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 0-18504
PARTICIPATING INCOME PROPERTIES II, L.P.
and
FFCA INVESTOR SERVICES CORPORATION 88-C
---------------------------------------
(Exact Name of Co-Registrants as Specified in Their
Organizational Documents)
Delaware 86-0588505
- --------------------- -----------------------
(Partnership State of (Partnership I.R.S.
Organization) Employer Identification
No.)
Delaware 86-0588507
- --------------------- -----------------------
(Corporation State of (Corporation I.R.S.
Incorporation) Employer Identification
No.)
The Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
- --------------------- ---------------
(Address of Principal Executive Offices) (Zip Code)
Co-Registrants' telephone number, including area code: (602) 585-4500
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Limited Partnership Interests
-----------------------------
(Title of Class)
Limited Partnership Depositary Units
------------------------------------
(Title of Class)
Indicate by check mark whether the Co-Registrants (1) have 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 for such shorter period that the
Co-Registrants were required to file such reports) and (2) have 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 the Co-Registrants' 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]
State the aggregate market value of the voting stock held by
non-affiliates of the Co-Registrants: Not applicable.
The Limited Partnership Depository Units (the "Units") are not
currently traded in any market. Therefore, there is no market price or average
bid and asked price for the Units within the 60 days prior to the date of this
filing.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1. Business.
Participating Income Properties II, L.P., a Delaware limited
partnership (the "Partnership"), was organized on August 12, 1987 under the
Delaware Revised Uniform Limited Partnership Act. The Partnership was organized
primarily to purchase new and existing "Flying J Travel Plaza" facilities,
including land, buildings and equipment, to be leased on a net basis to
franchisees of Flying J Franchise Inc. and to Flying J Inc. The managing general
partner of the Partnership is Franchise Finance Corporation of America II, a
Delaware corporation (the "Managing General Partner"). Morton H. Fleischer and
Paul Bagley are the individual general partners of the Partnership. (The
Managing General Partner, Morton H. Fleischer and Paul Bagley are sometimes
referred to collectively herein as the "General Partners.")
Morton H. Fleischer is the sole stockholder of FFCA Investor Services
Corporation 88-C, a Delaware corporation, which was incorporated on August 11,
1987, to serve as the initial limited partner of the Partnership and the owner
of record of the limited partnership interests in the Partnership, the rights
and benefits of which are assigned by FFCA Investor Services Corporation 88-C to
investors in the Partnership. FFCA Investor Services Corporation 88-C conducts
no other business activity. The Partnership and FFCA Investor Services
Corporation 88-C are referred to collectively as the "Co-Registrants."
The statements contained in this report, if not historical, are
forward-looking statements and involve risks and uncertainties that could cause
actual results to differ materially from the results, financial or otherwise, or
other expectations described in such forward-looking statements. These
statements are identified with the words "anticipated" or "expected". Therefore,
forward-looking statements should not be relied upon as a prediction of actual
future results or occurrences.
On December 12, 1988, the Co-Registrants commenced a public offering of
$100,000,000 of limited partnership depository units (the "Units") in the
Partnership pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933, as amended. The Co-Registrants sold a total of 82,834
Units to investors at $1,000 per Unit for a total of $82,834,000. Purchasers of
the Units (the "Holders") acquired the following number of Units from FFCA
Investor Services Corporation 88-C on each of the following dates: 24,735 Units
on May 11, 1989; 16,700 Units on July 13, 1989; 24,806 Units on October 19,
1989; and 16,593 Units on December 11, 1989. Subsequent to that date, no Holder
has made any additional capital contribution. The Holders share in the benefits
of ownership of the Partnership's assets, including its real and personal
property investments, according to the number of Units held in substantially the
same manner as limited partners in the Partnership.
After deducting organizational and offering expenses, including sales
commissions, the net proceeds of the offering of the Units, $72,562,584, were
fully invested by the Partnership in
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13 travel plazas located in eleven states: "Flying J Travel Plaza" facilities
offer a full-service operation, generally including fuel facilities, a
restaurant, convenience store and other amenities for use by the trucking
industry and traveling public in general. One of the properties was acquired in
1988, five were acquired during 1989, five were acquired during 1990, and two
were acquired during 1991. As of February 24, 1997, all thirteen travel plazas
which are owned by the Partnership were leased to CFJ Properties ("CFJ
Properties"), a general partnership formed pursuant to a joint venture between
Flying J Inc., through its subsidiary Big West Oil Company ("Big West"), and
Douglas Oil Company of California, a subsidiary of Conoco Inc. ("Douglas Oil").
The Partnership is not affiliated with CFJ Properties, Flying J Inc. or Flying J
Franchise Inc., a subsidiary of Flying J Inc. and the franchisor of Flying J
Travel Plazas.
The Partnership's principal objectives are to (i) preserve, protect and
enhance Partnership capital, (ii) provide partially tax-sheltered cash
distributions to investors, (iii) provide the potential for increased income and
protection against inflation through participation in the gross revenues of
Flying J Travel Plaza facilities, and (iv) to obtain long-term appreciation in
the value of its properties through real estate ownership.
Real estate owned by the Partnership is generally leased for a term of
20 years. Equipment is generally leased for a term of eight years. Equipment
leases are scheduled to expire at various dates from November 1996 through 1999.
Lessees must generally pay the Partnership annual rental payments (in monthly
installments) equal to 10% of the Partnership's total investment in properties.
As additional rent under the terms of the lease, the Partnership is entitled to
receive a portion of the operating revenues of the lessees equal to (i) 3.5% of
annual gross receipts derived from the travel plaza facility, excluding fuel
sales, (ii) 3/10 of $.01 per gallon of fuel sold, and (iii) 3.5% of all amounts
received by the lessee for any lease year pursuant to any sublease by the lessee
of any part of its leased premises. Reference is made to Note (3) of the Notes
to Financial Statements filed with this Report for a schedule of the minimum
future lease payments to be received by the Company on its properties.
In connection with entering into a lease, the General Partner has
required each lessee to pay a rent enhancement fee to the Partnership at the
inception of the lease in an amount equal to approximately four percent of the
Partnership's total cost of the land, building and equipment comprising the
property leased to the lessee, including certain capitalized acquisition
expenses. This amount is advanced by the Partnership and included in the cost of
the property leased to the lessee for the purpose of determining the lease
payments. The Partnership, by including this amount in the cost of property,
receives an additional amount of lease payments with respect to the property.
The funds representing the aggregate rent enhancement fees are used to maintain
cash distributions to the Holders in quarters when lease payments received by
the Partnership are reduced due to the failure of any of the Partnership's
lessees to meet all of their payment obligations. In addition, recognition of
the rent enhancement fees provides additional income to the Partnership. The
rent enhancement fee is amortized to rental income on a straight-line basis over
a ten-year period from the inception of the lease.
The General Partner, the Partnership and Flying J Inc. entered into an
operating
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agreement (the "Operating Agreement"). Pursuant to the terms of the Operating
Agreement, in the event a lessee defaults in payment of any minimum rent or
other monetary sum when due and payable under the lease and fails to cure such
default within five days after receipt of notice of such default from the
Partnership, Flying J Inc. has agreed to operate such lessee's leased travel
plaza for the maximum potential lease term as a full-service travel plaza and to
provide adequate working capital for the operations of such property. A
defaulting lessee and any personal guarantor of such defaulting lessee will
remain liable under the lease and guaranty, respectively, to the extent
permitted by law.
The Partnership is also dependent upon CFJ Properties, its principal
lessee, since an adverse change in their financial condition could materially
affect its ability to make lease payments. During 1996, CFJ Properties
contributed 100% of the Company's total rental and participating rental revenue
for the year and is expected to contribute a similar percentage of revenue in
1997.
On February 1, 1991, Flying J Inc., through its subsidiary Big West,
entered into a joint venture with Douglas Oil to form CFJ Properties. Flying J
Inc. (and subsidiaries) is a fully integrated oil and gas company and is engaged
in the production, refining, transportation, wholesaling and retail marketing of
petroleum products and other services through its travel plazas and gasoline
stations. CFJ Properties is the franchisor and operator of the Flying J Inc.
network of interstate travel plazas, which included 66 properties as of January
31, 1996. The Partnership owns eleven of these properties. Under the terms of
the joint venture agreement, Big West sold to Douglas Oil certain Flying J
Travel Plazas, which Douglas Oil contributed back to CFJ Properties. In addition
to this initial contribution, Douglas Oil also made additional contributions to
CFJ Properties. As its initial contribution, Big West transferred to CFJ
Properties certain leasehold interests and Flying J Travel Plazas, and
subsequently contributed to CFJ Properties various assets including working
capital, inventories and future development sites. Flying J Inc. assigned its
leasehold interests in the travel plazas owned by the Partnership to CFJ
Properties and was released by the Partnership with respect to its obligation
under those leases.
The Partnership's leases with CFJ Properties are with full recourse to
the assets of CFJ Properties, but without recourse to Big West or Douglas Oil. A
default on one lease constitutes a default on all other leases to the same
lessee by the Partnership and two other partnerships sponsored by affiliates of
the Managing General Partner, all of whose travel plazas are leased to CFJ
Properties.
