UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 0-16824
CNL INCOME FUND II, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2733859
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. No [ X ]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 50,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund II, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on November 13, 1986. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on January 2, 1987, the
Partnership offered for sale up to $25,000,000 in limited partnership interests
(the "Units") (50,000 Units at $500 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended. The
offering terminated on August 21, 1987, as of which date the maximum offering
proceeds of $25,000,000 had been received from investors who were admitted to
the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of selected national and regional fast-food restaurant chains (the
"Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totaled
$22,300,178, and were used to acquire, either directly or indirectly through
joint venture arrangements, 39 Properties. During the year ended December 31,
1993, the Partnership sold its Property in Salisbury, North Carolina, and
reinvested the majority of the net sales proceeds in a Jack in the Box Property
in Lubbock, Texas. During the year ended December 31, 1994, the Partnership sold
two of its Properties in Graham, Texas, and Medina, Ohio, and reinvested the net
sales proceeds in two Checkers Properties, consisting of only land, located in
Fayetteville and Atlanta, Georgia, and a Kenny Rogers Roasters Property in
Arvada, Colorado, which is owned as tenants-in-common with an affiliate of the
General Partners. During the year ended December 31, 1997, the Partnership sold
its Properties in Eagan, Minnesota; Jacksonville, Florida; Farmington Hills
(10-mile Road), Michigan; Farmington Hills (12-mile Road), Michigan; Plant City,
Florida; Mathis, Texas and Avon Park, Florida and reinvested a portion of these
net sales proceeds in a Property in Mesa, Arizona, a Property in Smithfield,
North Carolina and a Property in Vancouver, Washington, all of which are owned
as tenants-in-common with affiliates of the General Partners. In addition,
during 1997, Show Low Joint Venture, in which the Partnership owns a 64 percent
interest, sold its Property in Show Low, Arizona to the tenant and reinvested
the net sales proceeds in a Property in Greensboro, North Carolina. During 1998,
the Partnership reinvested the net sales proceeds from the 1997 sales of the
Properties in Jacksonville, Florida and Mathis, Texas in a Property in Overland
Park, Kansas, and a Property in Memphis, Tennessee, as tenants-in-common with
affiliates of the General Partners. During 1999, the Partnership sold its
Properties in Columbia, Missouri and Littleton, Colorado and reinvested the
majority of the net sales proceeds in a joint venture arrangement, Peoria Joint
Venture, with CNL Income Fund X, Ltd., a Florida Limited Partnership and
affiliate of the General Partners. During 2000, the Partnership sold its
Properties in Altamonte Springs, Apopka, Jacksonville and Sanford, Florida. The
proceeds from the sales were distributed to the Limited partners as a special
distribution. During the year ended December 31, 2001, the Partnership sold its
Property in Bay City, Texas and Peoria Joint Venture, in which the Partnership
owns a 48% interest, sold its Property to an unrelated third party and the
Partnership received a liquidating distribution from the net sales proceeds. The
Partnership distributed the majority of the net sales proceeds to the limited
partners as a special distribution. As a result of the above transactions, as of
December 31, 2001, the Partnership owned 31 Properties. The 31 Properties
include interests in three Properties owned by joint ventures in which the
Partnership is a co-venturer and six Properties owned with affiliates as
tenants-in-common. The lessee of the Properties consisting of only land owns the
buildings currently on the land, and the lessee has the right, if not in default
under the lease, to remove the buildings from the land at the end of the lease
terms. The Properties are generally leased on a triple-net basis with the
lessees responsible for all repairs and maintenance, property taxes, insurance
and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. The Partnership has no obligation to sell all or any portion of a
Property at any particular time, except as may be required under property
purchase options granted to certain lessees.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had mutually
agreed to terminate the Agreement and Plan of Merger. The agreement to terminate
the Agreement and Plan of Merger was based, in large part, on the General
Partners' concern that, in light of market conditions relating to publicly
traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General Partners' ability to
unequivocally recommend voting for the transaction, in the exercise of their
fiduciary duties, had become questionable.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
joint ventures in which the Partnership is a co-venturer provide for initial
lease terms, ranging from five to 20 years (the average being 16 years), and
expire between 2002 and 2021. The leases are, in general, on a triple-net basis,
with the lessee responsible for all repairs and maintenance, property taxes,
insurance and utilities. The leases of the Properties provide for minimum base
annual rental payments (payable in monthly installments) ranging from
approximately $18,700 to $222,800. Generally, the leases provide for percentage
rent, based on sales in excess of a specified amount, to be paid annually. In
addition, certain leases provide for increases in the annual base rent during
the lease term.
Generally, the leases of the Properties provide for two to four
five-year renewal options subject to the same terms and conditions as the
initial lease. Lessees of 20 of the Partnership's 31 Properties also have been
granted options to purchase Properties at the Property's then fair market value
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a specified percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised. A limited number of
leases provide for a purchase option price which is computed pursuant to a
formula based on various measures of value contained in an independent appraisal
of the Property.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to a particular lease, the Partnership must
first offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
In 1998, the tenant of the Property in Mesa, Arizona in which the
Partnership owns an approximate 58 percent interest, filed for bankruptcy and,
during 2000, rejected its lease relating to this Property. During 2001, the
Partnership entered into a new lease for this Property with a new tenant. The
lease terms for this Property are substantially the same as the Partnership's
other leases, as described above.
In addition, in 2001, the former lease for the Property in Hueytown,
Alabama, which was scheduled to expire in June 2002, was terminated by the
Partnership and the tenant. In connection therewith, the Partnership received
lease termination income in consideration for the Partnership releasing the
tenant from its obligations under the lease. The Partnership re-leased this
Property to a new tenant with terms substantially the same as the Partnership's
other leases. Rents due under the new lease are lower than rents due under the
previous lease; therefore, the Partnership expects that rental income in future
periods will remain at reduced amounts. However, the General Partners do not
anticipate that the decrease in rental income relating to the new lease will
have a material adverse affect on the Partnership's financial position or
results of operations.
On October 31, 2001, Phoenix Restaurant Group, Inc. and its
Subsidiaries (collectively referred to as "PRG"), a tenant of the Partnership,
filed for Chapter 11 bankruptcy protection. As a result, PRG rejected the leases
related to Casper and Rock Springs, Wyoming. The Partnership has no remaining
leases with PRG. The General Partners are currently seeking either a new tenant
of purchaser for this Property.
In January 2002, a tenant, Houlihan's Restaurant, Inc., filed for
bankruptcy and rejected the lease relating to the Property in Greensboro, North
Carolina, owned by Show Low Joint Venture. The lost revenues resulting from the
rejection of this lease could have an adverse effect on the results of
operations of the Joint Venture if the Joint Venture is unable to re-lease the
Property in a timely manner. The General Partners are currently seeking either a
new tenant or purchaser for this Property.
Major Tenant
During 2001, one lessee of the Partnership, Golden Corral Corporation,
contributed more than 10% of the Partnership's total rental income (including
the Partnership's share of the rental income from Properties owned by joint
ventures and Properties owned with affiliates of the General Partners as
tenants-in-common). As of December 31, 2001, Golden Corral Corporation was the
lessee under leases relating to four restaurants. It is anticipated that, based
on the minimum rental payments required by the leases, this lessee will continue
to contribute more than ten percent of the Partnership's total rental income in
2002. In addition, two Restaurant Chains, Golden Corral Family Steakhouse
Restaurants ("Golden Corral") and Wendy's Old Fashioned Hamburger Restaurants
("Wendy's"), each accounted for more than 10% of the Partnership's total rental
income in 2001 (including the Partnership's share of the rental income from
Properties owned by joint ventures and Properties owned with affiliates of the
General Partners as tenants-in-common). In 2002, it is anticipated that these
Restaurant Chains will continue to account for more than 10% of the total rental
income to which the Partnership is entitled under the terms of its leases. Any
failure of the lessee or Restaurant Chains could materially affect the
Partnership's income if the Partnership is not able to re-lease the Properties
in a timely manner. As of December 31, 2001, no single tenant or group of
affiliated tenants leased Properties with an aggregate carrying value in excess
of 20% of the total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into a joint venture arrangement, Kirkman
Road Joint Venture, with an unaffiliated entity to purchase and hold one
Property. In addition, the Partnership has entered into three separate joint
venture arrangements: Holland Joint Venture with CNL Income Fund IV, Ltd., Show
Low Joint Venture with CNL Income Fund VI, Ltd., and Peoria Joint Venture with
CNL Income Fund X, Ltd. Each joint venture was formed to purchase and hold one
Property. During 2001, Peoria Joint Venture was liquidated upon the sale of the
Property held by the joint venture and the net sales proceeds were distributed
to each joint venture partner in accordance with the terms of the joint venture
agreement. Each of the CNL Income Fund joint venture partners is an affiliate of
the General Partners, and is a limited partnership organized pursuant to the
laws of the state of Florida. Each joint venture arrangement provides for the
Partnership and its joint venture partners to share in all costs and benefits
associated with the joint venture in proportion to each partner's percentage
interest in the joint venture. The Partnership has a 50% interest in Kirkman
Road Joint Venture, a 49% interest in Holland Joint Venture, and a 64% interest
in Show Low Joint Venture. The Partnership and its joint venture partners are
also jointly and severally liable for all debts, obligations and other
liabilities of the joint venture.
Each joint venture has an initial term of approximately 20 years
(generally the same term as the initial term of the lease for the Property in
which the joint venture invested), and after the expiration of the initial term,
continues in existence from year to year unless terminated at the option of any
joint venture partner or by an event of dissolution. Events of dissolution
include the bankruptcy, insolvency or termination of any joint venturer, sale of
the Property owned by the joint venture and mutual agreement of the Partnership
and its joint venture partner or partners to dissolve the joint venture.
The Partnership shares management control equally with an unaffiliated
entity for Kirkman Road Joint Venture and shares management control equally with
affiliates of the General Partners for Holland Joint Venture and Show Low Joint
Venture. The joint venture agreements restrict each venturer's ability to sell,
transfer or assign its joint venture interest without first offering it for sale
to its joint venture partner or partners, either upon such terms and conditions
as to which the venturers may agree or, in the event the venturers cannot agree,
on the same terms and conditions as any offer from a third party to purchase
such joint venture interest.
Net cash flow from operations of Kirkman Road Joint Venture, Holland
Joint Venture, and Show Low Joint Venture, is distributed 50%, 49%, and 64%,
respectively, to the Partnership and the balance is distributed to each other
joint venture partner in accordance with its percentage interest in the joint
venture. Any liquidation proceeds, after paying joint venture debts and
liabilities and funding reserves for contingent liabilities, will be distributed
first to the joint venture partners with positive capital account balances in
proportion to such balances until such balances equal zero, and thereafter in
proportion to each joint venture partner's percentage interest in the joint
venture.
In addition to the above joint venture agreements, in September 1994,
the Partnership entered into an agreement to hold a Property as
tenants-in-common, with CNL Income Fund XIII, Ltd., a limited partnership
organized pursuant to the laws of the state of Florida, and an affiliate of the
General Partners. The agreement provides for the Partnership and the affiliate
to share in the profits and losses of the Property in proportion to each
co-venturer's percentage interest. The Partnership owns a 33.87% interest in
this Property.
In addition, during the year ended December 31, 1997, the Partnership
entered into three separate tenancy-in-common agreements: one to hold a Property
in Mesa, Arizona, with CNL Income Fund V, Ltd., one to hold a Property in
Smithfield, North Carolina, with CNL Income Fund VII, Ltd., and one to hold a
Property in Vancouver, Washington, with CNL Income Fund, Ltd., CNL Income V,
Ltd. and CNL Income Fund VI, Ltd. In addition, in January 1998, the Partnership
entered into two additional tenancy-in-common agreements: one to hold a Property
in Overland Park, Kansas, with CNL Income Fund III, Ltd. and CNL Income Fund VI,
Ltd., and one to hold a Property in Memphis, Tennessee, with CNL Income Fund VI,
Ltd. and CNL Income Fund XVI, Ltd. The agreements provide for the Partnership
and the other parties to share in the profits and losses of the Properties in
proportion to their percentage interest. The Partnership owns an approximate
58%, 47%, 37%, 39.39%, and 13.38% interest in these Properties in Mesa, Arizona;
Smithfield, North Carolina; Vancouver, Washington; and Overland Park, Kansas;
and Memphis Tennessee, respectively.
Each of the CNL Income Fund co-venture partners is an affiliate of the
General Partners, and is a limited partnership organized pursuant to the laws of
the state of Florida. The tenancy in common agreement restricts each party's
ability to sell, transfer, or assign its interest in the tenancy in common's
Property without first offering it for sale to the remaining party.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional property.
