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, 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 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
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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.
During January 1997, Show Low Joint Venture, in which the Partnership owns a 64
percent interest, sold its Property to the tenant. The joint venture intends to
reinvest the sales proceeds in an additional Property in 1997. 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 2016. 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 $8,300 to $150,000. Generally, the leases provide for percentage
rent, based on sales in excess of
1
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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 July 1997. In connection
therewith, the Partnership funded approximately $40,600 in renovation costs
during the year ended December 31, 1996. The renovations were completed in
November 1996. 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 $8,300, with increases in base rent throughout the term of the
lease. No percentage rent is payable under the terms of the new lease.
During 1996, the tenant of the Kenny Rogers Roasters Property held as
tenants-in-common with an affiliate, defaulted under the terms of the lease. In
September 1996, the Partnership and the affiliate, as tenants-in-common, entered
into a new lease for this Property with a new tenant to operate the Property as
an Arby's restaurant. The Partnership and the new tenant agreed that the
renovation costs of this Property would be the responsibility of the tenant. The
lease terms of the replacement Property are substantially the same as the
original Property and the Partnership's other leases as described above.
Major Tenants
During 1996, 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, 1996, 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 1997 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 1996 (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, 1996, 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.
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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.
In January 1997, Show Low Joint Venture, in which the Partnership owns
a 64% interest, sold its Property to the tenant. The joint venture intends to
reinvest the sales proceeds in an additional Property in 1997.
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 property 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.
3
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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, 1996, 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 77,800 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.
4
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Leases with Major Tenant. The terms of each of the leases with the
Partnership's major tenant as of December 31, 1996 (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 28, 1997, there were 2,219 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 1996 and 1995 other than
pursuant to the Plan, net of commissions (which ranged from zero to 13.88%).
1996 (1) 1995 (1)
--------------------- --------------------
High Low Average High Low Average
----- ----- ------- ------ ---- ------
First Quarter $475 $470 $472 $475 $415 $459
Second Quarter 500 400 473 500 432 466
Third Quarter 447 388 417 500 460 489
Fourth Quarter 475 392 436 475 475 475
(1) A total of 505 and 665 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1996 and 1995, 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.
5
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For each of the years ended December 31, 1996 and 1995, 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 1996 and 1995 to the Limited Partners. No amounts distributed to
partners for the years ended December 31, 1996 and 1995, are required to be or
have been treated by the Partnership as a return of capital for purposes of
calculating the Limited Partners' return on their adjusted capital
contributions. 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>
1996 1995 1994 1993 1992
------------- ------------- ------------- ------------- -------------
<S> <C>
Year ended December 31:
Revenues (1) $ 2,455,884 $ 2,455,754 $ 2,323,678 $ 2,390,534 $ 2,451,675
Net income (2)1,866,961 1,838,517 1,925,517 1,850,532 1,831,146
Cash distributions
declared (3) 2,376,000 2,376,000 2,376,000 2,438,500 2,438,500
Net income per Unit (2) 36.97 36.40 38.14 36.65 36.26
Cash distributions
declared per Unit (3) 47.52 47.52 47.52 48.77 48.77
At December 31:
Total assets $18,671,318 $19,110,615 $19,736,258 $20,073,496 $19,942,840
Partners' Capital 17,937,769 18,446,808 18,984,291 19,273,774 19,861,742
</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 and 1992, 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, 1996, the Partnership owned 40 Properties, either directly or indirectly
through joint venture arrangements.
6
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Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1996, 1995 and 1994, 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 $2,347,731, $2,168,367
and $2,156,604 for the years ended December 31, 1996, 1995 and 1994,
respectively. The increase in cash from operations during 1996 and 1995, each as
compared to the prior year, 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, 1996, 1995 and 1994.
In 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 was non-interest bearing, was being collected in 48 monthly
installments with collections commencing January 1993. The receivable was
collected in full during 1996.
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 that 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
established an allowance for doubtful accounts and is recognizing income as
collected. As of December 31, 1996, the balance in the allowance for doubtful
accounts relating to this promissory note was $92,987, including accrued
interest of $3,493 and late fees of $647.
Other sources and uses of capital included the following during the
years ended December 31, 1996, 1995 and 1994.
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, was structured to qualify 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.
In November 1995, the Partnership entered into a new lease for the
Property in Lombard, Illinois. In connection therewith, the Partnership incurred
approximately $40,600 in renovation costs during the year ended December 31,
1996, of which $29,526 were accrued and unpaid as of December 31, 1996.
Additional renovation costs of $25,000 were funded by the tenant, in accordance
with the terms of the lease. The renovations were completed in November 1996.
7
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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 0.25% per annum was due on demand. The
Partnership repaid the loan in full, along with approximately $200 in interest,
to the corporate General Partner. In addition, in 1996, the Partnership entered
into various promissory notes with the corporate General Partner for loans
totalling $177,600 in connection with the operations of the Partnership. The
loans were uncollateralized, non-interest bearing and due on demand. As of
December 31, 1996, the Partnership had repaid the loans in full to the corporate
General Partner. In addition, in January 1997, the Partnership entered into
another promissory note with the corporate General Partner for a loan in the
amount of $147,000 in connection with the operations of the Partnership. The
note is uncollateralized, non-interest bearing and due on demand. As of February
28, 1997, the Partnership had repaid the loan in full to the corporate General
Partner.