For the fiscal year ended January 31, 1996, CFJ Properties reported
earnings of $17.2 million on revenues of $937.4 million. Revenues rose 33.3%
from $703.4 million the prior year. The higher revenues resulted from the
opening of twelve new units and increases in average unit volumes. As a result
of higher revenues, net income increased to $17.2 million from $16.1 million in
the fiscal year ended January 31, 1995.
During the fiscal year ended January 31, 1996, CFJ Properties reported
$35.8 million in
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net cash provided by operating activities. This cash, along with the cash
provided by financing activities, was used to make capital expenditures. As of
January 31, 1996, CFJ Properties reported cash balances of approximately $2.3
million, with liquidity supported by net cash provided by operating activities
and a $70 million revolving line of credit with a bank. As of January 31, 1996,
CFJ Properties reported partners' capital of $137.7 million and total assets of
$369.4 million.
CFJ Properties leases travel plazas and equipment under non-cancelable
operating leases, which expire at various dates over the next 15 to 20 years.
Payments under these leases were $13.3 million in both 1996 and 1995. Future
minimum annual rent obligations under non-cancelable leases, as projected
through 2001, remains comparable to 1996 expense amounts.
The eleven travel plaza properties operated by CFJ Properties and
Flying J Inc. generated a combined fuel and non-fuel gross profit (including
other income) of approximately $31.7 million during the fiscal year ended
January 31, 1996 as compared to $31.2 million in 1995. This increase was due to
higher non-fuel gross profits during fiscal year 1996 as compared to fiscal year
1995, which offset an overall decrease in fuel gross profits during the same
period. Total travel plaza unit-level income for these eleven properties (before
depreciation and allocated corporate overhead) totaled approximately $3.1
million in 1996 with seven of the eleven properties reporting positive
unit-level income. The remaining four properties reported losses primarily due
to intense fuel price competition in their geographic area. The combined result
of the travel plaza unit-level net income before depreciation and allocated
corporate overhead was down from $3.6 million in the prior year due to decreased
fuel gross profit margins at some units. For CFJ Properties' fiscal year ended
January 31, 1996, the average unit-level base and participating rents
approximated 13.9% of the original cost of these properties. None of the eleven
travel plaza properties operated by CFJ Properties represents over 10% of the
Partnership's total assets in 1996.
The travel plaza/truck stop industry, although highly fragmented, is
highly competitive. The Partnership's lessees are competing with, among others,
National Auto/Truckstops, Petro and Pilot Corporation, as well as other
national, regional and local truckstop operators, some of which may have
substantially greater financial resources than the lessees. The Partnership's
lessees also compete with other entities which provide hospitality goods and
services to the trucking industry and traveling public in general. The major
competitive factors include, among others, location, ease of access, brand
identification, pricing, product and service selections, customer service, store
appearance, cleanliness and safety. The Flying J Travel Plaza facilities owned
by the Partnership offer a full-service operation, generally including fuel
facilities, a restaurant, a convenience store and other amenities for use by the
trucking industry and traveling public in general. Flying J Inc. reports that
the Flying J Travel Plaza network consists of more than 100 facilities across
the U.S. interstate highway system. The travel plaza sites have been selected
based on traffic patterns and volumes, and access to interstate highways, among
other criteria.
According to the American Trucking Association, the trucking industry
grosses more
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than $340 billion annually, representing 78% of the nation's freight bill. The
20 million commercial trucks registered in the United States consume
approximately 39 billion gallons of fuel annually. The Partnership believes that
the trucking industry is sensitive to certain aspects of the general economic
environment, such as retail sales; the level, direction and rate of change in
inventories; international trade; vendor performance; the cost and availability
of fuel; labor issues; and technology. The trucking industry is also affected by
various government policies, including economic regulations; vehicle size and
weight regulations; and health, safety and environmental protection regulations.
These factors also may influence the competitive posture of one mode of
transportation compared to others; however, the trucking industry has presented
itself as an affordable and timely alternative to other methods of
transportation such as air freight and rail, particularly for short hauls.
Through ownership of the travel plazas, the Partnership is subject to
the risks associated with the underground storage of petroleum products such as
gasoline. In this regard, the Partnership's lessees are subject to various
federal, state and local regulations and environmental laws. These laws and
regulations affect the storing, dispensing and discharge of petroleum and other
wastes and affect the lessees both in the securing of permits for fueling
operations and in the ongoing conduct of such operations.
Federal, state and local regulatory agencies have adopted regulations
governing underground storage tanks ("UST's") that require the Partnership's
lessees to make certain expenditures for compliance. In particular, at the
federal level, the Resource Conservation and Recovery Act requires the
Environmental Protection Agency ("EPA") to establish a comprehensive regulatory
program for the detection, prevention and cleanup of leaking UST's. Regulations
enacted by the EPA in 1988 established requirements for (i) installing UST
systems; (ii) upgrading UST systems; (iii) taking corrective action in response
to releases; (iv) closing UST systems; (v) keeping appropriate records; and (vi)
maintaining evidence of financial responsibility for taking corrective action
and compensating third parties for bodily injury and property damage resulting
from releases. These regulations permit states to develop, administer and
enforce their own regulatory programs, incorporating requirements which are at
least as stringent as the federal standards. By 1998, all UST's must be
corrosion protected, overfill/spill protected and have leak detection. These
environmental laws impose strict liability for owners and operators of faulty
and leaking storage tanks resulting in damage to the environment or third
parties.
The General Partner has taken various steps to (i) ensure that the
lessees comply with applicable rules and regulations; (ii) mitigate any
potential liabilities, including the establishment of storage tank monitoring
procedures; and (iii) require that lessees indemnify the Partnership for all
such liabilities and obtain liability insurance, if reasonably available. The
General Partner requires each lessee to obtain an annual environmental audit,
performed by an environmental consulting and engineering firm, which includes
the following procedures, among other things: month-end cumulative inventory
variance analysis; tank tightness tests; automatic tank gauging and leak
detection system operation and calibration tests; UST excavation zone
groundwater and/or soil vapor monitoring well analysis; piping system tightness
tests; piping excavation zone
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ground water and/or soil vapor monitoring well analysis; pipe leak detector
inspection and calibration tests; corrosion protection system tests; on-site
sanitary sewer treatment plant effluent analysis; and oil/water separator
inspections. The consulting and engineering firm hired by the General Partner to
conduct such audits also reviews on-site environmental correspondence; visually
inspects the UST system, tank and piping excavation zone monitoring wells, areas
adjacent to all petroleum above-ground tanks, the stonewater and wastewater
control systems, and the travel plaza facility; and discusses employee training
procedures, recent significant environmental events (if any), repair and
maintenance activities, and regulatory compliance with travel plaza personnel.
The Partnership believes that its lessees are in compliance with all
applicable regulatory requirements and that its lessees have all governmental
licenses and permits required for their business operations. Management knows of
no pending or threatened proceedings or investigations, under federal or state
environmental laws. Management cannot predict the impact on the Partnership's
lessees of new governmental regulations and requirements. Although the General
Partner has taken necessary steps to ensure lessee compliance with environmental
regulations, there can be no assurance that significant cleanup or compliance
costs may not be incurred which may affect the lessees' ability to make their
scheduled lease payments to the Partnership.
The Partnership has invested in real estate located in eleven states in
the western, central and southeastern portions of the United States, and no real
estate investments are located outside of the United States. A presentation of
revenues or assets by geographic region is not applicable and would not be
material to an understanding of the Partnership's business taken as a whole.
The Partnership does not believe that any aspect of its business is
significantly seasonal in nature.
No portion of the Partnership's business is subject to renegotiation of
profits or termination of contracts or subcontracts at the election of the
United States Government. The Partnership does not manufacture any products and
therefore does not require any raw materials in order to conduct its business.
The Partnership and FFCA Investor Services Corporation 88-C have no
employees.
Item 2. Properties.
As of December 31, 1996, the Partnership had acquired thirteen travel
plaza properties located in eleven states. The properties were acquired by the
Partnership during 1988, 1989, 1990 and 1991 with the net proceeds received by
the Partnership from the public offering of the Units.
The Partnership's travel plazas, divided into sections which serve both
the commercial
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and non-commercial traveler, generally offer a multi-use, full service operation
including fuel facilities for the storage and sale of automotive and diesel
fuels, a 24-hour restaurant, a convenience store, restroom facilities with
private showers, and other amenities designed to meet the needs of the trucking
industry and the traveling public in general. No one property is a principal
property of the Partnership because each property represents less than 10% of
the Partnership's total assets. The following is a description of each of the
properties acquired by the Partnership.
Pecos, Texas
The Pecos travel plaza was acquired as a new full-service travel plaza,
built on a parcel consisting of approximately 14.11 acres located at the
interchange of Interstate 20 and US 285.
Dillon, South Carolina
The Dillon travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 20.64 acres, located at the
interchange of Interstate 95 and State Route 38. Within an 85-mile radius of the
property are the markets of Columbia and Florence, South Carolina and Lumberton
and Fayetteville, North Carolina.
Graham, North Carolina
The Graham travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 20 acres, located at the
interchange of Interstate 40/85 and State Route 1928.
Knoxville, Tennessee
The Knoxville travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 14.05 acres, located
parallel to Interstate 40.
