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, totalled $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. The remaining net sales proceeds were used to distribute to limited partners amounts sufficient to pay state and federal income taxes, as described in the Partnership's prospectus, to pay Partnership expenses and to meet other working capital needs of the Partnership. 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. The lessee of the two Properties consisting of only land owns the buildings currently on the land and has the right, if not in default under the lease, to remove the buildings from the land at the end of the lease terms. As a result of the above transactions, the Partnership currently owns 40 Properties, including interests in three Properties owned by joint ventures in which the Partnership is a co-venturer and one Property owned with an affiliate as tenants-in-common. During January 1997, Show Low Joint Venture, in which the Partnership owns a 64 percent interest, sold its Property to the tenant. The joint venture intends to reinvest the sales proceeds in an additional Property in 1997. Generally, the Properties are leased on a triple-net basis with the lessee 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 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. In general, the General Partners plan to seek the sale of the remaining Properties commencing seven to 15 years after their acquisition. 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 or joint venture purchase options granted to certain lessees.
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 18 years), and expire between 1998 and 2016. Generally, the leases are on a triple-net basis, with the lessee generally 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 $8,300 to $150,000. 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. Certain lessees also have been granted options to purchase Properties at the Property's then fair market value, or pursuant to a formula based on the original cost of the Property, after a specified portion of the lease term has elapsed. 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.
The term of the lease relating to the Property in Lombard, Illinois, expired in February 1993, and the tenant did not renew the lease. In November 1995, the Partnership entered into a new lease for the Property in Lombard, Illinois, with a new tenant to operate the Property as a Great Clips hair salon and rental payments are expected to commence in July 1997. In connection therewith, the Partnership funded approximately $40,600 in renovation costs during the year ended December 31, 1996. The renovations were completed in November 1996. The new lease is for a term of ten years, with one five-year renewal option; however, the tenant has a one-time option to terminate the lease after five years, subject to a termination fee of approximately $31,000. The lease provides for initial minimum annual rental payments (payable monthly) of approximately $8,300, with increases in base rent throughout the term of the lease. No percentage rent is payable under the terms of the new lease.
During 1996, the tenant of the Kenny Rogers Roasters Property held as tenants-in-common with an affiliate, defaulted under the terms of the lease. In September 1996, the Partnership and the affiliate, as tenants-in-common, entered into a new lease for this Property with a new tenant to operate the Property as an Arby's restaurant. The Partnership and the new tenant agreed that the renovation costs of this Property would be the responsibility of the tenant. The lease terms of the replacement Property are substantially the same as the original Property and the Partnership's other leases as described above.
Major Tenants
During 1996, 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 three Properties owned by joint ventures and one Property owned with an affiliate as tenants-in-common). As of December 31, 1996, 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, Golden Corral Corporation will continue to contribute more than ten percent of the Partnership's total rental income in 1997 and subsequent years. In addition, four Restaurant Chains, Golden Corral Family Steakhouse Restaurants, Denny's, KFC and Wendy's Old Fashioned Hamburger Restaurants, each accounted for more than ten percent of the Partnership's total rental income in 1996 (including the Partnership's share of the rental income from three Properties owned by joint ventures and one Property owned with an affiliate as tenants-in-common). In subsequent years, it is anticipated that these four Restaurant Chains each 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 these lessees or Restaurant Chains could materially affect the Partnership's income. As of December 31, 1996, no single tenant or group of affiliated tenants lease Properties with an aggregate carrying value, excluding acquisition fees and certain acquisition expenses, in excess of 20 percent of the total assets of the Partnership.
Joint Venture Arrangements
The Partnership has entered into three separate joint venture arrangements, Kirkman Road Joint Venture, Holland Joint Venture and Show Low Joint Venture, to purchase and hold three Properties through such joint ventures. 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 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 has management control of Kirkman Road Joint Venture and shares management control equally with affiliates of the General Partners for Holland Joint Venture and Show Low Joint Venture. The joint venture agreements restrict each venturer's ability to sell, transfer or assign its joint venture interest without first offering it for sale to its joint venture partner or partners, either upon such terms and conditions as to which the venturers may agree or, in the event the venturers cannot agree, on the same terms and conditions as any offer from a third party to purchase such joint venture interest.
Net cash flow from operations of Kirkman Road Joint Venture, Holland Joint Venture and Show Low Joint Venture is distributed 50 percent, 49 percent and 64 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 Kenny Rogers Roasters Property as tenants-in-common with 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 January 1997, Show Low Joint Venture, in which the Partnership owns a 64% interest, sold its Property to the tenant. The joint venture intends to reinvest the sales proceeds in an additional Property in 1997.
Property Management
CNL Investment Company, an affiliate of the General Partners, acted as manager of the Partnership's Properties pursuant to a property management agreement with the Partnership through December 31, 1994. Under this agreement, CNL Investment Company was 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 Investment Company also assisted the General Partners in negotiating the leases. For these services, the Partnership had agreed to pay CNL Investment Company 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 do not receive a 10% Preferred Return, no property management fee will be paid.
Effective January 1, 1995, certain officers and employees of CNL Investment Company became officers and employees of CNL Income Fund Advisors, Inc., an affiliate of the General Partners, and CNL Investment Company assigned its rights in, and its obligations under, the property management agreement with the Partnership to CNL Income Fund Advisors, Inc. In addition, effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its rights in, and its obligations under, the property management agreement with the Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the property management agreement, including the payment of fees, as described above, remain unchanged.
The property 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 in other well-known national chains, including those offering different types of food and service.
At the time the Partnership elects to dispose of its Properties, other than as a result of the exercise of tenant options to purchase Properties, the Partnership will be in competition with other persons and entities to locate purchasers for its Properties.
Employees
The Partnership has no employees. The officers of CNL Realty Corporation and the officers and employees 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 Group, Inc., a diversified real estate company, and its affiliates, who may also perform certain services for the Partnership.
Item 2.
