<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _________to __________
Commission file number 0-14177
---------
MRI Business Properties Fund, Ltd. II
-------------------------------------
(Exact name of Registrant as specified in its charter)
California 94-2935565
-------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One Insignia Financial Plaza, P.O. Box 1089, Greenville, South Carolina 29602
-----------------------------------------------------------------------------
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code 864 239-1000
5665 Northside Drive N.W. Ste. 370, Atlanta, GA 30328
-----------------------------------------------------
Former name, former address and fiscal year, if changed since last report.
Indicate by check mark whether 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
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 12, 13, or 15(d) of the Securities Exchange Act of 1934
subsequent to the distribution of securities under a plan confirmed by a court.
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date .
------------------
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<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
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PART I - FINANCIAL INFORMATION
------------------------------
Item 1. Financial Statements.
--------------------
Consolidated Balance Sheets
December 31, September 30,
1995 1995
Assets
Cash and cash equivalents $ 21,172,000 $ 4,813,000
Accounts receivable and other assets 1,816,000 2,712,000
Due from affiliate 115,000 170,000
Real Estate:
Real estate -- 92,497,000
Accumulated depreciation -- (37,814,000)
Allowance for impairment of value -- (10,948,000)
------------ ------------
Real estate, net -- 43,735,000
------------ ------------
Total assets $23,103,000 $51,430,000
=========== ===========
Liabilities and Partners' Equity
Accounts payable and other liabilities $ 60,000 $ 2,407,000
Due to an affiliate of the joint venture partner -- 55,000
Due to unconsolidated joint venture -- 618,000
Notes payable -- 36,610,000
------------ ------------
Total liabilities 60,000 39,690,000
------------ ------------
Minority interest in joint venture -- 2,937,000
------------ ------------
Partners' Equity:
General partners' equity 428,000 2,000
Limited partners' equity (91,083 assignee units
outstanding at December 31, 1995 and
September 30, 1995) 22,615,000 8,801,000
----------- ------------
Total partners' equity 23,043,000 8,803,000
------------ ------------
Total liabilities and partners' equity $23,103,000 $51,430,000
=========== ===========
See notes to consolidated financial statements.
2 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
---------------------------------------------------------------------
Consolidated Statements of Operations
For the Three Months Ended
December 31, December 31,
1995 1994
Revenues:
Room revenue $2,383,000 $8,661,000
Food and beverage revenue 1,761,000 4,907,000
Other operating revenues 312,000 790,000
Interest 25,000 177,000
Gain on sale of properties 14,445,000 --
Gain on sale of unconsolidated joint
venture property 2,694,000 --
Equity in unconsolidated joint venture's
operations 370,000 --
----------- -----------
Total revenues 21,990,000 14,535,000
----------- -----------
Expenses:
Room expenses 579,000 2,044,000
Food and beverage expenses 1,256,000 3,780,000
Other operating expenses 2,208,000 5,467,000
Interest 361,000 2,019,000
Depreciation 334,000 1,202,000
Equity in unconsolidated joint venture's
operations -- 84,000
General and administrative 112,000 122,000
----------- -----------
Total expenses 4,850,000 14,718,000
----------- -----------
Income (loss) before minority interest in
joint venture's operations 17,140,000 (183,000)
Minority interest in joint venture's operations (41,000) (101,000)
----------- -----------
Net income (loss) $17,099,000 $ (284,000)
=========== ===========
Net income (loss) per limited partnership
assignee unit $ 182.43 $ (3.06)
=========== ===========
Distributions per limited partnership
assignee unit $ 30.76 $ -
=========== ===========
See notes to consolidated financial statements.
3 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
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Consolidated Statement of Partners' Equity
For the Three Months Ended December 31, 1995
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
Balance - October 1, 1995 $ 2,000 $ 8,801,000 $ 8,803,000
Net income 483,000 16,616,000 17,099,000
Distributions (57,000) (2,802,000) (2,859,000)
------------ ------------ ------------
Balance - December 31, 1995 $ 428,000 $ 22,615,000 $ 23,043,000
============ ============ ============
See notes to consolidated financial statements.
