SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-K
(Mark One)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended November 30, 1998
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OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-10287
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NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
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(Exact name of Registrant as specified in its charter)
Missouri 43-1182535
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(State or other jurisdiction of (I.R.S/ Employer
incorporation or organization) Identification No.)
500 North Broadway, St. Louis, Missouri 63102
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 206-4600
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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None Not Applicable
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Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 ___.
<PAGE>
_X_ Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
As of February 1, 1999, the aggregate market value of the Registrant's units of
limited partnership interest (which constitute voting securities under certain
circumstances) held by non-affiliates of the Registrant was $12,000,000. (The
aggregate market value was computed on the basis of the initial selling price of
$1,000 per unit of limited partnership interest, using the number of units not
beneficially owned on February 1, 1999 by the General Partners or holders of 10%
or more of the Registrant's limited partnership interests. The initial selling
price of $1,000 per unit is not the current market value. Accurate pricing
information is not available because the value of the units of limited
partnership interests is not determinable since no active secondary market
exists. The characterization of such General Partners and 10% holders as
affiliates is for the purpose of this computation only and should not be
construed as an admission for any purpose that any such persons are, or other
persons not so characterized are not, in fact, affiliates of the Registrant).
Documents incorporated by reference:
Portions of the Prospectus of the Registrant dated November 16, 1979, as
supplemented and filed pursuant to Rule 424(c) of the Securities Act of 1933,
are incorporated by reference in Part III of this Annual Report on Form 10-K.
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<PAGE>
PART I
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ITEM 1: BUSINESS
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It should be noted that this 10-K contains forward-looking information (as
defined in the Private Securities Litigation Reform Act of 1995) that involves
risk and uncertainty, including trends in the real estate investment market,
projected leasing and sales, and the future prospects for the Registrant. Actual
results could differ materially from those contemplated by such statements.
Nooney Real Property Investors-Two, L.P. (the "Registrant") is a limited
partnership formed under the Missouri Uniform Limited Partnership Law on
September 26, 1979, to invest, on a leveraged basis, in income-producing real
properties such as shopping centers, office buildings, apartment complexes,
office/warehouses and light industrial properties. The Registrant originally
invested in six real property investments. During fiscal 1989, one of the
Registrant's properties, Penn Park Office Complex in Oklahoma City, was sold at
foreclosure to the property's mortgage lender. On November 14, 1991, a portion
of one of the Registrant's properties, Building G of the Morenci located in
Indianapolis, Indiana, was sold to a party unaffiliated with the Registrant.
During fiscal 1992, Stone City Mall was sold at foreclosure to the property's
mortgage lender.
The Registrant's primary investment objectives are to preserve and protect the
Limited Partners' capital and obtain long-term appreciation in the value of its
properties. The term of the Registrant is until December 31, 2019. It was
originally anticipated that the Registrant would sell or refinance its
properties within approximately five to ten years after their acquisition. The
depression of real estate values experienced nationwide from 1988 to 1993
lengthened this time frame in order to achieve the goal of capital appreciation.
The real estate investment market began to improve in 1994 and is expected to
further continue its improvement over the next several years. Management
believes this trend should increase the value of the Registrant's properties in
the future. The Registrant is intended to be self-liquidating and proceeds, if
any, from the sale or refinancing of the Registrant's real property investments
will not be invested in new properties but will be distributed to the Partners
or, at the discretion of the General Partners, applied to capital improvements
to, or the payment of indebtedness with respect to, existing properties, the
payment of other expenses or the establishment of reserves.
The business in which the Registrant is engaged is highly competitive. The
Registrant's investment properties are located in or near major urban areas and
are subject to competition from other similar types of properties in such areas.
The Registrant competes for tenants for its properties with numerous other real
estate limited partnerships, as well as with individuals, corporations, real
estate investment trusts and other entities engaged in real estate investment
activities. Such competition is based on such factors as location, rent
schedules and services and amenities provided.
The Registrant has no employees. Property management services for the
Registrant's investment properties are provided by Nooney, Inc., an affiliate of
the General Partners.
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<PAGE>
Throughout the 10-K, references are made to the following companies listed in
Column A below. Please note that on January 28,1998, the names of said companies
were changed to the names listed in Column B below.
Column A Column B
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Nooney Company Brooklyn Street Properties, Inc.
Nooney Krombach Company Hanley Brokers, Inc.
ITEM 2: PROPERTIES
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On October 3, l979, the Registrant purchased the Maple Tree Shopping Center
("Maple Tree") located at the corner of Clayton and Clarkson Roads in West St.
Louis County, Missouri. Constructed in l974 of steel and masonry block, Maple
Tree contains approximately 72,000 net rentable square feet and is located on a
7.8 acre site which provides paved parking for 366 cars. The purchase price of
Maple Tree was $3,184,053. Maple Tree was 100% leased by 18 tenants at November
30, 1998.
On October 15, l980, the Registrant purchased Park Plaza I & II, ("Park Plaza")
an office/warehouse center located at 5707-5797 Park Plaza Court in
Indianapolis, Indiana. Park Plaza consists of two one-story, concrete block
buildings. Park Plaza I was built in l975 and Park Plaza II in l979. Park Plaza
is located on a 9 acre site which provides paved parking for 150 cars. The
purchase price of Park Plaza was $2,411,163. The buildings contain a total of
approximately 95,000 net rentable square feet and were 95% leased by 26 tenants
at November 30, 1998.
On March 27, l981, the Registrant purchased Morenci Professional Park Buildings
A, B, C, D & G ("Morenci"), an office/warehouse complex located at 62nd Street
and Guion Road in Indianapolis, Indiana. Morenci consisted of five one-story,
masonry buildings located on a 13.35 acre site. Buildings A, B, C & D were built
in l975 and building G was built in l979. The total purchase price, excluding
Building G, of Morenci was $3,009,924. On November 14, 1991, Building G was sold
to a party unaffiliated with the Registrant. The remaining buildings contain a
total of approximately 105,600 net rentable square feet and were 94% leased by
50 tenants at November 30, 1998.
On March 27, l981, the Registrant purchased the Jackson Industrial Building A
("Jackson Warehouse"), a warehouse building located at Post Road and 30th Street
in Indianapolis, Indiana. Jackson Warehouse is a one-story, masonry building and
is located on a 21.87 acre site. The building, originally constructed in l976
and subsequently expanded in l980, contains approximately 320,000 net rentable
square feet. The purchase price of Jackson Warehouse was $6,089,929. Jackson
Warehouse was 61% leased by 2 tenants at November 30, 1998.
Reference is made to Note 3 to Notes to Financial Statements filed herewith as
Exhibit 99.3 in response to Item 8 for a description of the mortgage
indebtedness secured by the Registrant's real property investments. Reference is
also made to Note 6 to Notes to Financial Statements for a discussion of
revenues derived from major tenants.
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<PAGE>
The following table sets forth certain information as of November 30, 1998,
relating to the properties owned by the Registrant.