Certain Management Services
CNL APF Partners, LP, an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL APF Partners, LP (the "Advisor") is responsible for collecting rental
payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices and
providing information to the Partnership about the status of the leases and the
Properties. The Advisor also assists the General Partners in negotiating the
leases. For these services, the Partnership has agreed to pay the Advisor an
annual fee of one-half of one percent of Partnership assets (valued at cost)
under management, not to exceed the lesser of one percent of gross rental
revenues or competitive fees for comparable services. Under the property
management agreement, the property management fee is subordinated to receipt by
the Limited Partners of an aggregate, ten percent, noncumulative, noncompounded
annual return on their adjusted capital contributions (the "10% Preferred
Return"), calculated in accordance with the Partnership's limited partnership
agreement (the "Partnership Agreement"). In any year in which the Limited
Partners have not received the 10% Preferred Return, no property management fee
will be paid.
During 2000, CNL Fund Advisors, Inc. assigned its rights in, and its
obligations under, the management agreement with the Partnership to CNL APF
Partners, LP. All of the terms and conditions of the management, including the
payment of fees, as described, remain unchanged.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants of other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of APF, the parent company of the
Advisor, perform certain services for the Partnership. In addition, the General
Partners have available to them the resources and expertise of the officers and
employees of CNL Financial Group, Inc., a diversified real estate company, and
its affiliates, who may also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2001, the Partnership owned 31 Properties. Of the 31
Properties, 22 are owned by the Partnership in fee simple, three are owned
through joint venture arrangements and six are owned through tenancy in common
arrangements. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its Partnership Agreement. More detailed information regarding the
location of the Properties is contained in the Schedule of Real Estate and
Accumulated Depreciation for the year ended December 31, 2001.
Description of Properties
Land. The Partnership's Property sites range from approximately 11,500
to 86,000 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation for the year ended December 31, 2001.
State Number of Properties
Alabama 2
Arizona 1
Colorado 2
Florida 2
Georgia 2
Illinois 1
Indiana 1
Kansas 1
Louisiana 1
Michigan 2
Minnesota 1
New Mexico 2
North Carolina 2
Tennessee 1
Texas 7
Washington 1
Wyoming 2
--------------
TOTAL PROPERTIES: 31
==============
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. However, the
buildings located on the two Checkers Properties are owned by the tenant while
the land parcels are owned by the Partnership. The buildings generally are
rectangular and are constructed from various combinations of stucco, steel,
wood, brick and tile. The sizes of the buildings owned by the Partnership range
from approximately 1,300 to 9,900 square feet. All buildings on Properties
acquired by the Partnership are freestanding and surrounded by paved parking
areas. Buildings are suitable for conversion to various uses, although
modifications may be required prior to use for other than restaurant operations.
As of December 31, 2001, the Partnership had no plans for renovation of the
Properties. Depreciation expense is computed for buildings and improvements
using the straight line method using depreciable lives of 31.5 and 39 years for
federal income tax purposes.
As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and joint ventures (including Properties owned through tenancy
in common arrangements) for federal income tax purposes was $12,996,489 and
$10,881,692, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 1
Burger King 1
Checkers 2
Chevy's Fresh Mex 1
Del Taco 1
Darryl's 1
Denny's 3
Golden Corral 4
IHOP 2
Jack in the Box 1
KFC 1
Pizza Hut 5
Ponderosa 1
Popeyes 1
Wendy's 2
Other 4
--------------
TOTAL PROPERTIES 31
==============
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases
The Partnership leases the Properties to operators of selected national
and regional fast-food Restaurant Chains. The Properties are leased generally on
a long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities, and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish buildings, premises,
signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
As of December 31, 2001 and 2000, the Properties were 94% and 97%
occupied, respectively, and as of December 31, 1999, 1998, and 1997, the
Properties were fully occupied. The following is a schedule of the average rent
per Property for the years ended December 31:
2001 2000 1999 1998 1997
------------- ------------- -------------- ------------- --------------
Rental Revenues (1)(2) $ 1,781,716 $ 2,142,668 $2,255,787 $2,337,182 $ 2,277,558
Properties (2) 29 32 37 38 36
Average Rent Per Property $ 61,438 $ 66,958 $ 60,967 $ 61,505 $ 63,266
(1) Rental income includes the Partnership's share of rental income from
the Properties owned through joint venture arrangements and the
Properties owned through tenancy in common arrangements. Rental
revenues have been adjusted, as applicable, for any amounts for which
the Partnership has established a provision for doubtful accounts.
(2) Excludes Properties that were vacant at December 31, and did not
generate rental revenues during the year ended December 31.
The following is a schedule of lease expirations for leases in place as
of December 31, 2001, for each of the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2002 3 $ 261,940 15.63%
2003 1 43,200 2.58%
2004 1 96,600 5.76%
2005 2 65,502 3.91%
2006 1 63,193 3.77%
2007 9 528,141 31.52%
2008 -- -- --
2009 -- -- --
2010 -- -- --
2011 2 146,419 8.74%
Thereafter 9 470,817 28.09%
---------- ------------- -------------
Totals (1) 28 $ 1,675,812 100.00%
========== ============= =============
(1) Excludes two Properties which were vacant at December 31, 2001 and the
Property in Greensboro, North Carolina, owned by Show Low Joint
Venture, for which the tenant, Houlihan's Restaurant, Inc., filed for
bankruptcy and rejected the lease in January 2002. The lease was
scheduled to expire in 2017.
Leases with Major Tenant
The terms of the leases with the Partnership's major tenant as of
December 31, 2001 (see Item 1. Business - Major Tenant), are substantially the
same as those described in Item 1. Business - Leases.
Golden Corral Corporation leases four Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2002 and 2012) and the
average minimum base annual rent is approximately $103,700 (ranging from
approximately $77,400 to $152,700).
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective Properties, is party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 15, 2002, there were 2,198 holders of record of the
Units. There is no public trading market for the Units and it is not anticipated
that a public market for the Units will develop. During 2001, Limited Partners
who wished to sell their Units may have offered the Units for sale pursuant to
the Partnership's distribution reinvestment plan (the "Plan"), and Limited
Partners who wished to have their distributions used to acquire additional Units
(to the extent Units were available for purchase), may have done so pursuant to
such Plan. The General Partners have the right to prohibit transfers of Units.
From inception through June 30, 2000, the price paid for any Unit transferred
pursuant to the Plan ranged from $436.20 to $475 per Unit. From July 2000
through December 2001, due primarily to the sales of Properties, the price paid
for any Unit transferred pursuant to the Plan ranged from $419.55 to $425 per
Unit. The price paid for any Unit transferred other than pursuant to the Plan
was subject to negotiation by the purchaser and the selling Limited Partner. The
Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2001 and 2000 other than
pursuant to the Plan, net of commissions.
2001 (1) 2000 (1)
----------------------------------- -----------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- -------- -----------
First Quarter $ 270 $232 $ 254 (2) (2) (2)
Second Quarter 192 192 192 $ 461 $ 335 $ 374
Third Quarter 300 271 284 (2) (2) (2)
Fourth Quarter 267 267 267 332 232 314
(1) A total of 126 and 172 Units were transferred other than pursuant to
the Plan for the years ended December 31, 2001 and 2000, respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 2001 and 2000, the Partnership
declared cash distributions of $2,913,650 and $4,397,916, respectively, to the
Limited Partners. During 2001 and 2000, distributions included a special
distribution of $1,200,000 and $2,500,000, respectively, as a result of the
distribution of net sales proceeds from the 2001 and 2000 sales of several
Properties. These special distributions were effectively a return of a portion
of the Limited Partners' investment, although, in accordance with the
Partnership Agreement, $657,471 and $1,407,878 were applied toward the Limited
Partners' 10% Preferred Return and the balances of $542,529 and $1,092,122 were
treated as a return of capital for purposes of calculating the Limited Partners'
10% Preferred Return. As a result of the return of capital, the amount of the
Limited Partners' invested capital contributions (which generally is the Limited
Partners' capital contributions, less distributions from the sale of a Property
that are considered to be a return of capital) was decreased; therefore, the
amount of the Limited Partners' invested capital contributions on which the 10%
Preferred Return is calculated was lowered accordingly. Distributions of net
cash flow were adjusted commencing during the quarters ended September 30, 2001
and 2000. As a result of the sale of these Properties, the Partnership's total
revenue was reduced during 2001 and 2000 and is expected to remain reduced in
subsequent years, while the majority of the Partnership's operating expenses
remain fixed. No distributions have been made to the General Partners to date.
As indicated in the chart below, the distributions were declared at the close of
each of the Partnership's calendar quarters. These amounts include monthly
distributions made in arrears for the Limited Partners electing to receive such
distributions on this basis.
Quarter Ended 2001 2000
------------------------- --------------- ----------------
March 31 $ 433,329 $ 515,629
June 30 433,329 515,629
September 30 1,623,496 2,933,329
December 31 423,496 433,329
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although the General Partners, in their sole discretion, may elect to pay
distributions monthly.
(b) Not applicable
Item 6. Selected Financial Data
2001 2000 1999 1998 1997
-------------- --------------- -------------- -------------- ---------------
Year ended December 31:
Revenues (1) $1,864,733 $ 2,109,102 $ 2,244,389 $2,337,414 $2,547,854
Net income (2) 1,253,746 2,275,569 1,699,378 1,733,739 3,639,880
Cash distributions
declared (3) 2,913,650 4,397,916 2,062,516 3,294,507 2,376,000
Net income per Unit (2) 25.07 45.51 33.69 34.32 72.18
Cash distributions
declared per Unit 58.27 66.12 41.25 65.89 47.52
At December 31:
Total assets $14,193,243 $15,833,995 $18,026,218 $18,392,911 $19,959,059
Partners' capital 13,495,492 15,155,396 17,277,743 17,640,881 19,201,649
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the years ended December 31, 2001, 2000, 1999 and 1997,
includes $204,179, $766,913, $192,752 and $1,476,124, respectively,
from gain on sale of assets. In addition, net income for the year ended
December 31, 1999, includes $79,585 from a loss on sale of assets. Net
income for the years ended December 31, 2001, 2000 and 1998 has been
reduced by real estate disposition fees of $16,620, $71,056 and $45,150
as a result of the sales of several Properties. Net income for the
years ended December 31, 2001 and 1997, also includes lease termination
income of $13,112 and $214,000, respectively, recognized by the
Partnership in connection with consideration the Partnership received
for releasing the former tenants from their obligations under the terms
of the leases of several Properties.
(3) Distributions for the years ended December 31, 2001, 2000, and 1998
include special distributions to the Limited Partners of $1,200,000,
$2,500,000 and $1,232,003 as a result of the distributions of the net
sales proceeds from the 2001, 2000 and 1997 sales of several
Properties.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on November 13, 1986, to acquire for
cash, either directly or through joint venture arrangements, both newly
constructed and existing restaurant Properties, as well as land upon which
restaurant Properties were to be constructed, which are leased primarily to
operators of selected national and regional fast-food Restaurant Chains. The
leases are, in general, triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of December
31, 2001, the Partnership owned 31 Properties, either directly or indirectly
through joint venture or tenancy in common arrangements.
Capital Resources
During the years ended December 31, 2001, 2000, and 1999, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures and interest received, less cash paid
for expenses) of $1,671,766, $1,741,141, and $2,004,997, respectively. The
decrease in cash from operations during 2001, as compared to 2000, was primarily
a result of changes in income and expenses as described in "Results of
Operations" below, and a result of changes in the Partnership's working capital.
The decrease in cash from operations during 2000, as compared to 1999, was
primarily a result of changes in income and expenses as described in "Results of
Operations" below.
Other sources and uses of capital included the following during the
years ended December 31, 2001, 2000, and 1999.
In March 1999, the Partnership sold its Property in Columbia, Missouri
for $682,500 and received net sales proceeds of $677,678, resulting in a gain of
$192,752. In addition in November 1999, the Partnership sold its Property in
Littleton, Colorado, and received net sales proceeds of $150,000, resulting in a
loss of $79,585. The Partnership distributed amounts sufficient to enable the
Limited Partners to pay federal and state income taxes (at a level reasonably
assumed by the General Partners), resulting from the sales.
In November 1999, the Partnership reinvested the net sales proceeds
from the sale of the Property in Columbia, Missouri in a joint venture
arrangement, Peoria Joint Venture, with CNL Income Fund X, Ltd., a Florida
limited partnership and an affiliate of the General Partners. Peoria Joint
Venture, was formed to purchase and hold one Property. The Partnership
contributed approximately $762,200 and had a 48% interest in the profits and
losses of the joint venture as of December 31, 2000. In August 2001, Peoria
Joint Venture sold its Property to a third party for approximately $1,786,900
resulting in a gain of approximately $136,700. The Partnership received
approximately $830,300 as a return of capital representing its 48% share of the
liquidation proceeds of the joint venture. In September 2001, Peoria Joint
Venture was dissolved in accordance with the joint venture agreement. No gain or
loss on the dissolution of the joint venture was incurred. The Partnership
distributed the majority of the net sales proceeds to the limited partners, as
described below.
