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 EXCHANGE
- ----- EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1999
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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
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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, 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
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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, 2000, 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
issued and outstanding on February 1, 2000, excluding the number of units
beneficially owned 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 other
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.
2
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PART I
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ITEM 1: BUSINESS
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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, 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 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 American Spectrum Midwest
(formerly Nooney, Inc.), an affiliate of the corporate General Partner.
3
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CGS Real Estate Company, Inc. ("CGS"), an affiliate of the corporate general
partner of the Registrant, is in the process of developing a plan pursuant to
which the properties owned by the Registrant would be combined with the
properties of other real estate partnerships managed by CGS and its affiliates.
These limited partnerships own office properties, industrial properties,
shopping centers, and residential apartment properties. It is expected that the
acquiror would in the future qualify as a real estate investment trust. Limited
partners would receive shares of common stock in the acquiror which would be
listed on a national securities exchange or the NASDAQ national market system.
The Registrant's participation in this plan will require the consent of its
limited partners. The plan and the benefits and risks thereof will be described
in detail in a registration statement filed under the Securities Act of 1933 and
solicitation material to be provided to limited partners in connection with the
solicitation of the consent of the limited partners.
The plan described above is in the preliminary stages and there can be no
assurances that such plan will be consummated.
ITEM 2: PROPERTIES
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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 30,000, 29,000 and 26,000 net rentable square feet respectively,
or an aggregate of approximately 85,000 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 93% leased by 40 tenants at December 31, 1999. (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.)
4
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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. Effective October 1998, the property was
renamed Countryside Office Park. The building was 90% leased by 32 tenants at
December 31, 1999. (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 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 49% leased by 4 tenants at
December 31, 1999. (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.
5
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The complex was 100% leased by 33 tenants at December 31, 1999. (See Item 7:
Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources.)
Reference is made to Note 6 of Notes to Financial Statements for a description
of revenues derived from major tenants.
Reference is made to Note 3 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.
The following table sets forth certain information as of December 31, 1999,
relating to the properties owned by the Registrant.
<TABLE>
<CAPTION>
AVERAGE
ANNUALIZED
TOTAL EFFECTIVE PRINCIPAL TENANTS
SQUARE ANNUALIZED BASE RENT PER PERCENT OVER 10% OF PROPERTY SQUARE LEASE
PROPERTY FEET BASE RENT* SQUARE FOOT LEASED FOOTAGE EXPIRATION
<S> <C> <C> <C> <C> <C> <C>
Tower Industrial Baxter International Inc.
Building 42,000 $ 158,600 $3.78 100% (100%) 2001
Leawood Fountain Plaza Midwest Mechanical (14%) 2001
85,000 $1,343,668 $17.00 93% Family Medical Care of
Kansas City (11%) 2004
Northeast Commerce Center
100,000 $ 288,200 $ 5.86 49% Hill Top Research (23%) 2003
Cincinnati Medical Billing
(11%) 2006
Countryside Office Park Tactical Business Services 2002
91,975 $1,335,186 $16.17 90% (13%)
Dietzgen Corporation (14%) 2005
NorthCreek Office Park Cincinnati Group Health
91,731 $1,352,500 $14.74 100% Associates (33%) , 2003
</TABLE>
* Represents 100% of Base Rent. Registrant has 24% ownership in Leawood Fountain
Plaza.
ITEM 3: LEGAL PROCEEDINGS
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The Registrant is not a party to any material pending legal proceedings.
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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NONE
6
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PART II
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
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MATTERS
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As of February 1, 2000 there were 1,274 record holders of units of Limited
Partnership Interests in the Registrant. There is no public market for the
Interest and it is not anticipated that a public market will develop.
Cash Distributions Paid Per Limited Partnership Unit
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First Quarter Second Quarter Third Quarter Fourth Quarter
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1998 $12.50 -0- $6.25 -0-
There were no cash distributions paid to the Limited Partners during fiscal
1999.
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ITEM 6: SELECTED FINANCIAL DATA
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<TABLE>
<CAPTION>
Year Ended December 31,
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1999 1998 1997 1996 1995(1)
(Not covered by independent auditors' report)
<S> <C> <C> <C> <C> <C>
Rental and other income $ 3,723,962 $ 3,680,649 $ 3,355,159 $ 3,502,080 $ 1,754,750
Net income 64,936 364,096 63,587 83,571 209,517
Data per limited partnership unit:
Net income 3.34 17.83 2.66 3.69 10.17
Cash distributions - Investment income -- 17.83 2.66 3.69 10.17
Cash distributions - Return of capital -- 0.92 9.84 8.81 2.33
Weighted average limited partnership
units outstanding 19,221 19,221 19,221 19,221 19,221
At year-end:
Total assets 16,108,600 6,129,995 16,563,704 16,473,106 16,803,566
Investment property, net 14,314,526 14,372,757 14,744,540 14,798,098 15,166,737
Mortgage note payable 6,871,246 6,995,876 7,096,532 7,190,000 7,190,000
Partners' equity 8,327,479 8,262,543 8,280,887 8,472,267 8,643,642
</TABLE>
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.
