the Pro Forma Properties accounted for as operating leases
using the straight-line method over an estimated useful life of 30 years.
(7) Historical earnings per share were calculated based upon the weighted
average number of shares of common stock outstanding during the quarter
ended March 31, 1996, and during the period the Company was operational,
June 2, 1995 (the date following when the Company received the minimum
offering proceeds and funds were released from escrow) through December
31, 1995.
As a result of three of the six Pro Forma Properties being treated in the
Pro Forma Consolidated Statement of Earnings for the year ended December
31, 1995, as placed in service on June 2, 1995 (the date the Company
became operational), the Company assumed approximately 347,100 shares of
common stock were sold, and the net offering proceeds were available for
investment, on June 2, 1996. Due to the fact that approximately 184,800
of these shares of common stock were actually sold subsequently, during
the period June 3, 1995 through June 20, 1995, the weighted average number
of shares outstanding for the pro forma period was adjusted. Pro forma
earnings per share were calculated based upon the weighted average number
of shares of common stock outstanding, as adjusted, during the period the
Company was operational, June 2, 1995 through December 31, 1995.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
March 31, December 31,
ASSETS 1996 1995
Land and buildings on operating leases,
less accumulated depreciation $28,313,474 $19,723,726
Net investment in direct financing lease 1,360,414 1,373,882
Cash and cash equivalents 8,775,306 11,508,445
Receivables 462,110 113,613
Mortgage note receivable 8,540,712 -
Prepaid expenses 37,275 8,090
Organization costs, less accumulated
amortization of $3,318 and $2,318 16,682 17,682
Loan costs, less accumulated amorti-
zation of $1,941 at March 31, 1996 51,559 -
Accrued rental income 152,047 39,142
Other assets 1,199,916 818,504
----------- -----------
$48,909,495 $33,603,084
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Note payable $ 53,659 $ -
Accrued construction costs payable 1,197,682 1,058,825
Accounts payable and accrued expenses 106,333 79,904
Escrowed real estate taxes payable 9,696 9,696
Due to related parties 415,418 248,584
Deferred financing income 29,366 -
Rents paid in advance 58,268 25,351
----------- -----------
Total liabilities 1,870,422 1,422,360
----------- -----------
Minority interest 293,329 200,076
----------- -----------
Commitments (Note 13)
Stockholders' equity:
Preferred stock, without par value.
Authorized and unissued 3,000,000
shares - -
Excess shares, $.01 par value per share.
Authorized and unissued 23,000,000
shares - -
Common stock, $.01 par value per share.
Authorized 20,000,000 shares, issued
and outstanding 5,524,188 and 3,865,416,
respectively 55,242 38,654
Capital in excess of par value 46,983,886 32,211,833
Accumulated distributions in excess of
net earnings (293,384) (269,839)
----------- -----------
Total stockholders' equity 46,745,744 31,980,648
----------- -----------
$48,909,495 $33,603,084
=========== ===========
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
Quarter Ended
March 31,
1996 1995
---------- -----------
Revenues:
Rental income from operating
leases $ 763,155 $ -
Earned income from direct
financing lease 35,926 -
Interest and other income 260,798 -
---------- ----------
1,059,879 -
---------- ----------
Expenses:
General operating and
administrative 128,948 -
Professional services 29,692 -
Asset and mortgage manage-
ment fees to related party 40,370 -
State and other taxes 2,898 -
Interest expense 159 -
Depreciation and amorti-
zation 98,472 -
---------- ----------
300,539 -
---------- ----------
Earnings Before Minority Interest
in Income of Consolidated Joint
Venture 759,340 -
Minority Interest in Income of
Consolidated Joint Venture (14,752) -
---------- ----------
Net Earnings $ 744,588 $ -
========== ==========
Earnings Per Share of Common
Stock $ .16 $ -
========== ==========
Weighted Average Number of
Shares of Common Stock
Outstanding 4,649,040 -
========== ==========
See accompanying notes to condensed consolidated
financial statements.
· Enlarge/Download Table
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
QUARTER ENDED MARCH 31, 1996 AND
YEAR ENDED DECEMBER 31, 1995
Accumulated
distributions
Common stock Capital in in excess
Number Par excess of of net
of shares value par value earnings Total
Balance at
December 31, 1994 20,000 $ 200 $ 199,800 $ - $ 200,000
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment plan 3,845,416 38,454 38,415,704 - 38,454,158
Stock issuance costs - - (6,403,671) - (6,403,671 )
Net earnings - - - 368,779 368,779
Distributions
declared ($.03
to $.06 per
share) - - - (638,618 ) (638,618 )
---------- ------- ----------- --------- -----------
Balance at
December 31, 1995 3,865,416 38,654 32,211,833 (269,839 ) 31,980,648
Subscriptions
received for
common stock
through public
offering and
distribution
reinvestment plan 1,658,772 16,588 16,571,135 - 16,587,723
Stock issuance costs - - (1,799,082) - (1,799,082 )
Net earnings - - - 744,588 744,588
Distributions
declared ($.06
per share) - - - (768,133 ) (768,133 )
---------- ------- ----------- --------- -----------
Balance at
March 31, 1996 5,524,188 $55,242 $46,983,886 $(293,384 ) $46,745,744
========== ======= =========== ========= ===========
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1996 1995
------------ ------------
Increase (Decrease) in Cash and Cash
Equivalents:
Net cash provided by operating
activities $ 710,678 $ -
------------ ------------
Cash Flows From Investing Activities:
Additions to land and buildings
on operating leases (8,886,922) -
Investment in direct financing
lease (10,000) -
Investment in mortgage note
receivable (8,475,000) -
Collection of deferred financing
income 29,663 -
Collection of mortgage note
payments 10,119 -
Increase in other assets (230,181)
-
------------ ------------
Net cash used in investing
activities (17,562,321) -
------------ ------------
Cash Flows From Financing Activities:
Reimbursement of acquisition and
stock issuance costs paid by
related parties on behalf of
the Company (265,491) -
Proceeds of borrowing on line
of credit 53,500 -
Payment of loan costs (53,500) -
Contribution from minority
interest of consolidated
joint venture 92,519 -
Subscriptions received from
stockholders 16,587,723 -
Distribution to minority interest (14,018) -
Distributions to stockholders (771,465) -
Payment of stock issuance costs (1,515,764) -
Other 5,000 -
------------ ------------
Net cash provided by
financing activities 14,118,504 -
------------ ------------
Net Decrease in Cash and Cash Equivalents (2,733,139) -
Cash and Cash Equivalents at Beginning
of Quarter 11,508,445 945
------------ ------------
Cash and Cash Equivalents at End
of Quarter $ 8,775,306 $ 945
============ ============
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED
Quarter Ended
March 31,
1996 1995
------------ ------------
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition, organization and
stock issuance costs on behalf
of the Company as follows:
Acquisition costs $ 51,860 $ -
Organization costs - 20,000
Stock issuance costs 264,484 49,035
------------ ------------
$ 316,344 $ 69,035
============ ============
Land, building and other costs
incurred and unpaid at end of
quarter $ 1,355,767 $ -
============ ============
Commissions, marketing support and
due diligence expense reimbursement
fee, and other stock issuance costs
incurred and unpaid at end of quarter $ 195,420 $ 525,439
============ ============
See accompanying notes to condensed consolidated
financial statements.
CNL AMERICAN PROPERTIES FUND, INC.
AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTERS ENDED MARCH 31, 1996 AND 1995
1. Organization and Nature of Business:
CNL American Properties Fund, Inc. (the "Company") was organized in
Maryland on May 2, 1994, for the purpose of acquiring, directly or
indirectly through joint venture or co-tenancy arrangements, restaurant
properties (the "Properties") to be leased on a long-term, triple-net
basis to operators of certain national and regional fast-food, family-
style and casual dining restaurant chains. To a lesser extent, the
Company intends to offer furniture, fixtures and equipment financing
("Secured Equipment Leases") to operators of restaurant chains. Secured
Equipment Leases will be funded from the proceeds of a loan of up to ten
percent of the gross offering proceeds.
2. Basis of Presentation:
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with the instructions to Form 10-Q and do
not include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments, which
are, in the opinion of management, necessary to a fair statement of the
results for the interim periods presented. Operating results for the
quarter ended March 31, 1996, may not be indicative of the results that
may be expected for the year ending December 31, 1996. Amounts as of
December 31, 1995, included in the financial statements, have been derived
from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in the Company's Form
10-K for the year ended December 31, 1995.
The Company was a development stage enterprise from May 2, 1994 through
June 1, 1995. Since operations had not begun, activities through June 1,
1995, were devoted to organization of the Company.
The Company accounts for its 84.69% interest in CNL/Corral South Joint
Venture using the consolidation method. Minority interest represents the
minority joint venture partner's proportionate share of the equity in the
Company's consolidated joint venture. All significant intercompany
accounts and transactions have been eliminated.
Effective January 1, 1996, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." The Statement
requires that an entity review long-lived assets and certain identifiable
intangibles, to be held and used, for impairment whenever events or
changes in circumstances indicate that the carrying amount of the asset
may not be recoverable. Adoption of this standard had no material effect
on the Company's financial position or results of operations.
3. Leases:
The Company leases its land and buildings primarily to operators or
franchisees of national and regional fast-food, family-style and casual
dining restaurants. The leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases." The leases relating to 42 of the Company's Properties have been
classified as operating leases (including the leases relating to four
properties under construction as of March 31, 1996) and the lease relating
to one Property has been classified as a direct financing lease.
4. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
March 31, December 31,
1996 1995
Land $14,872,121 $ 8,890,471
Buildings 12,705,708 10,049,032
----------- -----------
27,577,829 18,939,503
Less accumulated depreciation (194,849) (100,318)
----------- -----------
27,382,980 18,839,185
Construction in progress 930,494 884,541
----------- -----------
$28,313,474 $19,723,726
=========== ===========
Some leases provide for escalating guaranteed minimum rents throughout the
lease term. Income from these scheduled rent increases is recognized on a
straight-line basis over the terms of the leases. For the quarter ended
March 31, 1996, the Company recognized $112,905 of such rental income.
The following is a schedule of future minimum lease payments to be
received on the noncancellable operating leases at March 31, 1996:
1996 $ 1,993,738
1997 2,711,955
1998 2,716,736
1999 2,723,430
2000 2,738,584
Thereafter 38,247,056
-----------
$51,131,499
===========
These amounts do not include minimum lease payments that will become due
when Properties under development are completed (See Note 13).
5. Net Investment in Direct Financing Lease:
The following lists the components of the net investment in direct
financing lease at:
March 31, December 31,
1996 1995
Minimum lease payments
receivable $ 2,480,522 $ 2,498,881
Estimated residual value - 343,740
Less unearned income (1,120,108) (1,468,739)
----------- -----------
Net investment in direct
financing lease $ 1,360,414 $ 1,373,882
=========== ===========
The following is a schedule of future minimum lease payments to be
received on the direct financing lease at March 31, 1996:
1996 $ 148,848
1997 198,463
1998 198,463
1999 198,463
2000 201,771
Thereafter 1,534,514
----------
$2,480,522
==========
6. Mortgage Note Receivable:
In January 1996, in connection with the acquisition of land for 20 Pizza
Hut restaurants in Ohio and Michigan, the Company accepted a promissory
note in the principal sum of $8,475,000, collateralized by a mortgage on
the buildings on 20 Pizza Hut Properties and three additional Pizza Hut
buildings. The promissory note bears interest at a rate of 10.75% per
annum and is being collected in 240 equal monthly installments of $86,041.
As of March 31, 1996, $8,540,712 was outstanding relating to this note,
including $75,831 in accrued interest.
Statement of Financial Accounting Standards No. 107, "Disclosures About
Fair Value of Financial Instruments," requires disclosure of the fair
value of significant financial instruments. Management believes, based
upon the current terms, that the estimated fair value of the Company's
mortgage note receivable is $8,540,712, the same as its carrying value.
7. Other Assets:
Other assets consisted of the following at:
March 31, December 31,
1996 1995
Acquisition fees and miscel-
laneous acquisition expenses
to be allocated to future
properties $1,141,953 $ 806,504
Other 57,963 12,000
---------- ----------
$1,199,916 $ 818,504
========== ==========
8. Note Payable:
On March 5, 1996, the Company entered into a line of credit and security
agreement (the "Loan") with a bank to be used by the Company to offer
Secured Equipment Leases. The Loan provides that the Company will be able
to receive advances of up to $15,000,000 until March 4, 1998. Generally,
advances under the Loan will be fully amortizing term loans repayable in
terms equal to the duration of the Secured Equipment Leases, but in no
event greater than 72 months. In addition, advances for short-term needs
(to acquire equipment to be leased under Secured Equipment Leases) may be
requested in an aggregate amount which does not exceed the Revolving
Sublimit (defined in the Loan as $1,000,000) and such advances may be
repaid and readvanced; provided, however, that advances made pursuant to
the Revolving Sublimit shall be
converted to term loans the earlier of (i) the end of each 60 day period
following the closing date (defined in the Loan as March 5, 1996), or (ii)
when the aggregate amount outstanding equals or exceeds $1,000,000.
Interest on advances made pursuant to the Revolving Sublimit shall be paid
monthly in arrears. In addition, principal amounts under advances
pursuant to the Revolving Sublimit, if not sooner paid or converted into
term loans, shall be paid, together with any unpaid interest relating to
such advances, to the bank on March 5, 1998. Generally, all advances
under the Loan will bear interest at either (i) a rate per annum equal to
215 basis points above the Reserve Adjusted LIBOR Rate (as defined in the
Loan) or (ii) a rate per annum equal to the bank's prime rate, whichever
the Company selects at the time advances are made. As a condition of
obtaining the Loan, the Company agreed to grant to the bank a first
security interest in the Secured Equipment Leases. In connection with the
Loan, the Company incurred a commitment fee, legal fees and closing costs
of $53,500 relating to the Loan. As of March 31, 1996, the note payable
includes $53,500 which had been advanced under the Loan to fund the
commitment fee, legal fees and closing costs related to the Loan, plus
accrued interest of $159. The Company intends to limit advances under the
Loan to 10% of gross proceeds of the offering.
9. Stock Issuance Costs:
The Company has incurred certain expenses of its offering of shares,
including commissions, marketing support and due diligence expense
reimbursement fees, filing fees, legal, accounting, printing and escrow
fees, which have been deducted from the gross proceeds of the offering.
Preliminary costs incurred prior to raising capital were advanced by an
affiliate of the Company, CNL Fund Advisors, Inc. (the "Advisor"). The
Advisor has agreed to pay all organizational and offering expenses
(excluding commissions and marketing support and due diligence expense
reimbursement fees) which exceed three percent of the gross offering
proceeds received from the sale of shares of the Company.
As of March 31, 1996 and December 31, 1995, the Company had incurred a
total of $8,222,753 and $6,423,671, respectively, in organizational and
offering costs, including $4,403,350 and $3,076,333, respectively, in
commissions and marketing support and due diligence expense reimbursement
fees (see Note 11). Of these amounts $8,202,753 and $6,403,671,
respectively, has been treated as stock issuance costs and $20,000 has
been treated as organization costs. The stock issuance costs have been
charged to stockholders' equity subject to the three percent cap described
above.
10. Distributions:
Distributions declared for the quarter ended March 31, 1996, represent
approximately $690,000 of ordinary income and approximately $78,000 of
return of capital to stockholders for federal income tax purposes. No
amounts distributed to the stockholders for the quarter ended March 31,
1996, 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 characterization for tax purposes of distributions
declared for the quarter ended March 31, 1996, may not be indicative of
the results that may be expected for the year ending December 31, 1996.
11. Related Party Transactions:
During the quarter ended March 31, 1996, the Company incurred $1,244,079
in selling commissions due to CNL Securities Corp. for services in
connection with the offering of shares. A substantial portion of this
amount ($1,227,505) was or will be paid as commissions to other broker-
dealers.
In addition, CNL Securities Corp. is entitled to receive a marketing
support and due diligence expense reimbursement fee equal to 0.5% of the
total amount raised from the sale of shares, a portion of which may be
reallowed to other broker-dealers. During the quarter ended March 31,
1996, the Company incurred $82,939 of such fees.
The Advisor is entitled to receive acquisition fees for services in
identifying the Properties and structuring the terms of the acquisition
and leases of the Properties equal to 4.5% of the total amount raised from
the sale of shares. During the quarter ended March 31, 1996, the Company
incurred $746,448 of such fees.
The Company and the Advisor have entered into an advisory agreement
pursuant to which the Advisor will receive a monthly asset management fee
of one-twelfth of 0.60% of the Company's real estate asset value
(generally, the total amount invested in the Properties as of the end of
the preceding month, exclusive of acquisition fees and acquisition
expenses). The asset management fee, which will not exceed fees which are
competitive for similar services in the same geographic area, may or may
not be taken, in whole or in part as to any year, in the sole discretion
of the Advisor. All or any portion of the management fee not taken as to
any fiscal year shall be deferred without interest and may be taken in
such other fiscal year as the Advisor shall determine. In addition, the
advisory agreement provides that the Advisor will receive a monthly
mortgage management fee of one-twelfth of .60% of the Company's total
principal amount of the mortgage loans as of the end of the preceding
month. As of March 31, 1996, the Company incurred $33,289 in asset
management fees, $1,394 of which was capitalized as part of the cost of
building for Properties under construction and $8,475 in mortgage
management fees.
The Advisor and its affiliates provide accounting and administrative
services to the Company (including accounting and administrative services
in connection with the offering of shares) on a day-to-day basis. For the
quarters ended March 31, 1996 and 1995, the expenses incurred for these
services were classified as follows:
1996 1995
Deferred offering costs $ - $ 43,410
Stock issuance costs 185,113 -
General operating and
administrative expenses 74,032 -
-------- --------
$259,145 $ 43,410
======== ========
During the quarter ended March 31, 1996, the Company acquired one Property
for approximately $820,625 from an affiliate of the Company. The
affiliate had purchased and temporarily held title to the Property in
order to facilitate the acquisition of the Property by the Company. The
Property was acquired at a cost no greater than the lesser of the cost of
the Property to the affiliate (including carrying costs) or the Property's
appraised value.