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, 1996 and 1995.
In January 1997, Show Low Joint Venture, in which the Partnership owns
a 64 percent interest, sold its Property to the tenant. The joint venture
intends to reinvest the sales proceeds in an additional Property during 1997. In
addition, in February 1997, the Partnership terminated the lease for the
Property in Plant City, Florida. The Partnership is currently negotiating the
sale of this Property and intends to reinvest the sales proceeds in an
additional property and structure such sale as a like-kind exchange transaction
in accordance with Section 1031 of the Internal Revenue Code.
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.
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, 1996, the Partnership had
$318,756 invested in such short-term investments, as compared to $360,062 at
December 31, 1995. The funds remaining at December 31, 1996, will be used for
the payment of distributions and other liabilities.
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 1996, 1995 and 1994, affiliates of the General Partners
incurred on behalf of the Partnership $103,909, $95,036 and $209,446,
respectively, for certain operating expenses. As of December 31, 1996 and 1995,
the Partnership owed $45,078 and $9,254, respectively, to affiliates for such
amounts and accounting and administrative services. Amounts payable to other
parties, including distributions payable, increased to $642,163 at December 31,
1996, from $610,553 at December 31, 1995. Liabilities at December 31, 1996, to
the extent they exceed cash and cash equivalents at December 31, 1996, 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 1997 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.
In February 1997, the Partnership entered into a sales contract with an
unrelated third party to sell the Denny's Property in Plant City, Florida. The
Partnership intends to reinvest the net sales proceeds in a replacement
Property.
8
<PAGE>
Based primarily on current and anticipated future cash from operations,
and to a lesser extent additional capital contributions and loans 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 for each of the years ended December 31,
1996, 1995 and 1994. This represents distributions of $47.52 per Unit for each
of the years ended December 31, 1996, 1995 and 1994. No amounts distributed or
to be distributed to the Limited Partners for the years ended December 31, 1996,
1995 and 1994, are required to be or have been treated by the Partnership as a
return of capital for purposes of calculating the Limited Partners' return on
their adjusted capital contributions. The Partnership 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, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance 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 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 and 1996, the
Partnership owned and leased 36 wholly owned Properties. In addition, during
1996, 1995 and 1994, the Partnership was a co-venturer in three separate joint
ventures that each owned and leased one Property, and in addition, the
Partnership and an affiliate owned and leased one Property as tenants-in-common.
As of December 31, 1996, 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 $8,300 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, 1996, 1995 and 1994, the
Partnership earned $2,224,500, $2,207,971 and $2,109,462, respectively, in base
rental income from the Partnership's wholly owned Properties described above.
The increase in rental income during 1995, as compared to 1994, was partially
attributable 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, as compared to 1994,
increased approximately $68,000.
The increase in rental income during 1995, as compared to 1994, was
partially offset by a decrease in rental income of approximately $89,100, as a
result of the fact that the Partnership sold 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 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
9
<PAGE>
Properties and entered into long-term, triple-net leases for each of the
Properties, rental income during 1995, as compared to 1994, increased
approximately $76,400.
During the years ended December 31, 1996, 1995 and 1994, the
Partnership also earned $79,313, $70,159 and $65,624, respectively, in
contingent rental income. Contingent rental income for the years ended December
31, 1996 and 1995, each as compared to the prior year, 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.
For the years ended December 31, 1996, 1995 and 1994 , the Partnership
also earned $130,996, $153,677 and $132,810, 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 decrease
in net income earned by joint ventures during 1996, as compared to 1995, is
primarily a result of a default under the terms of the lease of the former
tenant of the Kenny Rogers' Roasters Property in Arvada, Colorado, owned with an
affiliate as tenants-in-common. The Partnership and the affiliate, as
tenants-in-common, entered into a new lease for this Property with a new tenant
to operate the Property as an Arby's restaurant. The increase in net income
earned by joint ventures in 1995, as compared to 1994, 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, 1996, 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, 1996, 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 1997 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
1996 (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 $588,923, $617,237 and $637,293 for the years ended December 31, 1996, 1995
and 1994, respectively. The decrease in operating expenses during 1996, as
compared to 1995, was 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 during the year ended December 31, 1995. In addition, the decrease
in operating expenses during 1995, as compared to 1994, was partially a result
of the Partnership accruing past due real estate taxes during 1994 relating to
the Property in Gainesville, Texas, due to financial difficulties the former
tenant was experiencing. In October 1995, the Partnership entered into a new
lease with a new operator for this Property. The new operator agreed to pay all
of the 1995 real estate taxes; therefore, no such expenses were incurred for
this Property during the years ended December 31, 1996 and 1995.
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, 1996 and 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
10
<PAGE>
be recoverable. Adoption of this standard had no material effect on the
Partnership's financial position or results of operations.
The Partnership's leases as of December 31, 1996, 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 sales of the restaurants and on
potential capital appreciation of the Properties.
Item 8. Financial Statements and Supplementary Data
11
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants 13
Financial Statements:
Balance Sheets 14
Statements of Income 15
Statements of Partners' Capital 16
Statements of Cash Flows 17
Notes to Financial Statements 19
12
<PAGE>
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, 1996 and 1995, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996 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.
