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 September 30, 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 53702-3703
(Address of principal executive offices)
(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) September 30, 2000,
and December 31, 1999 . . . . . . . . . . . . . . . . . . . . . . .2
Statement of Operations (unaudited) - Three and Nine months
ended September 30, 2000, and 1999 . . . . . . . . . . . . . . . . .3
Statement of Changes in Partners= Capital (unaudited) -
Nine months ended September 30, 2000, and 1999 . . . . . . . . . . .4
Statement of Cash Flows (unaudited) -
Nine months ended September 30, 2000, and 1999 . . . . . . . . . . .5
Notes to Financial Statements (unaudited) . . . . . . . . . . . . . .6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . . . . . . . . . .8-9
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . .10-11
Item 2. Changes in Securities and Use of Proceeds . . . . . . . . . . . 11
Item 3. Defaults Upon Senior Securities . . . . . . . . . . . . . . . . 11
Item 4. Submission of Matters to a Vote of Security Holders . . . . . . 11
Item 5. Other Information . . . . . . . . . . . . . . . . . . . . . . . 11
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . 11
1
PART I. FINANCIAL INFORMATION
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES II
(A Wisconsin Limited Partnership)
BALANCE SHEET
(Unaudited)
September 30, December 31,
2000 1999
------------- ------------
ASSETS
Cash and cash equivalent $192,142 $599,280
Other assets 61,114 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 1,771,281 1,670,451
--------- ---------
2,899,816 3,000,646
--------- ---------
Intangible Assets:
Debt issue costs, net of accumulated
amortization of $11,430 as of
September 30, 2000 and $8,999 as of
December 31, 1999 21,124 23,581
--------- --------
$3,174,196 $3,639,722
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accrued expenses and other liabilities 8,991 38,657
Tenant security deposits 27,849 27,991
Mortgage notes payable (Note 5) 527,165 532,234
Rent received in advance 15,553 15,918
---------- ---------
579,558 614,800
---------- ---------
Partners' Capital:
General Partners 52,710 48,923
Limited Partners
(authorized,40,000 Interests;
outstanding, 20,653.69 Interests) 2,541,928 2,975,999
---------- ---------
2,594,638 3,024,922
---------- ---------
$3,174,196 $3,639,722
See notes to financial statements. ========== ==========
2
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES II
(A Wisconsin Limited Partnership)
Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
INCOME
Operating income $194,097 $188,964 $573,225 $551,143
-------- -------- -------- --------
Total income $194,097 $188,964 $573,225 $551,143
OPERATING EXPENSES
Operating expenses 99,485 84,809 251,232 278,202
Administrative expenses 44,566 27,388 122,996 97,091
Depreciation and amortization 34,427 34,514 103,287 103,543
Interest expense 14,102 11,594 37,769 34,567
-------- -------- -------- --------
Total expenses 192,580 158,305 515,284 513,403
-------- --------- -------- --------
Income (Loss) from Operations 1,517 30,659 57,941 37,740
-------- --------- -------- --------
Other Income (Expenses):
Interest income 4,766 7,726 17,790 23,304
-------- --------- -------- --------
Net Income (Loss) $6,283 $38,385 $75,731 $61,044
======== ======== ======== =======
Net Income (Loss)
attributable to
General Partners (5%) $314 $1,919 $3,787 $3,052
Net Income (Loss)
attributable to
Limited Partners (95%) $5,969 $36,466 $71,944 $57,992
Per Limited Partnership
Interests outstanding-
20,653.69 $0.29 $1.77 $3.48 $2.81
===== ===== ===== =====
See notes to financial statements.
3
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES II
(A Wisconsin Limited Partnership)
Statement of Changes in Partners' Capital
(Unaudited)
Nine Months Ended September 30
Limited General
Partners Partners Total
September 30, 2000
------------------
Partners' Capital, beginning of period $2,975,999 $48,923 $3,024,922
Distributions (506,015) (506,015)
Net Income 71,944 3,787 75,731
--------- ------- ----------
Partners' Capital, end of period $2,541,928 $52,710 $2,594,638
========== ======= ==========
September 30, 1999
------------------
Partners' Capital, beginning of period $3,085,230 $43,802 $3,129,032
Distributions (154,903) (154,903)
Net Income 57,992 3,052 61,044
--------- ------- ----------
Partners' Capital, end of period $2,988,319 $46,854 $3,035,173
========== ======= ==========
See notes to financial statements.