Item 2. Properties
As of December 31, 1996, the Partnership owned, either directly or through joint venture arrangements, 40 Properties located in 14 states. Reference is made to the Schedule of Real Estate and Accumulated Depreciation filed with this report for a listing of the Properties and their respective costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 11,500 to 77,800 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.
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 6,900 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.
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.
Leases with Major Tenant. The terms of each of the leases with the Partnership's major tenant as of December 31, 1996 (see Item 1. Business - Major Tenants), 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 in 2002) and the average minimum base annual rent is approximately $79,600 (ranging from approximately $56,200 to $96,900).
The General Partners consider the Properties to be well-maintained and sufficient for the Partnership's operations.
Item 3.
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 a party to, or subject to, any material pending legal proceedings.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of February 28, 1997, there were 2,219 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. Limited Partners who wish to sell their Units may offer the Units for sale pursuant to the Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners who wish to have their distributions used to acquire additional Units (to the extent Units are available for purchase), may do so pursuant to such Plan. The General Partners have the right to prohibit transfers of Units. The price paid for any Unit transferred pursuant to the Plan has been $475 per Unit. The price to be paid for any Unit transferred other than pursuant to the Plan is 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 1996 and 1995 other than pursuant to the Plan, net of commissions (which ranged from zero to 13.88%).
1996 (1) 1995 (1) --------------------- -------------------- High Low Average High Low Average ----- ----- ------- ------ ---- ------ First Quarter $475 $470 $472 $475 $415 $459 Second Quarter 500 400 473 500 432 466 Third Quarter 447 388 417 500 460 489 Fourth Quarter 475 392 436 475 475 475
(1) A total of 505 and 665 Units were transferred other than pursuant to the Plan for the years ended December 31, 1996 and 1995, respectively.
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 each of the years ended December 31, 1996 and 1995, the Partnership declared cash distributions of $2,376,000 to the Limited Partners. Distributions of $594,000 were declared at the close of each of the Partnership's calendar quarters during 1996 and 1995 to the Limited Partners. No amounts distributed to partners for the years ended December 31, 1996 and 1995, 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.
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.
Item 6.
Item 6. Selected Financial Data
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the years ended December 31, 1994 and 1993, includes $70,554 and $161,025, respectively, from gain on sale of land and buildings. In addition, net income for the year ended December 31, 1994, includes $29,904 from a loss on sale of land and building and lease termination income of $198,482 recognized by the Partnership in connection with consideration the Partnership received for releasing the former tenant from its obligations under the terms of the lease of one of the Properties sold.
(3) Distributions for the years ended December 31, 1993 and 1992, include a special distribution of $62,500 to the Limited Partners which primarily represented percentage rents collected during the respective years.
The above selected financial data should be read in conjunction with the financial statements and related notes contained in Item 8 hereof.
Item 7.
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 triple-net leases, with the lessee generally responsible for all repairs and maintenance, property taxes, insurance and utilities. As of December 31, 1996, the Partnership owned 40 Properties, either directly or indirectly through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended December 31, 1996, 1995 and 1994, was cash from operations (which includes cash received from tenants, distributions from joint ventures and interest received, less cash paid for expenses). Cash from operations was $2,347,731, $2,168,367 and $2,156,604 for the years ended December 31, 1996, 1995 and 1994, respectively. The increase in cash from operations during 1996 and 1995, each as compared to the prior year, are primarily a result of changes in income and expenses as discussed in "Results of Operations" below, and as a result of changes in the Partnership's working capital during each of the respective years. Cash from operations was also affected by the following transactions during the years ended December 31, 1996, 1995 and 1994.
In 1993, the Partnership accepted a promissory note from the tenant of two Properties in Farmington Hills, Michigan, whereby $61,987, which had been included in receivables for past due rents, was converted to a loan receivable. The loan, which was non-interest bearing, was being collected in 48 monthly installments with collections commencing January 1993. The receivable was collected in full during 1996.
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 that 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, 1996, the balance in the allowance for doubtful accounts relating to this promissory note was $92,987, including accrued interest of $3,493 and late fees of $647.
Other sources and uses of capital included the following during the years ended December 31, 1996, 1995 and 1994.
In July 1994, the Partnership sold its Property in Graham, Texas, for $275,000 and received net sales proceeds of $261,628, resulting in a gain for financial reporting purposes of $70,554. In addition, in November 1994, the Partnership sold its Property in Medina, Ohio, for $670,000 and received net sales proceeds of $626,582, resulting in a loss for financial reporting purposes of $29,904. In connection with the sale of the Property located in Medina, Ohio, the Partnership also received $198,482 from the former tenant in consideration of the Partnership's releasing the tenant from its obligation under the terms of the lease. Accordingly, the net sales proceeds and lease termination fee totalled $825,064 as compared to an original cost of $743,000. The sale of the Property in Graham, Texas, was structured to qualify as a like-kind exchange transaction in accordance with Section 1031 of the Internal Revenue Code and the sale of the Property in Medina, Ohio, resulted in a loss for tax reporting purposes. As a result, no gain was recognized for federal income tax purposes. Therefore, the Partnership was not required to distribute any of the net sales proceeds from the sale of these Properties to Limited Partners for the purpose of paying federal and state income taxes.
In September 1994, the Partnership reinvested $260,732 of the net sales proceeds and the lease termination fee received in connection with the sales of the two Properties described above in a Kenny Rogers Roasters Property in Arvada, Colorado, as tenants-in-common with an affiliate of the General Partners. In December 1994, $655,035 was reinvested in two Checkers Properties in Fayetteville and Atlanta, Georgia. The tenant of these two Properties owns the buildings located on the Properties and the Partnership owns the land parcels. The remaining proceeds were used to pay past due real estate taxes relating to the former tenant of the Property in Sterling Heights, Michigan, to pay Partnership expenses and to meet other working capital needs of the Partnership.
In November 1995, the Partnership entered into a new lease for the Property in Lombard, Illinois. In connection therewith, the Partnership incurred approximately $40,600 in renovation costs during the year ended December 31, 1996, of which $29,526 were accrued and unpaid as of December 31, 1996. Additional renovation costs of $25,000 were funded by the tenant, in accordance with the terms of the lease. The renovations were completed in November 1996.
