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, 2000
--------------------------------------------------------------------------
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
incorporation or organization) Identification No.)
450 South Orange Avenue
Orlando, Florida 32801
- --------------------------------- -------------------------------
(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
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II.
Other Information
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------------ -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $3,845,820 and
$3,767,469, respectively $ 11,719,061 $ 11,797,412
Investment in joint ventures 5,062,705 5,079,701
Cash and cash equivalents 821,935 904,715
Receivables, less allowance for doubtful accounts
of $43,799 and $78,690, respectively 22,579 33,849
Due from related party -- 3,108
Prepaid expenses 5,139 7,738
Lease costs, less accumulated amortization of
$13,435 and $13,306, respectively 2,877 3,006
Accrued rental income 200,171 196,689
------------------ -------------------
$ 17,834,467 $ 18,026,218
================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 37,983 $ 89,018
Escrowed real estate taxes payable 5,989 4,691
Distributions payable 515,629 515,629
Due to related parties 96,061 105,654
Rents paid in advance and deposits 31,144 33,483
------------------ -------------------
Total liabilities 686,806 748,475
Partners' capital 17,147,661 17,277,743
------------------ -------------------
$ 17,834,467 $ 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
March 31,
2000 1999
-------------- ---------------
Revenues:
Rental income from operating leases $ 418,340 $ 420,201
Interest and other income 25,963 13,671
-------------- ---------------
444,303 433,872
-------------- ---------------
Expenses:
General operating and administrative 47,539 35,824
Professional services 12,104 3,517
State and other taxes 14,422 15,526
Depreciation and amortization 78,480 83,049
Transaction costs 33,284 32,324
-------------- ---------------
185,829 170,240
-------------- ---------------
Income Before Equity in Earnings of Joint Ventures and
Gain on Sale of Land and Building 258,474 263,632
Equity in Earnings of Joint Ventures 127,073 107,239
Gain on Sale of Land and Building -- 192,752
-------------- ---------------
Net Income $ 385,547 $ 563,623
============== ===============
Allocation of Net Income:
General partners $ 3,855 $ 4,328
Limited partners 381,692 559,295
-------------- ---------------
$ 385,547 $ 563,623
============== ===============
Net Income Per Limited Partner Unit $ 7.63 $ 11.19
============== ===============
Weighted Average Number of Limited Partner
Units Outstanding 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
Quarter Ended Year Ended
March 31, December 31,
2000 1999
-------------------- ------------------
General partners:
Beginning balance $ 405,788 $ 390,900
Net income 3,855 14,888
-------------------- ------------------
409,643 405,788
-------------------- ------------------
Limited partners:
Beginning balance 16,871,955 17,249,981
Net income 381,692 1,684,490
Distributions ($10.31 and $41.25 per
limited partner unit, respectively) (515,629 ) (2,062,516 )
-------------------- ------------------
16,738,018 16,871,955
-------------------- ------------------
Total partners' capital $ 17,147,661 $ 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
Quarter Ended
March 31,
2000 1999
-------------- --------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 432,849 $ 518,058
-------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of land and building -- 677,678
Increase in restricted cash -- (677,678 )
Collections on mortgage note receivable -- 6,817
-------------- --------------
Net cash provided by investing activities -- 6,817
-------------- --------------
Cash Flows from Financing Activities:
Distributions to limited partners (515,629 ) (515,629 )
-------------- --------------
Net cash used in financing activities (515,629 ) (515,629 )
-------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents (82,780 ) 9,246
Cash and Cash Equivalents at Beginning of Quarter 904,715 889,891
-------------- --------------
Cash and Cash Equivalents at End of Quarter $ 821,935 $ 899,137
============== ==============
Supplemental Schedule of Non-Cash Financing Activities:
Distributions declared and unpaid at end of
quarter $ 515,629 $ 515,629
============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 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 ended March 31, 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.
2. 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>
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, 2000,
the Partnership owned 37 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
During the quarters ended March 31, 2000 and 1999, the Partnership
generated cash from operations (which includes cash received from tenants,
distributions from joint ventures, and interest and other income received, less
cash paid for expenses) of $432,849 and $518,058, respectively. The decrease in
cash from operations for the quarter ended March 31, 2000, as compared to the
quarter ended March 31, 1999, was primarily a result of changes in the
Partnership's working capital.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments such as
demand deposit accounts at commercial banks, certificates of deposit, and money
market accounts 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 March 31, 2000, the Partnership had $821,935 invested in such
short-term investments, as compared to $904,715 at December 31, 1999. The funds
remaining at March 31, 2000, after payment of distributions and other
liabilities, will be used to meet the Partnership's working capital and other
needs.
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.
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, the Partnership
declared distributions to limited partners of $515,629 for each of the quarters
ended March 31, 2000 and 1999. This represents distributions for each applicable
quarter of $10.31 per unit. No distributions were made to the general partners
for the quarters ended March 31, 2000 and 1999. No amounts distributed to the
limited partners for the quarters ended March 31, 2000 and 1999 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.
