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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, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16824
CNL INCOME FUND II, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2733859
(State or other jurisdiction of (I.R.S. Employer 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. [ ]
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 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. As a result of the above transactions, as of December 31, 2000,
the Partnership owned 33 Properties. The 33 Properties include interests in four
Properties owned by joint ventures in which the Partnership is a co-venturer and
six Properties owned with affiliates as tenants-in-common. 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 2019. 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 $8,600 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 25 of the Partnership's 33 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. Additionally, certain
leases provide the lessee an option to purchase up to a 49 percent joint venture
interest in the Property, after a specified portion of the lease term has
elapsed, at an option purchase price similar to those described above multiplied
by the percentage interest in the Property with respect to which the option is
being 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.
During 2000, the tenant of the Property in Ocala, Florida, RMS Family
Restaurants, Inc., assigned its lease to Sailormen, Inc. In accordance with the
original lease, in October 2000, the lease was automatically extended for the
first five-year renewal option. All lease terms remained unchanged and are
substantially the same as the Partnership's other leases as described above.
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 the Property in Mesa, Arizona. As a
result, this tenant discontinued making rental payments on the rejected lease.
Rental income will not be recognized for this Property until a replacement
tenant is located.
Major Tenant
During 2000, one lessee of the Partnership, Golden Corral Corporation,
contributed more than ten percent of the Partnership's total rental income
(including the Partnership's share of the rental income from four Properties
owned by joint ventures and six Properties owned with affiliates of the General
Partners as tenants-in-common). As of December 31, 2000, Golden Corral
Corporation was the lessee under leases relating to five 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 2001. In addition, one Restaurant Chain,
Golden Corral Family Steakhouse Restaurants ("Golden Corral"), accounted for
more than ten percent of the Partnership's total rental income in 2000
(including the Partnership's share of the rental income from four Properties
owned by joint ventures and six Properties owned with affiliates of the General
Partners as tenants-in-common). In 2001, it is anticipated that this Restaurant
Chain will continue to account for more than ten percent of the total rental
income to which the Partnership is entitled under the terms of its leases. Any
failure of the lessee or Restaurant Chain 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, 2000, no single tenant or group of
affiliated tenants leased Properties with an aggregate carrying value in excess
of 20 percent 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. 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 percent interest in
Kirkman Road Joint Venture, a 49 percent interest in Holland Joint Venture, a 64
percent interest in Show Low Joint Venture, and a 48 percent interest in Peoria
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, Show Low Joint
Venture, and Peoria 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 Show Low Joint Venture, and Peoria Joint Venture is distributed 50
percent, 49 percent, 64 percent, and 48 percent, 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
percent, 47 percent, 37 percent, 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 Fund Advisors, Inc., 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 Fund Advisors, Inc. 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. CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases. For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. 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.
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 CNL
Fund Advisors, Inc., 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, 2000, the Partnership owned 33 Properties. Of the 33
Properties, 23 are owned by the Partnership in fee simple, four 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, 2000.
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, 2000 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, 2000.
State Number of Properties
Alabama 2
Arizona 2
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 8
Washington 1
Wyoming 2
--------------
TOTAL PROPERTIES: 33
==============
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, 2000, 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 18, 19 and 39 years
for federal income tax purposes.
As of December 31, 2000, 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 $13,464,425 and
$12,468,506, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2000 by Restaurant Chain.
Restaurant Chain Number of Properties
Arby's 1
Boston Market 1
Burger King 1
Checkers 2
Chevy's Fresh Mex 1
Darryl's 1
Denny's 3
Golden Corral 5
IHOP 3
Jack in the Box 1
KFC 2
Pizza Hut 5
Ponderosa 1
Popeyes 1
Wendy's 2
Other 3
--------------
TOTAL PROPERTIES 33
==============
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, 2000 , the Properties were 97% occupied, and. as of
December 31, 1999, 1998, 1997, and 1996, the Properties were fully occupied. The
following is a schedule of the average rent per Property for the years ended
December 31:
2000 1999 1998 1997 1996
------------- ------------- -------------- ------------- --------------
Rental Revenues (1) $ 2,142,668 $2,255,787 $2,337,182 $ 2,277,558 $ 2,485,645
Properties (2) 32 37 38 36 40
Average Rent per Property
$ 66,958 $ 60,967 $ 61,505 $ 63,266 $ 62,141
(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 an allowance 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, 2000, for each of the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- --------------------- --------------------------
2001 -- $ -- --
2002 4 341,613 21.19%
2003 1 43,200 2.68%
2004 1 96,600 5.99%
2005 2 30,492 1.89%
2006 1 63,172 3.92%
2007 12 766,217 47.53%
2008 -- -- --
2009 -- -- --
2010 -- -- --
Thereafter 11 270,825 16.80%
---------- ------------- -------------
Totals 32 (1) $ 1,612,119 100.00%
========== ============= =============
(1) Excludes one Property which was vacant at December 31, 2000.
