<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund II, Ltd. at September 30, 1995, and its statement of
income for the nine months then ended and is qualified in its entirety by
reference to the Form 10-Q of CNL Income Fund II, Ltd. for the nine months ended
September 30, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 384,811
<SECURITIES> 0
<RECEIVABLES> 160,749
<ALLOWANCES> 96,884
<INVENTORY> 0
<CURRENT-ASSETS> 453,003
<PP&E> 20,579,247
<DEPRECIATION> 3,293,911
<TOTAL-ASSETS> 19,225,927
<CURRENT-LIABILITIES> 657,409
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 18,568,518
<TOTAL-LIABILITY-AND-EQUITY> 19,225,927
<SALES> 0
<TOTAL-REVENUES> 1,694,110
<CGS> 0
<TOTAL-COSTS> 436,067
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,745
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,366,227
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,366,227
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,366,227
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
-----------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------- ---------------
Commission file number
0-16824
----------------------
CNL Income Fund II, Ltd.
-----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-2733859
---------------------------- -----------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
---------------------------- -----------------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
-----------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
--------- ---------
CONTENTS
--------
Part I Page
----
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-11
Part II
Other Information 12
<TABLE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<CAPTION>
September 30, December 31,
ASSETS 1995 1994
------------- ------------
<S> <C> <C>
Land and buildings on operating
leases, less accumulated
depreciation of $3,293,911
and $2,980,701 $17,285,336 $17,597,718
Investment in joint ventures 1,364,510 1,376,218
Cash and cash equivalents 384,811 584,565
Receivables, less allowance for
doubtful accounts of $96,884
and $98,362 63,865 89,307
Prepaid expenses 4,327 1,038
Lease costs, less accumulated
amortization of $18,851 and
$14,375 46,560 35,625
Accrued rental income 74,768 50,037
Other assets 1,750 1,750
----------- -----------
$19,225,927 $19,736,258
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 14,895 $ 18,219
Accrued and escrowed real estate
taxes payable 5,226 13,512
Distributions payable 594,000 594,000
Due to related parties 25,979 76,104
Rents paid in advance and deposits 17,309 50,132
----------- -----------
Total liabilities 657,409 751,967
Partners' capital 18,568,518 18,984,291
----------- -----------
$19,225,927 $19,736,258
=========== ===========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<CAPTION>
Quarter Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income from
operating leases $557,121 $521,128 $1,652,578 $1,566,590
Contingent rental
income 9,310 8,995 21,510 17,801
Interest and other
income 8,437 3,974 20,022 10,458
-------- -------- ---------- ----------
574,868 534,097 1,694,110 1,594,849
-------- -------- ---------- ----------
Expenses:
General operating
and administrative 25,743 29,586 87,212 104,395
Professional services 5,963 3,641 21,232 19,838
Bad debt expense 1,208 (280) 4,745 10,065
Real estate taxes (3,431 ) (12,172) 3,552 7,734
State taxes 1,553 164 6,385 4,685
Depreciation and
amortization 107,629 110,760 317,686 332,694
-------- -------- ---------- ----------
138,665 131,699 440,812 479,411
-------- -------- ---------- ----------
Income Before Equity in
Earnings of Joint
Ventures 436,203 402,398 1,253,298 1,115,438
Equity in Earnings of
Joint Ventures 38,513 31,735 112,929 91,406
Gain on Sale of Land and
Building - 70,554 - 70,554
-------- -------- ---------- ----------
Net Income $474,716 $504,687 $1,366,227 $1,277,398
======== ======== ========== ==========
Allocation of Net Income:
General partners $ 4,747 $ 5,047 $ 13,662 $ 12,774
Limited partners 469,969 499,640 1,352,565 1,264,624
-------- -------- ---------- ----------
$474,716 $504,687 $1,366,227 $1,277,398
======== ======== ========== ==========
Net Income Per Limited
Partner Unit $ 9.40 $ 9.99 $ 27.05 $ 25.29
======== ======== ========== ==========
Weighted Average Number
of Limited Partner
Units Outstanding 50,000 50,000 50,000 50,000
======== ======== ========== ==========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<CAPTION>
Nine Months Ended Year Ended
September 30, December 31,
1995 1994
----------------- ------------
<S> <C> <C>
General partners:
Beginning balance $ 305,320 $ 125,697
Contributions - 161,000
Net income 13,662 18,623
----------- -----------
318,982 305,320
----------- -----------
Limited partners:
Beginning balance 18,678,971 19,148,077
Net income 1,352,565 1,906,894
Distributions (1,782,000 ) (2,376,000)
----------- -----------
18,249,536 18,678,971
----------- -----------
Total partners' capital $18,568,518 $18,984,291
=========== ===========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
<TABLE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<CAPTION>
Nine Months Ended
September 30,
1995 1994
----------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 1,595,318 $ 1,587,894
----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land
and building - 261,628
Additions to land and buildings
on operating leases (3,101) -
Investment in joint ventures (121) (260,789)
Payment of lease costs (9,850) (1,864)
Increase in other assets - (1,750)
Other - (694)
----------- -----------
Net cash used in investing
activities (13,072) (3,469)
----------- -----------
Cash Flows from Financing
Activities:
Contributions from general
partner - 126,000
Distributions to limited
partners (1,782,000) (1,844,500)
----------- -----------
Net cash used in
financing activities (1,782,000) (1,718,500)
----------- -----------
Net Decrease in Cash and Cash
Equivalents (199,754) (134,075)
Cash and Cash Equivalents at Beginning
of Period 584,565 532,791
----------- -----------
Cash and Cash Equivalents at End of
Period $ 384,811 $ 398,716
=========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Lease costs incurred and unpaid at
end of period $ 3,401 $ -
=========== ===========
Distributions declared and unpaid
at end of period $ 594,000 $ 594,000
=========== ===========
<FN>
See accompanying notes to condensed financial statements.
