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 September 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.
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Missouri 43-1357693
- ------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Memorial Drive, Suite 1000, St. Louis, MO 63102-2449
- --------------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (314) 206-4600
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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.
--------------------------------
(A LIMITED PARTNERSHIP)
-----------------------
BALANCE SHEETS
--------------
September 30, December 31,
1999 1998
(Unaudited)
ASSETS: ----------- ------------
Cash and cash equivalents $ 1,178,069 $ 1,249,605
Accounts receivable 201,504 205,323
Prepaid expenses and deposits 50,781 21,505
Investment property, at cost:
Land 2,618,857 2,618,857
Buildings and Improvements 13,861,833 13,618,572
------------ ------------
16,480,690 16,237,429
Less accumulated depreciation (5,056,691) (4,691,263)
------------ ------------
11,423,999 11,546,166
Investment property-held for sale 2,890,203 2,826,591
------------ ------------
14,314,202 14,372,757
Prepaid and Deferred expenses - At amortized
cost 329,319 280,805
------------ ------------
$ 16,073,875 $ 16,129,995
============ ============
LIABILITIES AND PARTNERS' EQUITY:
Liabilities:
Accounts payable and accrued expenses $ 171,469 $ 160,061
Accrued real estate taxes 517,670 499,728
Refundable tenant deposits 245,106 211,787
Mortgage note payable 6,909,593 6,995,876
------------ ------------
7,843,838 7,867,452
Partners' Equity 8,230,037 8,262,543
------------ ------------
$ 16,073,875 $ 16,129,995
============ ============
SEE NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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<PAGE>
NOONEY INCOME FUND LTD. II, L.P.
--------------------------------
(A LIMITED PARTNERSHIP)
-----------------------
STATEMENTS OF OPERATIONS AND PARTNERS' EQUITY
---------------------------------------------
(UNAUDITED)
-----------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
REVENUES:
Rental and other income $ 916,320 $ 892,677 $ 2,701,846 $ 2,667,034
----------- ----------- ----------- -----------
916,320 892,677 2,701,846 2,667,034
EXPENSES:
Interest expense 141,000 149,553 409,883 444,079
Depreciation and amortization 186,863 189,415 549,293 568,159
Real estate taxes 120,291 151,095 551,738 458,583
Property management fees paid to
American Spectrum Midwest 53,838 53,170 160,079 157,829
Reimbursement to American Spectrum
Midwest for partnership management
services and indirect expenses 10,000 10,000 30,000 30,000
Repairs and maintenance 49,043 89,124 199,093 199,756
Professional services 86,134 27,070 164,621 71,897
Utilities 44,517 42,150 117,284 114,392
Payroll 29,949 26,590 87,193 73,312
Cleaning 36,051 40,871 104,231 123,821
Insurance 13,509 17,307 50,958 51,353
Landscaping 34,360 23,027 74,692 70,062
Other operating expenses 46,088 32,057 235,287 176,257
----------- ----------- ----------- -----------
851,643 851,429 2,734,352 2,539,500
----------- ----------- ----------- -----------
NET INCOME (LOSS) $ 64,677 $ 41,248 $ (32,506) $ 127,534
=========== =========== =========== ===========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 2.81 $ 1.62 $ (2.82) $ 5.09
=========== =========== =========== ===========
PARTNERS' EQUITY:
Beginning of Period $ 8,165,360 $ 8,112,216 $ 8,262,543 $ 8,280,887
Net Income (Loss) 64,677 41,248 (32,506) 127,534
Cash Distribution to Partners 0 (127,484) 0 (382,440)
----------- ----------- ----------- -----------
End of Period $ 8,230,037 $ 8,025,981 $ 8,230,037 $ 8,025,981
=========== =========== =========== ===========
</TABLE>
SEE NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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<PAGE>
NOONEY INCOME FUND LTD. II, L.P.
