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 March 31, 2000
( ) 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
(262) 695-1400
(Issuer's telephone number, including area code)
- - - - - - - - - - - - - - - - - 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) - March 31, 2000
and December 31, 1999 . . . . . . . . . . . . . . . . . . . . . 2
Statement of Operations (unaudited) - Three months
ended March 31, 2000 and 1999 . . . . . . . . . . . . . . . . . 3
Statement of Changes in Partners' Capital (unaudited) -
Three months ended March 31, 2000 and 1999. . . . . . . . . . . 4
Statement of Cash Flows (unaudited) -
Three months ended March 31, 2000 and 1999. . . . . . . . . . . 5
Notes to Financial Statements (unaudited). . . . . . . . . . . . . . 6-7
Management's Discussion and Analysis of
Financial Condition and Results of Operation. . . . . . . . . . 8
PART II. OTHER INFORMATION AND SIGNATURES . . . . . . . . . . . . . . . .9-10
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PART I. FINANCIAL INFORMATION
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES II
(A Wisconsin Limited Partnership)
BALANCE SHEET
(Unaudited)
March 31, December 31,
2000 1999
ASSETS
Cash and Cash Equivalents $283,681 $599,280
Other Assets 15,683 16,215
Investment properties, at cost
Land 516,590 516,590
Buildings and improvements 4,154,507 4,154,507
___________ __________
4,671,097 4,671,097
Less accumulated depreciation 1,704,060 1,670,451
___________ ___________
2,967,037 3,000,646
___________ ___________
INTANGIBLE ASSETS:
Debt issue costs, net of accumulated
amortization of $9,818 as of March 31, 2000
and $8,999 as of December 31, 1999 22,762 23,581
___________ ___________
$3,289,163 $3,639,722
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued expenses and other liabilities $40,921 $38,657
Tenant security deposits 27,250 27,991
Mortgage notes payable (Note 5) 530,233 532,234
Rent received in advance 24,006 15,918
___________ ___________
622,410 614,800
PARTNERS' CAPITAL:
General Partners 51,152 48,923
Limited Partners 2,615,601 2,975,999
(authorized--40,000 interests; __________ ___________
outstanding--20,653.69 interests)
2,666,753 3,024,922
----------- -----------
$3,289,163 $3,639,722
=========== ===========
SEE NOTES TO FINANCIAL STATEMENTS.
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NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES II
(A WISCONSIN LIMITED PARTNERSHIP)
STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED
MARCH 31,
2000 1999
INCOME:
Operating Income: $187,496 $183,069
________ ________
Total Income 187,496 183,069
OPERATING EXPENSES
Operating expense 68,985 80,321
Administrative expense 35,306 33,886
Depreciation and amortization 34,429 34,514
Interest 11,174 11,205
________ ________
Total Expense 149,894 159,926
________ ________
INCOME (LOSS) FROM OPERATIONS 37,602 23,143
Other Income (expenses):
Interest income 6,976 6,445
________ ________
NET INCOME $44,578 $29,588
======== =========
Net Income attributable to $2,229 $1,479
General Partners (5%)
Net Income attributable to $42,349 $28,109
Limited Partners (95%)
Per Limited Partnership $2.05 $1.36
Interest outstanding--20,653.69 ======== ========
Interests
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SEE NOTES TO FINANCIAL STATEMENTS.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES II
(A WISCONSIN LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
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Limited General
Partners Partners Total
QUARTER ENDED MARCH 31, 2000
Partners' Equity, beginning
of quarter $2,975,999 $48,923 $3,024,922
Distributions (402,747) -- (402,747)
Net Income 42,350 2,228 44,578
Partners' Equity, end of --------------------------------------
quarter $2,615,602 $51,151 $2,666,753
======================================
QUARTER ENDED MARCH 31, 1999
Partners' Equity, beginning of
quarter $3,085,230 $43,802 $3,129,032
Distributions (51,634) -- (51,634)
Net Income ---------------------------------------
Partners' Equity, end of
quarter $3,061,705 $45,281 $3,106,986
=======================================
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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 Months Ended
March 31,
2000 1999
OPERATING ACTIVITIES
Net income for the period $44,578 $29,588
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 33,609 33,696
Amortization of debt issue costs 819 819
Changes in operating assets and liabilities:
Other assets 532 4,981
Rents received in advance 8,088 (3,920)
Accrued expenses and other liabilities 2,264 (6,213)
Tenant security deposits (741) (1,210)
________ ________
NET CASH PROVIDED BY OPERATING ACTIVITIES 89,149 57,741
INVESTMENT ACTIVITY: 0 0
FINANCING ACTIVITIES:
Distributions to partners (402,747) (51,634)
Payments on mortgage payable (2,001) (1,970)
_________ _________
NET CASH USED IN FINANCING ACTIVITIES (404,748) (53,604)
_________ _________
INCREASE (DECREASE) IN CASH (315,599) 4,137
CASH AND CASH EQUIVALENT AT BEGINNING OF
PERIOD 599,280 573,699
________ _________
CASH AND CASH EQUIVALENTS AT END OF
PERIOD $283,681 $577,836
======== ========
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)
MARCH 31, 2000
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, 1999 (refer to the footnotes of those
statements for additional details of the Partnership's financial
condition). The operating results for the period ended March 31, 2000
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., contributed the sum of $1,000 to the Partnership
as General Partners. The Limited Partnership Agreement authorized 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 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, and the funds were released to the
Partnership.