4 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
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Consolidated Statements of Cash Flows
For the Three Months Ended
December 31, December 31,
Operating Activities: 1995 1994
Net income (loss) $17,099,000 $ (284,000)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 384,000 1,331,000
Mortgage costs - (211,000)
Minority interest in joint venture's operations (41,000) 101,000
Equity in unconsolidated joint venture's
operations (370,000) 84,000
Gain on sale of properties (14,445,000) -
Gain on sale of unconsolidated joint venture
property (2,694,000) -
Changes in operating assets and liabilities:
Accounts receivable and other assets 293,000 866,000
Due from affiliate 55,000 -
Accounts payable, other liabilities and due to an
affiliate of the joint venture partner (2,419,000) (1,082,000)
----------- ----------
Net cash (used in) provided by operating activities (2,138,000) 805,000
----------- ----------
Investing Activities:
Additions to real estate (772,000) (2,653,000)
Net proceeds from sales of properties 55,588,000 -
Distributions to partners (2,859,000) -
Restricted cash - 1,162,000
Unconsolidated joint venture distributions 2,445,000 -
----------- ----------
Net cash provided by (used in) investing activities 54,402,000 (1,491,000)
----------- ----------
Financing Activities:
Satisfaction of mortgages payable (35,864,000) (19,874,000)
Proceeds from mortgage refinancing - 19,400,000
Notes payable principal payments (41,000) (212,000)
----------- ----------
Net cash (used in) financing activities (35,905,000) (686,000)
----------- ----------
Increase (Decrease) in Cash and Cash Equivalents 16,359,000 (1,372,000)
Cash and Cash Equivalents at Beginning of Period 4,813,000 9,346,000
----------- ----------
Cash and Cash Equivalents at End of Period $ 21,172,000 $ 7,974,000
=========== ==========
Supplemental Disclosure of Cash Flow Information:
Interest paid in cash during the period $ 490,000 $ 1,906,000
=========== ==========
Supplemental Disclosure of Non-Cash Investing
and Financing Activities:
Other assets assumed by purchaser $ 566,000 $
=========== ==========
Capitalized leases assumed by purchaser $ 655,000 $
=========== ==========
See notes to consolidated financial statements.
5 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
1. General
The accompanying consolidated financial statements, footnotes and
discussions should be read in conjunction with the consolidated financial
statements, related footnotes and discussions contained in the Partnership's
Annual Report for the year ended September 30, 1995.
The financial information contained herein is unaudited. In the opinion of
management, all adjustments necessary for a fair presentation of such
financial information have been included. All adjustments are of a normal
recurring nature, except for the sale of properties, as described in Note 4.
The results of operations for the three months ended December 31, 1995 and
1994 are not indicative of the results to be expected for the years ended
September 30, 1996 and 1995, respectively. As discussed in Note 4, the
Partnership's remaining property was sold on October 5, 1995 and remaining
joint venture interests were sold on December 1, 1995. The Partnership is
expected to be terminated in 1996 after collection of receivables, payment
of outstanding liabilities and a final distribution to the partners.
On January 19, 1996, the stockholders of NPI, Inc. sold all of the issued
and outstanding stock of NPI, Inc. to an affiliate of Insignia Financial
Group ("Insignia"). As a result of the transaction, the Managing General
Partner of the Partnership is controlled by Insignia. Insignia affiliates
now maintain the Partnership books and records and oversee its operations.
Property management and asset management services continue to be performed
by unaffiliated third parties. The limited partnership units owned by
Deforest Ventures I, L.P., representing approximately 29% of total limited
partnership units, were not acquired by Insignia.
2. Transactions with Related Parties
Affiliates of the Managing General Partner received reimbursements of
administrative expenses amounting to $24,000 and $28,000 during the three
months ended December 31, 1995 and 1994, respectively. These reimbursements
are primarily included in general and administrative expenses.
An affiliate of the Managing General Partner was paid a fee of $49,000
relating to a successful real estate tax appeal on the Partnership's
Somerset Marriott Hotel during the three months ended December 31, 1995. The
tax appeal fee is included in operating expenses.