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ITEM: 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
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OF OPERATIONS
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Liquidity and Capital Resources
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Cash on hand as of December 31, 1999 was $1,190,211, a decrease of $59,394 from
the year ended December 31, 1998. The Registrant expects the capital
expenditures during 2000 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 $ 66,000 $ 65,831 $131,831
Tower Industrial Building -0- 0 -0-
Northeast Commerce Center 28,400 349,377 377,777
Countryside Office Park 23,390 93,659 117,049
Leawood Fountain Plaza (24%) -0- 73,847 73,847
----------------------------------------
$117,790 $582,714 $700,504
========================================
At NorthCreek Office Park, other capital has been budgeted for parking lot
restoration. Leasing capital is anticipated for tenant improvements and lease
commissions for new and renewal tenants.
At Northeast Commerce Center, other capital has been budgeted for parking lot
overlay and striping, and leasing capital has been budgeted for tenant
improvements and lease commissions for new tenants anticipated during the year
2000.
At Countryside Office Park, other capital has been budgeted for the restoration
of common area ceiling tiles and two new heating and air conditioning units.
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.
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.
The Registrant believes that due to market conditions Countryside Office Park
should be sold. Management has increased the occupancy level to 90% at December
31, 1999, from 77% at year-end 1998. The Registrant, in the year 2000, is
evaluating sale and other options regarding the property due to the increased
occupancy level and improved market conditions in the surrounding area(s) during
the second half of 1999.
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 negotiate with lenders the refinancing of
mortgage debt as it matures.
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Results of Operations
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The results of operations for the Registrant's properties for the years ended
December 31, 1999, 1998 and 1997 are detailed in the schedule below. Expenses of
the Registrant are excluded.
<TABLE>
<CAPTION>
NorthCreek Tower Northeast Countryside Leawood
Office Park Industrial Commerce Office Park Fountain
(100%) (100%) (100%) (100%) Plaza (24%)
------------- ----------- ---------- ----------- -----------
1999
<S> <C> <C> <C> <C> <C>
Revenues $ 1,509,059 $ 203,106 $ 409,739 $ 1,220,581 $ 359,778
Expenses 1,165,131 118,441 623,696 1,231,047 267,597
-----------------------------------------------------------------
Net Income (Loss) $ 343,928 $ 84,665 $ (213,957) $ (10,466) $ 92,181
1998
Revenues $ 1,377,291 $ 202,221 $ 692,068 $ 1,025,373 $ 307,888
Expenses 1,199,133 108,696 723,378 988,862 264,297
-----------------------------------------------------------------
Net Income (Loss) $ 178,158 $ 93,525 $ (31,310) $ 36,511 $ 43,591
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
-----------------------------------------------------------------
Net Income (Loss) $ 81,688 $ 90,382 $ 50,375 $ (69,464) $ 20,031
</TABLE>
1999 Property Comparisons
At NorthCreek Office Park, revenues increased $131,768 when comparing 1999 to
1998. The increase in revenue is primarily due to increases in both base rental
revenue ($99,847) and escalation revenue ($34,190). The increase in base rent
can be attributed to increased rental rates. Increased reimbursable expenses in
1999, compared to that of 1998, resulted in the increased escalation revenue.
Expenses decreased $34,002 when comparing the two year-end periods, primarily
due to decreases in interest expense ($16,525), depreciation and amortization
($51,900), real estate tax ($15,783), and vacancy related expenses ($3,763).
These decreases were partially offset by increases in electric repair expense
($9,500), snow removal ($5,291), repairs and maintenance general building
($20,838), management fees ($7,907), and legal fees ($9,802). The decrease in
interest expense is due to a declining principal balance. The decrease in
depreciation and amortization can be attributed to contra-depreciation entries
depreciating the property write down which was recorded at the partnership level
prior to 1999. All property write downs have been recorded at the property level
in 1999. The decrease in real estate tax expense is due to lower annual taxes as
a result of a decrease in the property's appraised value by the taxing
authority. The increase in repairs and maintenance general building can be
attributed to renovations and updates in common areas of the property (hallways
and restrooms) done in 1999.
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The revenues at Tower Industrial Building remain stable as the building
continues to be occupied by a single tenant. Expenses increased $9,745 when
comparing the two year-end periods. This is primarily due to increases in real
estate tax ($1,697), general and administrative related expenses ($4,290), and
depreciation expense ($3,550).
Revenues at Northeast Commerce Center decreased when comparing 1999 to 1998 by
$282,329. A significant decrease of $328,668 was reflected in base rental
revenue. This decrease was partially offset by increases in escalation revenues
($31,989) and other miscellaneous revenues ($14,350). The decrease in base
rental revenues can be attributed to the property being only 50% occupied
throughout the entire year. Expenses decreased $99,682 when comparing the two
year-end periods, primarily due to decreases in interest expense ($8,413),
depreciation and amortization ($73,033), heating and air-conditioning expenses
($16,593), contract cleaning expenses ($29,757), and management fees ($16,940).
These decreases were partially offset by increases in vacancy related expenses
($50,886) and various other operating expenses ($5,831). The decreases in both
interest expense and depreciation and amortization is due to the reasons
mentioned above in the first property comparison. The decrease in heating and
air-conditioning costs can be attributed to major changes necessary to be made
to the heating and air conditioning system in 1998 and not in 1999. The
decreased contract cleaning expenses are a result of a former tenant, who used
this service exclusively, vacating. Management fees decreased as a direct result
of lower revenues. The increase in vacancy related expenses is due to costs
incurred during 1999 to rehabilitate vacant space for leasing.