</FN>
</TABLE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 1995 and 1994
1. Basis of Presentation:
---------------------
The accompanying unaudited condensed 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 and nine
months ended September 30, 1995, may not be indicative of the results that
may be expected for the year ending December 31, 1995. Amounts as of
December 31, 1994, 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 Form 10-K of CNL
Income Fund II, Ltd. (the "Partnership") for the year ended December 31,
1994.
Certain items in the prior year's financial statements have been
reclassified to conform to 1995 presentation. These reclassifications had
no effect on partners' capital or net income.
In March 1995, the Financial Accounting Standards Board issued 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, which is effective for fiscal years beginning after December
15, 1995, 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. The Partnership plans to adopt this
standard in 1996 and does not expect compliance with such standard to have
a material effect, if any, on the Partnership's financial position or
results of operations.
2. Subsequent Events:
-----------------
Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
rights in the management agreement with the Partnership to an affiliate of
the general partners, CNL Fund Advisors, Inc. All of the terms and
conditions of the management agreement remain unchanged.
In addition, in November 1995, the Partnership entered into a new lease
for the Property in Lombard, Illinois. In connection therewith, the
Partnership has agreed to fund $25,000 in renovation costs.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund II, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on November 13, 1986, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed, which are leased primarily to operators of national and regional
fast-food restaurant chains (collectively, the "Properties"). The leases
generally are triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of September 30,
1995, the Partnership owned 40 Properties, including three Properties owned by
joint ventures in which the Partnership is a co-venturer and one Property owned
with an affiliate as tenants-in-common.
Liquidity and Capital Resources
- -------------------------------
The Partnership's primary source of capital for the nine months ended
September 30, 1995 and 1994, was cash from operations (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses). Cash from operations was
$1,595,318 and $1,587,894 for the nine months ended September 30, 1995 and 1994,
respectively.
In July 1994, the Partnership sold its Property in Graham, Texas, for
$275,000 and received net sales proceeds of $261,628, resulting in a gain of
$70,554 for financial reporting purposes. In September 1994, the Partnership
reinvested substantially all of the net sales proceeds in a Kenny Rogers
Roasters Property in Arvada, Colorado, as tenants-in-common with an affiliate of
the Partnership that has the same general partners. The general partners
believe that these transactions qualified as a like-kind exchange transaction in
accordance with Section 1031 of the Internal Revenue Code. As a result, no gain
or loss was recognized for federal income tax purposes for the sale of the
Property.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership. During the nine months ended September 30,
1994, the Partnership also received $126,000 in contributions from the corporate
general partner. No such contributions were received during the nine months
ended September 30, 1995.
During 1994, the Partnership received a judgment in bankruptcy relating to
the former tenant of the Property in Sterling Heights, Michigan, for
approximately $16,000 as payment in full of all amounts owed to the Partnership.
Payment was due in 60 monthly installments of $317, including interest at the
rate of seven percent per annum, commencing on November 1, 1994. The
Partnership received no payments relating to this judgment and in March 1995
negotiated with the former tenant a lump-sum settlement of $12,413, which was
paid in March 1995.
Currently, rental income from the Partnership's Properties is invested in
money market accounts or other short-term, highly liquid investments pending the
Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At September 30, 1995, the Partnership had
$384,811 invested in such short-term investments as compared to $584,565 at
December 31, 1994. The funds remaining at September 30, 1995, will be used
towards the payment of distributions and other liabilities.
