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 September 30, 2000
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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
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CNL Income Fund II, Ltd.
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(Exact name of registrant as specified in its charter)
Florida 59-2733859
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801-3336
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 540-2000
-------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _____
<PAGE>
CONTENTS
Page
Part I.
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 5-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9-13
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 13
Part II.
Other Information 14-15
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------------ -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $3,433,149 and
$3,767,469, respectively $ 10,089,395 $ 11,797,412
Investment in joint ventures 5,021,187 5,079,701
Cash and cash equivalents 2,992,863 904,715
Receivables, less allowance for doubtful accounts
of $85,031 and $78,690, respectively 60,157 33,849
Due from related party -- 3,108
Prepaid expenses 3,839 7,738
Lease costs, less accumulated amortization of
$13,692 and $13,306, respectively 2,620 3,006
Accrued rental income 207,026 196,689
------------------ -------------------
$ 18,377,087 $ 18,026,218
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 114,650 $ 89,018
Escrowed real estate taxes payable 3,925 4,691
Distributions payable 2,933,329 515,629
Due to related parties 131,681 105,654
Rents paid in advance and deposits 4,800 33,483
------------------ -------------------
Total liabilities 3,188,385 748,475
Commitments and contingencies (Note 5)
Partners' capital 15,188,702 17,277,743
------------------ -------------------
$ 18,377,087 $ 18,026,218
================== ===================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
------------ ------------ -------------- -------------
Revenues:
Rental income from operating leases $ 360,601 $ 425,095 $1,199,412 $1,288,138
Contingent rental income 12,883 9,078 14,509 3,678
Interest and other income 18,926 17,541 46,801 53,413
------------ ------------ -------------- -------------
392,410 451,714 1,260,722 1,345,229
------------ ------------ -------------- -------------
Expenses:
General operating and administrative 40,440 28,650 133,576 89,031
Bad debt expense -- -- 7,347 --
Real estate taxes 1,285 -- 1,285 --
Professional services 11,168 11,571 24,497 28,555
State and other taxes -- -- 14,422 15,711
Depreciation and amortization 74,634 81,643 231,223 246,228
Transaction costs -- 41,555 53,228 130,077
Environmental clean-up costs 75,000 -- 75,000 --
------------ ------------ -------------- -------------
202,527 163,419 540,578 509,602
------------ ------------ -------------- -------------
Income Before Equity in Earnings of Joint Ventures,
Gain on Sale of Land and Building and Provision
for Loss on Building 189,883 288,295 720,144 835,627
Equity in Earnings of Joint Ventures 107,181 108,177 336,033 322,940
Gain on Sale of Land and Building 569,400 -- 819,369 192,752
Provision for Loss on Building -- (79,585 ) -- (79,585 )
------------ ------------ -------------- -------------
Net Income $ 866,464 $ 316,887 $1,875,546 $ 1,271,734
============ ============ ============== =============
Allocation of Net Income:
General partners $ 7,487 $ 2,372 $ 16,213 $ 10,611
Limited partners 858,977 314,515 1,859,333 1,261,123
------------ ------------ -------------- -------------
$ 866,464 $ 316,887 $1,875,546 $ 1,271,734
============ ============ ============== =============
Net Income Per Limited Partner Unit $ 17.18 $ 6.29 $ 37.19 $ 25.22
============ ============ ============== =============
Weighted Average Number of Limited Partner
Units Outstanding 50,000 50,000 50,000 50,000
============ ============ ============== =============
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended Year Ended
September 30, December 31,
2000 1999
-------------------------- ----------------------
General partners:
Beginning balance $ 405,788 $ 390,900
Net income 16,213 14,888
-------------------------- ----------------------
422,001 405,788
-------------------------- ----------------------
Limited partners:
Beginning balance 16,871,955 17,249,981
Net income 1,859,333 1,684,490
Distributions ($79.29 and $41.25 per
limited partner unit, respectively) (3,964,587 ) (2,062,516 )
-------------------------- ----------------------
14,766,701 16,871,955
-------------------------- ----------------------
Total partners' capital $ 15,188,702 $ 17,277,743
========================== ======================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Nine Months Ended
September 30,
2000 1999
---------------- ----------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 1,319,886 $1,486,612
---------------- ----------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 2,361,028 677,678
Additions to land and buildings on operating
leases (45,879 ) --
Collections on mortgage note receivable -- 6,817
---------------- ----------------
Net cash provided by investing activities 2,315,149 684,495
---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,546,887 ) (1,546,887 )
---------------- ----------------
Net cash used in financing activities (1,546,887 ) (1,546,887 )
---------------- ----------------
Net Increase in Cash and Cash Equivalents 2,088,148 624,220
Cash and Cash Equivalents at Beginning of Period 904,715 889,891
---------------- ----------------
Cash and Cash Equivalents at End of Period $ 2,992,863 $1,514,111
================ ================
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Deferred real estate disposition fees incurred and
unpaid at end of period $ 18,600 $ --
================ ================
Distributions declared and unpaid at end of
period $ 2,933,329 $ 515,629
================ ================
See accompanying notes to condensed financial statements.
