FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
-------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-16824
CNL Income Fund II, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-2733859
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
- ---------------------------- -------------------
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-6
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 7-9
Part II
Other Information 10
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
June 30, December 31,
ASSETS 1996 1995
----------- --------
Land and buildings on operating
leases, less accumulated
depreciation of $3,607,121
and $3,398,315 $16,972,126 $17,180,932
Investment in joint ventures 1,342,354 1,348,108
Cash and cash equivalents 334,618 360,062
Restricted cash 18,904 25,000
Receivables, less allowance for
doubtful accounts of $114,613
and $100,811 50,957 90,382
Prepaid expenses 7,512 3,249
Lease costs, less accumulated
amortization of $5,546 and
$3,554 15,017 17,009
Accrued rental income 103,396 84,123
Other assets - 1,750
----------- -----------
$18,844,884 $19,110,615
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 7,445 $ 10,826
Accrued and escrowed real estate
taxes payable 5,826 5,727
Distributions payable 594,000 594,000
Due to related parties 33,886 9,254
Rents paid in advance and deposits 37,304 44,000
----------- -----------
Total liabilities 678,461 663,807
Commitment (Note 3)
Partners' capital 18,166,423 18,446,808
----------- -----------
$18,844,884 $19,110,615
=========== ===========
See accompanying notes to condensed financial statements.
1
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
-------- -------- ---------- -------
<S> <C>
Revenues:
Rental income from
operating leases $556,961 $547,285 $1,112,675 $1,095,457
Contingent rental
income 13,556 12,813 14,639 12,200
Interest and other
income 6,211 6,341 10,458 11,585
-------- -------- ---------- ----------
576,728 566,439 1,137,772 1,119,242
-------- -------- ---------- ----------
Expenses:
General operating
and administrative 34,613 29,966 74,082 61,469
Professional services 3,179 10,379 12,683 15,269
Bad debt expense - - - 3,537
Real estate taxes 2,680 3,456 2,680 6,983
State and other taxes 151 178 4,255 4,832
Depreciation and
amortization 105,399 105,029 210,798 210,057
-------- -------- ---------- ----------
146,022 149,008 304,498 302,147
-------- -------- ---------- ----------
Income Before Equity in
Earnings of Joint
Ventures 430,706 417,431 833,274 817,095
Equity in Earnings of
Joint Ventures 37,590 37,335 74,341 74,416
-------- -------- ---------- ----------
Net Income $468,296 $454,766 $ 907,615 $ 891,511
======== ======== ========== ==========
Allocation of Net Income:
General partners $ 4,683 $ 4,548 $ 9,076 $ 8,915
Limited partners 463,613 450,218 898,539 882,596
-------- -------- ---------- ----------
$468,296 $454,766 $ 907,615 $ 891,511
======== ======== ========== ==========
Net Income Per Limited
Partner Unit $ 9.27 $ 9.00 $ 17.97 $ 17.65
======== ======== ========== ==========
Weighted Average Number
of Limited Partner
Units Outstanding 50,000 50,000 50,000 50,000
======== ======== ========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
2
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Six Months Ended Year Ended
June 30, December 31,
1996 1995
---------------- ------------
General partners:
Beginning balance $ 323,705 $ 305,320
Net income 9,076 18,385
----------- -----------
332,781 323,705
----------- -----------
Limited partners:
Beginning balance 18,123,103 18,678,971
Net income 898,539 1,820,132
Distributions ($23.76 and
$47.52 per limited partner
unit, respectively) (1,188,000) (2,376,000)
----------- -----------
17,833,642 18,123,103
----------- -----------
Total partners' capital $18,166,423 $18,446,808
=========== ===========
See accompanying notes to condensed financial statements.
3
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION> Six Months Ended
June 30,
1996 1995
----------- -------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 1,164,486 $ 1,033,149
----------- -----------
Cash Flows from Investing
Activities:
Additions to land and buildings
on operating leases - (3,101)
Investment in joint ventures - (121)
Payment of lease costs (1,930) -
----------- ----------
Net cash used in investing
activities (1,930) (3,222)
----------- -----------
Cash Flows from Financing
Activities:
Proceeds from loans from
corporate general partner 45,900 -
Repayment of loans from
corporate general partner (45,900) -
Distributions to limited
partners (1,188,000) (1,188,000)
----------- -----------
Net cash used in
financing activities (1,188,000) (1,188,000)
----------- -----------
Net Decrease in Cash and Cash
Equivalents (25,444) (158,073)
Cash and Cash Equivalents at Beginning
of Period 360,062 584,565
----------- -----------
Cash and Cash Equivalents at End of
Period $ 334,618 $ 426,492
=========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Distributions declared and unpaid
at end of period $ 594,000 $ 594,000
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1996 and 1995
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1996, may not be indicative
of the results that may be expected for the year ending December 31,
1996. Amounts as of December 31, 1995, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund II, Ltd. (the "Partnership") for the year ended December
31, 1995.