The due to related parties consisted of the following at:
March 31, December 31,
1996 1995
Due to the Advisor:
Expenditures incurred
on behalf of the
Company and accounting
and administrative
services $150,140 $108,316
Acquisition fees 143,485 45,118
Asset and mortgage
management fees 20,515 9,108
Distributions - 3,332
-------- --------
314,140 165,874
-------- --------
Due to CNL Securities Corp:
Commissions 94,947 75,197
Marketing support and due
diligence expense reim-
bursement fees 6,331 5,013
-------- --------
101,278 80,210
-------- --------
Other - 2,500
-------- --------
$415,418 $248,584
======== ========
12. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, or affiliated groups of lessees, each representing
more than ten percent of the Company's total rental and earned income for
the quarter ended March 31, 1996:
Golden Corral Corporation $207,664
Corral South Store I, Inc. 102,779
Castle Hill Holdings V, LLC 97,576
Foodmaker, Inc. 82,633
Northstar Restaurants, Inc. 82,341
During the quarter ended March 31, 1996, the Company also earned $184,949
in interest income from a mortgage note receivable under which Castle Hill
Holdings V, LLC is the borrower.
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than ten
percent of the Company's total rental and earned income for the quarter
ended March 31, 1996:
Golden Corral Family Steakhouse
Restaurants $371,290
Pizza Hut 97,576
Jack in the Box 82,633
Boston Market 82,341
Although the Company's Properties are geographically diverse and the
Company's lessees operate a variety of restaurant concepts, failure of any
one of these restaurant chains or any lessee that contributes more than
ten percent of the Company's rental income could significantly impact the
results of operations of the Company. However, management believes that
the risk of such a default is reduced due to the essential or important
nature of these Properties for the on-going operations of the lessee.
It is expected that the percentage of total rental and earned income
contributed by these lessees and restaurant chains will decrease as
additional Properties are acquired and leased in 1996 and subsequent
years.
13. Commitments:
The Company has entered into various development agreements with tenants
which provide terms and specifications for the construction of buildings
the tenants have agreed to lease once construction is completed. The
agreements provide a maximum amount of development costs (including the
purchase price of the land and closing costs) to be paid by the Company.
The aggregate maximum development costs the Company has agreed to pay is
approximately $5,817,200, of which approximately $2,613,400 in land and
other costs had been incurred as of March 31, 1996. The buildings
currently under construction are expected to be operational by August
1996. In connection with the purchase of each Property, the Company, as
lessor, entered into a long-term lease agreement.
14. Subsequent Events:
During the period April 1, 1996 through May 9, 1996, the Company received
subscription proceeds for an additional 997,797 shares ($9,977,971) of
common stock.
On April 1, 1996 and May 1, 1996, the Company declared distributions of
$323,748 and $368,153, respectively, or $.0583 per share of common stock,
payable in June 1996, to stockholders of record on April 1, 1996 and May
1, 1996, respectively.
During the period April 1, 1996 through May 9, 1996, the Company acquired
eight Properties (five of which are undeveloped land on which restaurants
are being constructed and three of which are land only) for cash at a
total cost of approximately $2,755,000, excluding closing and development
costs. In connection with the purchase of each Property, the Company, as
lessor, entered into a long-term lease agreement. The development costs
(including the purchase of the land and closing costs) to be paid by the
Company relating to the five properties under construction are estimated
to be approximately $6,193,000. The buildings under construction are
expected to be operational by October 1996.
ADDENDUM TO
EXHIBIT E
PRO FORMA ESTIMATE OF TAXABLE INCOME
BEFORE DIVIDENDS PAID DEDUCTION
The pro forma estimate of taxable income contained in this addendum should
be read in conjunction with Exhibit E to the attached prospectus, dated
April 26, 1996.
PRO FORMA ESTIMATE OF TAXABLE INCOME BEFORE DIVIDENDS PAID DEDUCTION OF
CNL AMERICAN PROPERTIES FUND, INC.
GENERATED FROM THE OPERATIONS OF PROPERTIES ACQUIRED FROM APRIL 10, 1996
THROUGH JULY 16, 1996
FOR A 12-MONTH PERIOD (UNAUDITED)
The following schedule represents pro forma unaudited estimates of taxable
income before dividends paid deduction of each Property acquired by the Company
from April 10, 1996 through July 16, 1996, for the 12-month period commencing on
the date of the inception of the respective lease on such Property. The
schedule should be read in light of the accompanying footnotes.
These estimates do not purport to present actual or expected operations of
the Company for any period in the future. These estimates were prepared on the
basis described in the accompanying notes which should be read in conjunction
herewith. No single lessee or group of affiliated lessees lease Properties or
has borrowed funds from the Company with an aggregate purchase price in excess
of 20% of the expected total net offering proceeds of the Company.
· Enlarge/Download Table
TGI Friday's Wendy's Golden Corral Ten Pizza
Hamden, CT (7) Knoxville, TN (7)(8) Port Richey, FL (7) Hut Properties
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $ 173,714 $ 81,898 $ 196,972 $ 166,320
Interest Income (2) - - - 415,686
---------- ---------- ---------- ----------
Total Revenues 173,714 81,898 196,972 582,006
---------- ---------- ---------- ----------
Asset Management Fees (3) (6,808) (4,746) (10,233) (8,922)
Mortgage Management Fee (4) - - - (23,167)
General and Administrative
Expenses (5) (10,770) (5,078) (12,212) (36,084)
---------- ---------- ---------- ----------
Total Operating Expenses (17,578) (9,824) (22,445) (68,173)
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 156,136 72,074 174,527 513,833
Depreciation and Amortization
Expense (6) (30,652) (13,081) (30,970) (10,498)
---------- ---------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 125,484 $ 58,993 $ 143,557 $ 503,335
========== ========== ========== ==========
See Footnotes
Denny's Denny's Wendy's Wendy's
Hillsboro, TX (7) McKinney, TX Camarillo, CA (7)(8) Sevierville, TN(7)(8)
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction:
Base Rent (1) $ 114,346 $ 104,013 $ 124,655 $ 60,735
Interest Income (2) - - - -
---------- ---------- ---------- ----------
Total Revenues 114,346 104,013 124,655 60,735
---------- ---------- ---------- ----------
Asset Management Fees (3) (6,319) (5,874) (7,224 ) (2,956 )
Mortgage Management Fee (4) - - - -
General and Administrative
Expenses (5) (7,089) (6,449) (7,729 ) (3,766 )
---------- ---------- ---------- ----------
Total Operating Expenses (13,408) (12,323) (14,953 ) (6,722 )
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 100,938 91,690 109,702 54,013
Depreciation and Amortization
Expense (6) (19,022) (16,066) (17,220 ) (13,308 )
---------- ---------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 81,916 $ 75,624 $ 92,482 $ 40,705
========== ========== ========== ==========
See Footnotes
Boston Market Boston Market Jack in the Box Boston Market
Ellisville, MO (7)(9) Golden Valley, MN (7)(9) Humble #1, TX (7)(10) Corvallis, OR (7)
Pro Forma Estimate
of Taxable
Income Before Dividends
Paid Deduction:
Base Rent (1) $ 102,675 $ 112,890 $ 100,061 $ 95,085
Interest Income (2) - - - -
---------- ---------- ---------- ----------
Total Revenues 102,675 112,890 100,061 95,085
---------- ---------- ---------- ----------
Asset Management Fees (3) (5,864 ) (6,448 ) (5,603 ) (5,440 )
Mortgage Management Fee (4)
-
- - -
General and Administrative
Expenses (5) (6,366 ) (6,999 ) (6,204 ) (5,895 )
---------- ----------- ---------- ---------
Total Operating Expenses (12,230 ) (13,447 ) (11,807 ) (11,335 )
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 90,445 99,443 88,254 83,750
Depreciation and Amortization
Expense (6) (16,272 ) (13,561 ) (15,646
) (16,006 )
---------- ----------- ---------- ----------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 74,173 $ 85,882 $ 72,608 $ 67,744
========== ========== ========== ==========
See Footnotes
Jack in the Box Arby's Boston Market
Houston #1, TX (7) (10) Kendallville, IN Rockwall, TX (7) Total
Pro Forma Estimate
of Taxable
Income Before Dividends
Paid Deduction:
Base Rent (1) $ 95,757 $ 75,812 $ 79,356 $1,684,289
Interest Income (2) - - - 415,686
------------------------ ----------- ---------- ----------
Total Revenues 95,757 75,812 79,356 2,099,975
------------------------- ----------- ----------------- ----------
Asset Management Fees (3) (5,362 ) (4,430 ) (4,551 ) (90,780 )
Mortgage Management Fee (4) - - - (23,167 )
General and Administrative
Expenses (5) (5,937 ) (4,700 ) (4,920 ) (130,198 )
---------- ---------- --------- ----------------
Total Operating Expenses (11,299 ) (9,130 ) (9,471 ) (244,145 )
---------- ---------- ---------- ----------
Estimated Cash Available from
Operations 84,458 66,682 69,885 1,855,830
Depreciation and Amortization
Expense (6) (15,890 ) (7,794 ) (10,183 ) (246,799 )
---------- ---------- --------- ----------------
Pro Forma Estimate of Taxable
Income Before Dividends Paid
Deduction of the Company $ 68,568 $ 58,888 $ 59,072 $1,609,031
========== ========== ===========================
See Footnotes
<FN>
FOOTNOTES:
(1) Base rent does not include percentage rents which become due if specified
levels of gross receipts are achieved.
(2) The Company entered into a Master Mortgage Note agreement for $3,888,000,
collateralized by building improvements located on the Ten Pizza Hut
Properties. The Master Mortgage Note bears interest at a rate of 10.75%
per annum and principal and interest will be collected in equal monthly
installments over 20 years beginning in July 1996. Amount does not
include $19,440 of loan commitment fees and $19,440 in loan origination
fees collected by the Company at closing from the borrower.
(3) The Properties will be managed pursuant to an advisory agreement between
the Company and CNL Fund Advisors, Inc. (the "Advisor"), pursuant to which
the Advisor will receive monthly asset management fees in an amount equal
to one-twelfth of .60% of the Company's Real Estate Asset Value as of the
end of the preceding month as defined in such agreement. See "Management
Compensation."
(4) For managing the Mortgage Loans, the Advisor will be entitled to receive a
monthly mortgage management fee of one-twelfth of .60% of the total
principal amount of the Mortgage Loans as of the end of the preceding
month. See "Management Compensation."
(5) Estimated at 6.2% of gross rental income and interest income based on the
previous experience of Affiliates of the Advisor with 17 public limited
partnerships which own properties similar to those owned by the Company.
Amount does not include soliciting dealer servicing fee due to the fact
that such fee will not be incurred until December 31 of the year following
the year in which the offering terminates.
(6) The estimated federal tax basis of the depreciable portion (the building
portion) of the Properties has been depreciated on the straight-line
method over 39 years. In connection with the Ten Pizza Hut Properties,
acquisition fees allocated to the Master Mortgage Note have been amortized
on a straight-line basis over the life of the agreement (20 years).
(7) The Company accepted an assignment of an interest in the ground lease
relating to the Hamden and Sevierville Properties effective April 24, 1996
and June 5, 1996, respectively, in consideration of its funding of certain
preliminary development costs and its agreement to fund remaining
development. The development agreements for the Properties which are to
be constructed provide that construction must be completed no later than
the dates set forth below:
Property Estimated Final Completion Date Property Estimated Final Completion Date
Hamden Property September 21, 1996 Ellisville Property December 15, 1996
Knoxville Property September 5, 1996 Golden Valley Property December 16, 1996
Port Richey Property October 5, 1996 Humble #1 Property December 16, 1996
Hillsboro Property December 2, 1996 Corvallis Property January 5, 1997
Camarillo Property October 3, 1996 Houston #1 Property January 5, 1997
Sevierville Property October 3, 1996 Rockwall Property January 11, 1997
(8) The lessee of the Knoxville, Camarillo, and Sevierville Properties is the
same unaffiliated lessee.
(9) The lessee of the Ellisville and Golden Valley Properties is the same
unaffiliated lessee.
(10) The lessee of the Humble #1 and Houston #1 Properties is the same
unaffiliated lessee.
CNL AMERICAN PROPERTIES FUND, INC.
SHARES OF COMMON STOCK
Minimum Purchase 250 Shares ($2,500)
100 Shares ($1,000) for IRAs and Keogh and Pension Plans
(Minimum purchase may be higher in certain states)
CNL AMERICAN PROPERTIES FUND, INC. (the Company ) is a Maryland
corporation which intends to qualify and remain qualified for federal income tax
purposes as a real estate investment trust (a REIT ). THE COMPANY MAY SELL UP
TO 16,500,000 SHARES FOR A MAXIMUM OF $165,000,000. The Company has been formed
primarily to acquire restaurant properties (the Properties ) located across the
United States to be leased on a long-term, triple-net basis to creditworthy
operators of selected national and regional fast-food, family-style, and casual
dining restaurant chains (the Restaurant Chains ). Under the Company's triple-
net leases, the tenant will be responsible for property costs associated with
ongoing operations, including repairs, maintenance, property taxes, utilities,
and insurance. In addition, the leases will be structured to require the tenant
to pay (i) base annual rent, with automatic increases in the base rent, and (ii)
percentage rent based on certain restaurant sales above a specified level. The
Company may provide financing (the Mortgage Loans ) for the purchase of
buildings, generally by tenants that lease the underlying land from the Company.
To a lesser extent, the Company intends to offer furniture, fixture and
equipment financing ( Secured Equipment Leases ) to operators of Restaurant
Chains. Secured Equipment Leases will be funded from the proceeds of a loan in
an amount up to 10% of Gross Proceeds (the Loan ) which the Company has
obtained. The Company is not a mutual fund or other type of investment company
within the meaning of the Investment Company Act of 1940, and is not subject to
regulation thereunder. The Company is not affiliated with the United States
Government.
THERE ARE SIGNIFICANT RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY (SEE
RISK FACTORS ), INCLUDING THE FOLLOWING:
o Both the number of Properties that the Company will acquire and the
diversification of its investments will be reduced to the extent that the
total proceeds of the offering are less than $165,000,000. As of April 9,
1996, the total offering proceeds were $57,887,405.
o The Company will rely on CNL Fund Advisors, Inc. (the Advisor ) with respect
to all investment decisions subject to approval by the Board of Directors in
certain circumstances. The experience of the Advisor and Directors of the
Company with mortgage financing and equipment leasing is limited.
o The Advisor and its Affiliates are or will be engaged in other activities
that will result in potential conflicts of interest with the services that
the Advisor will provide to the Company.
o The Company owned, as of April 9, 1996, 48 Properties of the anticipated
total of 140 to 160 Properties, and investors, therefore, will not have the
opportunity to evaluate all the Properties that the Company eventually will
acquire.
o There is currently no public trading market for the Shares, and there is no
assurance that one will develop.
o If the Shares are not listed on a national securities exchange or over-the-
counter market ( Listing ) within ten years of commencement of the offering,
as to which there can be no assurance, the Company will commence orderly sale
of its assets and the distribution of the proceeds. Listing does not assure
liquidity.
o Market and economic conditions that the Company cannot control will have an
effect (either positive or negative) on the value of the Company's
investments and the amount of cash that the Company receives from tenants and
lessees.
o Prior to meeting certain conditions, the Company may incur debt, including
debt to make Distributions to stockholders, but will not encumber Properties.
THE COMPANY'S PRIMARY INVESTMENT OBJECTIVES are to preserve, protect, and
enhance the Company's assets while (i) making Distributions commencing in the
initial year of Company operations; (ii) obtaining fixed income through the
receipt of base rent, and increasing the Company's income (and Distributions)
and providing protection against inflation through automatic increases in base
rent and receipt of percentage rent, and obtaining fixed income through the
receipt of payments from Secured Equipment Leases; (iii) qualifying as a REIT
for federal income tax purposes; and (iv) providing stockholders of the Company
with liquidity of their investment within five to ten years after commencement
of the offering, either in whole or in part, through (a) Listing, or (b) the
commencement of orderly sales of the Company's assets and distribution of the
proceeds thereof (outside the ordinary course of business and consistent with
its objective of qualifying as a REIT). There can be no assurance that these
investment objectives will be met.
This Prospectus describes an investment in Shares of the Company. The
Company will use stockholders' funds to purchase the Properties and make
Mortgage Loans and will borrow money to fund Secured Equipment Leases. No
stockholder may hold more than 9.8% of the total Shares. Of the proceeds from
the sale of Shares, approximately 84% (in the event $150,000,000 or more is
raised) will be used to acquire Properties and make Mortgage Loans, and
approximately 9% will be paid in fees and expenses to Affiliates of the Company
for their services; the balance will be used to pay other expenses of the
offering. The Company has registered an offering of 16,500,000 Shares, with
1,500,000 of such Shares available only to stockholders purchasing Shares in
this initial public offering who receive a copy of this Prospectus and who elect
to participate in the Company's reinvestment plan (the Reinvestment Plan ).
Any participation in such plan by a person who becomes a stockholder otherwise
than by participating in this offering must be made pursuant to a solicitation
under a separate prospectus. See Summary of Reinvestment Plan. Prior
programs sponsored by Affiliates of the Company and the Advisor are in limited
partnership form. See Prior Performance Information.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
· Enlarge/Download Table
==============================================================================================================================
Price to Selling Proceeds to
Public Commissions(1) Company(2)
Per Share . . . . . . . . . . . . . . . . . . . . .
$ 10.00 $ 0.75 $ 9.25
Total Minimum . . . . . . . . . . . . . . . . . . . .
$ 1,500,000 $ 112,500 $ 1,387,500
Total Maximum(3) . . . . . . . . . . . . . . . . . . .
$ 165,000,000 $ 12,375,000 $ 152,625,000
==============================================================================================================================
(footnotes on following page)
(1) CNL Securities Corp. (the Managing Dealer ) will receive Selling
Commissions of 7.5% on sales of Shares, subject to reduction in
certain circumstances. The Managing Dealer, which is an Affiliate
of the Company, may engage other broker-dealers that are members of
the National Association of Securities Dealers, Inc. or other
entities exempt from broker-dealer registration (collectively, the
Soliciting Dealers ) to sell Shares and reallow to them commissions
of up to 7% with respect to Shares which they sell. The amounts
indicated for Selling Commissions assume that reduced Selling
Commissions are not paid in connection with the purchase of any
Shares and do not include a 0.5% marketing support and due diligence
expense reimbursement fee payable to the Managing Dealer, all or a
portion of which may be reallowed to certain Soliciting Dealers.
Such amounts also do not include a Soliciting Dealer Servicing Fee
payable to the Managing Dealer by the Company (see Management
Compensation ), all or a portion of which may be reallowed to
certain Soliciting Dealers. See The Offering Plan of
Distribution for a discussion of the circumstances under which
reduced Selling Commissions may be paid and a description of the
marketing support and due diligence expense reimbursement fee
payable to the Managing Dealer.