At Countryside Office Park, revenues increased $195,208 primarily due to an
increase in base rental revenue ($161,889). This can be attributed to the higher
occupancy level as compared to that of the prior year. Expenses at Countryside
Office Park increased ($242,185) when comparing year-end results for 1999 to the
prior year, primarily due to increases in snow removal ($9,802), management fees
($10,530), parking lot expense ($3,382), professional services ($186,516),
administrative payroll ($9,065), and various other operating expenses ($2,016).
These increases were partially offset by decreases in interest expense ($5,108)
and amortization ($14,485). The significant increase in professional services is
due to real estate tax consulting fees paid during 1999 ($159,230) which will
ultimately result in a tax savings of $454,942 over a three-year period. The
decrease in amortization expense can be attributed to fully amortized tenant
improvements and lease commissions.
At Leawood Fountain Plaza, revenues increased ($51,890) when comparing 1999
year-end results to the prior year. The increase in revenue can primarily be
attributed to increases in base rental revenue ($25,166) and escalation revenue
($24,905). The increase in base rental revenue is due to increased rental rates.
Expenses during 1999 were relatively stable with only a $3,300 increase when
compared to the prior year.
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 Office Park and Northeast
Commerce Center. The balance of the loan as of December 31, 1999 was $6,871,246.
The interest rate at year end was 9.25%. 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 1999 the Partnership
decreased interest expense by approximately $59,000 from the compensating
balance clause.
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The occupancy levels at the Registrant's properties as of December 31, 1999,
1998 and 1997 are detailed in the schedule below.
Occupancy rates at December 31,
1999 1998 1997
------------------------------
NorthCreek Office Park 100% 100% 89%
Tower Industrial 100% 100% 100%
Northeast Commerce Center 49% 50% 94%
Countryside Executive Center 90% 77% 72%
Leawood Fountain Plaza 93% 87% 89%
For the quarter ended December 31, 1999, occupancy at NorthCreek Office Park
increased to 100%. During the quarter, two tenants signed new leases for 2,894
square feet, and one tenant vacated 1,964 square feet. For the year, five
tenants signed new leases for 6,519 square feet, six tenants renewed their
leases for 14,380 square feet, and five tenants vacated 6,247 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 both
expire in December 2003.
Tower Industrial Building is leased by a single tenant whose lease expires on
April 30, 2000. The Registrant currently has a signed renewal with this tenant
that will extend through December 2001.
At Northeast Commerce Center, one tenant vacated 11,000 square feet during the
quarter ended December 31, 1999. For the year ended December 31, 1999 two new
leases for 18,460 square feet were signed, one tenant vacated 11,000 square
feet, and one tenant downsized 11,000 square feet. Northeast Commerce Center has
two major tenants which occupy 23% and 11% of the space with lease expirations
of 2003 and 2006, respectively. The Registrant is working closely with a
Cincinnati brokerage firm to handle the leasing of the remaining 50,790 vacant
square feet.
Occupancy at Countryside Office Park increased to 90% during the fourth quarter
of 1999 and leasing activity consisted of three tenants signing new leases for
4,496 square feet, two tenants renewing their leases for 3,810 square feet, and
one tenant vacating 442 square feet. During 1999, nine tenants signed new leases
for 25,358 square feet, six tenants renewed their leases for 11,835 square feet,
and seven tenants vacated 13,625 square feet. There are two major tenants at
Countryside who occupy 14% and 13% of the vacant space with leases which expire
in 2005 and 2002, respectively.
During the fourth quarter at Leawood Fountain Plaza, occupancy decreased from
98% to 93%. During the quarter, four tenants renewed their leases for 5,324
square feet, and one tenant vacated 4,470 square feet. During the year, the
Registrant signed one new lease for 737 square feet, renewed seven tenants'
leases for 17,857 square feet, and one tenant vacated 4,470 square feet. The
property has two major tenants, one who occupies 14% of the space with a lease
which expires in October 2001 and the other major tenant occupies 11% of the
space with a lease which expires in July 2004.
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
12
<PAGE>
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 estimate 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
judgment is necessary to estimate fair value. Accordingly, actual results could
vary significantly from such estimates.
Year 2000 issues
- ----------------
Information Technology Systems
- ------------------------------
The Registrant did not experience any information technology hardware or
software disruptions or failure as a result of the Year 2000. Subsequent to
December 31, 1999, the Registrant's "IT" systems have continued to operate, as
normal, at the management office and all five of the Registrant's properties.
Non-Information Technology Systems
- ----------------------------------
None of the non-information systems at the Registrant's five properties
experienced any disruptions or failures as a result of the Year 2000. These
systems included elevators, heating, ventilating, air conditioning (HVAC)
systems, and locks. These and other like systems continue to operate as normal
in the year 2000.
The Registrant did not separately track internal costs related to the Year 2000
issue. The changing of the century did not have a material impact on the
Registrant's financial condition or results of its operations.
Material Third Parties' Systems Failures
- ----------------------------------------
The Registrant did not experience any material impact related to third party
system failures for the Year 2000 issue at any of its five properties. Payments
from tenants did not appear to be delayed due to the Year 2000 conversion. The
Registrant remains confident that no third party material issues will arise in
the future.
1999 Comparisons
- ----------------
For the year ended December 31, 1999, the Registrant's consolidated revenues
were $3,728,017 compared to $3,680,649 for the year ended December 31, 1998.
