U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-QSB
(Mark One)
( X ) QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE EXCHANGE ACT
For the transition period from to
Commission File Number: 01-16874
National Real Estate Limited Partnership Income
Properties II
(Exact name of small business issuer as specified in its charter)
Wisconsin
39-1553195
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identification Number)
1155 Quail Court, Pewaukee, Wisconsin 53072-3703
(Address of principal executive offices)
(414) 695-1400
(Issuer's telephone number)
- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - N/A - - - - -
- - - - - - - - - - - - - - - - - - - - - - - - -
(Former name, former address and former fiscal year, if changed since
last report)
Check whether the issuer (1) filed all reports required to be filed by
Sections 13 or 15(d) of the Exchange
Act during the past 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
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
INDEX
PAGE
PART I. FINANCIAL INFORMATION
Balance Sheet (unaudited) - June 30, 1998
and December 31, 1997. . . . . . . . . . . . . . . . . . . . .2
Statement of Operations (unaudited) - Three and Six months
ended June 30, 1998 and 1997 . . . . . . . . . . . . . . . . .3
Statement of Cash Flows (unaudited) -
Six months ended June 30,1998 and 1997 . . . . . . . . . . . .4
Notes to Financial Statements (unaudited) . . . . . . . . . . . .5-6
Management's Discussion and Analysis of
Financial Condition and Results of Operation . . . . . . . .7-8
PART II. OTHER INFORMATION AND SIGNATURES. . . . . . . . . . . . . . 9-10
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INCOME PROPERTIES-II
(A Wisconsin Limited Partnership)
BALANCE SHEET
(Unaudited)
JUNE 30, DECEMB
ER 31,
1998 1997
ASSETS
CURRENT ASSETS:
Cash and cash equivalent $ 578,703 $ 490,973
Other assets 509 142
OTHER ASSETS:
Investment properties, at cost
Land 516,590 516,590
Buildings and improvements 4,151,84 64,151,84 6
4,668,43 64,668,43 6
Less accumulated depreciation 1,469,47 41,402,26 2
3,198,96 23,266,17 4
INTANGIBLE ASSETS:
Debt issue costs, net of accumulated
amortization
of $4092 as of June 30, 1998 and
$2,441 as of December 31, 1997 28,488 30,139
$3,806,66 2 $3,787,42 8
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued expenses and other $ 19,977 $ 2,869
liabilities
Tenant security deposits 26,957 24,920
Mortgage notes payable (Note 5) 542,878 546,217
Rent received in advance 15,176 12,339
604,988 586,345
PARTNERS' CAPITAL (NOTE 3):
General Partners 42,271 37,336
Limited Partners 3,159,40 33,163,74 7
(authorized----40,000 Interests;
outstanding--20,653.69)
3,201,67 43,201,08 3
$3,806,66 2 $3,787,42 8
See notes to financial statements.
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NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROERTIES-II
(A Wisconsin Limited Partnership)
STATEMENT OF OPERATIONS
(Unaudited)
THREE MONTHS ENDED SIX MONTHS
JUNE 30, JUNE 30,
1998 1997 1998 1997
INCOME:
Operating Income $ 195,625 $ 181,041 $ 386,557 $ 347,705
195,625 181,041 386,557 347,705
OPERATING EXPENSES:
Operating 87,444 130,910 168,451 219,525
Administration 35,377 33,272 64,147 79,217
Depreciation and amortization 34,415 34,415 68,864 68,630
Interest (Note 6) 11,691 12,542 23,012 19,632
168,927 211,139 324,474 387,004
INCOME (LOSS) FROM OPERATIONS 26,698 (30,098) 62,083 39,298
OTHER INCOME (EXPENSE):
Interest and other income 7,117 8,008 36,613 13,740
NET INCOME LOSS $ 33,815 $(22,090) $ 98,696 $ (25,559)
Net Income/(Loss) attributable to
General Partners (5%) $ 1,691 $ (1,105) $ 4,935 $ (1,278)
Net Income/Loss attributable to
Limited Partners (95%) $ 32,124 $(20,985) $ 93,761 $ (24,281)
Per Limited Partnership
Interest outstanding-20,653.69 $ 1.56 $ (1.02) $ 4.54 $ (1.18)
See notes to financial statements.
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NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES-II
(A Wisconsin Limited Partnership)
STATEMENT OF CASH FLOWS
(Unaudited)
THREE MONTHSENDED
JUNE 30,
1998 1997
OPERATING ACTIVITIES:
Net income (loss) for the period $ 98,696 $(25,559)
Adjustments to reconcile net income
(loss) to
net cash used in operating activities:
Depreciation 67,212 67,494
Amortization of debt issue costs 1,652 (31,388)
Changes in operating assets and
liabilities:
Other assets (368) (8,027)
Rents received in advance 2,836 1,615
Accrued expenses and other liabilities 17,109 14,185
Tenant security deposits 2,037 6,775
NET CASH PROVIDED BY
OPERATING ACTIVITIES 189,174 25,095
INVESTMENT ACTIVITY:
Additions to investment property 0 0
FINANCING ACTIVITIES:
Distributions to partners (98,105) (92,942)
Payments on mortgage payable (3,339) 100,892
NET CASH PROVIDED BY FINANCING
ACTIVITIES (101,444 ) 7,950
INCREASE (DECREASE) IN CASH 87,730 33,046
CASH AND CASH EQUIVALANT AT 490,973 448,347
BEGINNING OF
PERIOD
CASH AT END OF PERIOD $ 578,703 $ 481,393
See notes to financial statements.
