UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
COMMISSION FILE NUMBER 0-11200
GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP
MINNESOTA 41-1398390
510 MARQUETTE AVENUE, SUITE 300
MINNEAPOLIS, MINNESOTA 55402
REGISTRANT'S TELEPHONE NUMBER (612) 338-2828
WATS NUMBER 800-328-3788
Indicate by check mark whether the registrant (1) has filed reports 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 filing requirements for the
past 90 days.
Yes _x_ No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (229.405 of this chapter) 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-Q
or any amendment to this Form 10-Q. [ ]
<PAGE>
GRIFFIN REAL ESTATE FUND-II
A LIMITED PARTNESHIIP
INDEX
PART I. Financial Information
Condensed Balance Sheets
September 30, 1998 and December 31, 1997...................1
Condensed Statements of Operations
for the Three Months and Nine Months Ended
September 30, 1998 and 1997................................2
Condensed Statements of Cash Flows
for the Nine Months Ended
September 30, 1998 and 1997................................3
Condensed Statements of Changes
in Partners' Equity for the
Nine Months ended September 30, 1998.......................4
Notes to Financial Statements..................................5
Management's Discussion and Analysis of
Financial Conditions and Results
of Operations............................................6-7
Part II. Other Information..............................................8
SIGNATURES...................................................................9
<PAGE>
GRIFFIN REAL ESTATE FUND-II,
A LIMITED PARTNERSHIP
CONDENSED BALANCE SHEETS
(unaudited)
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------ ------------
ASSETS
Cash and Cash Equivalents $ 373,324 $ 628,333
Receivables and Other Assets 147,203 266,535
------------ ------------
Total 520,527 $ 894,868
------------ ------------
PROPERTY:
Land 815,329 1,529,374
Buildings and Improvements 7,584,793 16,430,929
Furniture and Equipment 798,704 1,339,243
------------ ------------
Total 9,198,826 19,299,546
Less Accumulated Depreciation 4,995,247 10,292,116
------------ ------------
Property - Net 4,203,579 9,007,430
------------ ------------
TOTAL ASSETS $ 4,724,106 $ 9,902,298
============ ============
LIABILITIES AND PARTNERSHIP EQUITY
LIABILITIES:
Accounts Payable and Accrued Liabilities $ 327,443 $ 546,908
Security Deposits 29,155 90,063
Mortgage Notes Payable 5,175,439 9,031,201
------------ ------------
Total Liabilities 5,532,037 $ 9,668,172
------------ ------------
PARTNERS' EQUITY:
General Partner (46,183) (462,914)
Limited Partner (761,748) 697,040
------------ ------------
Total Partnership Equity (807,931) 234,126
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 4,724,106 $ 9,902,298
============ ============
See notes to condensed financial statements.
1
<PAGE>
GRIFFIN REAL ESTATE FUND-II
A LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE NINE MONTHS
ENDED SEPTEMBER 30 ENDED SEPTEMBER 30
1998 1997 1998 1997
---------------------------- ----------------------------
<S> <C> <C> <C> <C>
REVENUES
Rental Income $ 774,053 $ 937,035 $ 2,686,718 $ 3,385,034
Interest Income 17,137 11,506 35,221 39,212
Other Income 27,888 44,655 121,848 167,017
Gain on Sale of Property 9,792,645 -- 9,792,645 4,953,337
----------- ----------- ----------- -----------
Total Revenues 10,611,723 993,196 12,636,432 8,544,600
----------- ----------- ----------- -----------
OPERATING EXPENSES
Operating Expenses 513,038 538,221 1,538,484 1,927,761
Interest Expense 155,629 195,531 515,000 738,083
Depreciation and
Amortization 132,853 169,391 471,283 621,204
----------- ----------- ----------- -----------
Total Operating Expenses 801,520 903,143 2,524,767 3,287,048
----------- ----------- ----------- -----------
NET INCOME BEFORE
EXTRAORDINARY ITEM 9,810,203 90,053 10,111,665 5,257,552
EXTRAORDINARY ITEM -
LOSS ON EXTINGUISHMENT
OF DEBT -- -- -- (142,121)
----------- ----------- ----------- -----------
NET INCOME 9,810,203 $ 90,053 $10,111,665 $ 5,115,431
=========== =========== =========== ===========
NET INCOME ALLOCATED
TO GENERAL PARTNER 540,795 $ 4,503 $ 555,868 $ 57,638
=========== =========== =========== ===========
NET INCOME ALLOCATED
TO LIMITED PARTNERS $ 9,269,408 $ 85,550 $ 9,555,797 $ 5,057,793
=========== =========== =========== ===========
PER UNIT:
NET INCOME BEFORE
EXTRAORDINARY ITEM $ 4,242.29 $ 39.15 $ 4,373.36 $ 2,379.82
EXTRAORDINARY ITEM -- -- -- (65.04)
----------- ----------- ----------- -----------
NET INCOME $ 4,242.29 $ 39.15 $ 4,373.36 $ 2,314.78
=========== =========== =========== ===========
</TABLE>
See notes to condensed financial statements.
