<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10 - Q
Annual Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Quarterly Period Ended March 31, 1995 Commission File No.: 2-84754
INDEPRO PROPERTY FUND II, L.P.
(Exact name of registrant as specified in its charter)
600 Dresher Road, Horsham, PA 19044
(Address of principal executive offices and zip code)
DELAWARE 51-0270624
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
(215) 956-0400
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests
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 for the
past 90 days.
YES X NO
----- -----
There is no public market for the Limited Partnership Interests. Non-affiliates
hold 12,566 Limited Partnership Interests as of March 31, 1995.
<PAGE> 2
INDEPRO PROPERTY FUND II, L.P.
INDEX OF FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page Number
-----------
<S> <C>
Part I - Financial Information
Item 1 - Financial Statements of Indepro Property Fund II, L.P.
Balance Sheets as of March 31, 1995
and December 31, 1994 3
Statements of Income for the three months
ended March 31, 1995 and 1994 4
Statement of Partners' Capital (Deficit) for the
three months ended March 31, 1995 5
Statements of Cash Flows for the three months
ended March 31, 1995 and March 31, 1994 6
Notes to Financial Statements 7-9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-15
Part II - Other Information 16-17
</TABLE>
<PAGE> 3
INDEPRO PROPERTY FUND II, L.P.
(A Delaware Limited Partnership)
Balance Sheets
As of March 31, 1995 and December 31, 1994
<TABLE>
<CAPTION>
March 31, December 31,
1995 1994
---- ----
<S> <C> <C>
Assets
Investment in real estate at cost (Note 3) $24,380,516 $24,380,516
Less: Accumulated depreciation, amortization and
valuation allowance of $585,000 in 1995 and 1994 10,644,187 10,428,010
----------- -----------
Total investments 13,736,329 13,952,506
Cash and cash equivalents 2,460,430 2,298,407
Accounts receivable (net of allowance for doubtful
accounts of $1,854 in 1995 and $6,618 in 1994 19,363 40,215
Deferred rent receivable 104,350 107,670
Prepaid expenses and other assets (net of
accumulated amortization of $50,000 in 1995 and
$50,000 in 1994 6,714 11,747
----------- -----------
Total assets $16,327,186 $16,410,545
=========== ===========
Liabilities and Partners' Capital
Notes payable (Note 6) $13,066,184 $13,075,019
Accrued real estate taxes 117,365 96,065
Other accrued liabilities 5,883 36,238
Security deposits on leases 26,312 25,496
Accounts payable 324,046 235,686
----------- -----------
Total Liabilities 13,539,790 13,468,505
Partners' capital 2,787,396 2,942,040
----------- -----------
Total liabilities and partners' capital $16,327,186 $16,410,545
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 4
INDEPRO PROPERTY FUND II, L.P.
(A Delaware Limited Partnership)
Statements of Income
For the three months ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Income
Rental Income $ 218,765 $ 655,268
Miscellaneous income 25,869 127,004
Investment income 33,691 14,739
--------- ---------
Total Income 278,326 797,011
--------- ---------
Expenses
Interest on notes payable 120,408 413,696
Depreciation and amortization 216,177 225,069
Real estate taxes 20,427 120,201
Property operating expense 62,108 80,107
Administrative 9,205 10,972
Repairs and maintenance 4,644 6,188
--------- ---------
Total Expenses 417,221 856,233
--------- ---------
Net income (loss) for the period $(154,644) $ (59,222)
========= =========
Net income (loss) allocated to Limited Partners (153,098) (58,630)
Net income (loss) allocated to General Partner (1,546) (592)
--------- ---------
$(154,644) $ (59,222)
========= =========
Net income (loss) per limited partnership
interest outstanding (30,000) $ (5) $ (2)
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 5
INDEPRO PROPERTY FUND II, L.P.
(A Delaware Limited Partnership)
Statement of Partners' Capital (Deficit)
For the three months ended March 31, 1995
<TABLE>
<CAPTION>
General Limited
General Partnership Partnership
Partner Units Units Total
------- ----- ----- -----
<S> <C> <C> <C> <C>
Partners' capital (deficit) at January 1, 1995 $(101,081) $1,642,103 $1,401,017 $2,942,040
Net loss (1,546) (69,210) (83,888) (154,644)
--------- ---------- ---------- ----------
Partners' capital (deficit) at March 31, 1995 $(102,627) $1,572,893 $1,317,129 $2,787,396
========= ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 6
INDEPRO PROPERTY FUND II, L.P.
