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 EXCGANGE ACT
OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
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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 _________________________
Commission file number 0-14360
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NOONEY INCOME FUND LTD. II, L.P.
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(Exact name of Registrant as specified in its charter)
Missouri 43-1357693
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
500 N. 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, 1998, 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 $19,221,000. (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, 1998, 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 the 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 February 15, 1985, 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
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 Income Fund Ltd. II, L.P. (the "Registrant") is a limited partnership
formed under the Missouri Uniform Limited Partnership Law on February 12, 1985,
to invest, on an all-cash basis, in income-producing real properties such as
shopping centers, office buildings, office/warehouse properties and other
commercial properties. The Registrant originally invested in five real
properties described in Item 2 below. The Registrant continues to own and
operate its five original properties.
The Registrant's primary investment objectives are to preserve and protect the
Limited Partners' capital, provide the maximum possible cash distributions to
the Partners, and provide for capital growth through appreciation in the value
of the Registrant's properties. The term of the Registrant is until December 31,
2085. It was originally anticipated that the Registrant would sell or finance
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, continued this
improvement through 1997, 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 from the sale or financing 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. (See Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital Resources
- - for a discussion of possible future acquisitions and possible sales of
properties.)
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
-------- --------
Nooney Company Brooklyn Street Properties, Inc.
Nooney Krombach Company Hanley Brokers, Inc.
ITEM 2: PROPERTIES
On February 20, 1985, the Registrant acquired a 24% interest as a tenant in
common in Leawood Fountain Plaza, a three building office complex in Leawood,
Kansas. Constructed in two phases in 1982 and 1983, the buildings contain
approximately 29,000, 28,000 and 25,000 net rentable square feet respectively,
or an aggregate of approximately 82,000 net rentable square feet of office
space. The buildings are located on a 7.9 acre site which provides paved parking
for 403 cars. The purchase price of the complex was $9,626,576, of which
$2,310,379 was paid by the Registrant for its 24% interest. The remaining 76%
interest was purchased by Nooney Income Fund Ltd., L.P., an affiliate of the
Registrant, as the other tenant in common. All costs and revenues attributable
to the operation of the complex are shared by the Registrant and Nooney Income
Fund Ltd., L.P. in proportion to their respective percentage interests. The
complex was 89% leased by 38 tenants at December 31, 1997. (See Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.)
On March 20, 1986, the Registrant acquired the Tower Industrial Building, an
office warehouse located at 750-760 Tower Road in Mundelein, Illinois, a suburb
of Chicago. The purchase price of the building was $1,235,820. The one-story
concrete block building contains approximately 42,000 net rentable square feet
and is situated on a 3 acre site which provides parking for 140 cars. The
building is currently 100% leased by Baxter International Inc. (See Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations Liquidity and Capital Resources.)
On December 16, 1986, the Registrant acquired a 50% interest as a tenant in
common in Countryside Executive Center, a single story office building located
at 1210-1270 W. Northwest Highway in Palatine, Illinois, a suburb of Chicago.
The building contains approximately 91,000 net rentable square feet and is
situated on an 8.6 acre site which provides parking spaces for 467 cars, some of
which spaces are shared with adjoining properties pursuant to a mutual easement
agreement which also provides for the sharing of certain expenses. The total
purchase price of the building was $9,853,660, of which $4,926,830 was paid by
the Registrant for its 50% interest. The remaining 50% interest was purchased by
Nooney Income Fund Ltd. III, L.P., an affiliate of the Registrant, and during
1993 was transferred to a subsidiary of the mortgage lender. As of December 29,
1995, the Registrant acquired the mortgage lender's interest in Countryside
Executive Center for $1,250,000. Prior to December 29, 1995, all costs and
revenues attributable to the operation of the building were shared by the
Registrant and a subsidiary of the mortgage lender in proportion to their
respective percentage interests. The building was 72% leased by 33 tenants at
December 31, 1997. (See Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources.)
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<PAGE>
On December 29, 1986, the Registrant acquired a 45% interest as a tenant in
common in Wards Corner Business Center A & B, a two building
office/warehouse/showroom facility located at 420- 422 Wards Corner Road in
Loveland, Ohio, a suburb of Cincinnati. Effective January 1, 1996, the property
known as Wards Corner was renamed Northeast Commerce Center. The two
single-story buildings contain 50,000 net rentable square feet each, or an
aggregate of approximately 100,000 net rentable square feet. The buildings are
situated on a 7.5 acre site which provides parking for 278 cars. The total
purchase price of the buildings was $6,630,395, of which $2,983,678 was paid by
the Registrant for its 45% interest. The remaining 55% interest was purchased by
Nooney Income Fund Ltd. III, L.P., an affiliate of the Registrant, and during
1993 was transferred to a subsidiary of the mortgage lender. As of December 29,
1995, the Registrant acquired the mortgage lender's interest in Northeast
Commerce Center for $1,980,000. Prior to December 29, 1995, all costs and
revenues attributable to the operation of the buildings were shared by the
Registrant and a subsidiary of the mortgage lender in proportion to their
respective percentage interests. The buildings were 94% leased by 4 tenants at
December 31, 1997. (See Item 7: Management's Discussion and Analysis of
Financial Condition and Results of Operations - Liquidity and Capital
Resources.)
On December 29, 1986, the Registrant acquired a 45% interest as a tenant in
common in NorthCreek Office Park, a three building office complex located at
8220, 8240 and 8260 NorthCreek Drive in Cincinnati, Ohio. Constructed in phases
in 1984 and 1986, the three-story buildings contain 19,500, 24,000 and 48,000
net rentable square feet respectively, or an aggregate of approximately 91,500
net rentable square feet. The buildings are located on a 8.4 acre site which
provides paved parking for 366 cars. The purchase price of the complex was
$11,063,260, of which approximately $4,978,467 was paid by the Registrant for
its 45% interest. The remaining 55% interest was purchased by Nooney Income Fund
Ltd. III, L.P., an affiliate of the Registrant, and during 1993 was transferred
to a subsidiary of the mortgage lender. As of December 29, 1995, the Registrant
acquired the mortgage lender's interest in NorthCreek Office Park for
$3,960,000. Prior to December 29, 1995, all costs and revenues attributable to
the operation of the complex were shared by the Registrant and a subsidiary of
the mortgage lender in proportion to their respective percentage interests. The
complex was 89% leased by 32 tenants at December 31, 1997. (See Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.)
Reference is made to Note 7 of Notes to Financial Statements for a description
of revenues derived from major tenants.
Reference is made to Note 4 of Notes to Financial Statements filed herewith as
Exhibit 99.3 in response to Item 8 for a description of the indebtedness secured
by the Registrant's real property investments.
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<PAGE>
The following table sets forth certain information as of December 31, 1997,
relating to the properties owned by the Registrant.