Revenues increased $47,368 when comparing the two years. This increase in
revenue is primarily due to an increase in base rental revenues at Countryside
Office Park and to increases in both base rental and escalation revenues at
NorthCreek and Leawood Fountain Plaza. Positive revenue results from these
properties were partially offset by a significant decrease in revenues at
Northeast Commerce Center, as mentioned in the property comparisons.
For the year ended December 31, 1999, consolidated expenses were $3,663,081 as
compared to $3,316,553 for the year ended 1998. Expenses increased $346,528 when
comparing the two year-end periods. This increase was primarily due to increases
in depreciation and amortization ($10,535), real estate taxes ($168,830),
repairs and maintenance related expenses ($107,812), and professional services
($85,738). These increased expenses were partially offset by a decrease in
interest expenses ($30,046). The increase in professional services expense is
primarily due to consulting fees paid by Countryside Office Park, as mentioned
13
<PAGE>
in the property comparisons. The increase in repairs and maintenance is mainly
due to increased snow removal and various maintenance costs at two of the
Registrant's properties, as also mentioned in the property comparisons. The
increased professional fees can be attributed primarily to additional legal
costs incurred at both the partnership and property levels. Net income for the
year ended 1999 was $64,936 as compared to $364,096 for the year ended 1998.
During 1999, net cash provided by operating activities was $684,206. This cash
was used to provide capital improvements to the properties of $618,970, and
principal payments on the mortgage loan were made in the amount of $124,630.
1998 Comparisons
- ----------------
For the year ended December 31, 1998, the Registrant's consolidated revenues
were $3,680,649 compared to $3,356,773 for the year ended December 31, 1997.
Revenues increased $323,876 or 10% when comparing the two years. The increase in
revenue is due to an increase in base rental income at the Registrant's
properties.
For the year ended December 31, 1998, consolidated expenses were $3,316,553
compared to $3,293,186 for the year ended December 31, 1997. Thus, total
expenses increased $23,367. The increase in expenses was a result of an increase
in depreciation and amortization ($84,450), an increase in repair and
maintenance ($41,342), and an increase in other operating expenses ($48,189),
offset by a decrease in real estate taxes ($63,257) and a decrease in
professional services ($89,196). Net income was $364,096 as compared to $63,587
for the prior year. Net cash provided by operating activities was $643,655 for
the year ended December 31, 1998. The cash was used to provide capital
improvements to the properties of $289,092, pay distributions to partners of
$382,440 and decrease the outstanding balance of the mortgage loan by $100,656.
Inflation
- ---------
The effects of inflation did not have a material impact upon the Registrant's
operations in fiscal 1999, 1998, and 1997 and are not expected to materially
affect the Registrant's operation in 2000.
Interest Rates
- --------------
Interest rates on floating rate debt fluctuated throughout 1999. Future
increases in the prime interest rate can adversely affect the operations of the
Registrant.
ITEM 7A. 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
December 31, 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 $6,871,246.
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>
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 provided in
Item 7.
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------------------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
None
PART III
--------
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -----------------------------------------------------------
The Registrant has two General Partners. The background and experience of the
General Partners are as follows:
The General Partner of the Registrant responsible for all aspects of the
Registrant's operations is Nooney Income Investments Two, Inc., a Missouri
corporation. Nooney Income Investments Two, Inc., a wholly-owned subsidiary of
S-P Properties, Inc., was formed in November 1984 for the purpose of being a
general and/or limited partner in the Registrant and other limited partnerships.
John J. Nooney is a Special General Partner of the Partnership and as such, does
not exercise control of the affairs of the Partnership.
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.
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 1999, no cash distributions 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.
Title Name of Amount and Nature of Percentage
of Class Beneficial Owner Beneficial Ownership of Class
-------- ---------------- -------------------- ----------
Limited CGS Real Estate Company 1121 Units 5.83%
Partnership
Interests
CGS is located at 2424 S.E. Bristol Street, Newport Beach, California 92660.
(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.
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.
American Spectrum Midwest (formerly Nooney, Inc.), the manager of the
Registrant's properties, is a wholly-owned subsidiary of CGS Real Estate
Company, an affiliate of the General Partner. American Spectrum Midwest
(formerly Nooney, Inc.) is entitled to receive monthly compensation from the
Registrant for property management and leasing services, plus administrative
expenses. During fiscal 1999 the Registrant paid property management fees of
$216,862 to American Spectrum Midwest (formerly Nooney, Inc.) and $40,000 as
reimbursement for indirect expenses incurred in connection with management of
the Registrant.
(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, 1999 in connection with various
transactions.
16
<PAGE>
(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
During the last quarter of the period covered by this report, the
Registrant filed no reports on Form 8-K.
(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, 2000 Nooney Income Investments Two, Inc.
----------------------------- General Partner
By: /s/William J. Carden
----------------------------
William J. Carden - Director
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Date: March 30, 2000 By: /s/William J. Carden
------------------------------ ---------------------------
William J. Carden
Chairman of the Board and
Chief Executive Officer
Date: March 30, 2000 By: /s/Gregory J. Nooney, Jr.
------------------------------ ---------------------------
Gregory J. Nooney, Jr.
Director
Date: March 30, 2000 By: /s/Thomas N. Thurber
------------------------------ ---------------------------
Thomas N. Thurber
Director
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,
Inc.(k/n/a American Spectrum Midwest) 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.
John J. Nooney
Limited Partnerships:
Nooney Real Property Investors-Two, L.P. Nooney Income Fund Ltd., L.P.