(A Delaware Limited Partnership)
Statements of Cash Flows
For the three months ended March 31, 1995 and 1994
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
March 31, 1995 March 31, 1994
-------------- --------------
<S> <C> <C>
Cash flows from operating activities
Net income (loss) $ (154,644) $ (59,222)
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 216,177 225,069
Change in assets and liabilities
Decrease in accounts receivable 20,852 9,775
Increase in deferred rent receivable 3,321 (1,806)
Decrease (increase) in prepaid expenses 5,033 (1,070)
Increase (decrease) in accrued liabilities (9,055) 43,366
Increase in security deposits on leases 816 1,450
Increase (decrease) in accounts payable 88,360 (17,588)
----------- -----------
Net cash provided by operating activities 170,859 199,974
----------- -----------
Cash flows from investing activities
Additions to real estate -- (22,034)
----------- -----------
Net cash used in investing activities -- (22,034)
----------- -----------
Cash flows from financing activities
Repayment of notes payable (8,836) (70,240)
----------- -----------
Net cash used in financing activities (8,836) (70,240)
----------- -----------
Net increase in cash and cash equivalents 162,023 107,700
Cash and cash equivalents, beginning of period 2,298,407 1,822,698
----------- -----------
Cash and cash equivalents, end of period $ 2,460,430 $ 1,930,398
=========== ===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE> 7
INDEPRO PROPERTY FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
As of March 31, 1995
1. General
The preceding unaudited financial information sets forth the operations of
Indepro Property Fund II, L.P. for the three months ended March 31, 1995.
In the opinion of management, the financial statements reflect all
adjustments necessary to present fairly the results of operations for the
three months ended March 31, 1995.
The footnotes are presented pursuant to Rule 10-01 of Regulation S-X and
do not include complete financial information otherwise made in the
Form 10 - K. These interim financial statements should be read in
conjunction with the Form 10 - K for the year ended December 31, 1994.
2. Partners' Capital
The General Partner did not make any cash distributions from operations to
the Partners during the years ended December 31, 1994 and 1993. The
General Partner expects to make a distribution of excess Partnership cash
during 1995, however, the amount of this distribution has not yet been
determined.
The General Partner is obligated under the terms of the Partnership
Agreement to make capital contributions upon the Partnership's dissolution
in the amount necessary to enable the Partnership to pay to each Limited
Partner an 8% non-compounded return on the unrecovered capital
contribution of each Limited Partner, less all distributions of
distributable cash and all distributions of sale or refinancing proceeds
in excess of the capital contributions of such Limited Partner. This
guaranteed return is computed from the date of each Limited Partner's
admission to the Partnership. This obligation does not guarantee to the
Limited Partners a return of their capital contributions and is limited by
the available assets of the Partnership and the General Partner.
3. Investments in Real Estate
Investments in real estate consisted of the following as of March 31, 1995:
<TABLE>
<CAPTION>
Building and
Property Land Improvements Total
<S> <C> <C> <C>
Moorestown Corporate Center I $ 500,000 $ 8,084,254 $ 8,584,254
710 East Odgen Avenue 1,060,000 4,267,644 5,327,644
Moorestown Corporate Center II 901,724 9,566,894 10,468,618
----------- ------------ ------------
Total 2,461,724 21,918,792 24,380,516
Less: Accumulated depreciation and
amortization and valuation
allowance of $585,000 -- 10,644,187 10,644,187
---------- ----------- -----------
Total $2,461,724 $11,274,604 $13,736,328
========== =========== ===========
</TABLE>
<PAGE> 8
INDEPRO PROPERTY FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
As of March 31, 1995
3. Investments in Real Estate (continued):
On at least an annual basis, the General Partner prepares an estimate of
value for each property in the Partnership. The methodology used is either
a discounted cash flow analysis or a value based on a direct
capitalization of cash flow. This information is used to assist the
General Partner in determining net realizable value of the assets of the
Partnership. A valuation allowance is provided for assets in cases where
the realizable value is less than the carrying amount of the asset. In
addition, assets are reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable.
During 1993, a valuation allowance of $85,000 was established related to
the Moorestown I property. The allowance was established to reduce the
book value of that property to equal the outstanding principal amount of
its related non-recourse mortgage loan. The General Partner felt it
prudent to establish this allowance, given the current uncertainty
surrounding the negotiations to extend and restructure the loan, which is
currently in default.
Also in 1993, an estimated property valuation allowance of $500,000 was
established related to 710 East Ogden, due to the slower than anticipated
leasing activity and the operating losses incurred by the building in
recent years.