(2) Before deducting (i) organizational and offering expenses of the
Company estimated to be 3% of gross offering proceeds computed at
$10.00 per Share sold ( Gross Proceeds ) on the sale of 15,000,000
Shares and (ii) the marketing support and due diligence expense
reimbursement fee. Organizational and offering expenses exclude
Selling Commissions and the marketing support and due diligence
reimbursement fee. The Advisor will pay all organizational and
offering expenses which exceed 3% of the Gross Proceeds.
(3) Assumes that the Managing Dealer exercises its option to sell an
additional 5,000,000 Shares in the event the offering is
oversubscribed. Also includes 1,500,000 Shares which may be issued
pursuant to the Company's Reinvestment Plan. Those stockholders who
elect to participate in the Reinvestment Plan will have their
Distributions reinvested in additional Shares.
NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW YORK NOR THE
ATTORNEY GENERAL OF THE STATE OF NEW JERSEY OR THE BUREAU OF SECURITIES OF THE
STATE OF NEW JERSEY HAS PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
All subscription funds for Shares will be deposited in an interest-
bearing escrow account with SouthTrust Estate & Trust Company, Inc., which will
act as the escrow agent for this offering. As of June 1, 1995, the Company had
received aggregate subscription proceeds of $1,955,500, which exceeded the
minimum offering amount of $1,500,000, and $1,836,500 of the funds (excluding
funds received from Iowa, Minnesota, New York, Ohio and Pennsylvania investors)
were released from escrow. As of April 9, 1996, the Company had received
aggregate subscription proceeds of $57,887,405 (5,788,741 Shares) from 3,440
stockholders, including $128,151 (12,815 Shares) issued pursuant to the
Reinvestment Plan. The Company has elected to extend the offering of Shares
until a date no later than March 29, 1997 (two years after the initial date of
this Prospectus), in states that permit such extension.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION
IN ANY STATE IN WHICH SUCH OFFER OR SALE WOULD BE UNLAWFUL, AND NO SUBSCRIPTION
WILL BE ACCEPTED FROM ANY PERSON WHO DOES NOT MEET THE SUITABILITY STANDARDS SET
FORTH HEREIN. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL CREATE, UNDER ANY CIRCUMSTANCES, AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. IF, HOWEVER, ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY, AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE
WHICH MAY FLOW FROM AN INVESTMENT IN THIS COMPANY IS PROHIBITED.
TABLE OF CONTENTS
Page
SUMMARY OF THE OFFERING 1
RISK FACTORS 9
Investment Risks 9
Real Estate and Financing Risks 12
Tax Risks 15
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE 17
ESTIMATED USE OF PROCEEDS 19
MANAGEMENT COMPENSATION 20
CONFLICTS OF INTEREST 26
Prior and Future Programs 26
Acquisition of Properties 26
Sales of Properties 27
Joint Investment With An Affiliated Program 27
Competition for Management Time 27
Compensation of the Advisor 28
Relationship with Managing Dealer 28
Legal Representation 28
Certain Conflict Resolution Procedures 28
SUMMARY OF REINVESTMENT PLAN 30
REDEMPTION OF SHARES 32
BUSINESS 34
General 34
Property Acquisitions 37
Site Selection and Acquisition of Properties 70
Standards for Investment in Properties 73
Description of Properties 74
Description of Property Leases 75
Joint Venture Arrangements 78
Mortgage Loans 79
Management Services 80
Borrowing 80
Sale of Properties, Mortgage Loans, and Secured Equipment Leases 81
Franchise Regulation 82
Competition 82
Regulation of Mortgage Loans and Secured Equipment Leases 82
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OF THE COMPANY 82
MANAGEMENT 87
General 87
Fiduciary Responsibility of the Board of Directors 87
Directors and Executive Officers 88
Independent Directors 90
Committees of the Board of Directors 90
Compensation of Directors and Executive Officers 91
Management Compensation 91
THE ADVISOR AND THE ADVISORY AGREEMENT 91
The Advisor 91
The Advisory Agreement 91
PRIOR PERFORMANCE INFORMATION 94
INVESTMENT OBJECTIVES AND POLICIES 98
General 98
Certain Investment Limitations 99
DISTRIBUTION POLICY 100
General 100
Distributions 101
SUMMARY OF THE ARTICLES OF INCORPORATION AND BYLAWS 101
General 101
Description of Capital Stock 102
Board of Directors 102
Stockholder Meetings 103
Advance Notice for Stockholder Nominations for
Directors and Proposals of New Business 103
Amendments to the Articles of Incorporation 103
Mergers, Combinations, and Sale of Assets 103
Termination of the Company and REIT Status 103
Restriction of Ownership 104
Responsibility of Directors 105
Limitation of Liability and Indemnification 105
Removal of Directors 106
Inspection of Books and Records 106
Restrictions on Roll-Up Transactions 106
FEDERAL INCOME TAX CONSIDERATIONS 107
Introduction 107
Taxation of the Company 107
Taxation of Stockholders 112
State and Local Taxes 115
Characterization of Property Leases 115
Characterization of Secured Equipment Leases 116
Investment in Joint Ventures 116
REPORTS TO STOCKHOLDERS 117
THE OFFERING 118
General 118
Plan of Distribution 118
Subscription Procedures 120
Escrow Arrangements 122
ERISA Considerations 122
Determination of Offering Price 124
SUPPLEMENTAL SALES MATERIAL 124
LEGAL OPINIONS 124
EXPERTS 124
ADDITIONAL INFORMATION 124
DEFINITIONS 125
Form of Amended Reinvestment Plan Exhibit A
Financial Information Exhibit B
Prior Performance Tables Exhibit C
Subscription Agreement Exhibit D
Pro Forma Estimate of Taxable Income Exhibit E
SUMMARY OF THE OFFERING
THIS SECTION SUMMARIZES CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS INTENDED FOR QUICK REFERENCE ONLY. THIS IS NOT A COMPLETE
DESCRIPTION OF THE INVESTMENT. POTENTIAL STOCKHOLDERS MUST READ AND EVALUATE
THE FULL TEXT OF THIS PROSPECTUS AND ALL SUPPORTING DOCUMENTS ATTACHED AS
EXHIBITS HERETO IN ORDER TO EVALUATE AN INVESTMENT IN THE COMPANY. THE
FOLLOWING SUMMARY THEREFORE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
FULL TEXT OF THIS PROSPECTUS AND THE SUPPORTING DOCUMENTS.
CNL AMERICAN PROPERTIES FUND, INC.
CNL American Properties Fund, Inc. (the Company) is a Maryland
corporation which intends to qualify and remain qualified for federal income tax
purposes as a real estate investment trust (a REIT ). The Company's address is
400 East South Street, Suite 500, Orlando, Florida 32801, telephone
(407) 422-1574 or toll free (800) 522-3863.
The Company has acquired and intends to continue to acquire restaurant
properties (the Properties ) located across the United States. The Properties
will be leased to creditworthy operators of selected national and regional
restaurant chains, primarily fast-food, family-style, and casual dining chains
(the Restaurant Chains ). The Company expects to structure its leases of the
Properties to provide for payment of base annual rents with automatic increases
and percentage rents based on gross sales. All leases will be on a long-term
(generally, 15 to 20 years, plus renewal options for an additional 10 to 20
years), triple-net basis, which means that the tenant will be responsible for
repairs, maintenance, property taxes, utilities, and insurance. The Company has
provided and intends to continue to provide financing (the Mortgage Loans ) for
the purchase of buildings, generally by tenants that lease the underlying land
from the Company. The Company expects that the economic effects of the Mortgage
Loans will be similar to those of its leases (generally with full repayment in
15 to 20 years). The Company also will offer furniture, fixtures and equipment
( Equipment ) financing to operators of Restaurant Chains pursuant to which the
Company will provide, through direct financing leases, the Equipment
(collectively, the Secured Equipment Leases ). No offering proceeds will be
used for the purpose of funding Secured Equipment Leases. The Company has
obtained a $15,000,000 line of credit (the Loan ) to be used by the Company to
fund Secured Equipment Leases. The Loan provides that the Company will be able
to receive advances under the line of credit until March 4, 1998. Generally,
advances under the Loan will be fully amortizing term loans repayable over
periods of time equal to the duration of the Secured Equipment Leases, but in no
event greater than 72 months. The Company intends to limit advances under the
Loan to 10% of Gross Proceeds of the offering. See Business for a description
of the types of Restaurant Chains that may be selected by the Advisor, the
Property selection and acquisition processes, the nature of the Mortgage Loans
and Secured Equipment Leases and a description of the Loan.
Under the Company's Articles of Incorporation, the Company automatically
will terminate and dissolve on December 31, 2005 unless the shares of Common
Stock of the Company, including the shares offered hereby (the Shares ), are
listed on a national securities exchange or over-the-counter market ( Listing ),
in which event the Company automatically will become a perpetual life entity.
If Listing does not occur within ten years after commencement of the offering,
the Company will undertake, outside the ordinary course of business and
consistent with its objective of qualifying as a REIT, the orderly Sale of the
Company's assets, the distribution of Net Sales Proceeds of such Sales to
stockholders and the limitation of its activities to those related to its
orderly liquidation, unless the stockholders owning a majority of the Shares
elect to amend the Articles of Incorporation to extend the duration of the
Company. See Risk Factors Real Estate and Financing Risks for a complete
discussion of risks relating to future disposition of the Company's assets. If
Listing occurs (which is not assured), then the Board of Directors may elect to
cause the Company to encumber any or all of the Company's Properties in
connection with any borrowing. The Board of Directors anticipates that such
borrowing, in the aggregate, will not exceed 50% of Real Estate Asset Value,
although the maximum amount the Company may borrow is 300% of Net Assets (an
amount which the Company anticipates will correspond to approximately 75% of
Real Estate Asset Value). In general, Net Assets are the Company's total assets
(other than intangibles), calculated at cost, less total liabilities. As a
perpetual life entity following Listing, the Company would not be required to
dissolve and return capital to stockholders. If Listing occurs, in order to
liquidate their investment stockholders would have to sell their Shares in the
market on which the Shares are traded. Listing is no assurance of liquidity.
See Risk Factors Investment Risks for a discussion of risks associated with
the lack of liquidity of the Shares and with borrowing. In addition, following
Listing the Company intends to reinvest proceeds from Sales of Properties rather
than distribute such proceeds to stockholders.
RISK FACTORS
The Risk Factors section discusses in detail the more important risks
associated with an investment in the Company, including risks associated with an
investment in a real estate investment trust such as the Company, risks
associated with an investment in real estate such as the Properties, risks
associated with the Mortgage Loans, risks associated with Secured Equipment
Leases, and tax risks. These risks include:
o Risks of reduced diversification in the Company's investments if the
Company does not raise $165,000,000 from sales of Shares.
o Risks of reliance on CNL Fund Advisors, Inc. (the Advisor ) and the Board
of Directors, which together will have responsibility for the management
of the Company and its investments, subject to the ability of the
stockholders to elect the Directors.
o Risks relating to the fact that the services to be performed by the
Advisor and its Affiliates for the Company in connection with the
offering, the selection and acquisition of the Properties, the making of
Mortgage Loans, the administration of the Secured Equipment Lease program
and the general operation of the Company will result in conflicts of
interest.
o Risks related to the fact that, because as of April 9, 1996, the Company
owned only 48 Properties of the anticipated total of 140 to 160
Properties, stockholders therefore will not have the opportunity to
evaluate all the Properties that the Company eventually will acquire.
o Risks that stockholders who must sell their Shares will not be able to
sell them quickly because it is not anticipated that there will be a
public market for the Shares in the near term, and there can be no
assurance that the Listing will occur.
o Market risks associated with investments in real estate, which means that
the amount of cash the Company will receive from tenants, lessees or
borrowers cannot be predicted.
o Risks that the Company, prior to meeting certain conditions, may incur
debt, including debt to make Distributions, but will not encumber
Properties.
o Risks of defaults by tenants, lessees or borrowers resulting in decreased
income.
o Risks relating to the fact that the vote of stockholders owning at least a
majority but less than all of the Shares will bind all of the stockholders
as to matters such as the election of Directors and amendment of the
Company's governing documents.
o Risks that restrictions on ownership of more than 9.8% of the shares of
the Company's Common Stock (the Common Stock ) by any single stockholder
or certain related stockholders may have the effect of inhibiting a change
in control of the Company even if such a change is in the interest of a
majority of the stockholders.
o Risks that the Company may not qualify or remain qualified as a REIT for
federal income tax purposes, which could result in subjecting the Company
to federal income tax on its taxable income at regular corporate rates
and, in turn, thereby reducing the amount of funds available for paying
Distributions to stockholders.
ESTIMATED USE OF PROCEEDS
The Company is using the proceeds of the sale of the Shares to acquire
Properties, to make Mortgage Loans, generally in connection with such
acquisitions, and to pay expenses relating to the organization of the Company
and the sale of the Shares. Management of the Company and the Advisor have
estimated an average purchase price of $800,000 to $900,000 per Property based
on their past experience in acquiring similar properties and in light of current
market conditions, although prices of Properties may be lower or higher. See
Business Property Acquisitions for a description of the Properties the
Company has acquired and the Mortgage Loan the Company has made as of April 9,
1996. Assuming CNL Securities Corp. (the Managing Dealer ) exercises its
option to increase the offering from 10,000,000 Shares ($100,000,000) to up to
15,000,000 Shares ($150,000,000) and 15,000,000 Shares are sold, the Company
will acquire approximately 140 to 160 Properties. In addition, the Company has
registered an offering of an additional 1,500,000 Shares ($15,000,000) available
only to stockholders who receive a copy of this Prospectus and who elect to
participate in the Company's reinvestment plan (the Reinvestment Plan ). See
Estimated Use of Proceeds and Business General for a more detailed
description of the anticipated use of offering proceeds. Secured Equipment
Leases will be funded solely from the proceeds of the Loan and the number of
Secured Equipment Leases will not depend on the amount raised in the offering.
CONFLICTS OF INTEREST
Certain officers and Directors of the Company who are also officers or
directors of the Advisor will experience conflicts of interest in their
management of the Company. These arise principally from their involvement in
other activities that will conflict with those of the Company and include
matters related to (i) allocation of properties and management time and services
between the Company and various partnerships and other entities, (ii) the timing
and terms of the sale of a Property, (iii) negotiation and funding of Mortgage
Loans, (iv) administration of the Secured Equipment Lease program,
(v) investments with Affiliates of the Advisor, (vi) compensation of the
Advisor, (vii) the Company's relationship with the Managing Dealer, which is an
Affiliate of the Company and the Advisor, and (viii) the fact that the Company's
securities and tax counsel also serves as securities and tax counsel for certain
Affiliates of the Company, and that neither the Company nor the stockholders
will have separate counsel.
The Directors of the Company who are independent of the Advisor (the
Independent Directors) are responsible for monitoring the activities of the
Advisor and must approve all of the Advisor's actions that involve a potential
conflict other than certain such actions specifically permitted by the Articles
of Incorporation. The Conflicts of Interest section discusses in more detail
the more significant of these potential conflicts of interest, as well as the
procedures that have been established to resolve a number of these potential
conflicts.
MANAGEMENT
The Company has retained the Advisor, pursuant to an advisory agreement,
to handle the day-to-day operations of the Company, to select the Company's real
estate investments, and to administer its Secured Equipment Lease program. The
five members of the Board of Directors will oversee the management of the
Company. Three of the Directors of the Company are independent of the Advisor
and have responsibility for reviewing its performance. The Directors are
elected to the Board of Directors annually by the stockholders.
All of the officers and directors of the Advisor also are officers or
Directors of the Company. The Advisor will have responsibility for
(i) selecting the Properties that the Company will acquire, formulating and
evaluating the terms of each proposed acquisition, and arranging for the
acquisition of the Property by the Company, (ii) identifying potential lessees
for the Properties and potential borrowers for the Mortgage Loans, and
formulating, evaluating, and negotiating the terms of each lease of a Property
and each Mortgage Loan, and (iii) locating and identifying potential lessees and
formulating, evaluating, and negotiating the terms of each Secured Equipment
Lease. All of the foregoing actions are subject to approval by the Board of
Directors. The Advisor also will have the authority, subject to approval by a
majority of the Board of Directors, including a majority of the Independent
Directors, to select Properties for Sale in keeping with the Company's
investment objectives and based on an analysis of economic conditions both
nationally and in the vicinity of the Property being considered for Sale.
The Company's Articles of Incorporation provide that, if Listing does not
occur within ten years from the commencement of this offering, the Company will
commence orderly Sales of its assets and distribute the proceeds thereof. In
that case, the Company will engage only in activities related to its orderly
liquidation unless the stockholders elect otherwise.
See Management and The Advisor and the Advisory Agreement for a
description of the business background of the individuals responsible for the
management of the Company and the Advisor, as well as for a description of the
services that the Advisor will provide.
MANAGEMENT COMPENSATION
The Advisor, the Managing Dealer, and other Affiliates of the Advisor will
receive compensation for services they will perform for the Company and also
will receive expense reimbursements from the Company for expenses they pay on
behalf of the Company. See Management Compensation for a description of
compensation paid to the Advisor and Affiliates as of December 31, 1995. The
following paragraphs summarize the more significant items of compensation.
In connection with the formation of the Company and the offering of the
Shares, the Managing Dealer will receive Selling Commissions of 7.5% (a maximum
of $11,250,000 if 15,000,000 Shares are sold), and a marketing support and due
diligence expense reimbursement fee of 0.5% (a maximum of $750,000 if 15,000,000
Shares are sold), of the total amount raised from the sale of Shares, computed
at $10.00 per Share sold ( Gross Proceeds ). The Managing Dealer in turn may
reallow Selling Commissions of up to 7% on Shares sold, and all or a portion of
the 0.5% marketing support and due diligence expense reimbursement fee to
certain Soliciting Dealers, who are not Affiliates of the Company. In addition,
the Company will incur a Soliciting Dealer Servicing Fee in the amount of .20%
of Invested Capital (as defined below) (a maximum of $300,000 if 15,000,000
Shares are sold). The Soliciting Dealer Servicing Fee will be payable on
December 31 of each year, commencing on December 31 of the year following the
year in which the offering terminates, and generally will be payable to the
Managing Dealer, which in turn may reallow all or a portion of such fee to
Soliciting Dealers whose clients held Shares on such date. The Company also may
pay the Soliciting Dealer Servicing Fee directly to any Soliciting Dealer exempt
from registration as a broker-dealer and whose clients held Shares on such date.
