<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Quarterly Period Ended March 31, 1995
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
------------------ ------------------
Commission File #0-16780
Inland Real Estate Growth Fund II, L.P.
(Exact name of registrant as specified in its charter)
Delaware #36-3547165
(State or other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2901 Butterfield Road, Oak Brook, Illinois 60521
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code: 708-218-8000
N/A
----------------------------------------------
(Former name, former address and former fiscal
year, if changed since last report)
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
----- -----
-1-
<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Balance Sheets
December 31, 1995 and 1994
(unaudited)
Assets
------
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents including amounts
held by property manager (Note 1)............. $ 107,270 107,020
Accrued interest receivable..................... 186 55
---------- ---------
Total current assets.......................... 107,456 107,075
---------- ---------
Investment property (including acquisition fees
paid to Affiliates of $59,500 at March 31,
1995 and December 31, 1994 (Notes 1 and 2):
Land............................................ 438,389 438,389
Building and improvements....................... 1,096,872 1,096,872
---------- ---------
1,535,261 1,535,261
Less accumulated depreciation................... 219,569 210,428
---------- ---------
Total investment property, net of
accumulated depreciation.................... 1,315,692 1,324,833
---------- ---------
Installment contracts receivable (Note 3)......... 80,000 80,000
Accrued rents receivable (Notes l and 4).......... 71,391 70,250
Deferred loan costs (net of accumulated
amortization of $43,998 and $42,991 at
March 31, 1995 and December 31, 1994,
respectively) (Note 1).......................... 4,190 5,197
Deferred leasing fees to Affiliates (net of
accumulated amortization of $8,663 and $7,996
at March 31, 1995 and December 31, 1994,
respectively) (Note 1).......................... 17,323 17,990
---------- ---------
Total assets...................................... $1,596,052 1,605,345
========== =========
</TABLE>
See accompanying notes to financial statements.
-2-
<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
December 31, 1995 and 1994
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1995 1994
---- ----
Current liabilities:
Accounts payable and accrued expenses.......... $ 6,607 424
Current portion of long-term debt.............. 14,707 14,439
Accrued interest payable....................... 5,820 5,841
Due to Affiliates (Note 2)..................... 5,904 175
----------- ----------
Total current liabilities.................... 33,038 20,879
----------- ----------
Commission payable to Affiliates (Note 2)........ 135,000 135,000
Long-term debt, less current portion............. 932,219 935,998
----------- ----------
Total liabilities............................ 1,100,257 1,091,877
----------- ----------
Deferred gain on sale of investment property
(Note 3)....................................... 9,950 9,950
Partners' capital (Notes 1 and 2):
General Partner:
Capital contribution......................... 500 500
Cumulative net income........................ 14,055 14,032
Cumulative cash distributions................ (2,311) (2,131)
----------- ----------
12,244 12,401
----------- ----------
Limited Partners:
Units of $1,000. Authorized 25,000 Units,
4,004.25 Units outstanding March 31, 1995
and at December 31, 1994 (net of offering
costs of $462,849, of which $59,476 was
paid to Affiliates)........................ 3,541,408 3,541,408
Cumulative net income........................ 1,391,504 1,389,200
Cumulative cash distributions................ (4,459,311) (4,439,491)
----------- ----------
473,601 491,117
----------- ----------
Total Partners' capital.................... 485,845 503,518
----------- ----------
Total liabilities and Partners' capital.......... $ 1,596,052 1,605,345
=========== ==========
See accompanying notes to financial statements.