Effective January 1, 1996, the Partnership adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The
Statement requires that an entity review long-lived assets and certain
identifiable intangibles, to be held and used, for impairment whenever
events or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. Adoption of this standard had no
material effect on the Partnership's financial position or results of
operations.
2. Receivables:
In March 1996, the Partnership accepted a promissory note from the
former tenant of the property in Gainesville, Texas, in the amount of
$96,502, representing past due rental and other amounts, which had been
included in receivables and for which the Partnership had established
an allowance for doubtful accounts, and real estate taxes previously
recorded as an expense by the Partnership. Payments are due in 60
monthly installments of $2,156, including interest at a rate of 11
percent per annum, commencing on June 1, 1996. Due to the uncertainty
of the collectibility of this note, the Partnership has established an
allowance for doubtful accounts of $97,108, including accrued interest
of $2,654 and late fees of $108, and will recognize amounts as income
as collected. Receivables at June 30, 1996, include $2,156 relating to
this note, which was collected by the Partnership in July 1996.
5
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS -
CONTINUED Quarters and Six Months Ended June 30, 1996 and 1995
3. Commitment:
In November 1995, the Partnership entered into a new lease for the
Property in Lombard, Illinois. In connection therewith, the Partnership
has agreed to fund $25,000 in renovation costs. In addition, the
Partnership is holding $18,904, which had been received from the tenant
of the property, (representing the original $25,000 received by the
Partnership, less $6,096 paid for certain preliminary renovation costs)
and recorded such amounts as restricted cash at June 30, 1996. As of
June 30, 1996, renovations had not commenced; however, renovations are
expected to be completed by September 1996.
4. Subsequent Event:
In July 1996, the Partnership entered into a promissory note with the
corporate general partner for a loan in the amount of $60,000 in
connection with the operations of the Partnership. The loan is
uncollateralized, non-interest bearing and due on demand.
6
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
CNL Income Fund II, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on November 13, 1986, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurant properties, as well as land upon which restaurants were to
be constructed, which are leased primarily to operators of national and regional
fast-food restaurant chains (collectively, the "Properties"). The leases
generally are triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of June 30, 1996,
the Partnership owned 40 Properties, including three Properties owned by joint
ventures in which the Partnership is a co-venturer and one Property owned with
an affiliate as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1996 and 1995, was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $1,164,486 and
$1,033,149 for the six months ended June 30, 1996 and 1995, respectively. The
increase in cash from operations for the six months ended June 30, 1996, is
primarily a result of changes in revenues and expenses as discussed in "Results
of Operations" below and changes in the Partnership's working capital.
In March 1996, the Partnership accepted a promissory note from the
former tenant of the Property in Gainesville, Texas, in the amount of $96,502,
representing past due rental and other amounts, which had been included in
receivables and for which the Partnership had established an allowance for
doubtful accounts, and real estate taxes previously recorded as an expense by
the Partnership. Payments are due in 60 monthly installments of $2,156,
including interest at a rate of 11 percent per annum, commencing on June 1,
1996. Due to the uncertainty of the collectibility of this note, the Partnership
has established an allowance for doubtful accounts of $97,108, including accrued
interest of $2,654 and late fees of $108, and will recognize amounts as income
as collected. Receivables at June 30, 1996, include $2,156 relating to this
note, which was collected by the Partnership in July 1996.
Other sources and uses of capital included the following during the six
months ended June 30, 1996.
In January 1996, the Partnership entered into a promissory note with
the corporate general partner for a loan in the amount of $26,300 in connection
with the operations of the Partnership. The loan, which was uncollateralized and
bore interest at a rate of prime plus .25% per annum, was due on demand. As of
June 30, 1996, the Partnership had repaid the loan in full along with
approximately $200 in interest, to the corporate general partner.
7
<PAGE>
Liquidity and Capital Resources - Continued
In April 1996, the Partnership entered into a promissory note with the
corporate general partner for a loan in the amount of $19,600 in connection with
the operations of the Partnership. The loan was uncollateralized, non-interest
bearing and due on demand. As of June 30, 1996, the Partnership had repaid the
loan in full to the corporate general partner.