<TABLE>
<CAPTION>
AVERAGE
ANNUALIZED
EFFECTIVE
TOTAL BASE RENT PER- PRINCIPAL TENANTS LEASE
SQUARE ANNUALIZED PER SQUARE CENT OVER 10% OF PROPERTY BASE EXPIRA-
PROPERTY FEET BASE RENT FOOT LEASED RENT REVENUES (%) TION
- -------- ------ ---------- ---------- ------ ------------------------- -------
<S> <C> <C> <C> <C> <C> <C>
Jackson Warehouse 320,000 $ 466,200 $2.41 61% Von Duprin, Inc. (17%) 2001
Paper Manufacturers (83%) 2002
Morenci 105,600 $ 414,480 $4.16 94% None
Maple Tree 72,000 $ 464,905 $6.44 100% Schnucks Super Markets (33%)* 1999
Super X Drugs (10%)** 2000
Park Plaza 95,000 $ 467,683 $5.18 95% US Miniature Lamp, Inc. (11%) 2001
</TABLE>
* Space subleased to DeBasio Furniture
** Space subleased to Medicine & More
ITEM 3: LEGAL PROCEEDINGS
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The Registrant is not a party to any material pending legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal 1998.
PART II
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ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
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STOCKHOLDER MATTERS
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As of February 1, 1999, there were 933 record holders of Interests in the
Registrant. There is no public market for the Interests and it is not
anticipated that a public market will develop.
There were no cash distributions paid to the Limited Partners during fiscal 1997
or fiscal 1998.
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<PAGE>
ITEM 6: SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years Ended November 30,
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1998 1997 1996 1995 1994
(Not covered by independent auditors' report)
<S> <C> <C> <C> <C> <C>
Rental and other income $ 2,417,980 $ 2,424,206 $ 2,301,696 $ 2,331,934 $ 2,344,886
Net income (loss) (59,425) 88,364 16,926 54,444 (35,044)
Data per limited partnership unit:
Net income (loss) (4.90) 7.29 1.40 4.49 (2.89)
Weighted average limited partnership units outstanding 12,000 12,000 12,000 12,000 12,000
At year-end:
Total assets 7,574,604 7,906,122 8,354,094 8,440,165 8,747,540
Investment property - net 6,833,226 7,210,295 7,459,116 7,515,411 7,818,235
Mortgage notes payable 7,236,825 7,633,066 7,999,107 8,331,643 8,664,475
Partners' equity (deficiency in assets) (261,183) (201,758) (290,122) (307,048) (361,492)
<FN>
See Item 7: Management's Discussion and Analysis for discussion of comparability of items.
</FN>
</TABLE>
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<PAGE>
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
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CONDITION AND RESULTS OF OPERATIONS
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Liquidity and Capital Resources
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Cash reserves as of November 30, 1998, are $486,156, an increase of $37,258 or
8% from year ended November 30, 1997. The increase in cash can be attributed to
a decrease in capital expenditures necessary at the Registrant's properties
during 1998. In prior years, significant capital expenditures were incurred. The
Registrant plans to maintain adequate cash reserves and to fund anticipated
capital expenditures for 1999 from operations. The anticipated capital
expenditures by property are:
Other Capital Leasing Capital Total
---------------------------------------
Park Plaza $ 61,120 $ 3,440 $ 64,560
Morenci 104,266 7,560 111,826
Maple Tree 41,850 17,700 59,550
Jackson Warehouse 40,500 313,122 353,622
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$247,736 $341,822 $589,558
At all four of the Registrant's properties, recent capital had been budgeted to
fund tenant alternations and lease commissions for new and renewal leases to be
signed during the year. At Morenci the Registrant has forecasted other capital
for upgrading the exterior lighting and asphalt overlay of the east section of
the lot and replacement of concrete sidewalks. At Park Plaza the Registrant has
budgeted other capital for replacement of the roof porches and roof repairs. At
Maple Tree Shopping Center other capital has been budgeted for replacement of a
section of the roof and overlaying the rear and main drives of the center. At
Jackson Industrial Warehouse other capital budgeted is for separation of
utilities and building of a new entrance if the vacant space needs to be further
subdivided.
As of February 1, 1999, the Registrant negotiated an extension of the second
mortgages secured by Morenci and Maple Tree. The terms of the extensions were
for a period of six months at a rate of 1.5% over the then corporate base rate.
As of November 30, 1998, the interest rate on the debt was 9.25%. The balance of
the second mortgage debt on Morenci as of November 30, 1998, is $217,733. The
balance of the second mortgage debt on Maple Tree as of November 30, 1998, is
$245,364. These mortgages mature on August 1, 1999 and the Registrant
anticipates obtaining a further extension from the lender.
The first mortgage debt on Morenci and Park Plaza have maturity dates of October
1, 2005, and December 31, 2003, respectively. The first mortgage debt on Maple
Tree has a maturity date of July 2009. The first mortgage debt on Jackson
Warehouse has a maturity date of November 2000.
-7-
<PAGE>
The future liquidity of the Registrant is dependent on its ability to fund
future capital expenditures and mortgage payments from operations and cash
reserves, maintain occupancy, and negotiate with lenders the refinancing of
mortgage debt as it matures. Until such time as the real estate market recovers
and profitable sale of the properties is feasible, the Registrant will continue
to manage the properties to achieve its investment objectives.
Results of Operations
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The results of operations for the Registrant's properties for the years ended
November 30, 1998, 1997, and 1996 are detailed in the schedule below. Expenses
of the Registrant are excluded.
Jackson
Warehouse Maple Tree Park Plaza Morenci
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1998
----
Revenues $ 835,944 $ 591,382 $ 484,736 $ 530,493
Expenses 1,130,028 469,852 286,508 455,275
---------------------------------------------------
Net Income (Loss) $ (294,084) $ 121,530 $ 198,228 $ 75,218
===================================================
1997
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Revenues $ 867,895 $ 564,370 $ 484,872 $ 505,086
Expenses 861,781 465,257 330,272 522,937
---------------------------------------------------
Net Income (Loss) $ 6,114 $ 99,113 $ 154,600 $ (17,851)
===================================================
1996
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Revenues $ 864,995 $ 543,132 $ 478,980 $ 405,786
Expenses 847,648 479,561 359,583 490,772
---------------------------------------------------
Net Income (Loss) $ 17,347 $ 63,571 $ 119,397 $ (84,986)
===================================================
1998 Property Comparisons
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At Jackson Warehouse, for the year ended 1998 compared to 1997 revenues
decreased due to a decrease in base rental rate ($185,600) due to the one major
tenant leaving, offset by an increase in miscellaneous income ($161,522) due to
the early termination fee paid by this tenant. Expenses increased substantially
($268,247) due to the cost associated with the cleaning up of the vacancy and
overall property work done to prepare the space for re-leasing.
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<PAGE>
At Maple Tree, revenues increased ($27,012) due to increases in base rental
income ($8,554) and tax reimbursement income ($8,106), and the recovery of prior
income written off to bad debt ($10,263). Expenses at Maple Tree were relatively
stable on an overall. In operating expenses, real estate taxes increased
($12,405) which were offset by a decrease in interest expenses ($7,799).
At Park Plaza I and II revenues were stable when compared to the prior year end.