--------------------------------
(A LIMITED PARTNERSHIP)
-----------------------
STATEMENTS OF CASH FLOWS
------------------------
(UNAUDITED)
-----------
Nine Months Ended
Sept. 30, Sept. 30,
1999 1998
-------- --------
CASH FLOWS FROM OPERATING ACTIVITIES
Net (Loss) Income $ (32,506) $ 127,534
Adjustments to reconcile net (loss) income to
net cash provided by operating activities:
Depreciation and amortization 549,293 568,159
Changes in assets and liabilities:
Decrease in accounts receivable 3,819 2,362
Increase in prepaid expenses (29,276) (37,440)
Increase in deferred assets (114,585) (94,333)
Increase (Decrease) in accounts payable 11,408 (378,554)
Increase in accrued real estate taxes 17,942 58,154
Increase in refundable tenant deposits 33,319 54,648
----------- -----------
Total Adjustments 471,920 172,996
----------- -----------
Net cash provided by operating
activities 439,414 300,530
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Additions to investment property (424,667) (188,371)
----------- -----------
Net cash from investing activities (424,667) (188,371)
CASH FLOWS FROM FINANCING ACTIVITIES -
Cash distributions to partners 0 (382,440)
Payments on mortgage notes payable (86,283) (75,492)
----------- -----------
Net cash from financing activities (86,283) (457,932)
----------- -----------
NET DECREASE IN CASH
AND CASH EQUIVALENTS (71,536) (345,773)
CASH AND CASH EQUIVALENTS, beginning of period 1,249,605 1,378,138
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 1,178,069 $ 1,032,365
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during year for interest $ 409,883 $ 444,079
=========== ===========
SEE NOTES TO THE UNAUDITED FINANCIAL STATEMENTS
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<PAGE>
NOONEY INCOME FUND LTD. II, L.P.
--------------------------------
(A LIMITED PARTNERSHIP)
-----------------------
NOTES TO UNAUDITED FINANCIAL STATEMENTS
---------------------------------------
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
-------------------------------------------------------
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 or as noted below.
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 cashflows at September 30, 1999 and for all periods presented have
been made. The results of operations for the three and nine month periods ended
September 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 American Spectrum Midwest (formerly
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 nine months ended
September 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.
-5-
<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 write downs, amortization of straight line base rent, general and
administrative expenses, unusual and extraordinary items, and interest.
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Leawood Fountain Plaza (24%) $ 82,516 $ 78,435 $ 251,201 $ 219,334
Tower Industrial 51,421 50,206 152,322 150,094
Countryside Executive Center 288,900 235,720 826,502 711,105
Northeast Commerce Center 108,512 178,701 328,749 523,202
NorthCreek Office Park 366,013 343,094 1,107,888 1,024,172
---------- ---------- ---------- ----------
897,362 886,156 2,666,962 2,627,907
========== ========== ========== ==========
Operating Profit:
Leawood Fountain Plaza (24%) $ 7,103 $ 10,549 $ 35,200 $ 22,737
Tower Industrial 22,833 24,474 69,231 72,806
Countryside Executive Center 38,247 (18,240) (74,905) (82,566)
Northeast Commerce Center (51,714) (31,103) (202,159) (54,904)
NorthCreek Office Park 81,887 45,592 183,441 122,580
---------- ---------- ---------- ----------
98,356 31,272 10,808 80,653
========== ========== ========== ==========
Capital Expenditures:
Leawood Fountain Plaza (24%) $ 11,149 $ 4,191 $ 17,709 $ 8,690
Tower Industrial 41,850 0 192,748 0
Countryside Executive Center 75,321 50,955 129,793 114,075
Northeast Commerce Center 0 0 47,725 0
NorthCreek Office Park 3,985 16,766 36,692 65,606
---------- ---------- ---------- ----------
132,305 71,912 424,667 188,371
========== ========== ========== ==========
Depreciation and Amortization:
Leawood Fountain Plaza (24%) $ 24,628 $ 22,685 $ 71,382 $ 69,018