Orlando, Florida
January 25, 1997
13
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
ASSETS 1996 1995
------ ----------- -----------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $16,803,789 $17,180,932
Investment in joint ventures 1,314,386 1,348,108
Cash and cash equivalents 318,756 360,062
Restricted cash - 25,000
Receivables, less allowance for
doubtful accounts of $126,036
and $100,811 99,185 90,382
Prepaid expenses 4,819 3,249
Lease costs, less accumulated
amortization of $7,537 and
$14,375 13,026 17,009
Accrued rental income 117,357 84,123
Other assets - 1,750
----------- -----------
$18,671,318 $19,110,615
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 12,188 $ 10,826
Accrued construction costs payable 29,526 -
Accrued and escrowed real estate
taxes payable 6,449 5,727
Distributions payable 594,000 594,000
Due to related parties 45,078 9,254
Rents paid in advance and deposits 46,308 44,000
----------- -----------
Total liabilities 733,549 663,807
Partners' capital 17,937,769 18,446,808
----------- -----------
$18,671,318 $19,110,615
=========== ===========
</TABLE>
See accompanying notes to financial statements.
14
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
---------- ---------- ----------
<S> <C>
Revenues:
Rental income from operating
leases $2,224,500 $2,207,971 $2,109,462
Contingent rental income 79,313 70,159 65,624
Interest and other income 21,075 23,947 15,782
---------- ---------- ----------
2,324,888 2,302,077 2,190,868
---------- ---------- ----------
Expenses:
General operating and admini-
strative 131,628 121,317 137,370
Professional services 26,634 25,161 23,333
Bad debt expense - 4,745 11,347
Real estate taxes 4,647 3,588 18,833
State and other taxes 4,255 5,633 4,685
Depreciation and amortization 421,759 456,793 441,725
---------- ---------- ----------
588,923 617,237 637,293
---------- ---------- ----------
Income Before Equity in Earnings
of Joint Ventures, Gain on Sale
of Land and Buildings, Loss on
Sale of Land and Building
and Lease Termination Income 1,735,965 1,684,840 1,553,575
Equity in Earnings of Joint
Ventures 130,996 153,677 132,810
Gain on Sale of Land and Buildings - - 70,554
Loss on Sale of Land and Building - - (29,904)
Lease Termination Income - - 198,482
---------- ---------- ----------
Net Income $1,866,961 $1,838,517 $1,925,517
========== ========== ==========
Allocation of Net Income:
General partners $ 18,670 $ 18,385 $ 18,623
Limited partners 1,848,291 1,820,132 1,906,894
---------- ---------- ----------
$1,866,961 $1,838,517 $1,925,517
========== ========== ==========
Net Income Per Limited Partner
Unit $ 36.97 $ 36.40 $ 38.14
========== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 50,000 50,000 50,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
15
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
General Partners Limited Partners
-------------------- ---------------------------------------------------
Accumu- Accumu-
Contri- lated Contri- Distri- lated Syndication
butions Earnings butions butions Earnings Costs Total
-------- -------- ----------- ------------ ----------- ----------- -----------
<S> <C>
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
Distributions to limited
partners ($47.52 per
limited partner unit) - - - (2,376,000) - - (2,376,000)
Net income - 18,670 - - 1,848,291 - 1,866,961
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1996 $162,000 $180,375 $25,000,000 $(22,693,377) $17,978,593 $(2,689,822) $17,937,769
======== ======== =========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C>
Increase (Decrease) in Cash and
Cash Equivalents:
Cash Flows from Operating
Activities:
Cash received from tenants $ 2,295,531 $ 2,198,821 $ 2,181,181
Distributions from joint
ventures 164,718 181,908 155,231
Cash paid for expenses (130,042) (229,879) (193,292)
Interest received 17,524 17,517 13,484
----------- ----------- -----------
Net cash provided by
operating activities 2,347,731 2,168,367 2,156,604
----------- ----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land
and buildings - - 888,210
Proceeds received from
tenant in connection with
termination of lease - - 198,482
Additions to land and
buildings on operating
leases (11,107) (4,323) (651,540)
Investment in joint venture - (121) (260,732)
Decrease (increase) in
restricted cash 25,000 (25,000) -
Payment of lease costs (1,930) (12,426) -
Other (25,000) 25,000 (1,750)
----------- ----------- -----------
Net cash provided by
(used in) investing
activities (13,037) (16,870) 172,670
----------- ----------- -----------
Cash Flows from Financing
Activities:
Proceeds from loans from
corporate general partner 203,900 - -
Repayment of loans from
corporate general partner (203,900) - -
Contributions from general
partner - - 161,000
Distributions to limited
partners (2,376,000) (2,376,000) (2,438,500)
----------- ----------- -----------
Net cash used in
financing activities (2,376,000) (2,376,000) (2,277,500)
----------- ----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents (41,306) (224,503) 51,774
Cash and Cash Equivalents at
Beginning of Year 360,062 584,565 532,791
----------- ----------- -----------
Cash and Cash Equivalents at End
of Year $ 318,756 $ 360,062 $ 584,565
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994
----------- ----------- -----------
<S> <C>
Reconciliation of Net Income
to Net Cash Provided by
Operating Activities:
Net income $ 1,866,961 $ 1,838,517 $ 1,925,517
----------- ----------- -----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 417,776 417,614 437,649
Amortization 3,983 39,179 4,076
Gain on sale of land and
buildings - - (70,554)
Loss on sale of land and
building - - 29,904
Lease termination income - - (198,482)
Equity in earnings of joint
ventures, net of distri-
butions 33,722 28,231 23,294
Decrease (increase) in
receivables (8,803) (1,075) 9,882
Decrease (increase) in
prepaid expenses (1,570) (2,211) 4,655
Increase in accrued rental
income (33,234) (34,086) (20,587)
Decrease in other assets 1,750 - -
Increase (decrease) in
accounts payable and
accrued expenses 4,014 (21,043) (68,182)
Increase (decrease) in
due to related parties,
excluding acquisition
costs paid on behalf
of the Partnership 35,824 (65,627) 74,008
Increase (decrease) in
rents paid in advance
and deposits 27,308 (31,132) 5,424
----------- ----------- -----------
Total adjustments 480,770 329,850 231,087
----------- ----------- -----------
Net Cash Provided by Operating
Activities $ 2,347,731 $ 2,168,367 $ 2,156,604
=========== =========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing
Activities:
Related parties paid certain
acquisition costs on behalf
of the Partnership $ - $ - $ 1,223
=========== =========== ===========
Distributions declared and
unpaid at December 31 $ 594,000 $ 594,000 $ 594,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
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.