In general, the stockholders' investment in the Company ( Invested Capital ) is
the number of Shares they own, multiplied by $10.00 per Share, reduced by the
portion of all prior Distributions received by stockholders from the Sale of one
or more Properties and by any amounts paid by the Company to repurchase Shares
pursuant to the redemption plan.
For identifying the Properties and structuring the terms of the
acquisition and leases of the Properties, the Advisor will receive Acquisition
Fees equal to 4.5% of Gross Proceeds (a maximum of $6,750,000 if 15,000,000
Shares are sold) from the sale of Shares.
In connection with the acquisition of Properties that have been
constructed or renovated by Affiliates, subject in each case to the approval of
a majority of the Board of Directors including a majority of the Independent
Directors, the Company will incur Development/Construction Management Fees of
generally 5% to 10% of the cost of constructing or renovating a Property,
payable to Affiliates of the Company as Acquisition Fees. Such fees will be
included in the purchase price of Properties purchased from developers that are
Affiliates of the Company. See Business - Site Selection and Acquisition of
Properties. Development/Construction Management Fees, which are based on the
number of Properties purchased from developers that are Affiliates of the
Company, the cost of construction or renovation of such Properties, and the
percentage amount of each development/construction management fee, are not
determinable at this time.
In connection with the acquisition of Properties from affiliated or
unaffiliated developers, subject in each case to the approval of a majority of
the Board of Directors including a majority of the Independent Directors, to
whom Affiliates of the Company have provided construction financing, the Company
will incur Construction Financing Fees, payable to Affiliates of the Company as
Acquisition Fees. Such fees will be in an amount equal to generally 1% to 2% of
the total amount of each loan plus the difference between the Affiliate-lender's
cost of funds and the amount of interest charged to the developer, with such
difference determined by applying an annual percentage rate of generally 1.5% to
3% throughout the duration of the loan to the outstanding amount of the loan.
Such fees will be included in the purchase price of Properties purchased from
developers that receive such loans. See Business - Site Selection and
Acquisition of Properties. Construction Financing Fees, which are based on the
number of Properties for which Affiliates of the Company provide construction
financing, the amount and duration of such loans, and the amount of each
construction financing fee, are not determinable at this time.
The total of all Acquisition Fees and Acquisition Expenses shall be
reasonable and shall not exceed an amount equal to 6% of the Real Estate Asset
Value of a Property, or in the case of a Mortgage Loan, 6% of the funds
advanced, unless a majority of the Board of Directors, including a majority of
the Independent Directors, not otherwise interested in the transaction approves
fees in excess of these limits subject to a determination that the transaction
is commercially competitive, fair and reasonable to the Company.
For managing the Properties, the Advisor will be entitled to receive a
monthly Asset Management Fee of one-twelfth of .60% of the Company's Real Estate
Asset Value (generally, the total amount invested in the Properties, exclusive
of Acquisition Fees and Acquisition Expenses) as of the end of the preceding
month.
For managing the Mortgage Loans, the Advisor will be entitled to receive a
monthly Mortgage Management Fee of one-twelfth of .60% of the total principal
amount of the Mortgage Loans as of the end of the preceding month.
For negotiating Secured Equipment Leases and supervising the Secured
Equipment Lease program, the Advisor will be entitled to receive from the
Company a one-time Secured Equipment Lease Servicing Fee of 2% of the purchase
price of the Equipment that is the subject of a Secured Equipment Lease.
Prior to Listing, the Advisor may receive a real estate disposition fee of
3% of the gross sales price of one or more Properties for providing substantial
services in connection with the Sale, which will be deferred and subordinated
until the stockholders have received Distributions equal to the sum of 100% of
the stockholders' aggregate Invested Capital plus an aggregate, annual,
cumulative, noncompounded 8% return on their Invested Capital, excluding
Distributions attributable to proceeds of the Sale of a Property (the
Stockholders' 8% Return ). Upon Listing, if the Advisor has accrued but not
been paid such real estate disposition fee, then for purposes of determining
whether the subordination conditions have been satisfied, stockholders will be
deemed to have received a Distribution in an amount equal to the product of the
total number of Shares outstanding and the average closing prices of the Shares
over a period, beginning 180 days after Listing, of 30 days during which the
Shares are traded. See The Advisor and The Advisory Agreement The Advisory
Agreement.
A subordinated share of Net Sales Proceeds will be paid to the Advisor
upon the Sale of one or more Properties or Secured Equipment Leases in an amount
equal to 10% of Net Sales Proceeds. This amount will be subordinated and paid
only after the stockholders have received Distributions equal to the sum of 100%
of the stockholders' aggregate Invested Capital, plus the Stockholders' 8%
Return.
Payment of certain fees is subject to conditions and restrictions or to
change under certain specified circumstances. The Advisor and its Affiliates
also may receive reimbursement for out-of-pocket expenses that they incur on
behalf of the Company, subject to certain expense limitations, and a
subordinated incentive fee if Listing occurs.
SUMMARY OF REINVESTMENT PLAN
The Company has established the Reinvestment Plan pursuant to which
stockholders may elect to have their cash Distributions from the Company
automatically reinvested in Shares. See Summary of Reinvestment Plan,
Federal Income Tax Considerations Taxation of Stockholders, and the form of
Reinvestment Plan accompanying this Prospectus as Exhibit A for more specific
information about the Reinvestment Plan. Expenses incurred in connection with
the Reinvestment Plan, including Selling Commissions and marketing support and
due diligence expense reimbursement fees, will be paid by the Company. A person
who becomes a stockholder otherwise than by participating in this offering may
purchase Shares through the Reinvestment Plan only after receipt of a separate
prospectus relating solely to the Reinvestment Plan.
BUSINESS (PURCHASE AND SALE OF PROPERTIES AND OFFERING OF MORTGAGE LOANS AND
SECURED EQUIPMENT LEASES)
PROPERTIES AND MORTGAGE LOANS. The types of Properties which the Company
intends to purchase and lease to third parties, as well as a description of the
Properties acquired by the Company as of April 9, 1996, appears in the section
entitled Business. It is expected that the Company will invest in Properties
of selected national and regional restaurant chains, primarily fast-food,
family-style, and casual dining chains, the most rapidly growing segments of the
restaurant industry in recent years. Management intends to structure the
Company's investments to allow it to participate, to the maximum extent
possible, in any sales growth in these industry segments, as reflected in the
Properties that it owns. The Properties, which typically are or will be
freestanding and will be located across the United States, are or will be leased
on a triple-net basis to creditworthy operators of the Restaurant Chains to be
selected by the Advisor and approved by the Board of Directors. The Properties
may consist of both land and building, the land underlying the building with the
building owned by the tenant or a third party, or the building only with the
land owned by a third party. The Properties have been or will be purchased for
cash and will not be encumbered by any liens. If Listing occurs, however, the
Board of Directors may elect to cause the Company to borrow funds in connection
with the purchase of additional Properties or for other Company purposes and to
encumber any or all of the Company's Properties in connection with any such
borrowing. The Board of Directors anticipates that, in the aggregate, borrowing
will not exceed 50% of Real Estate Asset Value, although the maximum amount of
borrowing, in the absence of a satisfactory showing that a higher level of
borrowing is appropriate (as determined by a majority of the Independent
Directors), shall not exceed 300% of Net Assets (an amount which the Company
anticipates will correspond to approximately 75% of Real Estate Asset Value).
Management expects to acquire Properties in part with a view to diversification
among Restaurant Chains and the geographic location of the Properties. The
Company estimates that it will acquire at least 140 to 160 Properties if the
maximum of 15,000,000 Shares is sold, based on an estimated average purchase
price of $800,000 to $900,000 per Property.
To a lesser extent the Company will offer Mortgage Loans to finance the
purchase of buildings by operators of Restaurant Chains. In general, the
Company intends to offer Mortgage Loans in circumstances in which the Company
owns the land underlying the building to be financed and the borrower under the
Mortgage Loan also enters into a long-term ground lease for the underlying land.
Management believes that this combined leasing and financing structure provides
the benefit of allowing the Company to receive the return of its initial
investment plus interest on each financed building, which is generally a
depreciating asset, while retaining the ownership of the underlying land, which
is generally an appreciating asset. However, none of the prior programs
organized by Affiliates of the Company has offered Mortgage Loans and the
experience of the Advisor and Directors of the Company with mortgage financing
is limited. See Risk Factors - Investment Risks - Risks Associated With
Mortgage Loans.
As of April 9, 1996, the Company owned 48 Properties (including 21
Properties which consist of land and building, one Property through a joint
venture arrangement which consists of land and building, three Properties which
consist of a building only, and 23 Properties which consist of land only). In
addition, the Company had initial commitments to acquire 12 Properties
(including one Property which is land and building, one Property which is
building only, and 10 Properties which are land only). The acquisition of each
of these Properties is subject to the fulfillment of certain conditions.
Although the Company believes that there is a reasonable probability that the
Company will acquire these Properties, there can be no assurance that these
conditions will be satisfied or that the Company will purchase one or more of
these Properties. The Company has undertaken to supplement this Prospectus
during the offering period to describe the acquisition of Properties at such
time as the Company believes that a reasonable probability exists that a
Property will be acquired by the Company. Based upon the experience of
management of the Company and the Advisor and the proposed acquisition methods,
a reasonable probability that the Company will acquire a Property normally will
occur as of the date on which (i) a commitment letter is executed by a proposed
lessee, (ii) a satisfactory credit underwriting for the proposed lessee has been
completed, and (iii) a satisfactory site inspection has been completed. See
Business General.
In connection with the acquisition of the 23 Properties which are land
only, the Company has made a single Mortgage Loan secured by the buildings and
other improvements on such Properties.
In connection with the initial commitments with the ten Properties
consisting of land only, the Company anticipates providing mortgage financing to
the tenant which will be collateralized by the building improvements. If the
Mortgage Loan is executed, it is expected to be executed under substantially the
same terms described in Business - Mortgage Loans.
SECURED EQUIPMENT LEASES. The Secured Equipment Leases will be funded
solely from the proceeds of the Loan. The Company expects that the Secured
Equipment Leases will be structured so that they will be treated as loans
secured by personal property for federal income tax purposes. The Company has
neither identified any prospective operators of Restaurant Chains that will
participate in such financing arrangements nor negotiated any specific terms of
a Secured Equipment Lease. See Business General.
The Company has established certain conflict resolution procedures
relating to (i) transactions between the Company and the Advisor or its
Affiliates, (ii) certain future offerings, and (iii) allocation of restaurant
properties and Secured Equipment Leases among certain affiliated entities. See
Conflicts of Interest Certain Conflict Resolution Procedures.
For the first five to ten years after commencement of this offering, the
Company intends to reinvest in additional Properties and Mortgage Loans any
proceeds of the Sale of a Property or Mortgage Loan that are not required to be
distributed to stockholders in order to preserve the Company's status as a REIT
for federal income tax purposes. The proceeds from the Sale of Secured
Equipment Leases will be used to fund additional Secured Equipment Leases, or to
reduce the Company's outstanding indebtedness on the Loan. At or prior to the
end of the ten-year period, the Company intends to provide stockholders of the
Company with liquidity of their investment, either in whole or in part, through
Listing (although there is no assurance of such liquidity), or by commencing
orderly Sales of the Company's assets. If Listing occurs, the Company intends
to reinvest in additional Properties, Mortgage Loans, and Secured Equipment
Leases any Net Sales Proceeds not required to be distributed to stockholders in
order to preserve the Company's status as a REIT. See Business General and
Business Sale of Properties, Mortgage Loans, and Secured Equipment Leases.
INVESTMENT OBJECTIVES AND POLICIES
The Company's primary investment objectives are:
o to preserve, protect, and enhance the Company's assets.
o to make Distributions commencing in the initial year of Company
operations.
o to obtain fixed income through the receipt of base rent, as well as
to increase the Company's income (and Distributions) and provide
protection against inflation through automatic increases in base
rent and receipt of percentage rent, and to obtain fixed income
through the receipt of payments on Secured Equipment Leases.
o to qualify and remain qualified as a REIT for federal income tax
purposes.
o to provide stockholders of the Company with liquidity of their
investment within five to ten years after commencement of the
offering, although liquidity cannot be assured thereby, either
through (i) Listing or (ii) outside the ordinary course of business
and consistent with its objective of qualifying as a REIT, the
commencement of orderly Sales of the Company's assets and
distribution of the proceeds thereof.
The Company intends to meet these objectives by following certain
investment policies discussed herein, as summarized on the preceding pages. See
Business General, Business Site Selection and Acquisition of Properties,
Business Description of Leases, and Investment Objectives and Policies for
a more complete description of the manner in which the structure of the
Company's business will facilitate the Company's ability to meet its investment
objectives. There can be no assurance that these objectives will be met. The
Company's investment objectives are subject to review by the Independent
Directors and may not be changed without the approval of stockholders owning a
majority of the shares of outstanding Common Stock.
DESCRIPTION OF SHARES
A stockholder's investment will be recorded on the books of the Company.
The Company will provide, upon the request of any stockholder wishing to
transfer his or her Shares, a transfer form to be completed and executed by the
stockholder and returned to the Company. The Company will not issue share
certificates.
After the termination of the offering, any stockholder may request that
the Company redeem for cash all or a significant portion of such stockholder's
Shares. The sole source of funds for any such requested redemption will be the
net proceeds available from the sale of Shares pursuant to the Reinvestment
Plan. There can be no assurance that such net proceeds will be sufficient to
permit the Company to redeem all such Shares presented for redemption. See
Redemption of Shares.
An annual meeting of stockholders will be held each year for the election
of the Directors. Other business matters may be presented at the annual meeting
or at special stockholder meetings. Each Share is entitled to one vote on each
matter to be voted on by stockholders, including the election of the Directors.
Stockholders who do not vote with the majority of Shares entitled to vote on
questions presented nonetheless will be bound by the majority vote.
Stockholder approval is required under Maryland law and the Company's
Articles of Incorporation and Bylaws for certain types of transactions.
Generally, the Articles of Incorporation and Bylaws may be amended upon a
majority vote of stockholders. Stockholders holding a majority of the Shares
must approve a merger or a sale or other disposition of substantially all of the
Company's assets other than in the ordinary course of business. Stockholders
objecting to the terms of a merger, sale, or other disposition of substantially
all of the Company's assets have the right to petition a court for the appraisal
and payment of the fair value of their Shares in certain instances. The
affirmative vote of a majority of the Shares outstanding and entitled to vote is
required to approve the voluntary dissolution of the Company.
In order to facilitate compliance with certain restrictions imposed on
REITs by the Internal Revenue Code of 1986, as amended (the Code ), the
Articles of Incorporation generally restrict direct or indirect ownership
(applying certain attribution rules) of more than 9.8% of the outstanding shares
of Common Stock by one Person, as defined in the Articles of Incorporation. See
Summary of the Articles of Incorporation and Bylaws Restriction on
Ownership.
For a more complete description of the Shares and the capital structure of
the Company, please refer to the Summary of the Articles of Incorporation and
Bylaws Description of Capital Stock section of the Prospectus.
DISTRIBUTION POLICY
Consistent with the Company's objective of qualifying as a REIT, the
Company expects to calculate and declare Distributions monthly during the
offering period, and quarterly thereafter, and make Distributions quarterly.
Distributions were expected to commence not later than the close of the first
full calendar quarter after the first release of funds from escrow to the
Company, and in fact the Company declared Distributions in June 1995, and paid
such Distributions in July 1995. For the year ended December 31, 1995, the
Company declared and paid Distributions totalling $638,618. The Board of
Directors, in its discretion, will determine the amount of the Distributions
made by the Company, which amount will depend primarily on net cash from
operations. The Company intends to increase Distributions in accordance with
increases in net cash from operations. Consistent with the Company's objective
of qualifying as a REIT, the Company expects to distribute at least 95% of its
real estate investment trust taxable income, although the Board of Directors, in
its discretion, may increase that percentage as it deems appropriate. If the
cash available to the Company is insufficient to make Distributions, the Company
may obtain the needed cash by borrowing funds, issuing new securities, or
selling assets. These methods of obtaining cash could affect future
Distributions by increasing operating costs or reducing income. In such an
event, it is possible that the Company could pay Distributions in excess of its
earnings and profits and, accordingly, that such Distributions could constitute
a return of capital for federal income tax purposes, although such Distributions
would not reduce stockholders' aggregate Invested Capital. For the year ended
December 31, 1995, 59.82% of the Distributions declared and paid were
characterized as ordinary income and 40.18% as return of capital for federal
income tax basis. Due to the fact that the Company had not acquired all of its
Properties and was still in its offering period as of December 31, 1995, the
characterization of Distributions for federal income tax purposes is not
considered by management to be necessarily representative of the
characterization of Distributions in future years.
PRIOR PERFORMANCE OF AFFILIATES
The Prior Performance Information section of this Prospectus contains a
narrative discussion of the public and private real estate limited partnerships
sponsored by Affiliates of the Company and of the Advisor during the past ten
years, including 17 public limited partnerships formed to invest in restaurants
leased on a triple-net basis to operators of national and regional fast-food
and family-style restaurant chains. As of December 31, 1995, these
partnerships, which purchase properties similar to those to be acquired by the
Company, had purchased 628 fast-food and family-style restaurant properties.
Based on an analysis of the operating results of the 79 real estate limited
partnerships in which principals of the Company have served, individually or
with others, as general partners, the Company believes that each of such
partnerships has met, or currently is in the process of meeting, its principal
investment objectives. Certain statistical data relating to the public limited
partnerships with investment objectives similar to those of the Company are
contained in Exhibit C Prior Performance Tables.
TAX STATUS OF THE COMPANY
The Company has made the election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the Code ), to be taxed as a REIT under the
Code beginning with its taxable year ending December 31, 1995. As a REIT for
federal income tax purposes, the Company generally will not be subject to
federal income tax on income that it distributes to its stockholders. Under the
Code, REITs are subject to numerous organizational and operational requirements,
including a requirement that they distribute at least 95% of their taxable
income, as figured on an annual basis. If the Company fails to qualify for
taxation as a REIT in any taxable year, it will be subject to federal income tax
(including any applicable alternative minimum tax) on its taxable income at
regular corporate rates and will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following the year during
which qualification is lost. See Risk Factors Tax Risks and Federal Income
Tax Considerations. Even if the Company qualifies as a REIT for federal income
tax purposes, it may be subject to certain federal, state, and local taxes on
its income and property and to federal income and excise taxes on its
undistributed income. See Federal Income Tax Considerations.