3. National Realty Management, Inc. (NRMI): The Partnership incurred
property management fees of $10,519 under an agreement with NRMI for
the three month period ended March 31, 2000. The Partnership also paid
$7,527 in the first quarter of 2000 for the reimbursement of accounting
and administrative expenses incurred by NRMI on behalf of the
Partnership.
The Partnership subleases a portion of common area office space from
NRMI under terms of a lease which expires on August 31, 2002. During
the first quarter of 2000, lease payments totaled $1,853, which
represents the Partnership's prorate portion, based upon space
occupied, of NRMI's monthly rental obligation.
4. NATIONAL DEVELOPMENT AND INVESTMENT, INC. (NDII): The Partnership paid
NDII for the reimbursement of expenses totaling $23,512 for
administrative expenses incurred on behalf of the Partnership.
5. The mortgage note payable is secured by the 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 for
the remainder of 2000 to 2004 are: $6,312, $9,056, $9,847, $10,706,
and $11,641 respectively. Maturities from 2005 and thereafter are
$482,655.
6. In 1992, the Partnership purchased 12 units of Amberwood Condominiums
from National Real Estate Limited Partnership VI (NRELP VI), an
affiliated partnership. The Partnership is contingently liable to pay
NRELP VI proceeds from a future sale of the Amberwood Condominiums as
set forth in a Future Interest Proceeds Agreement. Upon the future sale
of Amberwood Condominiums, NRELP VI 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, NRELP VI 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
MARCH 31, 2000
The Partnership owns and operates two investment properties: a portion of
Cave Creek Lock-It Lockers, containing 37,800 of 46,000 net rentable square
feet, located in Phoenix, Arizona, and 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 occupancy rate for the first quarter of 2000 was 98.39%. Cave
Creek Lock-It Lockers' occupancy during the same period was 90.10% based on
net rentable square footage. During the comparable period in 1999, occupancy
rates were 95.80% for Amberwood and 89.66% for Cave Creek Lock-It Lockers.
Cave Creek Lock-It Lockers occupancy can be partially attributed to
increased competition in the marketplace.
Three Months Ended March 31, 2000, and 1999
Partnership net income increased $14,990 from the $29,588 net income for the
quarter ended March 31, 1999, to $44,578 of net income for the quarter ended
March 31, 2000. The increase is primarily attributed to an increase in
operating income of $4,427, and a decrease in operating expenses of $11,336
which was offset by an increase of $1,420 in Administrative Expenses.
The increase of $4,427 in operating income is primarily attributed to the
increased occupancy at Amberwood Apartments during the first quarter of 2000
as compared to the first quarter of 1999. During this period, occupancy
increased from 95.80% to 98.39%.
Operating expenses decreased $11,336 primarily due to lower advertising and
maintenance costs. The increased administrative expenses were the result of
higher personnel costs in the first quarter of 2000.
