UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1995
--------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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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 of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street, Suite 500
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to section 12(g) of the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days: Yes X No
----------- -----------
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is
no market for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
ITEM 1. BUSINESS
CNL Income Fund II, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on November 13, 1986. The general partners of the Partnership are
Robert A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on January 2, 1987, the
Partnership offered for sale up to $25,000,000 in limited partnership
interests (the "Units") (50,000 Units at $500 per Unit) pursuant to a
registration statement on Form S-11 under the Securities Act of 1933, as
amended. The offering terminated on August 21, 1987, as of which date the
maximum offering proceeds of $25,000,000 had been received from investors who
were admitted to the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of selected national and regional fast-food restaurant chains (the
"Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$22,300,178, and were used to acquire, either directly or indirectly through
joint venture arrangements, 39 Properties. During the year ended December 31,
1993, the Partnership sold its Property in Salisbury, North Carolina, and
reinvested the majority of the net sales proceeds in a Jack in the Box
Property in Lubbock, Texas. The remaining net sales proceeds were used to
distribute to limited partners amounts sufficient to pay state and federal
income taxes, as described in the Partnership's prospectus, to pay Partnership
expenses and to meet other working capital needs of the Partnership. During
the year ended December 31, 1994, the Partnership sold two of its Properties
in Graham, Texas, and Medina, Ohio, and reinvested the net sales proceeds in
two Checkers Properties, consisting of only land, located in Fayetteville and
Atlanta, Georgia, and a Kenny Rogers Roasters Property in Arvada, Colorado,
which is owned as tenants-in-common with an affiliate of the General Partners.
The lessee of the two Properties consisting of only land owns the buildings
currently on the land and has the right, if not in default under the lease, to
remove the buildings from the land at the end of the lease terms. As a result
of the above transactions, the Partnership currently owns 40 Properties,
including interests in 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. Generally, the Properties are leased on a triple-net basis
with the lessee responsible for all repairs and maintenance, property taxes,
insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to
sell Properties, the General Partners will consider factors such as potential
capital appreciation, net cash flow and federal income tax considerations.
Certain lessees have been granted options to purchase Properties, generally at
the Property's then fair market value after a specified portion of the lease
term has elapsed. In general, the General Partners plan to seek the sale of
the remaining Properties commencing seven to 15 years after their acquisition.
The Partnership has no obligation to sell all or any portion of a Property at
any particular time, except as may be required under property or joint venture
purchase options granted to certain lessees.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership
and joint ventures in which the Partnership is a co-venturer provide for
initial lease terms, ranging from five to 20 years (the average being 18
years), and expire between 1998 and 2014. Generally, the leases are on a
triple-net basis, with the lessee generally responsible for all repairs and
maintenance, property taxes, insurance and utilities. The leases of the
Properties provide for minimum base annual rental payments (payable in monthly
installments) ranging from approximately $14,200 to $150,000. Generally, the
leases provide for percentage rent, based on sales in excess of a specified
amount, to be paid annually. In addition, certain leases provide for
increases in the annual base rent during the lease term.
Generally, the leases of the Properties provide for two to four five-
year renewal options subject to the same terms and conditions as the initial
lease. Certain lessees also have been granted options to purchase Properties
at the Property's then fair market value, or pursuant to a formula based on
the original cost of the Property, after a specified portion of the lease term
has elapsed. Additionally, certain leases provide the lessee an option to
purchase up to a 49 percent joint venture interest in the Property, after a
specified portion of the lease term has elapsed, at an option purchase price
similar to those described above multiplied by the percentage interest in the
Property with respect to which the option is being exercised. A limited
number of leases provide for a purchase option price which is computed
pursuant to a formula based on various measures of value contained in an
independent appraisal of the Property.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to a particular lease, the Partnership
must first offer the lessee the right to purchase the Property on the same
terms and conditions, and for the same price, as any offer which the
Partnership has received for the sale of the Property.
The term of the lease relating to the Property in Lombard, Illinois,
expired in February 1993, and the tenant did not renew the lease. In November
1995, the Partnership entered into a new lease for the Property in Lombard,
Illinois, with a new tenant to operate the Property as a Great Clips hair
salon and rental payments are expected to commence in December 1996. The
Partnership and the tenant each have committed to fund $25,000 toward
renovation costs of this Property. The new lease is for a term of ten years,
with one five-year renewal option; however, the tenant has a one-time option
to terminate the lease after five years, subject to a termination fee of
approximately $31,000. The lease provides for initial minimum annual rental
payments (payable monthly) of approximately $8,100, with increases in base
rent throughout the term of the lease. No percentage rent is payable under
the terms of the new lease.
In addition, in September 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
with an independent restaurant operator and rent commenced in May 1995. The
new lease is for a term of five years, with one five-year renewal option. The
lease provides for minimum annual rental payments (payable monthly) of
$14,170; however, no percentage rent is required under the new agreement.
In October 1995, the Partnership entered into a new lease with a new
operator for the Property in Gainesville, Texas, following a default by the
former tenant under the terms of its lease. The new lease is for eleven years
and will automatically be renewed for an additional nine years in the event
that the franchisor and the tenant renew their franchise agreement during the
initial term of the lease. The lease provides for minimum annual rental
payments (payable monthly) of $57,600, which is lower than the rental payments
due under the former lease, and provides for base rent increases every five
years. Percentage rent is payable starting in the third lease year under the
terms of the new lease.
Major Tenants
During 1995, one lessee of the Partnership, 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 and one Property owned with an affiliate as tenants-
in-common). As of December 31, 1995, Golden Corral Corporation was the lessee
under leases relating to five restaurants. It is anticipated that, based on
the minimum rental payments required by the leases, Golden Corral Corporation
will continue to contribute more than ten percent of the Partnership's total
rental income in 1996 and subsequent years. In addition, four Restaurant
Chains, Golden Corral Family Steakhouse Restaurants, Denny's, KFC and Wendy's
Old Fashioned Hamburger Restaurants, each accounted for more than ten percent
of the Partnership's total rental income in 1995 (including the Partnership's
share of the rental income from three Properties owned by joint ventures and
one Property owned with an affiliate as tenants-in-common). In subsequent
years, it is anticipated that these four Restaurant Chains each will continue
to account for more than ten percent of the total rental income to which the
Partnership is entitled under the terms of its leases. Any failure of these
lessees or Restaurant Chains could materially affect the Partnership's income.
As of December 31, 1995, no single tenant or group of affiliated tenants lease
Properties with an aggregate carrying value, excluding acquisition fees and
certain acquisition expenses, in excess of 20 percent of the total assets of
the Partnership.
Joint Venture Arrangements
The Partnership has entered into three separate joint venture
arrangements, Kirkman Road Joint Venture, Holland Joint Venture and Show Low
Joint Venture, to purchase and hold three Properties through such joint
ventures. Each joint venture arrangement provides for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint venture in proportion to each partner's percentage interest in the joint
venture. The Partnership and its joint venture partners are also jointly and
severally liable for all debts, obligations and other liabilities of the joint
venture.
Each joint venture has an initial term of approximately 20 years
(generally the same term as the initial term of the lease for the Property in
which the joint venture invested), and after the expiration of the initial
term, continues in existence from year to year unless terminated at the option
of any joint venture partner or by an event of dissolution. Events of
dissolution include the bankruptcy, insolvency or termination of any joint
venturer, sale of the Property owned by the joint venture and mutual agreement
of the Partnership and its joint venture partner or partners to dissolve the
joint venture.
The Partnership has management control of Kirkman Road Joint Venture and
shares management control equally with affiliates of the General Partners for
Holland Joint Venture and Show Low Joint Venture. The joint venture
agreements restrict each venturer's ability to sell, transfer or assign its
joint venture interest without first offering it for sale to its joint venture
partner or partners, either upon such terms and conditions as to which the
venturers may agree or, in the event the venturers cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture interest.
Net cash flow from operations of Kirkman Road Joint Venture, Holland
Joint Venture and Show Low Joint Venture is distributed 50 percent, 49 percent
and 64 percent, respectively, to the Partnership and the balance is
distributed to each other joint venture partner in accordance with its
percentage interest in the joint venture. Any liquidation proceeds, after
paying joint venture debts and liabilities and funding reserves for contingent
liabilities, will be distributed first to the joint venture partners with
positive capital account balances in proportion to such balances until such
balances equal zero, and thereafter in proportion to each joint venture
partner's percentage interest in the joint venture.
In addition to the above joint venture agreements, in September 1994,
the Partnership entered into an agreement to hold a Kenny Rogers Roasters
Property as tenants-in-common with an affiliate of the General Partners. The
agreement provides for the Partnership and the affiliate to share in the
profits and losses of the Property in proportion to each co-venturer's
percentage interest. The Partnership owns a 33.87% interest in this Property.
Property Management
CNL Investment Company, an affiliate of the General Partners, acted as
manager of the Partnership's Properties pursuant to a property management
agreement with the Partnership through December 31, 1994. Under this
agreement, CNL Investment Company was responsible for collecting rental
payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices and
providing information to the Partnership about the status of the leases and
the Properties. CNL Investment Company also assisted the General Partners in
negotiating the leases. For these services, the Partnership had agreed to pay
CNL Investment Company an annual fee of one-half of one percent of Partnership
assets (valued at cost) under management, not to exceed the lesser of one
percent of gross rental revenues or competitive fees for comparable services.
Under the management agreement, the property management fee is subordinated to
receipt by the Limited Partners of an aggregate, ten percent, noncumulative,
noncompounded annual return on their adjusted capital contributions (the "10%
Preferred Return"), calculated in accordance with the Partnership's limited
partnership agreement (the "Partnership Agreement"). In any year in which
the Limited Partners do not receive a 10% Preferred Return, no property
management fee will be paid.
Effective January 1, 1995, certain officers and employees of CNL
Investment Company became officers and employees of CNL Income Fund Advisors,
Inc., an affiliate of the General Partners, and CNL Investment Company
assigned its rights in, and its obligations under, the property management
agreement with the Partnership to CNL Income Fund Advisors, Inc. In addition,
effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its rights
in, and its obligations under, the property management agreement with the
Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the
property management agreement, including the payment of fees, as described
above, remain unchanged.
The property management agreement continues until the Partnership no
longer owns an interest in any Properties unless terminated at an earlier date
upon 60 days' prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains,
including those offering different types of food and service.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who
may also perform certain services for the Partnership.
ITEM 2. PROPERTIES
As of December 31, 1995, the Partnership owned, either directly or
through joint venture arrangements, 40 Properties located in 14 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 11,500
to 78,000 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. However, the
buildings located on the two Checkers Properties are owned by the tenant while
the land parcels are owned by the Partnership. The buildings generally are
rectangular and are constructed from various combinations of stucco, steel,
wood, brick and tile. The sizes of the buildings owned by the Partnership
range from approximately 1,300 to 6,900 square feet. All buildings on
Properties acquired by the Partnership are freestanding and surrounded by
paved parking areas. Buildings are suitable for conversion to various uses,
although modifications may be required prior to use for other than restaurant
operations.