During 2000, the Partnership sold four of its Properties, one in each
of Jacksonville, Apopka, Sanford and Altamonte Springs, Florida, and received
total net sales proceeds of approximately $2,290,000, resulting in a total gain
of $766,913. In connection with the sales, the Partnership incurred deferred,
subordinated, real estate disposition fees of $71,056. Payment of the real
estate disposition fee is subordinated to receipt by the Limited Partners of
their aggregate, cumulative 10% Preferred Return, plus their adjusted capital
contributions. The Partnership distributed the majority of the net sales
proceeds to the Limited Partners, as described below.
In September 2001, the Partnership sold its Property in Bay City,
Texas, to the tenant and received net sales proceeds of approximately $548,900,
resulting in a gain of $204,179. In connection with the sale, the Partnership
incurred a deferred, subordinated, real estate disposition fee of $16,620.
Payment of the real estate disposition fee is subordinated to receipt by the
limited partners of their aggregate, cumulative 10% Preferred Return, plus their
adjusted capital contributions. The Partnership distributed the majority of the
net sales proceeds to the limited partners, as described below. The Partnership
distributed amounts sufficient to enable the limited partners to pay federal and
state income taxes, if any (at a level reasonably assumed by the general
partners), resulting from the sales.
In conjunction with the proposed sale of a Property in Ocala, Florida,
underground petroleum contamination was discovered during the due diligence
phase. As a result of the discovery of the contamination, the sales contract was
terminated. The Partnership applied to a state funded clean-up program and
received notification it was eligible for state assistance. Under the state
funded clean-up program, the Partnership will be responsible for 25% of the
actual clean-up costs and will receive assistance for the remaining 75% of the
costs. The Partnership anticipated that future clean-up costs would be
approximately $300,000 and during the year ended December 31, 2000, accrued 25%,
or $75,000 of the estimated clean-up costs as a liability. None of these
anticipated clean-up costs have been incurred or paid by the Partnership as of
March 15, 2002.
In October 2001, the property in Casper, Wyoming was partially
destroyed by fire. As a result, the Partnership recorded a provision for
write-down of assets of $78,015 which represents the portion of the loss
incurred by the Partnership in excess of insurance proceeds. As of December 31,
2001, the total undepreciated cost of the building of $216,817 was removed from
the accounts.
None of the Properties owned by the Partnership, or the joint ventures
or tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Subject to certain restrictions on borrowing from the
General Partners, however, the Partnership may borrow, in the discretion of the
General Partners, for the purpose of maintaining the operations and paying
liabilities of the Partnership including quarterly distributions. The
Partnership will not borrow for the purpose of returning capital to the Limited
Partners. The Partnership will not encumber any of the Properties in connection
with any borrowing or advances. The Partnership also will not borrow under
circumstances which would make the Limited Partners liable to creditors of the
Partnership. Affiliates of the General Partners from time to time incur certain
operating expenses on behalf of the Partnership for which the Partnership
reimburses the affiliates without interest.
Currently, rental income from the Partnership's Properties and net
sales proceeds from the sale of Properties, are invested in money market
accounts or other short-term, highly liquid investments such as demand deposit
accounts at commercial banks, money market accounts and certificates of deposit
with less than a 90-day maturity date, pending the Partnership's use of such
funds to pay Partnership expenses or to make distributions to the partners. At
December 31, 2001, the Partnership had $559,886 invested in such short-term
investments, as compared to $492,503 at December 31, 2000. As of December 31,
2001, the average interest rate earned on the rental income deposited in demand
deposit accounts at commercial banks was approximately 2.5% annually. The funds
remaining at December 31, 2001, will be used for the payment of distributions
and other liabilities.
In January 2002, a tenant, Houlihan's Restaurant, Inc., filed for
bankruptcy and rejected the lease relating to the Property in Greensboro, North
Carolina, owned by Show Low Joint Venture. The General Partners are currently
seeking either a new tenant or purchaser for this Property.
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.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases for the Partnership's Properties are
generally on a triple-net basis, it is not anticipated that a permanent reserve
for maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
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.
In July 2001, the Partnership entered into a promissory note with the
corporate general partner for a loan in the amount of $75,000 in connection with
the operations of the Partnership. The loan was uncollateralized, non-interest
bearing and due on demand. In August 2001, the Partnership had repaid the entire
loan to the corporate general partner.
The Partnership generally distributes cash from operations remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based primarily on current and anticipated future cash from
operations, and for the years ended December 31, 2001 and 2000, a portion of the
net sales proceeds received from the sale of Properties, as described above, the
Partnership declared distributions to the Limited Partners of $2,913,650,
$4,397,916, and $2,062,516, for years ended December 31, 2001, 2000, and 1999,
respectively. This represents distributions of $58.27, $66.12, and $41.25, per
Unit for the years ending in December 31, 2001, 2000, and 1999, respectively.
Distributions for the years ended December 31, 2001 and 2000, included
$1,200,000 and $2,500,000, respectively, as a result of the distribution of the
majority of the net sales proceeds from the 2001 and 2000 sales, respectively,
of several Properties. These special distributions were effectively a return of
a portion of the Limited Partners' investment, although, in accordance with the
Partnership Agreement, $657,471 and $1,407,878, respectively, was applied toward
the Limited Partners' 10% Preferred Return and the balance of $542,529 and
$1,092,122 from the special distributions were treated as a return of capital
for purposes of calculating the Limited Partners' 10% Preferred Return. As a
result of the return of capital, the amount of the Limited Partners' invested
capital contributions (which generally is the Limited Partners' capital
contributions, less distributions from the sale of a Property that are
considered to be a return of capital) was decreased; therefore, the amount of
the Limited Partners' invested capital contributions on which the 10% Preferred
Return is calculated was lowered accordingly. As a result of the sales of these
Properties, the Partnership's total revenue was reduced during 2001 and 2000 and
is expected to remain at reduced amounts in subsequent years, while the majority
of the Partnership's operating expenses remain fixed. Therefore, distributions
of net cash flow were adjusted commencing the quarters ended September 30, 2001
and 2000. No distributions were made to the General Partners for the years ended
December 31, 2001, 2000 and 1999. No amounts distributed to the Limited Partners
for the years ended December 31, 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.
During 2000, the general partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the general
partners' capital account as of December 31, 1999. Accordingly, the general
partners were not allocated any net income and did not receive any distributions
during the year ended December 31, 2001 and 2000.
As of December 31, 2001 and 2000, the Partnership owed $3,812 and
$3,451, respectively, to affiliates for operating expenses and accounting and
administrative services. As of March 15, 2002, the Partnership had reimbursed
the affiliates all such amounts. In addition, the years ended December 31, 2001
and 2000, the Partnership incurred $16,620 and $71,056, respectively, in real
estate disposition fees due to an affiliate as a result of its services in
connection with the 2001 and 2000 sales, respectively, of several Properties.
The payment of the real estate disposition fees is deferred until the Limited
Partners have received their cumulative 10% Preferred Return and their adjusted
capital contributions. Other liabilities, including distributions payable, were
$561,113 at December 31, 2001, as compared to, $558,942 at December 31, 2000.
Total liabilities at December 31, 2001, to the extent they exceed cash and cash
equivalents, will be paid from future cash from operations or loans from the
corporate General Partner, and in the event the General Partners elect to make
additional loans or contributions, from General Partners' loans or
contributions.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for using either the direct financing or the operating
method. FAS 13 requires management to estimate the economic life of the leased
property, the residual value of the leased property and the present value of
minimum lease payments to be received from the tenant. In addition, management
assumes that all payments to be received under its leases are collectible.
Changes in management's estimates or assumption regarding collectibility of
lease payments could result in a change in accounting for the lease at the
inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews its Properties and investments in unconsolidated
entities periodically (no less than once per year) for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through operations. Management determines whether
impairment in value has occurred by comparing the estimated future undiscounted
cash flows, including the residual value of the Property, with the carrying cost
of the individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
Results of Operations
During 1999, the Partnership owned and leased 29 wholly owned
Properties (including two Properties sold during 1999), during 2000, the
Partnership owned and leased 27 wholly owned Properties (including four
Properties sold during 2000), and during 2001, the Partnership owned and leased
23 wholly owned Properties (including one Property sold during 2001.) In
addition, during 1999, 2000 and 2001, the Partnership was a co-venturer in four
separate joint ventures that each owned and leased one Property. During 2001,
one joint venture Property was sold. During 1999, 2000 and 2001, the Partnership
owned and leased six Properties with affiliates, as tenants-in-common. As of
December 31, 2001, the Partnership owned, either directly, as tenants-in-common
with affiliates of the General Partners, or through joint venture arrangements,
31 Properties, which are, in general, subject to long-term, triple-net leases.
The leases of the Properties provide for minimum base annual rental amounts
(payable in monthly installments) ranging from approximately $18,700 to
$222,800. Generally, the leases provide for percentage rent based on sales in
excess of a specified amount to be paid annually. In addition, certain leases
provide for increases in the annual base rent during the lease term. For further
description of the Partnership's leases and Properties, see Item 1. Business -
Leases and Item 2. Properties, respectively.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership earned $1,295,074, $1,565,082, and $1,695,181, respectively, in
rental income from the Partnership's wholly owned Properties described above.
The decrease in rental income during 2001 and 2000, each as compared to the
previous year, was primarily a result of the sales of several Properties during
2001, 2000, and 1999, as described in "Capital Resources." Rental income earned
from wholly owned Properties is expected to remain at reduced amounts as a
result of the Partnership distributing net sales proceeds to the Limited
Partners, as described in "Short-Term Liquidity."
Rental income also decreased during 2001 and 2000, as compared to the
previous year, due to the fact that the Partnership stopped recording rental
income relating to the Property in Casper, Wyoming, which was partially
destroyed by a fire, as described above in "Capital Resources", and relating to
the Property in Rock Springs, Wyoming, due to the fact that Phoenix Restaurant
Group, Inc. and its Subsidiaries (collectively referred to as "PRG"), the tenant
of both Properties, experienced financial difficulties. In October 2001, PRG
filed for Chapter 11 bankruptcy protection. As a result, PRG rejected the leases
related to these Properties. The Partnership has no remaining leases with PRG.
The general partners will continue to pursue collection of past due rental
amounts relating to these Properties. The Partnership is currently seeking
either replacement tenants or purchasers for these Properties. The lost revenues
resulting from the rejection of the leases could have an adverse effect on the
results of operations of the Partnership if the Partnership is unable to
re-lease the Properties in a timely manner.
During 2001, the former lease for the Property in Hueytown, Alabama,
which was scheduled to expire in June 2002, was terminated by the Partnership
and the tenant. In November 2001, the Partnership re-leased the Property in
Hueytown, Alabama to a new tenant with terms substantially the same as the
Partnership's other leases. Rents due under the new lease are lower than rents
due under the previous leases; therefore, the Partnership expects that rental
income in future periods will remain at reduced amounts. However, the general
partners do not anticipate that any decrease in rental income relating to the
new lease with lower rents will have a material adverse affect on the
Partnership's financial position or results of operations.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership also earned $72,771, $48,854, and $40,045, respectively, in
contingent rental income. The increase in contingent rental income during 2001
and 2000, as compared to the previous year, was primarily attributable to an
increase in gross sales of certain restaurant Properties, the leases of which
require the payment of contingent rental income.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership also earned $441,969, $443,567, and $440,215, respectively,
attributable to net income earned by joint ventures in which the Partnership is
a co-venturer. The decrease in net income earned by joint ventures during 2001
was partially due to the fact that, Houlihan's Restaurant, Inc., which leases
the Property owned by Show Low Joint Venture, in which the Partnership owns an
approximate 64% interest, was experiencing financial difficulties and in January
2002, filed for bankruptcy and rejected the lease relating to this Property. In
addition, during 2001, the joint venture recorded a provision for write-down of
assets of approximately $56,400 relating to this Property. The provision
represented the difference between the carrying value of the Property at
December 31, 2001 and the current general partners' estimate of net realizable
value for this Property. No such provision was recorded during 2000 or 1999,
relating to this Property. The joint venture will not recognize any rental and
earned income from this Property until the Property is re-leased or the Property
is sold and the proceeds are reinvested in an additional Property. The joint
venture is currently seeking a replacement tenant or purchaser for this
Property. The lost revenues resulting from the vacant Property could have an
adverse effect on the equity in earnings of joint ventures, if the joint venture
is not able to re-lease or sell the Property in a timely manner. The decrease in
net income during 2001, as compared to 2000, was partially offset by the fact
that in August 2001, Peoria Joint Venture, in which the Partnership owned a 48%
interest, sold its Property to a third party for approximately $1,786,900
resulting in a gain to the joint venture of approximately $136,700. The
Partnership dissolved the joint venture in accordance with the joint venture
agreement and did not incur a gain or loss on the dissolution. The Partnership
expects that net income earned by joint ventures will remain at reduced levels
as a result of distributing the proceeds to the limited partners.