Due to the impending foreclosure proceedings on both the Moorestown I and
Moorestown II buildings, the Partnership has stopped recognizing rental
income or accruing expenses on these properties. All rental payments are
currently forwarded directly to Thomas J. Maher and Company, Inc., as
agent for the New England Mutual Life Insurance Company and all real
estate taxes and other property operating expenses should be paid by
Thomas J. Maher and Company, Inc. from funds collected from the tenant for
Moorestown I. No further funds will be collected on the Morrestown II
building as the sole tenant vacated the property in March, 1995.
4. Cash Flow Information:
For purposes of the Statements of Cash Flows, the Partnership considers
highly liquid debt instruments purchased with a maturity of three months
or less to be cash equivalents. Net cash provided by operating activities
reflects cash payments for interest of $31,613 and $431,310 respectively,
during the three months ended March 31, 1995 and March 31, 1994.
5. Concentration of Credit Risk:
The Partnership's operations consist exclusively of investments in
commercial office buildings located in Naperville, Illinois and
Moorestown, New Jersey. The tenant is responsible for providing adequate
property and liability insurance for the Moorestown properties with the
Partnership named as an additional insured. The Partnership maintains
adequate levels of property and liability insurance for East Ogden. Martin
Marietta (formerly General Electric Aerospace and Government Services
Divisions) historically accounted for approximately 75% of the
Partnership's operating revenues. As of March 31, 1995, Martin Marietta no
longer provides any revenue to the Partnership due to the impending
foreclosure proceedings on Moorestown I and the expiration of the Martin
Marietta lease in Moorestown II. Martin Marietta currently leases two
floors of the Moorestown I building through October 1995. Martin
Marietta's lease of the Moorestown II building expired in January of 1995
and Martin Marietta vacated the building in March 1995. The Partnership
performs credit evaluations of its lessees and generally does not require
collateral other than security deposits for most tenants at 710 East
Ogden.
The Partnership invests its excess cash in deposits primarily through a
major commercial bank. Cash available in these accounts may at times
exceed FDIC insurance levels.
<PAGE> 9
INDEPRO PROPERTY FUND II, L.P.
NOTES TO FINANCIAL STATEMENTS
As of March 31, 1995
6. Notes Payable:
On November 1, 1993, the Partnership was obligated to make a balloon
payment of $4,884,732 on the Moorestown Corporate Center I mortgage due to
New England Life Insurance Company (New England). The Partnership did not
make the balloon payment which created a default under the loan documents.
On November 16, 1993, the Partnership entered into a pre-workout agreement
with New England, whereby the General Partner agreed to remit, on a
monthly basis, all net cash flows generated by the property until such
time as a loan modification was closed or New England obtained title to
the property.
On April 26, 1994, New England directed the Partnership to stop collecting
rents directly from the tenant in Moorestown I. New England directed
Martin Marietta to make future rent payments to Thomas J. Maher and
Company, Inc., as agent for New England. These actions were taken by New
England in spite of the General Partner's request to continue to operate
under the provisions of the pre-workout agreement whereby the rents were
forwarded from the Partnership to New England on a monthly basis.
On November 9, 1994, New England filed suit in the Superior Court of New
Jersey, Chancery Division, Burlington County, seeking foreclosure on
Moorestown Corporate Center I, to obtain title to the property and for the
appointment of a receiver for the rents, issues and profits of the
property. On December 14, 1994, the Partnership filed an answer to the
Complaint. On January 17, 1995, New England filed a Notice of Motion for
Summary Judgement on the Complaint, seeking foreclosure and requesting
oral argument on February 24, 1995. This Motion for Summary Judgement was
granted in March 1995 and the General Partner expects New England to be
successful in obtaining title to the property during 1995. In 1993, the
Partnership established a valuation allowance such that the net book value
of the property was reduced to the amount of the outstanding principal of
the nonrecourse note as of December 31, 1993. Therefore, the Partnership
would not realize a loss for book purposes if New England obtains title to
the property. However, there will be significant tax implications to the
Limited Partners as well as implications to the future operating results
of the Partnership.
In addition, on October 31, 1994, New England filed suit in the Court of
Common Pleas of Montgomery County, Pennsylvania, seeking judgement against
Indepro Property Fund II, L.P. and Indepro Property Fund II Corp. (the
General Partner) in the sum of $115,106.66 plus costs and attorney's fees.
This suit relates to the cash flows from the Moorestown I property for
April and May 1994 which were collected by Indepro Property Fund II, L.P.
and not remitted to New England. The General Partner believes it had a
right to collect and retain the cash flows for those months and does not
believe the outcome of this suit will have a material negative impact on
the Partnership.
