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, 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) (Zip Code)
(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) - June 30, 2000,
and December 31, 1999.............................................2
Statement of Operations (unaudited) - Three and Six months
ended June 30, 2000, and 1999.....................................3
Statement of Changes in Partners' Capital (unaudited) -
Six months ended June 30, 2000, and 1999..........................4
Statement of Cash Flows (unaudited) -
Six months ended June 30, 2000, and 1999..........................5
Notes to Financial Statements (unaudited).......................6-7
Management's Discussion and Analysis of Financial
Condition and Results of Operation..............................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
<TABLE>
<S> <C>
<C>
PART I. FINANCIAL INFORMATION
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(A WISCONSIN LIMITED PARTNERSHIP)
BALANCE SHEET
(UNAUDITED)
JUNE 30, DECEMBER 31,
2000 1999
ASSETS
Cash and cash equivalent $248,563 $599,280
Other assets 63,962 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 1,737,673 1,670,451
--------- ---------
2,933,424 3,000,646
INTANGIBLE ASSETS:
Debt issue costs, net of accumulated
amortization of $10,636 as of
June 30, 2000 and $8,999 as of
December 31, 1999 21,943 23,581
------ ------
$3,267,892 $3,639,722
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accrued expenses and other
liabilities $46,427 38,657 $38,657
Tenant security deposits 28,050 27,991
Mortgage notes payable (Note 5) 529,550 532,234
Rent received in advance 23,876 15,918
------ ------
627,903 614,800
PARTNERS' CAPITAL:
General Partners 52,394 48,923
Limited Partners 2,587,595 2,975,999
(authorized - 40,000 --------- ---------
Interests; outstanding -
20,653.69 Interests) 2,639,989 3,024,922
$3,267,892 $3,639,722
SEE NOTED TO FINANCIAL STATEMENTS.
</TABLE>
<TABLE>
<S> <C> <C>
<C> <C>
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(A WISCONSIN LIMITED PARTNERSHIP)
STATEMENT OF OPERATIONS
(UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
2000 1999 2000 1999
---- ---- ---- ----
INCOME:
Operating income $191,632 $179,110 $379,128 $362,179
------- ------- ------- -------
Total income 191,632 179,110 379,128 362,179
OPERATING EXPENSES:
Operating expenses 82,762 113,072 151,747 193,393
Administrative expenses 43,124 35,817 78,430 69,703
Depreciation and amortization 34,431 34,515 68,860 69,029
Interest expense 12,493 11,768 23,667 22,973
Total expenses 172,810 195,172 322,704 355,098
------- ------- ------- -------
INCOME (LOSS) FROM OPERATIONS 18,822 (16,062) 56,424 7,081
------ ------- ------ -----
OTHER INCOME (EXPENSES):
Interest income 6,048 9,133 13,024 15,578
----- ----- ------ ------
NET INCOME (LOSS) $24,870 ($6,929) $69,448 $22,659
======= ======= ======= =======
Net Income (Loss)
attributable to $1,243 ($346) $3,471 $1,133
General Partners (5%)
Net Income (Loss)
attributable to $23,627 ($6,583) $65,977 $21,526
Limited Partners (95%)
Per Limited Partnership $1.14 ($0.31) $3.19 $1.04
Interests outstanding-
20,653.69 Interests
</TABLE>
SEE NOTES TO FINANCIAL STATEMENTS.
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(A WISCONSIN LIMITED PARTNERSHIP)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(UNAUDITED)
JUNE 30, 2000
Limited General
Partners Partners Total
-------- -------- -----
Six Months Ended June 30, 2000
Partners' Equity,
beginning of period $2,975,999 $48,923 $3,024,922
Distributions (454,381) - (454,381)
Net Income 65,977 3,471 69,448
--------- ------ ---------
Partners' Equity, end of $2,587,595 $52,394 $2,639,989
period
Six Months Ended June 30, 1999
Partners' Equity,
beginning of period $3,085,230 $43,802 $3,129,032
Distributions (103,268) - - (103,268)
Net Income 21,526 1,133 22,659
--------- ------ ---------
Partners' Capital, end
of period $3,003,488 $44,935 $3,048,423
SEE NOTES TO FINANCIAL STATEMENTS.
<TABLE>
<S> <C>
<C>
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES II
(A WISCONSIN LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
(UNAUDITED)
SIX MONTHS ENDED
JUNE 30,
2000 1999
---- ----
OPERATING ACTIVITIES:
Net income for the period $69,448 $22,659
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 67,222 67,392
Amortization of debt issue costs 1,638 1,637
Changes in operating assets and liabilities:
Other assets (47,747) 7,651
Rents received in advance 7,958 (3,010)
Accrued expenses and other
liabilities 7,770 15,802
Tenant security deposits 59 (1,405)
NET CASH PROVIDED BY OPERATING
ACTIVITIES 106,348 110,726
INVESTING ACTIVITY:
0 0
FINANCING ACTIVITIES:
Distributions to partners (454,381) (103,268)
Payments on mortgage payable (2,684) (3,597)
NET CASH USED IN FINANCING ACTIVITIES (457,065) (106,865)
------- -------
INCREASE (DECREASE) IN CASH (350,717) 3,861
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD 599,280 573,699
------- -------
CASH AND CASH EQUIVALENTS AT
END OF PERIOD $248,563 $577,560
======== ========
SEE NOTES TO FINANCIAL STATEMENTS.