Leases with Major Tenant.
The terms of the leases with the Partnership's major tenant as of
December 31, 2000 (see Item 1. Business - Major Tenant), are substantially the
same as those described in Item 1. Business - Leases.
Golden Corral Corporation leases five 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 $98,900 (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, 2001, 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 2000, 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 had the right to prohibit transfers of Units. From
inception through June30, 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 2000, due primarily to the sales of Properties, the price paid for any
Unit transferred pursuant to the Plan was $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 2000 and 1999 other than
pursuant to the Plan, net of commissions.
2000 (1) 1999 (1)
----------------------------------- -----------------------------------
High Low Average High Low Average
--------- -------- ---------- --------- -------- -----------
First Quarter (2) (2) (2) $355 $355 $355
Second Quarter $ 461 $335 $ 374 473 473 473
Third Quarter (2) (2) (2) (2) (2) (2)
Fourth Quarter 332 232 314 380 337 365
(1) A total of 172 and 343 Units were transferred other than pursuant to
the Plan for the years ended December 31, 2000 and 1999, 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, 2000 and 1999, the Partnership
declared cash distributions of $4,397,916 and $2,062,516, respectively, to the
Limited Partners. During 2000, distributions included a special distribution of
$2,500,000 as a result of the distribution of net sales proceeds from the 2000
sales of the Properties in Jacksonville, Apopka, Sanford, and Altamonte Springs,
Florida. This special distribution was effectively a return of a portion of the
Limited Partners' investment, although, in accordance with the Partnership
Agreement, $1,407,878 was applied toward the Limited Partners' 10% Preferred
Return and the balance of $1,092,122 was treated as a return of capital for
purposes of calculating the Limited Partners' 10% Preferred Return. As a result
of the return of capital, the amount of the Limited Partners' invested capital
contributions (which generally is the Limited Partners' capital contributions,
less distributions from the sale of a Property that are considered to be a
return of capital) was decreased; therefore, the amount of the Limited Partners'
invested capital contributions on which the 10% Preferred Return is calculated
was lowered accordingly. Distributions of net cash flow were adjusted commencing
during the quarter ended September 30, 2000. As a result of the sale of these
Properties, the Partnership's total revenue was reduced during 2000 and is
expected to remain reduced in subsequent years, while the majority of the
Partnership's operating expenses remain fixed, therefore, no amounts distributed
to the Limited Partners for the year 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. 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 2000 1999
------------------------- --------------- ----------------
March 31 $ 515,629 $ 515,629
June 30 515,629 515,629
September 30 2,933,329 515,629
December 31 433,329 515,629
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
2000 1999 1998 1997 1996
-------------- --------------- -------------- -------------- ---------------
Year ended December 31:
Revenues (1) $ 2,109,102 $ 2,244,389 $2,337,414 $2,547,854 $2,455,884
Net income (2) 2,275,569 1,699,378 1,733,739 3,639,880 1,866,961
Cash distributions
declared (3) 4,397,916 2,062,516 3,294,507 2,376,000 2,376,000
Net income per Unit (2) 45.51 33.69 34.32 72.18 36.97
Cash distributions
declared per Unit 66.12 41.25 65.89 47.52 47.52
At December 31:
Total assets $15,833,995 $18,026,218 $18,392,911 $19,959,059 $18,617,318
Partners' capital 15,155,396 17,277,743 17,640,881 19,201,649 17,937,769
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the years ended December 31, 2000, 1999 and 1997,
includes $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 year ended December 31, 1998 has been reduced by real estate
disposition fees of $45,150 as a result of the 1997 sales of two
Properties. Net income for the year ended December 31, 1997, also
includes lease termination income of $214,000, 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 three of the Properties sold.
