SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- --- EXCHANGE ACT OF 1934
For the quarter period ended June 30, 1999
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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 0-14360
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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.)
One Memorial Drive, Suite 1000, St. Louis, MO 63102-2449
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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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500 North Broadway, Suite 1200, St. Louis, MO 63102-2449
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Former name, former address and former fiscal year, if changed since last report
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 .
--- ---
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDING DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 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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PART I
ITEM 1 - Financial Statements:
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NOONEY INCOME FUND LTD. II, L.P.
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(A LIMITED PARTNERSHIP)
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BALANCE SHEETS
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June 30, December 31,
1999 1998
(Unaudited)
----------- ------------
ASSETS:
Cash and cash equivalents $ 1,264,020 $ 1,249,605
Accounts receivable 203,035 205,323
Prepaid expenses and deposits 49,730 21,505
Investment property, at cost:
Land 2,618,857 2,618,857
Buildings and Improvements 13,821,269 13,618,572
------------ ------------
16,440,126 16,237,429
Less accumulated depreciation (4,931,927) (4,691,263)
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11,508,199 11,546,166
Investment property-held for sale 2,837,163 2,826,591
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14,345,362 14,372,757
Prepaid and Deferred expenses - At amortized
cost 259,652 280,805
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$ 16,121,799 $ 16,129,995
============ ============
LIABILITIES AND PARTNERS' EQUITY:
Liabilities:
Accounts payable and accrued expenses $ 223,949 $ 160,061
Accrued real estate taxes 561,729 499,728
Refundable tenant deposits 232,407 211,787
Mortgage note payable 6,938,354 6,995,876
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7,956,440 7,867,452
Partners' Equity 8,165,360 8,262,543
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$ 16,121,799 $ 16,129,995
============ ============
SEE NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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NOONEY INCOME FUND LTD. II, L.P.
--------------------------------
(A LIMITED PARTNERSHIP)
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STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY
---------------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
REVENUES:
Rental and other income $ 929,911 $ 899,041 $ 1,785,526 $ 1,774,358
Interest 0 0 0 0
----------- ----------- ----------- -----------
929,911 899,041 1,785,526 1,774,358
EXPENSES:
Interest expense 134,795 148,507 268,883 294,527
Depreciation and amortization 181,390 183,867 362,431 378,743
Real estate taxes 303,252 153,452 442,277 307,488
Property management fees paid
to Nooney Inc. 55,345 53,401 106,241 104,659
Reimbursement to Nooney Inc.
for partnership management
services and indirect
expenses 10,000 10,000 20,000 20,000
Repairs and maintenance 89,543 66,140 150,051 110,633
Professional services 31,808 22,628 78,488 44,828
Utilities 32,427 34,470 72,767 72,242
Payroll 26,569 24,140 57,245 46,722
Cleaning 37,535 42,082 68,180 82,484
Insurance 19,678 18,583 37,449 34,045
Parking lot / landscaping
expenses 27,953 37,970 40,333 47,035
Other operating expenses 56,725 78,031 178,364 144,667
----------- ----------- ----------- -----------
1,007,020 873,271 1,882,709 1,688,073
----------- ----------- ----------- -----------
NET (LOSS) INCOME $ (77,109) $ 25,770 $ (97,183) $ 86,285
=========== =========== =========== ===========
NET (LOSS) INCOME PER LIMITED
PARTNERSHIP UNIT $ (4.23) $ 1.34 $ (5.63) $ 4.49
=========== =========== =========== ===========
PARTNERS' EQUITY:
Beginning of Period $ 8,242,469 $ 8,341,402 $ 8,262,543 $ 8,280,887
Net (Loss) Income (77,109) 25,770 (97,183) 86,285
Cash Distribution to Partners 0 (254,956) 0 (254,956)
----------- ----------- ----------- -----------
End of Period $ 8,165,360 $ 8,112,216 $ 8,165,360 $ 8,112,216
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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NOONEY INCOME FUND LTD. II, L.P.