Real Estate and Lease Accounting - The Partner-ship records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net 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. Under the operating method, land and
building leases are recorded at cost, revenue is recognized as rentals
are earned and depreciation is charged to operations as incurred.
Buildings are depreciated on the straight-line method over their
estimated useful lives of 30 years. When scheduled rentals vary during
the lease term, income is recognized on a straight-line basis so as to
produce a constant periodic rent over the lease term commencing on the
date the property is placed in service.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date.
When the properties are sold, the related cost and accumulated
depreciation plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review the properties for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through
operations. The general partners determine whether an impairment in
value has occurred
19
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, a loss will be
recorded for the amount by which the carrying value of the asset
exceeds its fair market value.
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 and money market funds (some of which are
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.
20
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
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 1996 presentation.
These reclassifications had no effect on partners' capital or net
income.
New Accounting Standard - Effective January 1, 1996, the Partnership
adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of LongLived 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.
21
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
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:
1996 1995
----------- -----------
Land $ 8,052,723 $ 8,052,723
Buildings 12,567,157 12,526,524
----------- -----------
20,619,880 20,579,247
Less accumulated
depreciation (3,816,091) (3,398,315)
----------- -----------
$16,803,789 $17,180,932
=========== ===========
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 if $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
22
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
3. Land and Buildings on Operating Leases - Continued:
not in default under the lease, to remove the buildings from the land
at the end if 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, 1996, 1995 and 1994, the Partnership
recognized $33,234, $34,086 and $20,587, 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, 1996:
1997 $ 2,108,105
1998 2,103,241
1999 2,077,502
2000 2,006,300
2001 2,022,053
Thereafter 10,517,019
-----------
$20,834,220
============
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
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 Holland Joint Venture and Show
Low Joint Venture are held by affiliates of the Partnership which have
the same general partners. The Partnership also has a 33.87% interest
in a property in Arvada, Colorado, with an affiliate of the Partnership
that has the same general partners, as tenants-in-common. 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.
23
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
4. Investment in Joint Ventures - Continued:
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:
1996 1995
---------- ----------
Land and buildings on
operating leases, less
accumulated depreciation $2,664,752 $2,737,137
Cash 21,905 21,173
Receivables 9,980 4,788
Accrued rental income 70,782 81,363
Other assets 44,263 48,409
Liabilities 28,558 36,594
Partners' capital 2,783,124 2,856,276
Revenues 363,338 400,444
Net income 250,026 317,895
The Partnership recognized income totalling $130,996, $153,677 and
$132,810 for the years ended December 31, 1996, 1995 and 1994,
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. During 1996, the $25,000 was used to pay the tenants
share of renovation costs.
6. 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
24
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
6. Receivables - Continued:
percent per annum, commencing on June 1, 1996. Due to the uncertainty
of the collectibility of this note, the Partnership established an
allowance for doubtful accounts and is recognizing income as collected.
As of December 31, 1996, the balance in the allowance for doubtful
accounts was $92,987, including accrued interest of $3,493 and late
fees of $647.
7. Allocations and Distributions:
Generally, 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 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").
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 each of the years ended December 31, 1996, 1995 and 1994, the
Partnership declared distributions to the limited partners of
$2,376,000. No distributions have been made to the general partners to
date.
