<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund II, Ltd. at March 31, 1996, and its statement of income
for the three months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund II, Ltd. for the three months ended March 31,
1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 404,990
<SECURITIES> 0
<RECEIVABLES> 139,322
<ALLOWANCES> 112,880
<INVENTORY> 0
<CURRENT-ASSETS> 434,093
<PP&E> 20,579,247
<DEPRECIATION> 3,502,718
<TOTAL-ASSETS> 18,968,167
<CURRENT-LIABILITIES> 676,040
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,292,127
<TOTAL-LIABILITY-AND-EQUITY> 18,968,167
<SALES> 0
<TOTAL-REVENUES> 561,044
<CGS> 0
<TOTAL-COSTS> 158,476
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 439,319
<INCOME-TAX> 0
<INCOME-CONTINUING> 439,319
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 439,319
<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 March 31, 1996
-----------------------------------
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 7-10
Part II
Other Information 11
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1996 1995
----------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $3,502,718
and $3,398,315 $17,076,529 $17,180,932
Investment in joint ventures 1,347,772 1,348,108
Cash and cash equivalents 379,990 360,062
Restricted cash 25,000 25,000
Receivables, less allowance for
doubtful accounts of $112,880
and $100,811 26,442 90,382
Prepaid expenses 2,661 3,249
Lease costs, less accumulated
amortization of $4,550 and
$3,554 16,013 17,009
Accrued rental income 93,760 84,123
Other assets - 1,750
----------- -----------
$18,968,167 $19,110,615
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 10,364 $ 10,826
Accrued and escrowed real estate
taxes payable 4,891 5,727
Distributions payable 594,000 594,000
Due to related parties 24,585 9,254
Rents paid in advance and deposits 42,200 44,000
----------- -----------
Total liabilities 676,040 663,807
Commitment (Note 3)
Partners' capital 18,292,127 18,446,808
----------- -----------
$18,968,167 $19,110,615
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
1996 1995
-------- --------
Revenues:
Rental income from operating leases $556,797 $547,559
Interest and other income 4,247 5,244
-------- --------
561,044 552,803
-------- --------
Expenses:
General operating and administrative 39,469 31,503
Professional services 9,504 4,890
Bad debt expense - 3,537
Real estate taxes - 3,527
State and other taxes 4,104 4,654
Depreciation and amortization 105,399 105,028
-------- --------
158,476 153,139
-------- --------
Income Before Equity in Earnings of
Joint Ventures 402,568 399,664
Equity in Earnings of Joint Ventures 36,751 37,081
-------- --------
Net Income $439,319 $436,745
======== ========
Allocation of Net Income:
General partners $ 4,393 $ 4,367
Limited partners 434,926 432,378
-------- --------
$439,319 $436,745
======== ========
Net Income Per Limited Partner Unit $ 8.70 $ 8.65
======== ========
Weighted Average Number of Limited
Partner Units Outstanding 50,000 50,000
======== ========
See accompanying notes to condensed financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
1996 1995
------------- ------------
General partners:
Beginning balance $ 323,705 $ 305,320
Net income 4,393 18,385
----------- -----------
328,098 323,705
----------- -----------
Limited partners:
Beginning balance 18,123,103 18,678,971
Net income 434,926 1,820,132
Distributions ($11.88 and
$47.52 per limited partner
unit, respectively) (594,000) (2,376,000)
----------- -----------
17,964,029 18,123,103
----------- -----------
Total partners' capital $18,292,127 $18,446,808
=========== ===========
See accompanying notes to condensed financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1996 1995
--------- ---------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 614,778 $ 577,300
--------- ---------
Cash Flows from Investing
Activities:
Additions to land and buildings
on operating leases - (3,101)
Investment in joint venture - (121)
Payment of lease costs (850) -
--------- ---------
Net cash used in investing
activities (850) (3,222)
--------- ---------
Cash Flows from Financing
Activities:
Proceeds from loan from corporate
general partner 26,300 -
Repayment of loan from corporate
general partner (26,300) -
Distributions to limited
partners (594,000) (594,000)
--------- ---------
Net cash used in
financing activities (594,000) (594,000)
--------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents 19,928 (19,922)
Cash and Cash Equivalents at Beginning
of Quarter 360,062 584,565
--------- ---------
Cash and Cash Equivalents at End of
Quarter $ 379,990 $ 564,643
========= =========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of quarter $ 594,000 $ 594,000
========= =========
See accompanying notes to condensed financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1996 and 1995
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 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 Form 10-K of CNL
Income Fund II, Ltd. (the "Partnership") for the year ended December 31,
1995.