In January 1996, the Partnership entered into a promissory note with the corporate General Partner for a loan in the amount of $26,300 in connection with the operations of the Partnership. The loan, which was uncollateralized and bore interest at a rate of prime plus 0.25% per annum was due on demand. The Partnership repaid the loan in full, along with approximately $200 in interest, to the corporate General Partner. In addition, in 1996, the Partnership entered into various promissory notes with the corporate General Partner for loans totalling $177,600 in connection with the operations of the Partnership. The loans were uncollateralized, non-interest bearing and due on demand. As of December 31, 1996, the Partnership had repaid the loans in full to the corporate General Partner. In addition, in January 1997, the Partnership entered into another promissory note with the corporate General Partner for a loan in the amount of $147,000 in connection with the operations of the Partnership. The note is uncollateralized, non-interest bearing and due on demand. As of February 28, 1997, the Partnership had repaid the loan in full to the corporate General Partner.
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. During the year ended December 31, 1994, the Partnership received $161,000 in capital contributions from the corporate General Partner in connection with the operations of the Partnership. No such contributions were received during the years ended December 31, 1996 and 1995.
In January 1997, Show Low Joint Venture, in which the Partnership owns a 64 percent interest, sold its Property to the tenant. The joint venture intends to reinvest the sales proceeds in an additional Property during 1997. In addition, in February 1997, the Partnership terminated the lease for the Property in Plant City, Florida. The Partnership is currently negotiating the sale of this Property and intends to reinvest the sales proceeds in an additional property and structure such sale as a like-kind exchange transaction in accordance with Section 1031 of the Internal Revenue Code.
None of the Properties owned by the Partnership or the joint ventures in which the Partnership owns an interest is or may be encumbered. Subject to certain restrictions on borrowings from the General Partners, however, the Partnership may borrow, in the discretion of the General Partners, for the purpose of maintaining the operations of the Partnership. The Partnership will not encumber any of the Properties in connection with any borrowings or advances. The Partnership will not borrow for the purpose of returning capital to the Limited Partners. 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 is invested in money market accounts or other short-term, highly liquid investments pending the Partnership's use of such funds to pay Partnership expenses or to make distributions to the partners. At December 31, 1996, the Partnership had $318,756 invested in such short-term investments, as compared to $360,062 at December 31, 1995. The funds remaining at December 31, 1996, will be used for the payment of distributions and other liabilities.
During the year ended December 31, 1994, an affiliate of the General Partners incurred $1,223 in acquisition expenses on behalf of the Partnership. In addition, during 1996, 1995 and 1994, affiliates of the General Partners incurred on behalf of the Partnership $103,909, $95,036 and $209,446, respectively, for certain operating expenses. As of December 31, 1996 and 1995, the Partnership owed $45,078 and $9,254, respectively, to affiliates for such amounts and accounting and administrative services. Amounts payable to other parties, including distributions payable, increased to $642,163 at December 31, 1996, from $610,553 at December 31, 1995. Liabilities at December 31, 1996, to the extent they exceed cash and cash equivalents at December 31, 1996, will be paid from future cash from operations, from collections of amounts received in accordance with the agreement relating to past due rents described above, from the loan received from the corporate General Partner in January 1997 described above and, in the event the General Partners elect to make additional contributions or loans to the Partnership, from future General Partner contributions or loans.
In February 1997, the Partnership entered into a sales contract with an unrelated third party to sell the Denny's Property in Plant City, Florida. The Partnership intends to reinvest the net sales proceeds in a replacement Property.
Based primarily on current and anticipated future cash from operations, and to a lesser extent additional capital contributions and loans received from the General Partners and uninvested net sales proceeds from the sale of Properties added to working capital, the Partnership declared distributions to the Limited Partners of $2,376,000 for each of the years ended December 31, 1996, 1995 and 1994. This represents distributions of $47.52 per Unit for each of the years ended December 31, 1996, 1995 and 1994. No amounts distributed or to be distributed to the Limited Partners for the years ended December 31, 1996, 1995 and 1994, 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.
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.
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 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.
Results of Operations
During 1994, the Partnership owned and leased 38 wholly owned Properties (including two Properties in Graham, Texas, and Medina, Ohio, which were sold in July and November 1994, respectively) and during 1995 and 1996, the Partnership owned and leased 36 wholly owned Properties. In addition, during 1996, 1995 and 1994, the Partnership was a co-venturer in three separate joint ventures that each owned and leased one Property, and in addition, the Partnership and an affiliate owned and leased one Property as tenants-in-common. As of December 31, 1996, the Partnership owned, either directly, as tenants-in-common with an affiliate, or through joint venture arrangements, 40 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 $8,300 to $150,000. 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, 1996, 1995 and 1994, the Partnership earned $2,224,500, $2,207,971 and $2,109,462, respectively, in base rental income from the Partnership's wholly owned Properties described above. The increase in rental income during 1995, as compared to 1994, was partially attributable to the fact that in March 1994, the Partnership re-leased the Property in Sterling Heights, Michigan, as to which the original tenant had defaulted in 1993, and entered into a new five-year (with renewal options for an additional 15 years), triple-net lease for which rent commenced in October 1994. As a result of this transaction, rental income in 1995, as compared to 1994, increased approximately $68,000.
The increase in rental income during 1995, as compared to 1994, was partially offset by a decrease in rental income of approximately $89,100, as a result of the fact that the Partnership sold two Properties in Graham, Texas, and Medina, Ohio, in July and November 1994, respectively. As described above in "Liquidity and Capital Resources," the Partnership reinvested the majority of the sales proceeds in two Properties in Fayetteville and Atlanta, Georgia, in July and November 1994, respectively, and one Property as tenants-in-common with an affiliate in September 1994. As a result of the fact that the Partnership reinvested sales proceeds in the three wholly owned
Properties and entered into long-term, triple-net leases for each of the Properties, rental income during 1995, as compared to 1994, increased approximately $76,400.