Tower Industrial 11,905 10,402 33,155 31,206
Countryside Executive Center 33,142 34,376 95,831 113,935
Northeast Commerce Center 65,966 71,958 194,127 206,961
NorthCreek Office Park 89,652 88,361 269,967 262,145
---------- ---------- ---------- ----------
225,293 227,782 664,462 683,265
========== ========== ========== ==========
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<PAGE>
Assets:
As of: September 30, 1999 December 31, 1998
------------------ -----------------
Leawood Fountain Plaza (24%) $ 960,688 $ 916,824
Tower Industrial 1,000,540 914,777
Countryside Executive Center 3,102,361 3,055,711
Northeast Commerce Center 3,430,416 3,633,533
NorthCreek Office Park 6,450,900 6,731,436
----------- -----------
14,944,905 15,252,281
=========== ===========
Reconciliation of segment data to the Partnership's consolidated data follow:
Three Months Ended Nine Months Ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenues:
Segments $ 897,362 $ 886,156 $ 2,666,962 $ 2,627,907
Corporate and other 18,958 6,521 34,884 39,127
----------- ----------- ----------- -----------
916,320 892,677 2,701,846 2,667,034
=========== =========== =========== ===========
Operating Profit:
Segments $ 98,356 $ 31,272 $ 10,808 $ 80,653
Corporate and other income 18,958 6,521 34,884 39,127
General and admin expenses 52,637 (3,455) 78,198 (7,754)
----------- ----------- ----------- -----------
64,677 41,248 (32,506) 127,534
=========== =========== =========== ===========
Depreciation and Amortization
Segments $ 225,293 $ 227,782 $ 664,462 $ 683,265
Corporate and other (38,430) (38,367) (115,169) (115,106)
----------- ----------- ----------- -----------
186,863 189,415 549,293 568,159
=========== =========== =========== ===========
Assets:
As of: September 30, 1999 December 31, 1998
------------------ -----------------
Segments $14,944,905 $15,252,281
Corporate and other 1,128,970 877,714
----------- -----------
16,073,875 16,129,995
=========== ===========
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<PAGE>
ITEM 7: MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-------------------------------------------------------------
RESULTS OF OPERATIONS
---------------------
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 Registrant. Actual
results could differ materially from those contemplated by such statements.
Liquidity and Capital Resources
- -------------------------------
Cash on hand as of September 30, 1999 is $1,178,069 a decrease of $71,536 when
compared to the year end December 31, 1998. During the nine month period ending
September 30, 1999, net cash provided by operating activities was $439,414. Cash
was used for capital and tenant improvements in the amount of $424,667 and
payment on mortgage notes payable in the amount of $86,283. 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. These anticipated capital expenditures by property are as
follows:
Other Leasing
Capital Capital Total
------- ------- -----
NorthCreek Office Park $ 0 $ 7,800 $ 7,800
Tower Industrial Building 0 0 0
Northeast Commerce Center 0 191,000 191,000
Countryside Executive Center 0 15,946 15,946
Leawood Fountain Plaza (24%) 0 24,161 24,161
-------- -------- --------
$ 0 $238,907 $238,907
======== ======== ========
Leasing capital at the Registrant's properties include funds for tenant
alterations and lease commissions for new and renewal leases. The significant
amount remaining to be spent at Northeast Commerce is for tenant alterations for
a future major tenant. 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 reported, 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 continued to increase and the Registrant
is currently evaluating sale and other options regarding the property.
The future liquidity of the Registrant is dependent on its ability to fund
future capital expenditures from operations and cash reserves and maintain
occupancy. Until such time as the real estate market recovers and profitable
sale of the properties is feasible, the Registrant will continue to manage their
properties to achieve its investment objectives.