<TABLE>
AVERAGE
ANNUALIZED
TOTAL EFFECTIVE PRINCIPAL TENANTS
SQUARE ANNUALIZED BASE RENT PER PERCENT OVER 10% OF PROPERTY LEASE
PROPERTY FEET BASE RENT* SQUARE FOOT LEASED SQUARE FOOTAGE EXPIRATION
- -------- ------ ---------- ----------- ------- -------------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Tower Industrial Baxter International Inc.
Building 42,000 $ 155,400 $3.69 100% (100%) 2000
Leawood Fountain Midwest Mechanical (11%) 1998
Plaza 82,000 $1,134,000 $15.51 89% Family Medical Care of
Kansas City (10%) 1999
Northeast Baldwin Piano & Organ
Commerce Center 100,000 $ 602,000 $ 6.42 94% Co. (50%) 1998
Hill Top Research (17%) 2002
Aerospace International
(19%) 1999
Countryside
Executive Center 91,000 $ 1,054,000 $15.94 72% Dietzgen Corporation
(17%) 2005
NorthCreek Office Cincinnati Group Health
Park 91,500 $1,134,000 $13.90 89% Associates (26%),(7%) 2003, 1998
<FN>
* Represents 100% of Base Rent. Registrant has 24% ownership in Leawood Fountain Plaza.
</FN>
</TABLE>
ITEM 3: LEGAL PROCEEDINGS
The Registrant is not a party to any material pending legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
NONE
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<PAGE>
PART II
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ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
As of February 1, 1998 there were 1,428 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.
Cash Distributions Paid Per Limited Partnership Unit
----------------------------------------------------
First Quarter Second Quarter Third Quarter Fourth Quarter
------------- -------------- ------------- --------------
1996 0 0 0 $12.50
1997 0 $6.25 $6.25 0
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<PAGE>
<TABLE>
ITEM 6: SELECTED FINANCIAL DATA
Year Ended December 31,
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1997 1996 1995 (1) 1994 1993
(Not covered by independent auditors' report)
<S> <C> <C> <C> <C> <C>
Rental and other income $ 3,355,159 $ 3,502,080 $ 1,754,750 $ 1,729,872 $ 1,843,782
Net income (loss) 63,587 83,571 209,517 254,046 (1,261,814)
Data per limited partnership unit:
Net income (loss) 2.66 3.69 10.17 12.16 (65.61)
Cash distributions - Investment income 2.66 3.69 10.17 12.16 --
Cash distributions - Return of capital 9.84 8.81 2.33 6.59 12.50
Weighted average limited partnership
units outstanding 19,221 19,221 19,221 19,221 19,221
At year-end:
Total assets 16,563,704 16,473,106 16,803,566 9,118,452 9,287,233
Investment property, net 14,744,540 14,798,098 15,166,737 7,803,472 7,980,243
Mortgage note payable 7,096,532 7,190,000 7,190,000 -- --
Partners' equity 8,280,887 8,472,267 8,643,642 8,689,086 8,817,462
<FN>
See Item 7: Management's Discussion and Analysis for discussion of comparability of items.
(1) Balance sheet information includes the effects of an acquisition which occurred on December 29, 1995. See Note 1 to financial
statements.
</FN>
</TABLE>
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<PAGE>
ITEM: 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash on hand as of December 31, 1997, is $1,378,138, an increase of $55,112 from
the year ended December 31, 1996. The Registrant expects the capital
expenditures during 1998 will be adequately funded by current cash reserves and
the properties' operating cash flow. The anticipated capital expenditures are as
follows:
Other Leasing
Capital Capital Total
-------------------------------------
NorthCreek Office Park $ 11,000 $131,067 $142,067
Tower Industrial Building 0 0 0
Northeast Commerce Center 0 34,372 34,372
Countryside Executive Center 38,000 223,382 261,382
Leawood Fountain Plaza (24%) 8,400 34,775 43,175
------- -------- --------
$57,400 $423,596 $480,996
======= ======== ========
At NorthCreek Office Park, other capital has been budgeted for replacement of
wall covering and leasing capital is anticipated for tenant improvements and
lease commissions on new and renewal deals.
At Tower Industrial Building, no capital is anticipated.
At Northeast Commerce Center, leasing capital has been budgeted for a new tenant
to occupy the current vacant space.
At Countryside Executive Center, other capital has been budgeted for
installation of an irrigation system, new conference room furniture, and new
property identification signage. Leasing capital has been budgeted for tenant
improvements and lease commissions for new and renewal tenants.
At Leawood Fountain Plaza, leasing capital has been budgeted for tenant
improvements and lease commissions for new and renewal tenants. Other capital
budgeted is for recarpeting hallways in one building, sidewalk/curb
replacements, replacing exterior lighting throughout the property, and
repainting of the hallways and stairwells.
As previously disclosed, the Registrant feels that the market conditions exist
where Countryside Executive Center should be sold. The strategy has been to
lease up the property and, once an acceptable level of occupancy has been
obtained, to put the building on the market for sale. The Registrant is working
closely with a local brokerage firm in the market area of the property. During
1997 occupancy improved from 61% at the beginning of the year to 72% at
year-end.
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 sell Countryside Executive Center at a price
sufficient to satisfy required obligations. Until such time as the real estate
market fully recovers, the Registrant will continue to manage the properties to
achieve its investment objectives.
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<PAGE>
Results of Operations
The results of operations for the Registrant's properties for the years ended
December 31, 1997, 1996 and 1995 are detailed in the schedule below. Expenses of
the Registrant are excluded.
NorthCreek Tower Northeast Countryside Leawood
Office Park Industrial Commerce Executive Fountain
(100%) (100%) (100%) Center (100%) Plaza (24%)
----------- --------- ---------- ------------- -----------
1997
- ----
Revenues $ 1,303,843 $ 196,947 $ 676,065 $ 905,834 $ 283,881
Expenses 1,222,155 106,565 625,690 975,298 263,850
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Net Income (Loss) $ 81,688 $ 90,382 $ 50,375 $ (69,464) $ 20,031
1996
- ----
Revenues $ 1,387,766 $ 199,099 $ 582,345 $1,068,983 $ 286,674
Expenses 1,171,977 109,090 671,080 1,087,519 278,219
----------------------------------------------------------
Net Income (Loss) $ 215,789 $ 90,009 $ (88,735) $ (18,536) $ 8,455
Note: In 1995, the Registrant owned only a partial interest in three of its
properties. The results of operations for those years reflect the following
percentage.