During the years ended December 31, 1996, 1995 and 1994, the Partnership also earned $79,313, $70,159 and $65,624, respectively, in contingent rental income. Contingent rental income for the years ended December 31, 1996 and 1995, each as compared to the prior year, increased primarily as a result of an increase in gross sales of certain restaurant Properties that are subject to leases requiring the payment of contingent rental income.
For the years ended December 31, 1996, 1995 and 1994 , the Partnership also earned $130,996, $153,677 and $132,810, respectively, attributable to net income earned by three joint ventures in which the Partnership is a co-venturer and the one Property owned as tenants-in-common with an affiliate. The decrease in net income earned by joint ventures during 1996, as compared to 1995, is primarily a result of a default under the terms of the lease of the former tenant of the Kenny Rogers' Roasters Property in Arvada, Colorado, owned with an affiliate as tenants-in-common. The Partnership and the affiliate, as tenants-in-common, entered into a new lease for this Property with a new tenant to operate the Property as an Arby's restaurant. The increase in net income earned by joint ventures in 1995, as compared to 1994, is primarily attributable to the fact that the Partnership reinvested a portion of the proceeds from the sale of Properties, as described above, in a Property with an affiliate of the General Partners as tenants-in-common in September 1994.
During the year ended December 31, 1996, 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 three Properties owned by joint ventures and one Property owned with an affiliate as tenants-in-common). As of December 31, 1996, 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, Golden Corral Corporation will continue to contribute more than ten percent of the Partnership's total rental income during 1997 and subsequent years. In addition, four Restaurant Chains, Golden Corral Family Steakhouse Restaurants, Denny's, KFC and Wendy's Old Fashioned Hamburger Restaurants, each accounted for more than ten percent of the Partnership's total rental income in 1996 (including the Partnership's share of the rental income from three Properties owned by joint ventures and one Property owned with an affiliate as tenants-in-common). In subsequent years, it is anticipated that these four Restaurant Chains each 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 these lessees or Restaurant Chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense, were $588,923, $617,237 and $637,293 for the years ended December 31, 1996, 1995 and 1994, respectively. The decrease in operating expenses during 1996, as compared to 1995, was a result of the Partnership's expensing the balance of unamortized lease costs, totalling approximately $35,600, relating to the original lease for the Property in Gainesville, Texas, following the termination of such lease during the year ended December 31, 1995. In addition, the decrease in operating expenses during 1995, as compared to 1994, was partially a result of the Partnership accruing past due real estate taxes during 1994 relating to the Property in Gainesville, Texas, due to financial difficulties the former tenant was experiencing. In October 1995, the Partnership entered into a new lease with a new operator for this Property. The new operator agreed to pay all of the 1995 real estate taxes; therefore, no such expenses were incurred for this Property during the years ended December 31, 1996 and 1995.
As a result of the sale of the Properties in Graham, Texas, and Medina, Ohio, the Partnership recognized a gain of $70,554 and a loss of $29,904, respectively, for the year ended December 31, 1994. In connection with the sale of the Property in Medina, Ohio, the Partnership also received $198,482 from the former tenant in consideration of the Partnership's releasing the tenant from its obligation under the terms of the lease. No such transactions occurred during the year ended December 31, 1996 and 1995.
Effective January 1, 1996, the Partnership adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement requires that an entity review long-lived assets and certain identifiable intangibles, to be held and used, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not
be recoverable. Adoption of this standard had no material effect on the Partnership's financial position or results of operations.
The Partnership's leases as of December 31, 1996, 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 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.
Item 8.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants 13
Financial Statements:
Balance Sheets 14
Statements of Income 15
Statements of Partners' Capital 16
Statements of Cash Flows 17
Notes to Financial Statements 19
Report of Independent Accountants
To the Partners CNL Income Fund II, Ltd.
We have audited the financial statements and the financial statement schedules of CNL Income Fund II, Ltd. (a Florida limited partnership) listed in Item 14(a) of this Form 10-K. 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 in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of CNL Income Fund II, Ltd. as of December 31, 1996 and 1995, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. In addition, in our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein.
Orlando, Florida January 25, 1997
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
BALANCE SHEETS
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
STATEMENTS OF INCOME
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1996, 1995 and 1994
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
See accompanying notes to financial statements.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
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 Partner-ship 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.
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. The general partners determine whether an impairment in value has occurred
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
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.
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 accounts for its 50 percent interest in Kirkman Road Joint Venture using the equity method. The Partnership's investments in Holland Joint Venture, Show Low Joint Venture and the property in Arvada, Colorado, held as tenants-in-common with an affiliate 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.
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. The Partnership limits investment of temporary cash investments to financial institutions with high credit standing; therefore, the Partnership believes it is not exposed to any significant credit risk on cash and cash equivalents.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
1. Significant Accounting Policies - Continued:
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. Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial statements have been reclassified to conform to 1996 presentation. These reclassifications had no effect on partners' capital or net income.
New Accounting Standard - Effective January 1, 1996, the Partnership adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of LongLived Assets and for Long-Lived Assets to Be Disposed Of." The statement requires that an entity review long-lived assets and certain identifiable intangibles, to be held and used, for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Adoption of this standard had no material effect on the Partnership's financial position or results of operations.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
2. Leases:
The Partnership leases its land or land and buildings primarily to operators of national and regional fast-food restaurants. The leases are accounted for under the provisions of Statement of Financial Accounting Standards No. 13, "Accounting for Leases." The leases have been classified as operating leases. Substantially all leases are for 15 to 20 years and provide for minimum and contingent rentals. In addition, the tenant generally pays all property taxes and assessments, fully maintains the interior and exterior of the building and carries insurance coverage for public liability, property damage, fire and extended coverage. The lease options generally allow tenants to renew the leases for two to four successive five-year periods subject to the same terms and conditions as the initial lease. Most leases also allow the tenant to purchase the property at fair market value after a specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at December 31:
1996 1995 ----------- -----------
Land $ 8,052,723 $ 8,052,723 Buildings 12,567,157 12,526,524 ----------- ----------- 20,619,880 20,579,247 Less accumulated depreciation (3,816,091) (3,398,315) ----------- -----------
$16,803,789 $17,180,932 =========== ===========
During 1994, the Partnership sold two properties in Graham, Texas, and Medina, Ohio, for a total of $945,000 and received net sales proceeds of $888,210, resulting in a gain of $70,554 and a loss if $29,904, respectively, for financial reporting purposes. In connection with the sale of the Medina, Ohio property, the Partnership also received $198,482 from the former tenant in consideration of the Partnership's releasing the tenant from its obligation under the terms of the lease. In December 1994, the Partnership reinvested a total of $655,035 of the net sales proceeds in land of two properties in Fayetteville and Atlanta Georgia. The tenant owns the buildings located on these land parcels and has the right, if
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
3. Land and Buildings on Operating Leases - Continued:
not in default under the lease, to remove the buildings from the land at the end if the lease terms.