25
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
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:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- -----------
<S> <C>
Net income for
financial reporting
purposes $1,866,961 $1,838,517 $1,925,517
Depreciation for
financial reporting
purposes in excess
of depreciation for
tax reporting
purposes 20,922 20,840 22,604
Gain and loss on sale
of land and buildings
for financial
reporting purposes in
excess of gain or loss
for tax reporting purposes - - (77,747)
Equity in earnings of joint
ventures for tax reporting
purposes less than equity
in earnings of joint ventures
for financial
reporting purposes (1,240) (7,297) (7,151)
Allowance for
doubtful accounts 25,225 2,449 27,232
Accrued rental income (33,234) (34,086) (20,587)
Rents paid in advance 22,508 (34,132) 5,424
---------- ---------- ----------
Net income for
federal income tax
purposes $1,901,142 $1,786,291 $1,875,292
========== ========== ==========
</TABLE>
26
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
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, 1996, 1995 and 1994, 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, 1996, 1995 and 1994, 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 an annual,
noncumulative, subordinated property 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 will be incurred and will be payable only after
the limited partners receive their aggregate, noncumulative 10%
Preferred Return. Due to the fact that these fees are non-cumulative,
if the limited partners do not receive their 10% Preferred Return in
any particular year, no property management fees will be due or payable
for such year. As a result of such threshold no property management
fees were incurred during the years ended December 31, 1996, 1995 and
1994.
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. However, if the net sales proceeds are reinvested in a
replacement property, no such real estate disposition fees will be
incurred until such
27
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
9. Related Party Transactions - Continued:
replacement property is sold and the net sales proceeds are
distributed. The payment of 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, 1996, 1995 and 1994, the Affiliates
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $79,624, $81,023 and $54,157
for the years ended December 31, 1996, 1995 and 1994, respectively, for
such services.
The due to related parties at December 31, 1996 and 1995, totalled
$45,078 and $9,254, respectively.
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:
1996 1995 1994
-------- -------- ---------
Golden Corral
Corporation $403,875 $410,226 $488,691
Restaurant Management
Services, Inc. 243,270 243,358 240,158
28
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
10. Concentration of Credit Risk - Continued:
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:
1996 1995 1994
-------- -------- ---------
Wendy's Old Fashioned
Hamburger
Restaurants $421,165 $412,949 $362,550
Golden Corral
Family Steakhouse
Restaurants 403,875 410,226 488,691
Denny's 388,050 372,639 380,040
KFC 358,463 352,939 350,022
Popeyes Famous Fried
Chicken Restaurants 243,270 243,358 240,158
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by 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. Subsequent Event:
In January 1997, the Partnership entered into a promissory note with
the Corporate General Partner for a loan in the amount of $147,000 in
connection with the operations of the Partnership. The loan is
uncollateralized, non-interest bearing and is due on demand.
29
<PAGE>
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 Fund Advisors, Inc., and CNL Group, Inc. and
their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 50, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, director and Chief Executive Officer since its formation in
1980. 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 is Chief Executive Officer, and 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 Chief
Executive Officer and Chairman of the Board of CNL Investment Company, and Chief
Executive Officer and Chairman of the Board of Commercial Net Lease Realty, Inc.
since 1992, has served as the Chairman of the Board and the 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. In addition, Mr. Seneff has
served as Chairman of the Board and Chief Executive Officer of CNL American
Properties Fund, Inc. since 1994, and has served as Chairman of the Board and
Chief Executive Officer of CNL American Realty Fund, Inc. since 1996 and of CNL
Real Estate Advisors, Inc. since January 1997. Mr. Seneff previously served on
the Florida State Commission on Ethics and is a former member and past Chairman
of the State of 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 over 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 real estate
ventures are approximately 65 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 49, 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
30
<PAGE>
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 since February 1996, as Vice
Chairman of the Board of Directors, Secretary and Treasurer 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, as Secretary from
February 1996 to July 1996, and since February 1996, as Treasurer and Vice
Chairman of CNL Realty Advisors, Inc. In addition, Mr. Bourne has served as
President and a director of CNL American Properties Fund, Inc. since 1994, and
has served as President and a director of CNL American Realty Fund, Inc. since
1996 and CNL Real Estate Advisors, Inc. since January 1997. 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 over 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 real
estate ventures are approximately 64 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 the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc., provides certain management services in
connection with the Partnership and its Properties. 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 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 seven 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 38, 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. and serves as Executive
Vice President of CNL American Realty Fund, Inc. and CNL Real Estate Advisors,
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 cable 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
31
<PAGE>
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 48, a certified public accountant, has served as
Chief Financial Officer of CNL Group, Inc. since December 1993, has served as
Secretary of CNL Group, Inc. since 1987, and served as Controller of CNL Group,
Inc. from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She
has served as Chief Operating Officer, Vice President and Secretary of CNL
Corporate Services, Inc. since November 1994. Ms. Rose also has served as Chief
Financial Officer and Secretary of CNL Institutional Advisors, Inc. since its
inception in 1990, a director of CNL Realty Advisors, Inc. since its inception
in 1991, Secretary of CNL Realty Advisors, Inc. since its inception in 1991
(excluding February 1996 to July 1996), 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 a director, Secretary and
Treasurer of CNL Fund Advisors, Inc. since 1994 and has served as a director,
Secretary and Treasurer of CNL Real Estate Advisors, Inc. since January 1997.
Ms. Rose also has served as Secretary and Treasurer of CNL American Properties
Fund, Inc. since 1994, and has served as Secretary and Treasurer of CNL American
Realty Fund, Inc. since 1996. Ms. Rose also currently serves as Secretary for
approximately 50 additional corporations. Ms. Rose oversees the management
information services, administration, legal compliance, accounting, tenant
compliance, and reporting for over 250 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 38, 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 and sales 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 1994, and as Executive Vice President
of CNL American Properties Fund, Inc. since 1994. In addition, Ms. Wall has
served as Executive Vice President of CNL Real Estate Advisors, Inc. since
January 1997 and as Executive Vice President of CNL American Realty Fund, Inc.
since 1996. 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).