-8-
<PAGE>
Results of Operations by Property
- ---------------------------------
The results of operations for the Registrant's properties for the quarters ended
September 30, 1999 and 1998 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%)
----------- -------- ------ ------ -----------
1999
- ----
Revenues $ 366,013 $ 51,421 $ 108,512 $ 288,900 $ 82,516
Expenses 284,126 28,588 160,226 250,653 75,413
--------- --------- --------- --------- ---------
Net Income (Loss) $ 81,887 $ 22,833 $ (51,714) $ 38,247 $ 7,103
========= ========= ========= ========= =========
1998
- ----
Revenues $ 343,094 $ 50,206 $ 178,701 $ 235,720 $ 78,435
Expenses 297,502 25,732 209,804 253,960 67,886
--------- --------- --------- --------- ---------
Net Income (Loss) $ 45,592 $ 24,474 $ (31,103) $ (18,240) $ 10,549
========= ========= ========= ========= =========
At NorthCreek Office Park net income for the three month period ended September
30, 1999 was $81,887 compared to net income of $45,592 in 1998. Revenues
increased $22,919 when comparing the two periods. This increase can be
attributed to an increase in base rental revenue due to rising rental rates.
Expenses decreased $13,376 when comparing the two quarters. This decrease can
primarily be attributed to decreases in interest ($4,704) and repairs and
maintenance related expenses ($10,148), partially offset by an increase in
amortization expense ($1,291). The decrease in repairs and maintenance can
primarily be attributed to lower heating, ventilation, air-conditioning, and
plumbing repairs and replacements in 1999 than in the same three month period in
1998.
Operating results at Tower Industrial Building remained relatively stable when
comparing the three month periods ended September 30, 1999 and September 30,
1998. The decrease in net income of $1,641, when comparing the two periods, is
primarily due to an increase in depreciation ($1,503) and other operating
expenses ($1,353). These increased expenses were partially offset by slight
increases in both base rental and real estate tax revenues ($1,215).
At Northeast Commerce Center the net loss for the three month period ended
September 30, 1999 was $(51,714) compared to the net loss of $(31,103) in 1998.
Revenues were $108,512 and $178,701 for the three month periods ended September
30, 1999 and 1998, respectively. The decrease in revenues of $70,189 can be
attributed to a decrease in base rental revenue ($79,399), partially offset by
an increase in escalation income ($9,210). The decrease in base rental revenue
is due to the significant decrease in the occupancy level related to the vacancy
of a former major tenant. Expenses decreased $49,578 when comparing the three
month periods ending September 30, 1999 and 1998. This decrease in expenses can
primarily be attributed to decreases in depreciation/amortization ($5,992),
interest ($2,395), cleaning ($6,969), management fees ($4,212), repairs and
maintenance related expenses ($20,536), professional services ($4,876), and
various other operating expenses ($4,598). The decrease in cleaning expense can
be attributable to the lower occupancy level (Northeast Commerce paid suite
cleaning expenses for former major tenant). The repairs and maintenance decrease
can be attributed to extensive heating, ventilation, and air-conditioning
repairs and replacements necessary in the three month period ending September
30, 1998, not needed in 1999.
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<PAGE>
At Countryside Executive Center net income for the three month period ended
September 30, 1999 was $38,247 compared to the net loss of $(18,240) in 1998.
Revenues increased $53,180 when comparing the two periods. The increase in
revenue is attributable to increases in base rental revenue ($30,125) and
escalation revenue ($3,646), partially offset by a decrease in bad debt expense
($19,409). The increase in rental revenue is due to a 10% increase in the
occupancy level when compared to same period last year. The decrease in bad debt
expense is due to the lack of write offs of old receivable considered
uncollectible by the property manager in 1999, as done in third quarter 1998.