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, 1996, 1995 and 1994, the Partnership recognized $33,234, $34,086 and $20,587, 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, 1996:
1997 $ 2,108,105 1998 2,103,241 1999 2,077,502 2000 2,006,300 2001 2,022,053 Thereafter 10,517,019 ----------- $20,834,220 ============
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 interest, a 49 percent interest and a 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 Partnership which have the same general partners. The Partnership also has a 33.87% interest in a property in Arvada, Colorado, with an affiliate of the Partnership that has the same general partners, as tenants-in-common. The Partnership accounts for its investment in this property using the equity method since the Partnership shares control with an affiliate. Amounts relating to its investment are included in investment in joint ventures.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
4. Investment in Joint Ventures - Continued:
Kirkman Road Joint Venture, Holland Joint Venture, Show Low Joint Venture and the Partnership and an affiliate as tenants-in-common, each own and lease one property to an operator of national fast-food or family-style restaurants. The following presents the combined, condensed financial information for the joint ventures and the property held as tenants-in-common with an affiliate at December 31:
1996 1995 ---------- ----------
Land and buildings on operating leases, less accumulated depreciation $2,664,752 $2,737,137 Cash 21,905 21,173 Receivables 9,980 4,788 Accrued rental income 70,782 81,363 Other assets 44,263 48,409 Liabilities 28,558 36,594 Partners' capital 2,783,124 2,856,276 Revenues 363,338 400,444 Net income 250,026 317,895
The Partnership recognized income totalling $130,996, $153,677 and $132,810 for the years ended December 31, 1996, 1995 and 1994, respectively, from these joint ventures and the property held as tenants-in-common with an affiliate.
5. Restricted Cash:
As of December 31, 1995, $25,000, which had been received from the tenant of the property in Lombard, Illinois, was being held in an interest-bearing account pending payment of renovation costs relating to the property. During 1996, the $25,000 was used to pay the tenants share of renovation costs.
6. 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
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
6. Receivables - Continued:
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, 1996, the balance in the allowance for doubtful accounts was $92,987, including accrued interest of $3,493 and late fees of $647.
7. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding gains and losses from the sale of properties, are allocated 99 percent to the limited partners and one percent to the general partners. Distributions of net cash flow are made 99 percent to the limited partners and one percent to the general partners; provided, however, that the one percent of net cash flow to be distributed to the general partners is subordinated to receipt by the limited partners of an aggregate, ten percent, noncumulative, noncompounded annual return on their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties, to the extent distributed, will be distributed first to the limited partners in an amount sufficient to provide them with their cumulative 10% Preferred Return, plus the return of their adjusted capital contributions. The general partners will then receive, to the extent previously subordinated and unpaid, a one percent interest in all prior distributions of net cash flow and a return of their capital contributions. Any remaining sales proceeds will be distributed 95 percent to the limited partners and five percent to the general partners. Any gain from the sale of a property is, in general, allocated in the same manner as net sales proceeds are distributable. Any loss from the sale of a property is, in general, allocated first on a pro rata basis to partners with positive balances in their capital accounts; and thereafter, 95 percent to the limited partners and five percent to the general partners.
During each of the years ended December 31, 1996, 1995 and 1994, the Partnership declared distributions to the limited partners of $2,376,000. No distributions have been made to the general partners to date.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
8. Income Taxes:
The following is a reconciliation of net income for financial reporting purposes to net income for federal income tax purposes for the years ended December 31:
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
9. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of the principal shareholders of CNL Group, Inc., the parent company of CNL Investment Company and CNL Fund Advisors, Inc. The other individual general partner, Robert A. Bourne, is the president of CNL Investment Company and CNL Fund Advisors, Inc. CNL Income Fund Advisors, Inc. was a wholly owned subsidiary of CNL Group, Inc. until its merger, effective January 1, 1996, with CNL Fund Advisors, Inc. During the years ended December 31, 1996, 1995 and 1994, CNL Investment Company, CNL Income Fund Advisors, Inc. and CNL Fund Advisors, Inc. (hereinafter referred to collectively as the "Affiliates") each performed certain services for the Partnership, as described below.
During the years ended December 31, 1996, 1995 and 1994, certain Affiliates acted as manager of the Partnership's Properties pursuant to a property management agreement with the Partnership. In connection therewith, the Partnership agreed to pay the Affiliates an annual, noncumulative, subordinated property management fee of one-half of one percent of the Partnership assets under management (valued at cost) annually. The property management fee is limited to one percent of the sum of gross operating revenues from properties wholly owned by the Partnership and the Partnership's allocable share of gross operating revenues from joint ventures and the property held as tenants-in-common with an affiliate or competitive fees for comparable services. In addition, these fees will be incurred and will be payable only after the limited partners receive their aggregate, noncumulative 10% Preferred Return. Due to the fact that these fees are non-cumulative, if the limited partners do not receive their 10% Preferred Return in any particular year, no property management fees will be due or payable for such year. As a result of such threshold no property management fees were incurred during the years ended December 31, 1996, 1995 and 1994.