--------------------------------
(A LIMITED PARTNERSHIP)
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STATEMENTS OF CASH FLOWS
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(UNAUDITED)
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Six Months Ended
June 30, June 30,
1999 1998
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) Income $ (97,183) $ 86,285
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 362,431 378,743
Changes in assets and liabilities:
Decrease (Increase) in accounts receivable 2,288 (2,263)
Increase in prepaid expenses and deposits (28,225) (31,110)
Increase in deferred assets (21,521) (49,314)
Increase (Decrease) in accounts payable 63,888 (312,892)
Increase (Decrease) in accrued real estate
taxes 62,001 (48,494)
Increase in refundable tenant deposits 20,620 49,059
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Total Adjustments 461,482 (16,271)
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Net cash provided by operating
activities 364,299 70,014
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CASH FLOWS FROM INVESTING ACTIVITIES -
Additions to investment property (292,362) (116,459)
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CASH FLOWS FROM FINANCING ACTIVITIES -
Cash distributions to partners 0 (254,956)
Payments on mortgage notes payable (57,522) (50,328)
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Net cash used in financing activities (57,522) (305,284)
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NET INCREASE (DECREASE) IN CASH AND 14,415 (351,729)
CASH EQUIVALENTS
CASH AND CASH EQUIVALENTS, beginning of period 1,249,605 1,378,138
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,264,020 $ 1,026,409
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during year for interest $ 268,883 $ 294,527
=========== ===========
SEE NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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NOONEY INCOME FUND LTD. II, L.P.
--------------------------------
(A LIMITED PARTNERSHIP)
-----------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
THREE AND SIX MONTHS ENDED JUNE 30, 1999 AND 1998
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NOTE A:
Refer to the Registrant's financial statements for the year ended December 31,
1998, which are contained in the Registrant's Annual Report on Form 10-K, for a
description of the accounting policies which have been continued without change.
Also, refer to the footnotes to those statements for additional details of the
Registrant's financial condition. The details in those notes have not changed
except as a result of normal transactions in the interim periods.
NOTE B:
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 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
responsibility of the individual partners. In the opinion of the general
partners, all adjustments (which include only normal recurring adjustments)
necessary to present fairly the financial position, results of operations and
changes in financial position at June 30, 1999 and for all periods presented
have been made. The results of operations for the three and six month periods
ended June 30, 1999, are not necessarily indicative of the results which may be
expected for the entire year.
NOTE C:
The Registrant's properties are managed by Nooney, Inc., a wholly-owned
subsidiary of CGS Real Estate Company. Nooney Income Investments Two, Inc., a
general partner, is a 75% owned subsidiary of S-P Properties, Inc. S-P
Properties, Inc is a wholly-owned subsidiary of CGS Real Estate Company.
NOTE D:
The earnings per limited partnership unit for the three and six month periods
ended June 30, 1999 and 1998 was computed based on 19,221 units, the number of
units outstanding during the periods.
NOTE E:
The Registrant has no items of other comprehensive income, accordingly, net
income and other comprehensive income are the same.