Effective January 1, 1996, the Partnership 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 Partnership's financial position or results of
operations.
2. Receivables:
-----------
In March 1996, the Partnership accepted a promissory note from the
former tenant of the property in Gainesville, Texas, in the amount of
$96,502, representing past due rental and other amounts, which had been
included in receivables and reserved for in the allowance for doubtful
accounts, and real estate taxes previously recorded as an expense by the
Partnership. Payments are due in 60 monthly installments of $2,156,
including interest at a rate of 11 percent per annum, commencing on June
1, 1996. Due to the uncertainty of the collectibility of this note, the
Partnership has established an allowance for doubtful accounts of
$97,387, including accrued interest of $885; therefore, no amounts were
included in receivables at March 31, 1996, relating to this note. The
Partnership will recognize any amounts reserved as income if collected.
3. Commitment:
----------
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. In addition, the
Partnership is holding $25,000, which had been received from the tenant
of the property, in an interest-bearing account pending payment of the
renovation costs. Renovations are expected to be completed by July
1996. As of March 31, 1996, renovations had not commenced.
4. Subsequent Event:
----------------
In April 1996, the Partnership entered into a promissory note with the
corporate general partner for a loan in the amount of $19,600 in
connection with the operations of the Partnership. The loan is
uncollateralized, non-interest bearing and due on demand.
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 restaurant properties, 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
March 31, 1996, 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 quarters ended March
31, 1996 and 1995, 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 $614,778 and
$577,300 for the quarters ended March 31, 1996 and 1995, respectively. The
increase in cash from operations for the quarter ended March 31, 1996, is
primarily a result of changes in revenues and expenses as discussed in
"Results of Operations" below and changes in the Partnership's working
capital.
In March 1996, the Partnership accepted a promissory note from the
former tenant of the Property in Gainesville, Texas, in the amount of $96,502,
representing past due rental and other amounts, which had been included in
receivables and reserved for in the allowance for doubtful accounts, and real
estate taxes previously recorded as an expense by the Partnership. Payments
are due in 60 monthly installments of $2,156, including interest at a rate of
11 percent per annum, commencing on June 1, 1996. Due to the uncertainty of
the collectibility of this note, the Partnership has established an allowance
for doubtful accounts of $97,387, including accrued interest of $885;
therefore, no amounts were included in receivables at March 31, 1996, relating
to this note. The Partnership will recognize any amounts reserved as income
if collected.
Other sources and uses of capital included the following during the
quarters ended March 31, 1996 and 1995.
In January 1996, the Partnership entered into a promissory note with the
corporate general partner for a loan in the amount of $26,300 in connection
with the operations of the Partnership. The loan, which was uncollateralized
and bore interest at a rate of prime plus .25% per annum, was due on demand.
As of March 31, 1996, the Partnership had repaid the loan in full along with
approximately $200 in interest, to the corporate general partner.
In addition, in April 1996, the Partnership entered into a promissory
note with the corporate general partner for a loan in the amount of $19,600 in
connection with the operations of the Partnership. The loan is
uncollateralized, non-interest bearing and due on demand.
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 March 31, 1996, the Partnership had
$379,990 invested in such short-term investments, as compared to $360,062 at
December 31, 1995. The funds remaining at March 31, 1996, will be used
towards the payment of distributions and other liabilities.