NorthCreek Tower Northeast Countryside Leawood
Office Park Industrial Commerce Executive Fountain
(45%) (100%) (45%) Center (50%) Plaza (24%)
----------- --------- ---------- ------------- -----------
1995
- ----
Revenues $ 588,137 $ 189,118 $ 190,971 $ 537,615 $ 279,202
Expenses 426,096 98,856 235,966 619,398 258,081
----------------------------------------------------------
Net Income (Loss) $ 162,041 $ 90,262 $ (44,995) $ (81,783) $ 21,121
1997 Property Comparisons
At NorthCreek Office Park, revenues decreased $83,923 from 1996 to 1997 due to a
decrease in base rental income ($37,501) and a decrease in escalation income
($44,162). Expenses increased $50,178 when comparing the two years due to an
increase in depreciation expense ($54,217), an and an increase in real estate
taxes ($8,032), partially offset by a decrease in parking lot expense ($14,402).
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<PAGE>
The operations at Tower Industrial Building, which remains occupied by a single
tenant, have been relatively stable over the three-year period.
Operating results at Northeast Commerce Center improved significantly during
1997. Revenues increased $93,720 due to a continuing increase in occupancy
during the year. Expenses at Northeast Commerce Center decreased $45,390 due
mainly to a decrease in real estate tax expenses ($80,788) due to a lower tax
assessment in the current year. In addition, parking lot expenses decreased
($14,163), partially offset by increases in depreciation ($45,497), and
amortization ($22,168) due to the addition of capital improvements at the
property as a result of the tenants that have been put in place over the past
two years.
At Countryside Executive Center, revenues decreased $163,149 during 1997. The
decrease in revenues is attributable to a decrease in occupancy. The occupancy
at the beginning of the year was 61%. It decreased to 51% during the year,
however, leasing at year end improved and the occupancy ended at 72%. Thus, this
decrease in revenues is due to decreases in the rental income. Offsetting the
decrease in rental income was an increase in miscellaneous rental income due to
the fact that one major tenant paid double rent for five months of the year
while they were remaining on a month-to-month lease. This tenant ultimately left
the building due to the Registrant's inability to accommodate its expansion
needs. Expenses at Countryside Executive Center decreased $112,221 when
comparing 1997 to the prior year. Expenses which decreased were mainly cleaning
($11,949), heating, ventilating and air conditioning repairs and maintenance
($15,125), and real estate taxes ($72,563).
At Leawood Fountain Plaza, revenues were relatively stable, decreasing only
$2,793 when comparing the two years. Expenses also decreased $14,69 due to
decreases in electric expense ($8,509), parking lot expenditures ($3,442), and
electric repairs and maintenance ($2,412), partially offset by an increase in
building repairs and maintenance ($7,418).
The Registrant has a first mortgage with a floating interest rate of 3/4% over
the then published prime rate of the lender. The properties which are collateral
for this loan are NorthCreek Office Park, Countryside Executive Center and
Northeast Commerce Center. The balance of the loan as of December 31, 1997, is
$7,096,532. The interest rate at year end was 9.25%. The mortgage note agreement
provides for a 3.25% interest rate on outstanding prinicpal if a compensating
balance is maintained during the immediately preceding month. During 1997 the
Partnership decreased interest expense by approximately $60,000 from the
compensating balance clause.
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<PAGE>
The occupancy levels at the Registrant's properties as of December 31, 1997,
1996 and 1995 are detailed in the schedule below.
Occupancy rates at December 31,
1997 1996 1995
--------------------------
NorthCreek Office Park 89% 98% 97%
Tower Industrial 100% 100% 100%
Northeast Commerce Center 94% 87% 56%
Countryside Executive Center 72% 61% 73%
Leawood Fountain Plaza 89% 92% 92%
Operating results for NorthCreek Office Park, Northeast Commerce Center and
Countryside Executive Center varify significantly when comparing 1996 results to
1995. To analyze these three properties, the Registrant will reflect operating
results as if the properties were 100% owned by Registrant throughout 1995.
For the quarter ended December 31, 1997, occupancy at NorthCreek Office Park
decreased from 92% at the beginning of the quarter to 89% at the quarter's end.
During the quarter, leasing activity consisted of four new tenants leasing 6,797
square feet, one tenant renewing its lease in 597 square feet, and two tenants
vacating 9,485 square feet. Leasing activity for the year consisted of eight new
leases for tenants occupying 15,698 square feet, ten tenants renewing their
leases for 10,936 square feet, and nine tenants vacating 24,201 square feet.
NorthCreek Office Park has one major tenant which occupies space under two
leases which, together, comprise 33% of the available space. These leases expire
in December 1998 and 2003.
Tower Industrial Building is leased by a single tenant whose lease expires on
April 30, 2000.
At Northeast Commerce Center, there was no leasing activity during the fourth
quarter. During 1997, one tenant moved in occupying 6,222 square feet. There are
three major tenants at this property occupying 50%, 17% and 19% of the space,
respectively, with lease expirations of 1998, 2002 and 1999.
During the fourth quarter at Countryside Executive Center, four new tenants
leased 21,929 square feet, one tenant renewed it lease for 1,457 square feet,
and one tenant vacated 423 square feet. Leasing activity for the year can be
summarized as follows. Eight new tenants signed leases for 29,734 square feet,
five tenants renewed their leases for 8,977 square feet, and seven tenants
vacated 19,289 square feet. There is one major tenant at Countryside who
occupies 14% of the space with a lease which expires in 2005.
During the fourth quarter at Leawood Fountain Plaza, occupancy increased to 89%
from 87%. The increase is attributable to three new leases being signed for
4,095 square feet. In addition, one tenant renewed 1,142 square feet and one
tenant vacated 2,760 square feet. During the year, the Registrant signed seven
new leases for 6,678 square feet, renewed leases with eleven tenants occupying
16,441 square feet, while six tenants occupying 9,174 square feet vacated. The
property has two major tenants who occupy 11% of the space with a lease which
expires in July 1998 and 10% of the available space with a lease which expires
in July 1999, respectively.
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<PAGE>
Year 2000 issues
The Registrant believes that the impact of the year 2000 will not have a
material impact on future results. The management company employed by the
Registrant utilizes various computer software packages as tools in running its
accounting operations. The Registrant's properties are maintained on software
provided by a third party. The management company has received information from
that company indicating that the main software program has all its core products
already compatible with 2000 dates and that these have been proven in the field
for over five years. A few of the add on products that are not critical to the
management company's business are in process of being updated and the third
party vendor anticipates compliance by the end of 1998.
1997 Comparisons
For the year ended December 31, 1997, the Registrant's consolidated revenues
were $3,356,773 compared to $3,509,669 for the year ended December 31, 1996.
Thus, revenues decreased $152,896 when comparing the two years. This decrease in
revenue is due to a decrease in base rental income at Countryside Executive
Center and NorthCreek Office Park.