Net income earned by joint ventures increased during 2000, as compared
to 1999, as a result of the fact that in November 1999, the Partnership
reinvested the net sales proceeds from the sales of the Properties in Columbia,
Missouri and Littleton, Colorado, in Peoria Joint Venture, as described in
"Capital Resources." The increase in net income earned by joint ventures during
2000, as compared to 1999, was partially offset by the fact that in 1998, the
tenant of the Property, in Mesa, Arizona, in which the Partnership owns an
approximate 58% interest, filed for bankruptcy, and during 2000, rejected its
lease relating to this Property. As a result, this tenant discontinued making
rental payments on the rejected lease. In conjunction therewith, during 2000,
the tenants-in-common stopped recording rental income and recorded a provision
for write-down of assets for approximately $31,500. The provision represented
the difference between the carrying value of the Property at December 31, 2000
and the current General Partners' estimate of net realizable value for this
Property. The Partnership and CNL Income Fund V, Ltd., as tenants-in-common,
re-leased the Property to a new tenant in September 2001 with terms
substantially the same as the Partnership's other leases.
During the year ended December 31, 2001, one of the Partnership's
lessees, Golden Corral Corporation, contributed more than 10% of the
Partnership's total rental income (including the Partnership's share of rental
income from Properties owned by joint ventures and Properties owned with
affiliates of the General Partners as tenants-in-common). As of December 31,
2001, Golden Corral Corporation was the lessee under leases relating to four
restaurants. It is anticipated that, based on the minimum annual rental payments
required by the leases, this lessee will continue to contribute more than 10% of
the Partnership's total rental income during 2002. In addition, during the year
ended December 31, 2001, two Restaurant Chains, Golden Corral, and Wendy's, each
accounted for more than 10% of the Partnership's total rental income (including
the Partnership's share of the rental income from Properties owned by joint
ventures and Properties owned with affiliates of the General Partners as
tenants-in-common). In 2002, it is anticipated that these Restaurant Chains will
continue to account for more than 10% of the total rental income to which the
Partnership is entitled under the terms of its leases. Any failure of this
lessee or Restaurant Chains could materially affect the Partnership's income if
the Partnership is not able to re-lease the Properties in a timely manner.
Operating expenses, including depreciation and amortization expense,
and provision for write-down of assets, were $815,166, $600,446, and $658,178,
for the years ended December 31, 2001, 2000 and 1999, respectively. The increase
during 2001, as compared to 2000, was primarily attributable to the fact that
during 2001, the Partnership recorded a provision for write-down of assets in
the amount of $145,535 relating to the Denny's Property in Rock Springs,
Wyoming. PRG, the tenant, experienced financial difficulties, filed for
bankruptcy and rejected the leases, as described above. The provision
represented the difference between the carrying value of the Property at
December 31, 2001 and the current general partners' estimate of net realizable
value for this Property. In addition, in October 2001, the property in Casper,
Wyoming, which was also leased to PRG, was partially destroyed by fire. As a
result, the Partnership recorded a provision for write-down of assets of $78,015
which represents the portion of the loss incurred by the Partnership in excess
of insurance proceeds. In addition, the increase in operating expenses during
2001, as compared to 2000, was partially due to the fact that the Partnership
stopped recording rental and earned income of approximately $52,300 during 2001,
relating to the Properties in Rock Springs and Casper, Wyoming due to the fact
that PRG, the tenant of the Properties, experienced financial difficulties. The
General Partners will continue to pursue collection of past due rental amounts
relating to these Properties. The Partnership expects that it will continue to
incur expenses, such as legal fees, real estate taxes, and repairs and
maintenance expenses relating to its Properties in Casper and Rock Springs,
Wyoming until it finds new tenants or purchasers for these Properties. The
Partnership will continue to pursue collection of any such amounts unpaid by the
tenant. The Partnership will continue to incur such costs until the Partnership
finds replacement tenants or purchasers for these Properties. The increase in
operating expenses during 2001, as compared to 2000, was also partially due to
an increase in the costs incurred for administrative expenses for servicing the
Partnership and its Properties, as permitted by the Partnership agreement.
The increase in operating expenses during 2001, as compared to 2000, is
partially offset by, and the decrease during 2000, as compared to 1999, was
partially attributable to, a decrease in depreciation expense as a result of the
sales of several Properties during 2001, 2000 and 1999, as described in "Capital
Resources." The increase during 2001, as compared to 2000, and the decrease
during 2000, as compared to 1999, was partially offset by, the Partnership
recording $75,000 during 2000 in estimated environmental clean-up costs relating
to the contamination of the Property in Ocala, Florida as described in "Capital
Resources." The increase in operating expenses during 2001, as compared to 2000,
was partially offset by, and the decrease in 2000, as compared to 1999, was
partially due to, the fact that during 2000 and 1999 the Partnership incurred
$31,418 and $128,330, respectively, in transaction costs related to the general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed merger with CNL American Properties Fund, Inc. ("APF").
On March 1, 2000, the general partners and APF mutually agreed to terminate the
merger. No such expenses were incurred during 2001.
The decrease in operating expenses during 2000, as compared to 1999 was
partially attributable to the fact that professional services were higher during
1999 as a result of litigation relating to the Property in Gainesville, Texas.
The decrease during 2000 as compared to 1999, was also partially attributable to
a reimbursement of legal fees relating to the Property in Gainesville, Texas.
In September 2001, the Partnership sold its Property in Bay City,
Texas, to the tenant resulting in a gain of $204,179. In addition, as a result
of the sale of four Properties as described in "Capital Resources," the
Partnership recognized a gain totaling $766,913 during the year ended December
31, 2000. As a result of the sales of the Properties in Columbia, Missouri and
Littleton Colorado, as described in "Capital Resources," the Partnership
recognized a net gain totaling $113,167 during the year ended December 31, 1999.
In January 2002, a tenant, Houlihan's Restaurant, Inc., filed for
bankruptcy and rejected the lease relating to the Property in Greensboro, North
Carolina, owned by Show Low Joint Venture. The General Partners are currently
seeking either a new tenant or purchaser for this Property.
The Partnership's leases as of December 31, 2001, are generally
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in based rent at specified times
during the term of the lease. Inflation, overall, has had a minimal effect on
results of operations of the Partnership. Continued inflation may cause capital
appreciation of the Partnership's Properties. Inflation and changing prices,
however, also may have an adverse impact on the sales of the restaurants and on
potential capital appreciation of the Properties.
The restaurant industry, as a whole, has been one of the many
industries affected by the general slowdown in the economy. While the
Partnership has experienced some losses due to the financial difficulties of a
limited number of restaurant operators, the General Partners remain confident in
the overall performance of the fast-food and family style restaurants, the
concepts that comprise the majority of the Partnership's portfolio. Industry
data shows that these restaurant concepts continue to outperform and remain more
stable than higher-end restaurants which have been more adversely affected by
the slowing economy.
In December 1999, the Securities and Exchange Commission released SAB
101, which provides the staff's view in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 requires the
Partnership to defer recognition of certain percentage rental income until
certain defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
Partnership results of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" (FAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement requires
that a long-lived asset be tested for recoverability whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable. The
carrying amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. The assessment is based on the carrying amount of the
asset at the date it is tested for recoverability. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds its fair
value. If an impairment is recognized, the adjusted carrying amount of a
long-lived asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this Statement
retained the fundamental provisions of FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March 1,
2000, the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22-23
Notes to Financial Statements 24-38
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund II, Ltd.
In our opinion, the accompanying balance sheets and the related statements of
income, of partners' capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund II, Ltd. (a Florida limited
partnership) at December 31, 2001 and 2000 and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 2001
in conformity with accounting principles generally accepted in the United States
of America. In addition, in our opinion, the financial statement schedules
listed in the index appearing under item 14(a)(2) present fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements. These financial statements and financial
statement schedules are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedules based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which 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, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 8, 2002
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------- --------------------
ASSETS
Land and buildings on operating leases, net $ 9,055,816 $ 10,010,193
Investment in joint ventures 4,154,855 5,014,272
Cash and cash equivalents 559,886 492,503
Certificate of deposit 62,248 --
Receivables, less allowance for doubtful
accounts of $23,640,and $146,293,
respectively 151,479 95,808
Due from related party 1,607 8,542
Accrued rental income 203,759 208,042
Other assets 3,593 4,635
------------------- --------------------
$ 14,193,243 $ 15,833,995
=================== ====================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 83,096 $ 100,768
Accrued and escrowed real estate taxes payable 9,093 4,358
Distributions payable 423,496 433,329
Due to related parties 136,638 119,657
Rents paid in advance and deposits 45,428 20,487
------------------- --------------------
Total liabilities 697,751 678,599
Commitments and Contingencies (Note 10)
Partners' capital 13,495,492 15,155,396
------------------- --------------------
$ 14,193,243 $ 15,833,995
=================== ====================
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
---------------- --------------- ----------------
Revenues:
Rental income from operating leases $ 1,295,074 $ 1,565,082 $ 1,695,181
Contingent rental income 72,771 48,854 40,045
Lease termination income 13,112 -- --
Interest and other income 41,807 51,599 68,948
---------------- ---------------- ---------------
1,422,764 1,665,535 1,804,174
---------------- --------------- ----------------
Expenses:
General operating and administrative 209,279 150,654 126,990
Provision for doubtful accounts 52,295 -- --
Professional services 38,383 33,834 61,204
Real estate taxes 8,970 1,285 --
State and other taxes 18,223 9,414 15,711
Depreciation and amortization 264,466 298,841 325,943
Provision for write-down of assets 223,550 -- --
Transaction costs -- 31,418 128,330
Environmental clean-up costs -- 75,000 --
---------------- --------------- ----------------
815,166 600,446 658,178
---------------- --------------- ----------------
Income Before Gain on Sale of Assets and Equity in
Earnings of Joint Ventures 607,598 1,065,089 1,145,996
Gain on Sale of Assets 204,179 766,913 113,167
Equity in Earnings of Joint Ventures 441,969 443,567 440,215
---------------- --------------- ----------------
Net Income $ 1,253,746 $ 2,275,569 $ 1,699,378
================ =============== ================
Allocation of Net Income:
General partners $ -- $ -- $ 14,888
Limited partners 1,253,746 2,275,569 1,684,490
---------------- --------------- ----------------
Net Income $ 1,253,746 $ 2,275,569 $ 1,699,378
================ =============== ================
Net Income Per Limited Partner Unit $ 25.07 $ 45.51 $ 33.69
================ =============== ================
Weighted Average Number of
Limited Partner Units Outstanding 50,000 50,000 50,000
================ =============== ================
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001 2000, and 1999
General Partners Limited Partners
------------------------------------- ----------------------------------------------------------
Accumulated Accumulated
Contributions Earnings Contributions Distributions Earnings
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 1998 $ 162,000 $ 228,900 $ 25,000,000 $ (28,363,884 ) $ 23,303,687
Distributions to limited
partners ($41.25 per
limited partner unit) -- -- -- (2,062,516 ) --
Net income -- 14,888 -- -- 1,684,490
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 1999 162,000 243,788 25,000,000 (30,426,400 ) 24,988,177
Distributions to limited
partners ($66.12 per
limited partner unit) -- -- (1,092,122 ) (3,305,794 ) --
Net income -- -- -- -- 2,275,569
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2000 162,000 243,788 23,907,878 (33,732,194 ) 27,263,746
Distributions to limited
partners ($58.27 per
limited partner unit) -- -- (542,529 ) (2,371,121 ) --
Net income -- -- -- -- 1,253,746
------------------ ---------------- ----------------- ---------------- -----------------
Balance, December 31, 2001 $ 162,000 $ 243,788 $ 23,365,349 $ (36,103,315 ) $ 28,517,492
================== ================ ================= ================ =================
See accompanying notes to financial statements.