Base rental income increased ($11,418), offset by decreases in common area
maintenance reimbursement ($1,954), real estate tax income ($5,056), and
miscellaneous income ($2,321), offset by an increase in water income ($5,198).
In addition, in the prior year bad debt expense had been incurred of ($7,243).
Expenses decreased due to decreases in real estate taxes ($44,713) due to
refunds of taxes under appeal. Snow removal costs were down ($10,202), offset by
increases in repairs and maintenance electric ($8,388), parking lot repairs
($4,572), and vacancy expense ($11,764). In addition, depreciation and
amortization decreased by ($9,180).
At Morenci Professional Park income increased $25,407 when comparing the year
ended 1998 to the year ended 1997. The increase in income is due to an increased
in base rental income ($33,666), offset by decreases in miscellaneous income
($3,165) and common area maintenance reimbursement income ($1,363). Expenses
decreased $67,662 which is made up of a combination of decreases in parking lot
expenditures ($7,928), repairs and maintenance-building ($11,777), repairs and
maintenance-electric ($10,104), snow removal ($12,362), and real estate tax
expense ($10,183). In addition, depreciation decreased $8,045, interest expense
decreased $10,063, offset by a slight increase in amortization $1,198.
The occupancy levels at November 30 are as follows:
Occupancy rates at November 30
1998 1997 1996
--------------------------------------
Park Plaza 95% 97% 100%
Morenci 94% 93% 80%
Maple Tree 100% 100% 100%
Jackson Warehouse 61% 100% 100%
Jackson Warehouse has two tenants who lease 61% of the available space. One of
the tenants occupies 40% of the space on a lease which expires in July 2002. The
other tenant occupies 21% of the space on a lease which expires in November
2001. Currently the Registrant is marketing the remainder of the space which is
currently vacant. During 1998 one tenant vacated 194,000 square feet and one new
tenant came in occupying 67,200 square feet.
Maple Tree remained 100% occupied during the fourth quarter of 1998. During the
quarter, four tenants renewed leases for 4,300 square feet. During all of 1998,
eight tenants renewed their leases for 10,200 square feet. The center has two
major tenants who occupy 18% and 42% of the available space. Their leases have
expirations of April 30, 2000 and July 31, 1999, respectively, and each has
several renewal options.
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<PAGE>
Occupancy at Park Plaza was 95% at the end of the fourth quarter of 1998. During
the fourth quarter, two tenants signed new leases for 5,040 square feet; five
tenants renewed their leases for 19,520 square feet, and three tenants vacated
7,500 square feet. During 1998 eight tenants signed new leases for 23,000 square
feet; ten tenants renewed their leases for 30,680 square feet; and nine tenants
vacated 25,340 square feet. At Park Plaza no tenant occupies more than 10% of
the total space.
Occupancy at Morenci Professional Park was 94% as of November 30, 1998. During
the fourth quarter, four tenants signed new leases for 4,800 square feet; one
tenant renewed its lease for 1,200 square feet; and two tenants vacated 4,800
square feet. During all of 1998, eleven tenants signed new leases for $14,400
square feet; nine tenants renewed their leases for 18,000 square feet; and eight
tenants vacated 13,200 square feet. No tenant occupies more than 10% of the
total space.
Each year, the General Partners assess the properties for impairment. If
conclusive evidence of an impairment is found in any particular quarter, further
valuation procedures would be performed. It is difficult to pinpoint an exact
time or event to which impairment of a real estate investment can be attributed.
Reductions in value are usually recognized on an annual basis at the time the
appraisals, if appropriate, are completed.
Year 2000 issues
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Information Technology Systems
- ------------------------------
The Registrant utilizes computer software for its corporate and real property
accounting records and to prepare its financial statements, as well as for
internal accounting purposes. The vendor of the Registrant's software has
informed the Registrant that it is Year 2000 compliant. The Registrant believes
after reasonable investigation that its information technology hardware is Year
2000 compliant. However, in the event that such systems should fail, as a
contingency plan, the Registrant could prepare all required accounting entries
manually, without incurring material additional operating expenses.
Non-Information Technology Systems
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At the request of the Registrant, its property managers have completed their
review of the major date- sensitive non-information technology systems such as
the elevators, heating, ventilating, air conditioning and cooling ("HVAC")
systems, locks, and other like systems in the Registrant's properties and have
determined that such systems are materially Year 2000 compliant. In some of the
Registrant's properties, its property managers have utilized the services of
third-party consultants in making this determination, while in other properties,
the property managers have internally made such determinations. The Registrant
does not separately track the internal costs incurred for its Year 2000 project.
The Registrant does not believe that the Year 2000 issue will pose significant
problems to the Registrant's Information technology systems and non-Information
technology systems, or that resolution of any potential problems with respect to
such systems will have a material effect on the Registrant's financial condition
or results of operations.
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<PAGE>
Material Third Parties' Systems Failures
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The most reasonably likely worst case scenario facing the Registrant as a result
of the Year 2000 problem would be the inability of its tenants to pay rent as a
result of a breakdown in such tenants' (or their financial service providers')
computer systems or the refusal of such tenants to pay their rent as a result of
the Registrant's inability to provide services due to non-Information technology
systems failure. Failure in a tenant's computer systems may cause delays in such
tenant's ability to process its accounting records and to make timely rent
payments. However, any such delays in rent payments, whether caused by systems
failure of tenant, property manager or a combination of the two, should not have
a materially adverse effect on the Registrant's business or results of
operations.
Risks
- -----
While delays caused by failure of the tenants' or the property managers'
accounting or supply systems would likely not adversely affect the Registrant's
business or results of operations, non-Information technology systems failure in
the Registrant's properties could lead to tenants attempting to withhold their
rent payments, which could materially adversely effect the Registrant's
business, results of operations and financial condition as a result of increased
legal costs. The Registrant believes that such material effect is primarily
limited to items of a utility nature furnished by third parties to the
Registrant and a wide universe of other customers. Included are items such as
electricity, natural gas, telephone service and water, all of which are not
readily susceptible to alternate sources and which in all likelihood should be
available in some form. The Registrant has been unable to obtain assurances from
such utility companies as to their Year 2000 compliance, and does not expect
that such assurances will be forthcoming.
Such non-Information technology systems failure could force tenants to use the
stairs in such properties, rather than the elevators. However, none of the
properties owned by the Registrant is a high-rise building where such an
elevator failure could cause a material adverse effect to the operations of its
tenants, although such failure could make it impossible for any disabled tenants
or any disabled customers to access such properties. Moreover, as previously
discussed, the Registrant may suffer adverse effects in its results of
operations and financial condition as a result of utility or HVAC failures, for
example. Such events could lead the tenants of the Registrant to withhold rent,
in the event that the Registrant's properties are not usable for their intended
purposes. The Registrant does not believe that rent abatement would be a lawful
tenant remedy for short-term obligations unless such failures extend for a
period of 30 consecutive days. The Registrant intends to pursue its remedies for
any such breach of its rent obligations by a Tenant expeditiously and to the
full extend permitted by law.