In addition, in July 1996, the Partnership entered into a promissory
note with the corporate general partner for a loan in the amount of $60,000 in
connection with the operations of the Partnership. The loan is uncollateralized,
non-interest bearing and due on demand.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At June 30, 1996, the Partnership had $334,618
invested in such short-term investments, as compared to $360,062 at December 31,
1995. The funds remaining at June 30, 1996, will be used towards the payment of
distributions and other liabilities.
In November 1995, the Partnership received $25,000 from the tenant of
the Property in Lombard, Illinois, to be used for renovations to the Property,
and recorded such amount as restricted cash. At June 30, 1996, the Partnership
had $18,904 remaining in restricted cash after the payment of certain
preliminary renovation costs. As of June 30, 1996, renovations had not
commenced; however, renovations are expected to be completed in September 1996.
Total liabilities of the Partnership, including distributions payable,
increased to $678,461 at June 30, 1996, from $663,807 at December 31, 1995.
Liabilities at June 30, 1996, to the extent they exceed cash and cash
equivalents at June 30, 1996, will be paid from future cash from operations,
from collections of amounts received in accordance with the promissory note
described above, from the loan received from the corporate general partner in
July 1996 described above, and, in the event the general partners elect to make
additional capital contributions or loans to the Partnership, from future
general partner capital contributions or loans.
Based on current and anticipated future cash from operations, and to a
lesser extent, the loan received from the corporate general partner, the
Partnership declared distributions to limited partners of $1,188,000 for each of
the six months ended June 30, 1996 and 1995 ($594,000 for each of the quarters
ended June 30, 1996 and 1995). This represents distributions for each applicable
six months of $23.76 per unit ($11.88 per unit for each applicable quarter). No
distributions were made to the general partners for the quarters and six months
ended June 30, 1996 and 1995. No amounts distributed or to be distributed to the
limited partners for the six months ended June 30, 1996 and 1995, are required
to be
8
<PAGE>
Liquidity and Capital Resources - Continued
or have been treated by the Partnership as a return of capital for purposes of
calculating the limited partners' return on their adjusted capital
contributions. The Partnership intends to continue to make distributions of cash
available for distribution to the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partner- ship's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
Results of Operations
During each of the six months ended June 30, 1996 and 1995, the
Partnership owned and leased 36 wholly owned Properties to operators of
fast-food and family-style restaurant chains. In connection therewith, during
the six months ended June 30, 1996 and 1995, the Partnership earned $1,112,675
and $1,095,457, respectively, in base rental income from these Properties,
$556,961 and $547,285 of which was earned during the quarters ended June 30,
1996 and 1995, respectively.
During the six months ended June 30, 1996 and 1995, the Partnership
also earned $14,639 and $12,200, respectively, in contingent rental income,
$13,556 and $12,813 of which was earned during the quarters ended June 30, 1996
and 1995, respectively.
For the six months ended June 30, 1996 and 1995, the Partnership also
owned and leased three Properties indirectly through joint venture arrangements
and one Property as tenants-in-common with an affiliate of the general partners.
In connection therewith, during the six months ended June 30, 1996 and 1995, the
Partnership earned $74,341 and $74,416, respectively, attributable to net income
earned by these joint ventures, $37,590 and $37,335 of which was earned during
the quarters ended June 30, 1996 and 1995, respectively.
Operating expenses, including depreciation and amortization, were
$304,498 and $302,147 for the six months ended June 30, 1996 and 1995,
respectively, of which $146,022 and $149,008 were incurred for the quarters
ended June 30, 1996 and 1995, respectively.
9
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the
quarter ended June 30, 1996.
10
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 9th day of August, 1996.
CNL INCOME FUND II, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
balance sheet of CNL Income Fund II, Ltd. at June 30, 1996, and its
statement of income for the six months then ended and is qualified in its
entirety by reference to the Form 10-Q of CNL Income Fund II, Ltd. for the
six months ended June 30, 1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 353,522
<SECURITIES> 0
<RECEIVABLES> 165,570
<ALLOWANCES> 114,613
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 20,579,247
<DEPRECIATION> 3,607,121
<TOTAL-ASSETS> 18,844,884
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 18,166,423
<TOTAL-LIABILITY-AND-EQUITY> 18,844,884
<SALES> 0
<TOTAL-REVENUES> 1,137,772
<CGS> 0
<TOTAL-COSTS> 304,498
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 907,615
<INCOME-TAX> 0
<INCOME-CONTINUING> 907,615
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 907,615
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund II, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