2
<PAGE>
GRIFFIN REAL ESTATE FUND-II
A LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CASH FLOWS
(unaudited)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 10,111,665 $ 5,115,431
Adjustments to reconcile Net Income
to Net Cash Provided by Operating Activities:
Gain on Sale of Property (9,792,645) (4,953,336)
Extraordinary Item - Loss on
Extinguishment of Debt -- 142,121
Depreciation and Amortization 471,283 621,204
Decrease (Increase) in Receivables
and Other Assets 112,661 (15,483)
Decrease in Accounts Payable
and Accrued Liabilities (219,465) (364,893)
Decrease in Security Deposits (60,908) (48,710)
------------ ------------
Net Cash Provided by Operating Activities 622,591 496,334
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of Property and Equipment (36,258) (211,099)
Proceeds from Sale of Property and Equipment 14,168,142 8,365,572
------------ ------------
Net Cash Provided by Investing Activities 14,131,884 8,154,473
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to Partners (11,153,722) (3,468,586)
Prepayment Penalties on Mortgages -- (52,236)
Payments of Principal Mortgage Notes Payable (3,855,762) (5,423,789)
------------ ------------
Net Cash Used by Financing Activities (15,009,484) (8,944,611)
------------ ------------
DECREASE IN CASH AND CASH EQUIVALENTS (255,009) (293,804)
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 628,333 1,001,510
------------ ------------
CASH AND CASH EQUIVALENTS - END OF PERIOD $ 373,324 $ 707,706
============ ============
CASH PAID DURING THE PERIOD FOR INTEREST $ 538,451 $ 829,699
============ ============
</TABLE>
See notes to condensed financial statement.
3
<PAGE>
GRIFFIN REAL ESTATE FUND-II
A LIMITED PARTNERSHIP
CONDENSED STATEMENTS OF CHANGES IN PARTNERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
(unaudited)
General Limited Total
Partner Partners Partnership
------------ ------------ ------------
Partner's Equity (Deficit) $ (462,914) $ 697,040 $ 234,126
January 1, 1998
Net Income 555,868 9,555,797 10,111,665
Distributions (139,137) (11,014,585) (11,153,722)
------------ ------------ ------------
Partners' Equity (Deficit) $ (46,183) $ (761,748) $ (807,931)
September 30, 1998 ============ ============ ============
See notes to condensed financial statements.
4
<PAGE>
GRIFFIN REAL ESTATE FUND-II
A LIMITED PARTNERSHIP
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(unaudited)
1. In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly Griffin
Real Estate Fund-II, A Limited Partnership's financial position as of
September 30, 1998 and December 31, 1997 and the results of its operations
for the three months and nine months ended September 30, 1998 and 1997 and
its cash flows for the nine months ended September 30, 1998 and 1997.
The accounting policies followed by the Partnership are set forth in Note
1 to the Partnership financial statements in the 1997 Griffin Real Estate
Fund-II, A Limited Partnership Form 10K.
2. RELATED PARTY TRANSACTIONS
The partners of Investment Associates, the general partner of the
Partnership, are also owners, directors and officers of the Griffin
Companies, a Minnesota corporation. The following is a summary of fees
incurred for the nine months ended September 30, 1998 and 1997 relating to
the Griffin Companies:
1998 1997
-------- --------
Management fees $183,509 $205,948
Supervisory fees $ 29,783 $ 54,468
3. TAXABLE INCOME (LOSS)
The net income shown on the statement of operations is reconciled to the
taxable income (loss) as follows:
FOR THE NINE MONTHS
ENDED SEPTEMBER 30,
1998 1997
----------- ----------
Net income per statement of operations $10,111,665 $5,115,431
Excess of book depreciation
over tax depreciation 370,814 237,745
----------- ----------
Taxable income $10,482,479 $5,353,176
=========== ==========
5
<PAGE>
GRIFFIN REAL ESTATE FUND-II
A LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Partnership had cash and cash equivalents of $538,451
which will be used for working capital requirements of the Partnership and its
properties. It is anticipated that the Partnership will be able to meet current
obligations and commitments from cash on hand and from cash generated from
operations during 1998.
A quarterly distribution to partners of $100.00 per limited partnership unit was
made following the first and second quarters and again following the end of the
third quarter to unit holders of record on September 30, 1998. In addition, sale
proceeds of $4,741 per unit were distributed on September 2, 1998 following the
sale of the Lunnonhaus Village Apartments on August 26, 1998. Future cash
distributions will depend on future property operations.
RESULTS OF OPERATIONS
The General Partner, after reasonable inquiry, is not aware of any material
factors relating to any of the Partnership's properties or the operations of the
Partnership that would cause the financial information of the Partnership not to
be indicative of future operating results or of future financial conditions,
other than those discussed in the footnotes to the Partnership financial
statements filed with Form 10K.
On May 27, 1997 the Partnership sold the Candleridge Apartments and the Villas
of Patricia Park Apartments. Also, on August 26, 1998 the Partnership sold
Lunnonhaus Village Apartments. With these sales, comparison of results from one
year to the next is not possible for the Partnership taken as a whole. The
following operations discussion is therefore limited to the one remaining
property that was still held in the third quarter of 1998.