Net cash used during first quarter of 2000 was $404,748, as compared to net
cash used during first quarter 1999 of $53,604. This difference was due to,
in part, a $351,113 increase in cash distributed netted with an increase in
cash generated from operations of $31,408 as explained above. Distributions
were $19.50 per share, totaling $402,747 for the first quarter of 2000 as
compared to $51,634, or $2.50 per share for the same quarter in 1999. These
distributions are required to be allocated 100% to the Limited Partners, as
outlined in the prospectus.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On May 15, 1999, the general partners, the property management company
(NRMI), and other entities and individuals were named as defendants in a
lawsuit. The Partnership was not named in the origianl lawsuit but was
later named as a nominal defendant. The plaintiffs sought to have this
action certified as a class action lawsuit. In the complaint, the plaintiffs
allege, amoung other things, breach of contract, fraud, misrepresentation,
breach of fiduciary duty, negligence, excessive fee charges, and theft.
Judgment is being sought against the defendants to wind up and dissolve the
partnerships named as nominal defendants, including the Partnership, suspend
and replace the existing general partners with a nonaffiliated receiver, and
award unspecified compensatory and punitive damages as well as reimbursement
of attorney fees. The defendants are vigorously defending themselves in this
case.
On April 27, 2000 the Circuit Court of Waukesha County held a hearing which
certified the case as a class action and approved terms of a settlement.
The Partnership was named as a party in the stipulation of settlement. The
more significant terms of the stipulation of settlement are as follows:
- --An independent marketing agent will be appointed to market and sell the
Partnership investment property. However, any offer to purchase the
property would not be accpted without first obtaining approval from a
majority interest of the limited partners. Final distributions of the net
proceeds received from a sale of the Partnership's investment property
would be made in accordance with the terms of the Partnership's limited
partnership agreement and prospectus, and upon providing 20-day notice to
the plaintiff's attorney. Net proceeds will first be applied to pay
plaintiff's counsel's legal fees, expenses and costs, with interest
thereon.
- --Distributions to limited partners would continue to be made in accordance
with the limited partnership agreement. However, upon final settlement
of the lawsuit, distributions would be increased to the extent that
sufficient reserves have been established to support normal Partnership
operations and the wind-up of Partnership affairs upon the sale of the
investment property. Any such additional distributions would be made
within 30 days of the final settlement of the lawsuit.
- --NRMI and the general partners shall continue to provide property management
and consulting services to the Partnership under the same terms and
conditions currently provided under existing contracts, until the
investment property is sold and assets liquidated, and the Partnership
entity dissolved. NRMI will also be the listing broker for the slae of the
Partnership property.
- --The plaintiff's claims made against NRMI, the general partners, and the
other related parties for excessive charging of expenses to the defendant
partnerships, including the Partnership, would be settled, through binding
arbitration. Any such expenses disallowed through arbitration shall be
reimbursed to the defendant partnerships.
At the April 27, 2000 hearing the lawsuit was certified as a "non-opt out"
class-action lawsuit, in which all limited partners of the Partnership are
required to be included in the settlement class of this litigation.
At the April 27, 2000 hearing, the Court ruled that plaintiff's counsel's
attorney fees would be one third of the difference between the "secondary
market value" of the Partnership interests and the total funds available
for distribution to the limited partners after payment of all Partnership
obligation. The General Partners may decide to appeal this ruling on
attorney fees. Based on events to date, it is not possible to determine
the final outcome of the litigation, or the amount of any potential
monetary impact to the Partnership. Therefore, no provision for any such
fianancial impact arising from the lawsuit ahs been made in these financial
statements.
ITEM 2. CHANGE IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6(B). REPORTS ON FORM 8-K
During the first quarter 2000, the Partnership changed its
independent certified public accountant firm from Wolf & Company to Kerber,
Eck & Braeckel LLP. A form 8-K was submitted 1-18-2000.
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 /May 15, 2000 /S/ John Vishnevsky
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and
Investment, Inc.
Corporate General Partner
Date /S/May 15, 2000 /S/ John Vishnevsky
John Vishnevsky
Chief Financial and Accounting
Officer
Date /S/May 15, 2000 /S/ 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 May 15, 2000
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Date May 15, 2000
John Vishnevsky
Chief Financial and Accounting Officer
Date May 15, 2000
Stephen P. Kotecki
President
EC Corp
Corporate General Partner
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