Steven D. Shackelford, age 33, has served as Chief Financial Officer of
CNL Fund Advisors, Inc. since September 1996. Mr. Shackelford joined CNL Group,
Inc. in September 1996. He also currently serves as the Chief Financial Officer
of CNL American Properties Fund, Inc. From March 1995 to July 1996, he was a
senior manager in the national office of Price Waterhouse where he was
responsible for advising foreign clients seeking to raise capital and a public
listing in the United States. From August 1992 to March 1995, he served as a
manager in the Price Waterhouse, Paris, France office serving several
multinational clients. Mr. Shackelford was an audit staff and senior from 1986
to 1992 in the Orlando, Florida office of Price Waterhouse. Mr Shackelford
received a B.A. in Accounting, with honors, and a Masters of Business
Administration from Florida State University and is a certified public
accountant.
32
<PAGE>
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 28, 1997, 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 28, 1997, 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.
33
<PAGE>
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, 1996, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation Method of For the Year
and Recipient Computation Ended December 31, 1996
- ---------------------- -------------- ------------------------
<S> <C>
Reimbursement to Operating expenses are Operating expenses
affiliates for reimbursed at the incurred on behalf of
operating expenses. lower of cost or 90 the Partnership:
percent of the $103,909
prevailing rate at
which comparable Accounting and
services could have administrative
been obtained in the services: $79,624
same geographic area.
If the General
Partners or their
affiliates loan funds
to the Partnership,
the General Partners
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 $ - 0 -
property management percent per year of
fee to affiliates Partnership 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.
Due to the fact that
these fees are non-
cumulative if the
Limited Partners do
not receive their 10%
Preferred Return in
any particular year no
property management
fees will be due or
payable for such year.
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation Method of For the Year
and Recipient Computation Ended December 31, 1996
- ---------------------- -------------- ------------------------
<S> <C>
Deferred, subordinated A deferred, $ - 0 -
real estate subordinated real
disposition fee estate disposition
payable to affiliates fee, 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. However, if
the net sales proceeds
are reinvested in a
replacement property,
no such real estate
disposition fee will
be incurred until such
replacement property
is sold on the net
sales proceeds are
distributed.
General Partners' A deferred, $ - 0 -
deferred, sub- subordinated share
ordinated share of equal to one percent
Partnership net cash of 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.
</TABLE>
35
<PAGE>
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, 1996 and 1995
Statements of Income for the years ended December 31, 1996, 1995
and 1994
Statements of Partners' Capital for the years ended December 31,
1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1996, 1995 and 1994
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1996
Notes to Schedule III - Real Estate and Accumulated Depreciation
at December 31, 1996
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.)
36
<PAGE>
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. (Included as Exhibit
10.3 to Form 10-K filed with the Securities and Exchange
Commission on April 1, 1996 and incorporated herein by reference.)
10.4 Promissory Note, dated January 16, 1996, among the Registrant and
CNL Realty Corporation relating to a $26,300 loan. (Included as
Exhibit 10.4 to Form 10-K filed with the Securities and Exchange
Commission on April 1, 1996 and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from October
1, 1996 through December 31, 1996.
37
<PAGE>
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 25th day of
March, 1997.
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.
<PAGE>
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.
<TABLE>
<CAPTION>
Signature Title Date
- ------------------ ----- -----
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 25, 1997
- ------------------------ (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 25, 1997
- ------------------------ (Principal Executive Officer)
James M. Seneff, Jr.
</TABLE>
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Additions Deductions
------------------------- ----------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---- ----------- ---------- ---------- ---------- ---------- --------- --------
<S> <C>
1994 Allowance for
doubtful
accounts (a) $ 71,130 $11,347 $77,093(b) $61,208(c) $ - $ 98,362
======== ======= ======= ======= ======= ========
1995 Allowance for
doubtful
accounts (a) $ 98,362 $ - $44,840(b) $12,391(c) $30,000 $100,811
======== ======= ======= ======= ======= ========
1996 Allowance for
doubtful
accounts (a) $100,811 $ - $64,323(b) $17,832(c) $21,266 $126,036
======== ======= ======= ======= ======= ========
</TABLE>