Generally, a lessee is required, under the terms of its lease agreement,
to make such capital expenditures as may be reasonably necessary to refurbish
buildings, premises, signs and equipment so as to comply with the lessee's
obligations, if applicable, under the franchise agreement to reflect the
current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenant. The terms of each of the leases with the
Partnership's major tenant as of December 31, 1995 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases five Golden Corral restaurants. The
initial term of each lease is 15 years (expiring in 2002) and the average
minimum base annual rent is approximately $79,600 (ranging from approximately
$56,200 to $96,900).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
ITEM 3. LEGAL PROCEEDINGS
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to,
or subject to, any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of February 29, 1996, there were 2,225 holders of record of the
Units. There is no public trading market for the Units and it is not
anticipated that a public market for the Units will develop. Limited Partners
who wish to sell their Units may offer the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited
Partners who wish to have their distributions used to acquire additional Units
(to the extent Units are available for purchase), may do so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units.
The price paid for any Unit transferred pursuant to the Plan has been $475 per
Unit. The price to be paid for any Unit transferred other than pursuant to
the Plan is subject to negotiation by the purchaser and the selling Limited
Partner. The Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1995 and 1994 other
than pursuant to the Plan, net of commissions (which ranged from zero to
10.6%).
1995 (1) 1994 (1)
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High Low Average High Low Average
------ ----- ------- ------ ----- -------
First Quarter $475 $415 $459 $475 $403 $434
Second Quarter 500 432 466 483 418 467
Third Quarter 500 460 489 500 440 473
Fourth Quarter 475 475 475 470 468 469
(1) A total of 665 and 1,038 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1995 and 1994, respectively.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 1995 and 1994, the Partnership
declared cash distributions of $2,376,000 to the Limited Partners.
Distributions of $594,000 were declared at the close of each of the
Partnership's calendar quarters during 1995 and 1994 to the Limited Partners.
No amounts distributed to partners for the years ended December 31, 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. No distributions have been made to the
General Partners to date.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although the General Partners, in their sole discretion, may elect to pay
distributions monthly.
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31:
Revenues (1) $ 2,455,754 $ 2,323,678 $ 2,390,534 $ 2,451,675 $ 2,594,593
Net income (2) 1,838,517 1,925,517 1,850,532 1,831,146 2,009,598
Cash distributions
declared (3) 2,376,000 2,376,000 2,438,500 2,438,500 2,438,500
Net income per Unit (2) 36.40 38.14 36.65 36.26 39.79
Cash distributions
declared per Unit (3) 47.52 47.52 48.77 48.77 48.77
At December 31:
Total assets $19,110,615 $19,736,258 $20,073,496 $19,942,840 $20,520,690
Long-term obligations - - - - -
</TABLE>
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the years ended December 31, 1994 and 1993,
includes $70,554 and $161,025, respectively, from gain on sale of
land and buildings. In addition, net income for the year ended
December 31, 1994, includes $29,904 from a loss on sale of land
and building and lease termination income of $198,482 recognized
by the Partnership in connection with consideration the
Partnership received for releasing the former tenant from its
obligations under the terms of the lease of one of the Properties
sold.
(3) Distributions for the years ended December 31, 1993, 1992 and
1991, include a special distribution of $62,500 to the Limited
Partners which primarily represented percentage rents collected
during the respective years.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Partnership 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
restaurant Properties were to be constructed, which are leased primarily to
operators of selected national and regional fast-food Restaurant Chains. The
leases are triple-net leases, with the lessee generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of
December 31, 1995, the Partnership owned 40 Properties, either directly or
indirectly through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1995, 1994 and 1993, was cash from operations (which includes
cash received from tenants, distributions from joint ventures and interest
received, less cash paid for expenses). Cash from operations was $2,168,367,
$2,156,604 and $2,170,177 for the years ended December 31, 1995, 1994 and
1993, respectively. The increase in cash from operations during 1995, as
compared to 1994, and the decrease during 1994, as compared to 1993, are
primarily a result of changes in income and expenses as discussed in "Results
of Operations" below, and as a result of changes in the Partnership's working
capital during each of the respective years. Cash from operations was also
affected by the following transactions during the years ended December 31,
1995, 1994 and 1993.
In April 1993, the Partnership accepted a promissory note from the
tenant of two Properties in Farmington Hills, Michigan, whereby $61,987, which
had been included in receivables for past due rents, was converted to a loan
receivable. The loan, which is non-interest bearing, is being collected in
monthly installments over 48 months, with collections deemed to have commenced
January 1, 1993. Because the promissory note does not provide for interest
payments, the Partnership discounted the note to its estimated present value
of $50,918 using an interest rate of ten percent. Receivables include $14,689
and $26,928 from this note at December 31, 1995 and 1994, respectively.
In July 1993, the individual General Partners loaned $21,500 to the
tenant of the Property in Gainesville, Texas. The proceeds of the loan were
used by the tenant to pay amounts owed to the Partnership for past due rents.
In October 1995, the Partnership entered into a new lease with a new operator
for the Property in Gainesville, Texas, following a default by the original
tenant under the terms of its lease. The Partnership is continuing to pursue
collection of past due amounts from the original tenant; therefore, repayment
of the loan to the individual General Partners by the original tenant is
subordinated to the payment of any and all amounts due to the Partnership by
the original tenant.
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, and received from, the former tenant a lump-sum
settlement of $12,413.
Other sources and uses of capital included the following during the
years ended December 31, 1995, 1994 and 1993.
In July 1993, the Partnership sold its Property in Salisbury, North
Carolina, for $800,000 and received net sales proceeds of $746,800, resulting
in a gain for financial reporting purposes of $161,025, and reinvested
$637,900 of the net sales proceeds in a Jack in the Box Property in Lubbock,
Texas. The remaining net sales proceeds were used to distribute amounts to
Limited Partners sufficient to pay state and federal income taxes related to
the sale of the Property, to pay Partnership expenses and to meet other
working capital needs of the Partnership.
In addition, 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 for financial reporting purposes of $70,554. In addition, in November
1994, the Partnership sold its Property in Medina, Ohio, for $670,000 and
received net sales proceeds of $626,582, resulting in a loss for financial
reporting purposes of $29,904. In connection with the sale of the Property
located in Medina, Ohio, the Partnership also received $198,482 from the
former tenant in consideration of the Partnership's releasing the tenant from
its obligation under the terms of the lease. Accordingly, the net sales
proceeds and lease termination fee totalled $825,064 as compared to an
original cost of $743,000. The sale of the Property in Graham, Texas,
qualified as a like-kind exchange transaction in accordance with Section 1031
of the Internal Revenue Code and the sale of the Property in Medina, Ohio,
resulted in a loss for tax reporting purposes. As a result, no gain was
recognized for federal income tax purposes. Therefore, the Partnership was
not required to distribute any of the net sales proceeds from the sale of
these Properties to Limited Partners for the purpose of paying federal and
state income taxes.
In September 1994, the Partnership reinvested $260,732 of the net sales
proceeds and the lease termination fee received in connection with the sales
of the two Properties described above in a Kenny Rogers Roasters Property in
Arvada, Colorado, as tenants-in-common with an affiliate of the General
Partners. In December 1994, $655,035 was reinvested in two Checkers
Properties in Fayetteville and Atlanta, Georgia. The tenant of these two
Properties owns the buildings located on the Properties and the Partnership
owns the land parcels. The remaining proceeds were used to pay past due real
estate taxes relating to the former tenant of the Property in Sterling
Heights, Michigan, to pay Partnership expenses and to meet other working
capital needs of the Partnership.
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 year ended December 31,
1994, the Partnership received $161,000 in capital contributions from the
corporate General Partner in connection with the operations of the
Partnership. No such contributions were received during the years ended
December 31, 1995 and 1993.
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. Renovations are expected to be completed in April 1996. As of
December 31, 1995, renovations had not commenced.
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 December 31, 1995, the Partnership had
$360,062 invested in such short-term investments as compared to $584,565 at
December 31, 1994. The funds remaining at December 31, 1995, will be used for
the payment of distributions and other liabilities.
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Subject to
certain restrictions on borrowings from the General Partners, however, the
Partnership may borrow, in the discretion of the General Partners, for the
purpose of maintaining the operations of the Partnership. The Partnership
will not encumber any of the Properties in connection with any borrowings or
advances. The Partnership will not borrow for the purpose of returning
capital to the Limited Partners. The Partnership also will not borrow under
circumstances which would make the Limited Partners liable to creditors of the
Partnership. Affiliates of the General Partners from time to time incur
certain operating expenses on behalf of the Partnership for which the
Partnership reimburses the affiliates without interest.
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 is
uncollateralized and bears interest at a rate of prime plus 0.25% per annum is
due on demand. As of February 29, 1996, the Partnership had repaid $26,100 of
the principal and in connection therewith, paid interest of $200 to the
corporate General Partner.
During the year ended December 31, 1994, an affiliate of the General
Partners incurred $1,223 in acquisition expenses on behalf of the Partnership.
In addition, during 1995, 1994 and 1993, affiliates of the General Partners
incurred on behalf of the Partnership $95,036, $209,446 and $170,468,
respectively, for certain operating expenses. As of December 31, 1995, the
Partnership owed $9,254, to affiliates for such amounts and accounting and
administrative services. Amounts payable to other parties, including
distributions payable, decreased to $610,553 at December 31, 1995, from
$625,731 at December 31, 1994. Liabilities at December 31, 1995, to the
extent they exceed cash and cash equivalents at December 31, 1995, will be
paid from future cash from operations, from collections of amounts received in
accordance with the agreement relating to past due rents described above, from
the loan received from the corporate General Partner in January 1996 described
above and, in the event the General Partners elect to make additional
contributions or loans to the Partnership, from future General Partner
contributions or loans.
Based primarily on current and anticipated future cash from operations,
and to a lesser extent additional capital contributions received from the
General Partners and uninvested net sales proceeds from the sale of Properties
added to working capital, the Partnership declared distributions to the
Limited Partners of $2,376,000, $2,376,000 and $2,438,500, for the years ended
December 31, 1995, 1994 and 1993, respectively. This represents distributions
of $47.52, $47.52 and $48.77 per Unit for the years ended December 31, 1995,
1994 and 1993, respectively. The Partnership intends to continue to make
distributions of cash available for distribution to the Limited Partners on a
quarterly basis.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, during 1995, the General Partners obtained
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.
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.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases for the Partnership's Properties are on
a triple-net basis, it is not anticipated that a permanent reserve for
maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up
to one percent of the offering proceeds for maintenance and repairs.
Results of Operations
During 1993, the Partnership owned and leased 37 wholly owned
Properties (including one Property in Salisbury, North Carolina, which was
sold in July 1993), during 1994, the Partnership owned and leased 38 wholly
owned Properties (including two Properties in Graham, Texas, and Medina, Ohio,
which were sold in July and November 1994, respectively) and during 1995, the
Partnership owned and leased 36 wholly owned Properties. In addition, during
1995, 1994 and 1993, the Partnership was a co-venturer in three separate joint
ventures that each owned and leased one Property, and during 1995 and 1994,
the Partnership owned and leased one Property with an affiliate as tenants-in-
common. As of December 31, 1995, the Partnership owned, either directly, as
tenants-in-common with an affiliate or through joint venture arrangements, 40
Properties, which are, in general, subject to long-term triple-net leases.
The leases of the Properties provide for minimum base annual rental amounts
(payable in monthly installments) ranging from approximately $14,200 to
$150,000. Generally, the leases provide for percentage rent based on sales in
excess of a specified amount to be paid annually. In addition, certain leases
provide for increases in the annual base rent during the lease term. For
further description of the Partnership's leases and Properties, see Item 1.
Business - Leases and Item 2. Properties, respectively.