On March 14, 1995, New England Mutual Life Insurance Company filed suit in
the Superior Court of New Jersey, Chancery Division, Burlington County,
seeking foreclosure on Moorestown Corporate Center II, to obtain title to
the property and for appointment of a receiver for the rents, issues and
profits of the property. The General Partner expects New England to be
successful in obtaining title to the property.
The non-recourse mortgage loan on the 710 East Ogden property required a
balloon payment of $1,795,338 on April 1, 1995. The General Partner has
received approval for a three-month extension on the loan under the same
terms as the original loan. The General Partner currently has a signed
letter of intent from the Broderick Trust to purchase the property at a
price in excess of the current debt balance. If the property cannot be
sold by July 1, 1995, the General Partner will pursue a further extension
or refinancing of the debt. The General Partner does not intend to have
the lender assume title to the property in satisfaction of the debt.
<PAGE> 10
INDEPRO PROPERTY FUND II, L.P.
(A Delaware Limited Partnership)
Part I - Item 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations
Results of Operations
The Partnership's net loss for the quarter ended March 31, 1995 was $154,644, an
adverse change of $95,422 from the same quarter of the previous year. This
adverse change is attributable to the loss of the sole tenant in the Moorestown
II building and the impending foreclosures on both the Moorestown I and II
buildings (see discussion under individual property headings below.)
All of the properties owned by the Partnership have been negatively impacted by
the generally depressed condition of the commercial real estate market in recent
years. The economic recession, excess supply of commercial space in most markets
and corporate downsizing have contributed to the negative trend. Leasing
activity has been slower than anticipated and new leases have not always
provided the same level of income to the Partnership. With the development of a
new aggressive marketing plan to lease vacant space at the 710 East Ogden
property, the General Partner has been able to improve the occupancy rate and
the operating results of this property during 1994 and 1995. The General Partner
believes that, with the improved conditions in the Chicago area market, the 710
East Ogden property can be successfully marketed for sale during 1995. The
General Partner currently has a signed letter of intent on the property for a
price in excess of the current debt balance.
On November 9, 1994, the lender filed suit seeking foreclosure on the Moorestown
I building which the General Partner has not contested. In March 1995, the
Motion for Summary Judgement on the foreclosure action filed by New England
Mutual Life Insurance Company was granted. In March 1995 the sole tenant of
Moorestown II vacated the property. In addition, the Partnership was unable to
make the balloon payment due on the mortgage loan on the Moorestown II building
on January 1, 1995. On March 14, 1995, the lender filed suit seeking foreclosure
on the Moorestown II building. The General Partner expects the lender to be
successful in its attempts to obtain title to both of the Moorestown buildings
during 1995. Due to the impending foreclosure proceedings on the Moorestown
buildings, the Partnership has terminated its management agreement with the
Nichols Company for management of these two buildings. All rental payments are
currently forwarded directly to Thomas Maher and Company, Inc., as agent for the
New England Mutual Life Insurance Company and all real estate taxes and other
property operating expenses are paid by Thomas Maher and Company, Inc. from
funds collected from the tenant. Accordingly, the Partnership has stopped
recognizing rental income and accruing expenses on these properties. (see
discussion under individual property headings below.)
Net income (loss) by property was as follows for the quarter ended March 31:
Property 1995 1994
710 East Ogden Avenue $ (65,965) $(86,702)
Moorestown Corporate Center I (58,195) (43,666)
Moorestown Corporate Center II (55,024) 62,872
Other 24,540 8,274
--------- -------
Total $(154,644) $(59,222)
========= ========
<PAGE> 11
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations (Continued):
710 East Ogden (East Ogden)
The net loss attributable to the operations of East Ogden improved by $20,737
from March 31, 1994 to March 31, 1995. Rental income and reimbursements from
tenants at East Ogden for the three months ended March 31, 1995 increased by
approximately $2,948 in comparison with the same period of the prior year. In
addition, expenses at the property have decreased by $17,789 for the same
period.
East Ogden, located in Naperville, Illinois, a suburb of Chicago, has in recent
years, been under severe competitive pressure from other office buildings in its
market area. Occupancy levels have been increasing slightly over the past year.
On March 31, 1995, the building's occupancy rate stood at 68% compared to 60% on
March 31, 1994 and 65% on December 31, 1994. In order to increase the occupancy
of East Ogden, a comprehensive marketing plan has been developed for the
property which focuses on attracting small businesses by increasing the
visibility of the property. With the improvement in occupancy at the property
and the improved conditions in the market area, the General Partner has listed
the property for sale and has a signed letter of intent with the Broderick
Trust. The General Partner expects to sell the property during 1995 for a price
in excess of the outstanding debt on the property. However, such results cannot
be assured.