</TABLE>
NATIONAL REAL ESTATE LIMITED PARTNERSHIP INCOME PROPERTIES-II
(A WISCONSIN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
JUNE 30, 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 June 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 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 $22,788 under an agreement with NRMI for
the six month period ended June 30, 2000. The Partnership also
incurred $15,610 in the first half 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 half of 2000, the Partnership incurred lease fees totaling
$3,689, 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
incurred NDII fees of $57,130 for administrative expenses incurred
on behalf of the Partnership for the first half of 2000.
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: $3,682, $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 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
JUNE 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 half of 2000 was 98.21%.
Cave Creek Lock-It Lockers' occupancy during the same period was 91.36%
based on net rentable square footage. During the comparable period in 1999,
occupancy rates were 96% for Amberwood and 89.49% for Cave Creek Lock-It
Lockers. Cave Creek Lock-It Lockers occupancy can be partially attributed
to increased competition in the marketplace.
SIX MONTHS ENDED JUNE 30, 2000, AND 1999
----------------------------------------
Partnership net income increased $46,789 from the $22,659 net income for
the six months ended June 30, 1999, to $69,448 for the six months ended
June 30, 2000. The increase is primarily attributed to an increase in
operating income of $16,949 and a decrease in expenses of $32,394, offset
by a decrease of $2,554 in interest income.
The increase of $16,949 in operating income is primarily attributed to the
increased occupancy at Amberwood Apartments during the first half of 2000
as compared to the first half of 1999.
Expenses decreased $32,394 primarily due to a decrease in operating
expenses of $41,646 netted with an increase in administrative expenses of
$8,727.
The $41,646 decrease in operating expenses was primarily due to the timing
of advertising rental guide expenses at Cave Creek Lockers and exterior
painting charges incurred in 1999 at Cave Creek Lockers.
The $8,727 increase in administrative expenses was primarily due to
increased legal and audit fees in 2000.
The $2,554 decrease in interest income was due to large distribution pay
outs from the money market account in 2000.
Net cash used during first half of 2000 was $350,717, as compared to net
cash provided during the first half 1999 of $3,861. This difference was
primarily due to a $351,113 increase in cash distributed. Distributions
were $22.00 per share, totaling $454,381 for the first half of 2000 as
compared to $103,268, or $5.00 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.
THREE MONTHS ENDED JUNE 30, 2000, AND 1999
------------------------------------------
Partnership net income increased $31,799 from the ($6,929) net loss for
the three months ended June 30, 1999, to $24,870 for the three months
ended June 30, 2000. This increase is primarily attributed to an increase
in operating income of $12,522 and a decrease in expenses of $22,362 which
was offset by a decrease in interest income of $3,085.
The increase of $12,522 in operating income is primarily attributed to the
increased occupancy at Amberwood Apartments during the second quarter of
2000, as compared to the second quarter of 1999.
Expenses decreased $22,362 primarily due to a $30,310 decrease in operating
expenses netted with a $7,307 increase in administrative expenses in second
quarter 2000 versus second quarter 1999.
Operating expenses decreased $30,310 primarily due to a decrease in unit
refurbishments at Amberwood and exterior painting charges incurred during
the second quarter of 1999 at Cave Creek Lockers.
Administrative expenses increased $7,307 primarily due to increased legal
and audit fees in 2000.
Interest income decreased $3,085 due to large distribution pay outs from
the money market account in 2000.
PART II. OTHER INFORMATION AND SIGNATURES
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 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 allege, among 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. On or about March 16, 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 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 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 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 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 sale of the Partnership property.
* The plaintiff's claims made against NRMI, the general partners, and
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
obligations.
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
plaintiff's 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 defendants and their
counsel for delaying the appointment of the Partnership Representative and
the arbitrators. The Court took under advisement the remaining open issue
regarding the secondary market value for computing the plaintiff's
counsel's attorney fees until the arbitration proceedings are completed
and the Partnerships' properties are sold. A Motion for Reconsideration of
the sanctions has been filed with the Court and is set for hearing on
September 25, 2000.
On August 2, 2000, the defendants filed an appeal from that portion of the
judgment determining the method for computing the plaintiff's counsels
attorney fees. 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 statements.
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
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/August 2, 2000 /S/ John Vishnevsky
-------------------------------
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and
Investment, Inc.
Corporate General Partner
Date /S/August 2, 2000 /S/ John Vishnevsky
---------------------------- -------------------------------
John Vishnevsky
Chief Financial and Accounting
Officer
Date /S/August 2, 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 August 2, 2000
----------------------------- ----------------------------------
John Vishnevsky
President and Chief Operating and
Executive Officer
National Development and Investment,
Inc.
Corporate General Partner
Date August 2, 2000
----------------------------- ----------------------------------
John Vishnevsky
Chief Financial and Accounting
Officer
Date August 2, 2000
----------------------------- ----------------------------------
Stephen P. Kotecki
President
EC Corp
Corporate General Partner