During the years ended December 31, 1995, 1994 and 1993, the
Partnership earned $2,207,971, $2,109,462 and $2,140,148, respectively, in
base rental income from the Partnership's wholly owned Properties described
above. Rental income in 1995 and 1994, each as compared to the prior year,
decreased approximately $89,100 and $60,100, respectively, as a result of the
fact that the Partnership sold one Property in Salisbury, North Carolina, in
July 1993, and two Properties in Graham, Texas, and Medina, Ohio, in July and
November 1994, respectively. As described above in "Liquidity and Capital
Resources," the Partnership reinvested the majority of the sales proceeds in
one Property in Lubbock, Texas, in July 1993, two Properties in Fayetteville
and Atlanta, Georgia, in July and November 1994, respectively, and one
Property as tenants-in-common with an affiliate in September 1994. As a
result of the fact that the Partnership reinvested sales proceeds in the three
wholly owned Properties and entered into long-term, triple-net leases for each
of the Properties, rental income during 1995 and 1994, each as compared to the
prior year, increased approximately $76,400 and $45,900, respectively.
Rental income was also affected in 1995 and 1994 due to the fact that
in March 1994, the Partnership re-leased the Property in Sterling Heights,
Michigan, as to which the original tenant had defaulted in 1993, and entered
into a new five-year (with renewal options for an additional 15 years),
triple-net lease for which rent commenced in October 1994. As a result of
this transaction, rental income in 1995 and 1994, increased approximately
$68,000 and $16,000, respectively.
In addition, in May 1993, the Partnership re-leased the Property in
Oxford, Alabama, as to which the original tenant had defaulted in 1992, and
entered into a new five-year (with renewal options for an additional 15
years), triple-net lease. As a result, rental income in 1994, as compared to
1993, increased approximately $13,700.
In January 1995, the Partnership also re-leased the Property in
Littleton, Colorado, as to which the original lease expired in February 1994.
As a result of the former tenant not renewing the lease, rental income in
1994, as compared to 1993, decreased $11,900. As a result of the new lease,
as to which rent commenced in May 1995, the Partnership recorded approximately
$9,400 in base rental income in 1995, as compared to approximately $2,400
under the old lease in 1994. For a description of the terms of the new lease,
see Item 1. Business - Leases above.
As a result of delinquencies in the payment of rental amounts and
financial difficulties that the former tenant was experiencing, during 1994,
the Partnership established an allowance for doubtful accounts of
approximately $45,500 relating to the Property in Gainesville, Texas. During
1995, the Partnership reduced rental income by approximately $14,400 in
anticipation of amending the lease agreement with the former tenant to provide
for lower base rental payments. However, as the result of locating a new
tenant, the Partnership terminated its lease with the original tenant and
entered into a new long-term, triple-net lease with a new operator in October
1995. In connection with the new lease, the Partnership recognized
approximately $11,500 in rental income during 1995. As of February 29, 1996,
the General Partners were negotiating an agreement with the former tenant for
the collection of past due amounts. The Partnership will recognize such
amounts as income in future periods if collected.
As a result of the fact that in November 1995 the Partnership entered
into an agreement to re-lease its Property in Lombard, Illinois, as to which
the original lease expired in February 1993 and the tenant did not elect to
exercise its renewal options, rental income is expected to increase following
the anticipated rent commencement date in December 1996.
During the years ended December 31, 1995, 1994 and 1993, the
Partnership also earned $70,159, $65,624 and $102,930, respectively, in
contingent rental income. Contingent rental income for the year ended
December 31, 1995, as compared to the year ended December 31, 1994, increased
primarily as a result of an increase in gross sales of certain restaurant
Properties that are subject to leases requiring the payment of contingent
rental income. This increase was partially offset by a decrease of
approximately $8,000 from the sale of the Property in Graham, Texas, in July
1994.
Contingent rental income decreased approximately $27,400 during 1994,
as compared to 1993, as a result of the expiration of the lease relating to
the Property in Littleton, Colorado, as described above. Contingent rental
income also decreased for the year ended December 31, 1994, as compared to the
year ended December 31, 1993, as a result of the Partnership's adjusting
estimated contingent rental amounts for 1993 to actual amounts during the year
ended December 31, 1994, and decreased gross sales of certain restaurant
Properties that are subject to leases requiring the payment of contingent
rental income.
For the years ended December 31, 1995, 1994 and 1993, the Partnership
also earned $153,677, $132,810 and $124,098, respectively, attributable to net
income earned by three joint ventures in which the Partnership is a co-
venturer and the one Property owned as tenants-in-common with an affiliate.
The increase in net income earned by joint ventures in 1995 and 1994, as
compared to prior years, is primarily attributable to the fact that the
Partnership reinvested a portion of the proceeds from the sale of Properties,
as described above, in a Property with an affiliate of the General Partners as
tenants-in-common in September 1994.
During the year ended December 31, 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 rental
income from three Properties owned by joint ventures and one Property owned
with an affiliate as tenants-in-common). As of December 31, 1995, Golden
Corral Corporation was the 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 1996 and
subsequent years. In addition, four Restaurant Chains, Golden Corral Family
Steakhouse Restaurants, Denny's, KFC and Wendy's Old Fashioned Hamburger
Restaurants, each accounted for more than ten percent of the Partnership's
total rental income in 1995 (including the Partnership's share of the rental
income from three Properties owned by joint ventures and one Property owned
with an affiliate as tenants-in-common). In subsequent years, it is
anticipated that these four Restaurant Chains each will continue to account
for more than ten percent of the total rental income to which the Partnership
is entitled under the terms of its leases. Any failure of these lessees or
Restaurant Chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense,
were $617,237, $637,293 and $701,027 for the years ended December 31, 1995,
1994 and 1993, respectively. The decrease in operating expenses in 1994, as
compared to 1993, is primarily attributable to the Partnership's accruing
approximately $5,400 during the year ended December 31, 1994, in real estate
taxes for the Property in Sterling Heights, Michigan, relating to the former
tenant, as compared to $67,000 in 1993, which included amounts relating to
prior years real estate taxes. In addition to real estate taxes, the
Partnership also incurred other operating expenses, such as insurance and
maintenance on this Property during 1993 and 1994 until the Property was re-
leased in March 1994. In accordance with the new lease, the new tenant is
responsible for the payment of such expenses; therefore, no such expenses were
incurred for this Property during the period April 1994 through December 1994,
and the year ended December 31, 1995.
During the years ended December 31, 1995 and 1994, the Partnership also
incurred certain expenses, such as insurance, maintenance and real estate
taxes, as a result of the fact that the leases for the Properties located in
Lombard, Illinois, and Littleton, Colorado, had expired and had not been
renewed by the original tenant. Due to the fact that the Partnership has
entered into new leases with tenants for these two Properties, as described
above, the Partnership does not anticipate incurring significant expenses
relating to these Properties in future periods.
Operating expenses for the years ended December 31, 1994 and 1993,
include amounts accrued by the Partnership for real estate taxes relating to
the Property in Gainesville, Texas. The operating expenses relating to this
Property were the responsibility of the former tenant. The Partnership
intends to continue pursuing the collection of these amounts from the former
tenant and will recognize such amounts as income if collected. In October
1995, the Partnership entered into a new lease with a new operator for this
Property, as described above. The new operator agreed to pay all of the 1995
real estate taxes; therefore, no such expenses were incurred for this Property
during the year ended December 31, 1995. The decrease in operating expenses
for the year ended December 31, 1995, was partially offset by an increase in
amortization expense as a result of the Partnership's expensing the balance of
unamortized lease costs totalling approximately $35,600 relating to the
original lease for the Property in Gainesville, Texas, following the
termination of such lease.
The decrease in operating expenses for the year ended December 31,
1995, was also partially offset by an increase in (i) accounting and
administrative expenses associated with operating the Partnership and its
Properties and (ii) insurance expenses as a result of the General Partners'
obtaining contingent liability and property coverage for the Partnership as
discussed above in "Liquidity and Capital Resources." Operating expenses for
the year ended December 31, 1994, decreased as a result of a decrease in
administrative expenses associated with both the processing services provided
for investors and a decrease in mailings to investors during 1994, as compared
to 1993.
Depreciation expense during 1995 and 1994, as compared to prior years,
decreased approximately $20,000 and $4,700, respectively, as a result of the
sale of Properties during 1994 and 1993, as described above, net of the affect
of acquiring new Properties during such periods.
As a result of the sale of the Property in Salisbury, North Carolina,
the Partnership recognized a gain of $161,025 for the year ended December 31,
1993. In addition, as a result of the sale of the Properties in Graham,
Texas, and Medina, Ohio, the Partnership recognized a gain of $70,554 and a
loss of $29,904, respectively, for the year ended December 31, 1994. In
connection with the sale of the Property in Medina, Ohio, the Partnership also
received $198,482 from the former tenant in consideration of the Partnership's
releasing the tenant from its obligation under the terms of the lease. No
such transactions occurred during the year ended December 31, 1995.
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 will adopt this standard in 1996. The
General Partners believe that adoption of this standard currently would not
have had a material effect on the Partnership's financial position or results
of operations.
The Partnership's leases as of December 31, 1995, are, in general,
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales
above a specified level and/or automatic increases in base rent at specified
times during the term of the lease. Management expects that increases in
restaurant sales volumes due to inflation and real sales growth should result
in an increase in rental income over time. Continued inflation also may cause
capital appreciation of the Partnership's Properties. Inflation and changing
prices, however, also may have an adverse impact on the operating margins of
the restaurants and on potential capital appreciation of the Properties.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONTENTS
--------
Page
----
Report of Independent Accountants 14
Financial Statements:
Balance Sheets 15
Statements of Income 16
Statements of Partners' Capital 17
Statements of Cash Flows 18
Notes to Financial Statements 20
Report of Independent Accountants
---------------------------------
To the Partners
CNL Income Fund II, Ltd.
We have audited the financial statements and the financial statement schedules
of CNL Income Fund II, Ltd. (a Florida limited partnership) listed in Item
14(a) of this Form 10-K. These financial statements and financial statement
schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL Income Fund II, Ltd. as
of December 31, 1995 and 1994, and the results of its operations and its cash
flows for each of the three years in the period ended December 31, 1995 in
conformity with generally accepted accounting principles. In addition, in our
opinion, the financial statement schedules referred to above, when considered
in relation to the basic financial statements taken as a whole, present
fairly, in all material respects, the information required to be included
therein.
/s/Coopers & Lybrand L.L.P.