Kingman, Arizona
The Kingman travel plaza was built on the site of an existing Husky
truck stop which was razed and replaced with a new full-service travel plaza.
The site consists of approximately 7.45 acres located 1/8 of a mile north of the
Interstate 40/US 90 interchange.
Jackson, Georgia
The Jackson travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 42.2 acres of which 27
acres are developed, located at the interchange of Interstate 75 and Star Route
36.
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Texarkana, Arkansas
The Texarkana travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 28 acres, located at Exit 7
of Interstate 30. On March 7, 1993, the Texarkana travel plaza sustained
substantial damage due to a fire. The property was insured and the lessee of the
travel plaza used the insurance proceeds to rebuild the travel plaza. During
1994, the Partnership made an additional investment of $595,000 in the Texarkana
travel plaza to enlarge the property to conform to the new Flying J travel plaza
prototype. The lessee of the travel plaza continued to make monthly base rental
payments during the reconstruction of the travel plaza. The travel plaza
reopened in March 1994.
Resaca, Georgia
The Resaca travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 39.65 acres, situated at
the southeast corner of Resaca Road and Interstate 75.
Walton, Kentucky
The Walton travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 19.63 acres, situated at
the southwest corner of Stephenson Mill Road and Kentucky Highway 14 and 16 just
west of the Interstate 75 exit ramp with 1,200 feet of primary frontage.
San Antonio, Texas
The San Antonio travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 19.94 acres, located at the
northwest corner of Foster Road and Interstate 10.
Rock Springs, Wyoming
The Rock Springs travel plaza was acquired as a new full-service travel
plaza, built on a parcel consisting of approximately 9.57 acres, situated at the
northwest corner of Elk Street and Stagecoach Drive at the Elk Street exit off
Interstate 80.
Troutdale, Oregon
The Troutdale travel plaza was acquired as a new, full-service (with
limited restaurant facilities) travel plaza, built on a parcel consisting of
approximately 7.45 acres, located at the southwest corner of Northwest Frontage
Road at Interstate 84 and Graham Road.
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Winnemucca, Nevada
The Winnemucca travel plaza was acquired as a new, full-service (with
limited restaurant facilities) travel plaza, built on a parcel consisting of
approximately 8.29 acres, located on the northwest side of West Winnemucca
Boulevard at the interchange of Interstate 80 and West Winnemucca Boulevard.
Reference is made to the Annual Portfolio Valuation prepared by Cushman
& Wakefield which is filed with this Report as an exhibit for the properties
appraised value as of December 31, 1996.
Independent of the Partnership, FFCA Investor Services Corporation 88-C
has no interest in any real or personal property.
Item 3. Legal Proceedings.
Neither the Co-Registrants nor their properties are parties to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of the Holders through the
solicitation of proxies or otherwise during the fourth quarter of fiscal year
1996.
PART II
Item 5. Market for Registrant's Units and Related Security Holders Matters.
Market Information. During 1996, there was no established public
trading market for the Units, and it is not anticipated that an established
public trading market for the Units will develop.
Holders. As of March 14, 1997, there were 6,910 record holders of the
Units.
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Distributions. For the two most recent fiscal years, the Partnership
made the following cash distributions to the Holders:
1996
<TABLE>
<CAPTION>
Per Unit
Distribution Total
---------------------- ------------------------
Date of Number Cash from Cash from
Distribution of Units Operations Capital Operations Capital
------------ -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
March 31 82,834 $25.51 - $2,113,095 -
June 30 82,834 26.05 - 2,157,826 -
September 30 82,834 25.53 - 2,114,752 -
December 31 82,834 25.05 - 2,074,992 -
</TABLE>
1995
<TABLE>
<CAPTION>
Per Unit
Distribution Total
---------------------- ------------------------
Date of Number Cash from Cash from
Distribution of Units Operations Capital Operations Capital
------------ -------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
March 31 82,834 $25.36 - $2,100,670 -
June 30 82,834 26.03 - 2,156,169 -
September 30 82,834 26.31 - 2,179,363 -
December 31 82,834 25.36 - 2,100,670 -
</TABLE>
Cash from operations, defined as disbursable cash in the agreement of
limited partnership which governs the Partnership, is distributed to the
Holders. Any variations in the amount of distributions from quarter to quarter
are due to fluctuations in net cash provided by operating activities. Reference
is made to Item 7 below for a discussion and analysis of such fluctuations. Cash
proceeds from the sale of property are distributed to the Holders as a return of
capital. The Adjusted Capital Contribution of a Holder is generally the Holder's
initial capital contribution reduced by the cash distributions to the Holders of
proceeds from the sale of Partnership properties and reduced by any other cash
distributions other than from operations. The Adjusted Capital Contribution per
Unit of the Holders, as defined in the agreement of limited partnership which
governs the Partnership, was $1,000 as of December 31, 1996.
Any differences in the amounts of distributions set forth in the above
tables from the information contained in Item 6 below are due to rounding the
amount of distributions payable per Unit down to the nearest whole cent and
carrying any fractional cents forward from one period to the next. The
Partnership expects to continue making cash distributions to the Holders
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pursuant to the provisions of the agreement of limited partnership which governs
the Partnership. The General Partner knows of no material restrictions that
would limit the Partnership's ability to pay distributions to the Holders in the
future.
Item 6. Selected Financial Data.
The following selected financial data should be read in conjunction
with the Financial Statements and the related Notes attached as an exhibit to
this Report.
Year Ended December 31,
-----------------------
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues $ 9,857,290 $ 9,985,844 $ 9,895,376 $ 9,364,420 $ 9,214,523
Net Income 5,831,607 6,002,622 5,926,437 5,558,318 5,151,121
Net Income Per Unit 69.70 71.74 70.83 66.43 61.56
Total Assets 55,827,780 58,932,231 61,749,194 65,255,222 68,004,053
Distributions of Cash from
Operations to Holders 8,460,157 8,537,458 8,258,384 7,940,289 7,464,669
Distributions of Cash from
Operations Per Unit 102.14 103.07 99.70 95.86 90.12
Return of Capital to
Holders -- -- -- -- --
Return of Capital Per Unit -- -- -- -- --
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.
Liquidity and Capital Resources
The Partnership received $82,834,000 in gross proceeds from its public
offering of the Units. After deducting organizational and offering expenses,
including sales commissions, the Partnership invested the net offering proceeds
of $72,562,584 in thirteen travel plazas. The rental payments from lessees of
the properties are the Partnership's primary source of income.
As of December 31, 1996, the Partnership had cash and marketable
securities aggregating $3,790,885, of which $2,074,992 was paid out to the
Holders in January 1997 as their fourth quarter distribution for fiscal year
1996, and the remainder of which will be held by the Partnership for reserves.
The Partnership uses the rental revenues from its properties to meet its cash
needs, and it is anticipated that such rental payments will be sufficient to
meet all of the Partnership's expenses and provide cash for distributions to the
Limited Partners.
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As of December 31, 1996, the balance sheet of the Partnership reflected
as a liability $868,470 in deferred income. This amount represents cash received
by the Partnership as rent enhancement fees. Each year approximately 10% of the
original amount is recognized as income by the Partnership and the amount of
deferred income is decreased by a corresponding amount.
The General Partner knows of no trends, demands, commitments, events or
uncertainties that will result in or that are reasonably likely to result in the
Partnership's liquidity increasing or decreasing in any material way.
FFCA Investor Services Corporation 88-C has no capital resources and
conducted no operations in 1996.
Results of Operations
The Partnership purchased its properties beginning in 1988 until
becoming fully invested in June 1991. The Partnership received or accrued 100%
of the lease payments due it from its lessees in 1996, 1995 and 1994.
Fiscal Year Ended December 31, 1996 Compared to
Fiscal Year Ended December 31, 1995
The Partnership's total revenues for the fiscal year ended December 31,
1996 declined slightly to $9,857,290 from $9,985,844 for the fiscal year ended
December 31, 1995. Revenues decreased between years as a result of a decrease in
participating rentals amounting to $116,838, or 5%, which is attributable to
decreased overall travel plaza sales. In June 1996, a credit card issuer to
Flying J Travel Plaza customers terminated its relationship with the travel
plazas. As a result, volumes and margins at many Flying J Travel Plaza locations
decreased during the latter part of 1996. CFJ Properties expects the situation
to stabilize and volumes to be restored by early 1997. Base rental revenue for
1996 includes the recognition of approximately $274,000 of income previously
deferred.
Total Partnership expenses for fiscal year 1996 were $4,025,683,
representing a nominal increase from $3,983,222 in fiscal year 1995. The
increase was the result of an increase in depreciation expense from $2,895,293
in 1995 to $2,988,226 in 1996, partially offset by a decrease of $12,411 in
general partner and affiliate fees and a decrease of $38,061 in operating
expenses.
Net income for fiscal year 1996 amounted to $5,831,607 as compared to
$6,002,622 for fiscal year 1995.