For the year ended December 31, 1997, consolidated expenses were $3,293,186 as
compared to $3,426,098 for the year ended 1996. Expenses decreased due to a
decrease in real estate tax expense ($156,800) due to the decreased real estate
tax assessment noted above, a decrease in other operating expenses ($45,874),
partially offset by an increase in professional services ($92,379). Net income
for the year ended 1997 was $63,587 as compared to $83,571 for the year ended
1996. During 1997, net cash provided by operating activities was $954,807. This
cash was used to provide capital improvements to the properties of $551,260,
cash distributions to partners were paid in the amount of $254,967, and
principal payments on the mortgage loan were made in the amount of $93,468.
1996 Comparisons
As of December 31, 1996, the Registrant's consolidated revenues were $3,509,669
compared to $1,786,540 for the year ended December 31, 1995. This increase of
96% is attributable to the fact that the Registrant now owns 100% of Countryside
Executive Center, Northeast Commerce Center and NorthCreek Office Park. In prior
years, the Registrant owned 50%, 45% and 45%, respectively.
For the year ended December 31, 1996, consolidated expenses were $3,426,098
compared to $1,577,023 for the year ended 1995. Consolidated expenses
significantly increased due to the fact that the Registrant now owns 100% of
Countryside Executive Center, Northeast Commerce Center and NorthCreek Office
Park. In addition, the Registrant placed a first mortgage loan on these
properties at the time of the purchase. Consolidated interest expense for 1996
was $614,006. Net income on a consolidated basis decreased from $209,517 in 1995
to $83,571 in 1996. Net income per limited partnership unit decreased from
$10.17 to $3.69 in 1996. The decreases in net income were attributable to
depreciation expense and to the interest expense the Registrant now incurs.
During 1996, the Registrant distributed $254,946 to the partners and had net
additions to the investment properties of $225,189.
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<PAGE>
Inflation
The effects of inflation did not have a material impact upon the Registrant's
operations in fiscal l996 or 1997.
Interest Rates
Interest rates on floating rate debt remained constant in 1996 and went down in
1997. Future increases in the prime interest rate can adversely affect the
operations of the Registrant.
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 not applicable.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
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ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partners of the Registrant responsible for all aspects of the
Registrant's operations are Gregory J. Nooney, Jr., age 67, Nooney Income
Investments Two, Inc., a Missouri corporation, and PAN, Inc., a Missouri
corporation. Gregory J. Nooney, Jr. is a senior officer of Nooney Company, the
sponsor of the Registrant.
The background and experience of the General Partners are as follows:
Gregory J. Nooney, Jr. joined Nooney Company in 1954 and is currently Chairman
of the Board and Chief Executive Officer.
John J. Nooney is a Special General Partner of the Partnership and as such, does
not exercise control of the affairs of the Partnership. John J. Nooney joined
Nooney Company in 1958 and was President and Treasurer until he resigned in
1992. Mr. Nooney is currently Chairman of the Board of Dalton Investments, a
real estate asset management firm.
Nooney Income Investments Two, Inc. was formed in November 1984 for the purpose
of being a general and/or limited partner in the Registrant and other limited
partnerships. Gregory J. Nooney, Jr. is a director of Nooney Income Investments
Two, Inc.
-14-
<PAGE>
Gregory J. Nooney, Jr. and John J. Nooney are brothers. Gregory J. Nooney, Jr.
and the estate of Faith L. Nooney (the deceased wife of John J. Nooney) are
stockholders of Nooney Company, with Gregory J. Nooney, Jr. controlling all
voting stock of Nooney Company.
PAN, Inc. became a General Partner during 1997 and is wholly-owned by Patricia
A. Nooney, the daughter of Gregory J. Nooney, Jr.
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.
During 1993 Lindbergh Boulevard Partners, L.P. filed a voluntary petition under
Chapter 11 of the United States Bankruptcy Code. Gregory J. Nooney, Jr. is the
general partner of Nooney Ltd. II, L.P, which in turn is the general partner of
Nooney Development Partners, L.P., which in turn is the general partner of
Nooney-Hazelwood Associates, L.P. which is the general partner of Lindbergh
Boulevard Partners, L.P. Lindbergh Boulevard Partners, L.P. emerged from
bankruptcy on May 17, 1994, when its Plan of Reorganization was confirmed.
On October 31, 1997, Nooney Company sold its wholly-owned subsidiary, Nooney
Income Investments Two, 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.
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 26-27 and "Profits and Losses for Tax
Purposes; Distributions; and Expenses of General Partners" on pages A-17 to A-22
of the Prospectus of the Registrant dated February 15, 1985, as supplemented and
filed pursuant to Rule 424(c) of the Securities Act of 1933 (the "Prospectus"),
which are incorporated herein by reference.
During 1997, cash distributions of $14,704 were 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.
-15-
<PAGE>
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
On or about November 20, 1997, a Schedule 13D ("Schedule 13D") setting forth the
following information was filed with the SEC by Everest Properties II, LLC
("Everest"), Millenium Investors, LLC ("Millenium") and KM Investments, LLC
("KM"). The Schedule 13D indicates that Everest is the beneficial owner of 929
Interests, or approximately 4.8% of the total outstanding Interests, and that
Everest has sole voting power and sole dispositive power with respect to all of
such Interests. The Schedule 13D also indicates that KM is the beneficial owner
of 929 Interests, or approximately 4.8% of the total outstanding Interests, and
that KM has sole voting power and sole dispositive power with respect to all of
such Interests. The Schedule 13D further indicates that Millenium is the
beneficial owner of 121 Interests, or approximately 0.6% of the total
outstanding Interests, and has sole voting power and sole dispositive power with
respect to all of such Interests. The Schedule 13D reports that Everest serves
as the manager of each of Millenium and KM and that because it serves in such
capacity for KM and because it owns a majority interest in the majority member
of KM, it may be deemed to beneficially own the Interests directly owned by KM.
[The Schedule 13D indicates that although each of Everest, Millenium and KM deny
that they are members of a "group" as that term is used in Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Schedule 13D was filed as a precaution because the individuals performing
management services for Everest Properties, LLC, which owns a majority interest
in Everest, and Everest are substantially the same and such entities have agreed
to submit a joint proposal for the sale of their Interests to the General
Partner and to share information regarding such proposal. Section 13(d)(3) of
the Exchange Act provides that when two or more persons act as a partnership,
limited partnership, syndicate or other group for the purpose of acquiring,
holding, or disposing of securities of an issuer, such syndicate or group shall
be deemed a "person" for purposes of filing Schedule 13D]. The principal
business address of each of each of Everest, Millenium and KM is 199 South Los
Robles Avenue, Suite 440, Pasadena, California 91101.
(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.
-16-
<PAGE>
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 26-27 and "Management" on pages 23-25
of the Prospectus, which are incorporated herein by reference.