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<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Operations
For the three months ended March 31, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Income:
Rental income (Note 4)................................... $51,661 51,661
Interest income.......................................... 2,841 9,079
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54,502 60,740
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Expenses:
Professional services to Affiliates...................... 3,420 3,368
Professional services to non-affiliates.................. 15,500 18,665
General and administrative expenses to
Affiliates....................................... 3,834 2,104
General and administrative expenses to
non-affiliates................................... 621 4,469
Property operating expenses to Affiliates................ 505 505
Property operating expenses to non-affiliates............ - 22
Mortgage interest........................................ 17,480 15,635
Depreciation............................................. 9,141 9,141
Amortization............................................. 1,674 1,674
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52,175 55,583
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Operating income................................................. 2,327 5,157
Gain on sale of investment property (Note 3)..................... - 48
------- ------
Net income....................................................... $ 2,327 5,205
======= ======
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Operations
(continued)
For the three months ended March 31, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
1995 1994
------ ------
<S> <C> <C>
Net income allocated to:
General Partner................................... $ 23 52
Limited Partners.................................. 2,304 5,153
------ ------
Net income................................... $2,327 5,205
====== ======
Net income allocated to the one General Partner Unit:
Operating income.................................. 23 51
Gain on sale of investment property............... - 1
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$ 23 52
====== ======
Net income per weighted average Limited Partner Unit
(4,004.25 for 1995 and 1994):
Operating income.................................. .58 1.27
Gain on sale of investment property............... - .02
------ ------
$ .58 1.29
====== ======
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the three months ended March 31, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income......................................... $ 2,327 5,205
Adjustments to reconcile net income to net cash
provided by operating activities:
Accrued rents receivable....................... (1,141) (1,141)
Depreciation................................... 9,141 9,141
Amortization................................... 1,674 1,674
Gain on sale of investment property............ - (48)
Changes in assets and liabilities:
Accrued interest receivable................ (131) 153
Accounts payable and accrued expenses...... 6,183 13,545
Accrued interest payable................... (21) (20)
Due to Affiliates.......................... 5,729 3,829
Real estate tax deposits held for others... - 1,093
Unearned income............................ - (83)
-------- --------
Net cash provided by operating activities.............. 23,761 33,348
-------- --------
Cash flows from investing activities:
Principal payments collected....................... - 326
-------- --------
Net cash provided by investing activities.............. - 326
-------- --------
Cash flows from financing activities:
Principal payments of long-term debt............... (3,511) (3,757)
Distributions...................................... (20,000) (265,101)
-------- --------
Net cash used in financing activities.................. (23,511) (268,858)
-------- --------
Net increase (decrease) in cash and cash equivalents... 250 (235,184)
Cash and cash equivalents at beginning of period....... 107,020 345,030
-------- --------
Cash and cash equivalents at end of period............. $107,270 109,846
======== ========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest...... $ 17,502 15,656
======== ========
</TABLE>
See accompanying notes to financial statements.
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<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
March 31, 1995
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1994, which are
included in the Partnership's 1994 Annual Report, as certain footnote
disclosures which would substantially duplicate those contained in such audited
financial statements have been omitted from this Report.
(1) Organization and Basis of Accounting
Inland Real Estate Growth Fund II, L.P. (the "Partnership"), was formed in June
1987, pursuant to the Delaware Revised Uniform Limited Partnership Act, to
invest in improved residential, retail, industrial and other income producing
properties. On September 21, 1987, the Partnership commenced an Offering of
25,000 Limited Partnership Units (the "Units") pursuant to a Registration
Statement on Form S-11 under the Securities Act of 1933. The Partnership
terminated the Offering on September 21, 1989. A total of 4,038.25 Units were
sold to the public at $1,000 per Unit, yielding gross offering proceeds of
$4,038,250, not including the General Partner's contribution of $500. All of
the holders of these Units were admitted to the Partnership. As of March 31,
1995, the Partnership has repurchased a total of 34 Units ($33,993) from
various Limited Partners through the Unit Repurchase Program. At March 31,
1995, included in cash and cash equivalents, is approximately $12,000
restricted for use by the Unit Repurchase Program. Inland Real Estate
Investment Corporation is the General Partner.
Offering costs have been offset against the Limited Partners' capital accounts.
Deferred loan costs are amortized on a straight-line basis over the life of the
loan. Deferred leasing fees are amortized on a straight-line basis over the
term of the related lease.
Installment contracts receivable origination fees received are deferred as
unearned income and amortized as yield adjustments on a straight-line basis
over the life of the related installment contracts receivable.
Investment properties are recorded at cost. The Partnership uses the straight-
line method of depreciation with useful lives of thirty years for building and
improvements.
Maintenance and repair expenses are charged to operations as incurred.
Significant improvements are capitalized and depreciated over their estimated
useful lives.