Total liabilities of the Partnership, including distributions payable,
decreased to $657,409 at September 30, 1995, from $751,967 at December 31, 1994,
primarily as a result of the Partnership's payment during the nine months ended
September 30, 1995, of amounts due to related parties that had been accrued at
December 31, 1994, and a decrease in rents paid in advance for the nine months
ended September 30, 1995. Liabilities at September 30, 1995, to the extent
they exceed cash and cash equivalents at September 30, 1995, will be paid from
future cash from operations, and, in the event the general partners elect to
make additional capital contributions, from future general partner capital
contributions.
Based on current and anticipated future cash from operations, the
Partnership declared distributions to limited partners of $1,782,000 for each of
the nine months ended September 30, 1995 and 1994 ($594,000 for each of the
quarters ended September 30, 1995 and 1994). This represents distributions for
each applicable nine months of $35.64 per unit ($11.88 per unit for each
applicable quarter). No distributions were made to the general partners for the
quarters and nine months ended September 30, 1995 and 1994. No amounts
distributed or to be distributed to the limited partners for the nine months
ended September 30, 1995 and 1994, are required to be or have been treated by
the Partnership as a return of capital for purposes of calculating the limited
partners' return on their adjusted capital contributions.
The Partnership's investment strategy of acquiring Properties for cash and
leasing them under triple-net leases to operators who generally meet specified
financial standards minimizes the Partnership's operating expenses. The
general partners believe that the leases will continue to generate cash flow in
excess of operating expenses.
Results of Operations
- ---------------------
During the nine months ended September 30, 1995 and 1994, the Partnership
owned and leased 36 wholly owned Properties (including one Property during the
nine months ended September 30, 1994, that was sold in July 1994) to operators
of fast-food and family-style restaurant chains. In connection therewith,
during the nine months ended September 30, 1995 and 1994, the Partnership earned
$1,652,578 and $1,566,590, respectively, in base rental income from these
Properties, $557,121 and $521,128 of which was earned during the quarters ended
September 30, 1995 and 1994, respectively. Rental income increased approxi-
mately $21,000 and $63,000 during the quarter and nine months ended September
30, 1995, respectively, as compared to the quarter and nine months ended
September 30, 1994, as a result of the Partnership's entering into a new lease
for the Property in Sterling Heights, Michigan, in March 1994, for which rent
commenced in October 1994.
In addition, rental income for the quarter and nine months ended September
30, 1995, as compared to the quarter and nine months ended September 30, 1994,
increased approximately $20,400 and $61,300, respectively, due to the
acquisition of two Properties in Fayetteville and Atlanta, Georgia, in December
1994. The increase in rental income during the quarter and nine months ended
September 30, 1995, was partially offset by a decrease of approximately $22,300
and $75,500, respectively, due to the sale of the Properties in Graham, Texas,
and Medina, Ohio, in July and November 1994, respectively.
Rental income during the nine months ended September 30, 1995, as compared
to the nine months ended September 30, 1994, also increased as a result of the
Partnership's establishing an allowance for doubtful accounts of $13,500 and
$48,300 for rent receivable amounts relating to the Property in Gainesville,
Texas, during the quarter and nine months ended September 30, 1994,
respectively. However, the increase in rental income during the nine months
ended September 30, 1995, was partially offset by a decrease of $13,500, as a
result of the fact that the Partnership recorded reduced base rent amounts for
this Property in anticipation of amending the lease agreement. Instead, in
October 1995, the Partnership entered into a new lease with a new operator for
this Property. The Partnership is pursuing collection of the past due amounts
from the original tenant of this Property and will recognize such amounts as
income if collected.
During 1993, the restaurant located on the Property in Littleton,
Colorado, ceased operations. The tenant continued to pay base rent as required
under the terms of the lease until the initial term of the lease expired in
February 1994; however, the tenant did not renew the lease. In January 1995,
the Partnership entered into a new lease for this Property and rent commenced in
May 1995. As a result of the new lease, the Partnership earned approximately
$3,500 and $5,800 in rental income during the quarter and nine months ended
September 30, 1995, respectively.
In addition, in February 1993, the lease of the Property in Lombard,
Illinois, expired and the tenant did not renew the lease. In November 1995, the
Partnership entered into a new lease for this Property with a retail business
and committed to fund $25,000 toward renovation costs for this Property.