Certain Affiliates are also entitled to receive a deferred, subordinated real estate disposition fee, payable upon the sale of one or more properties based on the lesser of one-half of a competitive real estate commission or three percent of the sales price if the Affiliates provide a substantial amount of services in connection with the sale. However, if the net sales proceeds are reinvested in a replacement property, no such real estate disposition fees will be incurred until such
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
9. Related Party Transactions - Continued:
replacement property is sold and the net sales proceeds are distributed. The 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. No deferred, subordinated real estate disposition fees have been incurred since inception.
During the years ended December 31, 1996, 1995 and 1994, the Affiliates provided accounting and administrative services to the Partnership on a day-to-day basis. The Partnership incurred $79,624, $81,023 and $54,157 for the years ended December 31, 1996, 1995 and 1994, respectively, for such services.
The due to related parties at December 31, 1996 and 1995, totalled $45,078 and $9,254, respectively.
10. Concentration of Credit Risk:
The following schedule presents total rental income from individual lessees, each representing more than ten percent of the Partnerships' total rental income (including the Partnership's share of rental income from joint ventures and the property held as tenants-in-common with an affiliate) for at least one of the years ended December 31:
1996 1995 1994 -------- -------- ---------
Golden Corral Corporation $403,875 $410,226 $488,691 Restaurant Management Services, Inc. 243,270 243,358 240,158
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1996, 1995 and 1994
10. Concentration of Credit Risk - Continued:
In addition, the following schedule presents total rental income from individual restaurant chains, each representing more than ten percent of the Partnership's total rental income (including the Partnership's share of rental income from joint ventures and the property held as tenants-in-common with an affiliate) for at least one of the years ended December 31:
1996 1995 1994 -------- -------- ---------
Wendy's Old Fashioned Hamburger Restaurants $421,165 $412,949 $362,550 Golden Corral Family Steakhouse Restaurants 403,875 410,226 488,691 Denny's 388,050 372,639 380,040 KFC 358,463 352,939 350,022 Popeyes Famous Fried Chicken Restaurants 243,270 243,358 240,158
Although the Partnership's properties are geographically diverse throughout the United States and the Partnership's lessees operate a variety of restaurant concepts, default by any one of these lessees or restaurant chains could significantly impact the results of operations of the Partnership. However, the general partners believe that the risk of such a default is reduced due to the essential or important nature of these properties for the on-going operations of the lessees.
11. Subsequent Event:
In January 1997, the Partnership entered into a promissory note with the Corporate General Partner for a loan in the amount of $147,000 in connection with the operations of the Partnership. The loan is uncollateralized, non-interest bearing and is due on demand.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10.
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert A. Bourne and CNL Realty Corporation, a Florida corporation. The General Partners manage and control the Partnership's affairs and have general responsibility and the ultimate authority in all matters affecting the Partnership's business. The Partnership has available to it the services, personnel and experience of CNL Fund Advisors, Inc., and CNL Group, Inc. and their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 50, is a principal stockholder of CNL Group, Inc., a diversified real estate company, and has served as its Chairman of the Board of Directors, director and Chief Executive Officer since its formation in 1980. CNL Group, Inc. is the parent company of CNL Securities Corp., CNL Investment Company, CNL Fund Advisors, Inc., and prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors, Inc. Mr. Seneff is Chief Executive Officer, and has been a director and registered principal of CNL Securities Corp., which served as the managing dealer in the Partnership's offering of Units, since its formation in 1979. Mr. Seneff also has held the position of President and a director of CNL Management Company, a registered investment advisor, since its formation in 1976, has served as Chief Executive Officer and Chairman of the Board of CNL Investment Company, and Chief Executive Officer and Chairman of the Board of Commercial Net Lease Realty, Inc. since 1992, has served as the Chairman of the Board and the Chief Executive Officer of CNL Realty Advisors, Inc. since its inception in 1991, served as Chairman of the Board and Chief Executive Officer of CNL Income Fund Advisors, Inc. since its inception in 1994 through December 31, 1995, has served as Chairman of the Board and Chief Executive Officer of CNL Fund Advisors, Inc. since its inception in 1994, and has held the position of Chief Executive Officer and a director of CNL Institutional Advisors, Inc., a registered investment advisor, since its inception in 1990. In addition, Mr. Seneff has served as Chairman of the Board and Chief Executive Officer of CNL American Properties Fund, Inc. since 1994, and has served as Chairman of the Board and Chief Executive Officer of CNL American Realty Fund, Inc. since 1996 and of CNL Real Estate Advisors, Inc. since January 1997. Mr. Seneff previously served on the Florida State Commission on Ethics and is a former member and past Chairman of the State of Florida Investment Advisory Council, which recommends to the Florida Board of Administration investments for various Florida employee retirement funds. The Florida Board of Administration, Florida's principal investment advisory and money management agency, oversees the investment of more than $40 billion of retirement funds. Since 1971, Mr. Seneff has been active in the acquisition, development and management of real estate projects and, directly or through an affiliated entity, has served as a general partner or joint venturer in over 100 real estate ventures involved in the financing, acquisition, construction and rental of office buildings, apartment complexes, restaurants, hotels and other real estate. Included in these real estate ventures are approximately 65 privately offered real estate limited partnerships in which Mr. Seneff, directly or through an affiliated entity, serves or has served as a general partner. Also included are CNL Income Fund, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII, Ltd. (the "CNL Income Fund Partnerships"), public real estate limited partnerships with investment objectives similar to those of the Partnership, in which Mr. Seneff serves as a general partner. Mr. Seneff received his degree in Business Administration from Florida State University in 1968.