1998 Comparisons
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For the year ended November 30, 1998, consolidated revenues were $2,423,480
compared to $2,434,123 for the year ended November 30, 1997. On a consolidated
basis, revenues were fairly steady, decreasing $10,643 or less than 1%.
Consolidated expenses for the year ended November 30,1998, were $2,482,905 as
compared to $2,345,759 for the year ended November 30, 1997. Consolidated
expenses increased 6% or $137,146. The increase is mainly attributable to an
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<PAGE>
increase in vacancy expense at the Jackson Warehouse. This expense was to clean
up the interior of the space vacated by the large tenant during the year and
prepare this space and the exterior of the building for re-leasing. Net income
for the year ended November 30, 1998, was a net loss for the year of $59,425 as
compared to net income of $88,364 for the year ended November 30, 1997. This
decrease resulted in a net loss per limited partnership unit of $4.90 compared
to net income per limited partnership unit of $7.29 for the year ended November
30, 1997. Cash flow provided by operating activities for the year ended November
30, 1998 were $543,644. The Registrant was able to fund capital expenditures of
$110,145 and reduce loan balances by $396,241 during 1998.
1997 Comparisons
- ----------------
For the year ended November 30, 1997, the Registrant's consolidated revenues are
$2,434,123 compared to $2,316,648 for the year ended November 30, 1996. On a
consolidated basis, revenues increased $117,475 or 5%, mainly due to the
increase in occupancy at Morenci.
The Registrant's consolidated expenses for the year ended November 30, 1997,
were $2,345,759 as compared to $2,299,722 at the year ended November 30, 1996.
Consolidated expenses increased $46,037 or 2%. The increase in expenses was
mainly attributable to increases in real estate taxes and repairs and
maintenance at the Registrant's properties. Net income for the year ended
November 30, 1997, was $88,364 or $7.29 per limited partnership unit. This is an
increase over the year ended November 30, 1996, when net income was $16,926 or
$1.40 per limited partnership unit. Cash flow provided by operations for the
year ended November 30, 1997 were $459,605. This cash flow enabled the
Registrant to fund capital expenditures of $240,913 and to reduce loan balances
by $366,041.
Inflation
- ---------
The effects of inflation did not have a material impact upon the Registrant's
operation in fiscal l998, and are not expected to materially affect the
Registrant's operation in l999.
Interest Rates
- --------------
Interest rates on floating rate debt went down in 1997 and fluctuated throughout
1998, ending the year lower than the prior year end. Future increases in the
prime interest rate can adversely affect the operations of the Registrant.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
- ----------------------------------------------------------------------------
The Registrant considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". The
Registrant had no holdings of derivative financial or commodity instruments at
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<PAGE>
December 31, 1998. A review of the Company's other financial instruments and
risk exposures at that date revealed that the Registrant had minor exposure to
interest rate risk due to the floating rate second mortgage debt of $463,097.
The Registrant utilized sensitivity analyses to assess the potential effect of
this risk and concluded that near-term changes in interest rates should not
materially adversely affect the Registrant's financial position, results of
operations or cash flows.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- -------------------------------------------------------------
Financial Statements of the Registrant are filed herewith as Exhibit 99.3 and
are incorporated herein by reference (see Item 14(a)(1)). The supplementary
financial information specified by Item 302 of Regulation S-K is provided in
Item 7.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
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ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None
PART III
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ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
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The Registrant has two General Partners. The background and experience of the
General Partners are as follows:
The General Partner of the Registrant responsible for all aspects of the
Registrant's operations is Nooney Investors, Inc., a Missouri corporation.
Nooney Investors, Inc., a wholly-owned subsidiary of Hanley Brokers, Inc.
(f/k/a/ Nooney Company), was formed in June 1979 for the purpose of being a
general and/or limited partner in the Registrant and other limited partnerships.
John J. Nooney is a Special General Partner of the Partnership and as such, does
not exercise control of the affairs of the Partnership.
The General Partners will continue to serve as General Partners until their
withdrawal or their removal from office by the Limited Partners.
Certain of the General Partners act as general partners of limited partnerships
and hold directorships of companies with a class of securities registered
pursuant to Section 12(g) of the Securities Exchange Act of 1934 or subject to
the requirements of Section 15(d) of the Act. A list of such directorships, and
the limited partnerships for which the General Partners serve as general
partners, is filed herewith as Exhibit 99.1 and incorporated herein by
reference.
On October 31, 1997, Nooney Company sold its wholly-owned subsidiary, Nooney
Investors, Inc., the corporate general partner of the Partnership to S-P
Properties, Inc., a California corporation, which in turn is a wholly-owned
subsidiary of CGS Real Estate Company, Inc., a Texas corporation.
Simultaneously, Gregory J. Nooney, Jr., an individual general partner and PAN,
Inc., a corporate general partner, sold their economic interests to S-P
Properties, Inc. and resigned as general partners.
-13-
<PAGE>
ITEM 11: EXECUTIVE COMPENSATION
- ----------------------------------------
The General Partners are entitled to a share of distributions and a share of
profits and losses as more fully described under the headings "Compensation to
General Partners and Affiliates" on pages 8-11 and "Profits and Losses for Tax
Purposes; Distributions; and Expenses of General Partners" on pages A-14 to A-17
of the Prospectus of the Registrant dated November 16, 1979, as supplemented and
filed pursuant to Rule 424(c) of the Securities Act of 1933 (the "Prospectus"),
which are incorporated herein by reference.
During fiscal l998, there were no cash distributions paid to the General
Partners by the Registrant.
See Item 13 below for a discussion of transactions between the Registrant and
certain affiliates of the General Partners.
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- ---------------------------------------------------------------------
MANAGEMENT
----------
(a) Security Ownership of Certain Beneficial Owners.
Title Name of Amount and Nature of Percentage
of Class Beneficial Owner Beneficial Ownership of Class
-------- ---------------- -------------------- ----------
Limited Liquidity Fund XI 10 Units 0.08%
Partnership Liquidity Fund XVI 3 Units 0.02%
Interests Liquidity Fund
Growth+Partners 45 Units 0.38%
Liquidity Fund
Income-Growth Investors 38 Units 0.32%
Liquidity Fund Tax
Exempt Partners II 298 Units 2.48%
Liquidity Fund 73, L.P. 142 Units 1.18%
Liquidity Fund 74, L.P. 256 Units 2.13%
Liquidity Fund Tax Exempt
Partners III 14 Units 0.12%
Liquidity Fund Qualified Plan
Investors II 50 Units 0.42%
The aggregate amount beneficially owned by the above listed reporting persons
totals 856 Units, or 7.13% of the outstanding interests of the Registrant. The
sole general partner of each of the above reporting persons is Liquidity
Financial Group, L.P., a California limited partnership. Voting and dispositive
power is exercised on behalf of each reporting person by its general partner.
-14-
<PAGE>
b) Security Ownership of Management.
None of the General Partners is known to the Registrant to be the beneficial
owner, either directly or indirectly, of any Interests in the Registrant.
(c) Changes in Control.
There are no arrangements known to the Registrant, the operation of which may at
a subsequent date result in a change in control of the Registrant.
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- ----------------------------------------------------------------
(a) Transactions with Management and Others.