(3) Distributions for the year ended December 31, 2000 include a special
distribution to the Limited Partners of $2,500,00 as a result of the
distribution of the net sales proceeds from the 2000 sales of four
Properties. Distributions for the year ended December 31, 1998 include
a special distribution to the Limited Partners of $1,232,003 as a
result of the distribution of the net sales proceeds from the 1997
sales of two 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, 2000, the Partnership owned 33 Properties, either directly or indirectly
through joint venture or tenancy in common arrangements.
Capital Resources
During the years ended December 31, 2000, 1999, and 1998, 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 $1,741,141, $2,004,997, and $2,135,691, respectively. 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, and a result of changes in the Partnership's working capital.
The decrease in cash from operations during 1999, as compared to 1998, 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, 2000, 1999, and 1998.
In connection with the sale during 1997 of its Property in Eagan,
Minnesota, the Partnership accepted a promissory note in the principal sum of
$42,000. The promissory note bore interest at a rate of 10.50% per annum and is
collateralized by personal property. Initially, the note was to be collected in
18 monthly installments of interest only, and thereafter, the entire principal
balance was to become due. During 1998, the note was amended to require six
monthly installments of $7,368, including interest, commencing on July 1, 1998.
As of December 31, 1998, the mortgage note receivable balance was $6,872
including accrued interest of $56. In January 1999, the balance, including
accrued interest, was collected.
In January 1998, the Partnership reinvested a portion of the net sales
proceeds from Properties sold in 1997, in a Property in Overland Park, Kansas,
and a Property in Memphis, Tennessee, as tenants-in-common with affiliates of
the General Partners. During 1998, the Partnership distributed the remaining net
sales proceeds from the Properties sold in 1997 to the Limited Partners in a
special distribution, as described below in "Short-Term Liquidity."
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 for financial reporting purposes. This Property was originally acquired
by the Partnership in November 1987 and had a cost of approximately $511,200,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold the Property for approximately $166,500 in excess of its
original purchase price. 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 for financial reporting purposes. 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 percent interest in the profits
and losses of the joint venture as of December 31, 2000.
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 $2,361,000 and received total net sales proceeds of approximately
$2,290,000, resulting in a total gain of $766,913 for financial reporting
purposes. These Properties were originally acquired by the Partnership in 1987
and had a total cost of approximately $1,973,100, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold these
Properties for a total of approximately $316,900 in excess of their original
purchase prices. 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 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 percent of
the actual clean-up costs and will receive assistance for the remaining 75
percent of the costs. The Partnership anticipates that future clean-up costs
will be approximately $300,000 and as of December 31, 2000, had accrued 25
percent, or $75,000 of the estimated clean-up costs as a liability.
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 30-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, 2000, the Partnership had $492,503 invested in such short-term
investments, as compared to $904,715 at December 31, 1999. As of December 31,
2000, the average interest rate earned on the rental income deposited in demand
deposit accounts at commercial banks was approximately 5.15% annually. The funds
remaining at December 31, 2000, will be used for the payment of distributions
and other liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
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.
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, 2000 and 1998, 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 $4,397,916,
$2,062,516, and $3,294,507 for years ended December 31, 2000, 1999, and 1998,
respectively. This represents distributions of $66.12, $41.25, and $65.89 per
Unit for the years ending in December 31, 2000, 1999, and 1998, respectively.
Distributions for the years ended December 31, 2000 and 1998, included
$2,500,000 and $1,232,003, respectively, as a result of the distribution of the
majority of the net sales proceeds from the 2000 and 1997 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, $1,407,878 and $1,232,003, respectively, was applied
toward the Limited Partners' 10% Preferred Return and the balance of $1,092,122
from the special distribution was treated as a return of capital for purposes of
calculating the Limited Partners' 10% Preferred Return. As a result of the
return of capital, the amount of the Limited Partners' invested capital
contributions (which generally is the Limited Partners' capital contributions,
less distributions from the sale of a Property that are considered to be a
return of capital) was decreased; therefore, the amount of the Limited Partners'
invested capital contributions on which the 10% Preferred Return is calculated
was lowered accordingly. As a result of the sales of these Properties, the
Partnership's total revenue was reduced during 2000, 1999, and 1998 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 March 31, 1998 and
September 30, 2000. No distributions were made to the General Partners for the
years ended December 31, 2000, 1999 and 1998. No amounts distributed to the
Limited Partners for the years ended December 31, 1999 and 1998, 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, 2000.