Robert A. Bourne, age 49, is President and Treasurer of CNL Group, Inc., President, a director and a registered principal of CNL Securities Corp. President and a director of CNL Investment Company, CNL Fund
Advisors, Inc., and prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors, Inc., and President, Chief Investment Officer and a director of CNL Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne also has served as a director since 1992, as President from July 1992 to February 1996, and since February 1996, as Vice Chairman of the Board of Directors, Secretary and Treasurer of Commercial Net Lease Realty, Inc. In addition, Mr. Bourne has served as a director since its inception in 1991, as President from 1991 to February 1996, as Secretary from February 1996 to July 1996, and since February 1996, as Treasurer and Vice Chairman of CNL Realty Advisors, Inc. In addition, Mr. Bourne has served as President and a director of CNL American Properties Fund, Inc. since 1994, and has served as President and a director of CNL American Realty Fund, Inc. since 1996 and CNL Real Estate Advisors, Inc. since January 1997. Upon graduation from Florida State University in 1970, where he received a B.A. in Accounting, with honors, Mr. Bourne worked as a certified public accountant and, from September 1971 through December 1978, was employed by Coopers & Lybrand, Certified Public Accountants, where he held the position of tax manager beginning in 1975. From January 1979 until June 1982, Mr. Bourne was a partner in the accounting firm of Cross & Bourne and from July 1982 through January 1987, he was a partner in the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Mr. Bourne, who joined CNL Securities Corp. in 1979, has participated as a general partner or joint venturer in over 100 real estate ventures involved in the financing, acquisition, construction and rental of office buildings, apartment complexes, restaurants, hotels and other real estate. Included in these real estate ventures are approximately 64 privately offered real estate limited partnerships in which Mr. Bourne, directly or through an affiliated entity, serves or has served as a general partner. Also included are the CNL Income Fund Partnerships, public real estate limited partnerships with investment objectives similar to those of the Partnership, in which Mr. Bourne serves as a general partner.
CNL Realty Corporation is a corporation organized on November 26, 1985, under the laws of the State of Florida. Its sole directors and shareholders are James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL Realty Corporation was organized to serve as the corporate general partner of real estate limited partnerships, such as the Partnership, organized by one or both of the individual General Partners. CNL Realty Corporation currently serves as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc., provides certain management services in connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a corporation organized in 1994 under the laws of the State of Florida, and its principal office is located at 400 East South Street, Suite 500, Orlando, Florida 32801. CNL Fund Advisors, Inc. is a wholly owned subsidiary of CNL Group, Inc., a diversified real estate company, and was organized to perform property acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors, Inc., is a diversified real estate corporation organized in 1980 under the laws of the State of Florida. Other subsidiaries and affiliates of CNL Group, Inc. include a property development and management company, two investment advisory companies, and seven corporations organized as strategic business units. James M. Seneff, Jr., an individual General Partner of the Partnership, is the Chairman of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr. Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or its affiliates or subsidiaries in the discretion of the Boards of Directors of those companies, but, except as specifically indicated, do not serve as members of the Boards of Directors of those entities. The Boards of Directors have the responsibility for creating and implementing the policies of CNL Group, Inc. and its affiliated companies.
John T. Walker, age 38, joined CNL Group, Inc. in September 1994, as Senior Vice President, responsible for Research and Development. He currently serves as the Chief Operating Officer and Executive Vice President of CNL Fund Advisors, Inc. and CNL American Properties Fund, Inc. and serves as Executive Vice President of CNL American Realty Fund, Inc. and CNL Real Estate Advisors, Inc. From May 1992 to May 1994, he was Executive Vice President for Finance and Administration and Chief Financial Officer of Z Music, Inc., a cable television network which was subsequently acquired by Gaylord Entertainment, where he was responsible for overall financial and administrative management and planning. From January 1990 through April 1992, Mr. Walker was Chief Financial Officer of the First Baptist Church in Orlando, Florida. From April 1984 through December 1989, he was a partner in the accounting firm of Chastang, Ferrell & Walker, P.A., where he was the partner in charge
of audit and consulting services, and from 1981 to 1984, Mr. Walker was a Senior Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude graduate of Wake Forest University with a B.S. in Accountancy and is a certified public accountant.
Lynn E. Rose, age 48, a certified public accountant, has served as Chief Financial Officer of CNL Group, Inc. since December 1993, has served as Secretary of CNL Group, Inc. since 1987, and served as Controller of CNL Group, Inc. from 1987 until December 1993. In addition, Ms. Rose has served as Chief Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has served as Chief Operating Officer, Vice President and Secretary of CNL Corporate Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in 1990, a director of CNL Realty Advisors, Inc. since its inception in 1991, Secretary of CNL Realty Advisors, Inc. since its inception in 1991 (excluding February 1996 to July 1996), Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996, Secretary and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996, Secretary of CNL Income Fund Advisors, Inc. since its inception in 1994 to December 1995, and a director, Secretary and Treasurer of CNL Fund Advisors, Inc. since 1994 and has served as a director, Secretary and Treasurer of CNL Real Estate Advisors, Inc. since January 1997. Ms. Rose also has served as Secretary and Treasurer of CNL American Properties Fund, Inc. since 1994, and has served as Secretary and Treasurer of CNL American Realty Fund, Inc. since 1996. Ms. Rose also currently serves as Secretary for approximately 50 additional corporations. Ms. Rose oversees the management information services, administration, legal compliance, accounting, tenant compliance, and reporting for over 250 corporations, partnerships, and joint ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A. Bourne in the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Ms. Rose holds a B.A. in Sociology from the University of Central Florida and is a registered financial and operations principal of CNL Securities Corp. She was licensed as a certified public accountant in 1979.
Jeanne A. Wall, age 38, has served as Chief Operating Officer of CNL Investment Company and of CNL Securities Corp. since November 1994 and previously served as Executive Vice President of CNL Investment Company since January 1991. In 1984, Ms. Wall joined CNL Securities Corp. as its Partnership Administrator. In 1985, Ms. Wall became Vice President of CNL Securities Corp. and, in 1987, she became a Senior Vice President of CNL Securities Corp. In this capacity, Ms. Wall serves as national marketing and sales director and oversees the national marketing plan for the CNL investment programs. In addition, Ms. Wall oversees the partnership administration and investor services for programs offered through participating brokers. Ms. Wall also has served as Senior Vice President of CNL Institutional Advisors, Inc., a registered investment advisor, from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its inception in 1991, as Vice President of Commercial Net Lease Realty, Inc. since 1992, as Executive Vice President of CNL Income Fund Advisors, Inc. from its inception in 1994 to December 1995, as Executive Vice President of CNL Fund Advisors, Inc. since 1994, and as Executive Vice President of CNL American Properties Fund, Inc. since 1994. In addition, Ms. Wall has served as Executive Vice President of CNL Real Estate Advisors, Inc. since January 1997 and as Executive Vice President of CNL American Realty Fund, Inc. since 1996. Ms. Wall holds a B.A. in Business Administration from Linfield College and is a registered principal of CNL Securities Corp. Ms. Wall currently serves as a trustee on the board of the Investment Program Association and on the Direct Participation Program committee for the National Association of Securities Dealers (NASD).
