10-Q 1 if2-jun02.txt CNL INCOME FUND II, LTD. FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT of 1934 For the quarterly period ended June 30, 2002 ------------------------------------------------ OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT of 1934 For the transition period from _________________________ to ____________________ Commission file number 0-16824 --------------------------------------- CNL Income Fund II, Ltd. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 59-2733859 ------------------------------- -------------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) ntification No.) 450 South Orange Avenue Orlando, Florida 32801 ----------------------------------------- -------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number (including area code) (407) 540-2000 -------------------------------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ CONTENTS Page Part I. Item 1. Financial Statements: Condensed Balance Sheets 1 Condensed Statements of Income 2 Condensed Statements of Partners' Capital 3 Condensed Statements of Cash Flows 4 Notes to Condensed Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 Part II. Other Information 12-13 CNL INCOME FUND II, LTD. (A Florida Limited Partnership) CONDENSED BALANCE SHEETS

See accompanyingnotes to condensed financial statements. CNL INCOME FUND II, LTD. (A Florida Limited Partnership) CONDENSED STATEMENTS OF INCOME

See accompanyingnotes to condensed financial statements. CNL INCOME FUND II, LTD. (A Florida Limited Partnership) CONDENSED STATEMENTS OF PARTNERS' CAPITAL

See accompanyingnotes to condensed financial statements. CNL INCOME FUND II, LTD. (A Florida Limited Partnership) CONDENSED STATEMENTS OF CASH FLOWS

See accompanying notes to condensed financial statements. CNL INCOME FUND II, LTD. (A Florida Limited Partnership) NOTES TO CONDENSED FINANCIAL STATEMENTS Quarters and Six Months Ended June 30, 2002 and 2001 1. Basis of Presentation: The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. The financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Operating results for the quarter and six months ended June 30, 2002 may not be indicative of the results that may be expected for the year ending December 31, 2002. Amounts as of December 31, 2001, included in the financial statements, have been derived from audited financial statements as of that date. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in Form 10-K of CNL Income Fund II, Ltd. (the "Partnership") for the year ended December 31, 2001. Effective January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement requires that a long-lived asset be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The assessment is based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds its fair value. If an impairment is recognized, the adjusted carrying amount of a long-lived asset is its new cost basis. The statement also requires that the results of operations of a component of an entity that either has been disposed of or is classified as held for sale be reported as a discontinued operation if the disposal activity was initiated subsequent to the adoption of the Standard. 2. Reclassification: Certain items in the prior years' financial statements have been reclassified to conform to 2002 presentation. These reclassifications had no effect on total partners' capital or net income. 3. Land and Buildings on Operating Leases: In June 2002, the Partnership sold its Burger King property in San Antonio, Texas and received net sales proceeds of approximately $725,000, resulting in a gain of approximately $133,600. In connection with the sale, the Partnership incurred a deferred, subordinated, real estate disposition fee of $22,500 (see Note 5). 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. This property was identified for sale as of December 31, 2001. In June 2002, the Partnership recorded a provision for write-down of assets of $181,231 relating to the property in Pineville, Louisiana due to the fact that the tenant opted to not renew its lease, which expired in June 2002, and vacated the Property. The provision represented the difference between the carrying value of the property and its fair value. CNL INCOME FUND II, LTD. (A Florida Limited Partnership) NOTES TO CONDENSED FINANCIAL STATEMENTS Quarters and Six Months Ended June 30, 2002 and 2001 4. Discontinued Operations: In June 2002, the Partnership entered into an agreement, with an unrelated third party, to sell the Denny's property in Rock Springs, Wyoming. During the year ended December 31, 2001, the building on the Casper, Wyoming property was destroyed by fire and subsequently demolished. In June 2002, the Partnership entered into an agreement with an unrelated third party to sell the land. As a result, the Partnership reclassified these assets from land and buildings on operating leases to real estate held for sale. The reclassified assets were