In November 1995, the Partnership received $25,000 from the tenant of
the Property in Lombard, Illinois, to be used for renovations to the Property,
and recorded such amount as restricted cash. Renovations are expected to be
completed in July 1996. As of March 31, 1996, renovations had not commenced.
Total liabilities of the Partnership, including distributions payable,
increased to $676,040 at March 31, 1996, from $663,807 at December 31, 1995.
Liabilities at March 31, 1996, to the extent they exceed cash and cash
equivalents at March 31, 1996, will be paid from future cash from operations,
from collections of amounts received in accordance with the promissory note
described above, from the loan received from the corporate general partner in
April 1996 described above, and, in the event the general partners elect to
make additional capital contributions or loans to the Partnership, from future
general partner capital contributions or loans.
Based on current and anticipated future cash from operations, and to a
lesser extent, the loan received from the corporate general partner, the
Partnership declared distributions to limited partners of $594,000 for each of
the quarters ended March 31, 1996 and 1995. This represents distributions for
each applicable quarter of $11.88 per unit. No distributions were made to the
general partners for the quarters ended March 31, 1996 and 1995. No amounts
distributed or to be distributed to the limited partners for the quarters
ended March 31, 1996 and 1995, are required to be or have been treated by the
Partnership as a return of capital for purposes of calculating the limited
partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution
to the limited partners on a quarterly basis.
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.
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.
Results of Operations
- ---------------------
During the quarters ended March 31, 1996 and 1995, the Partnership owned
and leased 36 wholly owned Properties to operators of fast-food and family-
style restaurant chains. In connection therewith, during the quarters ended
March 31, 1996 and 1995, the Partnership earned $556,797 and $547,559,
respectively, in rental income from these Properties. Rental income increased
approximately $6,400 during the quarter ended March 31, 1996, as compared to
the quarter ended March 31, 1995, as a result of the Partnership's entering
into a new lease for the Property in Littleton, Colorado, in January 1995, for
which rent commenced in May 1995, and the Partnership's entering into a new
lease for the Property in Gainesville, Texas, in October 1995.
For the quarters ended March 31, 1996 and 1995, the Partnership also
owned and leased three Properties indirectly through joint venture
arrangements and one Property as tenants-in-common with an affiliate of the
general partners. In connection therewith, during the quarters ended March
31, 1996 and 1995, the Partnership earned $36,751 and $37,081, respectively,
attributable to net income earned by these joint ventures.
Operating expenses, including depreciation and amortization, were
$158,476 and $153,139 for the quarters ended March 31, 1996 and 1995,
respectively. The increase in operating expenses during the quarter ended
March 31, 1996, as compared to the quarter ended March 31, 1995, is primarily
a result of an increase in (i) accounting and administrative expenses
associated with operating the Partnership and its Properties and (ii)
insurance expense as a result of the general partners obtaining contingent
liability and property coverage for the Partnership, effective May 1995. 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. Operating expenses also increased due to
the fact that during the quarter ended March 31, 1996, the Partnership
incurred professional services as a result of appraisal updates obtained to
prepare an annual statement of unit valuation to qualified plans in accordance
with the Partnership's partnership agreement. During 1995, these professional
services were incurred during the quarter ended June 30, 1995.
The increase in operating expenses during the quarter ended March 31,
1996, as compared to the quarter ended March 31, 1995, was partially offset by
a decrease due to the Partnership's incurring approximately $3,500 in real
estate tax expense associated with the Properties in Littleton, Colorado,
Lombard, Illinois, and Gainesville, Texas, during the quarter ended March 31,
1995. Since the Partnership has entered into new leases for these three
Properties and the tenants are responsible for the payment of real estate
taxes, no such expenses were incurred during the quarter ended March 31, 1996.
Operating expenses also decreased during the quarter ended March 31, 1996, due
to the fact that during the quarter ended March 31, 1995, the Partnership
recorded $3,537 in bad debt expense relating to the Property in Sterling
Heights, Michigan. No such amounts were recorded during the quarter ended
March 31, 1996.
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
March 31, 1996.
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 10th day of May, 1996.
CNL INCOME FUND II, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-----------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