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<PAGE>
NOTE F:
The partnership has five reportable operating segments: Leawood Fountain Plaza,
Tower Industrial, Countryside Executive Center, Northeast Commerce Center, and
NorthCreek Office Park. The Partnership's management evaluates performance of
each segment based on profit or loss from operations before allocation of
property writedowns, general and administrative expenses, unusual and
extraordinary items, and interest.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Leawood Fountain Plaza (24%) 84,674 $ 74,310 $ 168,985 $ 140,899
Tower Industrial 50,450 49,734 100,900 99,887
Countryside Executive Center 277,023 254,103 537,603 475,385
Northeast Commerce Center 128,059 178,701 220,237 344,501
NorthCreek Office Park 382,209 333,173 741,875 681,077
----------- ----------- ----------- -----------
922,415 890,021 1,769,600 1,741,749
=========== =========== =========== ===========
Operating Profit:
Leawood Fountain Plaza (24%) $ 12,226 $ 9,000 $ 28,097 $ 12,188
Tower Industrial 22,676 24,363 46,398 48,331
Countryside Executive Center (133,232) (25,684) (113,152) (64,325)
Northeast Commerce Center (36,354) (19,194) (150,445) (23,801)
NorthCreek Office Park 55,387 27,273 101,554 76,987
----------- ----------- ----------- -----------
(79,297) 15,758 (87,548) 49,380
=========== =========== =========== ===========
Capital Expenditures:
Leawood Fountain Plaza (24%) $ 2,400 $ 1,349 $ 6,560 $ 4,499
Tower Industrial 147,048 0 150,898 0
Countryside Executive Center 38,098 36,008 54,472 63,120
Northeast Commerce Center 41,865 0 47,725 0
NorthCreek Office Park 5,762 14,367 32,707 48,840
----------- ----------- ----------- -----------
235,173 51,724 292,362 116,459
=========== =========== =========== ===========
Depreciation and Amortization:
Leawood Fountain Plaza (24%) $ 22,863 $ 23,372 $ 46,754 $ 46,333
Tower Industrial 10,838 10,402 21,250 20,804
Countryside Executive Center 30,505 32,313 62,689 79,558
Northeast Commerce Center 65,422 68,743 128,161 135,003
NorthCreek Office Park 90,129 87,405 180,315 173,784
----------- ----------- ----------- -----------
219,757 222,235 439,169 455,482
=========== =========== =========== ===========
</TABLE>
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<PAGE>
Assets:
As of: June 30, 1999 December 31, 1998
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Leawood Fountain Plaza (24%) $ 961,921 $ 916,824
Tower Industrial 982,277 914,777
Countryside Executive Center 3,071,987 3,055,711
Northeast Commerce Center 3,442,585 3,633,533
NorthCreek Office Park 6,719,454 6,731,436
----------- -----------
15,178,224 15,252,281
=========== ===========
Reconciliation of segment data to the Partnership's consolidated data follow:
Three Months Ended Six Months Ended
June 30, June 30,
(In thousands) 1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Segments $ 922,415 $ 890,021 $1,769,600 $1,741,749
Corporate and other 7,496 9,020 15,926 32,609
---------- ---------- ---------- ----------
929,911 899,041 1,785,526 1,774,358
========== ========== ========== ==========
Operating Profit:
Segments $ (79,297) $ 15,758 $ (87,548) $ 49,380
Corporate and other
income 7,496 9,020 15,926 32,609
General and admin
expenses 5,308 (992) 25,561 (4,296)
----------- ---------- ---------- ----------
(77,109) 25,770 97,183 86,285
========== ========== ========== ==========
Depreciation and Amortization
Segments $ 219,757 $ 222,235 $ 439,169 $ 455,482
Corporate and other (38,367) (38,369) (76,738) (76,739)
---------- ---------- ---------- ----------
181,390 183,867 362,431 378,743
========== ========== ========== ==========
Assets:
As of: June 30, 1999 December 31, 1998
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Segments $15,178,224 $15,252,281
Corporate and other 943,575 877,714
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16,121,799 16,129,995
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ITEM 7: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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It should be noted that this 10-Q 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.