</TABLE>
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2000 and 1999
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and nine months ended September 30, 2000 may not be
indicative of the results that may be expected for the year ending
December 31, 2000. Amounts as of December 31, 1999, 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, 1999.
Certain items in the prior years' financial statements have been
reclassified to conform to 2000 presentation. These reclassifications
had no effect on partners' capital or net income.
2. Land and Buildings on Operating Leases:
In June 2000, the Partnership sold its property in Jacksonville,
Florida to the tenant for $620,000 resulting in a gain of $249,969 for
financial reporting purposes. This property was originally acquired by
the Partnership in September 1987 and had a cost of approximately
$441,000, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the property for
approximately $179,000 in excess of its original purchase price. In
connection with the sale, the Partnership incurred a deferred,
subordinated, real estate disposition fee of $18,600 (see Note 3).
In September 2000, the Partnership sold three of its properties in
Apopka, Sanford and Altamonte Springs, Florida totaling approximately
$1,748,500, and received net sales proceeds totaling approximately
$1,741,000 resulting in a gain totaling $569,400 for financial
reporting purposes. These properties were originally acquired in 1987
and had a cost of approximately $1,532,100, excluding acquisition fees
and miscellaneous acquisition expenses; therefore, the Partnership sold
the properties for approximately $208,900 in excess of their original
purchase price.
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2000 and 1999
3. Related Party Transactions:
An affiliate of the Partnership is 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
affiliate provides a substantial amount of services in connection with
the sale. 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. During the
nine months ended September 30, 2000, the Partnership incurred $18,600
in a deferred, subordinated, real estate disposition fee as a result of
the sale of a property (see Note 2).
4. 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 not in
liquidation of the Partnership, 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 not in
liquidation of the Partnership 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.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2000 and 1999
4. Allocations and Distributions - Continued:
allocations of net income, gains and/or losses, to distribute to the
partners with positive capital account balances, in proportion to such
balances, up to amounts sufficient to reduce such positive balances to
zero, and (v) thereafter, any funds remaining shall then be distributed
95 percent to the limited partners and five percent to the general
partners.
During the nine months ended September 30, 2000 and 1999, the
Partnership declared distributions to the limited partners of
$3,964,587 and $1,546,887, respectively, ($2,933,329 and $515,629 for
the quarters ended September 30, 2000 and 1999, respectively). This
represents distributions of $79.29 and $30.94 per unit for the nine
months ended September 30, 2000 and 1999, respectively, ($58.67 and
$10.31 per unit for the quarters ended September 30, 2000 and 1999,
respectively). Distributions for the nine months ended September 30,
2000, included $2,500,000 in a special distribution, as a result of the
distribution of net sales proceeds from the sale of several properties.
This special distribution was effectively a return of a portion of the
limited partners' investment, although, in accordance with the
Partnership agreement, $1,407,878 was applied toward the limited
partners' 10% Preferred Return and the balance of $1,092,122 was
treated as a return of capital for purposes of calculating the limited
partners' 10% Preferred Return. As a result of the return of capital,
the amount of the limited partners' invested capital contributions
(which generally is the limited partners' capital contributions, less
distributions from the sale of a property that are considered to be a
return of capital) was decreased; therefore, the amount of the limited
partners' invested capital contributions on which the 10% Preferred
Return is calculated was lowered accordingly. As a result of the sale
of the properties, the Partnership's total revenue was reduced, while
the majority of the Partnership's operating expenses remained fixed.
Therefore, distributions of net cash flow were adjusted during the
quarter ended September 30, 2000. No distributions have been made to
the general partners to date.