Orlando, Florida
January 17, 1996
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
December 31,
ASSETS 1995 1994
----------- -----------
Land and buildings on operating
leases, less accumulated
depreciation $17,180,932 $17,597,718
Investment in joint ventures 1,348,108 1,376,218
Cash and cash equivalents 360,062 584,565
Restricted cash 25,000 -
Receivables, less allowance for
doubtful accounts of $100,811
and $98,362 90,382 89,307
Prepaid expenses 3,249 1,038
Lease costs, less accumulated
amortization of $3,554 and
$14,375 17,009 35,625
Accrued rental income 84,123 50,037
Other assets 1,750 1,750
----------- -----------
$19,110,615 $19,736,258
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 10,826 $ 18,219
Accrued and escrowed real estate
taxes payable 5,727 13,512
Distributions payable 594,000 594,000
Due to related parties 9,254 76,104
Rents paid in advance and deposits 44,000 50,132
----------- -----------
Total liabilities 663,807 751,967
Commitment (Note 11)
Partners' capital 18,446,808 18,984,291
----------- -----------
$19,110,615 $19,736,258
=========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
--------------------
Year Ended December 31,
1995 1994 1993
---------- ---------- ----------
Revenues:
Rental income from operating
leases $2,207,971 $2,109,462 $2,140,148
Contingent rental income 70,159 65,624 102,930
Interest and other income 23,947 15,782 23,358
---------- ---------- ----------
2,302,077 2,190,868 2,266,436
---------- ---------- ----------
Expenses:
General operating and admini-
strative 121,317 137,370 138,527
Professional services 25,161 23,333 32,466
Bad debt expense 4,745 11,347 -
Real estate taxes 3,588 18,833 80,208
State and other taxes 5,633 4,685 4,761
Depreciation and amortization 456,793 441,725 445,065
---------- ---------- ----------
617,237 637,293 701,027
---------- ---------- ----------
Income Before Equity in Earnings
of Joint Ventures, Gain and Loss
on Sale of Land and Buildings
and Lease Termination Income 1,684,840 1,553,575 1,565,409
Equity in Earnings of Joint
Ventures 153,677 132,810 124,098
Gain on Sale of Land and Buildings - 70,554 161,025
Loss on Sale of Land and Building - (29,904) -
Lease Termination Income - 198,482 -
---------- ---------- ----------
Net Income $1,838,517 $1,925,517 $1,850,532
========== ========== ==========
Allocation of Net Income:
General partners $ 18,385 $ 18,623 $ 17,922
Limited partners 1,820,132 1,906,894 1,832,610
---------- ---------- ----------
$1,838,517 $1,925,517 $1,850,532
========== ========== ==========
Net Income Per Limited Partner
Unit $ 36.40 $ 38.14 $ 36.65
========== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 50,000 50,000 50,000
========== ========== ==========
See accompanying notes to financial statements.
<TABLE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
-------------------------------
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
General Partners Limited Partners
------------------ ------------------------------------------------------
Accumu- Accumu-
Contri- lated Contri- Distri- lated Syndication
butions Earnings butions butions Earnings Costs Total
-------- -------- ----------- ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1992 $ 1,000 $106,775 $25,000,000 $(13,126,877) $10,570,666 $(2,689,822) $19,861,742
Distributions to limited
partners ($48.77 per
limited partner unit) - - - (2,438,500) - - (2,438,500)
Net income - 17,922 - - 1,832,610 - 1,850,532
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1993 1,000 124,697 25,000,000 (15,565,377) 12,403,276 (2,689,822) 19,273,774
Contributions from
general partner 161,000 - - - - - 161,000
Distributions to limited
partners ($47.52 per
limited partner unit) - - - (2,376,000) - - (2,376,000)
Net income - 18,623 - - 1,906,894 - 1,925,517
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1994 162,000 143,320 25,000,000 (17,941,377) 14,310,170 (2,689,822) 18,984,291
Distributions to limited
partners ($47.52 per
limited partner unit) - - - (2,376,000) - - (2,376,000)
Net income - 18,385 - - 1,820,132 - 1,838,517
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1995 $162,000 $161,705 $25,000,000 $(20,317,377) $16,130,302 $(2,689,822) $18,446,808
======== ======== =========== ============ =========== =========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
Year Ended December 31,
1995 1994 1993
----------- ----------- -----------
Increase (Decrease) in Cash and
Cash Equivalents:
Cash Flows from Operating
Activities:
Cash received from tenants $ 2,198,821 $ 2,181,181 $ 2,232,096
Distributions from joint
ventures 181,908 155,231 139,555
Cash paid for expenses (229,879) (193,292) (216,130)
Interest received 17,517 13,484 14,656
----------- ----------- -----------
Net cash provided by
operating activities 2,168,367 2,156,604 2,170,177
----------- ----------- -----------
Cash Flows from Investing
Activities:
Additions to land and
buildings on operating
leases (4,323) (651,540) (637,900)
Proceeds from sale of land
and buildings - 888,210 746,800
Proceeds received from
tenant in connection with
termination of lease - 198,482 -
Deposit received from
tenant to be used for
renovation 25,000 - -
Investment in joint venture (121) (260,732) -
Increase in restricted cash (25,000) - -
Payment of lease costs (12,426) - (1,800)
Increase in other assets - (1,750) -
----------- ----------- -----------
Net cash provided by
(used in) investing
activities (16,870) 172,670 107,100
----------- ----------- -----------
Cash Flows from Financing
Activities:
Contributions from general
partner - 161,000 -
Distributions to limited
partners (2,376,000) (2,438,500) (1,782,000)
----------- ----------- -----------
Net cash used in
financing activities (2,376,000) (2,277,500) (1,782,000)
----------- ----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents (224,503) 51,774 495,277
Cash and Cash Equivalents at
Beginning of Year 584,565 532,791 37,514
----------- ----------- -----------
Cash and Cash Equivalents at End
of Year $ 360,062 $ 584,565 $ 532,791
=========== =========== ===========
Reconciliation of Net Income
to Net Cash Provided by
Operating Activities:
Net income $ 1,838,517 $ 1,925,517 $ 1,850,532
----------- ----------- -----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 417,614 437,649 442,341
Amortization 39,179 4,076 2,724
Gain on sale of land and
buildings - (70,554) (161,025)
Loss on sale of land and
building - 29,904 -
Lease termination income - (198,482) -
Equity in earnings of joint
ventures, net of distri-
butions 28,231 23,294 14,584
Decrease (increase) in
receivables (1,075) 9,882 (20,546)
Decrease (increase) in
prepaid expenses (2,211) 4,655 (5,693)
Increase in accrued rental
income (34,086) (20,587) (14,864)
Increase (decrease) in
accounts payable and
accrued expenses (21,043) (68,182) 49,527
Increase (decrease) in
due to related parties,
excluding acquisition
costs paid on behalf
of the Partnership (65,627) 74,008 873
Increase (decrease) in
rents paid in advance
and deposits (31,132) 5,424 11,724
----------- ----------- -----------
Total adjustments 329,850 231,087 319,645
----------- ----------- -----------
Net Cash Provided by Operating
Activities $ 2,168,367 $ 2,156,604 $ 2,170,177
=========== =========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing
Activities:
Related parties paid certain
acquisition costs on behalf
of the Partnership $ - $ 1,223 $ -
=========== =========== ===========
Land cost incurred and unpaid
at December 31 $ - $ 2,272 $ -
=========== =========== ===========
Lease costs incurred and
unpaid at December 31 $ 8,137 $ - $ -
=========== =========== ===========
Distributions declared and
unpaid at December 31 $ 594,000 $ 594,000 $ 656,500
=========== =========== ===========
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Years Ended December 31, 1995, 1994 and 1993
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund II, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A. Bourne.
Mr. Seneff and Mr. Bourne are also 50 percent shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Land and Buildings on Operating Leases - Land and buildings on operating
leases are stated at cost. Buildings are depreciated using the
straight-line method over their estimated useful lives of 30 years.
When properties are sold, the related cost and accumulated depreciation
are removed from the accounts and gains or losses from sales are
reflected in income in accordance with Statement of Financial Accounting
Standards No. 66, "Accounting for Sales of Real Estate." The properties
will be written down to net realizable value in the event the general
partners believe that the undepreciated cost cannot be recovered through
operations. The general partners determine whether an impairment in
value has occurred by comparing the estimated undiscounted future cash
flows with the carrying cost of the individual properties.
Lease Accounting and Rental Income - Land and buildings are leased to
others on a triple-net lease basis, whereby the tenant is generally
responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance and repairs.
The leases are accounted for using the operating method. As such, land
and buildings are recorded at cost, revenue is recognized as rentals are
earned and depreciation is charged to operations as incurred. When
scheduled rentals vary during the lease term, income is recognized on a
straight-line basis over the lease term so as to produce a constant
periodic rent. Accrued rental income is the aggregate difference
between the scheduled rents which vary during the lease term and the
income recognized on a straight-line basis.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and allowance for
uncollectible accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership accounts for its 50
percent interest in Kirkman Road Joint Venture using the equity method.
The Partnership's investments in Holland Joint Venture, Show Low Joint
Venture and the property in Arvada, Colorado, held as tenants-in-common
with an affiliate are accounted for using the equity method since the
Partnership shares control with affiliates which have the same general
partners.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to be
cash equivalents. Cash and cash equivalents consist of demand deposits
at commercial banks, money market funds and overnight repurchase
agreements backed by government securities. Cash equivalents are stated
at cost plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand deposits
at commercial banks and money market funds may exceed federally insured
levels; however, the Partnership has not experienced any losses in such
accounts. The Partnership limits investment of temporary cash
investments to financial institutions with high credit standing;
therefore, the Partnership believes it is not exposed to any significant
credit risk on cash and cash equivalents.
Lease Costs - Lease incentive costs and brokerage and legal fees
associated with negotiating new leases are amortized over the terms of
the new leases using the straight-line method. When a property is sold
or a lease is terminated, the related lease cost, if any, net of
accumulated amortization is removed from the accounts and charged
against income.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 1995 presentation.
These reclassifications had no effect on partners' capital or net
income.
New Accounting Standard - 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 will adopt this standard in 1996. The
general partners believe that adoption of this standard currently would
not have had a material effect on the Partnership's financial position
or results of operations.
2. Leases:
------
The Partnership leases its land or land and buildings primarily to
operators of national and regional fast-food restaurants. The leases
are accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." The leases have
been classified as operating leases. Substantially all leases are for
15 to 20 years and provide for minimum and contingent rentals. In
addition, the tenant generally pays all property taxes and assessments,
fully maintains the interior and exterior of the building and carries
insurance coverage for public liability, property damage, fire and
extended coverage. The lease options generally allow tenants to renew
the leases for two to four successive five-year periods subject to the
same terms and conditions as the initial lease. Most leases also allow
the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at
December 31:
1995 1994
----------- -----------
Land $ 8,052,723 $ 8,051,895
Buildings 12,526,524 12,526,524
----------- -----------
20,579,247 20,578,419
Less accumulated
depreciation (3,398,315) (2,980,701)
----------- -----------
$17,180,932 $17,597,718
=========== ===========
During 1993, the Partnership sold its property in Salisbury, North
Carolina, for $800,000 and received net sales proceeds of $746,800,
resulting in a gain of $161,025 for financial reporting purposes. In
addition, during 1994, the Partnership sold two properties in Graham,
Texas, and Medina, Ohio, for a total of $945,000 and received net sales
proceeds of $888,210, resulting in a gain of $70,554 and a loss of
$29,904, respectively, for financial reporting purposes. In connection
with the sale of the Medina, Ohio property, the Partnership also
received $198,482 from the former tenant in consideration of the
Partnership's releasing the tenant from its obligation under the terms
of the lease. In December 1994, the Partnership reinvested a total of
$655,035 of the net sales proceeds in land of two properties in
Fayetteville and Atlanta, Georgia. The tenant owns the buildings
located on these land parcels and has the right, if not in default under
the lease, to remove the buildings from the land at the end of the lease
terms.
Some of the leases provide for escalating guaranteed minimum rents
throughout the lease terms. Income from these scheduled rent increases
is recognized on a straight-line basis over the terms of the leases.
For the years ended December 31, 1995, 1994 and 1993, the Partnership
recognized $34,086, $20,587 and $14,864, respectively, of such income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1995:
1996 $ 2,088,327
1997 2,104,079
1998 2,094,924
1999 2,068,862
2000 1,996,365
Thereafter 12,424,033
-----------
$22,776,590
===========
4. Investment in Joint Ventures:
----------------------------
The Partnership has a 50 percent interest, a 49 percent interest and a
64 percent interest in the profits and losses of Kirkman Road Joint
Venture, Holland Joint Venture and Show Low Joint Venture, respectively.