Liquidity and Capital Resources
- -------------------------------
Cash on hand as of June 30, 1999, is $1,264,020 an increase of $14,415 when
compared to the year ended December 31, 1998. During the six month period ending
June 30, 1999, net cash provided by operating activities was $364,299. Cash was
used for capital and tenant improvements in the amount of $292,362 and payment
on mortgage notes payable in the amount of $57,522. Based on the current cash
balances and the properties' ability to provide operating cash flow, the
Registrant expects the properties to fund anticipated capital expenditures for
the remainder of 1999. The anticipated capital expenditures by property are as
follows:
Other Capital Leasing Capital Total
------------- --------------- -----
NorthCreek Office Park $ 0 $ 19,138 $ 19,138
Tower Industrial Building 62,950 0 62,950
Northeast Commerce Center 36,900 147,623 184,523
Countryside Executive Center 8,495 166,253 174,748
Leawood Fountain Plaza (24%) 18,623 40,501 59,124
-------- -------- --------
$126,968 $373,515 $500,483
======== ======== ========
Leasing Capital at all of the partnership's properties relates to tenant
improvements and lease commissions for new and renewal tenants. Other Capital at
Leawood Fountain Plaza includes an overlay of the parking lot, carpet
replacement in building hallways, and new exterior lighting. At Tower Industrial
Building Other Capital includes finishing a new roof for the property. At
Northeast Commerce Center Other Capital includes parking lot patching and
striping, in addition to separating utilities for lease availability. At
Countryside Executive Center, Other Capital relates to the replacement of
bathroom counters. The Registrant reviews cash reserves on a regular basis prior
to beginning scheduled capital improvements. In the event there is not adequate
funds, the capital improvement will be postponed until such funds are available.
As previously disclosed, the Registrant feels that the market conditions exist
whereby Countryside Executive Center should be sold. As previously reported,
management is currently working on leasing additional space so that occupancy is
at a higher level which will command a higher sale price when the property is
ultimately sold. Occupancy levels have remained relatively consistent and the
Registrant will continue to update any progress regarding the sale in future
quarters.
The future liquidity of the Registrant is dependent on its ability to fund
future capital expenditures from operations and cash reserves and maintain
occupancy at all of the properties. Until such time as the real estate market
recovers and profitable sale of the properties is feasible, the Registrant will
continue to manage the properties to achieve its investment objectives.
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<PAGE>
Results of Operations by Property
- ---------------------------------
The results of operations for the Registrant's properties for the quarters ended
June 30, 1998 and 1997 are detailed in the schedule below. Revenues and expenses
of the Registrant are excluded.
Tower Northeast Countryside Leawood
NorthCreek Industrial Commerce Executive Fountain
Office Park Building Center Center Plaza (24%)
----------- -------- ------ ------ -----------
2nd Quarter 1999
Revenues $ 382,209 $ 50,450 $ 128,059 $ 277,023 $ 84,674
Expenses 326,822 27,774 164,413 410,255 72,448
--------- --------- --------- --------- ---------
Net Income (Loss) $ 55,387 $ 22,676 $ (36,354) $(133,232) $ 12,226
========= ========= ========= ========= =========
2nd Quarter 1998
Revenues $ 333,173 $ 49,734 $ 178,701 $ 254,103 $ 74,310
Expenses 305,900 25,371 197,895 279,787 65,310
--------- --------- --------- --------- ---------
Net Income (Loss) $ 27,273 $ 24,363 $ (19,194) $ (25,684) $ 9,000
========= ========= ========= ========= =========
At NorthCreek Office Park net income for the quarter ended June 30, 1999 was
$55,387 compared to net income of $27,273 in 1998. Revenues increased $49,036
when comparing the two quarters. This increase can be attributed to increases in
both base rental and escalation income due to an increase in the occupancy level
than that of prior year. Expenses increased $20,922 when comparing the two
quarters. This increase can primarily be attributed to an increase in repairs
and maintenance building related to entry and corridor improvements expensed
during 2nd quarter 1999.
Operating results at Tower Industrial Building remained stable when comparing
the quarter ended June 30, 1999 to the quarter ended June 30, 1998. The decrease
in net income of $1,687 when comparing the two quarters is primarily due to
slight decreases in real estate tax expense, legal services, and depreciation.
The property continues to operate as anticipated.