5. Termination of Merger:
On March 1, 2000, the general partners and CNL American Properties
Fund, Inc. ("APF") mutually agreed to terminate the Agreement and Plan
of Merger entered into in March 1999. The general partners are
continuing to evaluate strategic alternatives for the Partnership,
including alternatives to provide liquidity to the limited partners.
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Nine Months Ended September 30, 2000 and 1999
6. Commitments and Contingencies:
In conjunction with the proposed sale of the property in Ocala,
Florida, underground petroleum contamination was discovered during the
due diligence phase of the proposed sale. As a result of the discovery
of the contamination, the sales contract was terminated. The
Partnership applied to a state funded clean-up program and received
notification it was eligible for state assistance. Under the state
funded clean-up program, the Partnership will be responsible for 25
percent of the actual clean-up costs and will receive assistance for
the remaining 75 percent of the costs. The Partnership anticipates that
total clean-up costs will approximate $300,000 and as of September 30,
2000, had accrued 25 percent, or $75,000 of the estimated clean-up
costs as a liability.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund II, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on November 13, 1986 to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurant properties, as well as land upon which restaurants were to
be constructed, which are leased primarily to operators of national and regional
fast-food restaurant chains (collectively, the "Properties"). The leases
generally are triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of September 30,
2000, the Partnership owned 33 Properties, which included interests in four
Properties owned by joint ventures in which the Partnership is a co-venturer and
six Properties owned with affiliates as tenants-in-common.
Capital Resources
The Partnership's primary source of capital for the nine months ended
September 30, 2000 and 1999 was cash from operations (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses). Cash from operations was
$1,319,886 and $1,486,612 for the nine months ended September 30, 2000 and 1999,
respectively. The decrease in cash from operations for the nine months ended
September 30, 2000, as compared to the nine months ended September 30, 1999, was
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
nine months ended September 30, 2000.
In June 2000, the Partnership sold its Property in Jacksonville,
Florida, to the tenant for $620,000, resulting in a gain of $249,969 for
financial reporting purposes. This Property was originally acquired by the
Partnership in September 1987 and had a cost of approximately $441,000,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold this Property for approximately $179,000 in excess of its
original purchase price. In connection with the sale, the Partnership incurred a
deferred, subordinated, real estate disposition fee of $18,600. 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. The Partnership distributed the majority of the net sales
proceeds to the limited partners, as described below.
In September 2000, the Partnership sold three of its Properties in
Apopka, Sanford and Altamonte Springs, Florida totaling approximately $1,748,500
and received net sales proceeds totaling approximately $1,741,000, resulting in
a gain totaling $569,400 for financial reporting purposes. These Properties were
originally acquired in 1987 and had a cost of approximately $1,532,100,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold the Properties for approximately $208,900 in excess of
their original purchase price. The Partnership intends to distribute the
majority of the net sales proceeds to the limited partners. In conjunction with
the proposed sale of the Property in Ocala, Florida, underground petroleum
contamination was discovered during the due diligence phase of the proposed
sale. As a result of the discovery of the contamination, the sales contract was
terminated. The Partnership applied to a state funded clean-up program and
received notification it was eligible for state assistance. Under the state
funded clean-up program, the Partnership will be responsible for 25 percent of
the actual clean-up costs and will receive assistance for the remaining 75
percent of the costs. The Partnership anticipates that total clean-up costs will
approximate $300,000 and as of September 30, 2000, had accrued 25 percent, or
$75,000 of the estimated clean-up costs as a liability.
Currently, rental income from the Partnership's Properties and any net
sales proceeds from the sale of Properties pending distribution to limited
partners are invested in money market accounts or other short-term, highly
liquid investments, such as demand deposit accounts at commercial banks and
certificates of deposit, with less than a 30-day maturity date, pending the
Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At September 30, 2000, the Partnership had
$2,992,863 invested in such short-term investments, as compared to $904,715 at
December 31, 1999. The increase in cash and cash equivalents was primarily due
to the receipt of net sales proceeds from the sale of the Properties in
Jacksonville, Apopka, Sanford and Altamonte Springs, Florida, as described
above. The funds remaining at September 30, 2000, will be used to pay
distributions and other liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
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.