Companies:
None
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, 1999 and 1998, and the related
statements of operations, partners' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1999. Our audits also included
the financial statement schedules listed in the index at Item 14(a)2. These
financial statements and financial statement schedules are the responsibility of
the Partnership's general partners. Our responsibility is to express an opinion
on these financial statements and financial statement schedules based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States of America.
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.
February 22, 2000
22
<PAGE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
- --------------------------------------------------------------------------------
ASSETS 1999 1998
CASH AND CASH EQUIVALENTS $ 1,190,211 $ 1,249,605
ACCOUNTS RECEIVABLE (net of allowance of $273,506
in 1999 and $255,409 in 1998) 257,599 205,323
PREPAID EXPENSES AND OTHER ASSETS 24,430 21,505
INVESTMENT PROPERTY:
Land 2,618,857 2,618,857
Buildings and improvements 13,997,112 13,618,572
----------- -----------
16,615,969 16,237,429
Less accumulated depreciation 5,162,333 4,691,263
----------- -----------
11,453,636 11,546,166
Investment property held for sale 2,860,890 2,826,591
----------- -----------
Total investment property 14,314,526 14,372,757
DEFERRED EXPENSES - At amortized cost 321,834 280,805
----------- -----------
TOTAL $16,108,600 $16,129,995
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 174,137 $ 160,061
Accrued real estate taxes 485,507 499,728
Refundable tenant deposits 250,231 211,787
Mortgage note payable 6,871,246 6,995,876
----------- -----------
Total liabilities 7,781,121 7,867,452
PARTNERS' EQUITY 8,327,479 8,262,543
----------- -----------
TOTAL $16,108,600 $16,129,995
=========== ===========
See notes to financial statements.
23
<PAGE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
1999 1998 1997
REVENUES:
Rental and other income $3,723,962 $3,680,649 $3,355,159
Interest 4,055 1,614
---------- ---------- ----------
Total revenues 3,728,017 3,680,649 3,356,773
EXPENSES:
Interest 554,283 584,329 595,696
Depreciation and amortization 765,982 755,447 670,997
Real estate taxes 544,192 534,592 597,849
Property management fees - related party 216,862 215,198 201,992
Repairs and maintenance 442,418 334,606 293,264
Professional services 380,102 135,134 224,330
Other operating expenses (includes
$40,000 in each year to related party) 759,242 757,247 709,058
---------- ---------- ----------
Total expenses 3,663,081 3,316,553 3,293,186
---------- ---------- ----------
NET INCOME $ 64,936 $ 364,096 $ 63,587
========== ========== ==========
NET INCOME ALLOCATION:
General partners $ 649 $ 21,480 $ 12,529
Limited partners $ 64,287 $ 342,616 $ 51,058
LIMITED PARTNERS' DATA:
Net income per unit $ 3.34 $ 17.83 $ 2.66
========== ========== ==========
Cash distributions - Investment income
per unit $ -- $ 17.83 $ 2.66
========== ========== ==========
Cash distributions - Return of capital
per unit $ -- $ 0.92 $ 9.84
========== ========== ==========
Weighted average limited partnership
units outstanding 19,221 19,221 19,221
========== ========== ==========
See notes to financial statements.
24
<PAGE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
Limited General
Partners Partners Total
BALANCE (DEFICIT), JANUARY 1, 1997 $ 8,600,764 $ (128,497) $ 8,472,267
Net income 51,058 12,529 63,587
Cash distribution (240,263) (14,704) (254,967)
----------- ----------- -----------
BALANCE (DEFICIT), DECEMBER 31, 1997 8,411,559 (130,672) 8,280,887
Net income 342,616 21,480 364,096
Cash distributions (360,394) (22,046) (382,440)
----------- ----------- -----------
BALANCE (DEFICIT), DECEMBER 31, 1998 8,393,781 (131,238) 8,262,543
Net income 64,287 649 64,936
----------- ----------- -----------
BALANCE (DEFICIT), DECEMBER 31, 1999 $ 8,458,068 $ (130,589) $ 8,327,479
=========== =========== ===========
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, 1999, 1998 AND 1997
- -----------------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 64,936 $ 364,096 $ 63,587
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 677,201 660,875 604,818
Amortization of deferred expenses 88,781 94,572 66,179
Net changes in accounts affecting operations:
Accounts receivable (52,276) (52,373) 66,705
Prepaid expenses and other assets (2,925) (4,453) (6,864)
Deferred expenses (129,810) (104,353) (215,064)
Accounts payable and accrued expenses 14,076 (320,548) 377,278
Accrued real estate taxes (14,221) (57,174) (25,580)
Refundable tenant deposits 38,444 63,013 23,748
----------- ----------- -----------
Net cash provided by operating activities 684,206 643,655 954,807
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES -
Additions to investment property (618,970) (289,092) (551,260)
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions to partners -- (382,440) (254,967)
Mortgage principal payments (124,630) (100,656) (93,468)
----------- ----------- -----------
Net cash used in financing activities (124,630) (483,096) (348,435)
----------- ----------- -----------
NET (DECREASE) INCREASE IN CASH AND
CASH EQUIVALENTS (59,394) (128,533) 55,112
CASH AND CASH EQUIVALENTS, BEGINNING
OF YEAR 1,249,605 1,378,138 1,323,026
----------- ----------- -----------
CASH AND CASH EQUIVALENTS, END
OF YEAR $ 1,190,211 $ 1,249,605 $ 1,378,138
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION - Cash paid during the year for
interest $ 590,980 $ 537,963 $ 609,879
=========== =========== ===========
</TABLE>
See notes to financial statements.