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
F-1
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- -------- ------------ --------- --------
<S> <C>
Properties the Partnership has
Invested in:
Burger King Restaurant:
San Antonio, Texas - $ 373,095 $ 384,458 $ - $ -
Checkers Drive-In Restaurants:
Fayetteville, Georgia - 338,735 - - -
Atlanta, Georgia - 317,128 - - -
Denny's Restaurants:
Casper, Wyoming - 184,285 415,181 - -
Rock Springs, Wyoming - 217,448 488,991 - -
Plant City, Florida - 329,127 - 521,791 -
Golden Corral Family
Steakhouse Restaurants:
Tomball, Texas - 311,019 529,759 22,330 -
Pineville, Louisiana (e) - 187,961 503,435 - -
Hueytown, Alabama - 258,084 513,853 - -
Nederland, Texas - 327,473 520,701 - -
Columbia, Missouri - 384,911 163,164 - -
Jack in the Box Restaurant:
Lubbock, Texas - 229,198 408,702 - -
KFC Restaurants:
Eagan, Minnesota - 202,428 425,233 30,733 -
Jacksonville, Florida - 198,735 266,200 - -
Jacksonville, Florida - 140,877 295,205 - -
Avon Park, Florida - 101,382 270,926 - -
Eagan, Minnesota - 202,084 370,247 31,976 -
Bay City, Texas - 162,783 - 305,154 -
Lonestar Steakhouse & Saloon
Restaurant:
Sterling Heights, Michigan (f) - 430,281 - 648,736 -
Pizza Hut Restaurants:
Clayton, New Mexico - 54,093 200,141 - -
Santa Rosa, New Mexico - 75,963 168,204 - -
Childress, Texas - 71,512 145,191 - -
Mathis, Texas - 74,750 138,231 - -
Coleman, Texas - 70,208 141,004 - -
Ponderosa Steakhouse Restaurant:
Scottsburg, Indiana - 208,781 - 518,884 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (c) Depreciation
------------------------------------ in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ------------
<S> <C>
Properties the Partnership has
Invested in:
Burger King Restaurant:
San Antonio, Texas $ 373,095 $ 384,458 $ 757,553 $ 121,745 1987 07/87 (b)
Checkers Drive-In Restaurants:
Fayetteville, Georgia 338,735 - 338,735 (d) - 12/94 (d)
Atlanta, Georgia 317,128 - 317,128 (d) - 12/94 (d)
Denny's Restaurants:
Casper, Wyoming 184,285 415,181 599,466 129,167 1983 09/87 (b)
Rock Springs, Wyoming 217,448 488,991 706,439 152,130 1983 09/87 (b)
Plant City, Florida 329,127 521,791 850,918 150,015 1988 11/87 (b)
Golden Corral Family
Steakhouse Restaurants:
Tomball, Texas 311,019 552,089 863,108 176,619 1987 05/87 (b)
Pineville, Louisiana (e) 187,961 503,435 691,396 160,820 1987 06/87 (b)
Hueytown, Alabama 258,084 513,853 771,937 164,147 1987 06/87 (b)
Nederland, Texas 327,473 520,701 848,174 163,442 1987 08/87 (b)
Columbia, Missouri 384,911 163,164 548,075 49,856 1987 11/87 (b)
Jack in the Box Restaurant:
Lubbock, Texas 229,198 408,702 637,900 46,767 1993 07/93 (b)
KFC Restaurants:
Eagan, Minnesota 202,428 455,966 658,394 144,389 1987 07/87 (b)
Jacksonville, Florida 198,735 266,200 464,935 82,818 1983 09/87 (b)
Jacksonville, Florida 140,877 295,205 436,082 91,842 1981 09/87 (b)
Avon Park, Florida 101,382 270,926 372,308 84,288 1983 09/87 (b)
Eagan, Minnesota 202,084 402,223 604,307 124,019 1987 10/87 (b)
Bay City, Texas 162,783 305,154 467,937 92,394 1987 12/87 (b)
Lonestar Steakhouse & Saloon
Restaurant:
Sterling Heights, Michigan (f) 430,281 648,736 1,079,017 191,017 1988 08/87 (b)
Pizza Hut Restaurants:
Clayton, New Mexico 54,093 200,141 254,234 62,822 1986 08/87 (b)
Santa Rosa, New Mexico 75,963 168,204 244,167 52,797 1986 08/87 (b)
Childress, Texas 71,512 145,191 216,703 45,574 1974 08/87 (b)
Mathis, Texas 74,750 138,231 212,981 41,853 1976 12/87 (b)
Coleman, Texas 70,208 141,004 211,212 42,693 1977 12/87 (b)
Ponderosa Steakhouse Restaurant:
Scottsburg, Indiana 208,781 518,884 727,665 152,783 1988 10/87 (b)
</TABLE>
F-2
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
------------------------- ---------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
-------- ----- ------------ --------- ----------
<S> <C>
Popeyes Famous Fried
Chicken Restaurants:
Altamonte Springs, Florida - 197,959 255,965 - -
Ocala, Florida - 184,512 274,991 - -
Sanford, Florida - 237,243 359,865 - -
Apopka, Florida - 155,041 - 417,209 -
Wendy's Old Fashioned
Hamburger Restaurants:
Farmington Hills, Michigan - 259,138 444,680 - -
Farmington Hills, Michigan - 336,621 582,095 - -
Gainesville, Texas - 166,302 449,914 - -
Vail, Colorado - 782,609 - 550,346 -
Other:
Oxford, Alabama (g) - 152,567 355,990 - -
Littleton, Colorado (h) - 42,873 310,832 - -
Lombard, Illinois (i) - 85,517 96,207 40,633 -
---------- ----------- ---------- ------
$8,052,723 $ 9,479,365 $3,087,792 $ -
========== =========== ========== ======
Property of Joint Venture in
Which the Partnership has a 50%
Interest:
Pizza Hut Restaurant:
Orlando, Florida - $ 330,568 $ 220,588 $ - $ -
========== =========== ========== ======
Property of Joint Venture in
Which the Partnership has a 49%
Interest:
Denny's Restaurant:
Holland, Michigan - $ 295,987 $ - $ 780,451 $ -
========== =========== ========== ======
Property of Joint Venture in
Which the Partnership has a 64%
Interest:
Denny's Restaurant:
Show Low, Arizona - $ 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, Colorado - $ 260,439 $ 545,126 $ - $ -
========== =========== ========== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
Gross Amount at Which Carried on Which
at Close of Period (c) Depreciation