Total liabilities of the Partnership, including distributions payable,
increased to $3,188,385 at September 30, 2000 from $748,475 at December 31,
1999. The increase in total liabilities was primarily a result of the
Partnership accruing a special distribution of net sales proceeds of $2,500,000
from the sale of several Properties described below, payable to the limited
partners at September 30, 2000. Total liabilities at September 30, 2000, to the
extent they exceed cash and cash equivalents at September 30, 2000, will be paid
from future cash from operations, and in the event the general partners elect to
make additional contributions from general partners' contributions.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations, and for the nine
months ended September 30, 2000, a portion of the proceeds received from the
sale of the Properties described above, the Partnership declared distributions
to limited partners of $3,964,587 and $1,546,887 for the nine months ended
September 30, 2000 and 1999, respectively, ($2,933,329 and $515,629 for the
quarters ended September 30, 2000 and 1999, respectively). This represents
distributions of $79.29 and $30.94 per unit for the nine months ended September
30, 2000 and 1999, respectively, ($58.67 and $10.31 for the quarters ended
September 30, 2000 and 1999, respectively). The distribution for the quarter
ended September 30, 2000 included $2,500,000 of net sales proceeds from the sale
of several Properties. This special distribution was effectively a return of a
portion of the limited partners' investment; although, in accordance with the
Partnership agreement, $1,407,878 was applied towards the 10% Preferred Return,
on a cumulative basis, and the balance of $1,092,122 was treated as a return of
capital for purposes of calculating the 10% Preferred Return. As a result of the
return of capital, the amount of the limited partners' invested capital
contributions (which generally is the limited partners' capital contributions,
less distributions from the sale of a property that are considered to be a
return of capital) was decreased; therefore, the amount of the limited partners'
invested capital contributions on which the 10% Preferred Return is calculated
was lowered accordingly. As a result of the sale of the Properties, the
Partnership's total revenue was reduced and is expected to remain reduced in
subsequent periods, while the majority of the Partnership's operating expenses
remained and are expected to remain fixed. Therefore, distributions of net cash
flow were adjusted commencing during the quarter ended September 30, 2000. No
distributions were made to the general partners for the quarters and nine months
ended September 30, 2000 and 1999. No amounts distributed to the limited
partners for the nine months ended September 30, 2000 and 1999, except for
$1,092,122 as described above, 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.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the nine months ended September 30, 1999, the Partnership owned
and leased 29 wholly owned Properties (which included two Properties which were
sold in 1999) to operators of fast-food and family-style restaurant chains.
During the nine months ended September 30, 2000, the Partnership owned and
leased 27 wholly owned Properties (which included four Properties which were
sold in 2000) to operators of fast-food and family-style restaurant chains. In
connection therewith, during the nine months ended September 30, 2000 and 1999,
the Partnership earned $1,199,412 and $1,288,138, respectively, in rental income
from these Properties, $360,601 and $425,095 of which was earned during the
quarters ended September 30, 2000 and 1999, respectively. Rental income
decreased during the quarter and nine months ended September 30, 2000, as
compared to the quarter and nine months ended September 30, 1999, primarily as a
result of the sales of two Properties in 1999 and four Properties in 2000, as
described above in "Capital Resources." Rental income is expected to remain at
reduced amounts while equity in earnings of joint ventures is expected to remain
at increased amounts due to the fact that the Partnership reinvested the 1999
net sales proceeds of two Properties in a joint venture, as described below.
In addition, rental income decreased during the quarter and nine months
ended September 30, 2000, partially due to the fact that during the quarter and
nine months ended September 30, 2000, the Partnership increased its allowance
for doubtful accounts by approximately $40,100 and $59,900, respectively, for
past due rental amounts relating to its Property in Rock Springs, Wyoming in
accordance with the Partnership's policy. The general partners will continue to
pursue collection of past due rental amounts relating to this Property and will
recognize such amounts as income if collected. The general partners are
currently seeking either a new tenant or purchaser for this Property.
The decrease in rental income during the nine months ended September
30, 2000 was partially offset by an increase in rental income due to the fact
that during the nine months ended September 30, 2000, the Partnership collected
and recognized as income approximately $11,800 in past due rental amounts for
which it had previously established an allowance for doubtful accounts relating
to its Property in Casper, Wyoming.