The remaining interests in the Holland Joint Venture and the Show Low
Joint Venture are held by affiliates of the Partnership which have the
same general partners.
On September 22, 1994, the Partnership acquired a property in Arvada,
Colorado, with an affiliate of the Partnership that has the same general
partners, as tenants-in-common. The total cost of the property,
excluding acquisition fees and miscellaneous acquisition expenses, was
$769,724, of which the Partnership contributed $260,732, or 33.87%. The
Partnership accounts for its investment in this property using the
equity method since the Partnership shares control with an affiliate.
Amounts relating to its investment are included in investment in joint
ventures.
Kirkman Road Joint Venture, Holland Joint Venture, Show Low Joint
Venture and the Partnership and an affiliate as tenants-in-common, each
own and lease one property to an operator of national fast-food or
family-style restaurants. The following presents the combined,
condensed financial information for the joint ventures and the property
held as tenants-in-common with an affiliate at December 31:
1995 1994
---------- ----------
Land and buildings on
operating leases, less
accumulated depreciation $2,737,137 $2,809,523
Cash 21,173 22,434
Receivables 4,788 8,918
Prepaid expenses 1,284 -
Accrued rental income 81,363 43,221
Other assets 47,125 50,375
Liabilities 36,594 29,076
Partners' capital 2,856,276 2,905,395
Revenues 400,444 321,949
Net income 317,895 254,916
The Partnership recognized income totalling $153,677, $132,810 and
$124,098 for the years ended December 31, 1995, 1994 and 1993,
respectively, from these joint ventures and the property held as
tenants-in-common with an affiliate.
5. Restricted Cash:
---------------
As of December 31, 1995, $25,000, which had been received from the
tenant of the property in Lombard, Illinois, was being held in an
interest-bearing account pending payment of renovation costs relating to
the property. (See Note 11.)
6. Receivables:
-----------
In April 1993, the Partnership accepted a promissory note from the
tenant of two properties in Farmington Hills, Michigan, whereby $61,987,
which had been included in receivables for past due rents, was converted
to a loan receivable. The loan, which is non-interest bearing, is being
collected in 48 monthly installments, with the collections deemed to
have commenced January 1, 1993. Because the promissory note does not
provide for interest payments, the Partnership discounted the note to
its estimated present value of $50,918 using an interest rate of ten
percent. Receivables include $14,689 and $26,928 from this note at
December 31, 1995 and 1994, respectively.
During the year ended December 31, 1994, the Partnership received a
judgment in bankruptcy relating to the former tenant of the property in
Sterling Heights, Michigan, for an amount equal to $15,949 as payment in
full of all past due amounts owed the Partnership. Payment was due in
60 monthly installments of $317, including interest at a rate of seven
percent per annum, commencing November 1, 1994. Receivables at December
31, 1994, included $15,949 as a result of this judgment. 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. The difference of $3,536 was charged to bad debt expense.
7. Allocations and Distributions:
-----------------------------
All net income and net losses of the Partnership, excluding gains and
losses from the sale of properties, are allocated 99 percent to the
limited partners and one percent to the general partners. Distributions
of net cash flow are made 99 percent to the limited partners and one
percent to the general partners; provided, however, that the one percent
of net cash flow to be distributed to the general partners is subordi-
nated to receipt by the limited partners of an aggregate, ten percent,
noncumulative, noncompounded annual return on their adjusted capital
contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties, to the extent
distributed, will be distributed first to the limited partners in an
amount sufficient to provide them with their cumulative 10% Preferred
Return, plus the return of their adjusted capital contributions. The
general partners will then receive, to the extent previously
subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds will be distributed 95
percent to the limited partners and five percent to the general
partners. Any gain from the sale of a property is, in general,
allocated in the same manner as net sales proceeds are distributable.
Any loss from the sale of a property is, in general, allocated first on
a pro rata basis to partners with positive balances in their capital
accounts; and thereafter, 95 percent to the limited partners and five
percent to the general partners.
During the years ended December 31, 1995, 1994 and 1993, the Partnership
declared distributions to the limited partners of $2,376,000, $2,376,000
and $2,438,500, respectively. No distributions have been made to the
general partners to date.
8. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
1995 1994 1993
---------- ---------- ----------
Net income for
financial reporting
purposes $1,838,517 $1,925,517 $1,850,532
Depreciation for
financial reporting
purposes in excess
of depreciation for
tax reporting
purposes 20,840 22,604 21,358
Gain and loss on sale
of land and build-
ings for financial
reporting purposes
in excess of gain
or loss for tax
reporting purposes - (77,747) (52,124)
Equity in earnings of
joint ventures for
tax reporting
purposes less than
equity in earnings
of joint ventures
for financial
reporting purposes (7,297) (7,151) (11,766)
Allowance for
doubtful accounts 2,449 27,232 -
Accrued rental income (34,086) (20,587) (14,864)
Rents paid in advance (34,132) 5,424 9,819
---------- ---------- ----------
Net income for
federal income tax
purposes $1,786,291 $1,875,292 $1,802,955
========== ========== ==========
9. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the parent company of CNL
Investment Company and CNL Fund Advisors, Inc. The other individual
general partner, Robert A. Bourne, is the president of CNL Investment
Company and CNL Fund Advisors, Inc. CNL Income Fund Advisors, Inc. was
a wholly owned subsidiary of CNL Group, Inc. until its merger, effective
January 1, 1996, with CNL Fund Advisors, Inc. During the years ended
December 31, 1995, 1994 and 1993, CNL Investment Company, CNL Income
Fund Advisors, Inc. and CNL Fund Advisors, Inc. (hereinafter referred to
collectively as the "Affiliates") each performed certain services for
the Partnership, as described below.
During the years ended December 31, 1995, 1994 and 1993, certain
Affiliates acted as manager of the Partnership's Properties pursuant to
a property management agreement with the Partnership. In connection
therewith, the Partnership agreed to pay the Affiliates a management fee
of one-half of one percent of the Partnership assets under management
(valued at cost) annually. The property management fee is limited to
one percent of the sum of gross operating revenues from properties
wholly owned by the Partnership and the Partnership's allocable share of
gross operating revenues from joint ventures and the property held as
tenants-in-common with an affiliate or competitive fees for comparable
services. In addition, these fees are payable only after the limited
partners receive their aggregate, noncumulative 10% Preferred Return.
Due to the subordinated nature of these fees, no property management
fees have been incurred since inception.
Certain Affiliates are also entitled to receive a deferred,
subordinated real estate disposition fee, payable upon the sale of one
or more properties based on the lesser of one-half of a competitive real
estate commission or three percent of the sales price if the Affiliates
provide a substantial amount of services in connection with the sale.
In addition, the real estate disposition fee is subordinated to receipt
by the limited partners of their aggregate, cumulative 10% Preferred
Return, plus their adjusted capital contributions. No deferred,
subordinated real estate disposition fees have been incurred since
inception.
During the years ended December 31, 1995, 1994 and 1993, the Affiliates
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $81,023, $54,157 and $44,620
for the years ended December 31, 1995, 1994 and 1993, respectively, for
such services.
The due to related parties consisted of the following at December 31:
1995 1994
------- -------
Due to Affiliates:
Expenditures incurred on
behalf of the Partnership $ 3,039 $65,440
Accounting and administrative
services 6,215 9,441
------- -------
9,254 74,881
------- -------
Due to other affiliate:
Expenditures incurred on
behalf of the Partnership - 1,223
------- -------
$ 9,254 $76,104
======= =======
10. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental income from individual
lessees, each representing more than ten percent of the Partnerships'
total rental income (including the Partnership's share of rental income
from joint ventures and the property held as tenants-in-common with an
affiliate) for at least one of the years ended December 31:
1995 1994 1993
-------- -------- --------
Golden Corral
Corporation $410,226 $488,691 $553,330
Restaurant Management
Services, Inc. 243,358 240,158 239,175
In addition, the following schedule presents total rental income from
individual restaurant chains, each representing more than ten percent of
the Partnership's total rental income (including the Partnership's share
of rental income from joint ventures and the property held as tenants-
in-common with an affiliate) for at least one of the years ended
December 31:
1995 1994 1993
-------- -------- --------
Wendy's Old Fashioned
Hamburger
Restaurants $412,949 $362,550 $396,364
Golden Corral
Family Steakhouse
Restaurants 410,226 488,691 553,330
Denny's 372,639 380,040 371,258
KFC 352,939 350,022 350,005
Popeyes Famous Fried
Chicken Restaurants 243,358 240,158 239,175
Although the Partnership's properties are geographically diverse and the
Partnership's lessees operate a variety of restaurant concepts, failure
of any one of these lessees or restaurant chains could significantly
impact the results of operations of the Partnership. However, the
general partners believe 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 lessees.
11. 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 April
1996.
12. Subsequent Event:
----------------
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 is
uncollateralized, bears interest at a rate of prime plus 0.25% per annum
and is due on demand.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Investment Company, CNL Fund Advisors, Inc.,
and CNL Group, Inc. and its affiliates, all of which are affiliates of the
General Partners. In addition, during 1995, the Partnership had available to
it the services, personnel and experience of CNL Income Fund Advisors, Inc.,
prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996.
James M. Seneff, Jr., age 49, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors and Chief Executive Officer since its formation in 1973.
CNL Group, Inc. is the parent company of CNL Securities Corp., CNL Investment
Company, CNL Fund Advisors, Inc., and prior to its merger with CNL Fund
Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors, Inc. Mr.
Seneff has been a director and registered principal of CNL Securities Corp.,
which served as the managing dealer in the Partnership's offering of Units,
since its formation in 1979. Mr. Seneff also has held the position of
President and a director of CNL Management Company, a registered investment
advisor, since its formation in 1976, has served as Chairman of the Board and
Chief Executive Officer of CNL Investment Company and Chief Executive Officer
and Chairman of the Board of Commercial Net Lease Realty, Inc. since 1992, has
served as Chairman of the Board and Chief Executive Officer of CNL Realty
Advisors, Inc. since its inception in 1991, served as Chairman of the Board
and Chief Executive Officer of CNL Income Fund Advisors, Inc. since its
inception in 1994 through December 31, 1995, has served as Chairman of the
Board and Chief Executive Officer of CNL Fund Advisors, Inc. since its
inception in 1994, and has held the position of Chief Executive Officer and a
director of CNL Institutional Advisors, Inc., a registered investment advisor,
since its inception in 1990. Mr. Seneff previously served on the Florida
State Commission on Ethics and is a former member and past Chairman of the
Florida Investment Advisory Council, which recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration, Florida's principal investment advisory and
money management agency, oversees the investment of more than $40 billion of
retirement funds. Since 1971, Mr. Seneff has been active in the acquisition,
development and management of real estate projects and, directly or through an
affiliated entity, has served as a general partner or joint venturer in
approximately 100 real estate ventures involved in the financing, acquisition,
construction and rental of office buildings, apartment complexes, restaurants,
hotels and other real estate. Included in these 100 real estate ventures are
approximately 57 privately offered real estate limited partnerships in which
Mr. Seneff, directly or through an affiliated entity, serves or has served as
a general partner. Also included are CNL Income Fund, Ltd., CNL Income Fund
III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund
VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income
Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income
Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL
Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd.
and CNL Income Fund XVIII, Ltd. (the "CNL Income Fund Partnerships"), public
real estate limited partnerships with investment objectives similar to those
of the Partnership, in which Mr. Seneff serves as a general partner. Mr.