Nooney Krombach Company, the manager of the Registrant's properties, is a
wholly-owned subsidiary of Nooney Company. Nooney Krombach Company is entitled
to receive monthly compensation from the Registrant for property management and
leasing services, plus administrative expenses. During fiscal 1997 the
Registrant paid property management fees of $171,525 to Nooney Krombach Company
and $33,334 as reimbursement for indirect expenses incurred in connection with
management of the Registrant. On October 31, 1997, CGS Real Estate Company
purchased the real estate management business of Nooney Krombach Company and
formed Nooney, Inc. to perform the management of the Registrant. The Registrant
paid Nooney, Inc. $30,467 in property management fees in 1997 and $6,666 as
reimbursement for indirect expenses incurred in connection with the management
of the Registrant.
See Item 11 above for a discussion of cash distributions paid to the General
Partners during the year ended December 31, 1997.
(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 the year ended December 31, 1997 in connection with various
transactions.
(c) Indebtedness of Management.
Not Applicable.
(d) Transactions with promoters.
Not Applicable.
-17-
<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 (deficit)
Statements of cash flows
Notes to financial statements
2. Financial Statement Schedules (filed herewith as Exhibit
99.3):
Schedule - Reconciliation of partners' equity (deficit)
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 20.
(b) Reports on Form 8-K
On November 14, 1997, the Registrant filed a report on Form 8-K which
reported an Item 1, Changes in Control of Registrant.
(c) Exhibits:
See Exhibit Index on Page 20.
(d) Not applicable.
-18-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 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.
NOONEY INCOME FUND LTD. II, L.P.
Date: March 30, 1998 Nooney Income Investments Two, Inc.
-----------------------------
By:/s/ Gregory J. Nooney, Jr.
--------------------------------------
Gregory J. Nooney, Jr.- Director
Chairman of the Board and
Chief Executive Officer
By:/s/ Patricia A. Nooney
--------------------------------------
Patricia A. Nooney - Director
Senior Vice President and Secretary
BEING A MAJORITY OF THE DIRECTORS
OF NOONEY INCOME INVESTMENTS TWO, INC.
-19-
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
- ------ -----------
3 Amended and Restated Agreement and Certificate of Limited
Partnership dated February 3, 1986, is incorporated by
reference to the Registrant's Annual Report on Form 10-K
for the fiscal year ended October 31, 1986, as filed
pursuant to Rule 13a-1 of the Securities Exchange Act of
1934 (File No. 0-14360).
10 Management Contract between Nooney Income Fund Ltd. II
and Nooney Management Company (now Nooney, Inc.)
dated March 12, 1985, is incorporated by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended October 31, 1985, as filed pursuant to Rule 15d-1 of
the Securities Exchange Act of 1934 (File No. 2-94533).
99.1 List of Directorships filed in response to Item 10.
99.2 Pages 23-27 and A-17 - A-22 of the Prospectus of the Registrant
dated February 15, 1985, 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-
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.
Gregory J. Nooney, Jr.
Limited Partnerships:
Nooney Real Property Investors-Two, L.P. Nooney Income Fund Ltd., L.P.
Nooney Real Property Investors-Four, L.P.
Directorships:
Nooney Realty Trust, Inc.
John J. Nooney
Limited Partnerships:
Nooney Real Property Investors-Two, L.P. Nooney Income Fund Ltd., L.P.
Nooney Real Property Investors-Four, L.P.
PAN, Inc.
Limited Partnerships:
Nooney Real Property Investors-Two, L.P. Nooney Income Fund Ltd., L.P.
Nooney Real Property Investors-Four, L.P.
-21-
EXHIBIT 99.3
INDEPENDENT AUDITORS' REPORT
To the Partners of
Nooney Income Fund Ltd. II, L.P.:
We have audited the accompanying balance sheets of Nooney Income Fund Ltd. II,
L.P. (a limited partnership) as of December 31, 1997 and 1996, and the related
statements of operations, partners' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1997. Our audits also included
the financial statement schedules listed in the index at Item 14(a)2. These
financial statements are the responsibility of the Partnership's general
partners. Our responsibility is to express an opinion on these financial
statements 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 Income Fund, Ltd. II, L.P. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 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
January 30, 1998
St. Louis, Missouri
- 22 -
<PAGE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
- --------------------------------------------------------------------------------
ASSETS 1997 1996
CASH AND CASH EQUIVALENTS (Note 3) $ 1,378,138 $ 1,323,026
ACCOUNTS RECEIVABLE (net of allowance
of $233,702 in 1997 and $189,661 in 1996) 152,950 219,655
PREPAID EXPENSES AND OTHER ASSETS
17,052 10,188
INVESTMENT PROPERTY (Notes 1, 2 and 4):
Land 2,618,857 2,618,857
Buildings and improvements 13,517,224 13,405,976
----------- -----------
16,136,081 16,024,833
Less accumulated depreciation 4,194,255 3,710,204
---------- -----------
11,941,826 12,314,629
Investment property held for sale
(Notes 1 and 4) 2,802,714 2,483,469
---------- -----------
Total investment property 14,744,540 14,798,098
DEFERRED EXPENSES - At amortized cost 271,024 122,139
---------- -----------
TOTAL $16,563,704 $16,473,106
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 480,609 $ 103,331
Accrued real estate taxes 556,902 582,482
Refundable tenant deposits 148,774 125,026
Mortgage note payable (Note 4) 7,096,532 7,190,000
---------- -----------
Total liabilities 8,282,817 8,000,839
PARTNERS' EQUITY 8,280,887 8,472,267
---------- -----------
TOTAL $16,563,704 $16,473,106
=========== ===========
See notes to financial statements.
-23-
<PAGE>
<TABLE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- -----------------------------------------------------------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
REVENUES:
Rental and other income (Note 5) $3,355,159 $3,502,080 $1,754,750
Interest 1,614 7,589 31,790
---------- ---------- ----------
Total revenues 3,356,773 3,509,669 1,786,540
EXPENSES:
Interest 595,696 614,006 1,134
Depreciation and amortization 670,997 652,940 450,319
Real estate taxes 597,849 754,649 366,762
Property management fees - related party 201,992 211,474 107,060
Repairs and maintenance 293,264 306,146 123,167
Other operating expenses (includes $40,000 in 1997
and 1996 and $25,000 in 1995 to related party) 709,058 754,932 372,120
Professional services 224,330 131,951 156,461
---------- ---------- ----------
Total expenses 3,293,186 3,426,098 1,577,023
---------- ---------- ----------
NET INCOME $ 63,587 $ 83,571 $ 209,517
========== ========== ==========
NET INCOME ALLOCATION:
General partners $ 12,529 $ 12,729 $ 13,989
Limited partners $ 51,058 $ 70,842 $ 195,528
LIMITED PARTNERS' DATA (Note 2):
Net income per unit $ 2.66 $ 3.69 $ 10.17
========== ========== ==========
Cash distributions - Investment income per unit $ 2.66 $ 3.69 $ 10.17
========== ========== ==========
Cash distributions - Return of capital per unit $ 9.84 $ 8.81 2.33
========== ========== ==========
Weighted average limited partnership units
outstanding 19,221 19,221 19,221
========== ========== ==========
See notes to financial statements.