During the nine months ended September 30, 2000 and 1999, the
Partnership also owned and leased three Properties indirectly through joint
venture arrangements and six Properties as tenants-in-common with affiliates of
the general partners. During the nine months ended September 30, 2000, the
Partnership owned and leased one additional Property indirectly through a joint
venture arrangement. In connection therewith, during the nine months ended
September 30, 2000 and 1999, the Partnership earned $336,033 and $322,940,
respectively, $107,181 and $108,177 of which was earned during the quarters
ended September 30, 2000 and 1999, respectively. The increase in net income
earned by joint ventures during the nine months ended September 30, 2000, as
compared to the nine months ended September 30, 1999, was primarily due to the
fact that in November 1999 the Partnership invested the net sales proceeds it
received from 1999 sales of two Properties in Peoria Joint Venture.
In addition, the increase in net income earned by joint ventures during
the nine months ended September 30, 2000 was partially offset by, and the
decrease in net income earned by joint ventures during the quarter ended
September 30, 2000 was primarily due to, the fact that in 1998, a tenant of a
Property in which the Partnership owns an approximate 58 percent interest filed
for bankruptcy and, during the nine months ended September 30, 2000, rejected
its lease relating to the Property in Mesa, Arizona. As a result, this tenant
discontinued making rental payments on the rejected lease. In conjunction
therewith, during the nine months ended September 30, 2000, the
tenants-in-common established an allowance for doubtful accounts of
approximately $4,800 relating to past due rental amounts and reversed
approximately $31,500 of accrued rental income. The accrued rental income was
the accumulated amount of non-cash accounting adjustments previously recorded in
order to recognize future scheduled rent increases as income evenly over the
term of the lease. In July 2000, the tenants-in-common entered into a lease with
a new tenant for the Property in Mesa, Arizona.
Operating expenses, including depreciation and amortization, were
$540,578 and $509,602 during the nine months ended September 30, 2000 and 1999,
respectively, of which $202,527 and $163,419 were incurred during the quarters
ended September 30, 2000 and 1999, respectively. The increase in operating
expenses during the quarter and nine months ended September 30, 2000 was
partially attributable to the Partnership recording $75,000 during the quarter
and nine months ended September 30, 2000 in environmental clean-up costs
relating to the contamination of the Property in Ocala, Florida, as described
above. Operating expenses also increased as a result of an increase in
administrative expenses for servicing the Partnership and its Properties and an
increase in bad debt expense and repair and maintenance costs relating to its
Property in Rock Springs, Wyoming. The payment of repairs and maintenance
relating to this Property remains the responsibility of the tenant; however,
because of the financial difficulties the tenant is experiencing, the general
partners believe the tenant's ability to pay these expenses is doubtful. The
Partnership intends to pursue collection of any such amounts unpaid by the
tenant and will recognize such amounts as income if collected.
The increase in operating expenses during the quarter and nine months
ended September 30, 2000 was partially offset by a decrease in operating
expenses due to the fact that the Partnership incurred less transaction costs
during the quarter and nine months ended September 30, 2000, relating to the
general partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed merger with CNL American Properties
Fund, Inc. ("APF"), due to the termination of the proposed merger, as described
below in "Termination of Merger." Operating expenses also decreased during the
quarter and nine months ended September 30, 2000, due to a decrease in
depreciation expense due to the sales of the Properties in 1999 and 2000.
As a result of the sale of the Properties, as described above in
"Capital Resources," the Partnership recognized a gain of $569,400 and $819,369
for financial reporting purposes during the quarter and nine months ended
September 30, 2000, respectively. As a result of the sale of the Property in
Columbia, Missouri, the Partnership recognized a gain of $192,752 for financial
reporting purposes during the nine months ended September 30, 1999.
During the quarter and nine months ended September 30, 1999, the
Partnership recorded a provision for loss on building in the amount of $79,585
for financial reporting purposes relating to the Property in Littleton,
Colorado. The allowance represented the difference between the carrying value of
the Property at September 30, 1999, and the estimated net sales proceeds from
the sale of the Property based on a sales contract with an unrelated third
party. The Partnership sold this Property in November 1999.
Termination of Merger
On March 1, 2000, the general partners and APF mutually agreed to
terminate the Agreement and Plan of Merger entered into in March 1999. The
general partners are continuing to evaluate strategic alternatives for the
Partnership, including alternatives to provide liquidity to the limited
partners.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. Inapplicable.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
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.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
September 30, 2000.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 13th day of November, 2000.
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)