Expenses decreased $3,307 when comparing the periods. This decrease in expenses
can be attributed to decreases in interest ($1,454), repairs and maintenance
related expenses ($12,558), and real estate tax ($30,142), partially offset by
increases in common area related expenses ($15,504), landscaping ($11,285),
electricity ($3,722), management fees ($3,191), professional services ($2,367),
payroll ($1,818), and other operating expenses ($2,960). The decrease in repairs
and maintenance is due to extensive heating, ventilating, and air-conditioning
repairs and replacements performed in 1998, not necessary in 1999. The
significant decrease in real estate tax expense can be attributed to a lower
annual tax amount due for the property as a result of a revised assessment. The
increase in common area related expenses is due to improvements made to the
common areas at the property. The landscaping increase can be attributed to
exterior improvements at the property to improve presentation.
At Leawood Fountain Plaza, net income for the three month periods ended
September 30, 1999 and 1998 was $7,103 and $10,549, respectively, resulting in a
decrease of $3,446. Revenues increased $4,081 when comparing the two periods due
to an increase in base rental revenue as a result of the increased occupancy
level. Expenses increased $7,527 due to increases in depreciation/amortization
($1,947), repairs and maintenance related expenses ($3,319), and other operating
expenses ($2,262).
The occupancy levels at September 30 are as follows:
Occupancy Levels at September 30,
---------------------------------
PROPERTY 1999 1998 1997
- -------- ---- ---- ----
NorthCreek Office Park 99% 96% 92%
Tower Industrial Building 100% 100% 100%
Northeast Commerce Center 60% 94% 94%
Countryside Executive Center 85% 75% 49%
Leawood Fountain Plaza (24%) 98% 95% 87%
At NorthCreek Office Park occupancy remained stable with only a 1% decrease to
99% during the quarter. Leasing activity consisted of one new tenant signing a
lease for 1,265 square feet, one tenant signing a renewal lease who occupies
1,692 square feet, and two tenants vacating 2,141 square feet. The Office Park
has one major tenant with two leases that comprise approximately 26% and 7% of
the available space. These two leases expire December 2003.
The Tower Industrial Building is leased to a single tenant whose lease expires
April 2000. The Registrant is currently finalizing a renewal through December
2001 with this tenant.
At Northeast Commerce Center, occupancy increased 10% during the quarter to 60%.
Leasing activity during the third quarter consisted of one new major tenant
signing a lease for 10,900 square feet. The property has two major tenants who
occupy 23% and 10% of the available space with leases that expire September 2003
and August 2006, respectively. The Registrant is working closely with a
Cincinnati brokerage firm to handle the leasing of the remaining 39,540 vacant
square feet.
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<PAGE>
Occupancy at Countryside Executive Center increased from 70% to 85% during the
third quarter 1999. Leasing activity during the quarter consisted of the
Registrant signing five new leases totaling 19,080 square feet, two tenants
renewing leases totaling 2,294 square feet, and two tenants vacating who
occupied 4,930 square feet. The property has two major tenants who occupy 14%
and 13% of the available space with leases which expire February 2005 and August
2002, respectively.
During the third quarter of 1999, occupancy at Leawood Fountain Plaza remained
consistent at 98%. Leasing activity during the quarter consisted of the
Registrant renewing two leases for 10,908 square feet. The property has two
major tenants occupying 14% and 10% of the available space on leases which
expire in October 2001 and July 2004, respectively.
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.
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<PAGE>
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.