For the quarter ended June 30, 1999 and 1998, revenues at Northeast Commerce
Center were $128,059 and $178,701, respectively. The decrease in revenues of
$50,642 can be attributed to a decrease in rental income ($91,323) due to the
vacating of a former major tenant in fourth quarter 1998. This rental income
decrease was partially offset by increases in escalation income ($30,480) and a
cancellation fee received during 2nd quarter 1999 ($10,000). The increase in
escalation is due to additional escalatable expenses and increased pro-rata
share for existing tenants. The property's expenses for the quarter ended June
30, 1999 and 1998, were $164,413 and $197,895, respectively. The decrease in
expenses of $33,482 is attributable to decreases in depreciation and
amortization expense ($3,370), cleaning expense ($6,836), fire/crime prevention
($5,758), management fees ($3,038), heating, ventilation, and air-conditioning
expenses ($10,192), landscaping expense ($4,478), and interest expense ($3,839).
These decreased expenses were partially offset by an increase in vacancy expense
($4,295). The repairs and maintenance decrease can be attributed to extensive
heating, ventilation, and air-conditioning repairs and replacement performed in
1998, not necessary in 1999. A monthly cleaning expense was incurred for the
former major tenant mentioned above, their vacated status has resulted in the
1999 cleaning expense decrease.
Revenues at Countryside Executive Center were $277,023 for the quarter ended
June 30, 1999 and $254,103 for the quarter ended June 30, 1998. The increase in
revenue of $22,920 when comparing the two periods, is primarily attributable to
an increase in base rental income due to increased rental rates. Expenses at
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<PAGE>
Countryside Executive Center were $410,255 and $279,787 for the quarters ended
June 30, 1999 and June 30, 1998, respectively. This increase in expenses of
$130,468 can be attributable to increases in real estate tax expense ($147,583)
due to the expense of a tax appeal fee incurred which resulted in a revised
assessment that enabled property to maintain taxes at current level. There was
also an increase in vacancy expense ($6,657). These increased expenses were
partially offset by decreases in common area related expenses ($13,523) and
landscaping expense ($9,293). The decrease in tenant common areas is due to the
cost of new tenant directory signage in 2nd quarter 1998, not incurred in 1999.
The landscaping decrease can be attributed to lower contracted landscaping
service expense.
At Leawood Fountain Plaza, net income for the quarter ended June 30, 1999 and
the quarter ended June 30, 1998 was $12,226 and $9,001, respectively, resulting
in an increase in net income of $3,226. Revenues for the quarter ended June 30,
1999 and June 30, 1998 were $84,674 and $74,310, resulting in an increase of
$10,364 due to the increased occupancy level from that of prior year. Expenses
increased $7,138 when comparing the two quarters due to increases in parking lot
and repairs and maintenance related expenses.
The occupancy levels at June 30 are as follows:
Occupancy levels as of June 30,
-------------------------------
Property 1999 1998 1997
-------- ---- ---- ----
NorthCreek Office Park 100% 95% 97%
Tower Industrial Building 100% 100% 100%
Northeast Commerce Center 50% 94% 87%
Countryside Executive Center 70% 71% 52%
Leawood Fountain Plaza (24%) 98% 94% 90%
Leasing activity during the second quarter of 1999 at NorthCreek Office Park
consisted of one new tenant signing a lease for 880 square feet, two tenants
renewing their leases for 4,118 square feet and one tenant vacating 904 square
feet. Occupancy remained at 100% throughout the quarter. The office park has one
major tenant with two leases that comprise 26% and 7% of the available space
with leases which expire in December 2003.
The Tower Industrial Building remains 100% leased to a single tenant whose lease
expires April 2000.
At Northeast Commerce Center leasing activity during the quarter consisted of
one new tenant signing a lease for 7,560 square feet and one tenant vacating
7,560 square feet. The property remained 50% occupied throughout the quarter.