Certain affiliates of the General Partners are entitled to certain fees and
other payments from the Registrant in connection with certain transactions of
the Registrant as more fully described under the headings "Compensation to
General Partners and Affiliates" on pages 8-11 and "Management" on pages 23-25
of the Prospectus, which are incorporated herein by reference.
Nooney, Inc., the manager of the Registrant's properties, is a wholly-owned
subsidiary of CGS Real Estate Company, an affiliate of the General Partner.
Nooney, Inc. is entitled to receive monthly compensation from the Registrant for
property management and leasing services, plus administrative expenses. During
fiscal 1998 the Registrant paid property management fees of $122,128 to Nooney,
Inc. and $30,000 as reimbursement for indirect expenses incurred in connection
with management of the Registrant.
See Item 11 above for a discussion of cash distributions paid to the General
Partners during fiscal l998.
(b) Certain Business Relationships.
The relationship of certain of the General Partners to certain of their
affiliates is set forth in Item 13(a) above. Also see Item 13(a) above for a
discussion of amounts paid by the Registrant to the General Partners or their
affiliates during fiscal 1998 in connection with various transactions.
(c) Indebtedness of Management.
Not Applicable.
(d) Transactions with promoters.
Not Applicable.
-15-
<PAGE>
PART IV
-------
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES,
- ----------------------------------------------------------
AND REPORTS ON FORM 8-K
-----------------------
(a) The following documents are filed as a part of this report:
(1) Financial Statements (filed herewith as Exhibit 99.3):
Independent auditors' report
Balance sheets
Statements of operations
Statements of partners' equity (deficiency in assets)
Statements of cash flows
Notes to financial statements
(2) Financial Statement Schedules (filed herewith as Exhibit 99.3):
Schedule - Reconciliation of partners' equity (deficiency in
assets)
Schedule III - Real estate and accumulated depreciation
All other schedules are omitted because they are inapplicable or
not required under the instructions.
(3) Exhibits:
See Exhibit Index on Page 18.
(b) Reports on Form 8-K
During the last quarter of the period covered by this report, the
Registrant filed no reports on Form 8-K.
(c) Exhibits:
See Exhibit Index on Page 18.
(d) Not Applicable
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) under 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.
NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
Nooney Investors, Inc.
General Partner
Date: February 26, 1999 By: /s/ William J. Carden
----------------------------- ----------------------------------
William J. Carden
Chairman of the Board and
Chief Executive Officer
By: /s/ Patricia A. Nooney
-----------------------------------
Patricia A. Nooney
President and Secretary
-17-
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
Exhibit Page
Number Description Number
- ------ ----------- ------
<S> <C> <C>
3.1 Amended and Restated Agreement and Certificate of Limited N/A
Partnership dated November 5, 1979, is incorporated by reference
to the Prospectus contained in Amendment No. 1
to the Registration Statement on Form S-11 under the
Securities Act of 1933 (File No. 2-65006).
10 Management Contract between Nooney Real Property Investors- N/A
Two, L.P. and Nooney Company is incorporated by reference to
Exhibit 10(a) to the Registration Statement on Form S-11
under the Securities Act of 1933 (File No. 2-65006). The
Management Contract was assigned by Nooney Krombach Company, a
wholly-owned subsidiary of Nooney Company, on October 31, 1997, to
Nooney, Inc. a wholly-owned subsidiary of CGS Real Estate Company,
Inc., and is identical in all material respects to the management
contract referred to above.
99.1 List of Directorships filed in response to Item 10. 19
99.2 Pages 8-11, 23-25 and A-14 - A-17 of the Prospectus N/A
of the Registrant dated November 16, 1979, as
supplemented and filed pursuant to Rule 424(c)
of the Securities Act of 1933 are incorporated by reference.
99.3 Financial Statements and Schedules. 20-32
</TABLE>
-18-
EXHIBIT 99.1
Below each General Partner's name is a list of the limited partnerships, other
than the Registrant, for which the General Partner serves as a general partner
and the companies for which the General Partner serves as a director. The list
includes only those limited partnerships and companies which have a class of
securities registered pursuant to Section 12(g) of the Securities Exchange Act
of 1934 or are subject to the requirements of Section 15(d) of the Act.
John J. Nooney
Limited Partnerships:
Nooney Real Property Investors-Four, L.P. Nooney Income Fund Ltd., L.P.
Nooney Income Fund Ltd. II, L.P.
-19-
EXHIBIT 99.3
INDEPENDENT AUDITORS' REPORT
To the Partners of
Nooney Real Property Investors-Two, L.P.:
We have audited the accompanying balance sheets of Nooney Real Property
Investors-Two, L.P. (a limited partnership) as of November 30, 1998 and 1997,
and the related statements of operations, partners' equity (deficiency in
assets) and cash flows for each of the three years in the period ended November
30, 1998. Our audits also included the financial statement schedules listed in
the index at Item 14(a)2. These financial statements and financial statement
schedules are the responsibility of the Partnership's general partners. 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 the
Partnership's general partners, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Nooney Real Property Investors-Two, L.P. as
of November 30, 1998 and 1997, and the results of its operations and its cash
flows for each of the three years in the period ended November 30, 1998 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all material respects
the information set forth therein.
DELOITTE & TOUCHE LLP
Saint Louis, Missouri
January 15, 1999
(February 1, 1999 as to Note 3)
-20-
<PAGE>
NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
NOVEMBER 30, 1998 AND 1997
- --------------------------------------------------------------------------------
ASSETS 1998 1997
CASH AND CASH EQUIVALENTS $ 486,156 $ 448,898
ACCOUNTS RECEIVABLE - No allowance for doubtful
accounts considered necessary 119,039 127,415
PREPAID EXPENSES AND DEPOSITS 55,880 45,946
INVESTMENT PROPERTY:
Land 1,886,042 1,886,042
Buildings and improvements 14,137,031 14,195,916
------------ ------------
16,023,073 16,081,958
Less accumulated depreciation (9,189,847) (8,871,663)
------------ ------------
6,833,226 7,210,295
DEFERRED EXPENSES - At amortized cost 80,303 73,568
------------ ------------
TOTAL $ 7,574,604 $ 7,906,122
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIENCY IN ASSETS)
LIABILITIES:
Accounts payable and accrued expenses $ 518,876 $ 394,616
Refundable tenant deposits 80,086 80,198
Mortgage notes payable 7,236,825 7,633,066
------------ ------------
Total liabilities 7,835,787 8,107,880
PARTNERS' EQUITY (DEFICIENCY IN ASSETS) (261,183) (201,758)
------------ ------------
TOTAL $ 7,574,604 $ 7,906,122
============ ============
See notes to financial statements.
