<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund II, Ltd. at March 31, 1997, and its statement of income
for the three months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund II, Ltd. for the three months ended March 31,
1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 250,941
<SECURITIES> 0
<RECEIVABLES> 234,527
<ALLOWANCES> 142,492
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 20,619,880
<DEPRECIATION> 3,920,982
<TOTAL-ASSETS> 18,721,238
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,986,821
<TOTAL-LIABILITY-AND-EQUITY> 18,721,238
<SALES> 0
<TOTAL-REVENUES> 534,568
<CGS> 0
<TOTAL-COSTS> 151,373
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 643,052
<INCOME-TAX> 0
<INCOME-CONTINUING> 643,052
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 643,052
<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>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1997
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number
0-16824
CNL Income Fund II, Ltd.
(Exact name of registrant as specified in its charter)
Florida 59-2733859
(State or other jurisdiction (I.R.S. Employer
of incorporation or organiza- Identification No.)
tion)
400 E. South Street, #500
Orlando, Florida 32801
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number
(including area code) (407) 422-1574
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-7
Item 2. Management's Discussion and Analysis
of Financial Condition and
Results of Operations 8-11
Part II
Other Information 12
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
March 31, December 31,
ASSETS 1997 1996
----------- ------------
Land and buildings on operating
leases, less accumulated
depreciation of $3,920,982
and $3,816,091 $16,698,898 $16,803,789
Investment in joint ventures 1,540,522 1,314,386
Cash and cash equivalents 250,941 318,756
Receivables, less allowance for
doubtful accounts of $142,492
and $126,036 92,035 99,185
Prepaid expenses 3,803 4,819
Lease costs, less accumulated
amortization of $8,533 and
$7,537 12,030 13,026
Accrued rental income 123,009 117,357
----------- -----------
$18,721,238 $18,671,318
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 7,846 $ 12,188
Accrued construction costs payable - 29,526
Accrued and escrowed real estate
taxes payable 6,184 6,449
Distributions payable 594,000 594,000
Due to related parties 72,414 45,078
Rents paid in advance and deposits 53,973 46,308
----------- -----------
Total liabilities 734,417 733,549
Commitment (Note 3)
Partners' capital 17,986,821 17,937,769
----------- -----------
$18,721,238 $18,671,318
=========== ===========
See accompanying notes to condensed financial statements.
1
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
1997 1996
-------- --------
Revenues:
Rental income from operating leases $526,860 $556,797
Interest and other income 7,708 4,247
-------- --------
534,568 561,044
-------- --------
Expenses:
General operating and administrative 30,012 39,469
Professional services 4,015 9,504
Real estate taxes 1,259 -
State and other taxes 10,200 4,104
Depreciation and amortization 105,887 105,399
-------- --------
151,373 158,476
-------- --------
Income Before Equity in Earnings of
Joint Ventures 383,195 402,568
Equity in Earnings of Joint
Ventures 259,857 36,751
-------- --------
Net Income $643,052 $439,319
======== ========
Allocation of Net Income:
General partners $ 6,431 $ 4,393
Limited partners 636,621 434,926
-------- --------
$643,052 $439,319
======== ========
Net Income Per Limited Partner Unit $ 12.73 $ 8.70
======== ========
Weighted Average Number of Limited
Partner Units Outstanding 50,000 50,000
======== ========
See accompanying notes to condensed financial statements.
2
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
1997 1996
------------- ------------
General partners:
Beginning balance $ 342,375 $ 323,705
Net income 6,431 18,670
----------- -----------
348,806 342,375
----------- -----------
Limited partners:
Beginning balance 17,595,394 18,123,103
Net income 636,621 1,848,291
Distributions ($11.88 and
$47.52 per limited partner
unit, respectively) (594,000) (2,376,000)
----------- -----------
17,638,015 17,595,394
----------- -----------
Total partners' capital $17,986,821 $17,937,769
=========== ===========
See accompanying notes to condensed financial statements.
3
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1997 1996
--------- ---------
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 556,561 $ 614,778
--------- ---------
Cash Flows from Investing Activities:
Additions to land and buildings on
operating leases (29,526) -
Payment of lease costs (850) (850)
--------- ---------
Net cash used in investing
activities (30,376) (850)
--------- ---------
Cash Flows from Financing Activities:
Proceeds from loans from corporate
general partner 147,000 26,300
Repayment of loans from corporate
general partner (147,000) (26,300)
Distributions to limited partners (594,000) (594,000)
--------- ---------
Net cash used in financing
activities (594,000) (594,000)
--------- ---------
Net Increase (Decrease) in Cash and
Cash Equivalents (67,815) 19,928
Cash and Cash Equivalents at Beginning
of Quarter 318,756 360,062
--------- ---------
Cash and Cash Equivalents at End of
Quarter $ 250,941 $ 379,990
========= =========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared and unpaid
at end of quarter $ 594,000 $ 594,000
========= =========
See accompanying notes to condensed financial statements.