3. Distributions
The Partnership distributed $2,802,000 to limited partners ($30.76 per
limited partnership assignee unit) and $57,000 to the general partners on
October 25, 1995.
On January 23, 1996 the Partnership distributed $20,585,000 to limited
partners ($226.00 per limited partnership assignee unit) and $420,000 to the
general partners. The distributions were from sales proceeds and working
capital reserves.
6 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
4. Sale of Properties
On October 5, 1995, the Partnership's Somerset Marriott Hotel was sold to an
unaffiliated third party for $24,950,000. After satisfaction of notes
payable of approximately $21,830,000 (including accrued interest), a
prepayment premium of $500,000 and closing costs, the Partnership received
approximately $2,200,000. The sale resulted in a gain of $1,351,000. The
Partnership had previously recorded a $10,948,000 provision for impairment
of value in 1992 and 1993.
On December 1, 1995 the joint venture (in which the Partnership had a
controlling interest) sold the Radisson South Hotel to an unaffiliated third
party for $31,840,000, which terminated the joint venture. After
satisfaction of mortgage notes of approximately $14,452,000 (including
accrued interest) and closing costs, the joint venture received
approximately $17,000,000. In accordance with the joint venture agreement,
the Partnership is entitled to all the net proceeds. In addition, the
Partnership received approximately $990,000 of cash from operations, as well
as, approximately $1,300,000 in outstanding receivables. The sale resulted
in a gain of approximately $13,094,000, which includes $2,978,000 of gain
from termination of the joint venture.
On December 1, 1995, the Combined Fund sold the Holiday Inn Crowne Plaza
property to an unaffiliated third party for $44,000,000. After satisfaction
of the mortgage note of $34,000,000, closing costs and other expenses the
joint venture received approximately $8,900,000. In accordance with the July
7, 1995 agreement, the Combined Fund received $5,000,000. The Partnership's
share of net proceeds, after expenses, was $2,445,000. The Partnership has
recognized a gain on sale of $2,694,000. The Combined Fund had previously
recorded an approximate $11,900,000 provision for impairment of value in
1991 and 1992. A former joint venture partner may be required to contribute
certain funds to the Partnership in accordance with the joint venture
agreement. The amount of contribution, if any, is not determinable at this
time.
7 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. Investment in Unconsolidated Joint Venture
The following are the condensed balance sheets as of December 31, 1995 and
September 30, 1995 and condensed statements of operations for the three
months ended December 31, 1995 and 1994 of the unconsolidated joint
venture:
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
-------------------------------------------
CONDENSED BALANCE SHEETS
------------------------
December 31, September 30,
1995 1995
Assets
Cash and cash equivalents $ 252,000 $ 887,000
Restricted cash -- 958,000
Accounts receivable and other assets -- 1,321,000
Real Estate:
Real estate -- 63,148,000
Accumulated depreciation -- (17,952,000)
Allowance for impairment of value -- (11,962,000)
----------- -----------
Real estate, net -- 33,234,000
----------- -----------
Total assets $ 252,000 $ 36,400,000
=========== ===========
Liabilities and Partners' Deficiency
Accounts payable and other liabilities $ 7,000 $ 1,805,000
Due to affiliates 245,000 3,069,000
Note payable -- 34,000,000
----------- -----------
Total liabilities 252,000 38,874,000
----------- -----------
Minority interest in joint venture -- (1,238,000)
----------- -----------
Partners' Deficiency:
MRI BPF, LTD. II -- (618,000)
MRI BPF, LTD. III -- (618,000)
----------- -----------
Total partners' deficiency -- (1,236,000)
----------- -----------
Total liabilities and partners' deficiency $ 252,000 $ 36,400,000
=========== ===========
8 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
5. Investment in Unconsolidated Joint Venture (Continued)
MRI BUSINESS PROPERTIES COMBINED FUND NO. 1
-------------------------------------------
CONDENSED STATEMENTS OF OPERATIONS
----------------------------------
December 31, September 30,
1995 1995
Revenues $ 4,014,000 $ 4,871,000
Gain on sale of hotel 9,755,000 --
----------- -----------
Total revenues 13,769,000 4,871,000
Expenses 2,535,000 5,205,000
----------- -----------
Income (loss) before minority interest in joint
venture operations 11,234,000 (334,000)
Minority interest in joint venture
operations (5,107,000) 167,000
----------- -----------
Net income (loss) $ 6,127,000 $ (167,000)
=========== ============
Allocation of net income (loss)
MRI BPF, LTD. II $ 3,064,000 $ (84,000)
MRI BPF, LTD. III 3,063,000 (83,000)
----------- ------------
Net income (loss) $ 6,127,000 $ (167,000)
=========== ============
9 of 14
<PAGE>
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations.