------------------------------------- in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ------------
<S> <C>
Popeyes Famous Fried
Chicken Restaurants:
Altamonte Springs, Florida 197,959 255,965 453,924 84,611 1987 02/87 (b)
Ocala, Florida 184,512 274,991 459,503 90,900 1987 02/87 (b)
Sanford, Florida 237,243 359,865 597,108 114,957 1987 06/87 (b)
Apopka, Florida 155,041 417,209 572,250 124,583 1988 09/87 (b)
Wendy's Old Fashioned
Hamburger Restaurants:
Farmington Hills, Michigan 259,138 444,680 703,818 143,286 1978 05/87 (b)
Farmington Hills, Michigan 336,621 582,095 918,716 187,564 1986 05/87 (b)
Gainesville, Texas 166,302 449,914 616,216 142,473 1986 07/87 (b)
Vail, Colorado 782,609 550,346 1,332,955 172,747 1987 08/87 (b)
Other:
Oxford, Alabama (g) 152,567 355,990 508,557 105,307 1987 02/88 (b)
Littleton, Colorado (h) 42,873 310,832 353,705 95,840 1973 10/87 (b)
Lombard, Illinois (i) 85,517 136,840 222,357 29,826 1973 10/87 (b)
---------- ----------- ----------- ----------
$8,052,723 $12,567,157 $20,619,880 $3,816,091
========== =========== =========== ==========
Property of Joint Venture in
Which the Partnership has a 50%
Interest:
Pizza Hut Restaurant:
Orlando, Florida $ 330,568 $ 220,588 $ 551,156 $ 67,709 1987 10/87 (b)
========== =========== =========== ==========
Property of Joint Venture in
Which the Partnership has a 49%
Interest:
Denny's Restaurant:
Holland, Michigan $ 295,987 $ 780,451 $ 1,076,438 $ 212,456 1988 10/87 (b)
========== =========== =========== ==========
Property of Joint Venture in
Which the Partnership has a 64%
Interest:
Denny's Restaurant:
Show Low, Arizona $ 96,501 $ 625,392 $ 721,893 $ 168,765 1987 07/87 (b)
========== =========== =========== ==========
Property in Which the Partnership
has a 33.87% Interest as
Tenants-in-Common:
Kenny Rogers Roasters Restaurant:
Arvada, Colorado $ 260,439 $ 545,126 $ 805,565 $ 41,370 1994 09/94 (b)
========== =========== =========== ==========
</TABLE>
F-3
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(a) Transactions in real estate and accumulated depreciation during 1996,
1995 and 1994, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------- ------------
<S> <C>
Properties the Partnership
has Invested in:
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
Additional costs
capitalized 40,633 -
Depreciation expense - 417,776
----------- -----------
Balance, December 31, 1996 $20,619,880 $ 3,816,091
=========== ===========
Property of Joint Venture in
Which the Partnership has a
50% Interest:
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
Depreciation expense - 7,353
----------- -----------
Balance, December 31, 1996 $ 551,156 $ 67,709
=========== ===========
Property of Joint Venture in
Which the Partnership has a
49% Interest:
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
Depreciation expense - 26,015
----------- -----------
Balance, December 31, 1996 $ 1,076,438 $ 212,456
=========== ===========
</TABLE>
F-4
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Accumulated
Cost (c) Depreciation
------------- --------------
<S> <C>
Property of Joint Venture in
Which the Partnership has a 64%
Interest:
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
Depreciation expense - 20,846
----------- -----------
Balance, December 31, 1996 $ 721,893 $ 168,765
=========== ===========
Property in Which the Partnership
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
Depreciation expense - 18,171
----------- -----------
Balance, December 31, 1996 $ 805,565 $ 41,370
=========== ===========
</TABLE>
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 1996, 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
$20,573,476 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.
F-5
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1996
(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) The restaurant in Lombard, Illinois, was converted from a Taco Bell
restaurant to a Great Clips hair salon in 1996.
F-6
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Number Page
- ------------- -----
<S> <C>
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. (Included as
Exhibit 10.3 to Form 10- K filed with the Securities and
Exchange Commission on April 1, 1996 and incorporated herein
by reference.)
10.4 Promissory Note, dated January 16, 1996, among the Registrant
and CNL Realty Corporation relating to a $26,300 loan.
(Included as Exhibit 10.4 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996 and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
i
</TABLE>
<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, 1996, 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,
1996.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 318,756
<SECURITIES> 0
<RECEIVABLES> 225,221
<ALLOWANCES> 126,036
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 20,619,880
<DEPRECIATION> 3,816,091
<TOTAL-ASSETS> 18,671,318
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,937,769
<TOTAL-LIABILITY-AND-EQUITY> 18,671,318
<SALES> 0
<TOTAL-REVENUES> 2,324,888
<CGS> 0
<TOTAL-COSTS> 588,923
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,866,961
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,866,961
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,866,961
<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>