4
NATIONAL REAL ESTATE LIMITED PARTNERSHIP
INCOME PROPERTIES II
(A Wisconsin Limited Partnership)
Statement of Cash Flows
(Unaudited)
Nine Months Ended September 30
2000 1999
---- ----
Operating Activities:
Net income for the period $75,731 $61,044
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 100,830 101,087
Amortization of debt issue costs 2,457 2,456
Changes in operating assets and liabilities:
Other assets (44,896) 4,895
Rents received in advance (365) 177
Accrued expenses and other liabilities (29,666) (22,650)
Tenant security deposits (142) 495
------- ------
NET CASH PROVIDED BY OPERATING ACTIVITIES 103,949 147,504
Investing Activity: 0 0
Financing Activities:
Distributions to partners (506,015) (154,903)
Payments on mortgage payable (5,072) (5,268)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (511,087) (160,171)
-------- --------
INCREASE (DECREASE) IN CASH (407,138) (12,667)
Cash and cash equivalents at beginning
of period 599,280 573,699
-------- --------
CASH AND CASH EQUIVALENTS AT END
OF PERIOD $192,142 $561,032
======== ========
See notes to financial statements.
5
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(A Wisconsin Limited Partnership)
Notes to Financial Statements
(Unaudited)
September, 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 September 30, 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 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 it's 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 $34,459 under an agreement with NRMI for the nine month
period ended September 30, 2000. The Partnership also incurred $23,781 in
the first nine months 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 nine months of 2000, the Partnership incurred lease fees totaling
$5,553, which represents the Partnership's prorated portion, based upon
space occupied, of NRMI's monthly rental obligation.
4. National Development and Investment, Inc. (NDII): The Partnership incurred
NDII fees of $90,757 for administrative expenses incurred on behalf of
the Partnership for the first nine months of 2000.
6
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
2005 are: $1,860, $8,240, $8,970, $9,764, $10,506 and $11,561
respectively. Maturities from 2006 and thereafter are $476,827.
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 cummulative return of 20% on its investment. After
that, NRELP VI will receive 60% of the net sales price above $57,500
per unit.
7
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(A Wisconsin Limited Partnership)
Management's Discussion and Analysis of
Financial Condition and Results of Operations
September 30, 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 nine months of 2000 was 98.29%.
Cave Creek Lock-It Lockers' occupancy during the same period was 90.55%
based on net rentable square footage. During the comparable period in 1999,
occupancy rates were 100% for Amberwood and 91.76% for Cave Creek Lock-It
Lockers. Cave Creek Lock-It Lockers occupancy can be partially attributed to
increased competition in the marketplace.
Nine Months Ended September 30, 2000, and 1999
----------------------------------------------
Partnership net income increased $14,687 from the $61,044 net income for the
nine months ended September 30, 1999, to $75,731 for the nine months ended
September 30, 2000. The increase is primarily attributed to an increase in
income from operations of $20,201, offset by a decrease of $5,514 in
interest income.
The increase in Income from operations of $20,201 is primarily due to a
$22,082 increase in gross revenue and a $26,970 decrease in operating
expenses, netted with a $25,905 increase in administrative expenses.
The $22,082 increase in Gross Revenue is due to a decrease in vacancies at
Amberwood Apartments in 2000, as compared to 1999.
The $26,970 decrease in operating expenses is primarily due to a decrease in
Redi-Home expenses and a decrease in apartment painting.
The $25,905 increase in administrative expenses is due to an increase in
legal and audit fees in 2000.
The $5,514 decrease in interest income is due to large distribution pay outs
from the money market account in 2000.
Net cash used during first nine months of 2000 was $407,138, as compared to
net cash used during the first nine months of 1999 of $12,667. This
difference was primarily due to a $351,112 increase in cash distributed.
Distributions were $24.50 per share, totaling $506,015 for the first nine
months of 2000 as compared to $154,903, or $7.50 per share for the same
period in 1999. These distributions are required to be allocated 100% to the
Limited Partners, as outlined in the prospectus.
8
Three Months Ended September 30, 2000, and 1999
-----------------------------------------------
Partnership net income decreased $32,102 from the $38,385 net income for the
three months ended September 30, 1999, to $6,283 for the three months ended
September 30, 2000. This decrease is primarily attributed to an increase in
operating expenses of $14,676, and an increase in administrative expense of
$17,178.
The increase of $14,676 in operating expenses is primarily due to an $8,669
increase in advertising expense for the 3rd quarter as compared to the 3rd
quarter of 1999 for Cave Creek Lock-It Lockers, and a $4,865 increase in
resident unit refurbishments for Amberwood Apartments.
Cave Creek Lock-It Locker advertising increased due to the timing of the
payment of yellow page ads. Amberwood's increased residential unit
refurbishments was attributed to maintenance and repair of water heater and
air conditioning, and carpet repairs/replacements.