----------------------------------------------
This item should be read in conjunction with the Consolidated Financial
Statements and other Items contained elsewhere in this Report.
Liquidity and Capital Resources
As described in Item 1, "Notes to Financial Statements, Note 4", Registrant sold
its remaining properties during the first quarter of fiscal year 1996. The
aggregate sales prices for its properties was $100,790,000. After satisfaction
of existing mortgages, closing costs and amounts distributed to Registrant's
joint venture partners, net proceeds received by Registrant were approximately
$22,000,000. In addition, Registrant received approximately $990,000 of cash
from operations in December 1995 and $946,000 in outstanding receivables in
January 1996, relating to the Radisson South Hotel. Registrant recorded a gain
of $1,351,000 on the sale of the Somerset Marriott Hotel, a gain of $13,094,000
on the sale of the Radisson South Hotel and a gain of $2,694,000 on the sale of
its unconsolidated joint venture property, the Holiday Inn Crowne Plaza.
Registrant distributed $2,802,000 to limited partners ($30.76 per limited
partnership assignee unit) and $57,000 to the general partners on October 25,
1995. Registrant distributed $20,585,000 to limited partners ($226.00 per
limited partnership assignee unit) and $420,000 to the general partners on
January 23, 1996. The distributions were from sales proceeds and working capital
reserves. Since these were Registrant's last remaining properties, Registrant
expects to be terminated in 1996 after collection of receivables, payment of
outstanding liabilities and a final distribution to the partners.
The level of liquidity based upon cash and cash equivalents experienced a
$16,359,000 increase at December 31, 1995, as compared to December 31, 1994.
Registrant's $54,402,000 of net cash provided by investing activities was
partially offset by $2,138,000 of net cash used in operating activities and
$35,905,000 of net cash used in financing activities. Investing activities
consisted of $55,588,000 of proceeds from sales of Registrant's Somerset
Marriott and Radisson South hotel properties and $2,445,000 of net proceeds from
the sale of Registrant's unconsolidated joint venture property, the Holiday Inn
- - Crowne Plaza, $2,859,000 of distributions to partners and $772,000 of property
improvements. Financing activities consisted of $35,864,000 paid in satisfaction
of the mortgages encumbering Registrant's Somerset Marriott and Radisson South
hotels and $41,000 in notes payable principal payments. All other increases
(decreases) in certain assets and liabilities are the result of the timing of
receipt and payment of various operating activities.
10 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations.
---------------------------------------------
Liquidity and Capital Resources (Continued)
- ------------------------------------------
An affiliate of the Managing General Partner has made available to Registrant a
credit line of up to $150,000 per property owned by Registrant. Registrant has
no outstanding amounts due under this line of credit. Other than cash and cash
equivalents, the line of credit was Registrant's only unused source of
liquidity.
On January 19, 1996, the stockholders of NPI, Inc., the sole shareholder of NPI
Equity II, sold to Insignia all of the issued and outstanding stock of NPI, Inc.
Insignia has elected new officers and directors of NPI Equity II. The Managing
General Partner does not believe these events will have a significant effect on
Registrant's liquidity or results of operation.
Registrant's original investment objective of capital growth will not be
attained. Accordingly, a significant portion of invested capital will not be
returned to limited partners. Upon termination of Registrant, the general
partners will be required to contribute approximately $1,727,000 to Registrant
in accordance with the partnership agreement.