26
<PAGE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------
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.
The Partnership's portfolio is comprised of a 24% undivided interest in an
office complex in Leawood, Kansas (Leawood Fountain Plaza); an office
warehouse in Mundelein, Illinois (Tower Industrial Building); a single
story office building in Palatine, Illinois (Countryside Office Park,
formerly Countryside Executive Center); an office/warehouse/showroom
facility in Cincinnati, Ohio (Northeast Commerce Center); and an office
complex in Cincinnati, Ohio (NorthCreek Office Park). The proportionate
share of these properties owned by the Partnership generated 9.6%, 5.5%,
33.0%, 11.1% and 40.8% of rental and other income, respectively, for the
year ended December 31, 1999. Effective October 1, 1998, the property
known as Countryside Executive Center was renamed Countryside Office Park.
It is management's intent to sell Countryside Office Park (Countryside) as
soon as practicable because of local market conditions, tax burdens and
other factors related specifically to this property.
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.
Prior to October 31, 1997, 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. Property management fees paid to Nooney Krombach Company were
$171,525 for the year ended December 31, 1997. Additionally, the
Partnership paid Nooney Krombach Company $33,334 in 1997 as reimbursement
for management services and indirect expenses in connection with the
management of the Partnership.
27
<PAGE>
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.
In September 1999, Nooney, Inc. changed its name to American Spectrum
Midwest, Inc. and began doing business under the new name at that time.
Ownership remained unchanged. Property management fees paid to American
Spectrum Midwest, Inc. were $216,862, $215,198 and $30,467 for the years
ended December 31, 1999, 1998 and 1997, respectively. Additionally, the
Partnership paid American Spectrum Midwest, Inc. $40,000 in 1999 and 1998
and $6,666 in 1997 as reimbursement for management services and indirect
expenses in connection with the Partnership.
Investment property is recorded at the lower of cost or net realizable
value. The Partnership 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 Partnership considers a history of
operating losses or a change in occupancy to be primary indicators of
potential impairment. The Partnership 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 estimate 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 judgment
is necessary to estimate fair value. Accordingly, actual results could
vary significantly from such estimates.
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,
1999, accounts receivable include approximately $145,000 ($121,500 in
1998) 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.
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,
28
<PAGE>
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, 1999, Partnership Management Fees totaling
$316,180 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 $316,180 is remote and therefore the
management fee 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.
The Partnership adopted SFAS No. 130, Reporting Comprehensive Income,
which requires entities to report changes in equity that result from
transactions and economic events other than those with shareholders. The
Partnership had no other comprehensive income items, accordingly net
income and other comprehensive income are the same.
3. MORTGAGE NOTE PAYABLE
Mortgage note payable as of December 31, 1999 and 1998, consists of the
following:
1999 1998
Note payable to bank, principal of $9,587, and
interest due monthly at bank's prime rate
(9.25% at December 31, 1999) plus .75%
maturing December 28, 2002 $6,871,246 $6,995,876
========== ==========
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 $12,601,000 at December
31, 1999. 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 1999, 1998 and 1997, the
Partnership decreased interest expense by approximately $59,000, $64,000
and $60,000, respectively, from the compensating balance clause.
29
<PAGE>
Principal payments required during the next five years are as follows:
2000 $ 115,044
2001 132,000
2002 6,624,202
----------
Total $6,871,246
==========
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, 1999
and 1998 are equal due to the adjustable rate feature of the note and the
terms are consistent with those the Partnership could currently obtain.
4. RENTAL REVENUES UNDER OPERATING LEASES
Minimum future rental revenues under noncancelable operating leases in
effect as of December 31, 1999 are as follows:
2000 $3,047,000
2001 2,608,000
2002 1,928,000
2003 1,207,000
2004 437,000
Remainder 267,000
----------
Total $9,494,000
==========
In addition, certain lease agreements require tenant participation in
certain operating expenses. Tenant participation in expenses included in
revenues approximated $45,000, $61,000 and $43,000 for the years ended
December 31, 1999, 1998 and 1997, respectively.
5. 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.
30
<PAGE>
The comparison of financial statement and income tax reporting is as
follows:
Financial Income
Statement Tax
1999:
Net income (loss) $ 64,936 $ (145,635)
Partners' equity 8,327,479 13,178,376
1998:
Net income (loss) $ 364,096 $ (5,791)
Partners' equity 8,262,543 13,324,011
1997:
Net income (loss) $ 63,587 $ (8,137)
Partners' equity 8,280,887 13,712,242
6. MAJOR TENANT
A substantial amount of the Partnership's revenue in 1999 was derived from
one major tenant whose rental amounted to approximately $405,000, or 11%,
of total revenues. A substantial amount of the Partnership's revenue in
1998 was derived from two major tenants whose rentals amounted to
approximately $427,000 and $367,000 or 11.6% and 10.0%, respectively, of
total revenues. 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.