13
<PAGE>
Fiscal Year Ended December 31, 1995 Compared to
Fiscal Year Ended December 31, 1994
The Partnership's total revenues for the fiscal year ended December 31,
1995 rose slightly to $9,985,844 from $9,895,376 for the fiscal year ended
December 31, 1994. Revenues increased between years as a result of an increase
in participating rentals amounting to $203,369, or 9%, which is attributable to
increased sales from the Texarkana travel plaza of approximately $64,000 and
overall travel plaza sales increases. As discussed above, the Texarkana travel
plaza operated for a full year in 1995 compared to approximately ten months
during 1994. This revenue increase was partially offset by a gain on insurance
settlement of approximately $164,000 in 1994 whereas there were no gains
reported in 1995. Base rental revenue for 1995 includes the recognition of
approximately $274,000 of income previously deferred.
Total Partnership expenses for fiscal year 1995 were $3,983,222,
representing a nominal increase from $3,968,939 in fiscal year 1994. The
increase was the result of an increase in depreciation expense from $2,853,374
in 1994 to $2,895,293 in 1995, related to the expansion of the Texarkana travel
plaza and an increase in general partner and affiliate fees of $28,187 over the
1994 amount. These increases were partially offset by a decrease in operating
expenses of $55,823 in 1995.
Net income for fiscal year 1995 rose slightly to $6,002,622 as compared
to $5,926,437 for fiscal year 1994.
Inflation
Inflation may cause an increase in each travel plaza's gross revenues
due to price increases. This may cause an increase in rental income because a
portion of the lessees' lease payments are computed as a percentage of the
lessees' gross revenues. Thus, as gross sales increase the lease payments will
also increase. Inflation may also tend to increase the rate of capital
appreciation of the Partnership's properties over a period of time as gross
rental income from the properties continues to increase. Inflation may, however,
have an adverse impact on the profitability of the lessees because of increases
in operating expenses. Inflation has no impact on FFCA Investor Services
Corporation 88-C's activities.
Item 8. Financial Statements and Supplementary Data.
The financial statements of the Co-Registrants required by Regulation
S-X are attached to this Report. Reference is made to Item 14 below for an index
to the financial statements and financial statement schedules.
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
None.
14
<PAGE>
PART III
Item 10. Directors and Executive Officers.
The Partnership has no directors or executive officers. Franchise
Finance Corporation of America II ("FFCA II"), as the Managing General Partner,
has responsibility for all of the Partnership's operations. FFCA II was
organized in Delaware in October of 1988 for the purpose of sponsoring limited
partnerships such as the Partnership. The directors and executive officers of
FFCA II and FFCA Investor Services Corporation 88-C, and the year they were
elected or appointed to their respective offices, are as follows:
FFCA II
Directors
Name Position Held Since
---- -------------------
Paul Bagley 1988
Morton H. Fleischer, Chairman 1988
John R. Barravecchia 1993
Christopher H. Volk 1993
Officers
<TABLE>
<CAPTION>
Associated
With
FFCA II
Name Positions Held Since
---- -------------- -----
<S> <C> <C>
Morton H. Fleischer Chairman of the Board, President and Chief 1988
Executive Officer
John R. Barravecchia Executive Vice President, Chief Financial 1989
Officer, Treasurer and Assistant Secretary
Christopher H. Volk Executive Vice President, Chief Operating 1989
Officer, Secretary and Assistant Treasurer
Dennis L. Ruben Executive Vice President, General Counsel and 1993
Assistant Secretary
Stephen G. Schmitz Executive Vice President, Chief Investment 1995
Officer and Assistant Secretary
Catherine F. Long Senior Vice President-Finance, Principal 1990
Accounting Officer, Assistant Secretary and
Assistant Treasurer
</TABLE>
15
<PAGE>
FFCA Investor Services Corporation 88-C
Director
Associated with the
Corporation
Name Since
---- -----------------
Morton H. Fleischer 1987
Officers
<TABLE>
<CAPTION>
Associated with the
Name Positions Held Corporation Since
---- -------------- -----------------
<S> <C> <C>
Morton H. Fleischer Chairman of the Board 1987
John R. Barravecchia President, Secretary and 1990
Treasurer
Christopher H. Volk Vice President, Assistant 1994
Secretary and Assistant
Treasurer
</TABLE>
All of the foregoing directors and officers have been elected to serve
a one year term and until their successors are elected and qualified. There are
no arrangements or understandings between or among any of the officers or
directors and any other person pursuant to which any officer or director was
selected as such. There are no family relationships among any directors and
officers.
Business Experience
The business experience during the past five years of each of the above
directors and executive officers is as follows:
Paul Bagley, age 54, has served as a director of FFCA II since 1988.
Mr. Bagley is a founding partner of Stone Pine Capital LLC (1994), and is
chairman of FCM Fiduciary Management Co. LLC (1989 to date), the advisor to a
mezzanine and private equity fund. For more than twenty years prior to 1988, Mr.
Bagley was engaged in investment banking activities with Shearson Lehman Hutton
Inc. and its predecessor, E.F. Hutton & Company Inc., where he was responsible
for the creation and management of over $5 billion of direct investment
activities. Mr. Bagley has served on the boards of a number of public and
private companies. Currently he is on the boards of America First Financial
Fund, Fiduciary Capital, EurekaBank, Hollis-Eden Pharmaceuticals, Lithium
Technology, Consolidated Capital, Logan Machinery Corp. and Pacific Consumer
Funding.
16
<PAGE>
Morton H. Fleischer, age 60, has served as the Chairman of the Board of
FFCA Investor Services Corporation 88-C since 1987 and has served as President,
Chief Executive Officer and a Director of FFCA II since its formation in 1988.
Mr. Fleischer was appointed Chairman of the Board of FFCA II in February of 1994
and currently serves as President, Chief Executive Officer and Chairman of the
Board of Franchise Finance Corporation of America, a Delaware corporation
("FFCA"). He served as President, Chief Executive Officer and a Director of
Franchise Finance Corporation of America I ("FFCA I"), a predecessor of FFCA,
from 1980 to 1994. Mr. Fleischer is also an individual general partner of the
Partnership and is a general partner (or general partner of a general partner)
of the following public limited partnerships: Participating Income Properties
1986, L.P.; Participating Income Properties III Limited Partnership; and
Scottsdale Land Trust Limited Partnership.
John R. Barravecchia, age 41, has served as President, Secretary and
Treasurer of FFCA Investor Services Corporation 88-C since 1990. He has served
as Senior Vice President and Chief Financial Officer of FFCA II since 1989, was
named Treasurer in December 1993 and was named Assistant Secretary in 1994. In
1995, Mr. Barravecchia was named Executive Vice President of FFCA II. Mr.
Barravecchia currently serves as Executive Vice President, Chief Financial
Officer, Treasurer and Assistant Secretary of FFCA and served in various
capacities for FFCA I from 1984 to 1994. He was appointed Vice President and
Chief Financial Officer of FFCA I in December 1986, and Senior Vice President in
October 1989. Mr. Barravecchia was elected as a Director of FFCA I in March 1993
and Treasurer in December 1993. Prior to joining FFCA I, Mr. Barravecchia was
associated with the international public accounting firm of Arthur Andersen LLP.
Christopher H. Volk, age 40, has served as Vice President, Assistant
Secretary and Assistant Treasurer of FFCA Investor Services Corporation 88-C
since 1994 and served as Vice President-Research of FFCA II from 1989 to 1993.
Mr. Volk was named Senior Vice President-Underwriting and Research and Secretary
of FFCA II in December 1993. In 1995, he was named Chief Operating Officer and
Executive Vice President of FFCA II. He currently serves as Executive Vice
President, Chief Operating Officer, Secretary and Assistant Treasurer of FFCA.
He joined FFCA I in 1986 and has served in various capacities in FFCA I's
capital preservation and underwriting areas prior to being named Vice
PresidentAResearch in October 1989. In December 1993, he was appointed Secretary
and Senior Vice President-Underwriting and Research of FFCA I, and he was
elected as a Director of FFCA I in March 1993. Prior to joining FFCA I, Mr. Volk
was employed for six years with the National Bank of Georgia, where his last
position was Assistant Vice President and Senior Correspondent Banking Credit
Officer. Mr. Volk is a member of the Association for Investment Management and
Research and the Phoenix Society of Financial Analysts.
Dennis L. Ruben, age 43, served as Senior Vice President and General
counsel of FFCA II from December 1994 and was named Executive Vice President,
General Counsel and Assistant Secretary of FFCA II in February 1997. He
currently serves in the same capacity for FFCA. In 1991, he joined FFCA I as
attorney and counsel. In December 1993, he was appointed Senior Vice President
and General Counsel of FFCA I. Prior to joining FFCA I, Mr. Ruben was
17
<PAGE>
associated with the law firm of Kutak Rock from 1980 until March 1991. Mr. Ruben
became a partner of Kutak Rock in 1984. Mr. Ruben has been admitted to the Iowa,
Nebraska and Colorado bars.
Stephen G. Schmitz, age 42, served as Senior Vice President - Corporate
Finance of FFCA II from January 1996 and was named Executive Vice President,
Chief Investment Officer and Assistant Secretary of FFCA II in February 1997. He
currently serves in the same capacity for FFCA. Mr. Schmitz served in various
positions as an officer of FFCA I from 1986 to June 1, 1994. Prior to joining
FFCA I, Mr. Schmitz was a commercial lender with Mellon Bank in Pittsburgh,
where his last position was Vice-President and Section Manager.