recorded at the lower of their carrying amount or fair value, less cost to sell. In addition, the Partnership stopped recording depreciation once the property in Rock Springs, Wyoming was placed up for sale. In connection with the destruction of the building by the fire during the year ended December 31, 2001, the Partnership recorded a provision for write-down of assets of $78,015, which represented the loss incurred by the Partnership in excess of anticipated insurance proceeds. The undepreciated cost of the building of $216,817 was removed from the accounts and the anticipated insurance proceeds of $138,802 were included in accounts receivable. During the six months ended June 30, 2002, the Partnership contested the settlement of the insurance claim, and in June 2002, received an additional $88,777 in insurance proceeds, which the Partnership recorded as a gain on casualty loss on building. In connection with the anticipated sale of the land, the Partnership recorded a loss on disposal of assets of $63,714 during the quarter and six months ended June 30, 2002. In addition, in connection with the anticipated sale of the property in Rock Springs, Wyoming, the Partnership recorded a loss on disposal of assets of $113,615 during the quarter and six months ended June 30, 2002. The financial results for these properties are reflected as Discontinued Operations in the accompanying financial statements. The operating results of discontinued operations are as follows:

5. Related Party Transactions: An affiliate of the Partnership is 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 affiliate provides 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 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 10% Preferred Return, plus their adjusted capital contributions. During the six months ended June 30, 2002, the Partnership incurred a deferred, subordinated, real estate disposition fee of $22,500 as a result of the sale of a property (see Note 3.) CNL INCOME FUND II, LTD. (A Florida Limited Partnership) NOTES TO CONDENSED FINANCIAL STATEMENTS Quarters and Six Months Ended June 30, 2002 and 2001 6. Commitment and Contingency: In connection with a proposed sale of a Property in Ocala, Florida, underground petroleum contamination was discovered during the due diligence phase in a prior year. As a result of the discovery of the contamination, the sales contract was terminated. The Partnership applied to a state funded clean-up program and received notification it was eligible for state assistance. Under the state funded clean-up program, the Partnership will be responsible for 25% of the actual clean-up costs and will receive assistance for the remaining 75% of the costs. The Partnership anticipated that future clean-up costs would be approximately $300,000 and during the year ended December 31, 2000, accrued 25%, or $75,000 of the estimated clean-up costs as a liability. During the quarter and six months ended June 30, 2002, phase one of the clean-up work commenced at the site. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CNL Income Fund II, Ltd. (the "Partnership") is a Florida limited partnership that was organized on November 13, 1986 to acquire for cash, either directly or through joint venture arrangements, both newly constructed and existing restaurant properties, as well as land upon which restaurants were to be constructed, which are leased primarily to operators of national and regional fast-food restaurant chains (collectively, the "Properties"). The leases generally are triple-net leases, with the lessees responsible for all repairs and maintenance, property taxes, insurance and utilities. As of June 30, 2001, the Partnership owned 22 Properties directly and 10 Properties indirectly, through joint venture of tenancy in common arrangements. As of June 30, 2002, the Partnership owned 21 Properties directly and nine Properties indirectly, through joint venture or tenancy in common arrangements. Capital Resources The Partnership generated cash from operating activities (which includes cash received from tenants, distributions from joint ventures, and interest and other income received) of $694,811 and $783,426 during the six months ended June 30, 2002 and 2001, respectively. The decrease in cash from operating activities for the six months ended June 30, 2002, as compared to the same period of 2001 was primarily a result of changes in the Partnership's working capital. Other sources and uses of capital included the following during the six months ended June 30, 2002. In October 2001, the Property in Casper, Wyoming was partially destroyed by fire. As a result, the Partnership collected approximately $227,600 in insurance proceeds. In June 2002, the Partnership sold its Burger King Property in San Antonio, Texas, to the tenant and received net sales proceeds of approximately $725,000, resulting in a gain of approximately $133,600. In connection with the