4
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1997 and 1996
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1997, may not be indicative of the results
that may be expected for the year ending December 31, 1997. Amounts as
of December 31, 1996, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund II, Ltd. (the "Partnership") for the year ended December 31,
1996.
2. Investment in Joint Ventures:
In January 1997, Show Low Joint Venture, in which the Partnership owns a
64 percent interest, sold its property to the tenant for $970,000,
resulting in a gain to the joint venture of approximately $360,000 for
financial reporting purposes. The property was originally contributed
to Show Low Joint Venture in July 1990 and had a total cost of
approximately $663,500, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the joint venture sold the property for
approximately $306,500 in excess of its original purchase price.
5
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
2. Investment in Joint Ventures - Continued:
The following presents the combined, condensed financial information for
all of the Partnership's investments in joint ventures at:
March 31, December 31,
1997 1996
---------- ------------
Land and buildings on
operating leases, less
accumulated depreciation $2,098,740 $2,664,752
Cash 17,241 21,905
Restricted cash 973,032 -
Receivables 3,569 9,980
Prepaid expenses 297 -
Accrued rental income 65,135 70,782
Other assets - 44,263
Liabilities 25,360 28,558
Partners' capital 3,132,654 2,783,124
Revenues 87,572 363,338
Gain on sale 360,002 -
Net income 421,797 250,026
The Partnership recognized income totalling $259,857 and $36,751 for the
quarter ended March 31, 1997 and 1996, respectively, from these joint
ventures.
3. 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 quarters ended March 31:
1997 1996
------- -------
Golden Corral Corporation $95,275 $94,151
Restaurant Management Services, Inc. 57,110 57,110
6
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters Ended March 31, 1997 and 1996
3. 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 quarters ended
March 31:
1997 1996
-------- --------
Wendy's Old Fashioned
Hamburger Restaurants $106,218 $102,230
Golden Corral Family
Steakhouse Restaurants 95,275 94,151
Denny's 70,962 98,234
KFC 69,473 87,506
Popeyes Famous Fried
Chicken Restaurants 57,110 57,110
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.
4. Commitment:
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 sale of the property had not closed as of March 31, 1997.
5. Subsequent Event:
In April 1997, the Partnership entered into a promissory note with the
corporate general partner for a loan in the amount of $224,000 in
connection with the operations of the Partnership. The loan is
uncollateralized, non-interest bearing and due on demand.
7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund II, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on November 13, 1986, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant properties, as well as land upon which restaurants
were to be constructed, which are leased primarily to operators of national
and regional fast-food restaurant chains (collectively, the "Properties").
The leases generally are triple-net leases, with the lessees responsible for
all repairs and maintenance, property taxes, insurance and utilities. As of
March 31, 1997, the Partnership owned 39 Properties, including two Properties
owned by joint ventures in which the Partnership is a co-venturer and one
Property owned with an affiliate as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the quarters ended March
31, 1997 and 1996, was cash from operations (which includes cash received from
tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $556,561 and
$614,778 for the quarters ended March 31, 1997 and 1996, respectively. The
decrease in cash from operations for the quarter ended March 31, 1997, is
primarily a result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
quarter ended March 31, 1997.
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 was uncollateralized, non-
interest bearing and due on demand. As of March 31, 1997, the Partnership had
repaid the loan in full to the corporate general partner. In addition, in
April 1997, the Partnership entered into a promissory note with the corporate
general partner for a loan in the amount of $224,000 in connection with the
operations of the Partnership. The loan is uncollateralized, non-interest
bearing and due on demand.
In January 1997, Show Low Joint Venture, in which the Partnership owns a
64 percent interest, sold its Property to the tenant for $970,000, resulting
in a gain to the joint venture of approximately $360,000 for financial
reporting purposes. The property was originally contributed to Show Low Joint
Venture in July 1990 and had a total cost of approximately $663,500, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the joint
venture sold the Property for approximately $306,500 in excess of its original
purchase price. The general partners believe that the transaction, or a
portion thereof, relating to the sale of the Property in Show Joint Venture
and the reinvestment of the proceeds will qualify as a like-kind exchange
transaction for federal income tax purposes.
8
Liquidity and Capital Resources - Continued
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments
pending the Partnership's use of such funds to pay Partnership expenses or to
make distributions to the partners. At March 31, 1997, the Partnership had
$250,941 invested in such short-term investments, as compared to $318,756 at
December 31, 1996. The funds remaining at March 31, 1997, will be used
towards the payment of distributions and other liabilities.