Catherine F. Long, age 40, was named Senior Vice President-Finance of
FFCA in February 1997, was named Principal Accounting Officer in December 1993
and was named Assistant Secretary and Assistant Treasurer in 1994. She currently
serves in the same capacities for FFCA. In June 1990, she joined FFCA I as Vice
President-Finance. In December 1993, she was appointed Principal Accounting
Officer of FFCA I. From December 1978 to May 1990, Ms. Long was associated with
the international public accounting firm of Arthur Andersen LLP, where her last
position was senior audit manager. Ms. Long is a certified public accountant and
is a member of the Arizona Society of Certified Public Accountants.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Co-Registrants during fiscal year 1996 and Forms 5 and
amendments thereto furnished to the Co-Registrants with respect to fiscal year
ended December 31, 1995 (the "Forms"), and any written representations by the
directors and executive officers of FFCA Investor Services Corporation 88-C and
the Managing General Partner, the Co-Registrants have not identified herein any
such person that failed to file on a timely basis the Forms required by Section
16(a) of the Securities Exchange Act of 1934 for fiscal year 1996.
Item 11. Executive Compensation.
The Partnership is required to pay an acquisition fee and a
subordinated real estate disposition fee to the Managing General Partner, and
the General Partners are entitled to receive a share of cash distributions, when
and as made to the Holders, a share of profits and losses and a subordinated
share of any sale proceeds. Reference is made to Note (1) and Note (5) of the
Notes to Financial Statements which are filed with this Report for a description
of the fees and distributions paid in 1996.
FFCA Investor Services Corporation 88-C serves as assignor and initial
limited partner without compensation from the Partnership. It is not entitled to
any share of the profits, losses or cash distributions of the Partnership. The
director and officers of FFCA Investor Services Corporation 88-C serve without
compensation from FFCA Investor Services Corporation 88-C or the Partnership.
18
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 14, 1997, no person or group was known by the Partnership
to own directly or beneficially more than 5% of the outstanding Units of the
Partnership.
None of the General Partners of the Partnership owned any Units as of
March 14, 1997. The directors and officers of the Managing General Partner,
individually and as a group, owned less than 1% of the Units as of March 14,
1997. The Managing General Partner is owned 51% by Morton H. Fleischer and 49%
by Paul Bagley.
FFCA Investor Services Corporation 88-C has an interest in the
Partnership as a limited partner and it serves as the owner of record of all of
the limited partnership interests assigned by it to the Holders. However, FFCA
Investor Services Corporation 88-C has no right to vote its interest on any
matter and it must vote the assigned interests as directed by the Holders. FFCA
Investor Services Corporation 88-C is a wholly-owned subsidiary of the Managing
General Partner.
Item 13. Certain Relationships and Related Transactions.
Since the beginning of the last fiscal year of both of the
Co-Registrants, there have been no significant transactions or business
relationships among the Co-Registrants, the General Partners or their affiliates
or their management, other than as described in Items 10 and 11 above.
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. The following financial statements are
filed as part of this Report:
The Partnership
Report of independent public accountants
Balance Sheets as of December 31, 1996 and 1995
Statements of Income for the years ended
December 31, 1996, 1995 and 1994
Statements of Changes In 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
19
<PAGE>
Notes to Financial Statements
FFCA Investor Services Corporation 88-C
Report of independent public accountants
Balance Sheet as of December 31, 1996
Notes to Balance Sheet
2. Financial Statement Schedules.
Schedule III-Schedule of Real Estate and Accumulated
Depreciation as of December 31, 1996
All other schedules are omitted since they are not
required, are inapplicable, or the required
information is included in the financial statements or notes
thereto.
3. Exhibits.
99. Annual Portfolio Valuation of Cushman & Wakefield as
of December 31, 1996
Pursuant to Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, the following document, filed with
the Securities and Exchange Commission as Exhibit 4 to the
Co-Registrants' Form 10-K for the fiscal year ended 1989,
Commssion File No. 0-18504, is incorporated herein by this
reference.
Fifth Amended and Restated Certificate and Agreement
of Limited Partnership which governs the Partnership,
as filed with the Secretary of State of Delaware on
December 11, 1989.
Pursuant to Rule 12b-32 under the Securities Exchange
Act of 1934, as amended, the following documents, filed with
the Securities and Exchange Commission as exhibits to the
Co-Registrants' Registration Statement on Form S-11,
Registration No. 33-16849, are incorporated herein by this
reference.
Form of Depository Agreement. 4(d)
The Certificate of Incorporation which 4(b)
governs FFCA Investor Services
Corporation 88-C, as filed with the
20
<PAGE>
Secretary of State of Delaware on
August 11, 1987.
Bylaws of FFCA Investor Services 4(c)
Corporation 88-C.
Operating Agreement, dated November 14, 10(c)
1988, by and among Participating Income
Properties II, L.P. Franchise Finance
Corporation of America II, Flying J Inc.
and Flying J Franchise Inc.
(b) Reports on Form 8-K.
The Co-Registrants did not file any reports on Form
8-K during the fourth quarter of fiscal year 1996.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Partnership has duly caused this Report to
be signed on its behalf by the undersigned, thereunto duly authorized.
PARTICIPATING INCOME PROPERTIES II, L.P.
By FRANCHISE FINANCE CORPORATION
OF AMERICA II, Managing
General Partner
Date: March 19, 1997 By /s/ Morton H. Fleischer
------------------------------
Morton H. Fleischer, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this Report has been signed below by the following persons on behalf of
the Partnership and in the capacities and on the dates indicated.
SIGNATURES OF REQUIRED OFFICERS AND DIRECTORS OF FRANCHISE FINANCE
CORPORATION OF AMERICA II, MANAGING GENERAL PARTNER OF PARTICIPATING
INCOME PROPERTIES II, L.P.
Date: March 10, 1997 By /s/ Paul Bagley
-------------------------------------
Paul Bagley, Director
Date: March 19, 1997 By /s/ Morton H. Fleischer
-------------------------------------
Morton H. Fleischer, President, Chief
Executive Officer and Director
Date: March 19, 1997 By /s/ John R. Barravecchia
-------------------------------------
John R. Barravecchia, Executive Vice
President, Chief Financial Officer,
Treasurer, Assistant Secretary and
Director
<PAGE>
Date: March 19, 1997 By /s/ Christopher H. Volk
-------------------------------------
Christopher H. Volk, Executive Vice
President, Chief Operating Officer,
Secretary, Assistant Treasurer and
Director
Date: March 19, 1997 By /s/ Catherine F. Long
-------------------------------------
Catherine F. Long, Senior Vice
President-Finance, Principal
Accounting Officer, Assistant
Secretary and Assistant Treasurer
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the Co-Registrant has duly caused this Report
to be signed on its behalf by the undersigned, thereunto duly authorized.
FFCA INVESTOR SERVICES CORPORATION 88-C
Date: March 19, 1997 By /s/ Morton H. Fleischer
-------------------------------------
Morton H. Fleischer, Sole Director
Date: March 19, 1997 By /s/ John R. Barravecchia
-------------------------------------
John R. Barravecchia, President,
Secretary, Treasurer, Principal
Financial Officer and Principal
Accounting Officer
<PAGE>
Report of Independent Public Accountants
To Participating Income Properties II, L.P.:
We have audited the accompanying balance sheets of PARTICIPATING INCOME
PROPERTIES II, L.P. (a Delaware limited partnership) as of December 31, 1996 and
1995, and the related statements of income, changes in partners' capital and
cash flows for each of the three years in the period ended December 31, 1996.