THE OFFERING
A maximum of 10,000,000 Shares ($100,000,000) in the Company are being
offered at a price of $10.00 per Share. If the Managing Dealer exercises its
option (in the event the offering is oversubscribed) to sell an additional
5,000,000 Shares, a maximum of 15,000,000 ($150,000,000) Shares in the Company
will be offered at a price of $10.00 per Share. The Company also has registered
an offering of an additional 1,500,000 Shares ($15,000,000) that are available
only to stockholders who receive a copy of this Prospectus and elect to
participate in the Reinvestment Plan. Any participation in such plan subsequent
to this offering must be made pursuant to solicitation under a separate
prospectus. See Summary of Reinvestment Plan.
The Shares are being offered by the Managing Dealer and other broker-
dealers that are members of the National Association of Securities Dealers, Inc.
or exempt from broker-dealer registration (the Soliciting Dealers ) on a best
efforts basis, which means that no one is guaranteeing that any minimum number
of Shares will be sold. Both the Company and the Advisor are Affiliates of the
Managing Dealer. See The Offering Plan of Distribution.
All subscription funds for Shares of the Company will be deposited in an
interest-bearing escrow account with SouthTrust Estate & Trust Company, Inc.
See The Offering for a description of the current status of the offering.
A minimum investment of 250 Shares ($2,500) is required. IRAs, Keogh
plans, and pension plans must make a minimum investment of at least 100 Shares
($1,000), except for Iowa tax-exempt stockholders who must make a minimum
investment of 250 Shares ($2,500). For Minnesota stockholders only, IRAs and
qualified plans must make a minimum investment of 200 Shares ($2,000). In
addition, Nebraska, New York, and North Carolina stockholders must make a
minimum investment of 500 Shares ($5,000). Following an initial subscription
for at least the required minimum investment, any stockholder may make
additional purchases in increments of one Share. Maine stockholders, however,
may not purchase additional Shares in amounts less than the applicable minimum
investment except with respect to Shares purchased pursuant to the Reinvestment
Plan. See The Offering General, The Offering Subscription Procedures,
and Summary of Reinvestment Plan.
DEFINITIONS
This Prospectus includes simplified terms and definitions to make the
Prospectus easier to understand. These simplified terms and definitions do not
include all of the details of the terms, however, and stockholders therefore
should review the Definitions section for a more complete understanding.
RISK FACTORS
The purchase of Shares involves significant risks and therefore is
suitable only for persons who understand the possible consequences of an
investment in the Company and who are able to bear the risk of loss of their
investment. Prospective stockholders should consider the following risks in
addition to other information describing an investment in the Shares set forth
elsewhere in this Prospectus.
INVESTMENT RISKS
POSSIBLE LACK OF DIVERSIFICATION. There can be no assurance that the
Company will sell the maximum number of Shares. The potential profitability of
the Company and its ability to diversify its investments, both geographically
and by type of restaurant Properties purchased, will be limited by the amount of
funds at its disposal.
RISKS OF RELIANCE ON MANAGEMENT. Stockholders will be relying entirely on
the management ability of the Advisor and on the oversight of the Board of
Directors. Stockholders have no right or power to take part in the management
of the Company, except through the exercise of their stockholder voting rights.
Thus, no prospective stockholder should purchase any of the Shares offered
hereby unless the prospective stockholder is willing to entrust all aspects of
the management of the Company to the Advisor and the Board of Directors. None
of the prior programs organized by Affiliates of the Company has offered
Mortgage Loans or Secured Equipment Leases. See Management for a discussion
of the experience of the directors of the Advisor and the Directors of the
Company in real estate investments and Equipment financing. Also see Conflicts
of Interests for a discussion of the potential for realization by the Advisor
and its Affiliates of substantial commissions, fees, compensation, and other
income and for a discussion of various other conflicts of interest.
RISKS OF RELIANCE ON ADVISOR. The Advisor, with approval from the Board
of Directors, will be responsible for the daily management of the Company,
including all acquisitions, dispositions, and financings. The Advisor may be
terminated by the Board of Directors, with or without cause, but only subject to
payment and release from all guarantees and other obligations incurred in
connection with its role as Advisor. See Management Compensation.
RISK ASSOCIATED WITH LEVERAGE. Other than the Loan or to preserve its
status as a REIT, the Company does not intend to borrow money and until Listing
occurs, the Company will not encumber Properties in connection with any
borrowing. At all times, the maximum amount the Company may borrow is 300% of
the Company's Net Assets, although the Board of Directors anticipates that the
aggregate amount of any borrowing by the Company will not exceed 50% of Real
Estate Asset Value. The use of borrowing may present an element of risk in the
event that the cash flow from lease payments on its Properties and payments on
Secured Equipment Leases are insufficient to meet its debt obligations. In
addition, lenders to the Company may seek to impose restrictions on future
borrowings, Distributions and operating policies of the Company.
CONFLICTS OF INTEREST. As discussed in detail in Conflicts of Interest,
the Company will be subject to conflicts of interest arising out of its
relationship to the Advisor and its Affiliates. Such conflicts include matters
related to (i) allocation of Properties and management time and services between
the Company and various partnerships and other entities as to each of which the
officers and directors of the Advisor and certain Directors and officers of the
Company have management responsibilities, (ii) the timing and terms of the sale
of a Property, (iii) negotiation and funding of Mortgage Loans, (iv) negotiation
and funding of Secured Equipment Leases, (v) investments with Affiliates of the
Advisor, (vi) compensation to the Advisor, (vii) the Company's relationship with
the Managing Dealer (which is an Affiliate of the Company and the Advisor), and
(viii) the fact that the Company's securities and tax counsel also serves as
securities and tax counsel for certain Affiliates of the Company and that
neither the Company nor the stockholders will have separate counsel. See
Conflicts of Interest.
LACK OF LIQUIDITY OF SHARES. Stockholders may not be able to sell their
Shares promptly at a desired price; therefore, the Shares should be considered
as a long-term investment only. Currently there is no public market for the
Shares. The Board of Directors, with or without the consent of the
stockholders, may apply for Listing if the Board of Directors (including a
majority of Independent Directors) determines Listing to be in the best
interests of the stockholders. There can be no assurance, however, that the
Company will apply for Listing, that any such application will be made before
the passage of a significant period of time, that any application will be
accepted or, even if accepted, that a public trading market will develop. In
any event, the Articles of Incorporation provide that the Company will not apply
for Listing before the completion or termination of the offering. In the event
Listing occurs, Shares may be sold only through the national securities exchange
or the over-the-counter market on which the Shares are listed.
RISKS ASSOCIATED WITH MANAGEMENT OF JOINT VENTURES. The Independent
Directors of the Company must approve all Joint Venture or general partnership
arrangements to which the Company is a party. Subject to such approval, the
Company may enter into a Joint Venture with an unaffiliated party to purchase a
Property, and the Joint Venture or general partnership agreement relating to
that Joint Venture or partnership may provide that the Company will share
management control of the Joint Venture with the unaffiliated party. In the
event the Joint Venture or general partnership agreement provides that the
Company will have sole management control of the Joint Venture, such agreement
may be ineffective as to a third party who has no notice of the agreement, and
the Company therefore may be unable to control fully the activities of such
Joint Venture. In the event that the Company enters into a Joint Venture with
another program sponsored by an Affiliate, it is anticipated that the Company
will not have sole management control of the Joint Venture.
LACK OF CONTROL OF PROPERTY MANAGEMENT. The Company uses triple-net
leases and, therefore, day-to-day management of the Properties will be the
responsibility of the tenants of the Properties. In general, the Company
intends to enter into leasing agreements only with tenants having substantial
prior experience in the restaurant industry, but there can be no assurance that
the Company will be able to make such arrangements because, as of April 9, 1996,
the Company had purchased only 48 Properties.
RISKS ASSOCIATED WITH MORTGAGE LOANS. None of the prior programs
organized by Affiliates of the Company has offered Mortgage Loans and the
experience of the Advisor and Directors of the Company with mortgage financing
is limited. In the event that a borrower defaults on a Mortgage Loan, the
Company may not be able to sell the real property which it holds as security for
the Mortgage Loan at a price that would enable the Company to recover the
balance of the Mortgage Loan. The Mortgage Loans may also be subject to
regulation by federal, state and local authorities and subject to various laws
and judicial and administrative decisions. The Company may determine not to
make Mortgage Loans in any jurisdiction in which it believes the Company has not
complied in all material respects with applicable requirements.
RISKS ASSOCIATED WITH SECURED EQUIPMENT LEASES. None of the prior
programs organized by Affiliates of the Company has offered Secured Equipment
Leases and the experience of the Advisor and Directors of the Company with
Equipment leasing is limited. In the event that a lessee defaults on a Secured
Equipment Lease, the Company may not be able to sell the subject Equipment at a
price that would enable the Company to recover its costs associated with such
Equipment. The Secured Equipment Lease program may also be subject to
regulation by federal, state and local authorities and subject to various laws
and judicial and administrative decisions. The Company may determine not to
operate the Secured Equipment Lease program in any jurisdiction in which it
believes the Company has not complied in all material respects with applicable
requirements. In addition, there are certain federal income tax risks
associated with the Secured Equipment Lease program. See Tax Risks.
BINDING NATURE OF MAJORITY STOCKHOLDER VOTE. Stockholders may take
certain actions, including approving most amendments to the Articles of
Incorporation and Bylaws, by a vote of a majority of the Shares outstanding and
entitled to vote. Certain provisions designed to preserve the Company's status
as a REIT cannot be amended without a supermajority vote of two-thirds of the
Shares entitled to vote. All actions taken, if approved by the holders of the
requisite number of Shares, would be binding on all stockholders. Certain of
these provisions may discourage or make it more difficult for another party to
acquire control of the Company or to effect a change in the operation of the
Company. The Board of Directors has the power to cause the issuance of
additional Shares without obtaining stockholder approval.
If Listing occurs, the business of the Company may continue indefinitely
without any specific time limitation by which the Company must distribute Net
Sales Proceeds to the stockholders. In that case, the stockholders would be
dependent upon the sale of their Shares for the return of their investment in
the Company. There can be no assurance that the price a stockholder would
receive in a sale on an exchange or in the over-the-counter market will be
representative of the value of the assets owned by the Company or that it will
equal or exceed the amount a stockholder paid for the Shares.
Under certain circumstances, the Company may prevent the ownership,
transfer, and/or accumulation of Shares in order to protect the status of the
Company as a REIT or, as otherwise deemed by the Board of Directors, to be in
the best interests of the stockholders. See Summary of the Articles of
Incorporation and Bylaws Restriction of Ownership.
RESTRICTIONS ON TRANSFER RELATING TO REIT STATUS. The Articles of
Incorporation generally restrict direct or indirect ownership (applying certain
attribution rules) of more than 9.8% of the outstanding Common Stock or 9.8% of
any series of outstanding Preferred Stock by one Person (as defined in the
Articles of Incorporation). See Summary of the Articles of Incorporation and
Bylaws Restriction of Ownership.
LIMITED LIABILITY OF OFFICERS AND DIRECTORS. The Articles of
Incorporation and Bylaws provide that an officer or Director's liability to the
Company, its stockholders, or third parties for monetary damages may be limited.
Generally, the Company is obligated under the Articles of Incorporation and the
Bylaws to indemnify its officers and Directors against certain liabilities
incurred in connection with their services in such capacities. The Company has
executed indemnification agreements with each officer and Director which will
indemnify the officer or Director for any such liabilities that he or she
incurs. Such indemnification agreements could limit the legal remedies
available to the Company and the stockholders against the Directors and Officers
of the Company. See Summary of the Articles of Incorporation and Bylaws
Limitation of Director and Officer Liability.
RISKS FOR RETIREMENT PLAN STOCKHOLDERS. The Company believes that the
assets of the Company will not be deemed, under ERISA, to be plan assets of
any Plan that invests in the Shares, although it has not requested an opinion of
Counsel to that effect. If the assets of the Company were deemed to be plan
assets under ERISA (i) it is not clear that the exemptions from the prohibited
transaction rules under ERISA would be available for the Company's
transactions, and (ii) the prudence standards of ERISA would apply to
investments made by the Company (and might not be met). ERISA makes plan
fiduciaries personally responsible for any losses resulting to the plan from any
breach of fiduciary duty and the Code imposes nondeductible excise taxes on
prohibited transactions.
RISK OF INSUFFICIENT WORKING CAPITAL. There can be no assurance that the
Company will have sufficient working capital. As of December 31, 1995, the
Company had stockholders' equity of $31,980,648.
USE OF LEVERAGE TO MAKE DISTRIBUTIONS. The Company may incur indebtedness
if necessary to satisfy the requirement that the Company distribute at least 95%
of its real estate investment trust taxable income or otherwise, as is necessary
or advisable to assure that the Company maintains its qualification as a REIT
for federal income tax purposes. In such an event, it is possible that the
Company could make Distributions in excess of its earnings and profits and,
accordingly, that such Distributions could constitute a return of capital for
federal income tax purposes, although such Distributions would not reduce
stockholders' aggregate Invested Capital.
REAL ESTATE AND FINANCING RISKS
RISKS RELATED TO AN UNSPECIFIED PROPERTY OFFERING. The Company has
established certain criteria for evaluating Restaurant Chains, particular
Properties, and the operators of the Properties proposed for investment by the
Company. See Business Standards for Investment and Business General for
a description of these criteria and the types of Properties in which the Company
intends to invest. Because the Company, as of April 9, 1996, had acquired only
48 Properties (see Business - Property Acquisitions for a description),
prospective investors have no information to assist them in evaluating the
merits of the additional 92 to 112 Properties expected to be purchased or
developed by the Company. There is no limit on the number of restaurant
Properties of a particular Restaurant Chain which the Company may acquire,
although the Board of Directors currently does not anticipate that the Company
will invest more than 25% of its Gross Proceeds in Properties of any one
Restaurant Chain.
No assurance can be given that the Company will be successful in obtaining
suitable investments on financially attractive terms or that, if investments are
made, the objectives of the Company will be achieved. There also can be no
assurance that all of the Properties will operate profitably or that defaults
will not occur. See Management and Prior Performance Information, however,
for a description of the prior real estate experience of the Affiliates of the
Company and the Advisor.
The Advisor or its Affiliates from time to time expect to acquire land or
restaurant properties on a temporary basis with the intention of subsequently
transferring the properties to one or more of the CNL Group, Inc. ( CNL )
programs, including the Company, although the Company has adopted guidelines to
minimize such conflicts. This practice could represent a risk to the Company
and result in increased potential conflicts of interest among the Company, the
Advisor, its Affiliates and prior or future programs formed by Affiliates of the
Advisor. See Conflicts of Interest Acquisition of Properties.
POSSIBLE DELAYS IN INVESTMENT. To the extent consistent with the
Company's objective of qualifying as a REIT, the offering proceeds may remain
uninvested for up to the later of two years from the initial date of this
Prospectus or one year after termination of the offering, although it is
expected that substantially all net offering proceeds will be invested prior to
the end of such period. See Prior Performance Information for a summary
description of the investment experience of Affiliates and the Advisor in prior
CNL programs, which is not necessarily indicative of the rate at which the
proceeds of this offering will be invested.
An extended offering period, the inability of the Advisor to find suitable
Properties, or the fact that a program formed by Affiliates of the Advisor
subsequent to the commencement of this offering currently is in the process of
acquiring fast-food and family-style restaurant properties to substantially
complete its acquisition program prior to the time that the Company has funds
available to invest in Properties may result in delays in investment of Company
funds in Properties and in the receipt of a return from real property
investments.
Revenues received by the Company pending investment in Properties or
making Mortgage Loans will be limited to the rates of return available on short-
term, highly liquid investments with appropriate safety of principal. These
rates of return, which affect the amount of cash available to make Distributions
to the stockholders, are expected to be lower than the Company would receive
under its Property leases or Mortgage Loans. Further, to the extent consistent
with the Company's objective of qualifying as a REIT, any funds of the Company
required to be invested in Properties and not so invested or reserved for
Company purposes within the later of two years from the initial date of this
Prospectus, or one year after the termination of the offering, will be
distributed pro rata to the then stockholders of the Company in accordance with
the Articles of Incorporation.
RISKS OF ACQUIRING PROPERTIES UNDER CONSTRUCTION. The Company intends to
acquire sites on which a particular restaurant to be owned by the Company is to
be built as well as existing restaurants (including restaurants which require
renovation). To the extent that the Company acquires property on which
improvements are to be constructed or completed or renovations are to be made,
the Company may be subject to certain risks in connection with the developer's
ability to control construction costs, and the timing of completion of
construction, or to build in conformity with plans, specifications, and
timetables. The Company's agreements with the developer will provide certain
safeguards designed to minimize these risks. Further, in the event of a default
by a developer, the Company generally will have the right to require the tenant
to repurchase the Property that is under development at a pre-established price
designed to reimburse the Company for all costs incurred by the Company in
connection with the acquisition and development of the Property. There can be
no assurance, however, that under such circumstances, the tenant will have
sufficient funds to fulfill its obligations. See Business Site Selection and
Acquisition Properties.
RISKS OF JOINT INVESTMENT IN PROPERTIES. In the event that the Company
enters into a Joint Venture with another program formed by Affiliates of the
Advisor, there will be a potential risk of impasse in certain joint venture
decisions since the approval of the Company and of each co-venturer is required
for certain decisions. In any Joint Venture with an affiliated program,
however, the Company will have the right to buy the other co-venturer's interest
or to sell its own interest on specified terms and conditions in the event of an
impasse regarding a Sale. Under such circumstances, it is possible that neither
party will have the funds necessary to consummate the transaction. See
Business Joint Venture Arrangements. In addition, the Company may
experience difficulty in locating a third party purchaser for its Joint Venture
interest and in obtaining a favorable sale price for such Joint Venture
interest.
Investments in Joint Ventures may involve the risk that the Company's co-
venturer may have economic or business interests or goals which, at a particular
time, are inconsistent with the interests or goals of the Company, that such co-
venturer may be in a position to take action contrary to the Company's
instructions, requests, policies or objectives, or that such co-venturer may
experience financial difficulties. Among other things, actions by a co-venturer
might subject property owned by the Joint Venture to liabilities in excess of
those contemplated by the terms of the joint venture agreement or to other
adverse consequences.