As of December 31, 2000 and 1999, the Partnership owed $3,451 and
$60,504, respectively, to affiliates for operating expense and accounting and
administrative services. As of March 15, 2001, the Partnership had reimbursed
the affiliates all such amounts. In addition, the years ended December 31, 2000
and 1998, the Partnership incurred $71,056 and $45,150, respectively, in real
estate disposition fees due to an affiliate as a result of its services in
connection with the 2000 and 1997 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,
decreased to $558,942 at December 31, 2000, from $642,821 at December 31, 1999,
primarily as a result of the Partnership reducing distributions of net cash
flow, as discussed above. Total liabilities at December 31, 2000, to the extent
they exceed cash and cash equivalents, will be paid from future cash from
operations, and in the event the General Partners elect to make additional
contributions, from General Partners' contributions.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During 1998 and 1999, the Partnership owned and leased 29 wholly owned
Properties (including two Properties sold during 1999), and during 2000, the
Partnership owned and leased 27 wholly owned Properties (including four
Properties sold during 2000). In addition, during 1998, the Partnership was a
co-venturer in three separate joint ventures that each owned and leased one
Property, and during 1999 and 2000, the Partnership was a co-venturer in one
additional joint venture that owned and leased one Property. During 2000, 1999
and 1998, the Partnership owned and leased six Properties with affiliates, as
tenants-in-common. As of December 31, 2000, the Partnership owned, either
directly, as tenants-in-common with affiliates of the General Partners, or
through joint venture arrangements, 33 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 $8,600 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, 2000, 1999, and 1998, the
Partnership earned $1,565,082, $1,695,181 and $1,773,925, respectively, in
rental income from the Partnership's wholly owned Properties described above.
The decrease in rental income during 2000 and 1999, each as compared to the
previous year, was primarily a result of the sales of four Properties during
2000, and the sales of two Properties during 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."
In addition, rental income decreased during 2000, partially as a result
of the Partnership establishing an allowance for doubtful accounts of
approximately $59,900 for past due rental amounts relating to the Property in
Rock Springs, Wyoming in accordance with the Partnership's collection policy.
The General Partners will continue to pursue collection of past due rental
amounts relating to this Property and will recognize such amounts as income if
collected.
Rental income decreased during 1999, as compared to 1998, partially as
a result of the Partnership establishing an allowance for doubtful accounts of
approximately $18,500 for past due rental amounts relating to the Properties in
Casper and Rock Springs, Wyoming in accordance with the Partnership's collection
policy. The decrease in rental income during 2000, was partially offset by the
fact that during 2000, the Partnership collected and recognized as income,
approximately $11,800 of these past due rental amounts, relating to the Property
in Casper, Wyoming. The General Partners will continue to pursue collection of
the remaining past due rental amounts and recognize such amounts as income when
collected, as discussed above.
During the years ended December 31, 2000, 1999, and 1998, the
Partnership also earned $48,854, $40,045, and $51,029, respectively, in
contingent rental income. Contingent rental income was lower in 1999, as
compared to 2000 and 1998, as a result of the fact that during 1999 the
Partnership adjusted estimated contingent rental amounts accrued at December 31,
1998, to actual amounts.
During the years ended December 31, 2000, 1999, and 1998, the
Partnership also earned $443,567, $440,215, and $431,974, respectively,
attributable to net income earned by joint ventures in which the Partnership is
a co-venturer. Net income earned by joint ventures increased during 2000 and
1999, each as compared to the previous year, 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 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
percent interest, filed for bankruptcy, and during 2000, rejected its lease
relating to the Property in Mesa, Arizona. As a result, this tenant discontinued
making rental payments on the rejected lease. In conjunction therewith, during
2000, the tenants in common established an allowance for doubtful accounts of
approximately $4,600 relating to past due rental amounts and reversed
approximately $31,500 of accrued rental income. The accrued rental income was
the accumulated amount of non-cash accounting adjustments previously recorded in
order to recognize future scheduled rent increases as income evenly over the
term of the lease. Rental income will not be recognized for this Property until
a replacement tenant is located. Accordingly, the Partnership expects that net
income earned by joint ventures will remain at reduced levels until a
replacement tenant is located for this Property.