Seneff received his degree in Business Administration from Florida State
University in 1968.
Robert A. Bourne, age 48, is President and Treasurer of CNL Group, Inc.,
President, a director and a registered principal of CNL Securities Corp.,
President and a director of CNL Investment Company, CNL Fund Advisors, Inc.,
and prior to its merger with CNL Fund Advisors, Inc., effective January 1,
1996, CNL Income Fund Advisors, Inc., and President, Chief Investment Officer
and a director of CNL Institutional Advisors, Inc., a registered investment
advisor. Mr. Bourne also has served as a director since 1992, as President
from July 1992 to February 1996, and as Vice Chairman of the Board of
Directors, Secretary and Treasurer since February 1996, of Commercial Net
Lease Realty, Inc. In addition, Mr. Bourne has served as a director since its
inception in 1991, as President from 1991 to February 1996, and as Secretary
and Treasurer since February 1996, of CNL Realty Advisors, Inc. Upon
graduation from Florida State University in 1970, where he received a B.A. in
Accounting, with honors, Mr. Bourne worked as a certified public accountant
and, from September 1971 through December 1978, was employed by Coopers &
Lybrand, Certified Public Accountants, where he held the position of tax
manager beginning in 1975. From January 1979 until June 1982, Mr. Bourne was
a partner in the accounting firm of Cross & Bourne and from July 1982 through
January 1987, he was a partner in the accounting firm of Bourne & Rose, P. A.,
Certified Public Accountants. Mr. Bourne, who joined CNL Securities Corp. in
1979, has participated as a general partner or joint venturer in
approximately 100 real estate ventures involved in the financing, acquisition,
construction and rental of office buildings, apartment complexes, restaurants,
hotels and other real estate. Included in these 100 real estate ventures are
approximately 57 privately offered real estate limited partnerships in which
Mr. Bourne, directly or through an affiliated entity, serves or has served as
a general partner. Also included are the CNL Income Fund Partnerships, public
real estate limited partnerships with investment objectives similar to those
of the Partnership, in which Mr. Bourne serves as a general partner.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders
are James M. Seneff, Jr. and Robert A. Bourne, the individual General
Partners. CNL Realty Corporation was organized to serve as the corporate
general partner of real estate limited partnerships, such as the Partnership,
organized by one or both of the individual General Partners. CNL Realty
Corporation currently serves as the corporate general partner of CNL Income
Fund Partnerships.
CNL Investment Company, which through December 31, 1994, provided
certain management services in connection with the Partnership and its
Properties, is a corporation organized in 1990 under the laws of the State of
Florida. Its principal office is located at 400 East South Street, Suite 500,
Orlando, Florida 32801. CNL Investment Company is a wholly owned subsidiary
of CNL Group, Inc., a diversified real estate company, and was organized to
perform property acquisition, property management and other services.
CNL Income Fund Advisors, Inc., for the period January 1, 1995 through
September 30, 1995, provided certain management services in connection with
the Partnership and its Properties following the assignment by CNL Investment
Company of its rights and obligations under the property management agreement.
CNL Income Fund Advisors, Inc. was a corporation organized in 1994 under the
laws of the State of Florida, and its principal office was located at 400 East
South Street, Suite 500, Orlando, Florida 32801. CNL Income Fund Advisors,
Inc. was a wholly owned subsidiary of CNL Group, Inc., a diversified real
estate company, and was organized to perform property acquisition, property
management and other services. CNL Income Fund Advisors, Inc. merged with CNL
Fund Advisors, Inc. effective January 1, 1996.
CNL Fund Advisors, Inc., effective October 1, 1995 began providing
certain management services in connection with the Partnership and its
Properties following the assignment by CNL Income Fund Advisors, Inc. of its
rights and obligations under the property management agreement. CNL Fund
Advisors, Inc. is a corporation organized in 1994 under the laws of the State
of Florida, and its principal office is located at 400 East South Street,
Suite 500, Orlando, Florida 32801. CNL Fund Advisors, Inc. is a wholly owned
subsidiary of CNL Group, Inc., a diversified real estate company, and was
organized to perform property acquisition, property management and other
services.
CNL Group, Inc., which is the parent company of CNL Investment Company
and CNL Fund Advisors, Inc., is a diversified real estate corporation
organized in 1980 under the laws of the State of Florida. Other subsidiaries
and affiliates of CNL Group, Inc. include a property development and
management company, two investment advisory companies, and six corporations
organized as strategic business units. James M. Seneff, Jr., an individual
General Partner of the Partnership, is the Chairman of the Board, Chief
Executive Officer, and a director of CNL Group, Inc. Mr. Seneff and his wife
own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as
members of the Boards of Directors of those entities. The Boards of Directors
have the responsibility for creating and implementing the policies of
CNL Group, Inc. and its affiliated companies.
John T. Walker, age 37, joined CNL Group, Inc. in September 1994, as
Senior Vice President, responsible for Research and Development. He currently
serves as the Chief Operating Officer and Executive Vice President of CNL Fund
Advisors, Inc. and CNL American Properties Fund, Inc. From May 1992 to May
1994, he was Executive Vice President for Finance and Administration and Chief
Financial Officer of Z Music, Inc., a television network which was
subsequently acquired by Gaylord Entertainment, where he was responsible for
overall financial and administrative management and planning. From January
1990 through April 1992, Mr. Walker was Chief Financial Officer of the First
Baptist Church in Orlando, Florida. From April 1984 through December 1989, he
was a partner in the accounting firm of Chastang, Ferrell & Walker, P.A.,
where he was the partner in charge of audit and consulting services, and from
1981 to 1984, Mr. Walker was a Senior Consultant/Audit Senior at Price
Waterhouse. Mr. Walker is a Cum Laude graduate of Wake Forest University with
a B.S. in Accountancy and is a Certified Public Accountant.
Lynn E. Rose, age 47, a certified public accountant, has served as Chief
Financial Officer and Secretary of CNL Group, Inc. since December 1993, and
served as Controller and Secretary of CNL Group, Inc. from 1987 until December
1993. She has served as Chief Operating Officer of CNL Corporate Services,
Inc. since November 1994. Ms. Rose also has served as Chief Financial Officer
of CNL Institutional Advisors, Inc. since its inception in 1990, a director of
CNL Realty Advisors, Inc. since its inception in 1991, Secretary and Treasurer
of CNL Realty Advisors, Inc. from 1991 to February 1996, Secretary and
Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996,
Secretary of CNL Income Fund Advisors, Inc. since its inception in 1994 to
December 1995, and Secretary and Treasurer of CNL Fund Advisors, Inc. since
its inception in 1994. Ms. Rose also has served as Chief Financial Officer,
Secretary and Treasurer of CNL American Properties Fund, Inc. since its
inception in 1994. In addition, Ms. Rose oversees the management information
services, administration, legal compliance, accounting, tenant compliance, and
reporting for over 200 corporations, partnerships, and joint ventures. Prior
to joining CNL, Ms. Rose was a partner with Robert A. Bourne in the accounting
firm of Bourne & Rose, P.A., Certified Public Accountants. Ms. Rose holds a
B.A. in Sociology from the University of Central Florida and is a registered
financial and operations principal of CNL Securities Corp. She was licensed as
a Certified Public Accountant in 1979.
Jeanne A. Wall, age 37, has served as Chief Operating Officer of
CNL Investment Company and of CNL Securities Corp. since November 1994 and
previously served as Executive Vice President of CNL Investment Company since
January 1991. In 1984, Ms. Wall joined CNL Securities Corp. as its Partnership
Administrator. In 1985, Ms. Wall became Vice President of CNL Securities
Corp. and, in 1987, she became a Senior Vice President of CNL Securities Corp.
In this capacity, Ms. Wall serves as national marketing director and oversees
the national marketing plan for the CNL investment programs. In addition, Ms.
Wall oversees the partnership administration and investor services for
programs offered through participating brokers. Ms. Wall also has served as
Senior Vice President of CNL Institutional Advisors, Inc., a registered
investment advisor, from 1990 to 1993, as Vice President of CNL Realty
Advisors, Inc. since its inception in 1991, as Vice President of Commercial
Net Lease Realty, Inc. since 1992, as Executive Vice President of CNL Income
Fund Advisors, Inc. from its inception in 1994 to December 1995, as Executive
Vice President of CNL Fund Advisors, Inc. since its inception in 1994, and as
Executive Vice President of CNL American Properties, Inc. since its inception
in 1994. Ms. Wall holds a B.A. in Business Administration from Linfield
College and is a registered principal of CNL Securities Corp. Ms. Wall
currently serves as a trustee on the board of the Investment Program
Association and on the Direct Participation Program committee for the National
Association of Securities Dealers (NASD).
ITEM 11. EXECUTIVE COMPENSATION
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or
any of their affiliates. There are no compensatory plans or arrangements
regarding termination of employment or change of control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 29, 1996, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of February 29, 1996, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
----
100%
====
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. There are no arrangements
which at a subsequent date may result in a change in control of the
Registrant.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The table below summarizes the types, recipients, methods of computation
and amounts of compensation, fees and distributions paid or payable by the
Partnership to the General Partners and their affiliates for the year ended
December 31, 1995, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation Method of For the Year
and Recipient Computation Ended December 31, 1995
- -------------------- ----------- -----------------------
Reimbursement to Operating expenses are Operating expenses
affiliates for reimbursed at the lower incurred on behalf of
operating expenses. of cost or 90 percent the Partnership: $95,036
of the prevailing rate
at which comparable Accounting and
services could have administrative services:
been obtained in the $81,023
same geographic area.
If the General Partners
or their affiliates
loan funds to the
Partnership, the
General Partners or
their affiliates will
be reimbursed for the
interest and fees
charged to them by the
unaffiliated lenders
for such loans.
Affiliates of the
General Partners from
time to time incur
certain operating
expenses on behalf of
the Partnership for
which the Partnership
reimburses the
affiliates without
interest.
Annual, subordinated One-half of one percent $ - 0 -
property management per year of Partnership
fee to affiliates assets under management
(valued at cost),
subordinated to certain
minimum returns to the
Limited Partners. The
property management fee
will not exceed the
lesser of one percent
of gross operating
revenues or competitive
fees for comparable
services.
Deferred, subordinated A deferred, $ - 0 -
real estate subordinated real
disposition fee estate disposition fee,
payable to affiliates payable upon sale of
one or more Properties,
in an amount equal to
the lesser of (i) one-
half of a competitive
real estate commission,
or (ii) three percent
of the sales price of
such Property or
Properties. Payment of
such fee shall be made
only if affiliates of
the General Partners
provides a substantial
amount of services in
connection with the
sale of a Property or
Properties and shall be
subordinated to certain
minimum returns to the
Limited Partners.
General Partners' A deferred, $ - 0 -
deferred, sub- subordinated share
ordinated share of equal to one percent of
Partnership net cash Partnership
flow distributions of net
cash flow, subordinated
to certain minimum
returns to the Limited
Partners.
General Partners' A deferred, $ - 0 -
deferred, sub- subordinated share
ordinated share of equal to five percent
Partnership net sales of the Partnership
proceeds from a sale distributions of such
or sales net sales proceeds,
subordinated to certain
minimum returns to the
Limited Partners.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1995 and 1994
Statements of Income for the years ended December 31, 1995, 1994
and 1993
Statements of Partners' Capital for the years ended December 31,
1995, 1994 and 1993
Statements of Cash Flows for the years ended December 31, 1995,
1994 and 1993
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1995, 1994 and 1993
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1995
Notes to Schedule III - Real Estate and Accumulated Depreciation
at December 31, 1995
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or notes thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 3.1 to Amendment No. 1 to Registration
Statement No. 33-10351 on Form S-11 and incorporated herein by
reference.)