</TABLE>
-24-
<PAGE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
Limited General
Partners Partners Total
BALANCE (DEFICIT), JANUARY 1, 1995 $ 8,814,925 $ (125,839) $ 8,689,086
Net income 195,528 13,989 209,517
Cash distributions (240,268) (14,693) (254,961)
----------- ----------- -----------
BALANCE (DEFICIT), DECEMBER 31, 1995 8,770,185 (126,543) 8,643,642
Net income 70,842 12,729 83,571
Cash distributions (240,263) (14,683) (254,946)
----------- ----------- -----------
BALANCE (DEFICIT), DECEMBER 31, 1996 8,600,764 (128,497) 8,472,267
Net income 51,058 12,529 63,587
Cash distributions (240,263) (14,704) (254,967)
----------- ----------- -----------
BALANCE (DEFICIT), DECEMBER 31, 1997 $ 8,411,559 $ (130,672) $ 8,280,887
=========== =========== ===========
See notes to financial statements.
-25-
<PAGE>
<TABLE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ------------------------------------------------------------------------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 63,587 $ 83,571 $ 209,517
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 604,818 593,828 421,224
Amortization of deferred expenses 66,179 59,112 29,095
Net changes in accounts affecting operations:
Accounts receivable 66,705 100,860 (211,683)
Prepaid expenses (6,864) (5,749) (4,439)
Deferred expenses (215,064) 38,465 (160,696)
Accounts payable and accrued expenses 377,278 (148,448) 209,004
Accrued real estate taxes (25,580) (23,629) 315,539
Accrued sewer expenses -- -- (32,400)
Refundable tenant deposits 23,748 12,992 48,415
----------- ----------- -----------
Net cash provided by operating activities 954,807 711,002 823,576
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment property (551,260) (225,189) (154,049)
Acquisition interests -- -- (7,630,440)
----------- ----------- -----------
Net cash used in investing activities (551,260) (225,189) (7,784,489)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners (254,967) (254,946) (254,961)
Proceeds from mortgage note payable -- -- 7,190,000
Mortgage principal payments (93,468) -- --
----------- ----------- -----------
Net cash (used in) provided by financing
activities (348,435) (254,946) 6,935,039
----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS 55,112 230,867 (25,874)
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 1,323,026 1,092,159 1,118,033
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END
OF YEAR $ 1,378,138 $ 1,323,026 $ 1,092,159
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during the year for
interest $ 609,879 $ 599,823 $ 1,134
=========== =========== ===========
See notes to financial statements
</TABLE>
-26-
<PAGE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- --------------------------------------------------------------------------------
1. BUSINESS
Nooney Income Fund Ltd. II, L.P. (the "Partnership") is a limited
partnership organized under the laws of the State of Missouri on February
13, 1985 for the purpose of investing in income-producing real properties,
such as shopping centers, office buildings, warehouses and other
commercial properties.
Prior to December 29, 1995, the Partnership owned three properties jointly
with Nooney Income Fund Ltd. III, L.P. (NIF III). NIF III was unable to
service its debt, and its percentage interests in the jointly-held
properties were transferred to a subsidiary of the mortgage lender in lieu
of foreclosure. On December 29, 1995, the Partnership purchased the
partial interests of Countryside Executive Center (50%), Wards Corner
Business Center A & B (55%) and NorthCreek Office Park (55%) (the
Acquisition Interests) from the subsidiary of the mortgage lender. The
purchase price was $7,190,000 which was 100% financed by the mortgage
lender. The Partnership received authority to complete the transaction
through solicitation of the limited partners, with a majority of the
limited partnership units positively consenting to the transaction.
Effective January 1, 1996, the property known as Wards Corner was renamed
Northeast Commerce Center.
The Partnership's undivided interest in its properties prior to and after
the acquisition is as follows:
Prior to After
Acquisition Acquisition
Leawood Fountain Plaza 24 % 24 %
Countryside Executive Center 50 % 100 %
Northeast Commerce Center 45 % 100 %
NorthCreek Office Park 45 % 100 %
Tower Industrial Building 100 % 100 %
The transaction was accounted for under the purchase method; therefore,
the balance sheets as of December 31, 1997 and 1996 include the
Partnership's interests in its properties after the acquisition. Results
of operations were included in the financial statements from the date of
acquisition.
The Partnership's portfolio is comprised of a 24% undivided interest in an
office complex in Leawood, Kansas; an office warehouse in Mundelein,
Illinois; a single story office building in Palatine, Illinois; an
office/warehouse/showroom facility in Cincinnati, Ohio; and an office
complex in Cincinnati, Ohio. The proportionate share of these properties
owned by the Partnership generated 8.2%, 5.6%, 30.3%, 16.5% and 39.4% of
rental and other income, respectively, for the year ended December 31,
1997.
It is management's intent to sell Countryside Executive Center
(Countryside) as soon as practicable because of local market conditions,
tax burdens and other factors related specifically to this property.
-27-
<PAGE>
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
Nooney Income Fund Ltd. II, L.P. 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.
The corporate general partner was a partially-owned subsidiary of Nooney
Company. One of the individual general partners was an officer, director
and shareholder of Nooney Company. Another individual general partner's
spouse was a shareholder of Nooney Company. Nooney Company was also an
economic assignee of two former individual general partners. Nooney
Krombach Company, a wholly-owned subsidiary of Nooney Company, managed the
Partnership's real estate for a management fee. On October 31, 1997,
Nooney Company sold its 75% interest in Nooney Income Investments Two,
Inc., the corporate general partner of the Registrant 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. 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. The
Partnership continues to pay management fees to Nooney, Inc. Property
management fees paid to Nooney Krombach Company were $171,525, $211,454
and $107,060 for the years ended December 31, 1997, 1996 and 1995,
respectively. Property management fees paid to Nooney, Inc. in 1997 were
$30,467. Additionally, the Partnership paid Nooney Krombach Company
$33,334 in 1997, $40,000 in 1996 and $25,000 in 1995 as reimbursement for
management services and indirect expenses in connection with the
management of the Partnership. The Partnership paid Nooney, Inc. $6,666 in
1997 for these same reimbursement items. Additionally, in 1995, the
Partnership paid an acquisition/financing fee to Nooney Krombach Company
of $75,000 relating to the purchase of the Acquisition Interests, which
was capitalized into the purchase price.
Investment property is recorded at the lower-of-cost or net realizable
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. Investment property that is currently
held for sale is recorded at the lower of its net book value or net
realizable value.
Buildings and improvements are depreciated over 30 years using the
straight-line method.
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. At December 31,
1997, accounts receivable include approximately $47,000 ($59,000 in 1996)
of accrued rent concessions which is not yet due under the terms of
various lease agreements.
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.