- --------------------------------
Syndication
Costs Total
-------------- --------------
$ (2,689,822 ) $17,640,881
-- (2,062,516 )
-- 1,699,378
-------------- --------------
(2,689,822 ) 17,277,743
-- (4,397,916 )
-- 2,275,569
-------------- --------------
(2,689,822 ) 15,155,396
-- (2,913,650 )
-- 1,253,746
-------------- --------------
$ (2,689,822 ) $13,495,492
============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2001 2000 1999
---------------- --------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 1,476,592 $ 1,526,829 $ 1,816,812
Distributions from joint ventures 471,123 508,341 476,092
Cash paid for expenses (287,216 ) (341,539 ) (335,662 )
Interest received 11,267 47,510 47,755
---------------- --------------- ---------------
Net cash provided by operating activities 1,671,766 1,741,141 2,004,997
---------------- --------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 548,874 2,361,028 827,678
Additions to land and buildings on operating
leases -- (34,165 ) --
Liquidating distribution from joint venture 830,263 -- --
Investment in joint ventures -- -- (762,151 )
Collection on mortgage note receivable -- -- 6,816
Investment in certificate of deposit (60,038 ) -- --
---------------- --------------- ---------------
Net cash provided by investing activities 1,319,099 2,326,863 72,343
---------------- --------------- ---------------
Cash Flows from Financing Activities:
Proceeds from loan from corporate general
partner 75,000 -- --
Repayment of loan from corporate general
partner (75,000 ) -- --
Distributions to limited partners (2,923,482 ) (4,480,216 ) (2,062,516 )
----------------
--------------- ---------------
Net cash used in financing activities (2,923,482 ) (4,480,216 ) (2,062,516 )
---------------- --------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents 67,383 (412,212 ) 14,824
Cash and Cash Equivalents at Beginning of Year 492,503 904,715 889,891
---------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 559,886 $ 492,503 $ 904,715
================ =============== ===============
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2001 2000 1999
--------------- --------------- --------------
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
Net Income $1,253,746 $2,275,569 $1,699,378
--------------- --------------- --------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 263,950 298,325 323,404
Amortization 516 516 2,539
Provision for doubtful accounts 52,295 -- --
Provision for write-down of assets 223,550 -- --
Gain on sale of assets (204,179 ) (766,913 ) (113,167 )
Equity in earnings of joint ventures, net of
distributions 29,154 65,429 35,877
Decrease (increase) in receivables 28,626 (61,959 ) 85,765
Decrease (increase) in due from related
parties 6,935 (5,433 ) (3,108 )
Decrease (increase) in accrued rental
income 4,283 (11,353 ) (22,307 )
Decrease (increase) in other assets 526 5,592 (2,937 )
Increase (decrease) in accounts payable,
accrued expenses and accrued and
escrowed real estate taxes (12,938 ) 11,417 81,023
Increase (decrease) in due to related
parties 361 (57,053 ) (74,541 )
Increase (decrease) in rents paid in
advance and deposits 24,941 (12,996 ) (6,929 )
--------------- --------------- --------------
Total adjustments 418,020 (534,428 ) 305,619
--------------- --------------- --------------
Net Cash Provided by Operating Activities $1,671,766 $1,741,141 $2,004,997
=============== =============== ==============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Deferred real estate disposition fees incurred
and unpaid at end of period $ 16,620 $ 71,056 $ --
=============== =============== ==============
Distributions declared and unpaid at
December 31 $ 423,496 $ 433,329 $ 515,629
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund II, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using the operating method. Under the operating method, land and
building leases are recorded at cost, revenue is recognized as rentals
are earned and depreciation is charged to operations as incurred.
Buildings are depreciated on the straight-line method over their
estimated useful lives of 30 years. When scheduled rentals vary during
the lease term, income is recognized on a straight-line basis so as to
produce a constant periodic rent over the lease term commencing on the
date the property is placed in service.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date. Whenever a tenant defaults under the terms of its
lease, or events or changes in circumstance indicate that the tenant
will not lease the property through the end of the lease term, the
Partnership either reserves or reverses the cumulative accrued rental
income balance.
When the properties are sold, the related cost and accumulated
depreciation plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review the properties for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through
operations.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
The general partners determine whether an impairment in value has
occurred by comparing the estimated future undiscounted cash flows,
including the residual value of the property, with the carrying cost of
the individual property. If an impairment is indicated, a loss will be
recorded for the amount by which the carrying value of the asset
exceeds its fair market value. Although the general partners have made
their best estimate of these factors based on current conditions, it is
reasonably possible that changes could occur in the near term which
could adversely affect the general partners' estimate of net cash flows
expected to be generated from its properties and the need for asset
impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
although the Partnership continues to pursue collection of such
amounts. If amounts are subsequently determined to be uncollectible,
the corresponding receivable and allowance for uncollectible accounts
are decreased accordingly.
Investment in Joint Ventures - The Partnership's investment in Kirkman
Road Joint Venture is a joint venture arrangement with unaffiliated
entities. The Partnership's investments in Holland Joint Venture and
Show Low Joint Venture, and the properties in Arvada, Colorado; Mesa,
Arizona; Smithfield, North Carolina; Vancouver, Washington; Overland
Park, Kansas; and Memphis, Tennessee, each of which is held as
tenants-in-common with affiliates of the general partners. These
entities are accounted for using the equity method since each joint
venture agreement requires the consent of all partners on all key
decisions affecting the operations of the underlying Property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts.
Lease Costs - Other assets included lease incentive costs and brokerage
and legal fees associated with negotiating new leases which are
amortized over the terms of the new leases using the straight-line
method. When a property is sold or a lease is terminated, the related
lease cost, if any, net of accumulated amortization is removed from the
accounts and charged against income.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment. See "Income Taxes"
footnote for a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassifications - Certain items in the prior years' financial
statements have been reclassified to conform to 2001 presentation.
These reclassifications had no effect on total partners' capital or net
income.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Partnership
to defer recognition of certain percentage rental income until certain
defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material
impact on the Partnership results of operations.
Statement of Financial Accounting Standards No. 141 ("FAS 141") and
Statement of Financial Accounting Standards No. 142 ("FAS 142") - In
July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets". The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the
Partnership as of December 31, 2001.
Statement of Financial Accounting Standards No. 144 ("FAS 144") - In
October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement requires
that a long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this
Statement retained the fundamental provisions of FAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of".
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
2. Leases:
------
The Partnership leases its land or land and buildings primarily to
operators of national and regional fast-food restaurants. The leases
are accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." The leases have
been classified as operating leases. Substantially all leases are for
15 to 20 years and provide for minimum and contingent rentals. In
addition, the tenant generally pays all property taxes and assessments,
fully maintains the interior and exterior of the building and carries
insurance coverage for public liability, property damage, fire and
extended coverage. The lease options generally allow tenants to renew
the leases for two to four successive five-year periods subject to the
same terms and conditions as the initial lease. Most leases also allow
the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at
December 31:
2001 2000
---------------- -----------------
Land $ 5,190,252 $ 5,425,803
Buildings 7,291,925 8,085,027
---------------- -----------------
12,482,177 13,510,830
Less accumulated depreciation (3,426,361 ) (3,500,637 )
---------------- -----------------
$ 9,055,816 $ 10,010,193
================ =================
During 2000, the Partnership sold four of its properties, one in each
of Jacksonville, Apopka, Sanford and Altamonte Springs, Florida, for a
total of approximately $2,368,500 and received net sales proceeds
totaling approximately $2,290,000, resulting in gains totaling
$766,913. In connection with the sales, the Partnership incurred
deferred, subordinated, real estate disposition fees of $71,056 (see
Note 8).
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
During 2001, the Partnership had recorded a provision for write-down of
assets in the amount of $145,535 relating to the Denny's property in
Rock Springs, Wyoming due to the fact that on October 31, 2001, Phoenix
Restaurant Group, Inc. and its Subsidiaries (collectively referred to
as "PRG"), a tenant of the Partnership, filed for Chapter 11 bankruptcy
protection. As a result, PRG rejected the lease related to this
Property. The provision represented the difference between the carrying
value of the property at December 31, 2001 and the current general
partners' estimate of net realizable value for this property.
In September 2001, the Partnership sold its property in Bay City,
Texas, to the tenant and received net sales proceeds of approximately
$548,900 resulting in a gain of $204,179. In connection with the sale,
the Partnership incurred a deferred, subordinated, real estate
disposition fee of $16,620 (see Note 8). Payment of the real estate
disposition fee is subordinated to receipt by the limited partners of
their aggregate, cumulative 10% Preferred Return, plus their adjusted
capital contributions.
In October 2001, the property in Casper, Wyoming was partially
destroyed by fire. As a result, the Partnership recorded a provision
for write-down of assets of $78,015 which represents the portion of the
loss incurred by the Partnership in excess of insurance proceeds. As of
December 31, 2001, the total undepreciated cost of the building of
$216,817 was removed from the accounts. The insurance proceeds of
$138,802 were included in receivables.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2001:
2002 $1,075,167
2003 913,875
2004 885,260
2005 815,620
2006 810,566
Thereafter 1,793,171
----------------
$6,293,659
================
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
4. Investment in Joint Ventures:
----------------------------
The Partnership has a 50%, 49%, and 64% interest in the profits and
losses of Kirkman Road Joint Venture, Holland Joint Venture and Show
Low Joint Venture, respectively. The remaining interests in Holland
Joint Venture and Show Low Joint Venture are held by affiliates of the
general partners. The Partnership also has a 33.87%, a 57.91%, a 47%, a
37.01%, a 39.39%, and a 13.38% interest in properties in Arvada,
Colorado; Mesa, Arizona; Smithfield, North Carolina; Vancouver,
Washington, Overland, Kansas, and Memphis, Tennessee, respectively,
with affiliates of the general partners, as tenants-in-common. Amounts
relating to these investments are included in investment in joint
ventures.
In August 2001, Peoria Joint Venture, in which the Partnership owned a
48% interest, sold its property to a third party for approximately
$1,786,900 resulting in a gain of approximately $136,700. The
Partnership dissolved the joint venture in accordance with the joint
venture agreement and did not incur a gain or loss on the dissolution.
The Partnership received approximately $830,300 representing its
pro-rata share of the liquidation proceeds from the joint venture.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Investment in Joint Ventures:
----------------------------
Kirkman Road Joint Venture, Holland Joint Venture, Show Low Joint
Venture, and the Partnership and affiliates, as tenants-in-common in
six separate tenancy-in-common arrangements, each own and lease one
property to an operator of national fast-food or family-style
restaurant. The following presents the combined, condensed financial
information for the joint ventures and the six properties held as
tenants-in-common with affiliates at December 31:
2001 2000
---------------- ---------------
Land and buildings on operating leases, net $ 7,774,746 $8,506,040
Net investment in direct financing leases 2,177,989 3,216,756
Cash 29,589 41,285
Receivables 1,971 37
Accrued rental income 2,180 377,319
Other assets 373,454 1,485
Liabilities 20,843 30,706
Partners' capital 10,339,086 12,112,216
Revenues 1,101,784 1,313,152
Net income 883,639 1,102,214
The Partnership recognized income totaling $441,969, $443,567, and
$440,215 for the years ended December 31, 2001, 2000, 1999,
respectively, from these joint ventures and the properties held as
tenants-in-common with affiliates of the general partners.
5. Receivables:
-----------
In March 1996, the Partnership accepted a promissory note from the
former tenant of the property in Gainesville, Texas, in the amount of
$96,502, representing past due rental and other amounts, which had been
included in receivables and for which the Partnership had established
an allowance for doubtful accounts, and real estate taxes previously
recorded as an expense by the Partnership. Payments are due in 60
monthly installments of $2,156, including interest at a rate of 11% per
annum, commencing on June 1, 1996. Due to the uncertainty of the
collectibility of this note, the Partnership established an allowance
for doubtful accounts and is recognizing income as collected. As of
December 31, 2000, the balance of the allowance for doubtful accounts
was $61,262 including accrued interest of $9,702, representing the
uncollected amounts under this promissory
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Receivables - Continued:
-----------------------
note. During 2001, the Partnership wrote off all uncollected balances
and ceased collection efforts.
6. Allocations and Distributions:
-----------------------------
From inception through December 31, 1999, generally all net income and
net losses of the Partnership, excluding gains and losses from the sale
of properties, were allocated 99 percent to the limited partners and
one percent to the general partners. From inception through December
31, 1999, distributions of net cash flow were made 99 percent to the
limited partners and one percent to the general partners; provided,
however, that the one percent of net cash flow to be distributed to the
general partners was subordinated to receipt by the limited partners of
an aggregate, ten percent, noncumulative, noncompounded annual return
on their adjusted capital contributions (the "10% Preferred Return").
From inception through December 31, 1999, generally net sales proceeds
from the sale of properties not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their cumulative 10%
Preferred Return, plus the return of their adjusted capital
contributions. The general partners then received, to the extent
previously subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds were distributed 95 percent
to the limited partners and five percent to the general partners. Any
gain from the sale of a property not in liquidation of the Partnership
was, in general, allocated in the same manner as net sales proceeds are
distributable. Any loss from the sale of a property was, in general,
allocated first on a pro rata basis to partners with positive balances
in their capital accounts; and thereafter, 95 percent to the limited
partners and five percent to the general partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after allocations of net income, gains
and/or losses, to distribute to the partners with positive capital
accounts balances, in proportion to such balances, up to amounts
sufficient to
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
6. Allocations and Distributions - Continued:
-----------------------------------------
reduce such positive balances to zero, and (v) thereafter, any funds
remaining shall then be distributed 95 percent to the limited partners
and five percent to the general partners.