Moorestown Corporate Center I (Moorestown I)
Net loss attributable to the operations of Moorestown I was $58,195 for the
three months ended March 31, 1995, an increase of $14,529 from the same quarter
of the previous year. Rental income and tenant reimbursements for the Moorestown
I property decreased by $229,318 from March 31, 1994 to March 31, 1995. No
rental income was recorded during 1995 due to the impending foreclosure on the
Moorestown I building. All rental payments are currently being sent directly to
Thomas Maher and Company, Inc., as agent for the New England Mutual Life
Insurance Company (the lender.) (See discussion under Liquidity and Capital
Resources section.) The decrease in rental income is partially offset by a
decrease in interest expense, real estate taxes and property operating expenses
of $152,649, $47,971 and $14,775, respectively, all due to the foreclosure
proceedings.
Moorestown I, located in Moorestown, New Jersey had, since the date of its
acquisition, been leased in entirety to Martin Marietta (formerly General
Electric Aerospace and Government Services Divisions). On October 31, 1993,
Martin Marietta's lease of Moorestown Corporate Center I expired. The General
Partner and Martin Marietta negotiated the renewal of the lease, on amended
terms, for an additional two years with the option to extend the lease for a
further term of twelve months, under the same rental rates as the existing
lease. During the first year of the renewed lease, which extended from November
1, 1993 through and including October 31, 1994, Martin Marietta leased the first
and second floors of the building. In the second year, which extends from
November 1, 1994 to October 31, 1995, Martin Marietta was scheduled to lease the
first floor with the option to lease the second floor. On July 28, 1994, Martin
Marietta exercised its option to lease the second floor of the Moorestown I
building through October 31, 1995. In August, 1994, Lockheed Corp, a leading
Aerospace company and Martin Marietta Corp announced plans to combine through a
stock swap creating the nation's largest defense contractor. It is currently
unknown whether Martin Marietta will extend its lease beyond 1995 for Moorestown
I. The General Partner has suspended efforts to lease the currently vacant third
floor, due to the impending foreclosure of the building during 1995.
<PAGE> 12
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Results of Operations (continued):
Moorestown Corporate Center I (Moorestown I) (continued)
All rental income and operating expense reimbursements are currently being
collected by Thomas J. Maher and Company, Inc. as agent for New England. Martin
Marietta is responsible for 100% of the building's real estate taxes and is
responsible for utilities and other operating expenses while they occupy the
first and second floors of the building. All of these cash flows are being
handled directly by Thomas J. Maher and Company, Inc. Real estate taxes and
other operating expenses are being paid by Thomas J. Maher and Company, Inc. out
of funds collected from the tenants. Due to the impending foreclosure
proceedings on Moorestown I, the General Partner terminated its management
agreement with the Nichols Company for management of the building. Accordingly,
no revenues have been recognized and no expenses have been accrued for the
Moorestown I building.
Moorestown Corporate Center II (Moorestown II)
Net loss attributable to Moorestown II was $55,024 as of March 31, 1995, an
adverse change of $117,896 from March 31, 1994. The Moorestown II building had
been 100% occupied by Martin Marietta since its acquisition, producing stable
rental income through January of 1995. However, the Martin Marietta lease
expired on January 31, 1995 and Martin Marietta vacated the building in March,
1995. Rental income and tenant reimbursments for the three months ended March
31, 1995 totalled $129,352, which represents the lease payment for January 1995,
which was received by the Partnership. This is a reduction of $311,051 from the
income received in the same period of the prior year. This reduction in income
was partially offset by a reduction in expenses of operating the building and
interest expense on the note of $53,839 and $139,316, respectively. On January
4, 1995, New England Mutual Life Insurance Company directed the Partnership to
stop collecting rents directly from the tenant. In accordance with this, the
tenant paid February and March 1995 rental payments directly to Thomas Maher and
Company, Inc., as agent for New England. Due to the impending foreclosure
proceedings, the General Partner terminated its management agreement with the
Nichols Company for management of the Moorestown II building. Accordingly, with
the exception of the rental income collected for January 1995, the Partnership
has stopped recognizing the income and accruing expenses for the Mooretown II
building. The General Partner expects the expiration of the Martin Marietta
lease to have a significant impact on the 1995 operating results of the
Partnership.