Steven D. Shackelford, age 33, has served as Chief Financial Officer of CNL Fund Advisors, Inc. since September 1996. Mr. Shackelford joined CNL Group, Inc. in September 1996. He also currently serves as the Chief Financial Officer of CNL American Properties Fund, Inc. From March 1995 to July 1996, he was a senior manager in the national office of Price Waterhouse where he was responsible for advising foreign clients seeking to raise capital and a public listing in the United States. From August 1992 to March 1995, he served as a manager in the Price Waterhouse, Paris, France office serving several multinational clients. Mr. Shackelford was an audit staff and senior from 1986 to 1992 in the Orlando, Florida office of Price Waterhouse. Mr Shackelford received a B.A. in Accounting, with honors, and a Masters of Business Administration from Florida State University and is a certified public accountant.
Item 11.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and does not intend to pay any executive compensation to the General Partners or any of their affiliates. There are no compensatory plans or arrangements regarding termination of employment or change of control.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of February 28, 1997, no person was known to the Registrant to be a beneficial owner of more than five percent of the Units.
The following table sets forth, as of February 28, 1997, the beneficial ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class --------------- ---------------- ----------------- General Partnership Interests James M. Seneff, Jr. 45% Robert A. Bourne 45% CNL Realty Corporation 10% ---- 100% ====
Neither the General Partners, nor any of their affiliates, owns any interest in the Registrant, except as noted above. There are no arrangements which at a subsequent date may result in a change in control of the Registrant.
Item 13.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of computation and amounts of compensation, fees and distributions paid or payable by the Partnership to the General Partners and their affiliates for the year ended December 31, 1996, exclusive of any distributions to which the General Partners or their affiliates may be entitled by reason of their purchase and ownership of Units.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1996 and 1995
Statements of Income for the years ended December 31, 1996, 1995 and 1994
Statements of Partners' Capital for the years ended December 31, 1996, 1995 and 1994
Statements of Cash Flows for the years ended December 31, 1996, 1995 and 1994
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years ended December 31, 1996, 1995 and 1994
Schedule III - Real Estate and Accumulated Depreciation at December 31, 1996
Notes to Schedule III - Real Estate and Accumulated Depreciation at December 31, 1996
All other Schedules are omitted as the required information is inapplicable or is presented in the financial statements or notes thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.1 to Amendment No. 1 to Registration Statement No. 33-10351 on Form S-11 and incorporated herein by reference.)
3.2 Amended and Restated Agreement and Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.2 to Form 10-K filed with the Securities and Exchange Commission on April 2, 1993, and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 4.1 to Amendment No. 1 to Registration Statement No. 33-10351 on Form S-11 and incorporated herein by reference.)
4.2 Amended and Restated Agreement and Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.2 to Form 10-K filed with the Securities and Exchange Commission on April 2, 1993, and incorporated herein by reference.)
10.1 Property Management Agreement (Included as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on April 2, 1993, and incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from CNL Investment Company to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to Form 10-K filed with the Securities and Exchange Commission on March 30, 1995, and incorporated herein by reference.)
10.3 Assignment of Property Management Agreement from CNL Income Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit 10.3 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996 and incorporated herein by reference.)
10.4 Promissory Note, dated January 16, 1996, among the Registrant and CNL Realty Corporation relating to a $26,300 loan. (Included as Exhibit 10.4 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996 and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from October 1, 1996 through December 31, 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 25th day of March, 1997.
CNL INCOME FUND II, LTD.
By: CNL REALTY CORPORATION General Partner
/s/ Robert A. Bourne --------------------------- ROBERT A. BOURNE, President
By: ROBERT A. BOURNE General Partner
/s/ Robert A. Bourne ---------------------------- ROBERT A. BOURNE
By: JAMES M. SENEFF, JR. General Partner
/s/ James M. Seneff, Jr. ---------------------------- JAMES M. SENEFF, JR.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1996, 1995 and 1994
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(a) Transactions in real estate and accumulated depreciation during 1996, 1995 and 1994, are summarized as follows:
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
(b) Depreciation expense is computed for buildings and improvements based upon estimated lives of 30 years.
(c) As of December 31, 1996, the aggregate cost of the Properties owned by the Partnership and the joint ventures (including the Property held as tenants-in-common) for federal income tax purposes was $20,573,476 and $3,086,866, respectively. All of the leases are treated as operating leases for federal income tax purposes.
(d) The building portion of this property is owned by the tenant; therefore, depreciation is not applicable.
(e) The tenant of this property, Golden Corral Corporation, has subleased this property to a local, independent restaurant. Golden Corral Corporation continues to be responsible for complying with all the terms of the lease agreement and is continuing to pay rent on this property to the Partnership.
(f) The restaurant in Sterling Heights, Michigan, was converted from a Ponderosa Steakhouse Restaurant to a Lonestar Steakhouse & Saloon Restaurant in 1994.
CNL INCOME FUND II, LTD. (A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
(g) The restaurant in Oxford, Alabama, was converted from a KFC Restaurant to a regional, independent restaurant in 1993.
(h) The restaurant in Littleton, Colorado, was converted from a Taco Bell restaurant to a local, independent restaurant in 1995.
(i) The restaurant in Lombard, Illinois, was converted from a Taco Bell restaurant to a Great Clips hair salon in 1996.
EXHIBITS
EXHIBIT INDEX