-21-
<PAGE>
NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1998 1997 1996
REVENUES:
Rental and other income $ 2,417,980 $ 2,424,206 $ 2,301,696
Interest 5,500 9,917 14,952
----------- ----------- -----------
Total revenues 2,423,480 2,434,123 2,316,648
----------- ----------- -----------
EXPENSES:
Interest 705,682 743,173 775,729
Depreciation and amortization 518,176 522,594 518,000
Real estate taxes 374,014 395,233 379,527
Repairs and maintenance 151,061 148,206 109,051
Property management fees - related
party 122,128 121,111 114,645
Other operating expenses (includes
$30,000 in each year to related
party) 611,844 415,442 402,770
----------- ----------- -----------
Total expenses 2,482,905 2,345,759 2,299,722
----------- ----------- -----------
NET INCOME (LOSS) $ (59,425) $ 88,364 $ 16,926
=========== =========== ===========
NET INCOME (LOSS) ALLOCATION:
General partners $ (594) $ 884 $ 169
Limited partners (58,831) 87,480 16,757
LIMITED PARTNERSHIP DATA:
Net income (loss) per unit $ (4.90) $ 7.29 $ 1.40
=========== =========== ===========
Weighted average limited partnership
units outstanding 12,000 12,000 12,000
=========== =========== ===========
See notes to financial statements.
-22-
<PAGE>
NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
Limited General
Partners Partners Total
BALANCE (DEFICIENCY IN ASSETS),
DECEMBER 1, 1995 $(224,269) $ (82,779) $(307,048)
Net income 16,757 169 16,926
--------- --------- ---------
BALANCE (DEFICIENCY IN ASSETS),
NOVEMBER 30, 1996 (207,512) (82,610) (290,122)
Net income 87,480 884 88,364
--------- --------- ---------
BALANCE (DEFICIENCY IN ASSETS),
NOVEMBER 30, 1997 (120,032) (81,726) (201,758)
Net loss (58,831) (594) (59,425)
--------- --------- ---------
BALANCE (DEFICIENCY IN ASSETS),
NOVEMBER 30, 1998 $(178,863) $ (82,320) $(261,183)
========= ========= =========
See notes to financial statements.
-23-
<PAGE>
NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1998 1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (59,425) $ 88,364 $ 16,926
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation 487,214 489,734 474,196
Amortization of deferred expenses 30,962 32,860 43,804
Changes in accounts affecting
operations:
Accounts receivable 8,376 19,863 (29,076)
Prepaid expenses and deposits (9,934) 283 (7,873)
Deferred expenses (37,697) (1,204) (34,225)
Accounts payable and accrued
expenses 124,260 (178,044) 218,353
Refundable tenant deposits (112) 7,749 11,186
--------- --------- ---------
Net cash provided by operating
activities 543,644 459,605 693,291
CASH FLOWS FROM INVESTING ACTIVITIES -
Net additions to investment property (110,145) (240,913) (392,866)
CASH FLOWS FROM FINANCING ACTIVITIES -
Payments on mortgage notes payable (396,241) (366,041) (332,536)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 37,258 (147,349) (32,111)
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR 448,898 596,247 628,358
--------- --------- ---------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 486,156 $ 448,898 $ 596,247
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during the year
for interest $ 701,613 $ 743,173 $ 741,503
========= ========= =========
See notes to financial statements.
-24-
<PAGE>
NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1. BUSINESS
Nooney Real Property Investors-Two, L.P. (the "Partnership") is a limited
partnership organized under the laws of the State of Missouri on September
26, 1979. The Partnership was organized to invest primarily in
income-producing real properties such as shopping centers, office
buildings, other commercial properties, apartment buildings, warehouses
and light industrial properties. The Partnership's portfolio is comprised
of: a shopping center located in West St. Louis County, Missouri; two
office/warehouse complexes, a multi-tenant office and a warehouse all
located in Indianapolis, Indiana. These properties generated 24.2%, 21.7%,
19.9% and 34.2% of rental and other income, respectively, for the year
ended November 30, 1998.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The financial statements include only those assets, liabilities and
results of operations of the partners which relate to the business of the
Partnership. The statements do not include any assets, liabilities,
revenues or expenses attributable to the partners' individual activities.
No provision has been made for federal and state income taxes since these
taxes are the personal responsibility of the partners.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Prior to October 31, 1997, the corporate general partner was a wholly
owned subsidiary of Nooney Company. One of the individual general partners
was an officer, director and shareholder of Nooney Company. The other
individual general partner's spouse's estate was a shareholder of Nooney
Company. Nooney Krombach Company, a wholly owned subsidiary of Nooney
Company, managed the Partnership's real estate for a management fee.
Property management fees paid to Nooney Krombach Company were $109,770 and
$114,645 for the years ended November 30, 1997 and 1996, respectively.
Additionally, the Partnership paid Nooney Krombach Company $27,500 in 1997
and $30,000 in 1996 as reimbursement for management services and indirect
expenses in connection with the management of the Partnership.
On October 31, 1997, Nooney Company sold its wholly owned subsidiary,
Nooney Investors, Inc., the corporate general partner of the Partnership
to S-P Properties, Inc., a California corporation, which in turn is a
wholly owned subsidiary of CGS Real Estate Company, Inc., a Texas
corporation. Simultaneously, Gregory J. Nooney, Jr., an individual general
partner and PAN, Inc., a corporate general partner, sold their economic
interests to S-P Properties, Inc. and resigned as general partners subject
to a ninety day notification to the limited partners. CGS Real Estate also
purchased the real estate management business of Nooney Krombach Company
and formed Nooney, Inc. to perform the management of the Partnership.
-25-
<PAGE>
Property management fees paid to Nooney, Inc. were $122,128 and $11,341
for the years ended November 30, 1998 and 1997, respectively.
Additionally, the Partnership paid Nooney, Inc. $30,000 in 1998 and $2,500
in 1997 as reimbursement for management services and indirect expenses in
connection with the management of the Partnership.
The Partnership considers all highly liquid debt instruments with a
maturity of three months or less at date of purchase to be cash
equivalents. Cash and cash equivalents include $80,086 and $80,198 of
restricted cash at November 30, 1998 and 1997, respectively. Restricted
cash represents deposits paid by tenants.
Investment property is recorded at the lower of cost or fair market value.
Impairment is determined if the sum of the expected future cash flows
(undiscounted and without interest charges) is less than the carrying
amount of the property.
Depreciation and amortization is provided on a straight-line basis over
the estimated useful life of the depreciable asset (30 years for
buildings) or, in the case of tenant alterations, over the term of the
lease.
Deferred expenses consist primarily of lease fees and financing costs and
are amortized over the terms of their respective leases or notes.
Lease agreements are accounted for as operating leases and rentals from
such leases are reported as revenues ratably over the terms of the leases.
Certain lease agreements provide for rent concessions. Rent concessions
represent revenue which is not yet due under the terms of the various
agreements. At November 30, 1998 and 1997, accrued rent concessions
included in accounts receivable were not significant.
Included in rental and other income are amounts received from tenants
under provisions of lease agreements which require the tenants to pay
additional rent equal to specified portions of certain expenses such as
real estate taxes, insurance, utilities and common area maintenance. The
income is recorded in the same period that the related expense is
incurred.
Pursuant to the terms of the Partnership Agreement, income and losses from
operations and cash distributions are allocated pro rata to the general
and limited partners based upon the relationship of original capital
contributions.
Limited partnership per unit computations are based on the weighted
average number of limited partnership units outstanding during the year.