The property has one major tenant who occupies 23% of the available space with a
lease that expires September 2003. The Registrant is working closely with the
Cincinnati brokerage firm hired to handle the leasing of the property to market
the 50,000 square feet building which is vacant.
Leasing activity at Countryside Executive Center consisted of the Registrant
signing one new lease with a tenant for 1,782 square feet, one tenant renewing
1,788 square feet and two tenants vacating 5,029 square feet. The property has
one major tenant who occupies 14% of the available space with a lease which
expires in 2005. The Registrant continues to work with the local brokerage firm
to market the property and improve the occupancy and has several prospective
leases which could commence in 3rd quarter 1999.
During the second quarter of 1999, leasing activity at Leawood Fountain Plaza
consisted of the Registrant renewing one lease for 1,625 square feet. The
occupancy remained stable at 98%. The property has two major tenants occupying
14% and 10% of the available space on leases which expire in October 2001 and
July 1999, respectively. The tenant whose lease expired in July 1999 has
informed the Registrant that they intend to renew through July 2004.
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<PAGE>
The Registrant reviews long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of a property may not
be recoverable. The Registrant considers a history of operating losses or a
change in occupancy to be primary indicators of potential impairment. The
Registrant deems the Property to be impaired if a forecast of undiscounted
future operating cash flows directly related to the Property, including disposal
value, if any, is less than its carrying amount. If the Property is determined
to be impaired, the loss is measured as the amount by which the carrying amount
of the Property exceeds its fair value. Fair value is based on quoted market
prices in active markets, if available. If quoted market prices are not
available, an estimated of fair value is based on the best information
available, including prices for similar properties or the results of valuation
techniques such as discounting estimated future cash flows. Considerable
management judgement is necessary to estimate fair value. Accordingly, actual
results could vary significantly from such estimates.
Year 2000 Issues
- ----------------
Information Technology Systems
- ------------------------------
The Registrant utilizes computer software for its corporate and real property
accounting records and to prepare its financial statements, as well as for
internal accounting purposes. The vendor of the Registrant's software has
informed the Registrant that it is Year 2000 compliant. The Registrant believes
after reasonable investigation that its information technology hardware is Year
2000 compliant. However, in the event that such systems should fail, as a
contingency plan, the Registrant could prepare all required accounting entries
manually, without incurring material additional operating expenses.
Non-Information Technology Systems
- ----------------------------------
At the request of the Registrant, its property managers have completed their
review of the major date- sensitive non-information technology systems such as
elevators, heating, ventilation, air conditioning and cooling ("HVAC") systems,
locks, and other like systems in the Registrant's properties and have determined
that such systems are materially Year 2000 compliant. In some of the
Registrant's properties, its property managers have utilized the services of
third-party consultants in making this determination, while in other properties,
the property managers have internally made such determinations. The Registrant
does separately track the internal costs incurred for its Year 2000 project. The
Registrant does not believe that the Year 2000 issue will pose significant
problems to the Registrant's Information technology systems and non-Information
technology systems, or that resolution of any potential problems with respect to
such systems will have a material effect on the Registrant's financial condition
or results of operations.
Material Third Parties' Systems Failures
- ----------------------------------------
The most reasonable likely worst case scenario facing the Registrant as a result
of the Year 2000 problem would be the inability of its tenants to pay rent as a
result of a breakdown in such tenants' (or other financial service providers')
computer or the refusal of such tenants to pay their rent as a result of the
Registrant's inability to provide services due to non-Information technology
systems failure. Failure in a tenant's computer systems may cause delays in such
tenant's ability to process its accounting records and to make timely rent
payments. However, any such delays in rent payments, whether caused by systems
failure of tenant, property manager or a combination of the two, should not have
a materially adverse effect on the Registrant's business or results of
operations.