-28-
<PAGE>
Net Operating Cash Income, as defined in the Partnership Agreement, is
distributed quarterly as follows: (1) 90% pro rata to the limited
partners; (2) 9% to the individual general partners as their annual
Partnership Management Fee; and (3) 1% to the individual general partners.
In the event it is determined after the close of a fiscal year that the
limited partners have not received their 7-1/2% non-cumulative preference
as defined in the Partnership Agreement, then the individual general
partners return to the partnership a portion of their distributions
received as their 9% annual Partnership Management Fee until the limited
partners have received their 7-1/2% non-cumulative preference. The
individual general partners are not required to return any amount in
excess of one-half of the 9% Partnership Management Fee received. If Net
Operating Cash Income for any fiscal year is not sufficient to pay the
limited partners any portion of their 7-1/2% non-cumulative preference,
the unpaid amount does not accrue to future fiscal years. The annual
Partnership Management Fee is a cumulative preference. The preferential
return can be distributed only through cash distributed as a result of a
Major Capital Event (as defined) or cash distributed upon dissolution of
the partnership. Such preferred distribution is only allowed after the
general and limited partners receive amounts equal to their adjusted
capital accounts and the limited partners receive an 11% cumulative
return. Through December 31, 1997, Partnership Management Fees totaling
$276,136 have not been paid under the limitations stated above. Based upon
the priorities of cash to be distributed, management believes that the
likelihood of payment of the $276,136 is remote and therefore was not
accrued on the balance sheet.
For financial statement and income tax reporting, the income from
operations is allocated as follows: first, a special allocation of gross
income to the individual general partners in the amount equal to the
annual partnership management fee distributed to the individual general
partners during the period; then, the remainder is allocated 1% to the
individual general partners and 99% pro rata to the limited partners based
upon the relationship of original capital contributions of the limited
partners.
Limited partnership per unit computations are based on the weighted
average number of limited partnership units outstanding during the period.
The Partnership considers all highly liquid debt instruments with a
maturity of three months or less at date of purchase to be cash
equivalents.
Deferred expenses consist primarily of lease fees which are amortized over
the terms of their respective leases.
3. CASH EQUIVALENTS
Cash equivalents consist of bank repurchase agreements of $-0- at December
31, 1997 ($50,000 at December 31, 1996).
-29-
<PAGE>
4. MORTGAGE NOTE PAYABLE
Mortgage note payable as of December 31, 1997 and 1996, consists of the
following:
1997 1996
Note payable to bank, principal of $7,789,
and interest due monthly at bank's prime
rate (8.5% at December 31, 1997)
plus .75% maturing December 28, 2002 $ 7,096,532 $ 7,190,000
============ ============
The mortgage note is collateralized by deeds of trust and assignment of
rents on investment property (Countryside, Northeast Commerce Center and
NorthCreek Office Park) with a net book value of $13,083,000 at December
31, 1997. The mortgage note agreement provides for a 3.25% interest rate
on outstanding principal if a compensating balance is maintained during
the immediately preceding month. During 1997 and 1996, the Partnership
decreased interest expense by approximately $60,000 and $33,000,
respectively, from the compensating balance clause.
Principal payments required during the next five years are as follows:
1998 $ 100,656
1999 115,044
2000 115,044
2001 132,000
2002 6,633,788
-------------
Total $ 7,096,532
============
In accordance with Statement of Financial Accounting Standards No. 107,
Disclosures About Fair Value of 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 carrying amount and
estimated fair market value of the Partnership's debt at December 31, 1997
and 1996 are equal due to the adjustable rate feature of the note.
5. RENTAL REVENUES UNDER OPERATING LEASES
Minimum future rental revenues under noncancelable operating leases in
effect as of December 31, 1997 are as follows:
1998 $ 3,033,000
1999 2,016,000
2000 1,550,000
2001 1,192,000
2002 942,000
Remainder 875,000
-------------
Total $ 9,608,000
=============
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 $43,000,
$38,000 and $43,000 for the years ended December 31, 1997, 1996 and 1995,
respectively. Contingent rentals were not significant for the years ended
December 31, 1997, 1996 and 1995.
-30-
<PAGE>
6. FEDERAL INCOME TAX STATUS
The general partners believe, based on opinion of legal counsel, that
Nooney Income Fund Ltd. II, 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 properties
are depreciated for income tax purposes using rates which differ from
rates used for computing depreciation for 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. Losses in connection with the write-down of investment
property are not recognized for tax purposes until the property is
disposed.
The comparison of financial statement and income tax reporting is as
follows:
Financial Income
Statement Tax
1997:
Net income (loss) $ 63,587 $ (8,137)
Partners' equity 8,280,887 13,712,242
1996:
Net income (loss) $ 83,571 $ (265,962)
Partners' equity 8,472,267 13,975,346
1995:
Net income $ 209,517 $ 53,069
Partners' equity 8,643,642 14,496,254
7. MAJOR TENANT
A substantial amount of the Partnership's revenue in 1997 was derived from
two major tenants whose rentals amounted to approximately $500,000 and
$408,000 or 14.9% and 12.2%, 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 $469,000 and
$374,000 or 13.3% and 10.6%, respectively, of total revenues. A
substantial amount of the Partnership's revenue in 1995 was derived from
two major tenants whose rentals amounted to approximately $201,000 and
$191,000 or 11.3% and 10.7%, respectively, of total revenues.