Effective January 1, 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the years
ended December 31, 2001 and 2000.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership declared distributions to the limited partners of
$2,913,650, $4,397,916, and $2,062,516, respectively. Distributions for
the year ended December 31, 2001 and 2000, included $1,200,000 and
$2,500,000 in special distributions, as a result of the distributions
of net sales proceeds from the sales of several properties. These
special distributions were effectively a return of a portion of the
limited partners' investment, although, in accordance with the
Partnership agreement, $657,471 and $1,407,878 were applied toward the
limited partners' 10% Preferred Return and the balances of $542,529 and
$1,092,122 were treated as a return of capital for purposes of
calculating the limited partners' 10% Preferred Return. As a result of
the return of capital, the amount of the limited partners' invested
capital contributions (which generally is the limited partners' capital
contributions, less distributions from the sale of a property that are
considered to be a return of capital) was decreased; therefore, the
amount of the limited partners' invested capital contributions on which
the 10% Preferred Return is calculated was lowered accordingly. As a
result of the sale of the properties in 2001 and 2000, the
Partnership's total revenue was reduced, while the majority of the
Partnership's operating expenses remained fixed. Therefore,
distributions of net cash flow were adjusted commencing the quarters
ended September 30, 2001 and 2000. No distributions have been made to
the general partners to date.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2001 2000 1999
-------------- -------------- ---------------
Net income for financial reporting purposes 1,253,746 $ 2,275,569 $ 1,699,378
Depreciation for financial reporting purposes in
excess of depreciation for tax reporting
purposes 11,312 15,756 16,973
Gain on sale of assets for financial reporting
purposes in excess of gain for tax reporting
purposes (6,653 ) (27,863 ) (9,342 )
Equity in earnings of joint ventures for tax
reporting purposes in excess of (less than)
equity in earnings of joint ventures for
financial reporting purposes 32,953 (20,354 ) (35,096 )
Capitalization (deduction) of transaction costs
for tax reporting purposes -- (144,538 ) 128,330
Allowance for doubtful accounts (122,653 ) 67,603 23,255
Accrued rental income 4,283 (11,353 ) (22,307 )
Rents paid in advance (9,950 ) (11,996 ) (4,927 )
Provision for write-down of assets 223,550 -- --
Provision for contamination expenses -- 75,000 --
-------------- -------------- ---------------
Net income for federal income tax purposes $ 1,386,588 $ 2,217,824 $ 1,796,264
============== ============== ===============
8. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc. CNL
APF Partners, LP (the "Advisor") is a wholly owned subsidiary of CNL
American Properties Fund, Inc. ("APF"). CNL Fund Advisors,
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. Related Party Transactions- Continued:
-------------------------------------
Inc., a majority owned subsidiary of CNL Financial Group, Inc. until it
merged with and into APF effective September 1, 1999, served as the
Partnership's advisor until it assigned its rights and obligations
under a management agreement with the Partnership to the Advisor
effective July 1, 2000. The individual general partners are
stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with
the partnership. In connection therewith, the Partnership agreed to pay
the Advisor an annual, noncumulative, subordinated property management
fee of one-half of one percent of the Partnership assets under
management (valued at cost) annually. The property management fee is
limited to one percent of the sum of gross operating revenues from
properties wholly owned by the Partnership and the Partnership's
allocable share of gross operating revenues from joint ventures and the
properties held as tenants-in-common with affiliates or competitive
fees for comparable services. In addition, these fees will be incurred
and will be payable only after the limited partners receive their
aggregate, noncumulative 10% Preferred Return. Due to the fact that
these fees are noncumulative, if the limited partners do not receive
their 10% Preferred Return in any particular year, no property
management fees will be due or payable for such year. As a result of
such threshold no property management fees were incurred during the
years ended December 31, 2001, 2000 and 1999.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. Payment of
the real estate disposition fee is subordinated to the receipt by the
limited partners of their aggregate, cumulative 10% Preferred Return,
plus their adjusted capital contributions. During the years ended
December 31, 2001 and 2000, the Partnership incurred $16,620 and
$71,056 in deferred, subordinated, real estate disposition fees as a
result of the 2001 and 2000 sales of properties.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. Related Party Transactions- Continued:
-------------------------------------
During the years ended December 31, 2001, 2000, and 1999, the
Partnership's advisor and its affiliates provided accounting and
administrative services to the Partnership on a day-to-day basis,
including services during 2000 and 1999 relating to the proposed and
terminated merger. The Partnership incurred $140,936, $82,134, and
$97,053, for the years ended December 31, 2001, 2000, and 1999,
respectively, for such services.
The due to related parties consisted of the following at December 31:
2001 2000
-------------- --------------
Due to Advisor and its affiliates:
Expenditures incurred on behalf
of the Partnership, including
accounting and administrative
services $ 3,812 $ 3,451
Deferred, subordinated real
estate disposition fee 132,826 116,206
-------------- --------------
$ 136,638 $ 119,657
============== ==============
9. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental and mortgage interest
income from individual lessees, each representing more than ten percent
of the Partnerships' total rental income (including the Partnership's
share of rental income from joint ventures and the properties held as
tenants-in-common with affiliates of the general partners) for each of
the years ended December 31:
2001 2000 1999
-------------- -------------- ---------------
Golden Corral Corporation $397,632 $413,941 $424,944
Restaurant Management Services, Inc. N/A N/A 253,628
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
9. Concentration of Credit Risk - Continued:
----------------------------------------
In addition, the following schedule presents total rental and mortgage
interest income from individual restaurant chains, each representing
more than ten percent of the Partnership's total rental and mortgage
interest income (including the Partnership's share of rental income
from joint ventures and properties held as tenants-in-common with
affiliates of the general partners) for each of the years ended
December 31:
2001 2000 1999
-------------- -------------- ----------------
Golden Corral Family
Steakhouse Restaurants $397,632 $413,941 $424,944
Wendy's Old Fashioned
Hamburger Restaurants 219,778 N/A N/A
Popeyes Famous Fried
Chicken Restaurants N/A N/A 253,628
The information denoted by N/A indicates that for each period
presented, the tenant and the chain did not represent more than ten
percent of the Partnership's total rental and mortgage interest income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
10. Commitments and Contingencies:
-----------------------------
During 2000, in connection with the proposed sale of the property in
Ocala, Florida, underground petroleum contamination was discovered
during the due diligence phase. As a result of the discovery of the
contamination, the sales contract was terminated. The Partnership
applied to a state funded clean-up program and received notification it
was eligible and accepted into the program. Under the state funded
clean-up program, the Partnership is responsible for 25% of the actual
clean-up costs and will receive assistance for the remaining 75% of the
costs. During 2000, the Partnership anticipated that total clean-up
costs would be approximately $300,000 and accrued 25%, or $75,000, of
the estimated clean-up costs in general operating and administrative
expenses. The clean-up
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
10. Commitments and Contingencies - Continued:
-----------------------------------------
process is currently in the planning stages and is expected to be
completed in approximately three years.
11. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2001 and
2000.
2001 Quarter First Second Third Fourth Year
------------------------ -------------- ------------- ------------- -------------- --------------
Revenue (1) $462,043 $434,367 $530,052 $438,271 $ 1,864,733
Net income 106,405 272,598 622,541 252,202 1,253,746
Net income per
limited partner
unit 2.13 5.45 12.45 5.04 25.07
2000 Quarter First Second Third Fourth Year
------------------------ -------------- ------------- ------------- -------------- --------------
Revenue (1) $571,376 $525,788 $499,591 $512,347 $ 2,109,102
Net income 385,547 623,535 866,464 400,023 2,275,569
Net income per
limited partner
unit 7.63 12.37 17.18 8.33 45.51
(1) Revenues include equity in earnings of joint ventures.
12. Subsequent Event:
----------------
In January 2002, a tenant, Houlihan's Restaurant, Inc., filed for
bankruptcy and rejected the lease relating to the Property in
Greensboro, North Carolina, owned by Show Low Joint Venture.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Financial Group, Inc.
and their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 55. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL American Properties Fund,
Inc. ("APF"), a public, unlisted real estate investment trust, since 1994. Mr.
Seneff served as Chief Executive Officer of APF from 1994 through August 1999,
and has served as Co-Chief Executive Officer of APF since December 2000. Mr.
Seneff served as Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors, Inc., formerly the Partnership's advisor, until it merged with a
wholly-owned subsidiary of APF in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc., a diversified real estate company, and has served as a Director,
Chairman of the Board and Chief Executive Officer of CNL Financial Group, Inc.
since its formation in 1980. CNL Financial Group, Inc. is the parent company,
either directly or indirectly through subsidiaries, of CNL Real Estate Services,
Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp.
Mr. Seneff also serves as a Director, Chairman of the Board and Chief Executive
Officer of CNL Hospitality Properties, Inc., a public, unlisted real estate
investment trust, as well as, CNL Hospitality Corp., its advisor. In addition,
he serves as a Director, Chairman of the Board and Chief Executive Officer of
CNL Retirement Properties, Inc., a public, unlisted real estate investment trust
and its advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has also served as
a Director, Chairman of the Board and Chief Executive Officer of Commercial Net
Lease Realty, Inc., a public real estate investment trust that is listed on the
New York Stock Exchange. Mr. Seneff has also served as a Director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a Director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNL Bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 54. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne is
Director of the Board of Directors of APF. Mr. Bourne served as President of APF
from 1994 through February 1999. He also served as Treasurer from February 1999
through August 1999 and from May 1994 through December 1994. He also served in
various executive positions with CNL Fund Advisors, Inc. prior to its merger
with a wholly-owned subsidiary of APF including, President from 1994 through
September 1997, and Director from 1994 through August 1999. Mr. Bourne serves as
President and Treasurer of CNL Financial Group, Inc.; Director, Vice Chairman of
the Board, President and Treasurer of CNL Hospitality Properties, Inc., a
public, unlisted real estate investment trust; as well as, Director, Vice
Chairman of the Board, President and Treasurer of CNL Hospitality Corp., its
advisor. In addition, Mr. Bourne serves as Director, Vice Chairman of the Board,
President and Treasurer of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust; as well as, a Director, Vice Chairman of the
Board, President and Treasurer of its advisor, CNL Retirement Corp. Mr. Bourne
also serves as a Director of CNL Bank. He has served as a Director since 1992,
Vice Chairman of the Board since February 1996, Secretary and Treasurer from
February 1996 through 1997, and President from July 1992 through February 1996,
of Commercial Net Lease Realty, Inc., a public real estate investment trust
listed on the New York Stock Exchange. Mr. Bourne also serves as Director,
President and Treasurer for various affiliates of CNL Financial Group, Inc.
including, CNL Investment Company, CNL Securities Corp. and CNL Institutional
Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified Public Accountants, from 1971 through 1978, where he attained the
position of Tax Manager in 1975. Mr. Bourne graduated from Florida State
University in 1970 where he received a B.A. in Accounting, with honors.
Curtis B. McWilliams, age 46. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as Chief
Executive Officer from September 1999 through December 2000. Prior to the
acquisition of CNL Fund Advisors, Inc., Mr. McWilliams served as President of
APF from February 1999 until September 1999. From February 1998 to February
1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL
Financial Group, Inc. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc. from April
1997 until the acquisition of such entities by wholly-owned subsidiaries of APF
in September 1999. From September 1983 through March 1997, Mr. McWilliams was
employed by Merrill Lynch & Co. The majority of his career at Merrill Lynch &
Co. was in the Investment Banking division where he served as a Managing
Director. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.