Liquidity and Capital Resources
As of March 31, 1995, the Partnership had cash totaling $2,460,430 in comparison
with $2,298,407 at December 31, 1994 and $1,930,398 at March 31, 1994. This
increase in cash is a result of net cash provided by operations and the
suspension of partner distributions. The following is a summary of liquidity by
individual property:
710 East Ogden
The General Partner believes that 710 East Ogden will continue to generate
positive cash flow adequate to meet property operating needs in 1995. In
addition, some funds will continue to be expended on leasing commissions and
improvements to retrofit the vacant space. The General Partner had budgeted
approximately $300,000, to be funded from Partnership cash to be spent on tenant
improvements during 1994 and 1995 to lease the vacant space. As of March 31,
1995, $220,000 of this $300,000 has been spent. Cash flow, however, was not
adequate to make the balloon payment on the mortgage loan discussed below.
<PAGE> 13
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (continued)
710 East Ogden (continued)
The non-recourse mortgage loan on the property required a balloon payment of
$1,795,338 on April 1, 1995. The General Partner has received approval for a
three-month extension on the loan under the same terms as the original loan. The
General Partner currently has a signed letter of intent with the Broderick Trust
to purchase the property for a price in excess of the debt balance. However,
these results cannot be assured. If the property cannot be sold by July 1, 1995,
the General Partner will pursue a further extension or refinancing of the debt.
If the mortgage cannot be refinanced or extended, or the property sold for an
amount in excess of the loan balance, a foreclosure action could be initiated by
the lender. The General Partner does not intend to have the lender assume title
to the property in satisfaction of the debt. The book value of the East Ogden
property at April 1, 1995 is approximately $3,022,000. If a foreclosure action
is initiated, the Partnership could incur a loss at that time for the difference
between the book value of the property and the debt amount. In addition, there
would be significant tax implications to the Limited Partners as well as
implications to the future operating results of the Partnership.
Moorestown I
All cash flows from the Moorestown I building are being forwarded directly to
the lender through its agent. On November 1, 1993 the Partnership was obligated
to make a balloon payment of $4,884,732 on the mortgage due to New England Life
Insurance Company (New England) related to the Moorestown I property. The
Partnership did not make the balloon payment which created a default under the
loan documents. On November 16, 1993, the Partnership entered into a pre-workout
agreement with New England, whereby the General Partner agreed to remit, on a
monthly basis, all net cash flows generated by the property until such time as a
loan modification was closed or New England obtained title to the property.
On April 26, 1994, New England directed the Partnership to stop collecting rents
directly from the tenant in Moorestown I. New England directed Martin Marietta
to make future rent payments to Thomas J. Maher and Company, Inc. as agent for
New England. These actions were taken by New England in spite of the General
Partner's request to continue to operate under the provisions of the pre-workout
agreement whereby the rents were forwarded from the Partnership to New England
on a monthly basis.
The General Partner viewed the actions taken by New England as a termination of
the pre-workout agreement and ceased making net cash flow payments to New
England in May, 1994. In addition, the notice to Martin Marietta with the
required language in accordance with the loan documents was not delivered until
June 1994. The Partnership retained the net cash flow for April and May 1994.
June payments were collected by New England.
On November 9, 1994, New England filed suit in the Superior Court of New Jersey,
Chancery Division, Burlington County, seeking foreclosure on Moorestown
Corporate Center I, to obtain title to the property and for the appointment of a
receiver for the rents, issues and profits of the property. On December 14,
1994, the Partnership filed an answer to the Complaint. On January 17, 1995, New
England filed a Notice of Motion for Summary Judgement on the Complaint, seeking
foreclosure and requesting oral argument on February 24, 1995. This Motion for
Summary Judgement was granted in March 1995 and the General Partner expects New
England to be successful in obtaining title to the property. In 1993, the
Partnership established a valuation allowance such that the net book value of
the property was reduced to the amount of the outstanding principal of the
nonrecourse note as of December 31, 1993. Therefore, the Partnership will not
realize a loss for book purposes when New England obtains title to the property.
However, there will be significant tax implications to the Limited Partners as
well as implications to the future operating results of the Partnership.
<PAGE> 14
Management's Discussion and Analysis of Financial Condition
and Results of Operations (continued)
Liquidity and Capital Resources (Continued):
Moorestown I (continued)
In addition, on October 20, 1994, New England filed suit in the Court of Common
Pleas of Montgomery County, Pennsylvania, seeking judgement against the
Partnership and the General Partner in the sum of $115,106.66 plus costs and
attorney's fees. This suit relates to the cash flows from the Moorestown I
property for April and May 1994 which were collected by the Partnership and not
remitted to New England. The General Partner believes it had a right to collect
and retain the cash flows for those months and does not believe the outcome of
this suit will have a material negative impact on the Partnership.
Due to the impending foreclosure proceedings, the General Partner does not
expect the Moorestown I building to require any significant cash outlays, nor
does it expect the property to make any contribution to the Partnership's cash
flow in 1995.