Total liabilities of the Partnership, including distributions payable,
decreased to $686,806 at March 31, 2000 from $748,475 at December 31, 1999,
primarily as a result of a decrease in accounts payable at March 31, 2000, as
compared to December 31, 1999. The general partners believe the Partnership has
sufficient cash on hand to meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the quarter ended March 31, 1999, the Partnership owned and
leased 29 wholly owned Properties (which included one Property in Columbia,
Missouri that was sold in March 1999 and one Property in Littleton, Colorado
that was sold in November 1999) to operators of fast-food and family-style
restaurant chains. During the quarter ended March 31, 2000, the Partnership
owned and leased 27 wholly owned Properties to operators of fast-food and
family-style restaurant chains. In connection therewith, during the quarters
ended March 31, 2000 and 1999, the Partnership earned $418,340 and $420,201,
respectively, in rental income from these Properties. Rental income decreased
during the quarter ended March 31, 2000, as compared to the quarter ended March
31, 1999, partially due to the fact that during the quarter ended March 31,
2000, the Partnership increased its allowance for doubtful accounts by
approximately $13,100 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 decrease in rental income during the quarter ended March 31, 2000,
as compared to the quarter ended March 31, 1999, was partially offset by an
increase in rental income due to the fact that 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.
For the quarters ended March 31, 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.
For the quarter ended March 31, 2000, the Partnership owned and leased one
additional Property indirectly through a joint venture arrangement. In
connection therewith, during the quarters ended March 31, 2000 and 1999, the
Partnership earned $127,073 and $107,239, respectively, attributable to net
income earned by these joint ventures. The increase in net income earned by
joint ventures during the quarter ended March 31, 2000, as compared to the
quarter ended March 31, 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.
Operating expenses, including depreciation and amortization, were
$185,829 and $170,240 for the quarters ended March 31, 2000 and 1999,
respectively. The increase in operating expenses during the quarter ended March
31, 2000, as compared to the quarter ended March 31, 1999, was primarily due to
the fact that the Partnership incurred some repair and maintenance costs related
to its Property in Rock Springs, Wyoming. Payment of repairs and maintenance
relating to this Property remains the responsibility of the tenant; however,
because of the financial difficulties this tenant is experiencing, the general
partners believe the tenant's ability to pay these expenses is doubtful. The
Partnership intends to pursue collection from this tenant of any such amounts
paid by the Partnership and will recognize such amounts as income if collected.
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 quarter ended March 31, 1999. No Properties were sold during the
quarter ended March 31, 2000.
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.
Dismissal of Legal Action
As described in greater detail in Part II, Item 1 ("Legal
Proceedings"), in 1999 two groups of limited partners in several CNL Income
Funds filed purported class action suits against the general partners and APF
alleging, among other things, that the general partners had breached their
fiduciary duties in connection with the proposed Merger. These actions were
later consolidated into one action. On April 25, 2000, the judge in the
consolidated action issued a Stipulated Final Order of Dismissal of Consolidated
Action, dismissing the action without prejudice, with each party to bear its own
costs and attorneys' fees.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
Hewitt, Gretchen M. Hewitt, Bernard J. Schulte, Edward M. and
Margaret Berol Trust, and Vicky Berol v. James M. Seneff, Jr.,
Robert A. Bourne, CNL Realty Corporation, and CNL American
Properties Fund, Inc., Case No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
Services, Inc. and CNL Group, Inc., Case NO. CIO-99-3796, in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed Merger. The
plaintiff is seeking unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income
Funds Litigation, Case No. 99-3561. Pursuant to this order, the
plaintiffs in these cases filed a consolidated and amended
complaint on November 8, 1999. On December 22, 1999, the general
partners and CNL Group, Inc. filed motions to dismiss and motions
to strike. On December 28, 1999, APF and CNL Fund Advisors, Inc.
filed motions to dismiss. On March 6, 2000, all of the defendants
filed a Joint Notice of Filing Form 8-K Reports and Suggestion of
Mootness.
On April 25, 2000, Judge Kirkwood issued a Stipulated Final Order
of Dismissal of Consolidated Action, dismissing the action without
prejudice, with each party to bear its own costs and attorneys'
fees.
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.)
<PAGE>
(b) Reports on Form 8-K
A Current Report on Form 8-K dated February 23, 2000 was filed on
March 1, 2000, describing the termination of the proposed merger
of the Partnership with and into a subsidiary of CNL American
Properties Fund, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 9th day of May, 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)
<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, 2000, 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,
2000.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 821,935
<SECURITIES> 0
<RECEIVABLES> 66,378
<ALLOWANCES> 43,799
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 15,564,881
<DEPRECIATION> 3,845,820
<TOTAL-ASSETS> 17,834,467
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 17,147,661
<TOTAL-LIABILITY-AND-EQUITY> 17,834,467
<SALES> 0
<TOTAL-REVENUES> 444,303
<CGS> 0
<TOTAL-COSTS> 185,829
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 385,547
<INCOME-TAX> 0
<INCOME-CONTINUING> 385,547
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 385,547
<EPS-BASIC> 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>