* * * * * *
-31-
<PAGE>
<TABLE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
SCHEDULE - RECONCILIATION OF PARTNERS' EQUITY (DEFICIT)
DECEMBER 31, 1997, 1996 AND 1995
- ------------------------------------------------------------------------------------------------------------------------------------
The reconciliation of partners' equity (deficit) between financial statement and income tax reporting is as follows:
December 31, 1997 December 31, 1996
------------------------------------- --------------------------------------
Limited General Limited General
Partners Partners Total Partners Partners Total
<S> <C> <C> <C> <C> <C> <C>
Balance (deficit) per statement of partners' equity $ 8,411,559 $ (130,672) $ 8,280,887 $ 8,600,764 $ (128,497) $ 8,472,267
Add:
Selling commissions and other offering costs
not deducted for income tax purposes 2,411,625 -- 2,411,625 2,411,625 -- 2,411,625
Prepaid rents included in income for income
tax purposes 70,438 711 71,149 (23,551) (238) (23,789)
Master lease income included in income for income
tax purposes 118,404 1,196 119,600 118,404 1,196 119,600
Writedown of investment property not recognized
for income tax purposes 5,202,450 52,550 5,255,000 5,202,450 52,550 5,255,000
------------ ---------- ------------ ------------ ---------- ------------
Total 16,214,476 (76,215) 16,138,621 16,309,692 (74,989) 16,234,703
Less:
Excess depreciation deducted for income tax
purposes 2,337,626 41,606 2,379,232 2,160,116 39,814 2,199,930
Rent concessions not recognized for income
tax purposes 46,319 468 46,787 58,833 594 59,427
------------ ---------- ------------ ------------ ---------- ------------
Balance (deficit) per tax return $ 13,830,531 $ (118,289) $ 13,712,242 $ 14,090,743 $ (115,397) $ 13,975,346
============ ========== ============ ============ ========== ============
December 31, 1995
-------------------------------------
Limited General
Partners Partners Total
Balance (deficit) per statement of partners' equity $ 8,770,185 $ (126,543) $ 8,643,642
Add:
Selling commissions and other offering costs
not deducted for income tax purposes 2,411,625 -- 2,411,625
Prepaid rents included in income for income
tax purposes (1,411) (14) (1,425)
Master lease income included in income for income
tax purposes 118,404 1,196 119,600
Writedown of investment property not recognized
for income tax purposes 5,202,450 52,550 5,255,000
------------ ---------- ------------
Total 16,501,253 (72,811) 16,428,442
Less:
Excess depreciation deducted for income tax
purposes 1,836,918 36,549 1,873,467
Rent concessions not recognized for income
tax purposes 58,134 587 58,721
------------ ---------- ------------
Balance (deficit) per tax return $ 14,606,201 $ (109,947) $ 14,496,254
============ ========== ============
</TABLE>
-32-
<PAGE>
<TABLE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Column A Column B Column C
-------- -------- --------
Initial Cost to Partnership
--------------------------------------------
Buildings and
Description Encumbrances Land Improvements Total
<S> <C> <C> <C> <C>
Leawood Fountain Plaza Office Complex (24% undivided interest),
Leawood, Kansas $ -- $ 318,962 $ 1,991,417 $ 2,310,379
Tower Industrial Building, Mundelein, Illinois -- 193,744 1,042,076 1,235,820
NorthCreek Office Park, Cincinnati, Ohio -- 338,850 4,639,617 4,978,467
Northeast Commerce Center, Cincinnati, Ohio -- 199,361 2,784,317 2,983,678
Countryside Executive Center, NorthCreek Office Park and
Northeast Commerce Center 7,096,532 -- -- --
------------ ------------ ------------ ------------
-- 1,050,917 10,457,427 11,508,344
Countryside Executive Center, Palatine, Illinois -- 623,919 4,302,911 4,926,830
------------ ------------ ------------ ------------
Total $ 7,096,532 $ 1,674,836 $ 14,760,338 $ 16,435,174
============ ============ ============ ============
</TABLE>
<TABLE>
Column D Column E
-------- --------
Costs
Capitalized Gross Amount at Which
Subsequent to Carried at Close of Period
Acquisition (1) --------------------------------------------
Buildings and
Description Land Improvements Total
<S> <C> <C> <C> <C>
Leawood Fountain Plaza Office Complex (24% undivided interest), $ (649,429) $ 318,962 $ 1,341,988 $ 1,660,950
Leawood, Kansas
Tower Industrial Building, Mundelein, Illinois 2,841 193,744 1,044,917 1,238,661
NorthCreek Office Park, Cincinnati, Ohio 3,651,183 1,370,100 7,259,550 8,629,650
Northeast Commerce Center, Cincinnati, Ohio 1,623,142 736,051 3,870,769 4,606,820
Countryside Executive Center, NorthCreek Office Park and
Northeast Commerce Center -- -- -- --
------------ ------------ ------------ ------------
4,627,737 2,618,857 13,517,224 16,136,081
Countryside Executive Center, Palatine, Illinois (1,081,888) 1,356,419 2,488,523 3,844,942 (2)
------------ ------------ ------------ ------------
Total $ 3,545,849 $ 3,975,276 $ 16,005,747 $ 19,981,023
============ ============ ============ ============
</TABLE>
<TABLE>
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>
Leawood Fountain Plaza Office Complex (24% undivided interest),
Leawood, Kansas $ 825,591 1982-1983 2/20/85 30 years
Tower Industrial Building, Mundelein, Illinois 412,557 1974 3/20/86 30 years
NorthCreek Office Park, Cincinnati, Ohio 1,918,217 1984-1986 12/29/86 30 years
Northeast Commerce Center, Cincinnati, Ohio 1,037,890 1985 12/29/86 30 years
------------
4,194,255
Countryside Executive Center, Palatine, Illinois 1,042,228 (2) 1975 12/16/86 30 years
Total ------------
$ 5,236,483
============
<FN>
(1) Amounts shown are net of assets written-off and the following writedowns to
reflect appraised values:
Leawood Fountain Plaza Office Complex 754,000
NorthCreek Office Park 484,000
Northeast Commerce Center 761,000
Countryside Executive Center 3,256,000
(2) Amount is shown net in the financial statements $2,802,714. Continued
</FN>
-33-
</TABLE>
<PAGE>
<TABLE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
- ----------------------------------------------------------------------------------------------------------------
1997 1996 1995
<S> <C> <C> <C>
(A) Reconciliation of amounts in Column E:
Balance at beginning of period $ 19,569,732 $ 19,442,902 $ 11,935,190
Add:
Cost of improvements 551,260 225,189 154,049
Acquisition of undivided interests -- -- 7,630,440
Less - cost of disposals (139,969) (98,359) (276,777)
------------ ------------ ------------
Balance at end of period $ 19,981,023 $ 19,569,732 $ 19,442,902
============ ============ ============
Reconciliation of amounts in Column F:
(B) Balance at beginning period $ 4,771,634 $ 4,276,165 $ 4,131,718
Add - Provision during period
604,818 593,828 421,224
Less - Depreciation on disposals
(139,969) (98,359) (276,777)
------------ ------------ ------------
Balance at end of period $ 5,236,483 $ 4,771,634 $ 4,276,165
============ ============ ============
(C) The aggregate cost of real estate owned for
federal income tax purposes $ 25,236,023 $ 24,824,732 $ 24,697,902
============ ============ ============
</TABLE>
-34-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
THE FINANCIAL STATEMENTS FOR NOONEY INCOME FUND LTD. II, L.P. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000757764
<NAME> NOONEY INCOME FUND LTD. II, L.P.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 1,378,138
<SECURITIES> 0
<RECEIVABLES> 152,950
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,548,140
<PP&E> 16,1360813
<DEPRECIATION> 4,194,255
<TOTAL-ASSETS> 16,563,704
<CURRENT-LIABILITIES> 1,037,511
<BONDS> 7,096,532
<COMMON> 0
0
0
<OTHER-SE> 8,280,887
<TOTAL-LIABILITY-AND-EQUITY> 16,563,704
<SALES> 3,355,159
<TOTAL-REVENUES> 3,356,773
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,697,490
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 595,696
<INCOME-PRETAX> 63,587
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 63,587
<EPS-PRIMARY> 2.66
<EPS-DILUTED> 0
</TABLE>