Total liabilities of the Partnership, including distributions payable,
increased to $734,417 at March 31, 1997, from $733,549 at December 31, 1996.
Liabilities at March 31, 1997, to the extent they exceed cash and cash
equivalents at March 31, 1997, will be paid from future cash from operations,
from the loan received from the corporate general partner in April 1997
described above, and, in the event the general partners elect to make
additional capital contributions or loans to the Partnership, from future
general partner capital contributions or loans.
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 sale of the Property had not closed as of April 30, 1997. The Partnership
intends to reinvest the net sales proceeds in a replacement Property.
Based on current and anticipated future cash from operations, and to a
lesser extent, the loan received from the corporate general partner, the
Partnership declared distributions to limited partners of $594,000 for each of
the quarters ended March 31, 1997 and 1996. This represents distributions for
each applicable quarter of $11.88 per unit. No distributions were made to the
general partners for the quarters ended March 31, 1997 and 1996. No amounts
distributed or to be distributed to the limited partners for the quarters
ended March 31, 1997 and 1996, are required to be or have been treated by the
Partnership as a return of capital for purposes of calculating the limited
partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution
to the limited partners on a quarterly basis.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash
flow in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection
with the operations of the Partnership.
9
Results of Operations
During the quarters ended March 31, 1997 and 1996, the Partnership owned
and leased 36 wholly owned Properties to operators of fast-food and family-
style restaurant chains. In connection therewith, during the quarters ended
March 31, 1997 and 1996, the Partnership earned $526,860 and $556,797,
respectively, in rental income from these Properties. The decrease in rental
and earned income is primarily attributable to the fact that during the
quarter ended March 31, 1997, the Partnership established an allowance for
doubtful accounts of approximately $18,000 for the Property in Eagan,
Minnesota. The tenant for this Property remains responsible for compliance
with the terms of the lease; however the general partners believe that
collection is doubtful due to the financial difficulties the tenant is
currently experiencing. The Partnership intends to pursue collection of
amounts due in accordance with the lease and will record such amounts as
income if collected.
For the quarters ended March 31, 1997 and 1996, the Partnership also
owned and leased three Properties indirectly through joint venture
arrangements (including one Property in Show Low Joint Venture, which was sold
in January 1997) and one Property as tenants-in-common with an affiliate of
the general partners. In connection therewith, during the quarters ended
March 31, 1997 and 1996, the Partnership earned $259,857 and $36,751,
respectively, attributable to net income earned by these joint ventures. The
increase in net income earned by joint ventures is primarily attributable to
the fact that in January 1997, Show Low Joint Venture, in which the
Partnership owns a 64 percent interest, recognized a gain of approximately
$360,000 for financial reporting purposes as a result of the sale of its
Property in January 1997, as described above in "Liquidity and Capital
Resources". Due to the fact that the joint venture intends on reinvesting the
sales proceeds in an additional Property in 1997, the Partnership does not
anticipate that the sale of the Property will have a material adverse effect
on operations.
During the quarter ended March 31, 1997, two of the Partnership's
lessees, Golden Corral Corporation and Restaurant Management Services, Inc.,
each 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 March 31, 1997, Golden Corral Corporation was the
lessee under leases relating to five restaurants and Restaurant Management
Services, Inc. was the lessee under leases relating to four restaurants. It
is anticipated that, based on the minimum annual rental payments required by
the leases, Golden Corral Corporation and Restaurant Management Services, Inc.
will continue to contribute more than ten percent of the Partnership's total
rental income during the remainder of 1997 and subsequent years. In addition,
five Restaurant Chains, Golden Corral Family Steakhouse Restaurants, Denny's,
KFC, Popeyes Famous Fried Chicken Restaurants and Wendy's Old Fashioned
Hamburger Restaurants, each
10
Results of Operations - Continued
accounted for more than ten percent of the Partnership's total rental income
during the quarter ended March 31, 1997 (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). During the remainder
of 1997 and subsequent years, it is anticipated that these five 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, were
$151,373 and $158,476 for the quarters ended March 31, 1997 and 1996,
respectively. The decrease in operating expenses during the quarter ended
March 31, 1997, as compared to the quarter ended March 31, 1996, is primarily
a result of a decrease in accounting and administrative expenses associated
with operating the Partnership and its Properties.
11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders.
Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits - None.
(b) No reports on Form 8-K were filed during the quarter ended
March 31, 1997.
12
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 12th day of May, 1997.
CNL INCOME FUND II, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-----------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