sale, the Partnership incurred a deferred, subordinated, real estate disposition fee of $22,500. Payment of the real estate disposition fee is subordinated to receipt by the limited partners of their aggregate, cumulative 10% Preferred Return, plus their adjusted capital contributions. The Partnership distributed the majority of the net sales proceeds to the limited partners, as described below. The Partnership distributed amounts sufficient to enable the limited partners to pay federal and state income taxes, if any (at a level reasonably assumed by the general partners), resulting from the sale. Currently, rental income from the Partnership's Properties and any net sales proceeds are invested in money market accounts or other short-term, highly liquid investments such as demand deposit accounts at commercial banks, money market accounts and certificates of deposit with less than a 90-day maturity date, pending the Partnership's use of such funds to pay Partnership expenses or to make distributions to the partners. At June 30, 2002, the Partnership had $1,382,792 invested in such short-term investments, as compared to $559,886 at December 31, 2001. The increase in the amount invested in short-term investments at June 30, 2002, as compared to December 31, 2001, is attributable to the Partnership receiving proceeds from the sale of the Property in San Antonio, Texas. The funds remaining at June 30, 2002 will be used to pay distributions and other liabilities of the Partnership. Short-Term Liquidity The Partnership's short-term liquidity requirements consist primarily of the operating expenses of the Partnership. The Partnership's investment strategy of acquiring Properties for cash and leasing them under triple-net leases to operators who generally meet specified financial standards minimizes the Partnership's operating expenses. The general partners believe that the leases will continue to generate cash flow in excess of operating expenses. The general partners have the right, but not the obligation, to make additional capital contributions if they deem it appropriate in connection with the operations of the Partnership. The Partnership generally distributes cash from operations remaining after the payment of operating expenses of the Partnership, to the extent that the general partners determine that such funds are available for distribution. Based on current and anticipated future cash from operations, and for the six months ended June 30, 2002, sales proceeds and insurance proceeds, as described above, and for the six months ended June 30, 2001, a loan from the corporate general partner, the Partnership declared distributions to limited partners $1,546,992 and $866,658, for the six months ended June 30, 2002 and 2001, respectively ($1,123,496 and $433,329 for the quarters ended June 30, 2002 and 2001, respectively.) This represents distributions of $30.94 and $17.33 per unit for the six months ended June 30, 2002 and 2001, respectively ($22.47 and $8.67 per unit for each applicable quarter.) Distributions for the six months ended June 30, 2002 included $700,000 in a special distribution as a result of the distribution of net sales proceeds from the sale of the Property in San Antonio, Texas. The special distribution was effectively a return of a portion of the limited partners' investment, although, in accordance with the Partnership agreement, $481,914 was applied toward the limited partners' 10% Preferred Return and the balance of $218,086 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. As a result of the sale of the Properties, the Partnership's total revenue was reduced and is expected to remain reduced in subsequent periods, while the majority of the Partnership's operating expenses remained and are expected to remain fixed. No distributions were made to the general partners for the quarters and six months ended June 30, 2002 and 2001. The Partnership intends to continue to make distributions of cash available for distribution to the limited partners on a quarterly basis. Total liabilities of the Partnership, including distributions payable, were $1,438,039 at June 30, 2002, as compared to $697,751 at December 31, 2001. The increase in total liabilities was primarily a result of the Partnership accruing a special distribution to the limited partners of $700,000 of net sales proceeds at June 30, 2002 from the sale of the Property in San Antonio, Texas, as described above. Total liabilities at June 30, 2002, to the extent they exceed cash and cash equivalents, will be paid from anticipated future cash from operations, or in the event the general partners elect to make additional capital contributions or loans, from the future general partners' capital contributions or loans. In connection with the proposed sale of a Property in Ocala, Florida, underground petroleum contamination was discovered during the due diligence phase in a prior year. As a result of the