-7-
<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
March 31, 1995
(unaudited)
Rental income is recognized on a straight-line basis over the term of the
lease. The excess of rental income earned over the cash rent due under the
provisions of the lease agreement is recorded as accrued rent receivable.
The Partnership considers all highly liquid investments purchased with a
maturity of three months or less to be cash equivalents.
No provision for Federal income taxes has been made as the liability for such
taxes is that of the Partners rather than the Partnership.
Certain amounts in the 1994 financial statements have been reclassified to
conform with the 1995 presentation. Such reclassifications did not change the
1994 reported results.
In the opinion of management, the financial statements contain all the
adjustments necessary, which are of a normal recurring nature, to present
fairly the financial position and results of operations. Interim periods are
not necessarily indicative of results to be expected for the year.
(2) Transactions with Affiliates
The General Partner and its Affiliates are entitled to reimbursement for
salaries and expenses of employees of the General Partner and its Affiliates
relating to the administration of the Partnership. Such costs are included in
professional services to Affiliates and general and administrative expenses to
Affiliates, of which $5,904 and $175 remained unpaid at March 31, 1995 and
December 31, 1994, respectively.
In connection with the sales at Wellington Place, the Partnership has recorded
$135,000 of sales commissions payable to Affiliates of the General Partner.
Such commissions will be deferred until the Limited Partners have received
their Original Capital plus a return as specified in the Partnership Agreement.
An Affiliate of the General Partner is entitled to receive Property Management
Fees for management and leasing services. Management fees of $505 for the
three months ended March 31, 1995 and 1994, have been incurred and paid to an
Affiliate and are included in the Partnership's property operating expenses to
Affiliates.
As of March 31, 1995, the General Partner has deferred receipt of its portion
of distributions of net cash flow of the Partnership of $5,957.
-8-
<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
March 31, 1995
(unaudited)
(3) Installment Contracts Receivable
During 1991, the Partnership sold all of the eighteen buildings comprising the
Wellington Place apartment complex to unaffiliated third parties. The
Partnership had recorded wrap around installment contracts receivable of
$3,988,999 as a result of these sales, with interest rates ranging from 10.5%
to 10.9% due over seven to ten years. The gain of $616,858 was to be
recognized as cash was received over the life of the related installment
contracts.
As of March 31, 1995, the Partnership has received complete prepayments on all
of the eighteen installment contracts receivable amounting to $3,609,589, which
included prepayment penalties of $10,830, less credit to the borrowers for
prepaid interest. In conjuction with five of the prepayments, the Partnership
provided a single borrower with five second mortgages, in the amount of $16,000
each, which require interest-only payments at the rate of 10% per annum with a
final balloon payment due June 30, 1998, collateralized by five of the
buildings previously sold.
(4) Accrued Rents Receivable
The health club lease contains provisions providing for stepped rent increases.
Generally accepted accounting principles require that rental income be recorded
for the period of occupancy using the effective monthly rent, which is the
average monthly rent for the entire period of occupancy during the term of the
lease. The accompanying financial statements include $1,141 in 1995 and 1994 of
rental income for the period of occupancy for which stepped rent increases apply
and $71,391 and $70,520 in related accounts receivable as of March 31, 1995 and
December 31, 1994, respectively. These amounts will be collected over the terms
of the related leases as scheduled rent payments are made.
(5) Subsequent Events
During April 1995, the Partnership paid a distribution of $20,412 of which
$14,330 was distributed to the Limited Partners and $6,082 was distributed to
the General Partner. The General Partner's distribution included $125 for
first quarter earnings and $5,957 for prior years' deferred distributions.
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<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
On September 21, 1987, the Partnership commenced an Offering of 25,000 Limited
Partnership Units pursuant to a Registration Statement on Form S-11 under the
Securities Act of 1933. The Offering terminated on September 21, 1989 with a
total of 4,038.25 Units being sold to the public at $1,000 per Unit resulting
in $4,038,250 in gross offering proceeds, of which $3,077,513 was invested in
two properties. In addition, proceeds were used to repay advances from the
General Partner, pay offering and organization costs and make distributions to
the Limited Partners. As of March 31, 1995, the Partnership has repurchased 34
Units ($33,993) from various Limited Partners through the Unit Repurchase
Program.