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NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(A WISCONSIN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 1998
1. In the opinion of the General Partners, the accompanying unaudited
financial statements contain all
adjustments (consisting of normal recurring accruals) which are necessary
for a fair presentation. The
statements, which do not include all of the information and footnotes
required by generally accepted
accounting principles for complete financial statements, should be read
in conjunction with the
National Real Estate Limited Partnership Income Properties-II annual
report for the year ended
December 31, 1997. Refer to the footnotes of those statements for
additional details of the
Partnership's financial condition. The operating results for the period
ended June 30, 1998 may not
be indicative of the operating results for the entire year.
2. National Real Estate Limited Partnership Income Properties-II (the
"Partnership") was organized
under the Wisconsin Uniform Limited Partnership Act pursuant to a
Certificate of Limited Partnership
dated June 5, 1986, to acquire primarily existing commercial and
residential real properties and hotels.
John Vishnevsky and National Development and Investment, Inc., have
contributed the sum of
$1,000 to the Partnership as General Partners. The Limited Partnership
Agreement authorizes the
issuance of 40,000 Limited Partnership Interests (the "Interests") at
$250 per Interest with the
offering period running from August 18, 1986 through August 18, 1988. On
August 18, 1988, the
Partnership concluded its offering and capital contributions totaled
$5,163,031 for 20,653.69 Limited
Partnership Interests.
Pursuant to the Escrow Agreement with the First Wisconsin Trust Company,
Milwaukee, Wisconsin,
until the minimum number of Interests (4,850) and investors (100) were
subscribed, payments were
impounded in a special interest-bearing escrow account. On February 2,
1987, the Partnership
received the required minimum capital contributions and $1,332,470,
representing 5,329.88 Interests,
was released to the Partnership.
3. Changes in Partners' Equity:
Limited General
Partners Partners
Total
Quarter Ended June 30, 1998
Partners' Equity, beginning of quarter $3,178,913 $40,580 $3,219,493
Distributions (51,634) - - (51,634)
Net Income (Loss) 32,124 1,691 33,815
Partners' Equity, end of quarter $3,159,403 $42,271 $3,201,674
Quarter Ended June 30, 1997
Partners' Equity, beginning of quarter $3,274,659 $35,477 $3,310,496
Distributions (46,471) - - (46,471)
Net Income (Loss) (20,985) (1,105) (22,096)
Partners' Equity, end of quarter $3,207,203 $34,732 $3,241,935
4. National Realty Management, Inc. (NRMI): The Partnership incurred
property management fees of
$29,287 under an agreement with NRMI for the six month period ended June
30, 1998.
5. The mortgage note payable is secured by Amberwood Apartments. The loan
bears interest at a
variable rate of interest (based on five year treasury securities) plus
2.25% adjusting to 2.35% on May
1, 2002. Monthly payments of principal and interest are due based on a
twenty five year amortization
schedule, which also adjusts on May 1, 2002. All unpaid principal and
interest is due on April 1,
2007. Maturities from 1998 to 2002 are: $7,100, $7,700, $8,400, $9,100,
and $9,900 respectively.
Maturities from 2003 and thereafter are $504,000.
6. In 1992, the Partnership purchased 12 units of Amberwood Condominiums
from National Real Estate
Limited Partnershipship is contingently liable
to pay NRELPVI proceeds from a future sale of Amberwood Condominiums as
set forth in a Future
Interest Proceeds Agreement. Upon the future sale of Amberwood
Condominiums, NRELPVI is
entitled to receive 50% of the net sales price above $57,500 per unit
(reduced by normal selling costs)
until the Partnership earns a cumulative return of 20% on its investment.
After that, NRELPVI will
receive 60% of the net sales price above $57,500 per unit.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(A WISCONSIN LIMITED PARTNERSHIP)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 1998
The Partnership owns and operates two investment properties: a portion of Cave
Creek Lock-It Lockers,
containing 37,792 of 46,028 net rentable square feet, located in Phoenix,
Arizona, and the Amberwood
Apartments, a 56-unit apartment complex in Holland, Michigan.
National Real Estate Limited Partnership Income Properties ("NRELP-IP") owns
the remaining portion of
Cave Creek Lock-It Lockers. NRELP-IP is a Wisconsin limited partnership,
affiliated with the General
Partners.