During the year ended December 31, 2000, one of the Partnership's
lessees, Golden Corral Corporation, contributed more than ten percent of the
Partnership's total rental income (including the Partnership's share of rental
income from four Properties owned by joint ventures and six Properties owned
with affiliates of the General Partners as tenants-in-common). As of December
31, 2000, Golden Corral Corporation was the lessee under leases relating to five
restaurants. It is anticipated that, based on the minimum annual rental payments
required by the leases, this lessee will continue to contribute more than ten
percent of the Partnership's total rental income during 2001. In addition,
during the year ended December 31, 2000, one Restaurant Chain, Golden Corral,
accounted for more than ten percent of the Partnership's total rental income
(including the Partnership's share of the rental income from four Properties
owned by joint ventures and six Properties owned with affiliates of the General
Partners as tenants-in-common). In 2001, it is anticipated that this Restaurant
Chain will continue to account for more than ten percent of the total rental
income to which the Partnership is entitled under the terms of its leases. Any
failure of this lessee or Restaurant Chain 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,
were $600,446, $658,178, and $558,525, for the years ended December 31, 2000,
1999, and 1998, respectively. The decrease in operating expenses during 2000 and
the increase during 1999, each as compared to the previous year, was primarily
due to the amount of transaction costs the Partnership incurred related to the
General Partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed and terminated merger with APF, as
described in "Termination of Merger." In addition, the decrease in operating
expenses 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 2000 and 1999, as described in "Capital Resources." The decrease during
2000, was partially offset by an increase as a result of the Partnership
recording $75,000 in estimated environmental clean-up costs relating to the
contamination of the Property in Ocala, Florida as described in "Capital
Resources." The decrease was also partially offset by an increase in repairs and
maintenance expenses relating to its Property in Rock Springs, Wyoming. The
payment of repairs and maintenance relating to this Property remains the
responsibility of the tenant; however, because of the financial difficulties the
tenant is experiencing, the General Partners believe the tenant's ability to pay
these expenses is doubtful. The Partnership will continue to pursue collection
of any such amounts unpaid by the tenant and will recognize such amounts as
income it collected.
The decrease in operating expenses during 2000, as compared to 1999 and
the increase during 1999 as compared to 1998, are both partially attributable to
the fact that professional services were higher during 1999 as a result of
litigation relating to three Properties in Gainesville, Texas and Rock Springs
and Casper, Wyoming. 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 addition, as a result of the sale of four Properties as described in
"Capital Resources," the Partnership recognized a gain totaling $766,913 for
financial reporting purposes 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 for financial reporting purposes during the year ended
December 31, 1999.
During the year ended December 31, 1998, the Partnership recorded
deferred, subordinated real estate disposition fees of $45,150 payable to CNL
Fund Advisors, Inc. relating to the 1997 sales of the Properties in Avon Park,
Florida and Farmington Hills, Michigan. Initially, the Partnership considered
reinvesting the sales proceeds in additional Properties and therefore did not
include these amounts in the determination of the gain on sale for financial
reporting purposes during 1997. However, during the year ended December 31,
1998, the Partnership declared a special distribution of net sales proceeds from
these Properties payable to the Limited Partners. Accordingly, the Partnership
recorded these subordinated real estate disposition fees during the year ended
December 31, 1998. The payment of these fees is subordinated to the Limited
Partners receiving their cumulative 10% Preferred Return and their adjusted
capital contribution.
The Partnership's leases as of December 31, 2000, are, in general,
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 base rent at specified times
during the term of the lease. Management expects that increases in restaurant
sales volumes due to inflation and real sales growth should result in an
increase in rental income (for certain Properties) over time. Continued
inflation also 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.
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 June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes accounting and
reporting standards for derivative instruments, including certain derivative
instruments, embedded in other contracts (collectively referred to as
derivatives), and for hedging activities. The Statement requires that an entity
recognize all derivatives as either assets or liabilities in the balance sheet
and measure those instruments at fair value. In June 1999, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an Amendment of FASB
Statement No. 133." FAS 137 deferred the effective date of FAS 133 for one year.
FAS 133, as amended, is now effective for all fiscal quarters of all fiscal
years beginning after June 15, 2000. The Partnership has reviewed both
statements and has determined that both FAS 133 and FAS 137 do not apply to the
Partnership as of December 31, 2000.