These financial statements and the schedule referred to below are the
responsibility of the partnership's managing general partner. Our responsibility
is to express an opinion on these financial statements and schedule 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 Participating Income
Properties II, L.P. 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.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule of Real Estate and
Accumulated Depreciation is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not a required part of the
basic financial statements. This schedule has been subjected to the auditing
procedures applied in our audits of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
January 3, 1997.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
BALANCE SHEETS - DECEMBER 31, 1996 AND 1995
-------------------------------------------
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
ASSETS
------
CASH AND CASH EQUIVALENTS $ 3,790,885 $ 3,818,927
RECEIVABLES FROM LESSEES 173,000 181,433
PROPERTY SUBJECT TO OPERATING LEASES (Note 3) 51,863,895 54,931,871
----------- -----------
Total assets $55,827,780 $58,932,231
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
DISTRIBUTION PAYABLE TO LIMITED PARTNERS $ 2,075,158 $ 2,101,344
PAYABLE TO GENERAL PARTNERS 18,239 -
ACCOUNTS PAYABLE AND ACCRUED LIABILITIES 72,787 62,696
DEFERRED INCOME (Note 2) 868,470 1,261,059
----------- -----------
Total liabilities 3,034,654 3,425,099
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General partners (190,647) (163,507)
Limited partners 52,983,773 55,670,639
----------- -----------
Total partners' capital 52,793,126 55,507,132
----------- -----------
Total liabilities and partners' capital $55,827,780 $58,932,231
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
STATEMENTS OF INCOME
--------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Rental $7,463,620 $7,463,620 $7,433,870
Participating rentals 2,237,456 2,354,294 2,150,925
Interest and other 156,214 167,930 146,792
Gain on insurance settlement - - 163,789
---------- ---------- ----------
9,857,290 9,985,844 9,895,376
---------- ---------- ----------
EXPENSES:
General partner and affiliate fees (Note 5) 849,864 862,275 834,088
Depreciation 2,988,226 2,895,293 2,853,374
Operating 187,593 225,654 281,477
---------- ---------- ----------
4,025,683 3,983,222 3,968,939
---------- ---------- ----------
NET INCOME $5,831,607 $6,002,622 $5,926,437
========== ========== ==========
NET INCOME ALLOCATED TO (Note 1):
General partners $ 58,316 $ 60,026 $ 59,264
Limited partners 5,773,291 5,942,596 5,867,173
---------- ---------- ----------
$5,831,607 $6,002,622 $5,926,437
========== ========== ==========
NET INCOME PER LIMITED PARTNERSHIP
UNIT (based on 82,834 units held by
limited partners) $69.70 $71.74 $70.83
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
------------------------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
--------- ----------- -----------
<S> <C> <C> <C>
BALANCE, December 31, 1993 $(113,142) $60,656,712 $60,543,570
Net income 59,264 5,867,173 5,926,437
Distributions to partners (83,418) (8,258,384) (8,341,802)
--------- ----------- -----------
BALANCE, December 31, 1994 (137,296) 58,265,501 58,128,205
Net income 60,026 5,942,596 6,002,622
Distributions to partners (86,237) (8,537,458) (8,623,695)
--------- ----------- -----------
BALANCE, December 31, 1995 (163,507) 55,670,639 55,507,132
Net income 58,316 5,773,291 5,831,607
Distributions to partners (85,456) (8,460,157) (8,545,613)
--------- ----------- -----------
BALANCE, December 31, 1996 $(190,647) $52,983,773 $52,793,126
========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
STATEMENTS OF CASH FLOWS
------------------------
FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
----------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,831,607 $ 6,002,622 $ 5,926,437
Adjustments to net income:
Depreciation 2,988,226 2,895,293 2,853,374
Gain on insurance settlement - - (163,789)
Change in assets and liabilities:
Decrease (increase) in receivables from lessees 8,433 (1,433) (30,000)
Increase in payable to general partners 18,239 - -
Increase (decrease) in accounts payable
and accrued liabilities 10,091 (70,444) 45,917
Decrease in deferred income (392,589) (155,852) (274,220)
Decrease in rental deposits - - (952,483)
----------- ----------- -----------
Net cash provided by operating activities 8,464,007 8,670,186 7,405,236
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 79,750 - -
Additions to property - - (595,000)
----------- ----------- -----------
Net cash provided by (used in) investing activities 79,750 - (595,000)
----------- ----------- -----------
CASH FLOWS FOR FINANCING ACTIVITIES:
Partner distributions declared (Note 1) (8,545,613) (8,623,695) (8,341,802)
Increase (decrease) in distribution payable
to limited partners (26,186) 30,406 90,123
----------- ----------- -----------
Net cash used in financing activities (8,571,799) (8,593,289) (8,251,679)
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (28,042) 76,897 (1,441,443)
CASH AND CASH EQUIVALENTS, beginning of year 3,818,927 3,742,030 5,183,473
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 3,790,885 $ 3,818,927 $ 3,742,030
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
Notes to Financial Statements
-----------------------------
December 31, 1996 and 1995
--------------------------
1) ORGANIZATION:
-------------
Participating Income Properties II, L.P. (the Partnership) was formed
on August 12, 1987 under the Delaware Revised Uniform Limited Partnership Act to
purchase new and existing "Flying J Travel Plaza" facilities, including land,
buildings and equipment to be leased on a net basis to certain franchisees of
Flying J Franchise Inc. and to Flying J Inc. As of December 31, 1996, all
thirteen travel plazas owned by the Partnership were leased to CFJ Properties
(CFJ), an affiliate of Flying J Inc. "Flying J Travel Plaza" facilities offer a
full-service operation, generally including fuel facilities, a restaurant,
convenience store and other amenities for use by the trucking industry and
traveling public in general. Franchise Finance Corporation of America II (FFCA
II), a Delaware corporation, is the managing general partner of the Partnership.
The Partnership will expire December 31, 2047, or sooner, in accordance with the
terms of the Partnership agreement.
Investors acquired units of assigned limited partnership interest (the
limited partnership units) in the Partnership from FFCA Investor Services
Corporation 88-C (the Initial Limited Partner), a Delaware corporation
wholly-owned by an affiliate of FFCA II. Holders of the units have all of the
economic benefits and substantially the same rights and powers of limited
partners; therefore, they are referred to herein as "limited partners."
The Partnership agreement provides for allocation of profits and losses
and cash distributions among its partners as follows:
Profits and Losses: Allocated 99% to the limited partners and 1% to the
general partners.
Cash Distributions: All cash from operations, as defined, after payment
of fees to the managing general partner is allocated 99% to the limited
partners and 1% to the general partners. Cash proceeds from the sale of
property are not considered cash from operations but, when distributed,
represent a partial return of the limited partners' initial $1,000 per
unit capital contribution. There have been no such distributions,
therefore, the limited partner Adjusted Capital Contribution, as
defined in the Partnership agreement, at December 31, 1996 is $1,000
per unit.
The following is a reconciliation of net income to cash distributions
from operations as defined in the Partnership agreement:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income $5,831,607 $6,002,622 $5,926,437
Adjustments to reconcile net income to
cash distributions declared:
Depreciation 2,988,226 2,895,293 2,853,374
Gain on insurance settlement - - (163,789)
Rental enhancement accretion (274,220) (274,220) (274,220)
---------- ---------- ----------
Cash distributions declared from operations $8,545,613 $8,623,695 $8,341,802
========== ========== ==========
</TABLE>
2) SIGNIFICANT ACCOUNTING POLICIES:
--------------------------------
Financial Statements - The financial statements of the Partnership are
prepared on the accrual basis of accounting. The preparation of the financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the
<PAGE>
reporting period. Although management believes its estimates are reasonable,
actual results could differ from those estimates.
Cash and Cash Equivalents - Investment securities that are highly
liquid and have maturities of three months or less at the date of purchase are
classified as cash equivalents. Cash equivalents include United States Treasury
securities of $3,496,028 and $3,427,905 at December 31, 1996 and 1995,
respectively, and bank repurchase agreements (which are collateralized by United
States Treasury and Government obligations) of $175,139 and $175,103 at December
31, 1996 and 1995, respectively. Short-term investments are recorded at cost
plus accrued interest, which approximates market value.
Leases - The Partnership leases its property under long-term net leases
which are classified as operating leases. Rental revenue from operating leases
is recognized as it is earned.
Deferred Income - The Partnership required certain lessees to pay to
the Partnership, at the inception of the lease, an amount equal to 4% of the
property's cost (rental enhancements). This amount is deferred and accreted to
revenue on a straight-line basis over ten years. The cash from rental
enhancements and interest accrued thereon was used to supplement limited
partners' cash distributions during 1992 and prior years.
Depreciation - Depreciation on buildings is provided using the
straight-line method based upon an estimated useful life of 24 years. Equipment
is depreciated over an estimated useful life of eight years, assuming a 10%
salvage value at the end of its useful life. The cost of properties includes
miscellaneous acquisition and closing costs.
3) PROPERTY SUBJECT TO OPERATING LEASES:
-------------------------------------
The following is an analysis of the Partnership's investment, at cost,
in property subject to operating leases by major class at December 31, 1996 and
1995:
1996 1995
----------- -----------
Land $11,709,570 $11,709,570
Buildings 54,004,577 54,004,577
Equipment 5,268,921 5,906,921
----------- -----------
70,983,068 71,621,068
Less - Accumulated depreciation 19,119,173 16,689,197
----------- -----------
$51,863,895 $54,931,871
=========== ===========
Lease agreements provide for monthly base rentals equal to a percentage
of the property's cost. As additional rent, the Partnership receives a portion
of the operating revenues of the lessee equal to a percentage of gross receipts
(participating rentals) from travel plaza facilities and fuel sales. The term of
the leases is eight years for equipment and 20 years for land and buildings.
Generally, the lessee has the option to purchase equipment (at fair market
value) at the end of the lease term and land and buildings (at the greater of
fair market value or cost) at any time after the first ten years of the lease.
The equipment leases are scheduled to expire in 1997, 1998 and 1999. During the
year ended December 31, 1996, all thirteen travel plazas owned by the
Partnership were leased to CFJ. The Partnership is the beneficiary of a letter
of credit from CFJ in the amount of $952,483 to be used as security for CFJ's
lease payments.
<PAGE>
Minimum future rentals (excluding participating rentals) under
noncancellable operating leases as of December 31, 1996, are as follows:
Year Ending December 31,
------------------------
1997 $ 7,189,000
1998 7,189,000
1999 7,189,000
2000 7,189,000
2001 7,189,000
Thereafter 58,068,000
-----------
Total minimum future rentals $94,013,000
===========
4) INCOME TAXES:
-------------
The Partnership is not directly subject to income taxes; rather, each
partner is subject to income taxes on his distributable share of taxable income.