discovery of the contamination, the sales contract was terminated. The Partnership applied to a state funded clean-up program and received notification it was eligible for state assistance. Under the state funded clean-up program, the Partnership will be responsible for 25% of the actual clean-up costs and will receive assistance for the remaining 75% of the costs. The Partnership anticipated that future clean-up costs would be approximately $300,000 and during the year ended December 31, 2000, accrued 25%, or $75,000 of the estimated clean-up costs as a liability. During the quarter and six months ended June 30, 2002, phase one of the clean-up work commenced at the site. Long-Term Liquidity The Partnership has no long-term debt or other long-term liquidity requirements. Results of Operations Total rental revenues were $627,532 for the six months ended June 30, 2002, as compared to $667,164 for the six months ended June 30, 2001, of which $303,529 and $342,059 were earned during the second quarter of 2002 and 2001, respectively. The decrease in rental revenues during the quarter and six months ended June 30, 2002, as compared to the same periods of 2001, was partially due to the 2001 sale of the Property in Bay City, Texas and the 2002 sale of the Property in San Antonio, Texas. Rental revenues from wholly owned Properties are expected to remain at reduced amounts as a result of the Partnership distributing the net sales proceeds relating to these two sales to the limited partners during 2001 and 2002. The decrease in rental revenues during the quarter and six months ended June 30, 2002, as compared to the same periods of 2001, was also partially due to a decrease in gross sales of certain restaurant Properties, the leases of which require the payment of contingent rental income. During the second quarter of 2002, the leases for the Properties in Tomball, Texas and Pineville, Louisiana expired. The Partnership will not receive any rental revenues from these two vacant Properties until the Properties are re-leased. The lost revenues resulting from the expiration of these leases will have an adverse effect on the results of operations of the Partnership if the Partnership is not able to re-lease the Properties in a timely manner. The Partnership is currently seeking replacement tenants for these two vacant Properties. During the six months ended June 30, 2002 and 2001, the Partnership earned $177,465 and $211,748, respectively, attributable to net income earned by joint ventures, of which $83,130 and $104,781 were earned during the quarters ended June 30, 2002 and 2001, respectively. The decrease in net income earned by joint ventures during the quarter and six months ended June 30, 2002, as compared to the same periods of 2001, was partially due to the fact that, Houlihan's Restaurant, Inc., which leased the Property owned by Show Low Joint Venture, in which the Partnership owns an approximate 64% interest, was experiencing financial difficulties and in January 2002, filed for bankruptcy and rejected the lease relating to this Property. The joint venture will not receive any rental revenues from this Property until the Property is re-leased. The joint venture is currently seeking a replacement tenant for this Property. The lost revenues resulting from the vacant Property will have an adverse effect on the equity in earnings of joint ventures, if the joint venture is not able to re-lease the Property in a timely manner. The decrease in net income during the quarter and six months ended June 30, 2002, was also partially due to the fact that in August 2001, Peoria Joint Venture, in which the Partnership owned a 48% interest, sold its Property, and the Partnership dissolved the joint venture in accordance with the joint venture agreement. The Partnership expects that net income earned by joint ventures will remain at reduced levels as a result of distributing the proceeds to the limited partners. The decrease in net income earned by joint ventures during the quarter and six months ended June 30, 2002, was partially offset by the fact the Partnership and CNL Income Fund V, Ltd., as tenants-in-common, re-leased the Property in Mesa, Arizona which had become vacant in June 2000, to a new tenant in September 2001 with terms substantially the same as the Partnership's other leases. Operating expenses, including depreciation and amortization, and provision for write-down of assets, were $447,041 and $294,229 for the six months ended June 30, 2002 and 2001, respectively, of which $304,731 and $117,514 was incurred during the quarters ended June 30, 2002 and 2001, respectively. The increase during the quarter and six months ended June 30, 2002, as compared to the same periods of 2001, was primarily due to the fact that the Partnership recorded a provision for write-down of assets of $181,231, relating to the property in Pineville, Louisiana, due to the fact that the tenant opted to not