31
<PAGE>
7. BUSINESS SEGMENTS (in thousands)
The Partnership has five reportable operating segments: Leawood Fountain
Plaza, Tower Industrial, Countryside Office Park, Northeast Commerce
Center, and NorthCreek Office Park. In 1998 and 1997, the Partnership's
management evaluated 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. In
1999, the Partnership began evaluating each segment's operations including
allocation of property writedowns. The accounting policies of the segments
are the same as those described in the summary of significant accounting
policies (see Note 2).
(In thousands) 1999 1998 1997
Revenues:
Leawood Fountain Plaza $ 359.7 $ 307.9 $ 283.9
Tower Industrial 203.1 202.2 196.9
Countryside Office Park 1,220.6 1,025.4 905.8
Northeast Commerce Center 409.7 692.1 676.1
NorthCreek Office Park 1,509.1 1,377.3 1,303.8
----------- ----------- -----------
$ 3,702.2 $ 3,604.9 $ 3,366.5
=========== =========== ===========
Operating profit (loss):
Leawood Fountain Plaza $ 92.2 $ 43.6 $ 20.0
Tower Industrial 84.7 93.5 90.4
Countryside Office Park (10.5) 36.5 (69.5)
Northeast Commerce Center (214.0) (31.3) 50.4
NorthCreek Office Park 343.9 178.2 81.7
----------- ----------- -----------
$ 296.3 $ 320.5 $ 173.0
=========== =========== ===========
Capital expenditures:
Leawood Fountain Plaza $ 33.6 $ 36.1 $ 29.0
Tower Industrial 192.8
Countryside Office Park 128.9 138.0 313.3
Northeast Commerce Center 219.2 68.3
NorthCreek Office Park 44.5 115.0 140.7
----------- ----------- -----------
$ 619.0 $ 289.1 $ 551.3
=========== =========== ===========
Depreciation and amortization:
Leawood Fountain Plaza $ 69.2 $ 90.8 $ 91.4
Tower Industrial 45.2 41.6 41.6
Countryside Office Park 137.3 151.8 72.0
Northeast Commerce Center 192.4 265.4 245.2
NorthCreek Office Park 307.4 359.3 374.3
----------- ----------- -----------
$ 751.5 $ 908.9 $ 824.5
=========== =========== ===========
Assets:
Leawood Fountain Plaza $ 946.8 $ 1,476.0
Tower Industrial 985.9 914.8
Countryside Office Park 3,126.2 8,653.8
Northeast Commerce Center 3,512.7 4,606.2
NorthCreek Office Park 6,410.5 6,992.8
----------- -----------
$ 14,982.1 $ 22,643.6
=========== ===========
32
<PAGE>
Reconciliations of segment data to the Partnership's consolidated data
follow:
(In thousands) 1999 1998 1997
Revenues:
Segments $ 3,702.2 $ 3,604.9 $ 3,366.5
Corporate and other 25.8 75.7 (9.7)
----------- ----------- -----------
$ 3,728.0 $ 3,680.6 $ 3,356.8
=========== =========== ===========
Net income:
Segments operating profit $ 296.3 $ 320.5 $ 173.0
Other income (expense) 25.8 75.7 (9.7)
General and administrative
expenses (257.2) (32.1) (99.7)
----------- ----------- -----------
$ 64.9 $ 364.1 $ 63.6
=========== =========== ===========
Assets:
Segments $ 14,982.1 $ 22,643.6
Corporate and other 1,126.5 (6,513.6)
----------- -----------
$ 16,108.6 $ 16,130.0
=========== ===========
Depreciation and amortization:
Segments $ 751.5 $ 908.9 $ 824.5
Corporate and other 14.5 (153.5) (153.5)
----------- ----------- -----------
$ 766.0 $ 755.4 $ 671.0
=========== =========== ===========
* * * * * *
33
<PAGE>
<TABLE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
SCHEDULE - RECONCILIATION OF PARTNERS' EQUITY (DEFICIT)
DECEMBER 31, 1999, 1998 AND 1997
- --------------------------------------------------------------------------------------------------------------------
The reconciliation of partners' equity (deficit) between financial statement and
income tax reporting is as follows:
<CAPTION>
December 31, 1999
--------------------------------------
Limited General
Partners Partners Total
<S> <C> <C> <C>
Balance (deficit) per statement of partners' equity $ 8,458,068 $ (130,589) $ 8,327,479
Add:
Selling commissions and other offering costs not deductible for income tax
purposes 2,411,625 2,411,625
Prepaid rents included in income for income tax purposes 25,900 262 26,162
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 16,216,447 (76,581) 16,139,866
Less:
Excess depreciation and amortization deducted for income tax purposes 2,755,494 45,827 2,801,321
Insurance premiums deducted for income tax purposes 15,014 152 15,166
Rent concessions not recognized for income tax purposes 143,553 1,450 145,003
----------- ----------- -----------
Balance (deficit) per tax return $13,302,386 $ (124,010) $13,178,376
=========== =========== ===========
December 31, 1998
--------------------------------------
Limited General
Partners Partners Total
Balance (deficit) per statement of partners' equity $ 8,393,781 $ (131,238) $ 8,262,543
Add:
Selling commissions and other offering costs not deductible for income tax
purposes 2,411,625 2,411,625
Prepaid rents included in income for income tax purposes 6,356 64 6,420
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 16,132,616 (77,428) 16,055,188
Less:
Excess depreciation and amortization deducted for income tax purposes 2,553,625 43,789 2,597,414
Insurance premiums deducted for income tax purposes 12,120 122 12,242
Rent concessions not recognized for income tax purposes 120,306 1,215 121,521
----------- ----------- -----------