Amberwood's average occupancy rate for the second quarter of 1998 was 97.2%.
Cave Creek Lock-It
Lockers' occupancy during the same period was 94.45% based on net rentable
square footage. During the
comparable period in 1997 occupancy rates were 80.14% for Amberwood and
94.5128% for Cave Creek
Lock-It Lockers. Amberwood's higher occupancy rate can be partially
attributed to increased marketing
efforts and incentives.
The Competition Study and information gathered from the Arizona Mini-Storage
Association show
occupancy rates of 91% to 92% occupied for the Cave Creek Lock-It Lockers
area. The market continues
to soften in the Phoenix area due to the over-building of self storage
facilities within a 5-mile radius of the
properties.
Cave Creek rental rates currently range from $13.00 to $135.00 for the second
quarter of 1998. The rates
remain the same as the second quarter of 1997.
Rental rates for Amberwood's three bedroom apartments are $740, and $620-test
the market. Two bedroom units are increasing $15 in July.
Amberwood advertised in the Holland Sentinel, Select Living (apartment guide),
and the yellow pages, both
Ameritech and TDI. Periodic mailings are made to area real estate agents and
brokers, and the leasing
consultants keep in close contact with the Human Resource Departments of area
businesses and industry.
Lease expiration dates have been staggered to avoid leases expiring during
slower periods. Current residents
and real estate brokers can receive a $50 rent credit or referral fee for new
rentals. Extra effort has been given
to having the property in A+ condition due to all of the new property
competition.
Six Months Ended June 30, 1998, and 1997
Net income improved $124,255 from a loss of $25,559 for the six months ended
June 30, 1997, to a profit
of $98,696 for the six months ended June 30, 1998. This increase was due to an
increase in operating income
of $38,852, a decrease in operating expenses of $62,530, and an income in
interest and other income of
$22,873.
The increase in operating income of $38,852 was due to improved occupancy at
the Amberwood apartments.
Occupancy improved from 80.14% for the six months ended June 30, 1997, to
96.52% for the six months
ended June 30, 1998.
Property operating expenses decreased mainly due to reduced carpeting
purchases, advertising, building
maintenance, utilities, and personnel expenses for the six months ended June
30, 1998, as compared to the
same period of the prior year.
The $22,873 increase in interest and other income was primarily attributed to
a positive settlement in favor
of the partnership related to the Cave Creek Lock-It Lockers.
Three Months Ended June 30, 1998, and 1997
Net income increased $55,905 from a loss of $22,090 for the three months ended
June 30, 1997, to a profit
of $33,815 for the three months ended June 30, 1998. This increase was due to
an increase in operating
income of $14,584, a decrease of operating expenses of $42,212, slightly
offset by a decrease in other income
of $891.
Operating income improved $14,584 primarily due to reduced vacancies at the
Amberwood apartments.
Vacancy rates decreased from 10.68% for the three months ended June 30, 1997,
to 2.8% for the three
months ended June 30, 1998, due mainly to increased efforts to rent apartments
and improved market
conditions.
Total operating expenses decreased $42,212 due to decreased property operating
expenses of $43,466 and
decreased interest expenses of $851, slightly offset by an increase in
administrative expenses of $2,105.
Property operating expenses decreased due to reduced personnel, building
maintenance, groundskeeping,
and resident unit expenses.
Distributions were $2.50 per share, totaling $51,634 for the second quarter of
1998 as compared to $2.25 per share
or $46,471 for the same quarter a year ago. These distributions are required
to be allocated 100% to the Limited
Partners, as outlined in the prospectus.
PART II. OTHER INFORMATION
ITEM 6(B). REPORTS ON FORM 8-K
There were no reports on Form 8-K for the quarter ended June 30, 1998.
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.
National Real Estate Limited Partnership
Income Properties-II
(Registrant)
Date /August 1, 1998 /S/ John
Vishnevsky
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Date /S/August 1, 1998 /S/ John
Vishnevsky
John Vishnevsky
Chief Financial and Accounting Officer
Date /S/August 1, 1998
Stephen P. Kotecki
Stephen P. Kotecki
President
EC Corp
Corporate General Partner
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.
National Real Estate Limited Partnership
Income Properties II
(Registrant)
Date August 1, 1998
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Date August 1, 1998
John Vishnevsky
Chief Financial and Accounting Officer
Date August 1, 1998
Stephen P. Kotecki
President
EC Corp
Corporate General Partner
J:\WPDOCS\LETTERS\Nip2
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 579,212
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 579,212
<PP&E> 4,668,416
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<TOTAL-LIABILITY-AND-EQUITY> 3,806,662<F1>
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<TOTAL-REVENUES> 368,557
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 301,462
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<INTEREST-EXPENSE> 23,012
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<NET-INCOME> 98,696
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<F1>REFERS TO GENERAL PARTNERS + LIMITED PARTNERS CAPITAL
<F2>95% LIMITED PARTNERS-INTEREST OUTSTANDING=20,653.69
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