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 17
Financial Statements:
Balance Sheets 18
Statements of Income 19
Statements of Partners' Capital 20
Statements of Cash Flows 21-22
Notes to Financial Statements 23-37
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund II, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund II, Ltd. (a Florida limited partnership) at December 31, 2000
and 1999, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2000 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 2, 2001
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2000 1999
------------------- --------------------
ASSETS
Land and buildings on operating leases, less
accumulated depreciation $ 10,010,193 $ 11,797,412
Investment in joint ventures 5,014,272 5,079,701
Cash and cash equivalents 492,503 904,715
Receivables, less allowance for doubtful
accounts of $146,293,and $78,690 in
2000 and 1999, respectively 95,808 33,849
Due from related party 8,542 3,108
Prepaid expenses 2,145 7,738
Lease costs, less accumulated amortization of
$13,821 and $13,306 in 2000 and 1999, respectively
2,490 3,006
Accrued rental income 208,042 196,689
------------------- --------------------
$ 15,833,995 $ 18,026,218
=================== ====================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable and accrued expenses $ 100,768 $ 89,018
Escrowed real estate taxes payable 4,358 4,691
Distributions payable 433,329 515,629
Due to related parties 119,657 105,654
Rents paid in advance and deposits 20,487 33,483
------------------- --------------------
Total liabilities 678,599 748,475
Commitments and Contingencies (Note 10)
Partners' capital 15,155,396 17,277,743
------------------- --------------------
$ 15,833,995 $ 18,026,218
=================== ====================
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2000 1999 1998
---------------- --------------- ----------------
Revenues:
Rental income from operating leases $ 1,565,082 $ 1,695,181 $ 1,773,925
Contingent rental income 48,854 40,045 51,029
Interest and other income 51,599 68,948 80,486
----------------
---------------- ---------------
1,665,535 1,804,174 1,905,440
---------------- --------------- ----------------
Expenses:
General operating and administrative 225,654 126,990 160,220
Professional services 33,834 61,204 34,731
Real estate taxes 1,285 -- --
State and other taxes 9,414 15,711 14,733
Depreciation and amortization 298,841 325,943 332,633
Transaction costs 31,418 128,330 16,208
---------------- --------------- ----------------
600,446 658,178 558,525
---------------- --------------- ----------------
Income Before Equity in Earnings of Joint Ventures,
Gain on Sale of Assets and Real Estate
Disposition Fees 1,065,089 1,145,996 1,346,915
Equity in Earnings of Joint Ventures 443,567 440,215 431,974
Gain on Sale of Assets 766,913 113,167 --
Real Estate Disposition Fees -- -- (45,150 )
---------------- --------------- ----------------
Net Income $ 2,275,569 $ 1,699,378 $ 1,733,739
================ =============== ================
Allocation of Net Income:
General partners $ -- $ 14,888 $ 17,789
Limited partners 2,275,569 1,684,490 1,715,950
---------------- --------------- ----------------
$ 2,275,569 $ 1,699,378 $ 1,733,739
================ =============== ================
Net Income Per Limited Partner Unit $ 45.51 $ 33.69 $ 34.32
================ =============== ================
Weighted Average Number of
Limited Partner Units Outstanding 50,000 50,000 50,000
================ =============== ================
See accompanying notes to condensed financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2000, 1999, and 1998
General Partners
-------------------------------------
Accumulated
Contributions Earnings
------------------ ----------------
Balance, December 31, 1997 $ 162,000 $ 211,111
Distributions to limited
partners ($65.89 per
limited partner unit) -- --
Net income -- 17,789
------------------ ----------------
Balance, December 31, 1998 162,000 228,900
Distributions to limited
partners ($41.25 per
limited partner unit) -- --
Net income -- 14,888
------------------ ----------------
Balance, December 31, 1999 162,000 243,788
Distributions to limited
partners ($66.12 per
limited partner unit) -- --
Net income -- --
------------------ ----------------
Balance, December 31, 2000 $ 162,000 $ 243,788
================== ================
Limited Partners
- ------------------------------------------------------------------------------------------
Accumulated Syndication
Contributions Distributions Earnings Costs Total
- ----------------- ---------------- ----------------- -------------- --------------
$ 25,000,000 $ (25,069,377 ) $ 21,587,737 $ (2,689,822 ) $19,201,649
-- (3,294,507 ) -- -- (3,294,507 )
-- -- 1,715,950 -- 1,733,739
- ----------------- ---------------- ----------------- -------------- --------------
25,000,000 (28,363,884 ) 23,303,687 (2,689,822 ) 17,640,881
-- (2,062,516 ) -- -- (2,062,516 )
-- -- 1,684,490 -- 1,699,378
- ----------------- ---------------- ----------------- -------------- --------------
25,000,000 (30,426,400 ) 24,988,177 (2,689,822 ) 17,277,743
(1,092,122 ) (3,305,794 ) -- -- (4,397,916 )
-- -- 2,275,569 -- 2,275,569
- ----------------- ---------------- ----------------- -------------- --------------
$ 23,907,878 $ (33,732,194 ) $ 27,263,746 $ (2,689,822 ) $15,155,396
================= ================ ================= ============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Year Ended December 31,