At March 31, 1995, the Partnership had cash and cash equivalents of $107,270
which includes approximately $12,000 restricted for the repurchase of Units
through the Unit Repurchase Program. The Partnership intends to use available
cash for working capital requirements and cash distributions.
The Partnership is generating sufficient cash flow to cover operating expenses
and debt service. To the extent that these sources are insufficient to meet
the Partnership's needs, the Partnership may rely on advances from Affiliates
of the General Partner, other short-term financing or may sell the remaining
property.
Results of Operations
As of December 31, 1991, the Partnership had sold all of the eighteen buildings
comprising the Wellington Place Apartment complex. The remaining property
owned by the Partnership, a health club, is leased until October 2001 to
Scandinavian Health Spa Inc., a wholly owned subsidiary of Bally's Health and
Tennis Corporation on a "triple-net" basis, which means that in addition to
paying base rent, the tenant is also responsible for the payment of insurance,
real estate taxes and maintenance. The General Partner does not anticipate an
early termination of this lease.
Interest income decreased for the three months ended March 31, 1995, as
compared to the three months ended March 31, 1994, due to the prepayment of the
remaining original installment contract receivable in October 1994. As of
March 31, 1995 the Partnership has received complete prepayments on all of the
eighteen installment contracts receivable originally due in 2001, amounting to
$3,609,589, which included prepayment penalties of $10,830, less credit to the
borrowers for prepaid interest. In conjunction with five of the prepayments,
the Partnership provided a single borrower with five second mortgages in the
amount of $16,000 each, which require interest-only payments at the rate of 10%
per annum with a final balloon payment due June 30, 1998, collateralized by
five of the buildings previously sold.
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<PAGE>
The gain on the sale of investment properties in 1994 is the result of the
installment sales of the eighteen buildings comprising the Wellington Place
apartment complex. The total gain from these sales of $616,858 will be
recognized over the life of the related installment contracts, or if prepaid,
as cash is received. As of March 31, 1995, the remaining deferred gain is
$9,950 which will be recognized with the final balloon payment of the second
mortgages.
The decrease in professional services to non-affiliates for the three months
ended March 31, 1995, as compared to the three months ended March 31, 1994, is
due to a decrease in accounting fees.
The increase in general and administrative expenses to Affiliates for the three
months ended March 31, 1995, as compared to the three months ended March 31,
1994, is due to increases in data processing and investor services expenses.
The decrease in general and administrative expenses to non-affiliates for the
three months ended March 31, 1995, as compared to the three months ended March
31, 1994, is due to a decrease in the Illinois replacement tax.
The increase in mortgage interest expense for the three months ended March 31,
1995, as compared to the three months ended March 31, 1994, is due to an
increase in the adjustable rate mortgage on the health club property from 6.5%
to 7.375% in May 1994.
PART II
Items 1 through 6 (b) are omitted because of the absence of conditions under
which they are required.
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<PAGE>
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.
INLAND REAL ESTATE GROWTH FUND II, L.P.
By: Inland Real Estate Investment Corporation
General Partner
By: Robert D. Parks
Chairman
Date: May 11, 1995
By: Patricia A. Challenger
Senior Vice President
Date: May 11, 1995
By: Cynthia M. Hassett
Principal Financial Officer and
Principal Accounting Officer
Date: May 11, 1995
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> MAR-31-1995
<CASH> 107,270
<SECURITIES> 0
<RECEIVABLES> 186
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 107,270
<PP&E> 1,535,261
<DEPRECIATION> 1,315,692
<TOTAL-ASSETS> 1,596,052
<CURRENT-LIABILITIES> 33,038
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 485,845
<TOTAL-LIABILITY-AND-EQUITY> 1,596,052
<SALES> 0
<TOTAL-REVENUES> 54,502
<CGS> 0
<TOTAL-COSTS> 34,695
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,480
<INCOME-PRETAX> 2,327
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,327
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,327
<EPS-PRIMARY> .58
<EPS-DILUTED> .58
</TABLE>