Olde English Village Apartments
Through 1997 occupancy at Olde English Village had been more or less at 90% but
increased steadily in 1998. As of September 30, 1998 occupancy stood at 95%.
Rental rates for the first nine months of 1998 increased by about 2.5% over the
first nine months of 1997. Therefore despite a decline in Other Income total
revenues increased about 4.6% for the first nine months of 1998 over 1997.
Operating expenses for the first nine months of 1998 increased from the first
nine months of 1997 by about 10.9%. The largest increase was from Repairs and
Maintenance which went from $39,462 in 1997 to $70,119 in 1998, one result of
making vacant units rent ready. Another expense related to occupancy is
Advertising and Leasing expense which rose more than 50% from $17,087 over the
first 9 months in 1997 to $26,291 over the first nine months of 1998. Real
estate taxes also increased $12,600 from $185,400 in the first nine months of
1997 to $198,000 in 1998. Utilities on the other hand declined by $9,767 from
$92,285 to $82,518.
6
<PAGE>
GRIFFIN REAL ESTATE FUND-II
A LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
A formal sales contract was executed on September 21, 1998 for the sale of Olde
English Village Apartments. Although there can be no assurance a closing will
ultimately occur, a closing of the sale is expected during the month of
December. A Securities and Exchange Commission From 8-K will be filed following
the closing which will detail the transaction.
Year 2000
The year 2000 compliance issue concerns the inability of computerized
information systems to accurately calculate, store or use a date after 1999.
This could result in a system failure or miscalculations causing disruptions of
operations. The General Partner is currently evaluating the accounting software
to find out if a Year 2000 problem exists. If the results of that evaluation
show that there is a problem, there will be a conversion to another software
that is widely used in the real estate industry, is readily available and is
Year 2000 compliant. Such a conversion, if necessary, would occur in 1999. The
General Partner's current estimate is that the costs associated with the Year
2000 issue, and the consequences of incomplete or untimely resolution of the
Year 2000 issue, will not have a material adverse affect on the results of
operations of financial position of the Partnership in any given year.
OCCUPANCY TABLE
Approximate occupancy levels of the Partnership's investment property by
quarter.
<TABLE>
<CAPTION>
1997 1998
at at
---------------------------- ----------------------------
3/31 6/30 9/30 12/31 3/31 6/30 9/30 12/31
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1. Villas of Patricia Park Apts.
Urbandale, Iowa 84% * * * * * *
2. Candleridge Apartments
Urbandale, Iowa 96% * * * * * *
3. Lunnonhaus Village Apartments
Golden, Colorado 99% 100% 100% 100% 99% 99% *
4. Olde English Village Apartments
W. Des Moines, Iowa 89% 91% 93% 88% 87% 92% 95%
</TABLE>
* Indicates Partnership did not own property at end of quarter.
7
<PAGE>
GRIFFIN REAL ESTATE FUND-II
A LIMITED PARTNERSHIP
PART II
OTHER INFORMATION
Item 1. Legal Proceedings
As of September 30, 1998, an individual was pursuing a legal action against the
partnership for injuries sustained moving a refrigerator. The individual is
attempting to recover monetary damages and to receive reimbursement for medical
costs. Any judgment against the Partnership would be covered by insurance.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibits 27 Financial Data Schedule
(b) Form 8-K was filed on September 9, 1998 to report the sale
of Lunnonhaus Village Apartments on August 26, 1998.
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRIFFIN REAL ESTATE FUND-II
A LIMITED PARTNERSHIP
Dated: November 13, 1998 By: /s/ Larry D. Fransen
---------------------
Larry D. Fransen, for the
General Partner, Investment
Associates
Dated: November 13, 1998 By: /s/ Larry D. Fransen
---------------------
Larry D. Fransen,
Managing General Partner of the
General Partner, Investment
Associates
9
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 373,324
<SECURITIES> 0
<RECEIVABLES> 147,203
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 520,527
<PP&E> 9,198,826
<DEPRECIATION> 4,995,247
<TOTAL-ASSETS> 4,724,106
<CURRENT-LIABILITIES> 356,598
<BONDS> 5,175,439
0
0
<COMMON> 0
<OTHER-SE> (807,931)<F1>
<TOTAL-LIABILITY-AND-EQUITY> 4,724,106
<SALES> 0
<TOTAL-REVENUES> 12,601,211
<CGS> 0
<TOTAL-COSTS> 2,009,767
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 479,779
<INCOME-PRETAX> 10,111,665
<INCOME-TAX> 0
<INCOME-CONTINUING> 10,111,665
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,111,665
<EPS-PRIMARY> 4,373.36<F2>
<EPS-DILUTED> 0
<FN>
<F1>THIS ENTITY IS A LIMITED PARTNERSHIP. THE OTHER STOCKHOLDERS' EQUITY LINE
REPRESENTS TOTAL PARTNERSHIP EQUITY.
<F2>THE EPS-PRIMARY LINE REPRESENTS NET INCOME PER LIMITED PARTNERSHIP UNIT.
</FN>
</TABLE>