RISKS RELATING TO THE ABILITY OF THE COMPANY TO LIQUIDATE. The Company
intends, to the extent consistent with the its objective of qualifying as a
REIT, to reinvest Net Sales Proceeds from the Sale of Properties, Mortgage
Loans, and Secured Equipment Leases in additional Properties, Mortgage Loans,
and Secured Equipment Leases for the first five to ten years after commencement
of the offering. If Listing occurs, the proceeds from Sales may be reinvested
in other Properties, Mortgage Loans, or Secured Equipment Leases for an
indefinite period of time. Unless Listing occurs within ten years after
commencement of the offering, the Company will undertake, to the extent
consistent with the Company's objective of qualifying as a REIT, the orderly
Sale of the Company's assets, the distribution of the Net Sales Proceeds of such
Sales to stockholders, and will engage only in activities related to its orderly
liquidation unless the stockholders elect otherwise. Neither the Advisor nor
the Board of Directors may be able to control the timing of Sales due to market
conditions, and there can be no assurance that the Company will be able to sell
its assets so as to return stockholders' aggregate Invested Capital, to generate
a profit for the stockholders, or to fully satisfy its obligations under the
Loan. Invested Capital, in the aggregate, will be returned to stockholders upon
disposition of the Properties only if the Properties are sold for more than
their original purchase price, although return of capital, for federal income
tax purposes, is not necessarily limited to stockholder distributions following
Sales of Properties. See Federal Income Tax Considerations. In the event
that a purchase money obligation is taken in partial payment of the sales price
of a Property, the proceeds of the Sale will be realized over a period of years.
Further, entering into Mortgage Loans with terms of 15 to 20 years and Secured
Equipment Leases with terms of five to seven years may cause any intended
liquidation of the Company to be delayed beyond the time of disposition of the
Properties and until such time as the Mortgage Loans and Secured Equipment
Leases expire or are sold.
RISKS RELATING TO TENANT PURCHASE RIGHTS. Certain tenants are expected to
have the right to purchase the Property from the Company, commencing a specified
number of years after the date of the lease, which may lessen the ability of the
Advisor and the Board of Directors to freely control the Sale of the Property.
The leases also generally provide the tenant with a right of first refusal on
any proposed sale provisions. See Business Description of Leases Right of
Tenant to Purchase. A tenant will have no obligation to purchase the
restaurant it leases.
RISKS OF REAL PROPERTY INVESTMENTS. The value of leased Properties such
as those to be acquired by the Company, the ability of the tenants to pay rent
on a timely basis, and the amount of the rent, may be adversely affected by
certain changes in general or local economic or market conditions, increased
costs of energy or food products, increased costs and shortages of labor,
competitive factors, fuel shortages, quality of restaurant management, the
ability of a Restaurant Chain to fulfill any obligations to operators of its
restaurants, limited alternative uses for the building, changing consumer
habits, condemnation or uninsured losses, changing demographics, changing
traffic patterns, inability to remodel outmoded restaurants as required by the
franchise or lease agreement, voluntary termination by a tenant of its
obligations under a lease, and other factors. Neither the Company nor the Board
of Directors can control these factors.
Each Property will have a single tenant, and tenants may lease more than
one Property. Events such as the default or financial failure of a tenant
therefore could cause one or more Properties to become vacant under certain
circumstances. Vacancies would reduce the cash receipts of the Company and, at
least until the Company is able to re-lease any such Properties, could decrease
their ultimate resale value. The value of the Company's Properties will depend
principally upon the value of the leases of the Properties. Minor defaults by a
tenant may continue for some time before the Advisor or Board of Directors
determines that it is in the interest of the Company to evict that tenant.
If a Property becomes vacant, the Company may be unable either to re-lease
the Property for the rent due under the prior lease or to re-lease the Property
without incurring additional expenditures relating to the Property. The Company
could experience delays in enforcing its rights against, and collecting rents
(and, under certain circumstances, real estate taxes and insurance costs) due
from, a defaulting tenant.
The Company will not be a party to any franchise agreement between a
Restaurant Chain and a tenant, and such agreement could therefore be modified or
canceled without notice to, or the prior consent of, the Company. In that
event, the tenant could be required to cease its operations at a Property,
although the tenant's obligation to pay rent to the Company would continue.
Before operations at the Property could resume, however, the Company would be
required to locate a new tenant acceptable to a Restaurant Chain.
The inability of tenants to make lease payments or of borrowers to make
Mortgage Loan payments as a result of any of these factors could result in a
decrease in the amount of cash available to make Distributions to the
stockholders.
If the Company, as lessor, incurs any liability which is not fully covered
by insurance, the Company would be liable for such amounts, and returns to the
stockholders could be reduced. See Business Description of Leases
Insurance, Taxes, Maintenance, and Repairs for a description of the types of
insurance that the leases of the Properties will require the tenant to obtain.
RISKS OF ADVERSE TRENDS IN RESTAURANT INDUSTRY. The Properties in which
the Company intends to invest are expected to be operated by Restaurant Chains
within the fast-food, family-style, or casual dining segments of the restaurant
industry, and the Company does not intend to invest in other segments of the
restaurant industry. The success of the future operations of fast-food, family-
style, and casual dining segments will depend largely on their ability to adapt
to dominant trends in the restaurant industry, including greater competitive
pressures, increased consolidation of the leading fast-food chains, industry
overbuilding, dependence on consumer spending and dining patterns and changing
demographics, the introduction of new concepts and menu items, availability of
labor, levels of food prices, and general economic conditions. See Business
General for a description of the size and nature of the restaurant industry and
current trends in the industry. The success of a particular Restaurant Chain
concept, the Restaurant Chain's ability to fulfill any obligations to operators
of its restaurants, and trends in the fast-food, family-style, and casual dining
segments of the restaurant industry will affect the income that the Company
derives from restaurants which are part of such Restaurant Chain.
RISKS RESULTING FROM COMPETITION. The Company will compete with other
entities, including Affiliates, for the acquisition of restaurant sites and
completed restaurants. See Conflicts of Interest Prior and Future Programs.
In addition, the restaurant business is highly competitive, and it is
anticipated that any restaurant Property acquired by the Company will compete
with other restaurants in the vicinity. The extent to which the Company will be
entitled to receive rent, in the form of percentage rent, in excess of the base
rent (including automatic increases in the base rent) for the Properties will
depend in part on the ability of the tenants to compete successfully with other
restaurants in the vicinity. In addition, the Company will compete with other
financing sources for suitable tenants and properties.
POSSIBLE ENVIRONMENTAL LIABILITIES. Under various federal and state
environmental laws and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean up certain hazardous or
toxic substances, asbestos-containing materials, or petroleum product releases
at the property, and may be held liable to a governmental entity or to third
parties for property damage and for investigation and cleanup costs incurred by
such parties in connection with the contamination. In addition, some
environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral. The owner or operator of a site may be
liable under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site.
All of the Properties will be acquired by the Company subject to
satisfactory Phase I environmental assessments or satisfactory Phase II
environmental assessments. A Phase I or Phase II environmental assessment may
be determined by the Board of Directors or the Advisor to be satisfactory if a
problem exists and has not been resolved at the time the Property is acquired
provided that the seller has agreed in writing to indemnify the Company. There
can be no assurance, however, that any seller will be able to pay under an
indemnity obtained by the Company. Further, no assurances can be given that all
environmental liabilities have been identified or that no prior owner, operator
or current occupant has created an environmental condition not known to the
Company. Moreover, no assurances can be given that (i) future laws, ordinances
or regulations will not impose any material environmental liability or (ii) the
current environmental condition of the Properties will not be affected by
tenants and occupants of the Properties, by the condition of land or operations
in the vicinity of the Properties (such as the presence of underground storage
tanks), or by third parties unrelated to the Company.
RISKS RELATING TO UNSPECIFIED SECURED EQUIPMENT LEASES. The Company, as
of the date of this Prospectus, has not entered into any arrangements that
create a reasonable probability that the Company will extend a Secured Equipment
Lease to a particular operator, and therefore prospective stockholders have no
information to assist them in evaluating the merits of the Secured Equipment
Lease program or of any Secured Equipment Lease. No assurance can be given that
the Company will be successful in identifying suitable operators or negotiating
Secured Equipment Leases on financially attractive terms or that lessees will
fulfill their obligations under Secured Equipment Leases.
TAX RISKS
EFFECT OF FAILURE TO QUALIFY AS A REIT. The Company intends to operate so
as to qualify and remain qualified as a REIT for federal income tax purposes,
commencing with its taxable year ending December 31, 1995. A qualified REIT
generally is not taxed at the corporate level on income it currently distributes
to its stockholders, so long as it distributes at least 95% of its real estate
investment trust taxable income. See Federal Income Tax Considerations
Taxation of the Company. The Company expects to have qualified as a REIT in
its taxable year ended December 31, 1995, but no assurance can be given that it
did so qualify or that it will continue to qualify in the future. In this
regard, based on certain representations and assumptions, the Company has
received an opinion of tax counsel to the Company ( Counsel ) to the effect that
the Company qualified as a REIT for the taxable year ended December 31, 1995,
that the Company is organized in conformity with the requirements for
qualification as a REIT, and that the Company's proposed method of operation
will enable it to meet the requirements for qualification as a REIT for federal
income tax purposes. Qualification as a REIT, however, involves the application
of highly technical and complex Code provisions as to which there are only
limited judicial and administrative interpretations. Certain facts and
circumstances which may be wholly or partially beyond the Company's control may
affect its ability to qualify on an ongoing basis as a REIT. In addition, no
assurance can be given that future legislation, new regulations, administrative
interpretations or court decisions will not significantly change the tax laws
(or the application thereof) with respect to qualification as a REIT for federal
income tax purposes or the federal income tax consequences of such
qualification. The opinion of Counsel is not binding on the Internal Revenue
Service ( IRS ) or the courts.
RISKS RELATING TO THE SECURED EQUIPMENT LEASES. In order to qualify as a
REIT for federal income tax purposes, not more than 25% of the Company's total
assets may be represented by personal property, or loans secured by personal
property on certain testing dates. In addition, loans secured by personal
property made to each borrower must represent less than 5% of the Company's
total assets on such testing dates. Counsel is of the opinion, based on certain
assumptions, that the Secured Equipment Leases will be treated as loans secured
by personal property for federal income tax purposes. The Company believes that
the value of the Secured Equipment Leases together with any personal property
owned by the Company, will in the aggregate represent less than 25% of the
Company's total assets and that the value of the Secured Equipment Leases
entered into with any particular lessee will represent less than 5% of the
Company's total assets. Counsel has relied on the representations of the
Company regarding such values in rendering its opinion as to the qualification
of the Company as a REIT. If the Company fails to satisfy the 25% test or the
5% test either at the time of the offering or on any subsequent testing date,
the Company will fail to qualify (or cease to qualify, as the case may be) as a
REIT for federal income tax purposes. In addition, if, contrary to the opinion
of Counsel, the Secured Equipment Leases are not treated as loans, but are
instead treated as leases for federal income tax purposes, income from the
Secured Equipment Leases will generally not satisfy either the 95% or the 75%
gross income tests for REIT qualification. See Federal Income Tax
Considerations Taxation of the Company, and Characterization of the Secured
Equipment Leases.
EFFECT OF REIT DISQUALIFICATION. If, in any taxable year, the Company
were to fail to qualify as a REIT for federal income tax purposes, it would not
be allowed a deduction for dividends to stockholders in computing taxable income
and would be subject to federal income tax (including any applicable alternative
minimum tax) on its taxable income at regular corporate rates. In addition,
unless entitled to relief under certain statutory provisions, the Company would
be disqualified from treatment as a REIT for federal income tax purposes for the
four taxable years following the year during which REIT qualification is lost.
The additional tax liability resulting from the failure to so qualify would
significantly reduce the amount of funds available to make Distributions to
stockholders. Distributions to stockholders generally would be taxable as
ordinary income to the extent of current and accumulated earnings and profits
and, subject to certain limitations, would be eligible for the corporate
dividends received deduction. Although the Company intends to operate in a
manner designed to permit it to qualify as a REIT for federal income tax
purposes, it is possible that future economic, market, legal, tax, or other
events or circumstances could cause it to fail to so qualify. See Federal
Income Tax Considerations Taxation of the Company.
EFFECT OF DISTRIBUTION REQUIREMENTS. The Company may be required, under
certain circumstances, to accrue as income for tax purposes interest, rent and
other items treated as earned for tax purposes but not yet received. In
addition, the Company may be required not to accrue as expenses for tax purposes
certain items which actually have been paid or certain of the Company's
deductions might be disallowed by the Service. In any such event, the Company
could have taxable income in excess of cash available for distribution. If the
Company has taxable income in excess of cash available for distribution, the
Company could be required to borrow funds or liquidate investments on
unfavorable terms in order to meet the distribution requirement applicable to a
REIT. See Federal Income Tax Considerations Taxation of the Company Dis-
tribution Requirements.
RESTRICTIONS ON MAXIMUM SHARE OWNERSHIP. In order for the Company to
qualify as a REIT, no more than 50% of the value of the outstanding equity
securities may be owned, directly or indirectly (applying certain attribution
rules), by five or fewer individuals (or certain entities) at any time during
the last half of the Company's taxable year. To ensure that the Company will
not fail to qualify as a REIT under this test, the Company's Articles of
Incorporation include certain provisions restricting the accumulation of Shares.
These restrictions may (i) discourage a change of control of the Company; (ii)
deter individuals and entities from making tender offers for Shares, which
offers may be attractive to stockholders; or (iii) limit the opportunity for
stockholders to receive a premium for their Shares in the event a stockholder is
making purchases of Shares in order to acquire a block of Shares.
OTHER TAX LIABILITIES. Even if the Company qualifies as a REIT for
federal income tax purposes, it may be subject to certain federal, state and
local taxes on its income and property. See Federal Income Tax Considerations
State and Local Taxes.
CHANGES IN TAX LAWS. The discussions of the federal income tax aspects of
the offering are based on current law, including the Code, the Regulations
issued thereunder, certain administrative interpretations thereof, and court
decisions. Consequently, future events that modify or otherwise affect those
provisions may result in treatment for federal income tax purposes of the
Company and the stockholders that is materially and adversely different from
that described in this Prospectus, both for taxable years arising before and
after such events. There is no assurance that future legislation and
administrative interpretations will not be retroactive in effect.
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE
SUITABILITY STANDARDS
The Shares offered hereby are suitable only as a long-term investment for
persons of adequate financial means who have no need for liquidity in this
investment. Initially, there is not expected to be any public market for the
Shares, which means that it may be difficult to sell Shares. See Summary of
the Articles of Incorporation and Bylaws Restrictions on Ownership for a
description of the transfer requirements. As a result, the Company has
established suitability standards which require investors to have either (i) a
net worth (exclusive of home, furnishings, and personal automobiles) of at least
$45,000 and an annual gross income of at least $45,000, or (ii) a net worth
(exclusive of home, furnishings, and personal automobiles) of at least $150,000.
Iowa, Maine, Missouri, New Hampshire, North Carolina, Pennsylvania and
Tennessee have established suitability standards different from those
established by the Company, and Shares will be sold only to investors in those
states who meet the special suitability standards set forth below.
IOWA, MISSOURI, NORTH CAROLINA AND TENNESSEE The investor has either (i)
a net worth (exclusive of home, furnishings, and personal automobiles) of at
least $60,000 and an annual gross income of at least $60,000, or (ii) a net
worth (exclusive of home, furnishings, and personal automobiles) of at least
$225,000.
MAINE The investor has either (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $50,000 and an annual gross
income of at least $50,000, or (ii) a net worth (exclusive of home, furnishings,
and personal automobiles) of at least $200,000.
NEW HAMPSHIRE The investor has either (i) a net worth (exclusive of
home, furnishings, and personal automobiles) of at least $125,000 and an annual
gross income of at least $50,000, or (ii) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $250,000.
PENNSYLVANIA The investor has (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least ten times the investor's
investment in the Company, and (ii) either (a) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $45,000 and an annual gross
income of at least $45,000, or (b) a net worth (exclusive of home, furnishings,
and personal automobiles) of at least $150,000. Because the minimum offering of
Shares of the Company is less than $16,500,000, Pennsylvania investors are
cautioned to evaluate carefully the Company's ability to fully accomplish its
stated objectives and to inquire as to the current dollar volume of the
Company's subscription proceeds.
The foregoing suitability standards must be met by the investor who
purchases the Shares. If the investment is being made for a fiduciary account
(such as an IRA, Keogh Plan, or corporate pension or profit-sharing plan), the
beneficiary, the fiduciary account, or any donor or grantor that is the
fiduciary of the account who directly or indirectly supplies the investment
funds must meet such suitability standards.
In addition, under the laws of certain states, investors may transfer
their Shares only to persons who meet similar standards, and the Company may
require certain assurances that such standards are met. Investors should read
carefully the requirements in connection with resales of Shares as set forth in
the Articles of Incorporation and as summarized under Summary of the Articles
of Incorporation and Bylaws Restrictions of Ownership.
In purchasing Shares, custodians or trustees of employee pension benefit
plans or IRAs may be subject to the fiduciary duties imposed by the Employee
Retirement Income Security Act of 1974 ( ERISA ) or other applicable laws and to
the prohibited transaction rules prescribed by ERISA and related provisions of
the Code. See Federal Income Tax Considerations Retirement Plan
Stockholders. In addition, prior to purchasing Shares, the trustee or
custodian of an employee pension benefit plan or an IRA should determine that
such an investment would be permissible under the governing instruments of such
plan or account and applicable law. For information regarding unrelated
business taxable income, see Federal Income Tax Considerations Taxation of
Stockholders Tax-Exempt Stockholders.
In order to insure adherence to the suitability standards described above,
requisite suitability standards must be met, as set forth in the Subscription
Agreement in one of the forms attached hereto as Exhibit D. In addition,
Soliciting Dealers who sell Shares have the responsibility to make every
reasonable effort to determine that the purchase of Shares is a suitable and
appropriate investment for an investor. In making this determination, the
Soliciting Dealers will rely on relevant information provided by the investor,
including information as to the investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. See The Offering
Subscription Procedures. Executed Subscription Agreements will be maintained
in the Company's records for six years.
HOW TO SUBSCRIBE
An investor who meets the suitability standards described above may
subscribe for Shares by completing and executing the Subscription Agreement and
delivering it to a Soliciting Dealer, together with a check for the full
purchase price of the Shares subscribed for, payable to SouthTrust Estate &
Trust Company, Inc., Escrow Agent. See The Offering Subscription
Procedures. Certain Soliciting Dealers who have net capital, as defined in
the applicable federal securities regulations, of $250,000 or more may instruct
their customers to make their checks for Shares subscribed for payable directly
to the Soliciting Dealer. Care should be taken to ensure that the Subscription
Agreement is filled out correctly and completely. Partnerships, individual
fiduciaries signing on behalf of trusts, estates, and in other capacities, and
persons signing on behalf of corporations and corporate trustees may be required
to obtain additional documents from Soliciting Dealers. ANY SUBSCRIPTION MAY BE
REJECTED BY THE COMPANY IN WHOLE OR IN PART, REGARDLESS OF WHETHER THE
SUBSCRIBER MEETS THE MINIMUM SUITABILITY STANDARDS.