-26-
<PAGE>
3. MORTGAGE NOTES PAYABLE
Mortgage notes payable as of November 30, 1998 and 1997 and the related
collateral book values consist of the following:
1998 1997
Maple Tree Shopping Center
- --------------------------
(Book value of $1,033,694 at November 30, 1998)
9.125%, due in monthly installments of $17,911,
including interest, to 2009 $1,454,324 $1,532,619
Note payable to bank, principal due in monthly
installments of $1,208 plus interest at bank's
prime rate (7.75% at November 30, 1998) plus
1-1/2% to February 1, 1999 when entire
principal balance is due 245,364 259,860
Park Plaza I & II Office/Warehouse Complex
- ------------------------------------------
(Book value of $862,692 at November 30, 1998)
9.5%, due in monthly installments of $12,669,
including interest, to 2003 610,751 700,094
Morenci Professional Park
- -------------------------
(Book value of $1,563,013 at November 30, 1998)
10.25%, due in monthly installments of $15,682,
including interest, to 2005 929,636 1,017,572
Note payable to bank, principal due in monthly
installments of $1,111 plus interest at bank's
prime rate (7.75% at November 30, 1998) plus
1-1/2%, to February 1, 1999, when entire
principal balance is due 217,733 231,065
Jackson Industrial Park, Building A
- -----------------------------------
(Book value of $3,373,827 at November 30, 1998)
9.31%, due in monthly installments of $39,203,
including interest, to 2000, when remaining
principal balance of $3,542,902 is due 3,779,017 3,891,856
---------- ----------
Total $7,236,825 $7,633,066
========== ==========
On February 1, 1999, the holders of the notes related to the Maple Tree
Shopping Center and Morenci Professional Park second mortgage notes
extended the due dates to August 1, 1999 at the same rate.
The mortgage notes are collateralized by deeds of trust and assignments of
rents on all investment properties. Principal payments required during the
next five years are as follows:
1999 $ 432,332
2000 3,992,053
2001 367,911
2002 389,617
2003 412,258
Thereafter 1,642,654
----------
Total $7,236,825
==========
-27-
<PAGE>
In accordance with Statement of Financial Accounting Standards No. 107,
Disclosures about Fair Value of Financial Instruments, the estimated fair
value of mortgage notes payable with maturities greater than one year is
determined based on rates currently available to the Partnership for
mortgage notes with similar terms and remaining maturities. The estimated
fair value of mortgage notes payable with maturities of less than one year
are valued at their carrying amounts included in the balance sheet, which
are reasonable estimates of fair value due to the relatively short period
to maturity of the instruments. The carrying amount and estimated fair
value of the Partnership's debt at November 30, 1998 and 1997 are
summarized as follows:
1998 1997
------------------------ -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
Mortgage Notes Payable $ 7,236,825 $ 7,438,000 $ 7,633,066 $ 7,728,000
Fair value estimates are made at a specific point in time, are subjective
in nature and involve uncertainties and matters of significant judgment.
Settlement of the Partnership's debt obligations at fair value may not be
possible and may not be a prudent management decision. The potential loss
on extinguishment at November 30, 1998 does not take into consideration
expenses that would be incurred to settle the debt obligations at fair
value.
4. RENTAL REVENUES UNDER OPERATING LEASES
Minimum future rental revenues under noncancelable operating leases in
effect as of November 30, 1998 are as follows:
1999 $1,638,000
2000 1,353,000
2001 844,000
2002 336,000
2003 94,000
Remainder 224,000
----------
Total $4,489,000
==========
In addition, certain lease agreements require tenant participation in
certain operating expenses and additional contingent rentals based upon
percentages of tenant sales in excess of minimum amounts. Tenant
participation in expenses included in revenues approximated $260,000 for
the year ended November 30, 1998 ($259,000 for the year ended November 30,
1997 and $236,000 for the year ended November 30, 1996). Contingent
rentals were not significant for the years ended November 30, 1998, 1997
and 1996.
5. FEDERAL INCOME TAX STATUS
The general partners have received a ruling from the Internal Revenue
Service that Nooney Real Property Investors-Two, L.P. is considered a
partnership for income tax purposes.
Selling commissions and offering expenses incurred in connection with the
sale of limited partnership units are not deductible for income tax
purposes and therefore increase the partners' bases. Investment property
additions after December 31, 1980 are depreciated for income tax purposes
using rates which differ from rates used for computing depreciation for
-28-
<PAGE>
financial statement reporting. Rents received in advance are includable in
taxable income in the year received. Rent concessions, recognized ratably
over lease terms for financial statement purposes, are includable in
taxable income in the year rents are received. Insurance premiums are
deductible for tax purposes in the year paid. Losses in connection with
the writedown of investment property are not recognized for income tax
purposes until the property is disposed.
The comparison of financial statement and income tax reporting is as
follows:
Financial Income
Statement Tax
1998:
Net (loss) income $ (59,425) $ 139,813
Partners' equity (deficiency in assets) (261,183) (1,254,247)
1997:
Net income $ 88,364 $ 386,375
Partners' equity (deficiency in assets) (201,758) (1,394,060)
1996:
Net income $ 16,926 $ 203,760
Partners' equity (deficiency in assets) (290,122) (1,780,435)
6. MAJOR TENANTS
A substantial amount of the Partnership's revenue in 1998 was derived from
two major tenants whose rentals amounted to approximately $582,000 and
$265,000 or 24% and 11%, respectively, of total revenues. Effective July
31, 1998, the Partnership lost the major tenant accounting for 18% of
total revenues. Effective November 23, 1998, approximately one-third of
the vacated space was filled by a new tenant.
A substantial amount of the Partnership's revenue in 1997 was derived from
two major tenants whose rentals amounted to approximately $582,000 and
$257,250 or 24% and 11%, respectively, of total revenues.
A substantial amount of the Partnership's revenue in 1996 was derived from
two major tenants whose rentals amounted to approximately $582,000 and
$252,000 or 25% and 11%, respectively, of total revenues.