Moorestown II
As discussed in the Results of Operations section above, the lease on the
Moorestown II property expired on January 31, 1995 and Martin Marietta vacated
the property in March 1995. Martin Marietta made their rental payment for
January 1995 to the Partnership. The rental payments for February and March 1995
were forwarded directly to Thomas Maher and Company, Inc., as agent for New
England. Being entirely vacant, if the property were retained by the
Partnership, it would be expected to generate negative cash flows in 1995. The
non-recourse debt related to the Moorestown II building required balloon
payments totalling $6,376,637 on January 1, 1995. The Partnership did not have
sufficient funds from operations to make these payments which created a default
under the loan documents. On January 4, 1995, New England directed the
Partnership to stop collecting rents directly from the tenant. On March 14,
1995, New England filed suit in the Superior Court of New Jersey, Chancery
Division, Burlington County, seeking foreclosure on Moorestown Corporate Center
II, to obtain title to the property and for the appointment of a receiver for
the rents, issues and profits of the property. The General Partner expects New
England to be successful in obtaining title to the property. Since the debt is
non-recourse and since the book value of the property will be lower than the
debt at that time, the Partnership will recognize no financial statement loss
when the lender obtains title to the property. However, there will be
significant tax implications to the Limited Partners as well as implications to
the future operating results of the Partnership.
Given the fact that Martin Marietta has vacated Moorestown Corporate Center II,
substantial funds would need to be expended for tenant improvements, leasing
commissions, and capital expenditures. Since the property will be generating
negative cash flows, and the outstanding debt balance is well in excess of the
current estimated market value of the property, the General Partner does not
believe it is economically prudent to invest new funds and/or continue to own
the property. The General Partner has decided to allow the lender to foreclose
to satisfy the mortgage obligation.
Due to the impending foreclosure proceedings, the General Partner does not
expect the Moorestown II building to require any significant cash outlays, nor
does it expect the property to make any contribution to the Partnership's cash
flow in 1995.
<PAGE> 15
Management's Discussion and Analysis of Financial Condition
and Results of Operations (Continued):
Liquidity and Capital Resources (continued)
Distributions
In the three months ended March 31, 1995, the Partnership did not make any
distributions to its Limited Partners. In 1992, the General Partner decided to
temporarily suspend any further distributions from the Partnership in order to
increase cash reserves for current and impending capital needs at the
properties. The General Partner expects to make a distribution of excess
Partnership cash during 1995, however, the amount of the distribution has not
yet been determined.
The General Partner is obligated under the terms of the Partnership Agreement to
make a capital contribution upon the Partnership's dissolution in the amount
necessary to enable the Partnership to pay to each Limited Partner an 8%
non-compounded return on the unrecovered capital contribution of each Limited
Partner, less all distributions of distributable cash and all distributions of
sale or refinancing proceeds in excess of the capital contributions of such
Limited Partner. This guaranteed return is computed from the date of each
Limited Partner's admission to the Partnership. This obligation does not
guarantee to the Limited Partners a return of their capital contributions and is
limited by the available assets of the Partnership and the General Partner. As
of March 31, 1995, the estimated amount of this obligation to the Limited
Partners (excluding the General Partner's Limited Partnership Units) was
approximately $3,966,081. The Partnership had cash of $2,460,430 at March 31,
1995. If the General Partner distributed this cash, the Limited Partners' share
would have been $1,020,286, which would have reduced the amount of this
obligation to $2,945,795. The General Partner has cash of $1,675,374 and would
have $1,440,144 of its share of Partnership cash for a total of $3,115,518
available to satisfy the remaining obligation. Future operations of the
Partnership may impact the ability of the Partnership and the General Partner to
satisfy this obligation. In addition to its various initiatives to improve the
financial condition of the Partnership as discussed herein, the General Partner
will be considering the potential benefits and liabilities, and their impact on
the Limited Partners, of a dissolution and liquidation of the Partnership. It is
likely that if the 710 East Ogden property is sold in 1995, the Partnership will
be liquidated and any net sale proceeds as well as existing Partnership cash
will be distributed to the Partners.
Inflation
The rate of inflation during the three most recent fiscal years was low in
comparison with the rate prevailing at the time the Partnership's properties
were acquired. Low rates of inflation generally produce an environment in which
rental rate increases are relatively modest. However, major expenses such as
insurance and real estate taxes have increased at a rate greater than the
inflation rate. In the market in which East Ogden competes, it is not always
feasible to pass all increasing costs on in the form of higher rental rates.