CERTAIN SOLICITING DEALERS MAY PERMIT INVESTORS WHO MEET THE SUITABILITY
STANDARDS DESCRIBED ABOVE TO SUBSCRIBE FOR SHARES BY TELEPHONIC ORDER TO THE
SOLICITING DEALER. THIS PROCEDURE MAY NOT BE AVAILABLE IN CERTAIN STATES. SEE
THE OFFERING SUBSCRIPTION PROCEDURES AND THE OFFERING PLAN OF
DISTRIBUTION.
A MINIMUM INVESTMENT OF 250 SHARES ($2,500) IS REQUIRED. IRAS, KEOGH
PLANS, AND PENSION PLANS MUST MAKE A MINIMUM INVESTMENT OF AT LEAST 100 SHARES
($1,000), EXCEPT FOR IOWA TAX-EXEMPT INVESTORS WHO MUST MAKE A MINIMUM
INVESTMENT OF 250 SHARES ($2,500). FOR MINNESOTA INVESTORS ONLY, IRAS AND
QUALIFIED PLANS MUST MAKE A MINIMUM INVESTMENT OF 200 SHARES ($2,000). IN
ADDITION, NEBRASKA, NEW YORK, AND NORTH CAROLINA INVESTORS MUST MAKE A MINIMUM
INVESTMENT OF 500 SHARES ($5,000). FOLLOWING AN INITIAL SUBSCRIPTION FOR AT
LEAST THE REQUIRED MINIMUM INVESTMENT, ANY INVESTOR MAY MAKE ADDITIONAL
PURCHASES IN INCREMENTS OF ONE SHARE. MAINE INVESTORS, HOWEVER, MAY NOT MAKE
ADDITIONAL PURCHASES IN AMOUNTS LESS THAN THE APPLICABLE MINIMUM INVESTMENT
EXCEPT WITH RESPECT TO SHARES PURCHASED PURSUANT TO THE REINVESTMENT PLAN. SEE
THE OFFERING GENERAL, THE OFFERING SUBSCRIPTION PROCEDURES, AND SUMMARY
OF REINVESTMENT PLAN.
ESTIMATED USE OF PROCEEDS
THE TABLE SET FORTH BELOW SUMMARIZES CERTAIN INFORMATION RELATING TO THE
ANTICIPATED USE OF OFFERING PROCEEDS BY THE COMPANY, ASSUMING THAT 15,000,000
SHARES (WHICH ASSUMES THAT THE MANAGING DEALER EXERCISES ITS OPTION, IF THE
OFFERING IS OVERSUBSCRIBED, TO SELL AN ADDITIONAL 5,000,000 SHARES) ARE SOLD
(5,775,926 SHARES HAD BEEN SOLD AS OF APRIL 9, 1996, EXCLUDING 12,815 SHARES
ISSUED PURSUANT TO THE REINVESTMENT PLAN). THE COMPANY ESTIMATES THAT 84% (IF
$150,000,000 OR MORE IS RAISED) OF GROSS PROCEEDS WILL BE AVAILABLE FOR THE
PURCHASE OF PROPERTIES AND THE MAKING OF MORTGAGE LOANS, AND APPROXIMATELY 9% OF
GROSS PROCEEDS WILL BE PAID IN FEES AND EXPENSES TO AFFILIATES OF THE COMPANY
FOR THEIR SERVICES. WHILE THE ESTIMATED USE OF PROCEEDS SET FORTH IN THE TABLE
BELOW IS BELIEVED TO BE REASONABLE, THIS TABLE SHOULD BE VIEWED ONLY AS AN
ESTIMATE OF THE USE OF PROCEEDS THAT MAY BE ACHIEVED.
· Enlarge/Download Table
MAXIMUM OFFERING(1)(2)
AMOUNT PERCENT
GROSS PROCEEDS TO THE COMPANY (3) . . . . . . . . . . . . . . $150,000,000 100.0%
LESS:
SELLING COMMISSIONS TO CNL
SECURITIES CORP. (3) . . . . . . . . . . . . . . . . . . . 11,250,000 7.5%
MARKETING SUPPORT AND DUE DILIGENCE
EXPENSE REIMBURSEMENT FEE TO
CNL SECURITIES CORP. (3) . . . . . . . . . . . . . . . . . 750,000 0.5%
ORGANIZATIONAL AND OFFERING EXPENSES (4) . . . . . . . . . . . 4,500,000 3.0%
------------ ------
NET PROCEEDS TO THE COMPANY . . . . . . . . . . . . . . . . . . . 133,500,000 89.0%
LESS:
ACQUISITION FEES TO THE ADVISOR (5) . . . . . . . . . . . . . 6,750,000 4.5%
ACQUISITION EXPENSES (6) . . . . . . . . . . . . . . . . . . . 750,000 0.5%
INITIAL WORKING CAPITAL RESERVE . . . . . . . . . . . . . . . (7)
------------ ------
CASH PAYMENT FOR PURCHASE OF PROPERTIES
AND MAKING OF MORTGAGE LOANS BY THE COMPANY (8) . . . . . . . $126,000,000 84.0%
============ ======
<FN>
FOOTNOTES:
(1) EXCLUDES THE PURCHASE OF 20,000 SHARES BY THE ADVISOR IN EXCHANGE FOR ITS
$200,000 INVESTMENT IN THE COMPANY. THE ADVISOR MAY, BUT IS NOT REQUIRED
TO, PURCHASE ADDITIONAL SHARES OF THE COMPANY. ALSO EXCLUDES 1,500,000
SHARES THAT MAY BE SOLD PURSUANT TO THE REINVESTMENT PLAN.
(2) OFFERING PROCEEDS WILL EXCEED $100,000,000 ONLY IF THE MANAGING DEALER
EXERCISES ITS OPTION TO SELL AN ADDITIONAL 5,000,000 SHARES IF THE
OFFERING IS OVERSUBSCRIBED.
(3) GROSS PROCEEDS OF THE OFFERING ARE CALCULATED AS IF ALL SHARES ARE SOLD AT
$10.00 PER SHARE AND DO NOT TAKE INTO ACCOUNT ANY REDUCTION IN SELLING
COMMISSIONS. SEE THE OFFERING PLAN OF DISTRIBUTION FOR A DESCRIPTION
OF THE CIRCUMSTANCES UNDER WHICH SELLING COMMISSIONS MAY BE REDUCED,
INCLUDING COMMISSION DISCOUNTS AVAILABLE FOR PURCHASES BY REGISTERED
REPRESENTATIVES OR PRINCIPALS OF THE MANAGING DEALER OR SOLICITING
DEALERS, CERTAIN DIRECTORS AND OFFICERS AND CERTAIN INVESTMENT ADVISERS.
SELLING COMMISSIONS ARE CALCULATED ASSUMING THAT REDUCED COMMISSIONS ARE
NOT PAID IN CONNECTION WITH THE PURCHASE OF ANY SHARES. THE SHARES ARE
BEING OFFERED TO THE PUBLIC THROUGH CNL SECURITIES CORP., WHICH WILL
RECEIVE SELLING COMMISSIONS OF 7.5% ON ALL SALES OF SHARES AND WILL ACT AS
MANAGING DEALER. THE MANAGING DEALER IS AN AFFILIATE OF THE ADVISOR.
OTHER BROKER-DEALERS MAY BE ENGAGED AS SOLICITING DEALERS TO SELL SHARES
AND REALLOWED SELLING COMMISSIONS OF UP TO 7% WITH RESPECT TO SHARES WHICH
THEY SELL. IN ADDITION, ALL OR A PORTION OF THE MARKETING SUPPORT AND DUE
DILIGENCE EXPENSE REIMBURSEMENT FEE MAY BE REALLOWED TO CERTAIN SOLICITING
DEALERS FOR EXPENSES INCURRED BY THEM IN SELLING THE SHARES, INCLUDING
REIMBURSEMENT FOR BONA FIDE EXPENSES INCURRED IN CONNECTION WITH DUE
DILIGENCE ACTIVITIES. SEE THE OFFERING PLAN OF DISTRIBUTION FOR A
MORE COMPLETE DESCRIPTION OF THIS FEE.
(4) ORGANIZATIONAL AND OFFERING EXPENSES INCLUDE LEGAL, ACCOUNTING, PRINTING,
ESCROW, FILING, REGISTRATION, QUALIFICATION, AND OTHER EXPENSES OF THE
ORGANIZATION OF THE COMPANY AND THE OFFERING OF THE SHARES, BUT EXCLUDE
SELLING COMMISSIONS AND THE MARKETING SUPPORT AND DUE DILIGENCE EXPENSE
REIMBURSEMENT FEE. THE ADVISOR WILL PAY ALL ORGANIZATIONAL AND OFFERING
EXPENSES WHICH EXCEED 3% OF GROSS PROCEEDS.
(5) ACQUISITION FEES INCLUDE ALL FEES AND COMMISSIONS PAID BY THE COMPANY TO
ANY PERSON OR ENTITY IN CONNECTION WITH THE SELECTION OR ACQUISITION OF
ANY PROPERTY, INCLUDING DEVELOPMENT/CONSTRUCTION MANAGEMENT FEES TO
AFFILIATES, CONSTRUCTION FINANCING FEES TO AFFILIATES, AND OTHER
ACQUISITION FEES TO AFFILIATES OR NONAFFILIATES. ACQUISITION FEES DO NOT
INCLUDE ACQUISITION EXPENSES.
(6) REPRESENTS THAT PORTION OF ACQUISITION EXPENSES THAT ARE NEITHER
REIMBURSED TO THE COMPANY NOR INCLUDED IN THE PURCHASE PRICE OF THE
PROPERTIES, AND ON WHICH RENT IS NOT RECEIVED, BUT DOES NOT INCLUDE
CERTAIN ACQUISITION EXPENSES ASSOCIATED WITH PROPERTY ACQUISITIONS THAT
ARE PART OF THE PURCHASE PRICE OF THE PROPERTIES, THAT ARE INCLUDED IN THE
BASIS OF THE PROPERTIES, AND ON WHICH RENT IS RECEIVED. ACQUISITION
EXPENSES INCLUDE ANY AND ALL EXPENSES INCURRED BY THE COMPANY, THE
ADVISOR, OR ANY AFFILIATE OF THE ADVISOR IN CONNECTION WITH THE SELECTION
OR ACQUISITION OF ANY PROPERTY, WHETHER OR NOT ACQUIRED, INCLUDING,
WITHOUT LIMITATION, LEGAL FEES AND EXPENSES, TRAVEL AND COMMUNICATION
EXPENSES, COSTS OF APPRAISALS, NONREFUNDABLE OPTION PAYMENTS ON PROPERTY
NOT ACQUIRED, ACCOUNTING FEES AND EXPENSES, TAXES, AND TITLE INSURANCE,
BUT EXCLUDE ACQUISITION FEES. THE PORTION OF ACQUISITION EXPENSES THAT IS
ATTRIBUTABLE TO THE SELLER OF THE PROPERTIES AND PART OF THE PURCHASE
PRICE OF THE PROPERTIES IS ANTICIPATED TO RANGE BETWEEN 1% AND 2% OF GROSS
PROCEEDS.
(7) BECAUSE LEASES WILL BE ON A TRIPLE-NET BASIS, IT IS NOT ANTICIPATED THAT
A PERMANENT RESERVE FOR MAINTENANCE AND REPAIRS WILL BE ESTABLISHED.
HOWEVER, TO THE EXTENT THAT THE COMPANY HAS INSUFFICIENT FUNDS FOR SUCH
PURPOSES, THE ADVISOR MAY CONTRIBUTE TO THE COMPANY AN AGGREGATE AMOUNT OF
UP TO 1% OF THE NET OFFERING PROCEEDS AVAILABLE TO THE COMPANY FOR
MAINTENANCE AND REPAIRS. THE ADVISOR ALSO MAY, BUT IS NOT REQUIRED TO,
ESTABLISH RESERVES FROM OFFERING PROCEEDS, OPERATING FUNDS, AND THE
AVAILABLE PROCEEDS OF ANY SALES OF PROPERTIES.
(8) OFFERING PROCEEDS DESIGNATED FOR INVESTMENT IN PROPERTIES OR THE MAKING OF
MORTGAGE LOANS TEMPORARILY MAY BE INVESTED IN SHORT-TERM, HIGHLY LIQUID
INVESTMENTS WITH APPROPRIATE SAFETY OF PRINCIPAL.
MANAGEMENT COMPENSATION
THE TABLE BELOW SUMMARIZES THE TYPES, RECIPIENTS, METHODS OF COMPUTATION,
AND ESTIMATED AMOUNTS OF ALL COMPENSATION, FEES, AND DISTRIBUTIONS TO BE PAID
DIRECTLY OR INDIRECTLY BY THE COMPANY TO THE ADVISOR AND ITS AFFILIATES,
EXCLUSIVE OF ANY DISTRIBUTIONS TO WHICH THE ADVISOR OR ITS AFFILIATES MAY BE
ENTITLED BY REASON OF THEIR PURCHASE AND OWNERSHIP OF SHARES. SEE THE ADVISOR
AND THE ADVISORY AGREEMENT. FOR INFORMATION CONCERNING COMPENSATION TO THE
DIRECTORS, SEE MANAGEMENT.
A MAXIMUM OF 10,000,000 SHARES ($100,000,000) MAY BE SOLD; HOWEVER, IF THE
MANAGING DEALER EXERCISES ITS OPTION (IN THE EVENT THE OFFERING IS
OVERSUBSCRIBED) TO SELL AN ADDITIONAL 5,000,000 SHARES, A MAXIMUM OF 15,000,000
SHARES ($150,000,000) MAY BE SOLD. AN ADDITIONAL 1,500,000 SHARES ($15,000,000)
MAY BE SOLD TO STOCKHOLDERS WHO RECEIVE A COPY OF THIS PROSPECTUS AND WHO
PURCHASE SHARES THROUGH THE REINVESTMENT PLAN.
THE FOLLOWING ARRANGEMENTS FOR COMPENSATION AND FEES TO THE ADVISOR AND
ITS AFFILIATES WERE NOT DETERMINED BY ARM'S-LENGTH NEGOTIATIONS. SEE CONFLICTS
OF INTEREST. THERE IS NO ITEM OF COMPENSATION AND NO FEE THAT CAN BE PAID TO
THE ADVISOR OR ITS AFFILIATES UNDER MORE THAN ONE CATEGORY.
· Enlarge/Download Table
TYPE OF
COMPEN-
SATION
AND ESTIMATED
RECIPIENT METHOD OF COMPUTATION MAXIMUM AMOUNT
Organizational Stage
Selling Selling Commissions of 7.5% per Share on all $ 1 1 , 2 5 0,000 if
Commis- Shares sold, subject to reduction under certain 15,000,000 Shares are
sions to circumstances as described in The sold; $12,375,000 if
Managing Offering Plan of Distribution. Soliciting 1 6 , 500,000 Shares
Dealer and Dealers may be reallowed Selling Commissions of (including 1,500,000
Soliciting up to 7% with respect to Shares they sell. Shares offered pursuant
Dealers to the Reinvestment
Plan) are sold.
$2,884,062 at December
31, 1995, $2,682,303 of
which was reallowed to
unaffiliated Soliciting
Dealers.
Marketing Expense allowance of 0.5% of Gross Proceeds to $750,000 if 15,000,000
support the Managing Dealer, all or a portion of which Shares are sold;
and due may be reallowed to Soliciting Dealers. The $825,000 if 16,500,000
diligence Managing Dealer will pay all sums attributable to S h a res (including
expense bona fide due diligence expenses from this fee. 1,500,000 Shares offered
reimburse- pursuant to the
ment fee to Reinvestment Plan) are
Managing sold. $192,271 at
Dealer and December 31, 1995.
Soliciting
Dealers
Reimburse- Actual expenses incurred, except that the Advisor T o tal amount is not
ment to the will pay all such expenses in excess of 3% of determinable at this
Advisor Gross Proceeds. time, but will not
and its exceed 3% of Gross
Affiliates Proceeds. $4,500,000 if
for 15,000,000 Shares are
Organiza- sold; $4,950,000 if
tional and 1 6 , 500,000 Shares
Offering (including 1,500,000
Expenses Shares offered pursuant
to the Reinvestment
Plan) are sold. As of
December 31, 1995,
Affiliates had incurred
$ 2 , 5 4 6 , 011 in
O r ganizational and
Offering Expenses on
behalf of the Company.
Acquisition Stage
Acqui- 4.5% of Gross Proceeds from the sale of Shares, $6,750,000 if 15,000,000
sition payable to the Advisor as Acquisition Fees, plus Shares are sold;
Fees to reimbursement to the Advisor and its Affiliates $7,425,000 if 16,500,000
the for expenses actually incurred. The Acquisition S h a res (including
Advisor Fee shall be reduced to the extent that, and if 1,500,000 Shares offered
and necessary to limit, the total compensation paid pursuant to the
reimburse- to all persons involved in the acquisition of any Reinvestment Plan) are
ment of Property to the amount customarily charged in sold. $1,730,437 at
Acqui- arms-length transactions by other persons or December 31, 1995.
sition Ex- entities rendering similar services as an ongoing
penses to public activity in the same geographical location T h e total amount of
the Ad- and for comparable types of Properties, and to Acquisition Expenses,
visor and the extent that other acquisition fees, finder's which are based on a
its fees, real estate commissions, or other similar number of factors,
Affiliates fees or commissions are paid by any person in including the purchase
connection with the transaction. price of the Properties,
are not determinable at
t h i s time. As of
December 31, 1995,
Affiliates had incurred
$131,629 in Acquisition
Expenses on behalf of
the Company.
Development In connection with the acquisition of Properties The total amount of this
/ Con- that have been constructed or renovated by fee will depend on the
struction Affiliates, subject in each case to the approval number of Properties
Manage- of a majority of the Board of Directors including p u r c h a sed from
ment Fees a majority of the Independent Directors, the developers that are
to Company will incur Development/Construction Affiliates of the
Affiliates Management Fees of generally 5% to 10% of the Company, the cost of
cost of constructing or renovating a Property, c o n s t ruction or
p a y a ble to Affiliates of the Company as renovation of such
Acquisition Fees. Such fees will be included in Properties and the
the purchase price of Properties purchased from percentage amount of
developers that are Affiliates of the Company. e a c h D e velop-
See Business - Site Selection and Acquisition of m e n t / C o nstruction
Properties. M a nagement Fee. No
amounts had been paid or
accrued at December 31,
1995.