The Partnership tax returns and the amount of distributable partnership profits
or losses are subject to examination by Federal and state taxing authorities. If
examinations by taxing authorities result in changes to distributable
partnership profits or losses, the tax liabilities of the partners could be
changed accordingly.
The following is a reconciliation of net income for financial reporting
purposes to income reported for Federal income tax purposes for the years ended
December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Net income for financial reporting purposes $5,831,607 $6,002,622 $5,926,437
Differences for tax purposes in:
Depreciation 1,382,631 1,092,026 983,539
Adjustment to deferred rental revenue (274,220) (274,220) (274,220)
Organization cost amortization - - (40,210)
Deferred income (118,368) 118,368 -
Gain on sale (35,758) - -
Gain on insurance settlement - - (163,789)
---------- ---------- ----------
Taxable income to partners $6,785,892 $6,938,796 $6,431,757
========== ========== ==========
</TABLE>
For Federal income tax reporting purposes, taxable income to partners is
reported on the accrual basis of accounting and is classified as ordinary
income.
At December 31, 1996, the tax bases of the Partnership's assets and
liabilities exceed the amounts recorded for financial reporting purposes by
$6,773,322. This difference results primarily from differences in depreciation
methods and the treatment of deferred rental revenue for tax reporting and
financial reporting purposes.
<PAGE>
5) TRANSACTIONS WITH RELATED PARTIES:
----------------------------------
Under the terms of the Partnership agreement, FFCA II is entitled to
compensation for certain services performed in connection with managing the
affairs of the Partnership. Additionally, an affiliate of FFCA II is entitled to
a fee for investment banking and asset management services (investment banking
fee). During 1996, 1995 and 1994, fees paid to FFCA II and the affiliate were as
follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
FFCA II - disbursable cash fee $845,593 $853,738 $825,830
Affiliate - investment banking fee 4,271 8,537 8,258
-------- -------- --------
$849,864 $862,275 $834,088
======== ======== ========
</TABLE>
FFCA II is entitled to a disbursable cash fee equal to 9% of all cash
received by the Partnership less Partnership operating expenses, only to the
extent the limited partners have received an annual return of 9% (calculated
quarterly) on their Adjusted Capital Contribution, as defined. The investment
banking fee payable to the affiliate is equal to .09% of disbursable cash as
described in the Partnership agreement and is limited in total by the
Partnership agreement. This limit was reached during 1996. FFCA II will also be
entitled to a subordinated real estate disposition fee and an incentive share of
sale proceeds, as defined in the Partnership agreement.
An affiliate of FFCA II incurs expenses on behalf of the Partnership
for maintenance of the books and records and for computer, investor and legal
services performed for the Partnership. These expenses are reimbursable in
accordance with the Partnership agreement and are less than the amount which the
Partnership would have paid to independent parties for comparable services. The
Partnership reimbursed the affiliate $28,364 in 1996, $27,414 in 1995 and
$40,590 in 1994 for such expenses.
<PAGE>
SCHEDULE III
Page 1 of 2
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------
AS OF DECEMBER 31, 1996
-----------------------
<TABLE>
<CAPTION>
Initial Cost to Partnership and
Gross Amount at December 13, 1996 Accumulated Depreciation
--------------------------------------------------- --------------------------------------
Date
Restaurant Location Land Buildings Equipment Total Buildings Equipment Total Acquired
- ------------------- ------------ ------------ ---------- ----------- ------------ ---------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
KINGMAN, ARIZONA $ 843,681 $ 3,731,319 $ 384,000 $ 4,959,000 $ 1,140,125 $ 316,800 $ 1,456,925 Sept. 1989
TEXARKANA, ARKANSAS 63,243 4,866,904 765,921 5,696,068 986,089 329,107 1,315,196 Jan. 1990
RESACA, GEORGIA 1,145,422 4,555,578 600,000 6,301,000 1,328,710 472,535 1,801,245 Jan. 1990
JACKSON, GEORGIA 284,661 5,523,339 492,000 6,300,000 1,649,331 396,675 2,046,006 Nov. 1989
WALTON, KENTUCKY 1,216,623 4,529,377 454,000 6,200,000 1,273,887 344,756 1,618,643 April 1990
WINNEMUCCA, NEVADA 1,489,004 3,098,996 287,000 4,875,000 720,947 180,272 901,219 June 1991
GRAHAM, NORTH CAROLINA 1,153,847 5,566,153 410,000 7,130,000 1,758,750 349,781 2,108,531 June 1989
TROUTDALE, OREGON 738,474 3,647,526 267,000 4,653,000 886,552 175,219 1,061,771 Mar. 1991
DILLON, SOUTH CAROLINA 1,052,840 5,625,160 342,000 7,020,000 1,796,926 294,975 2,091,901 Feb. 1989
KNOXVILLE, TENNESSEE 1,058,958 4,241,042 300,000 5,600,000 1,310,600 250,313 1,560,913 Aug. 1989
PECOS, TEXAS 170,990 1,999,010 - 2,170,000 638,573 - 638,573 Nov. 1988
SAN ANTONIO, TEXAS 1,566,238 3,612,762 600,000 5,779,000 991,001 444,375 1,435,376 June 1990
ROCK SPRINGS, WYOMING 925,589 3,007,411 367,000 4,300,000 814,505 268,369 1,082,874 July 1990
------------ ------------ ---------- ------------ ------------ ---------- ------------
Total $ 11,709,570 $ 54,004,577 $5,268,921 $ 70,983,068 $ 15,295,996 $3,823,177 $ 19,119,173
============ ============ ========== ============ ============ ========== ============
</TABLE>
<PAGE>
SCHEDULE III
Page 2 of 2
PARTICIPATING INCOME PROPERTIES II, L.P.
----------------------------------------
SCHEDULE OF REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------
AS OF DECEMBER 31, 1996
-----------------------
NOTES:
(1) There are no encumbrances on properties.
(2) Cost for Federal income tax purposes is the same as cost for financial
reporting purposes.
(3) All buildings and equipment are depreciated over estimated useful lives
of 24 and eight years, respectively. Substantially all of the buildings
and equipment were purchased as new properties.
(4) Transactions in real estate, equipment and accumulated depreciation
during 1996, 1995 and 1994 are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------- ------------
<S> <C> <C>
Balance, December 31, 1993 $70,921,766 $11,000,017
Building damaged in fire (661,619) (59,487)
Building improvements due to
reconstruction 595,000 -
Purchase of equipment 765,921 -
Depreciation expense - 2,853,374
----------- -----------
Balance, December 31, 1994 71,621,068 13,793,904
Depreciation expense - 2,895,293
----------- -----------
Balance, December 31, 1995 71,621,068 16,689,197
Cost of equipment sold (638,000) (558,250)
Depreciation expense - 2,988,226
----------- -----------
Balance, December 31, 1996 $70,983,068 $19,119,173
=========== ===========
</TABLE>
<PAGE>
Report of Independent Public Accountants
To FFCA Investor Services Corporation 88-C:
We have audited the accompanying balance sheet of FFCA INVESTOR
SERVICES CORPORATION 88-C (a Delaware corporation) as of December 31, 1996. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. 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 audit provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents
fairly, in all material respects, the financial position of FFCA Investor
Services Corporation 88-C as of December 31, 1996, in conformity with generally
accepted accounting principles.
/s/ Arthur Andersen LLP
Phoenix, Arizona,
January 3, 1997.
<PAGE>
FFCA INVESTOR SERVICES CORPORATION 88-C
---------------------------------------
BALANCE SHEET - DECEMBER 31, 1996
---------------------------------
ASSETS
Cash $100
Investment in Participating Income Properties II, L.P.,
at cost 100
---
Total Assets $200
====
LIABILITY
Payable to Parent (Note 2) $100
----
STOCKHOLDER'S EQUITY
Common Stock; $l par value; 100 shares authorized,
issued and outstanding 100
---
Liability and Stockholder's Equity $200
====
The accompanying notes are an integral part of this balance sheet.
<PAGE>
FFCA INVESTOR SERVICES CORPORATION 88-C
---------------------------------------
NOTES TO BALANCE SHEET
----------------------
DECEMBER 3l, l996
-----------------
(l) Operations:
FFCA Investor Services Corporation 88-C (a Delaware corporation)
(88-C) was organized on August 11, l987 to act as the assignor limited partner
in Participating Income Properties II, L.P. (PIP-II).
The assignor limited partner is the owner of record of the limited
partnership units of PIP-II. All rights and powers of 88-C have been assigned to
the holders, who are the registered and beneficial owners of the units. Other
than to serve as assignor limited partner, 88-C has no other business purpose
and will not engage in any other activity or incur any debt.
(2) Related Parties:
Morton H. Fleischer is the sole stockholder of 88-C. Mr. Fleischer is
also a general partner of PIP-II.
<PAGE>
PARTICIPATING INCOME PROPERTIES II, L.P.
and
FFCA INVESTOR SERVICES CORPORATION 88-C
Exhibit Index
<TABLE>
<S> <C>
Sequentially
Exhibit Numbered Page
------- -------------
</TABLE>
99. Annual Portfolio Valuation of Cushman & Wakefield as
of December 31, 1996.