Administrative expenses in the 3rd quarter of 2000, increased $17,178 due to
the increased cost of audit and legal services, as compared to the 3rd
quarter of 1999.
9
PART II. OTHER INFORMATION AND SIGNATURES
Item 1. Legal Proceedings
On May 25, 1999, the general partners, the property management company
(NRMI), and other entities and individuals were named as defendants in a
lawsuit (the "Vishnevsky Defendants"). The Partnership was not included in
the original lawsuit but was later added to the action as a nominal
defendant. The plaintiffs sought to have this action certified as a class
action lawsuit. In the complaint, the plaintiffs alleged wrongdoing against
the Vishnevsky Defendants in connection with two basic areas. First,
allegations involving various vote solicitations alleged by the plaintiffs
to be an effort to perpetuate the Partnerships and avoid liquidation.
Second, allegations involving the taking and use of Partnership funds and
property, including excessive fees and unauthorized expenses. On March 14,
2000, the parties to the litigation with the exception of the defendant
Wolf & Company entered into a Stipulation of Settlement.
Based upon the Stipulation, 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 more significant terms of the
Stipulation of Settlement are as follows:
An independent marketing agent (the "Partnerships' Representative")
was appointed to market and sell the Partnership investment property.
However, no offer to purchase the property will be accepted 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 will 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
plaintiffs' counsel's legal fees, expenses and costs, with interest
thereon.
Interim distributions to limited partners will continue to be made
in accordance with the limited partnership agreement. However, upon
final approval of the Settlement, distributions were increased to the
extent that sufficient reserves were established to support normal
partnership operations and the wind-up of Partnership affairs upon
the sale of the investment property. Any such additional distributions
were made within 30 days of the final approval of the Settlement.
NRMI and the general partners shall continue to provide management and
consulting services to the Partnership on 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 sale of the
Partnership property.
The plaintiffs' claims made against NRMI, the general partners, and
other related parties for excessive charging of expenses to the
partnerships, including the Partnership, will be settled through
binding arbitration. Any such expenses disallowed through arbitration
shall be reimbursed to the partnerships.
10
At the April 27, 2000 hearing, the lawsuit was certified as a non-opt out
class action, in which all limited partners of the Partnership are required
to be included in the settlement of this litigation. Furthermore, the Court
ruled that plaintiffs' counsel's attorney fees would be equal to 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 obligations. The Court allowed
Vishnevsky Defendants sixty days thereafter to present their evidence
regarding secondary market value.
On June 20, 2000, the Court entered a judgment based upon its April 27th
decision. Thereafter, on July 21, 2000, the Court held a hearing on the
plaintiffs Motion for Enforcement of the Court Approved Settlement and in
Support of Sanctions. The outcome of the hearing was that the Court granted
sanctions totaling $437,000.00 against the Vishnevsky Defendants and their
counsel for delaying the appointment of the Partnerships' Representative and
the arbitrators. The Court took under advisement the remaining open issue
regarding the secondary market value for computing the plaintiffs' counsel's
attorney fees until the arbitration proceedings are completed and the
Partnerships' properties are sold. A Motion for Reconsideration of the
sanctions was filed with the Court and was denied on September 25, 2000.
The Vishnevsky Defendants filed a motion with the Court to stay payment of
the sanctions pending appeal. That motion was also denied.
On August 2, 2000, the Vishnevsky Defendants filed an appeal from that
portion of the judgment determining the method for computing the plaintiffs'
counsel's attorney fees. On October 10, 2000 the Vishnevsky Defendants filed
a second appeal from the order granting the sanctions. A motion to
consolidate the two appeals is pending. The appellate court has temporarily
stayed payment of the sanctions pending receipt of briefs on the issue.
Based on the 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 financial impact
arising from the lawsuit has been made in these financial statments.
Item 2. Changes in Securities and Use of Proceeds
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. Exhibits and Reports on Form 8-K
None
11
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 /S/November 6, 2000 /S/ John Vishnevsky
------------------------------- ----------------------------------------
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Date /S/November 6, 2000 /S/ John Vishnevsky
------------------------------ ----------------------------------------
John Vishnevsky
Chief Financial and Accounting Officer
Date /S/November 6, 2000 /S/ Stephen P. Kotecki
------------------------------ ----------------------------------------
Stephen P. Kotecki
President
EC Corp
Corporate General Partner
12
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 November 6, 2000
---------------------------- ----------------------------------------
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment, Inc.
Corporate General Partner
Date November 6, 2000
---------------------------- ----------------------------------------
John Vishnevsky
Chief Financial and Accounting Officer
Date November 6, 2000
---------------------------- ----------------------------------------
Stephen P. Kotecki
President
EC Corp
Corporate General Partner
13