Balance (deficit) per tax return $13,446,565 $ (122,554) $13,324,011
=========== =========== ===========
December 31, 1997
--------------------------------------
Limited General
Partners Partners Total
Balance (deficit) per statement of partners' equity $ 8,411,559 $ (130,672) $ 8,280,887
Add:
Selling commissions and other offering costs not deductible for income tax
purposes 2,411,625 2,411,625
Prepaid rents included in income for income tax purposes 70,438 711 71,149
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 16,214,476 (76,215) 16,138,261
Less:
Excess depreciation and amortization deducted for income tax purposes 2,337,626 41,606 2,379,232
Insurance premiums deducted for income tax purposes
Rent concessions not recognized for income tax purposes 46,319 468 46,787
----------- ----------- -----------
Balance (deficit) per tax return $13,830,531 $ (118,289) $13,712,242
=========== =========== ===========
</TABLE>
34
<PAGE>
<TABLE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
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 Office Park, NorthCreek Office Park and Northeast Commerce
Center 6,871,246
----------- ----------- ----------- -----------
6,871,246 1,050,917 10,457,427 11,508,344
Countryside Office Park, Palatine, Illinois -- 623,919 4,302,911 4,926,830
----------- ----------- ----------- -----------
Total $ 6,871,246 $ 1,674,836 $14,760,338 $16,435,174
=========== =========== =========== ===========
Column D Column E
-------- --------
Gross Amount at Which
Costs Carried at Close of Period
Capitalized ----------------------------------------
Subsequent to Buildings and
Description Acquisition(1) Land Improvements Total
Leawood Fountain Plaza Office Complex (24% undivided interest), Leawood,
Kansas $ (603,326) $ 318,962 $ 1,388,091 $ 1,707,053
Tower Industrial Building, Mundelein, Illinois 195,588 193,744 1,237,664 1,431,408
NorthCreek Office Park, Cincinnati, Ohio 3,713,830 1,370,100 7,322,197 8,692,297
Northeast Commerce Center, Cincinnati, Ohio 1,801,533 736,051 4,049,160 4,785,211
Countryside Office Park, NorthCreek Office Park and Northeast Commerce
Center
----------- ----------- ----------- -----------
5,107,625 2,618,857 13,997,112 16,615,969
Countryside Office Park, Palatine, Illinois (938,645) 1,356,419 2,631,766 3,988,185 (2)
----------- ----------- ----------- -----------
Total $ 4,168,980 $ 3,975,276 $16,628,878 $20,604,154
=========== =========== =========== ===========
Column F Column G Column H Column I
-------- -------- -------- --------
Life on Which
Depreciation in
Accumulated Date of Date Latest Income
Depreciation Construction Acquired Statement is Computed
Leawood Fountain Plaza Office Complex (24% undivided interest), Leawood,
Kansas $ 938,094 1982-1983 2/20/1985 30 years
Tower Industrial Building, Mundelein, Illinois 486,715 1974 3/20/1986 30 years
NorthCreek Office Park, Cincinnati, Ohio 2,403,394 1984-1986 12/29/1986 30 years
Northeast Commerce Center, Cincinnati, Ohio 1,334,130 1985 12/29/1986 30 years
----------
5,162,333
Countryside Office Park, Palatine, Illinois 1,127,295 (2) 1975 12/16/1986 30 years
----------
Total $6,289,628
==========
(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 Office Park 3,256,000
</TABLE>
(2) Amount is shown net in the financial statements $2,860,890.
35
<PAGE>
<TABLE>
NOONEY INCOME FUND LTD. II, L.P.
(A LIMITED PARTNERSHIP)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
- -------------------------------------------------------------------------------------------
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
(A) Reconciliation of amounts in Column E:
Balance at beginning of period $ 20,130,482 $ 19,981,023 $ 19,569,732
Add - Cost of improvements 618,970 289,092 551,260
Less - Cost of disposals (145,298) (139,633) (139,969)
------------ ------------ ------------
Balance at end of period $ 20,604,154 $ 20,130,482 $ 19,981,023
============ ============ ============
Reconciliation of amounts in Column F:
(B) Balance at beginning period $ 5,757,725 $ 5,236,483 $ 4,771,634
Add - Provision during period 677,201 660,875 604,818
Less - Depreciation on disposals (145,298) (139,633) (139,969)
------------ ------------ ------------
Balance at end of period $ 6,289,628 $ 5,757,725 $ 5,236,483
============ ============ ============
(C) The aggregate cost of real estate owned for
federal income tax purposes $ 25,859,154 $ 25,385,482 $ 25,236,023
============ ============ ============
</TABLE>
36
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,190,211
<SECURITIES> 0
<RECEIVABLES> 257,599
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,472,240
<PP&E> 16,615,969
<DEPRECIATION> 5,162,333
<TOTAL-ASSETS> 16,108,600
<CURRENT-LIABILITIES> 659,644
<BONDS> 6,871,246
<COMMON> 0
0
0
<OTHER-SE> 8,327,479
<TOTAL-LIABILITY-AND-EQUITY> 16,108,600
<SALES> 3,723,962
<TOTAL-REVENUES> 3,728,017
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,108,798
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 554,283
<INCOME-PRETAX> 64,936
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,936
<EPS-BASIC> 3.34
<EPS-DILUTED> 0
</TABLE>