During the nine months ended September 30, 1995 and 1994, the Partnership
also earned $17,728 and $17,801, respectively, in contingent rental income,
$5,528 and $8,995 of which was earned during the quarters ended September 30,
1995 and 1994, respectively. The decrease in contingent rental income during
the quarter and nine months ended September 30, 1995, as compared to the quarter
and nine months ended September 30, 1994, is primarily due to the sale of the
Property in Graham, Texas, in July 1994. This decrease was partially offset by
an increase in gross sales relating to certain restaurant Properties.
For the nine months ended September 30, 1994, the Partnership also owned
and leased three Properties indirectly through joint venture arrangements.
During the nine months ended September 30, 1995, in addition to these three
Properties, the Partnership also owned and leased one Property as tenants-in-
common with an affiliate of the general partners. In connection therewith,
during the nine months ended September 30, 1995 and 1994, the Partnership earned
$112,929 and $91,406, respectively, attributable to net income earned by these
Properties, $38,513 and $31,735 of which was earned during the quarters ended
September 30, 1995 and 1994, respectively. The increase in net income earned by
joint ventures during the quarter and nine months ended September 30, 1995, as
compared to the quarter and nine months ended September 30, 1994, is primarily
attributable to the acquisition in September 1994 of the Property with an
affiliate as tenants-in-common.
During the nine months ended September 30, 1995, one of the Partnership's
lessees, Golden Corral Corporation, contributed more than ten percent of the
Partnership's total rental income (including the Partnership's share of the
rental income from three Properties owned by joint ventures in which the
Partnership is a co-venturer and one Property owned with an affiliate as
tenants-in-common). Golden Corral Corporation is lessee under leases relating
to five restaurants. It is anticipated that, based on the minimum annual rental
payments required by the leases, Golden Corral Corporation will continue to
contribute more than ten percent of the Partnership's total rental income during
the remainder of 1995 and subsequent years. Any failure of Golden Corral
Corporation could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization, were $440,812
and $479,411 for the nine months ended September 30, 1995 and 1994,
respectively, of which $138,665 and $131,699 were incurred for the quarters
ended September 30, 1995 and 1994, respectively. The decrease in operating
expenses during the nine months ended September 30, 1995, as compared to the
nine months ended September 30, 1994, is primarily attributable to the
Partnership's accruing approximately $21,300 for certain expenses for the
Property in Sterling Heights, Michigan, relating to the former tenant during the
nine months ended September 30, 1994. The Partnership entered into a new lease
with a new tenant for this Property in March 1994, under which the new tenant
is responsible for the payment of such expenses; therefore, no such expenses
were incurred for this Property during the quarter and nine months ended
September 30, 1995. The decrease was also partially attributable to a decrease
in depreciation and amortization expense of approximately $17,200 as the result
of the sale of the Properties in Graham, Texas, and Medina, Ohio, during 1994.
The increase in operating expenses during the quarter ended September 30,
1995, as compared to the quarter ended September 30, 1994, is primarily
attributable to the Partnership's reversing approximately $16,000 in real estate
tax expense during the quarter ended September 30, 1994, as a result of the fact
that the Partnership received a judgment in bankruptcy relating to the Property
in Sterling Heights, Michigan, as described above in "Liquidity and Capital
Resources." In addition, operating expenses increased as a result of an
increase in (i) accounting and administrative expenses and (ii) insurance
expenses as a result of the general partners' obtaining contingent liability and
property coverage for the Partnership. This insurance policy is intended to
reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
During the quarters and nine months ended September 30, 1995 and 1994, the
Partnership also incurred certain expenses as a result of the fact that the
Property located in Lombard, Illinois, was not leased. In addition, the
Partnership incurred certain expenses relating to the Property in Littleton,
Colorado, during the nine months ended September 30, 1995, as a result of the
new lease with the new tenant not being effective until May 1995. Due to the
fact that the Partnership entered into new leases with new tenants for these two
Properties, the Partnership does not anticipate incurring significant expenses
relating to these Properties in future periods.
As a result of the sale of the Property in Graham, Texas, the Partnership
recognized a gain for financial reporting purposes of $70,554 for the nine
months ended September 30, 1994. No such transaction occurred during the nine
months ended September 30, 1995.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
-----------------
Item 2. Changes in Securities. Inapplicable.
---------------------
Item 3. Defaults upon Senior Securities. Inapplicable.
-------------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
---------------------------------------------------
Inapplicable.
Item 5. Other Information. Inapplicable.
-----------------
Item 6. Exhibits and Reports on Form 8-K.
--------------------------------
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the quarter ended
September 30, 1995.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 13th day of November, 1995.
CNL INCOME FUND II, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
------------------------
JAMES M. SENEFF, JR.
President and Principal
Executive Officer
By: /s/ Robert A. Bourne
------------------------
ROBERT A. BOURNE
Treasurer and Principal
Financial Officer