2000 1999 1998
---------------- --------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 1,526,829 $ 1,816,812 $ 1,796,989
Distributions from joint ventures 508,341 476,092 482,671
Cash paid for expenses (341,539 ) (335,662 ) (227,335 )
Interest received 47,510 47,755 83,366
---------------- --------------- ---------------
Net cash provided by operating activities 1,741,141 2,004,997 2,135,691
---------------- --------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 2,361,028 827,678 --
Additions to land and buildings on operating
leases (34,165 ) -- --
Investment in joint ventures -- (762,151 ) (835,969 )
Collection on mortgage note receivable -- 6,816 35,183
Decrease in restricted cash -- -- 2,457,670
---------------- --------------- ---------------
Net cash provided by investing activities 2,326,863 72,343 1,656,884
---------------- --------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (4,480,216 ) (2,062,516 ) (3,372,878 )
----------------
--------------- ---------------
Net cash used in financing activities (4,480,216 ) (2,062,516 ) (3,372,878 )
---------------- --------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (412,212 ) 14,824 419,697
Cash and Cash Equivalents at Beginning of Year 904,715 889,891 470,194
---------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 492,503 $ 904,715 $ 889,891
================ =============== ===============
See accompaning notes to financial statements.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Year Ended December 31,
2000 1999 1998
--------------- --------------- --------------
Reconciliation of Net Income to Net Cash Provided
by Operating Activities:
Net Income $2,275,569 $1,699,378 $1,733,739
--------------- --------------- --------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 298,325 323,404 329,264
Amortization 516 2,539 3,369
Gain on sale of assets (766,913 ) (113,167 ) --
Equity in earnings of joint ventures, net of
distributions 65,429 35,877 50,697
Decrease (increase) in receivables (61,959 ) 85,765 (28,799 )
Increase in due from related parties (5,433 ) (3,108 ) --
Decrease (increase) in prepaid expenses 5,592 (2,937 ) 709
Increase in accrued rental income (11,353 ) (22,307 ) (26,279 )
Increase in accounts payable and accrued
expenses 11,417 81,023 860
Increase (decrease) in due to related
parties (57,053 ) (74,541 ) 57,019
Increase (decrease) in rents paid in
advance and deposits (12,996 ) (6,929 ) 15,112
--------------- --------------- --------------
Total adjustments (534,428 ) 305,619 401,952
--------------- --------------- --------------
Net Cash Provided by Operating Activities $1,741,141 $2,004,997 $2,135,691
=============== =============== ==============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Deferred real estate disposition fees incurred
and unpaid at end of period $ 71,056 $ -- $ 45,150
=============== =============== ==============
Distributions declared and unpaid at
December 31 $ 433,329 $ 515,629 $ 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, 2000, 1999, and 1998
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 percent 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, 2000, 1999, and 1998
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,
and to decrease rental or other income or increase bad debt expense for
the current period, 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, which is a joint venture arrangement with an
unaffiliated entity, is accounted for using the equity method since the
Partnership shares control of the joint venture with the unaffiliated
entity. The Partnership's investments in Holland Joint Venture, Show
Low Joint Venture, and Peoria 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, are accounted for using the equity method since the
Partnership shares control with affiliates which have the same general
partners.
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, 2000, 1999, and 1998
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 - Lease incentive costs and brokerage and legal fees
associated with negotiating new leases 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.
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 2000 presentation.
These reclassifications had no effect on partners' capital or net
income.
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
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. 133 ("FAS 133") and
Statement of Financial Accounting Standards No. 137 ("FAS 137") - In
June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The Statement establishes
accounting and reporting standards for derivative instruments,
including certain derivative instruments, embedded in other contracts
(collectively referred to as derivatives), and for hedging activities.
The Statement requires that an entity recognize all derivatives as
either assets or liabilities in the balance sheet and measure those
instruments at fair value. In June 1999, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB Statement No. 133, an Amendment
of FASB Statement No. 133." FAS 137 deferred the effective date of FAS
133 for one year. FAS 133, as amended, is now effective for all fiscal
quarters of all fiscal years beginning after June 15, 2000. The
Partnership has reviewed both statements and has determined that both
FAS 133 and FAS 137 do not apply to the Partnership as of December 31,
2000.