3.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.2
to Form 10-K filed with the Securities and Exchange Commission on
April 2, 1993, and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 4.1 to Amendment No. 1 to Registration
Statement No. 33-10351 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.2
to Form 10-K filed with the Securities and Exchange Commission on
April 2, 1993, and incorporated herein by reference.)
10.1 Property Management Agreement (Included as Exhibit 10.1 to Form
10-K filed with the Securities and Exchange Commission on April 2,
1993, and incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from CNL Investment
Company to CNL Income Fund Advisors, Inc. (Included as Exhibit
10.2 to Form 10-K filed with the Securities and Exchange
Commission on March 30, 1995, and incorporated herein by
reference.)
10.3 Assignment of Property Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Filed herewith.)
10.4 Promissory Note, dated January 16, 1996, among the Registrant and
CNL Realty Corporation relating to a $26,300 loan. (Filed
herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1995 through December 31, 1995.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized, on the 22nd day
of March, 1996.
CNL INCOME FUND II, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
----------------------------
JAMES M. SENEFF, JR.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Robert A. Bourne President, Treasurer and March 22, 1996
- ------------------------ Director (Principal
Robert A. Bourne Financial and
Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer March 22, 1996
- ------------------------ and Director (Principal
James M. Seneff, Jr. Executive Officer)
</TABLE>
<TABLE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
Years Ended December 31, 1995, 1994 and 1993
<CAPTION>
Additions Deductions
---------------------- --------------------
Balance at Charged to Charged to Deemed Balance
Beginning Costs and Other Uncollec- at End
Year Description of Year Expenses Accounts tible Collected of Year
- ---- ---------- ---------- ---------- ---------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
1993 Allowance for
doubtful
accounts (a) $71,130 $ - $ - $ - $ - $ 71,130
1994 Allowance for
doubtful
accounts (a) $71,130 $11,347 $77,093(b) $61,208 $ - $ 98,362
1995 Allowance for
doubtful
accounts (a) $98,362 $ - $44,840(b) $12,391 $30,000 $100,811
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
</TABLE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1995
(A) (B) (C) (D) (E)
Costs Capitalized
Subsequent
Initial Cost To Acquisition
---------------------- -------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---------- ------------ --------- ---------
Properties the Partnership
has Invested in:
Burger King Restaurant:
San Antonio, TX - $ 373,095 $ 384,458 $ - $ -
Checkers Drive-In
Restaurants:
Fayetteville, GA - 338,735 - - -
Atlanta, GA - 317,128 - - -
Denny's Restaurants:
Casper, WY - 184,285 415,181 - -
Rock Springs, WY - 217,448 488,991 - -
Plant City, FL - 329,127 - 521,791 -
Golden Corral Family
Steakhouse Restaurants:
Tomball, TX - 311,019 529,759 22,330 -
Pineville, LA (e) - 187,961 503,435 - -
Hueytown, AL - 258,084 513,853 - -
Nederland, TX - 327,473 520,701 - -
Columbia, MO - 384,911 163,164 - -
Jack in the Box
Restaurant:
Lubbock, TX - 229,198 408,702 - -
KFC Restaurants:
Eagan, MN - 202,428 425,233 30,733 -
Jacksonville, FL - 198,735 266,200 - -
Jacksonville, FL - 140,877 295,205 - -
Avon Park, FL - 101,382 270,926 - -
Eagan, MN - 202,084 370,247 31,976 -
Bay City, TX - 162,783 - 305,154 -
Lonestar Steakhouse
& Saloon Restaurant:
Sterling Heights,
MI (f) - 430,281 - 648,736 -
Pizza Hut Restaurants:
Clayton, NM - 54,093 200,141 - -
Santa Rosa, NM - 75,963 168,204 - -
Childress, TX - 71,512 145,191 - -
Mathis, TX - 74,750 138,231 - -
Coleman, TX - 70,208 141,004 - -
Ponderosa Steakhouse
Restaurant:
Scottsburg, IN - 208,781 - 518,884 -
Popeyes Famous Fried
Chicken Restaurants:
Altamonte Springs, FL - 197,959 255,965 - -
Ocala, FL - 184,512 274,991 - -
Sanford, FL - 237,243 359,865 - -
Apopka, FL - 155,041 - 417,209 -
Wendy's Old Fashioned
Hamburger Restaurants:
Farmington Hills, MI - 259,138 444,680 - -
Farmington Hills, MI - 336,621 582,095 - -
Gainesville, TX - 166,302 449,914 - -
Vail, CO - 782,609 - 550,346 -
Other:
Oxford, AL (g) - 152,567 355,990 - -
Littleton, CO (h) - 42,873 310,832 - -
Lombard, IL (i) - 85,517 96,207 - -
---------- ----------- ---------- -------
$8,052,723 $ 9,479,365 $3,047,159 $ -
========== =========== ========== =======
Property of Joint Venture
in Which the Partnership
has a 50% Interest:
Pizza Hut Restaurant:
Orlando, FL - $ 330,568 $ 220,588 $ - $ -
========== =========== ========== =======
Property of Joint Venture
in Which the Partnership
has a 49% Interest:
Denny's Restaurant:
Holland, MI - $ 295,987 $ - $ 780,451 $ -
========== =========== ========== =======
Property of Joint Venture
in Which the Partnership
has a 64% Interest:
Denny's Restaurant:
Show Low, AZ - $ 96,501 $ 189,000 $ 436,392 $ -
========== =========== ========== =======
Property in Which the
Partnership has a 33.87%
Interest as Tenants-in-
Common:
Kenny Rogers Roasters
Restaurant:
Arvada, CO - $ 260,439 $ 545,126 $ - $ -
========== =========== ========== =======
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1995
(F) (G) (H) (I)
Gross Amount at Which Carried
at Close of Period (c)
--------------------------------------
Buildings
and Accumulated
Land Improvements Total Depreciation
---------- ------------ ----------- ------------
Properties the Partnership
has Invested in:
Burger King Restaurant:
San Antonio, TX $ 373,095 $ 384,458 $ 757,553 $ 108,930
Checkers Drive-In
Restaurants:
Fayetteville, GA 338,735 - 338,735 (d)
Atlanta, GA 317,128 - 317,128 (d)
Denny's Restaurants:
Casper, WY 184,285 415,181 599,466 115,328
Rock Springs, WY 217,448 488,991 706,439 135,831
Plant City, FL 329,127 521,791 850,918 132,622
Golden Corral Family
Steakhouse Restaurants:
Tomball, TX 311,019 552,089 863,108 158,153
Pineville, LA (e) 187,961 503,435 691,396 144,038
Hueytown, AL 258,084 513,853 771,937 147,019
Nederland, TX 327,473 520,701 848,174 146,085
Columbia, MO 384,911 163,164 548,075 44,417
Jack in the Box
Restaurant:
Lubbock, TX 229,198 408,702 637,900 33,144
KFC Restaurants:
Eagan, MN 202,428 455,966 658,394 129,190
Jacksonville, FL 198,735 266,200 464,935 73,944
Jacksonville, FL 140,877 295,205 436,082 82,002
Avon Park, FL 101,382 270,926 372,308 75,257
Eagan, MN 202,084 402,223 604,307 110,611
Bay City, TX 162,783 305,154 467,937 82,222
Lonestar Steakhouse
& Saloon Restaurant:
Sterling Heights,
MI (f) 430,281 648,736 1,079,017 169,392
Pizza Hut Restaurants:
Clayton, NM 54,093 200,141 254,234 56,151
Santa Rosa, NM 75,963 168,204 244,167 47,191
Childress, TX 71,512 145,191 216,703 40,734
Mathis, TX 74,750 138,231 212,981 37,246
Coleman, TX 70,208 141,004 211,212 37,993
Ponderosa Steakhouse
Restaurant:
Scottsburg, IN 208,781 518,884 727,665 135,486
Popeyes Famous Fried
Chicken Restaurants:
Altamonte Springs, FL 197,959 255,965 453,924 76,078
Ocala, FL 184,512 274,991 459,503 81,734
Sanford, FL 237,243 359,865 597,108 102,961
Apopka, FL 155,041 417,209 572,250 110,676
Wendy's Old Fashioned
Hamburger Restaurants:
Farmington Hills, MI 259,138 444,680 703,818 128,463
Farmington Hills, MI 336,621 582,095 918,716 168,161
Gainesville, TX 166,302 449,914 616,216 127,476
Vail, CO 782,609 550,346 1,332,955 154,403
Other:
Oxford, AL(g) 152,567 355,990 508,557 93,441
Littleton, CO (h) 42,873 310,832 353,705 85,479
Lombard, IL (i) 85,517 96,207 181,724 26,457
---------- ----------- ----------- ----------
$8,052,723 $12,526,524 $20,579,247 $3,398,315
========== =========== =========== ==========
Property of Joint Venture
in Which the Partnership
has a 50% Interest:
Pizza Hut Restaurant:
Orlando, FL $ 330,568 $ 220,588 $ 551,156 $ 60,356
========== =========== =========== ==========
Property of Joint Venture in
Which the Partnership has
a 49% Interest:
Denny's Restaurant:
Holland, MI $ 295,987 $ 780,451 $ 1,076,438 $ 186,441
========== =========== =========== ==========
Property of Joint Venture in
Which the Partnership has
a 64% Interest:
Denny's Restaurant:
Show Low, AZ $ 96,501 $ 625,392 $ 721,893 $ 147,919
========== =========== =========== ==========
Property in Which the
Partnership has a 33.87%
Interest as Tenants-in-
Common:
Kenny Rogers Roasters
Restaurant:
Arvada, CO $ 260,439 $ 545,126 $ 805,565 $ 23,199
========== =========== =========== ==========
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1995
(J) (K) (L)
Life
on Which
Depreciation
in Latest
Date Income
of Con- Date Statement is
struction Acquired Computed
--------- -------- ------------
Properties the Partnership
has Invested in:
Burger King Restaurant:
San Antonio, TX 1987 07/87 (b)
Checkers Drive-In Restaurants:
Fayetteville, GA - 12/94 (d)
Atlanta, GA - 12/94 (d)
Denny's Restaurants:
Casper, WY 1983 09/87 (b)
Rock Springs, WY 1983 09/87 (b)
Plant City, FL 1988 11/87 (b)
Golden Corral Family
Steakhouse Restaurants:
Tomball, TX 1987 05/87 (b)
Pineville, LA (e) 1987 06/87 (b)
Hueytown, AL 1987 06/87 (b)
Nederland, TX 1987 08/87 (b)
Columbia, MO 1987 11/87 (b)
Jack in the Box Restaurant:
Lubbock, TX 1993 07/93 (b)
KFC Restaurants:
Eagan, MN 1987 07/87 (b)
Jacksonville, FL 1983 09/87 (b)
Jacksonville, FL 1981 09/87 (b)
Avon Park, FL 1983 09/87 (b)
Eagan, MN 1987 10/87 (b)
Bay City, TX 1987 12/87 (b)
Lonestar Steakhouse
& Saloon Restaurant:
Sterling Heights,
MI (f) 1988 08/87 (b)
Pizza Hut Restaurants:
Clayton, NM 1986 08/87 (b)
Santa Rosa, NM 1986 08/87 (b)
Childress, TX 1974 08/87 (b)
Mathis, TX 1976 12/87 (b)
Coleman, TX 1977 12/87 (b)
Ponderosa Steakhouse
Restaurant:
Scottsburg, IN 1988 10/87 (b)
Popeyes Famous Fried
Chicken Restaurants:
Altamonte Springs, FL 1987 02/87 (b)
Ocala, FL 1987 02/87 (b)
Sanford, FL 1987 06/87 (b)
Apopka, FL 1988 09/87 (b)
Wendy's Old Fashioned
Hamburger Restaurants:
Farmington Hills, MI 1978 05/87 (b)
Farmington Hills, MI 1986 05/87 (b)
Gainesville, TX 1986 07/87 (b)
Vail, CO 1987 08/87 (b)
Other:
Oxford, AL(g) 1987 02/88 (b)
Littleton, CO (h) 1973 10/87 (b)
Lombard, IL (i) 1973 10/87 (b)
Property of Joint Venture in
Which the Partnership has
a 50% Interest:
Pizza Hut Restaurant:
Orlando, FL 1987 10/87 (b)
Property of Joint Venture in
Which the Partnership has
a 49% Interest:
Denny's Restaurant:
Holland, MI 1988 10/87 (b)
Property of Joint Venture in
Which the Partnership has
a 64% Interest:
Denny's Restaurant:
Show Low, AZ 1987 07/87 (b)
Property in Which the Partnership
has a 33.87% Interest as
Tenants-in-Common:
Kenny Rogers Roasters Restaurant:
Arvada, CO 1994 09/94 (b)
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------------------
December 31, 1995
(a) Transactions in real estate and accumulated depreciation during 1995,
1994 and 1993, are summarized as follows:
Accumulated
Cost Depreciation
----------- ------------
Properties the Partnership
has Invested in:
Balance, December 31, 1992 $20,986,250 $ 2,368,142
Acquisitions 637,900 -
Dispositions (688,480) (102,705)
Depreciation expense - 442,341
----------- -----------
Balance, December 31, 1993 20,935,670 2,707,778
Acquisitions 655,035 -
Dispositions (1,012,286) (164,726)
Depreciation expense - 437,649
----------- -----------
Balance, December 31, 1994 20,578,419 2,980,701
Additional costs
capitalized 828 -
Depreciation expense - 417,614
----------- -----------
Balance, December 31, 1995 $20,579,247 $ 3,398,315
=========== ===========
Property of Joint Venture in
Which the Partnership has a
50% Interest:
Balance, December 31, 1992 $ 551,156 $ 38,297
Depreciation expense - 7,353
----------- -----------
Balance, December 31, 1993 551,156 45,650
Depreciation expense - 7,353
----------- -----------
Balance, December 31, 1994 551,156 53,003
Depreciation expense - 7,353
----------- -----------
Balance, December 31, 1995 $ 551,156 $ 60,356
=========== ===========
Property of Joint Venture in
Which the Partnership has a
49% Interest:
Balance, December 31, 1992 $ 1,076,438 $ 108,396
Depreciation expense - 26,015
----------- -----------
Balance, December 31, 1993 1,076,438 134,411
Depreciation expense - 26,015
----------- -----------
Balance, December 31, 1994 1,076,438 160,426
Depreciation expense - 26,015
----------- -----------
Balance, December 31, 1995 $ 1,076,438 $ 186,441
=========== ===========
Property of Joint Venture in
Which the Partnership has a
64% Interest:
Balance, December 31, 1992 $ 721,893 $ 85,380
Depreciation expense - 20,846
----------- -----------
Balance, December 31, 1993 721,893 106,226
Depreciation expense - 20,846
----------- -----------
Balance, December 31, 1994 721,893 127,072
Depreciation expense - 20,847
----------- -----------
Balance, December 31, 1995 $ 721,893 $ 147,919
=========== ===========
Property in Which the Partner-
ship has a 33.87% Interest
as tenants-in-common:
Balance, December 31, 1993 $ - $ -
Acquisitions 805,565 -
Depreciation expense - 5,028
----------- -----------
Balance, December 31, 1994 805,565 5,028
Depreciation expense - 18,171
----------- -----------
Balance, December 31, 1995 $ 805,565 $ 23,199
=========== ===========
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 1995, the aggregate cost of the Properties owned by
the Partnership and the joint ventures (including the Property held as
tenants-in-common) for federal income tax purposes was $20,532,843 and
$3,086,866, respectively. All of the leases are treated as operating
leases for federal income tax purposes.
(d) The building portion of this property is owned by the tenant;
therefore, depreciation is not applicable.
(e) The tenant of this property, Golden Corral Corporation, has subleased
this property to a local, independent restaurant. Golden Corral
Corporation continues to be responsible for complying with all the
terms of the lease agreement and is continuing to pay rent on this
property to the Partnership.
(f) The restaurant in Sterling Heights, Michigan, was converted from a
Ponderosa Steakhouse Restaurant to a Lonestar Steakhouse & Saloon
Restaurant in 1994.
(g) The restaurant in Oxford, Alabama, was converted from a KFC Restaurant
to a regional, independent restaurant in 1993.
(h) The restaurant in Littleton, Colorado, was converted from a Taco Bell
restaurant to a local, independent restaurant in 1995.
(i) In November 1995, the Partnership committed to convert the restaurant
in Lombard, Illinois, from a Taco Bell to a Great Clips hair salon.
The renovation is expected to be completed in April 1996. As of
December 31, 1995, the renovations had not commenced.
EXHIBITS
EXHIBIT INDEX
Exhibit Number
- --------------
3.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 3.1 to Amendment No. 1 to Registration
Statement No. 33-10351 on Form S-11 and incorporated herein by
reference.)
3.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.2
to Form 10-K filed with the Securities and Exchange Commission on
April 2, 1993, and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 4.1 to Amendment No. 1 to Registration
Statement No. 33-10351 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.2
to Form 10-K filed with the Securities and Exchange Commission on
April 2, 1993, and incorporated herein by reference.)
10.1 Property Management Agreement (Included as Exhibit 10.1 to Form
10-K filed with the Securities and Exchange Commission on April 2,
1993, and incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from CNL Investment
Company to CNL Income Fund Advisors, Inc. (Included as Exhibit
10.2 to Form 10-K filed with the Securities and Exchange
Commission on March 30, 1995, and incorporated herein by
reference.)
10.3 Assignment of Property Management Agreement from CNL Income Fund
Advisors, Inc. to CNL Fund Advisors, Inc. (Filed herewith.)
10.4 Promissory Note, dated January 16, 1996, among the Registrant and
CNL Realty Corporation relating to a $26,300 loan. (Filed
herewith.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund II, Ltd. at December 31, 1995, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund II, Ltd. for the year ended December 31, 1995.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 385,062
<SECURITIES> 0
<RECEIVABLES> 191,193
<ALLOWANCES> 100,811
<INVENTORY> 0
<CURRENT-ASSETS> 478,693
<PP&E> 20,579,247
<DEPRECIATION> 3,398,315
<TOTAL-ASSETS> 19,110,615
<CURRENT-LIABILITIES> 663,807
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 18,446,808
<TOTAL-LIABILITY-AND-EQUITY> 19,110,615
<SALES> 0
<TOTAL-REVENUES> 2,302,077
<CGS> 0
<TOTAL-COSTS> 612,492
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 4,745
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,838,517
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,838,517
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,838,517
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
ASSIGNMENT
THIS ASSIGNMENT made this 1st day of October, 1995 by and between CNL
INCOME FUND ADVISORS, INC., a Florida corporation ("Assignor") and CNL FUND
ADVISORS, INC., a Florida corporation ("Assignee").
WITNESSETH:
WHEREAS, the CNL Investment Company entered into that certain Property
Management Agreement, dated January 5, 1987, with CNL Income Fund II, Ltd.
("Agreement"); and
WHEREAS, CNL Investment Company assigned its rights, duties and
obligations under the Agreement to Assignor by Assignment dated January 1,
1995; and
WHEREAS, the Assignor desires to assign its rights, duties and
obligations under the Agreement to Assignee, and Assignee desires to accept
such assignment and assume Assignors duties and obligations under the
Agreement, as assigned.
NOW, THEREFORE, the parties agree as follows:
1. ASSIGNMENT. Assignor hereby assigns and transfers to Assignee, all
of Assignor's rights, title and interest in, to, and under the Agreement as
assigned. Any funds or property of CNL Income Fund II, Ltd. in Assignor's
possession shall be, or have been, delivered to Assignee upon the full
execution of this Assignment.
2. ACCEPTANCE AND ASSUMPTION. Assignee hereby accepts the
foregoing assignment and further hereby assumes and agrees to perform, from
and after October 1, 1995, all duties, obligations and responsibilities of the
property manager arising under the Agreement.
3. REPRESENTATIONS.
(a) Assignor hereby represents and warrants to Assignee:
(i) that the Agreement is in full force and effect;
(ii) that Assignor has fully performed all of its
duties under the Agreement through the date of
this Assignment;
(iii) that Assignor has no notice or knowledge of any claim,
cost, or liability (other than as specifically
contemplated under the Agreement, all of which have
been satisfied or discharged) which arose under the
Agreement or which may arise after the date hereof;
and
(iv) that this Assignment has been duly authorized by
all requisite corporate action and has been
properly executed by duly authorized officers of
Assignor.
(b) CNL Income Fund II, Ltd. hereby represents and warrants to
Assignee that the Agreement is in full force and effect, and that
no defaults or violations of such Agreement exist as of the date
of this Assignment.
IN WITNESS WHEREOF, this Assignment is executed the date above first
written.
ASSIGNOR:
CNL INCOME FUND ADVISORS, INC.,
a Florida corporation
By: /s/Robert A. Bourne
-----------------------------
Robert A. Bourne, President
ASSIGNEE:
CNL FUND ADVISORS, INC.,
a Florida corporation
By: /s/Robert A. Bourne
-----------------------------
Robert A. Bourne, President
CONSENT AND JOINDER
CNL Income Fund II, Ltd. hereby consents to the foregoing Assignment and
joins in such agreement for the purpose of making the representations set
forth in subparagraph 3(b) thereof.
CNL INCOME FUND II, LTD., a Florida
limited partnership
By: /s/Robert A. Bourne
-----------------------------
Robert A. Bourne, General Partner
PROMISSORY NOTE
---------------
$26,300.00 Orlando, Florida
January 16, 1996
FOR VALUE RECEIVED, the undersigned ("Maker") CNL INCOME FUND II, LTD.,
A FLORIDA LIMITED PARTNERSHIP, hereby promises and agrees to pay on Demand to
the order of CNL REALTY CORPORATION ("Payee") at 400 E. South Street, Suite
500, Orlando, Florida 32801, or at such other location designed in writing by
Payee, the principal sum of TWENTY-SIX THOUSAND THREE HUNDRED AND NO/100
DOLLARS ($26,300.00) together with interest thereon from the date hereof at
the rate of Prime plus one quarter (P + 1/4%) percent per annum in legal
tender of the United States of America, as follows:
This Note may be prepaid, in whole or in part, at any time without
premium or penalty. All prepayments shall be applied first to unpaid interest
and then to the unpaid principal balance.
This Note shall be governed by and construed in accordance with the laws
of the State of Florida.
IN WITNESS WHEREOF, the undersigned has executed this Note this
Sixteenth day of January, 1996.
By: CNL INCOME FUND II, LTD.,
a Florida limited partnership
By: /s/Robert A. Bourne
-----------------------------
Robert A. Bourne
General Partner