Construc- In connection with the acquisition of Properties The total amount of this
tion f r om affiliated or unaffiliated developers, fee will depend on the
Financing subject in each case to the approval of a number of Properties for
Fees to majority of the Board of Directors including a which Affiliates of the
Affiliates majority of the Independent Directors, to whom C o m p a ny provide
Affiliates of the Company have provided construction financing,
construction financing, the Company will incur the amount and duration
C o nstruction Financing Fees, payable to of such loans and the
Affiliates of the Company as Acquisition Fees. a m ount of each
Such fees will be in an amount equal to generally Construction Financing
1% to 2% of the total amount of each loan plus Fee. No amounts had
the difference between the Affiliate-lender's been paid or accrued at
cost of funds and the amount of interest charged December 31, 1995.
to the developer, with such difference determined
b y applying an annual percentage rate of
generally 1.5% to 3% throughout the duration of
the loan to the outstanding amount of the loan.
Such fees will be included in the purchase price
of Properties purchased from developers that
receive such loans. See Business - Site
Selection and Acquisition of Properties.
The total of all Acquisition Fees (including
Development/Construction Management Fees to
Affiliates and Construction Financing Fees to
Affiliates described above, but excluding
Development/Construction Management Fees paid to
any person or entity not affiliated with the
Advisor in connection with the actual development
and construction of any Property) and Acquisition
Expenses shall be reasonable and shall not exceed
an amount equal to 6% of the Real Estate Asset
Value of a Property, or in the case of a Mortgage
Loan, 6% of the funds advanced, unless a majority
of the Board of Directors, including a majority
of the Independent Directors, not otherwise
interested in the transaction approves fees in
excess of these limits subject to a determination
that the transaction is commercially competitive,
fair and reasonable to the Company.
Operational Stage
Asset A monthly Asset Management Fee in an amount equal T o tal amount is not
Management to one-twelfth of .60% of the Company's Real determinable at this
Fee to the Estate Asset Value as of the end of the preceding time. The amount of the
Advisor month. Specifically, Real Estate Asset Value Asset Management Fee
equals the amount invested in the Properties will depend upon, among
wholly owned by the Company, determined on the other things, the cost
basis of cost, plus, in the case of Properties of the Properties. As
owned by any Joint Venture or partnership in of December 31, 1995,
which the Company is a co-venturer or partner, the Company had incurred
the portion of the cost of such Properties paid $27,950 in asset
by the Company, exclusive of Acquisition Fees and management fees.
Expenses. The Asset Management Fee, which will
not exceed fees which are competitive for similar
services in the same geographic area, may or may
not be taken, in whole or in part as to any year,
in the sole discretion of the Advisor. All or
any portion of the Asset Management Fee not taken
as to any fiscal year shall be deferred without
interest and may be taken in such other fiscal
year as the Advisor shall determine.
Mortgage A monthly Mortgage Management Fee in an amount T o tal amount is not
Management equal to one-twelfth of .60% of the total determinable at this
Fee principal amount of the Mortgage Loans as of the time. The amount of the
end of the preceding month. Mortgage Management Fee
will depend upon, among
other things, the amount
and the duration of the
M o rtgage Loans. No
amounts had been paid or
accrued at December 31,
1995.
Reimburse- Operating Expenses (which, in general, are those T o tal amount is not
ment to the e x penses relating to administration of the determinable at this
Advisor Company on an ongoing basis) will be reimbursed time. As of December
and by the Company. To the extent that Operating 31, 1995, Affiliates had
Affiliates Expenses payable or reimbursable by the Company, incurred $54,234 in
for in any four consecutive fiscal quarters (the Operating Expenses on
operating Expense Year ), exceed (the Excess Amount ) the behalf of the Company.
expenses greater of 2% of Average Invested Assets or 25%
of Net Income (the 2%/25% Guidelines ) and the
Independent Directors determine that such excess
e x p e nses were justified based on unusual
nonrecurring factors which they deem sufficient,
the Excess Amount may be carried over and
included in Operating Expenses in subsequent
Expense Years, and reimbursed to the Advisor in
one or more of such years, but only to the extent
such reimbursement would not cause the Company's
Operating Expenses to exceed the 2%/25%
Guidelines in any Expense Year. Within 60 days
after the end of any fiscal quarter of the
Company for which total Operating Expenses (for
the Expense Year) exceed the 2%/25% Guidelines,
there shall be sent to the stockholders a written
d i sclosure of such fact, together with an
e x planation of the factors the Independent
Directors considered in arriving at the
c o n clusion that such excess expenses were
justified.
Soliciting An annual fee of .20% of Invested Capital on T o tal amount is not
Dealer December 31 of each year, commencing on December determinable at this
Servicing 31 of the year following the year in which the time. Until such time
Fee to offering terminates, generally payable to the as Properties are sold,
Managing Managing Dealer, which in turn may reallow all or the estimated amounts
Dealer a portion of such fee to Soliciting Dealers whose payable to the Managing
clients hold Shares on such date. The Company Dealer for each of the
has determined, however, that the Company may pay first three years
the Soliciting Dealer Servicing Fee directly to following year of
any Soliciting Dealer exempt from registration as termination of the
a broker-dealer and whose clients held Shares on offering are expected to
such date. In general, Invested Capital is the b e $300,000 if
amount of cash paid by the stockholders to the 15,000,000 Shares are
Company for their Shares, reduced by certain sold; and $330,000 if
prior Distributions to the stockholders from the 1 6 , 500,000 Shares
Sale of one or more Properties or Secured (including 1,500,000
E q u i pment Leases. The Soliciting Dealer Shares offered pursuant
Servicing Fee will terminate as of the beginning to the Reinvestment
of any year in which the Company is liquidated or Plan) are sold. No
in which Listing occurs, provided, however, that amounts had been paid or
any previously accrued but unpaid portion of the accrued at December 31,
Soliciting Dealer Servicing Fee may be paid in 1995.
such year or any subsequent year.
Deferred, A deferred, subordinated real estate disposition T o tal amount is not
subordi- fee, payable upon Sale of one or more Properties, determinable at this
nated real in an amount equal to the lesser of (i) one-half time. The amount of
estate of a Competitive Real Estate Commission, or (ii) this fee, if it becomes
disposi- 3% of the sales price of such Property or payable, will depend
tion fee Properties. Payment of such fee shall be made upon the price at which
payable to only if the Advisor provides a substantial amount Properties are sold. No
the of services in connection with the Sale of a amounts had been paid or
Advisor Property or Properties and shall be subordinated accrued at December 31,
from a to receipt by the stockholders of Distributions 1995.
Sale or e q u al to the sum of (i) their aggregate
Sales of a Stockholders' 8% Return and (ii) their aggregate
Property Invested Capital. If, at the time of a Sale,
not in payment of the disposition fee is deferred
liquida- because the subordination conditions have not
tion of the been satisfied, then the disposition fee shall be
Company paid at such later time as the subordination
conditions are satisfied. Upon Listing, if the
Advisor has accrued but not been paid such real
estate disposition fee, then for purposes of
determining whether the subordination conditions
have been satisfied, stockholders will be deemed
to have received a Distribution in the amount
equal to the product of the total number of
Shares outstanding and the average closing price
of the Shares over a period, beginning 180 days
after Listing, of 30 days during which the Shares
are traded.
Subordi- At such time, if any, as Listing occurs, the T o tal amount is not
nated Advisor shall be paid the Subordinated Incentive determinable at this
Incentive Fee in an amount equal to 10% of the amount by time. No amounts had
Fee which (i) the market value of the Company (as been paid or accrued at
payable to defined below) plus the total Distributions made December 31, 1995.
the to stockholders from the Company's inception
Advisor at until the date of Listing exceeds (ii) the sum of
such time, (A) 100% of Invested Capital and (B) the total
if any, as Distributions required to be made to the stock-
Listing holders in order to pay the Stockholders' 8%
occurs Return from inception through the date the market
value is determined. For purposes of calculating
the Subordinated Incentive Fee, the market value
of the Company shall be the average closing price
or average of bid and asked price, as the case
may be, over a period of 30 days during which the
Shares are traded with such period beginning 180
days after Listing. The Subordinated Incentive
Fee will be reduced by the amount of any prior
payment to the Advisor of a deferred,
subordinated share of Net Sales Proceeds from a
Sale or Sales of Property or Secured Equipment
Lease.
Deferred, A deferred, subordinated share equal to 10% of T o tal amount is not
subordi- Net Sales Proceeds from a Sale or Sales of a determinable at this
nated share Property or Secured Equipment Lease remaining time. No amounts had
of Net a f t er receipt by the stockholders of been paid or accrued at
Sales Distributions equal to the sum of (i) the December 31, 1995.
Proceeds Stockholders' 8% Return and (ii) 100% of Invested
from a Capital. Following Listing, no share of Net
Sale or Sales Proceeds will be paid to the Advisor.
Sales of a
Property
or Secured
Equipment
Lease not
in
liquida-
tion of the
Company
payable to
the
Advisor
Secured A fee paid to the Advisor out of the proceeds of T o tal amount is not
Equipment the Loan for negotiating Secured Equipment Leases determinable at this
Lease Ser- and supervising the Secured Equipment Lease time. No amounts had
vicing Fee program equal to 2% of the purchase price of the been paid or accrued at
to the Equipment subject to each Secured Equipment Lease December 31, 1995.
Advisor and paid upon entering into such lease.
Reimburse- Repayment by the Company of actual expenses Total amounts not
ment to the incurred. determinable at this
Advisor time. No amounts had
and been paid or accrued at
Affiliates December 31, 1995.
for
Mortgage
Loan and
Secured
Equipment
Lease
Servicing
expenses
Liquidation Stage
Deferred, A deferred, subordinated real estate disposition T o tal amount is not
subordi- fee, payable upon Sale of one or more Properties, determinable at this
nated real in an amount equal to the lesser of (i) one-half time. The amount of
estate of a Competitive Real Estate Commission, or (ii) this fee, if it becomes
disposi- 3% of the sales price of such Property or payable, will depend
tion fee Properties. Payment of such fee shall be made upon the price at which
payable to only if the Advisor provides a substantial amount Properties are sold.
the of services in connection with the Sale of a
Advisor Property or Properties and shall be subordinated
from a to receipt by the stockholders of Distributions
Sale or e q u al to the sum of (i) their aggregate
Sales in Stockholders' 8% Return and (ii) their aggregate
liquida- Invested Capital. If, at the time of a Sale,
tion of the payment of the disposition fee is deferred
Company because the subordination conditions have not
been satisfied, then the disposition fee shall be
paid at such later time as the subordination
conditions are satisfied.
Deferred, A deferred, subordinated share equal to 10% of T o tal amount is not
subordi- Net Sales Proceeds from a Sale or Sales of a determinable at this
nated share Property or Secured Equipment Lease remaining time.
of Net a f t er receipt by the stockholders of
Sales Distributions equal to the sum of (i) the
Proceeds Stockholders' 8% Return and (ii) 100% of Invested
from a Capital. Following Listing, no share of Net
Sale or Sales Proceeds will be paid to the Advisor.
Sales of a
Property
or Secured
Equipment
Lease in
liquida-
tion of the
Company
payable to
the
Advisor
CONFLICTS OF INTEREST
The Company will be subject to various conflicts of interest arising out
of its relationship to the Advisor and its Affiliates, as described below.
The following chart indicates the relationship between the Advisor and
those Affiliates that will provide services to the Company.
|------------------------------| |-----------------------------|
| CNL AMERICAN PROPERTIES | | |
| | | CNL GROUP, INC. |
| FUND, INC. | | |
| (THE COMPANY) | | |
|-------------------------|----| |-----------------------------|
| |
| |
(ADVISORY AGREEMENT) 100%
| |
| ---------------------------------
| | |
|------------------------| |------------------|
|CNL FUND ADVISORS, INC. | | CNL SECURITIES |
| (ADVISOR TO COMPANY) | | CORP. |
|------------------------| |(MANAGING DEALER) |
|------------------|
PRIOR AND FUTURE PROGRAMS
In the past, Affiliates of the Advisor have organized over 100 other real
estate investments, currently have other real estate holdings, and in the future
expect to form, offer interests in, and manage other real estate programs in
addition to the Company, and make additional real estate investments. Some of
these (including 17 public partnerships) involve and will involve Affiliates of
the Advisor in the ownership, operation, leasing, and management of fast-food,
family-style and casual dining, including restaurants that may be suitable for
the Company.
Certain of these affiliated public or private real estate programs invest
or may invest solely in fast-food, casual dining, and family-style restaurants,
may purchase properties concurrently with the Company and may lease fast-food,
casual dining, and family-style restaurant properties to operators who also
lease or operate certain of the Company's Properties. These properties, if
located in the vicinity of, or adjacent to, Properties acquired by the Company
may affect the Properties' gross revenues. Additionally, such other programs
may offer financing to the same or similar entities as those targeted by the
Company, thereby affecting the Company's Secured Equipment Lease program. Such
conflicts between the Company and affiliated programs may affect the value of
the Company's investments as well as its Net Income. The Company believes that
the Advisor has established guidelines to minimize such conflicts. See Certain
Conflict Resolution Procedures below.
An Affiliate of the Advisor currently is purchasing properties for a
private program that was organized to purchase, lease and/or finance fast-food
and family-style restaurant facilities, including furniture, fixtures, equipment
and start-up costs associated therewith. Such program generally will purchase
restaurant properties or an interest therein only when furniture, fixtures,
equipment and start-up costs also will be supplied by the program. It is not
expected that the financing offered by such program will be segregable and,
therefore, the program will not compete with the Company for lessees. If the
equipment arrangement offered by such program becomes segregable, a conflict
could arise between such program and the Company for lessees.
ACQUISITION OF PROPERTIES
Affiliates of the Advisor regularly have opportunities to acquire
restaurant properties of a type suitable for acquisition by the Company as a
result of their existing relationships and past experience with various fast-
food, family-style and casual dining restaurant chains and their franchisees.
See Business General. A purchaser who wishes to acquire one or more of
these properties must do so within a relatively short period of time,
occasionally at a time when the Company (due to insufficient funds, for example)
may be unable to make the acquisition.
In an effort to address these situations and preserve the acquisition
opportunities for the Company (and other entities with which the Advisor or its
Affiliates are affiliated), Affiliates of the Advisor maintain lines of credit
which enable them to acquire restaurant properties on an interim basis.
Typically, no more than ten to 15 restaurant properties are temporarily owned by
Affiliates of the Advisor on this interim basis at any particular time. These
restaurant properties generally will be purchased from Affiliates of the
Advisor, at their cost, by one or more existing or future public or private
programs formed by Affiliates of the Advisor.
The Advisor could experience potential conflicts of interest in connection
with the negotiation of the purchase price and other terms of the acquisition of
a Property, as well as the terms of the lease of a Property, due to its
relationship with its Affiliates and the ongoing business relationship of its
Affiliates with operators of Restaurant Chains.
The Advisor or its Affiliates also may be subject to potential conflicts
of interest at such time as the Company wishes to acquire a property that also
would be suitable for acquisition by an Affiliate of CNL. Affiliates of the
Advisor serve as Directors of the Company and, in this capacity, have a
fiduciary obligation to act in the best interest of the stockholders of the
Company and, as general partners or directors of CNL Affiliates, to act in the
best interests of the stockholders in other programs with investments that may
be similar to those of the Company and will use their best efforts to assure
that the Company will be treated as favorably as any such other program. See
Management Fiduciary Responsibility of the Board of Directors. In addition,
the Company has developed procedures to resolve potential conflicts of interest
in the allocation of properties between the Company and certain of its
Affiliates. See Certain Conflict Resolution Procedures below. The Company
will supplement this Prospectus during the offering period to disclose the
acquisition of a Property at such time as the Advisor believes that a reasonable
probability exists that the Company will acquire the Property, including an
acquisition from the Advisor or its Affiliates. See Business - Property
Acquisitions for a description of the Properties that have been acquired by the
Company and the status of negotiations for additional Properties.
SALES OF PROPERTIES
A conflict also could arise in connection with the Advisor's determination
as to whether or not to sell a Property, since the interests of the Advisor and
the stockholders may differ as a result of their distinct financial and tax
positions and the compensation to which the Advisor or its Affiliates may be
entitled upon the Sale of a Property. See Compensation of the Advisor, below
for a description of these compensation arrangements. In order to resolve this
potential conflict, the Board of Directors will be required to approve each Sale
of a Property. In the unlikely event that the Company and another CNL program
attempted to sell similar properties at the same time, a conflict could arise
since the two programs potentially could compete with each other for a suitable
purchaser. In order to resolve this potential conflict, the Advisor has agreed
not to approve the sale of any of the Company's Properties contemporaneously
with the sale of a property owned by another CNL program if the two properties
are part of the same Restaurant Chain and are within a three-mile radius of each
other, unless the Advisor and the principals of the other CNL program are able
to locate a suitable purchaser for each property.
JOINT INVESTMENT WITH AN AFFILIATED PROGRAM
The Company may invest in Joint Ventures with another program sponsored by
the Advisor or its Affiliates if a majority of the Directors, including a
majority of the Independent Directors, not otherwise interested in the
transaction, determine that the investment in the Joint Venture is fair and
reasonable to the Company and on substantially the same terms and conditions as
those to be received by the co-venturer or co-venturers.
COMPETITION FOR MANAGEMENT TIME
The officers and directors of the Advisor and certain Directors and
officers of the Company currently are engaged, and in the future will engage, in
the management of other business entities and properties and in other business
activities. They will devote only as much of their time to the business of the
Company as they, in their judgment, determine is reasonably required, which will
be substantially less than their full time. These officers and Directors of the
Company and officers and directors of the Advisor may experience conflicts of
interest in allocating management time, services, and functions among the
Company and the various partnerships, stockholder programs (public or private),
and any other business ventures in which any of them are or may become involved.
COMPENSATION OF THE ADVISOR
The Advisor has been and will be engaged to perform various services for
the Company and has and will receive fees and compensation for such services.
None of the agreements for such services were the result of arm's-length
negotiations. All such agreements, including the Advisory Agreement, require
approval by a majority of the Board of Directors, including a majority of the
Independent Directors, not otherwise interested in such transactions, as being
fair and reasonable to the Company and on terms and conditions no less favorable
than those which could be obtained from unaffiliated entities. The timing and