renew its lease, which expired in June 2002, and vacated the Property. The provision represented the difference between the carrying value of the property and its fair value. The increase in operating expenses during the six months ended June 30, 2002, as compared to the same period of 2001, was partially offset due to a decrease in state tax expense and a decrease in the costs incurred for administrative expenses for servicing the Partnership and its Properties. Effective January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement requires that a long-lived asset be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The assessment is based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds its fair value. If an impairment is recognized, the adjusted carrying amount of a long-lived asset is its new cost basis. The statement also requires that the results of operations of a component of an entity that either has been disposed of or is classified as held for sale be reported as a discontinued operation if the disposal activity was initiated subsequent to the adoption of the Standard. In June 2002, the Partnership sold its Burger King Property in San Antonio, Texas resulting in a gain of approximately $133,600. This Property was identified for sale as of December 31, 2001. During the year ended December 31, 2001, the building on the Casper, Wyoming Property was destroyed by fire and subsequently demolished. In June 2002, the Partnership entered into an agreement with an unrelated third party to sell the land. In June 2002, the Partnership entered into another agreement with an unrelated third party, to sell the Denny's Property in Rock Springs, Wyoming. In accordance with Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets," the Partnership reclassified these assets from land and building on operating leases to real estate held for sale. The Partnership recorded the reclassified assets at the lower of their carrying amount or fair value, less cost to sell. In addition, during the six months ended June 30, 2002, the Partnership stopped recording depreciation upon placing the Properties up for sale. The Partnership recognized a net rental loss (rental revenues less Property related expenses) of $14,553 and $77,643 during the six months ended June 30, 2002 and 2001, respectively, of which $8,390 and $58,420 were incurred during the quarters ended June 30, 2002 and 2001, respectively. During 2000, Phoenix Restaurant Group, Inc. and its Subsidiaries (collectively referred to as "PRG"), the tenant of these two Properties, experienced financial difficulties and in October 2001, filed for Chapter 11 bankruptcy protection, and rejected the leases related to these Properties. As a result, during the quarter ended March 31, 2001, the Partnership stopped recording rental income relating to these two Properties. The Partnership has no remaining leases with PRG. During the quarters and six months ended June 30, 2002 and 2001, the Partnership incurred Property related expenses, such as legal fees, repairs and maintenance, insurance and real estate taxes relating to these Properties. As a result of the building on the Casper, Wyoming Property being destroyed by fire, during the year ended December 31, 2001, the Partnership recorded a provision for write-down of assets of $78,015, which represented the loss incurred by the Partnership in excess of anticipated insurance proceeds. The undepreciated cost of the building of $216,817 was removed from the accounts and the anticipated insurance proceeds of $138,802 were included in accounts receivable. During the six months ended June 30, 2002, the Partnership contested the settlement of the insurance claim, and in June 2002, received an additional $88,777 in insurance proceeds, which the Partnership recorded as a gain on casualty loss on building. In connection with the anticipated sale of the land, the Partnership recorded a loss on disposal of assets of $63,714 during the quarter and six months ended June 30, 2002. In addition, in connection with the anticipated sale of the Property in Rock Springs, Wyoming, the Partnership recorded a loss on disposal of assets of $113,615 during the quarter and six months ended June 30, 2002. The financial results relating to these Properties are reported as Discontinued Operations in the financial statements. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Not applicable. PART II. OTHER INFORMATION Item 1. Legal Proceedings. Inapplicable. Item 2. Changes in Securities. Inapplicable. Item 3. Defaults upon Senior Securities. Inapplicable. Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable. Item 5. Other Information. Inapplicable. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.1 to Amendment No. 1 to Registration Statement No. 33-10351 on Form S-11 and incorporated herein by reference.) 