Steven D. Shackelford, age 38. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors, Inc. from September 1996 to September 1999. From March
1995 to July 1996, Mr. Shackelford was a senior manager in the national office
of Price Waterhouse LLP where he was responsible for advising foreign clients
seeking to raise capital and a public listing in the United States. From August
1992 to March 1995, he was a manager in the Paris, France office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and senior from 1986 to 1992 in the Orlando, Florida office of Price
Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business Administration degree from Florida State
University and is a certified public accountant.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 15, 2002, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 15, 2002, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2001, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- ---------------------------------- -------------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are reimbursed at Accounting and
operating expenses the lower of cost or 90% of the administra-tive services:
prevailing rate at which comparable $140,936
services could have been obtained in
the same geographic area. If the
General Partners or their affiliates
loan funds to the Partnership, the
General Partners or their affiliates
will be reimbursed for the interest
and fees charged to them by the
unaffiliated lenders for such
loans. Affiliates of the General
Partners from time to time incur
certain operating expenses on behalf
of the Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual, subordinated property One-half of one percent per year of $-0-
management fee to affiliates Partnership assets under management
(valued at cost), subordinated to
certain minimum returns to the
Limited Partners. The property
management fee will not exceed the
lesser of one percent of gross
operating revenues or competitive
fees for comparable services. Due
to the fact that these fees are
noncumulative if the Limited
Partners do not receive their 10%
Preferred Return in any particular
year no property management fees
will be due or payable for such year.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
Deferred, subordinated real A deferred, subordinated real estate $16,620
estate disposition fee payable disposition fee, payable upon sale
to affiliates of one or more Properties, in an
amount equal to the lesser of (i)
one-half of a competitive real
estate commission, or (ii) three
percent of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the sale
of a Property or Properties and
shall be subordinated to certain
minimum returns to the Limited
Partners. However, if the net sales
are reinvested in a replacement
Property, no such real estate
disposition fee will be incurred
until such replacement Property is
sold and the net sales proceeds are
distributed.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales proceeds distributions of such net sales
from a sale or sales not in proceeds, subordinated to certain
liquidation of the Partnership minimum returns to the Limited
Partners.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- --------------------------------- -------------------------------------- ------------------------------
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net loss,
gain and loss, in proportion to such
balances, up to amounts sufficient
to reduce such balances to zero; and
(iii) thereafter, 95% to the Limited
Partners and 5% to the General Partners.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2001 and 2000
Statements of Income for the years ended December 31, 2001,
2000, and 1999
Statements of Partners' Capital for the years ended December
31, 2001, 2000, and 1999
Statements of Cash Flows for the years ended December 31,
2001, 2000, and 1999
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 2001, 2000, and 1999
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2001
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2001
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund
II, Ltd. (Included as Exhibit 3.1 to Amendment No. 1
to Registration Statement No. 33-10351 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on April 2, 1993,
and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund
II, Ltd. (Included as Exhibit 4.1 to Amendment No. 1
to Registration Statement No. 33-10351 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on April 2, 1993,
and incorporated herein by reference.)
10.1 Property Management Agreement (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on April 2, 1993, and
incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.3 Assignment of Property Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996
and incorporated herein by reference.)
10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 to For 10-Q filed with the Securities
and Exchange Commission on August 13, 2001, and
incorporated herein by reference.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 2001 through December 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 26th day of
March, 2002.
CNL INCOME FUND II, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
-------------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
-------------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
-------------------------------
JAMES M. SENEFF, JR.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert A. Bourne President, Treasurer and Director March 26, 2002
- ------------------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 26, 2002
- ------------------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2001, 2000, and 1999
Additions Deductions
--------------------------------- -------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---------- ----------------- -------------- --------------- ---------------- ------------- ------------ ------------
1999 Allowance for
doubtful
accounts (a) $ 55,435 $ -- $ 25,411 (b) $ -- $ 2,156 $ 78,690
============== =============== ================ ============= ============ ============
2000 Allowance for
doubtful
accounts (a) $ 78,690 $ 10,963 $ 69,815 (b) $ -- $ 13,175 $ 146,293
============== =============== ================ ============= ============ ============
2001 Allowance for
doubtful
accounts (a) $ 146,293 $ 62,770 $ 136,620 (b) $ 314,463 (c) $ 7,580 $ 23,640
============== =============== ================ ============= ============ ============
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
Costs Capitalized
Subsequent to
Initial Cost Acquisition
------------------------- ---------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
----------- ------------ ----------- ----------- --------
Properties the Partnership
has Invested in:
Burger King Restaurant:
San Antonio, Texas - $373,095 $384,458 - -
Checkers Drive-In Restaurants:
Fayetteville, Georgia - 338,735 - - -
Atlanta, Georgia - 317,128 - - -
Denny's Restaurants:
Casper, Wyoming (m) - 184,285 - - -
Rock Springs, Wyoming (n) - 217,448 488,991 - -
Golden Corral Family
Steakhouse Restaurants:
Tomball, Texas - 311,019 529,759 22,330 -
Pineville, Louisiana (e) - 187,961 503,435 - -
Nederland, Texas - 327,473 520,701 - -
Hableanos Mexican Grill Restaurant:
Hueytown, Alabama - 258,084 513,853 - -
Jack in the Box Restaurant:
Lubbock, Texas - 229,198 408,702 - -
KFC Restaurant: -
Eagan, Minnesota - 202,084 370,247 31,976 -
Lonestar Steakhouse &
Saloon Restaurant:
Sterling Heights, Michiga- (f) 430,281 - 648,736 -
Pizza Hut Restaurants:
Clayton, New Mexico - 54,093 200,141 - -
Santa Rosa, New Mexico - 75,963 168,204 - -
Childress, Texas - 71,512 145,191 - -
Coleman, Texas - 70,208 141,004 - -
Ponderosa Steakhouse Restaurant:
Scottsburg, Indiana - 208,781 - 518,884 -
Popeyes Famous Fried
Chicken Restaurants:
Ocala, Florida - 218,677 274,992 - -
Wendy's Old Fashioned
Hamburger Restaurants:
Gainesville, Texas - 166,302 449,914 - -
Vail, Colorado - 782,609 - 550,346 -
Other:
Oxford, Alabama (g) - 152,567 355,990 - -
Lombard, Illinois (h) - 85,517 96,205 40,633 -
------------ ----------- ----------- --------
$5,263,020 $5,551,787 $1,812,905 -
============ =========== =========== ========
Property of Joint Venture in
Which the Partnership has a
50% Interest and has Invested
in Under an Operating Lease:
Pizza Hut Restaurant:
Orlando, Florida - $330,568 $220,588 - -
============ =========== =========== ========
Property of Joint Venture in
Which the Partnership has a
49% Interest and has Invested
in Under an Operating Lease:
Denny's Restaurant:
Holland, Michigan - $295,987 - $780,451 -
============ =========== =========== ========
Property of Joint Venture in
Which the Partnership has a
64% Interest and has Invested
in Under an Operating Lease:
Darryl's Restaurant:
Greensboro, North Carolina (o- $261,013 $489,757 - -
============ =========== =========== ========
Property in Which the Partnership
has a 33.87% Interest as Tenants-
In-Common and has Invested
in Under an Operating Lease
Arby's Restaurant:
Arvada, Colorado - $260,439 $545,126 - -
============ =========== =========== ========
Property in Which the Partnership
has a 57.91% Interest as Tenants
-in-Common and has Invested in
Under an Operating Lease:
Del Taco Restaurant:
Mesa, Arizona - $440,843 - - -
============ =========== =========== ========
Property in Which the
Partnership has a 47%
Interest as Tenants-In-
Common and has Invested
in Under an Operating Lease:
Golden Corral Restaurant:
Smithfield, North Carolina - $264,272 $1,155,018 - -
============ =========== =========== ========
Property in Which the
Partnership has a 37.01%
Interest as Tenants-in-
Common and has Invested
in Under an Operating Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $875,659 $1,389,366 - -
============ =========== =========== ========
Property in Which the
Partnership has a 13.38%
Interest as Tenants-In-
Common and has Invested
in Under an Operating Lease:
IHOP Restaurant
Memphis, Tennessee - $678,890 $825,076 - -
============ =========== =========== ========
Property of Joint Venture in
Which the Parnership has a
64% Interest has Invested in
Under a Direct Financing Lease:
Boston Market Restaurant:
Mesa, Arizona - - $650,622 - -
============ =========== =========== ========
Property inWhich the
Partnership has a 39.39%
Interest as Tenants- In-Common
and has Invested in Under a
Direct Financing Lease:
IHOP Restaurant
Overland Park, Kansas - $335,374 $1,273,134 - -
============ =========== =========== ========
Net Cost Basis at Which Life on Which
Carried at Close of Period (c) Depreciation in
- ----------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
- ------------- ------------ ----------- ----------- ------- -------- ------------
$373,095 $384,458 $757,553 $185,821 1987 07/87 (b)
338,735 - 338,735 (d) - 12/94 (d)
317,128 - 317,128 (d) - 12/94 (d)
184,285 - 184,285 (m) 1983 09/87 (b)
144,680 416,224 560,904 230,874 1983 09/87 (b)
311,019 552,089 863,108 268,697 1987 05/87 (b)
187,961 503,435 691,396 244,725 1987 06/87 (b)
327,473 520,701 848,174 250,226 1987 08/87 (b)
258,084 513,853 771,937 249,789 1987 06/87 (b)
229,198 408,702 637,900 114,884 1993 07/93 (b)
202,084 402,223 604,307 191,056 1987 10/87 (b)
430,281 648,736 1,079,017 299,139 1988 08/87 (b)
54,093 200,141 254,234 96,179 1986 08/87 (b)
75,963 168,204 244,167 80,831 1986 08/87 (b)
71,512 145,191 216,703 69,772 1974 08/87 (b)
70,208 141,004 211,212 66,194 1977 12/87 (b)
208,781 518,884 727,665 239,263 1988 10/87 (b)
218,677 274,992 493,669 136,732 1987 02/87 (b)
166,302 449,914 616,216 217,458 1986 07/87 (b)
782,609 550,346 1,332,955 264,472 1987 08/87 (b)
152,567 355,990 508,557 164,639 1987 02/88 (b)
85,517 136,838 222,355 55,610 1973 10/87 (b)
- ------------- ------------ ----------- -----------
$5,190,252 $7,291,925 $12,482,177 $3,426,361
============= ============ =========== ===========
$330,568 $220,588 $551,156 $104,472 1987 10/87 (b)
============= ============ =========== ===========
$295,987 $780,451 $1,076,438 $342,531 1988 10/87 (b)
============= ============ =========== ===========
$261,013 $489,757 $750,770 $9,606 1987 07/87 (m)
============= ============ =========== ===========
$260,439 $545,126 $805,565 $132,223 1994 09/94 (b)
============= ============ =========== ===========
$440,843 - $440,843 (i) 1997 10/97 (l)
============= ============ =========== ===========
$264,272 $1,155,018 $1,419,290 $154,951 1996 12/97 (b)
============= ============ =========== ===========
$875,659 $1,389,366 $2,265,025 $185,373 1994 12/97 (b)
============= ============ =========== ===========
$678,890 $825,076 $1,503,966 $109,151 1997 01/98 (b)
============= ============ =========== ===========
- (j) (j) (i) 1997 10/97 (n)
=============
- (k) (k) (j) 1997 01/98 (j)
=============
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
Costs Capitalized
Subsequent to
Initial Cost Acquisition
------------------------- ---------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
----------- ------------ ----------- ----------- --------
Properties the Partnership
has Invested in:
Burger King Restaurant:
San Antonio, Texas - $373,095 $384,458 - -
Checkers Drive-In Restaurants:
Fayetteville, Georgia - 338,735 - - -
Atlanta, Georgia - 317,128 - - -
Denny's Restaurants:
Casper, Wyoming (m) - 184,285 - - -
Rock Springs, Wyoming (n) - 217,448 488,991 - -
Golden Corral Family
Steakhouse Restaurants:
Tomball, Texas - 311,019 529,759 22,330 -
Pineville, Louisiana (e) - 187,961 503,435 - -
Nederland, Texas - 327,473 520,701 - -
Hableanos Mexican Grill Restaurant:
Hueytown, Alabama - 258,084 513,853 - -
Jack in the Box Restaurant:
Lubbock, Texas - 229,198 408,702 - -
KFC Restaurant: -
Eagan, Minnesota - 202,084 370,247 31,976 -
Lonestar Steakhouse &
Saloon Restaurant:
Sterling Heights, Michiga- (f) 430,281 - 648,736 -
Pizza Hut Restaurants:
Clayton, New Mexico - 54,093 200,141 - -
Santa Rosa, New Mexico - 75,963 168,204 - -
Childress, Texas - 71,512 145,191 - -
Coleman, Texas - 70,208 141,004 - -
Ponderosa Steakhouse Restaurant:
Scottsburg, Indiana - 208,781 - 518,884 -
Popeyes Famous Fried
Chicken Restaurants:
Ocala, Florida - 218,677 274,992 - -
Wendy's Old Fashioned