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
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
2. Leases - Continued:
------------------
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:
2000 1999
-------------------- --------------------
Land $ 5,425,803 $ 6,180,616
Buildings 8,085,027 9,384,265
-------------------- --------------------
13,510,830 15,564,881
Less accumulated depreciation (3,500,637 ) (3,767,469 )
-------------------- --------------------
$ 10,010,193 $ 11,797,412
==================== ====================
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
for financial reporting purposes. These properties were originally
acquired in 1987 and had a total cost of approximately $1,973,100,
excluding acquisition fees and miscellaneous acquisition expenses;
therefore, the Partnership sold the properties for approximately
$316,900 in excess of their total original purchase prices. In
connection with the sales, the Partnership incurred deferred,
subordinated, real estate disposition fees of $71,056 (see Note 8).
In March 1999, the Partnership sold its property in Columbia, Missouri
to a third party for $682,500 and received net sales proceeds of
$677,678, resulting in a gain of $192,752 for financial reporting
purposes. This property was originally acquired by the Partnership in
November 1987 and had a cost of approximately $511,200, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $166,500 in excess of
its original purchase price. In November 1999, the Partnership
reinvested these net sales proceeds in Peoria Joint Venture (see Note
4).
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
In addition, during November 1999, the Partnership sold its property in
Littleton, Colorado to an unrelated third party and received net sales
proceeds of $150,000, resulting in a loss of $79,585 for financial
reporting purposes. In November 1999, the Partnership reinvested these
net sales proceeds in Peoria Joint Venture (see Note 4).
Some of the leases provide for escalating guaranteed minimum rents
throughout the lease terms. Income from these scheduled rent increases
is recognized on a straight-line basis over the terms of the leases.
For the years ended December 31, 2000, 1999, and 1998, the Partnership
recognized $11,353, $22,307, and $26,279, respectively, of such income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2000:
2001 1,412,277
2002 1,248,098
2003 1,046,969
2004 1,018,354
2005 948,714
Thereafter 2,494,563
----------------
$8,168,975
================
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 percent, 49 percent, and 64 percent 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 percent, and a 37.01% interest in properties in
Arvada, Colorado; Mesa, Arizona; Smithfield, North Carolina; and
Vancouver, Washington, respectively,
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
4. Investment in Joint Ventures - Continued:
----------------------------------------
with affiliates of the general partners, as tenants-in-common. Amounts
relating to these investments are included in investment in joint
ventures.
In January 1998, the Partnership used the net sales proceeds from the
sales of the properties in Jacksonville, Florida and Mathis, Texas, to
acquire a 39.39% and a 13.38% interest in a property in Overland Park,
Kansas, and a property in Memphis, Tennessee, respectively, as
tenants-in-common with affiliates of the general partners.
In November 1999, the Partnership entered into a joint venture
arrangement, Peoria Joint Venture, with CNL Income Fund X, Ltd., a
Florida limited partnership and affiliate of the general partners, to
purchase and hold one restaurant property. As of December 31, 2000, the
Partnership had contributed approximately $762,200 to the joint venture
and owned a 48 percent interest in the profits and losses of the joint
venture.
Kirkman Road Joint Venture, Holland Joint Venture, Show Low Joint
Venture, Peoria 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:
2000 1999
---------------- ---------------
Land and buildings on operating leases, less
accumulated depreciation $ 8,506,040 $8,691,580
Net investment in direct financing leases 3,216,756 3,236,337
Cash 41,285 29,599
Receivables 37 24,059
Prepaid Expenses 1,485 1,684
Accrued rental income 377,319 303,403
Liabilities 30,706 33,889
Partners' capital 12,112,216 12,252,773
Revenues 1,313,152 1,272,883
Net income 1,102,214 1,072,398
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2000, 1999, and 1998
4. Investment in Joint Ventures - Continued:
----------------------------------------
The Partnership recognized income totaling $443,567, $440,215 and
$431,974 for the years ended December 31, 2000, 1999, 1998,
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
percent 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 and 1999, the balance of the allowance for
doubtful accounts was $61,262 and $58,696, respectively, including
accrued interest of $9,702 and $7,136, respectively, representing the
uncollected amounts under this promissory note.
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