Each of the two leases with Martin Marietta protected the Partnership from
increases in operating costs and real estate taxes at the Moorestown Corporate
Centers, since the tenant was responsible for the direct payment of
reimbursement of the majority of the operating costs and real estate taxes.
However, as it has become necessary to re-lease the Moorestown buildings to a
new tenant or tenants, potential new leases will not provide this same
protection. In the past, it was assumed that inflation would result in capital
appreciation in investment properties through increases in rental rates and
replacement costs in comparison with new properties. During the term in which
the real estate properties have been owned by the Partnership, significant
capital appreciation has not occurred.
<PAGE> 16
INDEPRO PROPERTY FUND II, L.P.
(A Delaware Limited Partnership)
PART II
OTHER INFORMATION
ITEM 1. Legal Proceedings
On November 9, 1994, New England Mutual Life Insurance Company
filed suit in the Superior Court of New Jersey, Chancery
Division, Burlington County, seeking foreclosure on Moorestown
Corporate Center I, to obtain title to the property and for
the appointment of a receiver for the rents, issues and
profits of the property. On December 14, 1994, the Partnership
filed an answer to the Complaint. On January 17, 1995, New
England filed a Notice of Motion for Summary Judgment on the
Complaint, seeking foreclosure and requesting oral argument on
February 24, 1995. In March, 1995, the Motion for Summary
Judgment on the foreclosure action was granted and the General
Partner expects New England to be successful in obtaining
title to the property.
In addition, on October 31, 1994, New England filed suit in
the Court of Common Pleas of Montgomery County, Pennsylvania,
seeking judgment against Indepro Property Fund II, L.P. and
Indepro Property Fund II Corp. (the General Partner) in the
sum of $115,106.66 plus costs and attorney's fees. This suit
relates to the cash flows from the Moorestown I property for
April and May 1994 which were collected by Indepro Property
Fund II, L.P. and not remitted to New England. The General
Partner believes it had a right to collect and retain the cash
flows for those months and does not believe the outcome of
this suit will have a material negative impact on the
Partnership.
On March 14, 1995, New England Mutual Life Insurance Company
filed suit in the Superior Court of New Jersey, Chancery
Division, Burlington County, seeking foreclosure on Moorestown
Corporate Center II, to obtain title to the property and for
the appointment of a receiver for the rents, issues and
profits of the property. The General Partner expects New
England to be successful in obtaining title to the property.
The Partnership is involved in an action brought by Celebrity
Restaurants seeking a declaration that an easement exists for
access to and use of certain parking spaces of the 710 East
Ogden property by patrons and employees of the restaurant. The
General Partner is not certain of the outcome of this case at
this time, however, the General Partner does not currently
believe this suit will have a material effect on the
Partnership's financial statements.
ITEM 2. Changes in Securities
None
ITEM 3. Defaults Upon Senior Securities
Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders
Not applicable
<PAGE> 17
INDEPRO PROPERTY FUND II, L.P.
(A Delaware Limited Partnership)
PART II
OTHER INFORMATION
ITEM 5. Other Information
None
ITEM 6. Exhibits and Reports on Form 8 - K
A Form 8-K was filed on February 21, 1995 which related to
the foreclosure proceedings filed by the New England Mutual
Life Insurance Company on November 9, 1994 regarding the
Moorestown I building and the default on the mortgage loan on
the Moorestown II building in January, 1995.
<PAGE> 18
SIGNATURES
Pursuant to the requirements of Section 12 of 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
INDEPRO PROPERTY FUND II, L.P.
By: Indepro Property Fund II Corp
General Partner
By: /s/ Ronald M. Pappas
------------------------------
Ronald M. Pappas
President
Date: May 12, 1995 By: /s/ Ann M. Strootman
------------------------------
Ann M. Strootman
Controller
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> MAR-31-1995
<CASH> 2,460,430
<SECURITIES> 0
<RECEIVABLES> 21,217
<ALLOWANCES> 1,854
<INVENTORY> 0
<CURRENT-ASSETS> 2,590,857
<PP&E> 24,380,516
<DEPRECIATION> 10,644,187
<TOTAL-ASSETS> 16,327,186
<CURRENT-LIABILITIES> 473,606
<BONDS> 13,066,184
<COMMON> 0
0
0
<OTHER-SE> 2,787,396
<TOTAL-LIABILITY-AND-EQUITY> 16,327,186
<SALES> 218,765
<TOTAL-REVENUES> 278,326
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 296,813
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 120,408
<INCOME-PRETAX> (154,644)
<INCOME-TAX> 0
<INCOME-CONTINUING> (154,644)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (154,644)
<EPS-PRIMARY> (5)
<EPS-DILUTED> (5)
</TABLE>