* * * * * *
-29-
<PAGE>
NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
(A LIMITED PARTNERSHIP)
<TABLE>
SCHEDULE - RECONCILIATION OF PARTNERS' EQUITY (DEFICIENCY IN ASSETS)
YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
- -----------------------------------------------------------------------------------------------------------
The reconciliation of partners' equity (deficiency in assets) between financial statement and income tax reporting is as follows:
<CAPTION>
1998
----------------------------------------
Limited General
Partners Partners Total
<S> <C> <C> <C>
Balance (deficiency) per statement of partners' equity $ (178,863) $ (82,320) $ (261,183)
Add:
Selling commissions and other offering costs not deductible for
income tax purposes 1,395,653 1,395,653
Prepaid rents included in income for income tax purposes 12,226 123 12,349
Writedown of investment property not recognized for income tax
purposes 214,341 2,165 216,506
----------- ----------- -----------
1,443,357 (80,032) 1,363,325
Less:
Excess depreciation deducted for income tax purposes 2,569,639 25,956 2,595,595
Rent concessions not recognized for income tax purposes (8,367) (85) (8,452)
Insurance premiums deducted for income tax purposes 30,125 304 30,429
----------- ----------- -----------
Balance (deficiency) per tax return $(1,148,040) $ (106,207) $(1,254,247)
=========== =========== ===========
1997
----------------------------------------
Limited General
Partners Partners Total
Balance (deficiency) per statement of partners' equity $ (120,032) $ (81,726) $ (201,758)
Add:
Selling commissions and other offering costs not deductible for
income tax purposes 1,395,653 1,395,653
Prepaid rents included in income for income tax purposes 12,690 128 12,818
Writedown of investment property not recognized for income tax
purposes 214,341 2,165 216,506
----------- ----------- -----------
1,502,652 (79,433) 1,423,219
Less:
Excess depreciation deducted for income tax purposes 2,766,300 27,942 2,794,242
Rent concessions not recognized for income tax purposes 13,386 135 13,521
Insurance premiums deducted for income tax purposes 9,421 95 9,516
----------- ----------- -----------
Balance (deficiency) per tax return $(1,286,455) $ (107,605) $(1,394,060)
=========== =========== ===========
1996
----------------------------------------
Limited General
Partners Partners Total
Balance (deficiency) per statement of partners' equity $ (207,512) $ (82,610) $ (290,122)
Add:
Selling commissions and other offering costs not deductible for
income tax purposes 1,395,653 1,395,653
Prepaid rents included in income for income tax purposes 8,221 83 8,304
Writedown of investment property not recognized for income tax
purposes 214,341 2,165 216,506
----------- ----------- -----------
1,410,703 (80,362) 1,330,341
Less:
Excess depreciation deducted for income tax purposes 3,059,861 30,906 3,090,767
Rent concessions not recognized for income tax purposes 10,750 109 10,859
Insurance premiums deducted for income tax purposes 9,058 92 9,150
----------- ----------- -----------
Balance (deficiency) per tax return $(1,668,966) $ (111,469) $(1,780,435)
=========== =========== ===========
</TABLE>
-30-
<PAGE>
NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
(A LIMITED PARTNERSHIP)
<TABLE>
SCHEDULE III- REAL ESTATE AND ACCUMULATED DEPRECIATION
NOVEMBER 30, 1998
- --------------------------------------------------------------------------------------------------------------
<CAPTION>
Column A Column B Column C
-------- -------- --------
Initial Cost to Partnership
-------------------------------------
Buildings and
Description Encumbrances Land Improvements Total
<S> <C> <C> <C> <C>
Maple Tree Shopping Center, Ellisville, Missouri $ 1,699,688 $ 474,750 $ 2,709,303 $ 3,184,053
Park Plaza I & II Office/Warehouse Complex,
Indianapolis, Indiana 610,751 182,335 2,228,828 2,411,163
Morenci Professional Park, Indianapolis, Indiana 1,147,369 320,418 2,689,506 3,009,924
Jackson Industrial Park, Building A, Indianapolis, Indiana 3,779,017 908,539 5,181,390 6,089,929
----------- ----------- ----------- -----------
Total $ 7,236,825 $ 1,886,042 $12,809,027 $14,695,069
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Column D Column E
-------- --------
Costs Gross Amount at Which
Capitalized Carried at Close of Period
Subsequent --------------------------------------
to Buildings and
Description Acquisition Land Improvements Total
<S> <C> <C> <C> <C>
Maple Tree Shopping Center, Ellisville, Missouri $ 480,435 $ 474,750 $ 3,189,738 $ 3,664,488
Park Plaza I & II Office/Warehouse Complex,
Indianapolis, Indiana 208,476 (1) 182,335 2,437,304 2,619,639
Morenci Professional Park, Indianapolis, Indiana 66,943 (2) 320,418 2,756,449 3,076,867
Jackson Industrial Park, Building A, Indianapolis, Indiana 572,150 908,539 5,753,540 6,662,079
----------- ----------- ----------- -----------
Total $ 1,328,004 $ 1,886,042 $14,137,031 $16,023,073
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Column F Column G Column H Column I
--------------------------- -------- ---------------------
Life on Which
Depreciation
Accumulated Date of Date in Latest Income
Depreciation Construction Acquired Statement is Computed
<S> <C> <C> <C> <C>
Maple Tree Shopping Center, Ellisville, Missouri $ 2,630,794 1974 10/3/79 30 yrs.
Park Plaza I & II Office/Warehouse Complex,
Indianapolis, Indiana 1,756,947 1975, 1979 10/15/80 30 yrs.
Morenci Professional Park, Indianapolis, Indiana 1,513,854 1975, 1979 3/27/81 30 yrs.
Jackson Industrial Park, Building A, Indianapolis, Indiana 3,288,252 1976, 1980 3/27/81 30 yrs.
-----------
Total $ 9,189,847
===========
<FN>
(1) Amount is net of a building writedown of $77,225, to reflect the minimum recoverable value to the Partnership.
(2) Amount includes the disposal of Building G of Morenci Professional Park for $482,387 and a building writedown of $139,281 to
reflect the minimum recoverable value to the Partnership.
</FN>
(Continued)
-31-
</TABLE>
<PAGE>
NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
(A LIMITED PARTNERSHIP)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
YEARS ENDED NOVEMBER 30, 1998, 1997 AND 1996
- --------------------------------------------------------------------------------
1998 1997 1996
(A) Reconciliation of amounts in
Column E:
Balance at beginning of period $ 16,081,958 $ 15,851,109 $ 15,458,243
Add - Cost of improvements 110,145 240,913 417,901
Less - Cost of disposals (169,030) (10,064) (25,035)
------------ ------------ ------------
Balance at end of period $ 16,023,073 $ 16,081,958 $ 15,851,109
============ ============ ============
(B) Reconciliation of amounts in
Column F:
Balance at beginning of period $ 8,871,663 $ 8,391,993 $ 7,942,832
Add - Provision during the
period 487,214 489,734 474,196
Less - Depreciation on disposals (169,030) (10,064) (25,035)
------------ ------------ ------------
Balance at end of period $ 9,189,847 $ 8,871,663 $ 8,391,993
============ ============ ============
(C) The aggregate cost of real
estate owned for federal income
tax purposes $ 15,889,248 $ 16,298,464 $ 16,067,615
============ ============ ============
(Concluded)
-32-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR NOONEY REAL PROPERTY INVESTORS -TWO, L.P. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000312155
<NAME> NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-START> DEC-01-1997
<PERIOD-END> NOV-30-1998
<CASH> 486,156
<SECURITIES> 0
<RECEIVABLES> 119,039
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 661,075
<PP&E> 16,023,073
<DEPRECIATION> 9,189,847
<TOTAL-ASSETS> 7,574,604
<CURRENT-LIABILITIES> 518,876
<BONDS> 7,236,825
<COMMON> 0
0
0
<OTHER-SE> (261,183)
<TOTAL-LIABILITY-AND-EQUITY> 7,574,604
<SALES> 2,417,980
<TOTAL-REVENUES> 2,423,480
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,777,223
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 705,682
<INCOME-PRETAX> (59,425)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (59,425)
<EPS-PRIMARY> (4.90)
<EPS-DILUTED> 0
</TABLE>