Three Months Ended December 31, 1995 vs. December 31, 1994
Operating results improved by $17,323,000, prior to minority interest in joint
venture's operations, for the three months ended December 31, 1995, as compared
to 1994, due to an increase in revenues of $7,455,000 and a decrease in expenses
of $9,868,000. Operating results improved due to $17,139,000 of gains on sales
of Registrant's Somerset Marriott Hotel, Radisson South Hotel and unconsolidated
joint venture property (the Holiday Inn Crowne Plaza).
11 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
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Item 2. Management's Discussion and Analysis of
---------------------------------------
Financial Condition and Results of Operations.
----------------------------------------------
Properties
A description of the hotel properties in which Registrant has an ownership
interest during the period covered by this Report, together with occupancy and
room rate data, follows:
MRI BUSINESS PROPERTIES FUND, LTD. II
OCCUPANCY AND ROOM RATE SUMMARY
<TABLE>
<CAPTION>
Average Average
Occupancy Rate (%) Daily Room Rate ($)
--------------------------- -----------------------
Three months Three months
Date Date Ended Ended
of of December 31, December 31,
Name and Location Rooms Purchase Sale 1995 1994 1995 1994
- ----------------- ----- -------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Radisson South Hotel
Bloomington, Minnesota (1) 575 11/84 12/95 - 67 - 75.76
Marriott Riverwalk Hotel
San Antonio, Texas 500 11/84 06/95 - 72 - 114.80
Somerset Marriott Hotel
Somerset County, New Jersey 434 09/85 10/95 - 67 - 86.28
Holiday Inn Crowne Plaza
Atlanta, Georgia (2) 492 03/86 12/95 - 71 - 89.20
</TABLE>
(1) The property was owned by a joint venture in which Registrant had a
controlling interest.
(2)Registrant and an affiliated partnership, MRI Business Properties Fund, Ltd.
III, owned the hotel through a joint venture which had a 50 percent interest
in this property.
12 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
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PART II - OTHER INFORMATION
---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
On October 12, 1995, a Current Report on Form 8-K was filed with the
Securities and Exchange Commission to provide for the sale of
Registrant's Somerset Marriott Hotel.
On December 8, 1995, a Current Report on Form 8-K was filed with the
Securities and Exchange Commission to provide for the sale of
Registrant's joint venture interests in the Radisson South Hotel and
the Holiday Inn Crowne Plaza. No other reports on Form 8-K were
required to be filed during the period.
13 of 14
<PAGE>
MRI BUSINESS PROPERTIES FUND, LTD. II - FORM 10-Q - DECEMBER 31, 1995
---------------------------------------------------------------------
SIGNATURE
---------
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.
MRI BUSINESS PROPERTIES FUND, LTD. II
By: MONTGOMERY REALTY COMPANY 84,
A California General Partnership,
its managing general partner
By: FOX REALTY INVESTORS,
A California General Partnership,
its managing general partner
By: NPI Equity Investments II, Inc.,
A Florida Corporation,
its managing partner
/S/ William H. Jarrard, Jr.
---------------------------------
William H. Jarrard Jr.
President and Director
/S/ Ronald Uretta
---------------------------------
Ronald Uretta
Principal Financial Officer
And Principal Accounting Officer
14 of 14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from MRI Business
Properties Fund, Ltd. II and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 21,172,000
<SECURITIES> 0
<RECEIVABLES> 1,816,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,103,000
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 23,043,000
<TOTAL-LIABILITY-AND-EQUITY> 23,103,000
<SALES> 0
<TOTAL-REVENUES> 21,965,000 <F1>
<CGS> 0
<TOTAL-COSTS> 4,377,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 361,000
<INCOME-PRETAX> 17,099,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 17,099,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 17,099,000
<EPS-PRIMARY> 182.43
<EPS-DILUTED> 182.43
<FN>
<F1> Revenues include $17,139,000 of gain on sale of property
</FN>
</TABLE>