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
- ---------------------------------------
For the three month periods ended September 30, 1999 and 1998, consolidated
revenues were $916,320 and $892,677, respectively. Consolidated revenues
increased $23,643 when comparing the periods. This increase in revenues is
primarily due to an increase in escalation revenue ($12,240), miscellaneous
revenues ($2,578), and a decrease in the amount of receivables written off to
bad debt expense once considered uncollectible in 1999 ($19,409). These positive
income results were partially offset by a decrease in base rental revenue
($11,264). The decrease in base rental revenues is primarily due to the lower
occupancy levels and related revenues at Northeast Commerce Center. All of the
other Registrant's properties reflected positive base rental revenue results for
the three month period ending September 30, 1999. For the nine month period
ended September 30, 1999 and 1998, consolidated revenues were $2,701,846 and
$2,667,034, respectively. Consolidated revenues for the nine month period
increased $34,812 when compared to prior year. This increase in revenues is
primarily due to increases in escalation ($55,526) at the Registrant's
-12-
<PAGE>
properties, in addition to a prior year tax refund for Countryside Executive
Center received during second quarter 1999 ($19,545). These increases in income
were partially offset by a decrease in base rental revenue ($32,689) at
Northeast Commerce Center, as mentioned above, and an increase in uncollectible
charges written off to bad debt ($19,705). The increase in escalation revenue
can be attributed to higher reimbursable expenses.
Consolidated expenses for the three month periods ended September 30, 1999 and
1998 were $851,643 and $851,429, respectively. Although overall expenses reflect
only a $214 increase, the following fluctuations should be noted: increases in
professional services ($59,064), utilities ($2,367), payroll ($3,359),
landscaping ($11,333), and other operating expenses ($14,031), were partially
offset by decreases in interest ($8,553), depreciation/amortization ($2,552),
real estate tax expense ($30,804), repairs and maintenance related expenses
($40,081), cleaning ($4,820), and insurance ($3,798). Professional services
increased for the three month period due to appraisals performed at all of the
Registrant's properties and partnership legal fees. The increase in landscaping
can be attributed to exterior improvements at Countryside Executive Center, as
mentioned in the property comparisons. The increase in other operating expenses
is primarily due to the common area improvements at Countryside, also previously
addressed at the property level. The decrease in real estate tax expense is
primarily due to the lower annual tax at Countryside. The lower repairs and
maintenance related expenses are as a result of decreased heating, ventilation,
and air-conditioning repairs and replacements at both Northeast Commerce Center
and Countryside Executive Center. Consolidated expenses for the nine month
period ended September 30, 1999 and 1998 were $2,734,352 and $2,539,500,
respectively. Consolidated expenses increased $194,852 when comparing the nine
month periods due to increases in real estate tax expense ($93,155), management
fees ($2,250), professional services ($92,724), utilities ($2,892), payroll
($13,881), landscaping ($4,630), and other operating expenses ($59,030). These
increases were partially offset by decreases in interest ($34,196),
depreciation/amortization ($18,866), and cleaning expense ($19,590). The
increase in real estate tax expense can be attributed to a tax appeal fee
payment at Countryside Executive Center in second quarter 1999 resulting in
previously addressed tax savings. The increase in payroll can primarily be
attributed to additional temporary office staff during first and second quarter
1999 at Countryside Executive Center and Northcreek Office Park. The increase in
other operating expenses can primarily be attributed to increases in snow
removal at the Registrant's properties and vacancy expenses at Northeast
Commerce Center. The decrease in interest expenses is due to declining principal
balances and outstanding debt. The decrease in depreciation and amortization can
be attributed to fully depreciated and amortized assets. The cleaning expense
decrease is due to the lower occupancy level at Northeast Commerce Center as
mentioned in the property comparisons. The increase in professional fees has
been addressed above in the three month period comparisons.
Results of Consolidated Operations 1998
- ---------------------------------------
For the quarter ended September 30, 1998 and September 30, 1997 consolidated
revenues were $892,677 and $818,376, respectively. Consolidated revenues
increased $74,301 when comparing quarter ended September 30, 1998 to the same
period in the prior year. This increase in revenues is primarily due to an
increase in base rental income ($111,092) and a decrease in the amount of rent
concessions posted ($10,136). These positive income results were offset by a
decrease in escalation income (30,636) and an increase in bad debt expense
($19,409). The increase in rental income is primarily due to higher occupancy
levels at Countryside Executive Center, Northcreek Office Park, and Leawood
Fountain Plaza. The decrease in escalation income is primarily due to decreases
at Northcreek Office Park ($22,583) and Northeast Commerce Center ($6,161). The
bad debt increase is due to the amount recorded by Countryside Executive Center.