Hamburger Restaurants:
Gainesville, Texas - 166,302 449,914 - -
Vail, Colorado - 782,609 - 550,346 -
Other:
Oxford, Alabama (g) - 152,567 355,990 - -
Lombard, Illinois (h) - 85,517 96,205 40,633 -
------------ ----------- ----------- --------
$5,263,020 $5,551,787 $1,812,905 -
============ =========== =========== ========
Property of Joint Venture in
Which the Partnership has a
50% Interest and has Invested
in Under an Operating Lease:
Pizza Hut Restaurant:
Orlando, Florida - $330,568 $220,588 - -
============ =========== =========== ========
Property of Joint Venture in
Which the Partnership has a
49% Interest and has Invested
in Under an Operating Lease:
Denny's Restaurant:
Holland, Michigan - $295,987 - $780,451 -
============ =========== =========== ========
Property of Joint Venture in
Which the Partnership has a
64% Interest and has Invested
in Under an Operating Lease:
Darryl's Restaurant:
Greensboro, North Carolina (o- $261,013 $489,757 - -
============ =========== =========== ========
Property in Which the Partnership
has a 33.87% Interest as Tenants-
In-Common and has Invested
in Under an Operating Lease
Arby's Restaurant:
Arvada, Colorado - $260,439 $545,126 - -
============ =========== =========== ========
Property in Which the Partnership
has a 57.91% Interest as Tenants
-in-Common and has Invested in
Under an Operating Lease:
Del Taco Restaurant:
Mesa, Arizona - $440,843 - - -
============ =========== =========== ========
Property in Which the
Partnership has a 47%
Interest as Tenants-In-
Common and has Invested
in Under an Operating Lease:
Golden Corral Restaurant:
Smithfield, North Carolina - $264,272 $1,155,018 - -
============ =========== =========== ========
Property in Which the
Partnership has a 37.01%
Interest as Tenants-in-
Common and has Invested
in Under an Operating Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $875,659 $1,389,366 - -
============ =========== =========== ========
Property in Which the
Partnership has a 13.38%
Interest as Tenants-In-
Common and has Invested
in Under an Operating Lease:
IHOP Restaurant
Memphis, Tennessee - $678,890 $825,076 - -
============ =========== =========== ========
Property of Joint Venture in
Which the Parnership has a
64% Interest has Invested in
Under a Direct Financing Lease:
Boston Market Restaurant:
Mesa, Arizona - - $650,622 - -
============ =========== =========== ========
Property inWhich the
Partnership has a 39.39%
Interest as Tenants- In-Common
and has Invested in Under a
Direct Financing Lease:
IHOP Restaurant
Overland Park, Kansas - $335,374 $1,273,134 - -
============ =========== =========== ========
Net Cost Basis at Which Life on Which
Carried at Close of Period (c) Depreciation in
- ----------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
- ------------- ------------ ----------- ----------- ------- -------- ------------
$373,095 $384,458 $757,553 $185,821 1987 07/87 (b)
338,735 - 338,735 (d) - 12/94 (d)
317,128 - 317,128 (d) - 12/94 (d)
184,285 - 184,285 (m) 1983 09/87 (b)
144,680 416,224 560,904 230,874 1983 09/87 (b)
311,019 552,089 863,108 268,697 1987 05/87 (b)
187,961 503,435 691,396 244,725 1987 06/87 (b)
327,473 520,701 848,174 250,226 1987 08/87 (b)
258,084 513,853 771,937 249,789 1987 06/87 (b)
229,198 408,702 637,900 114,884 1993 07/93 (b)
202,084 402,223 604,307 191,056 1987 10/87 (b)
430,281 648,736 1,079,017 299,139 1988 08/87 (b)
54,093 200,141 254,234 96,179 1986 08/87 (b)
75,963 168,204 244,167 80,831 1986 08/87 (b)
71,512 145,191 216,703 69,772 1974 08/87 (b)
70,208 141,004 211,212 66,194 1977 12/87 (b)
208,781 518,884 727,665 239,263 1988 10/87 (b)
218,677 274,992 493,669 136,732 1987 02/87 (b)
166,302 449,914 616,216 217,458 1986 07/87 (b)
782,609 550,346 1,332,955 264,472 1987 08/87 (b)
152,567 355,990 508,557 164,639 1987 02/88 (b)
85,517 136,838 222,355 55,610 1973 10/87 (b)
- ------------- ------------ ----------- -----------
$5,190,252 $7,291,925 $12,482,177 $3,426,361
============= ============ =========== ===========
$330,568 $220,588 $551,156 $104,472 1987 10/87 (b)
============= ============ =========== ===========
$295,987 $780,451 $1,076,438 $342,531 1988 10/87 (b)
============= ============ =========== ===========
$261,013 $489,757 $750,770 $9,606 1987 07/87 (m)
============= ============ =========== ===========
$260,439 $545,126 $805,565 $132,223 1994 09/94 (b)
============= ============ =========== ===========
$440,843 - $440,843 (i) 1997 10/97 (l)
============= ============ =========== ===========
$264,272 $1,155,018 $1,419,290 $154,951 1996 12/97 (b)
============= ============ =========== ===========
$875,659 $1,389,366 $2,265,025 $185,373 1994 12/97 (b)
============= ============ =========== ===========
$678,890 $825,076 $1,503,966 $109,151 1997 01/98 (b)
============= ============ =========== ===========
- (j) (j) (i) 1997 10/97 (n)
=============
- (k) (k) (j) 1997 01/98 (j)
=============
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(a) Transactions in real estate and accumulated depreciation during 2001,
2000 and 1999, are summarized as follows:
Accumulated
Cost Depreciation
---------------- -----------------
Properties the Partnership has Invested in Under
Operating Leases:
Balance, December 31, 1998 $ 16,466,663 $ 3,631,359
Dispositions (901,782 ) (187,294 )
Depreciation expense -- 323,404
---------------- -------------------
Balance, December 31, 1999 15,564,881 3,767,469
Addition 34,166 --
Dispositions (2,088,217 ) (565,157 )
Depreciation expense -- 298,325
---------------- -----------------
Balance, December 31, 2000 13,510,830 3,500,637
Provision for write-down of assets (145,535 ) --
Dispositions (467,936 ) (139,862 )
Loss from casualty on assets (415,181 ) (198,364 )
Depreciation expense -- 263,950
---------------- -----------------
Balance, December 31, 2001 $ 12,482,177 $ 3,426,361
================ =================
Property of Joint Venture in Which the Partnership has a 50%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 551,156 $ 82,415
Depreciation expense -- 7,353
---------------- -----------------
Balance, December 31, 1999 551,156 89,768
Depreciation expense -- 7,352
---------------- -----------------
Balance, December 31, 2000 551,156 97,120
Depreciation expense -- 7,352
---------------- -----------------
Balance, December 31, 2001 $ 551,156 $ 104,472
================ =================
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -------------------
Property of Joint Venture in Which the Partnership has a 49%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 1,076,438 $ 264,486
Depreciation expense -- 26,015
---------------- -----------------
Balance, December 31, 1999 1,076,438 290,501
Depreciation expense -- 26,015
---------------- -----------------
Balance, December 31, 2000 1,076,438 316,516
Depreciation expense -- 26,015
---------------- -----------------
Balance, December 31, 2001 $ 1,076,438 $ 342,531
================ =================
Property of Joint Venture in Which the Partnership has a 64%
Interest and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 261,013 $ --
Depreciation expense (i) -- --
---------------- -----------------
Balance, December 31, 1999 261,013 --
Depreciation expense (i) -- --
---------------- -----------------
Balance, December 31, 2000 261,013 --
Reclassified to operating lease 489,757 --
Depreciation expense -- 9,606
---------------- -----------------
Balance, December 31, 2001 $ 750,770 $ 9,606
================ =================
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -------------------
Property in Which the Partnership has a 33.87% Interest as
Tenants-in-Common and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 805,565 $ 77,712
Depreciation expense -- 18,171
---------------- -----------------
Balance, December 31, 1999 805,565 95,883
Depreciation expense -- 18,170
---------------- -----------------
Balance, December 31, 2000 805,565 114,053
Depreciation expense -- 18,170
---------------- -----------------
Balance, December 31, 2001 $ 805,565 $ 132,223
================ =================
Property in Which the Partnership has a 57.91% Interest as
Tenants-in-Common and had Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 1,091,465 $ 25,836
Depreciation expense -- 21,688
---------------- -----------------
Balance, December 31, 1999 1,091,465 47,524
Depreciation expense -- 21,688
---------------- -----------------
Balance, December 31, 2000 1,091,465 69,212
Reclassified to capital lease (l) (650,622 ) (83,911 )
Depreciation expense -- 14,699
---------------- -----------------
Balance, December 31, 2001 $ 440,843 $ --
================ =================
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- ----------------
Property in Which the Partnership has 47% Interest as
Tenants-in-Common and had Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 1,419,290 $ 39,450
Depreciation expense -- 38,501
---------------- ----------------
Balance, December 31, 1999 1,419,290 77,951
Depreciation expense -- 38,500
---------------- ----------------
Balance, December 31, 2000 1,419,290 116,451
Depreciation expense -- 38,500
---------------- ----------------
Balance, December 31, 2001 $ 1,419,290 $ 154,951
================ ================
Property in Which the Partnership has a 37.01%
Interest as Tenants-in-Common and had Invested in
Under an Operating Lease:
Balance, December 31, 1998 $ 2,265,025 $ 46,437
Depreciation expense -- 46,312
---------------- ----------------
Balance, December 31, 1999 2,265,025 92,749
Depreciation expense -- 46,312
---------------- ----------------
Balance, December 31, 2000 2,265,025 139,061
Depreciation expense -- 46,312
---------------- ----------------
Balance, December 31, 2001 $ 2,265,025 $ 185,373
================ ================
Property in Which the Partnership has a 13.38% Interest as
Tenants-in-Common and had Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 1,503,966 $ 26,642
Depreciation expense -- 27,503
---------------- ----------------
Balance, December 31, 1999 1,503,966 54,145
Depreciation expense -- 27,503
---------------- ----------------
Balance, December 31, 2000 1,503,966 81,648
Depreciation expense -- 27,503
---------------- ----------------
Balance, December 31, 2001 $ 1,503,966 $ 109,151
================ ================
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
---------------- -----------------
Property of Joint Venture in Which the Partnership has a 48%
Interest and has Invested in Under a Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisitions 466,183 --
Depreciation expense (j) -- --
---------------- -----------------
Balance, December 31, 1999 466,183 --
Depreciation expense (j) -- --
---------------- -----------------
Balance, December 31, 2000 466,183 --
Dispositions (466,183 ) --
Depreciation expense (j) -- --
---------------- -----------------
Balance, December 31, 2001 $ -- $ --
================ =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2000, the aggregate cost of the Properties owned by
the Partnership and the joint ventures (including the Properties held
as tenants-in-common) for federal income tax purposes was $12,996,489
and $10,881,692, respectively. All of the leases are treated as
operating leases for federal income tax purposes.
(d) The building portion of this Property is owned by the tenant;
therefore, depreciation is not applicable.
(e) The tenant of this Property, Golden Corral Corporation, has subleased
this Property to a local, independent restaurant. Golden Corral
Corporation continues to be responsible for complying with all the
terms of the lease agreement and is continuing to pay rent on this
Property to the Partnership.
(f) The restaurant in Sterling Heights, Michigan, was converted from a
Ponderosa Steakhouse Restaurant to a Lonestar Steakhouse & Saloon
Restaurant in 1994.
(g) The restaurant in Oxford, Alabama, was converted from a KFC Restaurant
to a regional, independent restaurant in 1993.
(h) The restaurant in Lombard, Illinois, was converted from a Taco Bell
restaurant to a Great Clips hair salon in 1996.
(i) The portion of the lease relating to the building has been included in
net investment in direct financing leases; therefore, depreciation is
not applicable.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
(j) Certain components of the lease relating to the land and building have
been recorded as a direct financing lease. Accordingly, costs relating
to these components of this lease are not shown.
(k) During the year ended December 31, 1997, the Partnership and an
affiliate as tenants-in-common, purchased land and building from CNL BB
Corp., an affiliate of the General Partners, for an aggregate cost of
$1,091,465.
(l) Effective September 15, 2001, this Property was re-leased, resulting in
a reclassification of the building portion of the lease as a capital
lease.
(m) In October 2001, the Property in Casper, Wyoming was partially
destroyed by fire. As a result, the Partnership recorded a provision
for write-down of assets of $78,015 which represents the portion of the
loss incurred by the Partnership in excess of insurance proceeds. As of
December 31, 2001, the total undepreciated cost of the building of
$216,817 was removed from the accounts; therefore, depreciation is not
applicable.
(n) The undepreciated cost of the Property in Rock Springs, Wyoming, was
written down to net realizable value due to an impairment in value. The
Partnership recognized the impairment by recording a provision for
write-down of assets in the amount of $145,535 during 2001. The
impairment represented the difference between the Property's carrying
value and the estimated net realizable value of the Property at
December 31, 2001. The cost of the Property presented on this schedule
is the net cost basis at which the Property was carried at December 31,
2001, including the provision for write-down of assets.
(o) In January 2002, the lease for this Property was terminated, resulting
in the reclassification of the building portion of the lease as an
operating lease at December 31, 2001. The building was recorded at net
book value as of December 31, 2001 and depreciated over its remaining
estimated life of approximately 26 years.