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Risks
- -----
While delays caused by the failure of the tenants' or the property managers'
accounting or supply systems would likely not adversely affect the Registrant's
business or results of operations, non-Information technology systems failure in
the Registrants's properties could lead to tenants attempting to withhold their
rent payments, which could materially adversely effect the Registrant's
business, results of operations and financial conditions as a result of
increased legal costs. The Registrant believes that such material effect is
primarily limited to items of a utility nature furnished by third parties to the
Registrant and a wide universe of other customers. Included are such items as
electricity, natural gas, telephone service, and water, all of which are not
readily susceptible to alternate sources and which in all likelihood should be
available in some form. The Registrant has been unable to obtain assurances from
such utility companies as to their Year 2000 compliance, and does not expect
that such assurances will be forthcoming.
Such non-Information technology systems failure could force tenants to use the
stairs in such properties, rather than the elevators. However, none of the
properties owned by the Registrant is a high-rise building where such an
elevator failure could cause a material adverse effect to the operations of its
tenants, although such failure could make it impossible for any disabled tenants
or any disabled customers to access such properties. Moreover, as previously
discussed, the Registrant may suffer adverse effects in its results of
operations and financial condition as a result of utility or HVAC failures, for
example. Such events could lead the tenants of the Registrant to withhold rent,
in the event that the Registrant's properties are not usable for their intended
purposes. The Registrant does not believe that rent abatement would be a lawful
tenant remedy for short term obligations unless such failure extend for a period
of 30 consecutive days. The Registrant intends to pursue its remedies for any
such breach of its rent obligations by a Tenant expeditiously and to the full
extend permitted by law.
Results of Consolidated Operations 1999
- ---------------------------------------
Consolidated revenues for the three month period ended June 30, 1999 and 1998,
are $929,911 and $899,041, respectively. Consolidated revenues for the six month
period ended June 30, 1999 and 1998 are $1,785,526 and $1,774,358, respectively.
Revenues increased $30,870 for the three month period and $11,168 for the six
month period ended June 30, 1999 when compared to the prior period. Consolidated
revenues overall have increased primarily due to increases in escalation revenue
at Northeast Commerce Center and NorthCreek Office Park and to increases in base
rental revenue at NorthCreek Office Park, Countryside Executive Center, and
Leawood Fountain Plaza. These increases in revenue were offset by a significant
decrease in base rental income at Northeast Commerce Center. During the three
month periods ended June 30, 1999 and 1998, consolidated expenses were
$1,007,020 and $873,271. Consolidated expenses for the six month periods ended
June 30, 1999 and 1998 were $1,882,709 and 1,688,703, respectively. Consolidated
expenses increased $133,749 and $194,636 for the three and six month periods
when comparing to prior year. The increase in expenses for the three month
period is due to increases in real estate tax expense ($149,800), repairs and
maintenance ($23,403), and professional services ($9,180). These increases were
partially offset by decreases in interest expense ($13,712), cleaning expense
($4,547), parking lot-landscaping expense ($10,017), and other operating
expenses ($21,306). The increase in real estate expense is due to the tax appeal
fee payment at Countryside as mentioned in the property comparisons. The
increased repairs and maintenance expenses are due to common area improvements
made at NorthCreek Office Park, as also mentioned previously. The decrease in
interest expense can be attributed to increased principal payments from prior
comparison period. The landscaping expense decrease is due to the reduction in
contracted service at Countryside Executive Center, as addressed in the property
comparisons. The decrease in other operating expenses is primarily due to a
decrease in common area related and fire/crime prevention expenses. The increase
of $194,636 for the six month period is due to increases in real estate tax
expense ($134,789), repairs and maintenance ($39,418), professional services
($33,660), payroll ($10,523), insurance ($3,404), and other operating expenses
($33,697). These increases were partially offset by decreases in interest
expense ($25,644), depreciation/amortization ($16,312), cleaning expense
-12-
<PAGE>
($14,304), and landscaping ($6,702). The increase in real estate tax and repairs
and maintenance, as well as the decreases in interest and landscaping have been
addressed above in the three month comparisons. The increase in professional
services can be attributed to an increase in partnership related professional
services in the first quarter of 1999. The increase in payroll for the six month
period is due to additional office personnel costs during 1st quarter 1999. The
increase in other operating expenses for the six month period is due to
significant increases in snow removal and vacancy related expense (primarily at
Northeast Commerce Center). The decrease in cleaning is due to the absence of
monthly cleaning reimbursements to the former major tenant at Northeast Commerce
Center as mentioned in the property comparisons.