For the nine month period ended September 30, 1998 and 1997, consolidated
revenues were $2,667,034 and $2,591,294, respectively. Consolidated revenues for
the nine month period increased $75,740 when compared to prior year. This
increase in revenues is primarily due to increases in rental income at
Countryside Executive Center. Leawood, Northcreek, and Northeast Commerce also
had increased rental revenues when compared to third quarter 1997. In addition,
the amount of rent concessions was less in 1998 due to new lease negotiations.
-13-
<PAGE>
These increases were offset by significant decreases in escalation income at
Northeast Commerce and Leawood and an increase in bad debt expense at
Countryside.
Consolidated expenses for the three months ended September 30, 1998 and
September 30, 1997 were $851,429 and $771,708, respectively. Consolidated
expenses increases $79,721 when comparing third quarter of 1998 to the same
period in prior year. The increase in expenses occurred due to increases in
depreciation and amortization ($70,603), management fees ($3,909), repairs and
maintenance ($29,492), utilities ($7,131), and cleaning expense ($6,071). These
increases were partially offset by decreases in real estate taxes ($17,797),
parking lot ($13,226), and other operating expenses ($8,696). The repairs and
maintenance increase can primarily be attributed to heating, ventilation, and
air-conditioning costs at Northeast Commerce and Countryside. Consolidated
expenses for the nine month period ended September 30, 1998 and 1997 were
$2,539,500 and $2,432,200, respectively. Consolidated expenses increased
$107,300 when comparing the nine months ended September 30, 1998 to the similar
period of the prior year. The increase in consolidated expenses was due to
increases in depreciation and amortization ($73,124), real estate taxes
($16,875), repairs and maintenance ($53,648), utilities ($9,814), cleaning
($9,806) and other operating expenses ($28,314). These increases were partially
offset by decreases in professional services ($78,134) and parking lot ($7,752).
The increase in repairs and maintenance is primarily due to the
heating/air-conditioning costs and increased exterior building repairs. The
other operating expense increase for the nine month period is due to significant
increases in fire and crime prevention, promotional, and travel expense. The
sizeable decrease in professional services can be attributed to the amount of
legal and other professional services rendered in 1998 being less than 1997.
Inflation
- ---------
The effects of inflation did not have a material impact upon the Registrant's
operations.
Item7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
----------------------------------------------------------
The Registrant considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments". The
Registrant had no holdings of derivative financial or commodity instruments at
September 30, 1999. A review of the Registrant's other financial instruments and
risk exposures at that date revealed that the Registrant had minor exposure to
interest rate risk due to the floating rate first mortgage debt of $6,909,593.
The Registrant utilized sensitivity analyses to assess the potential effect of
this risk and concluded that near-term changes in interest rates should not
materially adversely affect the Registrant's financial position, results of
operations or cash flows.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
- ----------------------------------------
(a) Exhibits
See Exhibit Index
(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: November 12, 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
-15-
<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 13-a1 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)
-16-
<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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,178,069
<SECURITIES> 0
<RECEIVABLES> 201,504
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,430,354
<PP&E> 16,480,690
<DEPRECIATION> 5,056,691
<TOTAL-ASSETS> 16,073,875
<CURRENT-LIABILITIES> 689,139
<BONDS> 6,909,593
<COMMON> 0
0
0
<OTHER-SE> 8,230,037
<TOTAL-LIABILITY-AND-EQUITY> 16,073,875
<SALES> 2,701,846
<TOTAL-REVENUES> 2,701,846
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,324,469
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 409,883
<INCOME-PRETAX> (32,506)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (32,506)
<EPS-BASIC> (2.82)
<EPS-DILUTED> 0
</TABLE>