Pursuant to Rule 12b-32 under the Securities Exchange Act of
1934, as amended, the following document, filed with the Securities and
Exchange Commission as Exhibit 4 to the Co-Registrants' Form 10-K for
the fiscal year ended 1989, Commission File No. 0-18504, is
incorporated herein by this reference.
Fifth Amended and Restated Certificate of Limited
Partnership which governs the Partnership, as filed
with the Secretary of State of Delaware on December
11, 1989.
Pursuant to Rule 12b-32 under the Securities Exchange Act of
1934, as amended, the following documents, filed with the Securities
and Exchange Commission as exhibits to the Co-Registrants' Registration
Statement on Form S-11, Registration No. 33-16849, are incorporated
herein by this reference.
<TABLE>
<CAPTION>
Pre-Effective Amendment
No. 3 Exhibit No.
------------------------
<S> <C>
Form of Depository Agreement. 4(d)
The Certificate of Incorporation which 4(b)
governs FFCA Investor Services
Corporation 88-C, as filed with the
Secretary of State of Delaware on August
11, 1987.
Bylaws of FFCA Investor Services
Corporation 88-C. 4(c)
Operating Agreement, dated as of 10(c)
November 14, 1988, by and among 10(c)
Participating Income Properties II, L.P.,
Franchise Finance Corporation of America
II, Flying J Inc. and Flying J Franchise
Inc.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31, 1996 AND
THE STATEMENT OF INCOME FOR THE YEAR ENDED
DECEMBER 31, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000820806
<NAME> PARTICIPATING INCOME PROPERTIES II, L.P.
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,790,885
<SECURITIES> 0
<RECEIVABLES> 173,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 70,983,068
<DEPRECIATION> 19,119,173
<TOTAL-ASSETS> 55,827,780
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 52,793,126
<TOTAL-LIABILITY-AND-EQUITY> 55,827,780
<SALES> 0
<TOTAL-REVENUES> 9,857,290
<CGS> 0
<TOTAL-COSTS> 4,025,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,831,607
<INCOME-TAX> 0
<INCOME-CONTINUING> 5,831,607
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,831,607
<EPS-PRIMARY> 69.70
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION
EXTRACTED FROM THE BALANCE SHEET AS OF DECEMBER 31, 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
BALANCE SHEET.
</LEGEND>
<CIK> 0000820807
<NAME> FFCA INVESTOR SERVICES CORPORATION 88-C
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 100
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 200
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 100
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 200
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
Cushman & Wakefield, Inc. CUSHMAN &
51 West 52nd Street WAKEFIELD(R).
New York, NY 10019-6178 Improving your place
(212) 841-7500 In the world.
February 6, 1997
Participating Income Properties II, L.P.
Franchise Finance Corporation of America II
Scottsdale Perimeter Center
17207 North Perimeter Drive
Scottsdale, Arizona 85255
Attn: Morton H. Fleischer
General Partner
Re: Annual Portfolio Valuation
Participating Income Properties II, L.P.
Gentleman:
Pursuant to your request, we have completed our analysis of properties
contained in Participating Income Properties II, L.P. The purpose of our
analysis is twofold: to report on the physical condition of the premises and
determine the lessee's compliance with the terms of the net lease agreement; and
to estimate the market value of the various properties on a going concern basis
subject to existing lease encumbrances for the purpose of determining the value
of the leased fee interest. The valuation includes equipment lease income for
most of the properties. Our opinion of value for the real properties will then
be adjusted for cash on hand, net receivables, distributions payable and other
liabilities, which information is provided by the General Partner. It should be
noted that Cushman & Wakefield's opinion is restricted to the market value of
the Partnership's interest in the real properties; we are not opining as to the
value of the other assets or liabilities of the Partnership. Furthermore, our
opinion is subject to the attached Certification and Assumptions and Limiting
Conditions which have been retained in our files. The date of value was December
31, 1996.
According to the Dictionary of Real Estate Appraisal, Third Edition,
published by the Appraisal Institute, market value may be defined as:
"The most probable price, as of a specified date, in cash, or in terms
equivalent to cash, or in other precisely revealed terms for which the specified
property rights should sell after reasonable exposure in a competitive market
under all conditions requisite to a fair sale, with the buyer and seller each
acting prudently, knowledgeably, and for self-interest, and assuming that
neither is under undue duress."
The real properties that are the subject of this valuation have been
inspected by members of Cushman & Wakefield's Valuation Advisory Services Group
operating under the supervision of the undersigned. Overall, the properties were
viewed to be in good physical condition and generally in compliance with the net
lease requirements. Individual property data relating to our reinspections will
be delivered to you under separate cover and is part of our valuation.
Our valuation addresses the market value of the leased fee interest in
these properties as a going concern and considers the various net leases in
effect. The vast majority of the data used for this analysis has been supplied
to us by Franchise Finance Corporation of America II, and we have relied upon
their database input , various reports and financial statements. We have visited
their offices in Scottsdale, Arizona and have had complete and unrestricted
access to all pertinent information, and have assumed all such information to be
accurate and complete. We have verified certain data and resolved any
discrepancies by reconciling to Cushman & Wakefield's database. The individual
property-by-property database and cash flow projections have been delivered
under separate cover and are a part of our valuation.
For the purposes of our valuation, we have determined that the highest
and best use of the real properties is their continued use as travel plazas. The
Income Approach to the value is relied upon as the primary appraisal technique
based upon the properties' capabilities to generate net income and to be bought
and sold in the investment marketplace. Neither the Cost Approach nor the Sales
Comparison Approach were considered directly
<PAGE>
Cushman & Wakefield, Inc.
Mr. Morton H. Fleischer
General Partner -2- February 6, 1997
relevant in the analysis of a travel plaza under long term lease. Within the
Income Approach, the discounted cash flow method was employed, whereby
anticipated future income streams over a 10 year holding period and a
reversionary value (sale at the end of the tenth year) are discounted via a
market derived rate to a net present value estimate utilizing a proprietary cash
flow model. Anticipated rental income as well as deductions for management fees
and administrative expenses are analyzed over the holding period. Consideration
has also been given to direct capitalization of estimated 1997 net income.
Participating Income Properties II, L.P. contains 13 travel plaza
properties that are net leased to CFJ Properties that operate Flying J Travel
Plazas. Gross proceeds originally raised by this Partnership amounted to
$82,834,000 (82,834 units @ $1,000 per unit). As of December 31, 1996, no
capital was returned to the partners, maintaining the adjusted gross proceeds
raised $82,834,000 or $1,000 per unit. Of this amount, adjusted net proceeds
invested in the properties contained in this Partnership amounted to $70,983,068
after adjusting for organization costs and sales commissions. The Partnership
was fully invested as of June 1991.
Considering all of the above factors, it is our opinion that the market
value of the leased fee interest in the 13 properties an a going concern basis
subject to existing lease encumbrances, as of December 31, 1996 was:
EIGHTY MILLION FOUR HUNDRED SIXTY THOUSAND DOLLARS
$80,460,000
The aggregate market value of the leased fee interest in the 13
properties is $80,460,000 as adjusted by cash on hand and net receivables of
$3,963,885, less distributions payable and other liabilities of $3,034,654 as
provided by the General Partner resulting in a total of $81,389,231. This total
as of December 31, 1996 represents an 14.66 percent increase above the adjusted
net proceeds. Dividing the total value by the 82,834 outstanding units results
in an indicated value per unit investment of $982.56 which represents a decrease
of 1.74 percent from the adjusted unit investment of $1,000.
The continued favorable performance of the Partnership, in our opinion,
is directly attributable to the quality of management and the numerous
safeguards built into the acquisition and management program. Our due diligence
has revealed that when problems arise, management has acted prudently in
avoiding defaults and delinquent rent payments, working effectively with
franchisees and franchisors. Our investigation reveals that in cases of default
the management has acted judiciously to correct the problem.
We certify that neither Cushman & Wakefield, Inc. nor the undersigned
have any present or prospective interest in the Partnership's properties, and we
have no personal interest or bias with respect to the parties involved. To the
best of our knowledge and belief, the facts upon which the analysis and
conclusions were based are materially true and correct. No one other than the
undersigned assisted by members of our staff who performed inspections of the
properties, performed the analyses and reached the conclusions resulting in the
opinion expressed in this letter. Our fee for this assignment was not contingent
on any action or event resulting from the analysis, opinions or conclusions in,
or the use of, this analysis. Our analysis has been prepared subject to the
Departure Provision of the Uniform Standards of Professional Practice of the
Appraisal Foundation and the Code of Professional Ethics and the Standards of
Professional Appraisal Practice of the Appraisal Institute. The use of this
report is subject to the requirements of the Appraisal Institute relating to
review by its duly authorized representatives. As of the date of this report,
the undersigned have completed the requirements of the continuing education
program of the Appraisal Institute.
Respectfully submitted;
CUSHMAN & WAKEFIELD, INC.
<TABLE>
<S> <C> <C>
/s/ Matthew C. Mondanile /s/ Brian R. Corcoran /s/ Frank P. Liantonio
Matthew C. Mondanile, MAI Brian R. Corcoran, MAI, CRE Frank P. Liantonio, MAI, CRE
Senior Director Executive Managing Director Executive Managing Director
Valuation Advisory Services Valuation Advisory Services Valuation Advisory Services
</TABLE>