3.2 Amended and Restated Agreement and Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.2 to Form 10-K filed with the Securities and Exchange Commission on April 2, 1993, and incorporated herein by reference.) 4.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 4.1 to Amendment No. 1 to Registration Statement No. 33-10351 on Form S-11 and incorporated herein by reference.) 4.2 Amended and Restated Agreement and Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.2 to Form 10-K filed with the Securities and Exchange Commission on April 2, 1993, and incorporated herein by reference.) 10.1 Property Management Agreement (Included as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on April 2, 1993, and incorporated herein by reference.) 10.2 Assignment of Property Management Agreement from CNL Investment Company to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to Form 10-K filed with the Securities and Exchange Commission on March 30, 1995, and incorporated herein by reference.) 10.3 Assignment of Property Management Agreement from CNL Income Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit 10.3 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996 and incorporated herein by reference.) 10.4 Assignment of Management Agreement from CNL Fund Advisors, Inc. to CNL APF Partners, LP. (Included as Exhibit 10.4 to Form 10-Q filed with the Securities and Exchange Commission on August 13, 2001, and incorporated herein be reference.) 10.5 Assignment of Management Agreement from CNL APF Partners, LP to CNL Restaurants XVIII, Inc. (Filed herewith.) (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATED this 12th day of August, 2002. CNL INCOME FUND II, LTD. By: CNL REALTY CORPORATION GeneralPartner By: /s/ James M. Seneff, Jr. ------------------------ JAMES M. SENEFF, JR. Chief Executive Officer (Principal Executive Officer) By: /s/ Robert A. Bourne ------------------------ ROBERT A. BOURNE President and Treasurer (Principal Financial and Accounting Officer) CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF CORPORATE GENERAL PARTNER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty Corporation, the corporate general partner of CNL Income Fund II, Ltd. (the "Partnership"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Partnership's Quarterly Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The undersigned hereby certifies that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. Date: August 12, 2002 /s/ James M. Seneff, Jr. ------------------------------ Name: James M. Seneff, Jr. Title: Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER OF CORPORATE GENERAL PARTNER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, Robert A. Bourne, the President and Treasurer of CNL Realty Corporation, the corporate general partner of CNL Income Fund II, Ltd. (the "Partnership"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Partnership's Quarterly Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The undersigned hereby certifies that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. Date: August 12, 2002 /s/ Robert A. Bourne ------=----------------------- Name: Robert A. Bourne Title:President and Treasurer EXHIBIT INDEX Exhibit Number 3.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.1 to Amendment No. 1 to Registration Statement No. 33-10351 on Form S-11 and incorporated herein by reference.) 3.2 Amended and Restated Agreement and Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.2 to Form 10-K filed with the Securities and Exchange Commission on April 2, 1993, and incorporated herein by reference.) 4.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 4.1 to Amendment No. 1 to Registration Statement No. 33-10351 on Form S-11 and incorporated herein by reference.) 4.2 Amended and Restated Agreement and Certificate of Limited Partnership of CNL Income Fund II, Ltd. (Included as Exhibit 3.2 to Form 10-K filed with the Securities and Exchange Commission on April 2, 1993, and incorporated herein by reference.) 10.1 Property Management Agreement (Included as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on April 2, 1993, and incorporated herein by reference.) 10.2 Assignment of Property Management Agreement from CNL Investment Company to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to Form 10-K filed with the Securities and Exchange Commission on March 30, 1995, and incorporated herein by reference.) 10.3 Assignment of Property Management Agreement from CNL Income Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit 10.3 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996 and incorporated herein by reference.) 10.4 Assignment of Management Agreement from CNL Fund Advisors, Inc. to CNL APF Partners, LP. (Included as Exhibit 10.4 to Form 10-Q filed with the Securities and Exchange Commission on August 13, 2001, and incorporated herein be reference.) 10.5 Assignment of Management Agreement from CNL APF Partners, LP to CNL Restaurants XVIII, Inc. (Filed herewith.) EXHIBIT 10.5

CNL INCOME FUND II LTD 10-Q