Results of Consolidated Operations 1998
- ---------------------------------------
Consolidated revenues for the three month period ended June 30, 1998 and June
30, 1997, are $899,041 and $893,522, respectively. Consolidated revenues for the
six month period ended June 30, 1998 and June 30, 1997, are $1,774,358 and
$1,772,918, respectively. Revenues increased $5,519 for the three month period
and $1,440 for the six month period ended June 30, 1998 when compared to the
prior period. Consolidated revenues overall have remained relatively consistent
with prior year, due to increased revenues at NorthCreek Office Park and
Northeast Commerce Center, in addition to an increase in rent concessions
recorded in 1998 that favor revenue, partially offset by decreased revenues at
Countryside Executive Center. During the periods ended June 30, 1998 and June
30, 1997 consolidated expenses were $873,271 and $797,087. Consolidated expenses
for the six month period ended June 30, 1998 and June 30, 1997 were $1,688,073
and $1,660,492, respectively. Consolidated expenses increased $76,184 and
$27,581 for the three and six month periods ended June 30, 1998 when comparing
to prior periods. The increase in expenses for the three month period are due to
increases in depreciation and amortization ($40,367), repairs and maintenance
($20,566), and other operating expenses ($36,883), partially offset by a
decrease in professional services ($20,939). The increase in other operating
expenses is primarily due to increases in the upkeep of tenant common areas,
fire/crime prevention, insurance and office expenses. The decrease in
professional services is due to decreases in audit/tax, legal, and other
professional fees. The increase in expenses for the six month period can be
attributed to increases in real estate taxes ($34,672), repairs and maintenance
($24,157), parking lot ($5,474), and other operating expenses ($39,994). These
increases were partially offset by a decrease in professional services of
($77,311). The increase in real estate tax expense is primarily due to Northeast
Commerce Center. The real estate tax for 1997 reflects a tax savings related to
1996 that is not a reoccurring event. The six month increase in other operating
expenses and decrease in professional services are due to the same reasons as
stated above for the three month comparison.
Inflation
- ---------
The effects of inflation did not have a material impact upon the Registrant's
operations.
-13-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
See Exhibit Index on Page 15
(b) Reports on Form 8-K
None
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
NOONEY INCOME FUND LTD. II, L.P.
Date: August 14, 1999 By: Nooney Income Investments Two, Inc.
---------------------------- General Partner
By: /s/ Gregory J. Nooney, Jr.
--------------------------
Gregory J. Nooney, Jr.
Vice Chairman
By: /s/ Patricia A. Nooney
----------------------
Patricia A. Nooney
President and Secretary
-14-
<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)
27 Financial Data Schedule (provided for the information
of the U.S. Securities and Exchange Commission only)
-15-
<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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,264,020
<SECURITIES> 0
<RECEIVABLES> 203,035
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,516,785
<PP&E> 16,440,126
<DEPRECIATION> (4,931,927)
<TOTAL-ASSETS> 16,121,799
<CURRENT-LIABILITIES> 785,678
<BONDS> 6,938,354
<COMMON> 0
0
0
<OTHER-SE> 8,165,360
<TOTAL-LIABILITY-AND-EQUITY> 16,121,799
<SALES> 1,785,526
<TOTAL-REVENUES> 1,785,526
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,613,826
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 268,883
<INCOME-PRETAX> (97,183)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (97,183)
<EPS-BASIC> (5.63)
<EPS-DILUTED> 0
</TABLE>
