<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 September 30, 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
September 30, 1995 and December 31, 1994
(unaudited)
Assets
------
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Current assets:
Cash and cash equivalents including amounts
held by property manager (Note 1).................. $ 102,600 107,020
Accrued interest receivable.......................... 50 55
---------- -------
Total current assets............................... 102,650 107,075
---------- -------
Investment property (including acquisition fees
paid to Affiliates of $59,500 at September 30,
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........................ 237,850 210,428
---------- ---------
Total investment property, net of accumulated
depreciation..................................... 1,297,411 1,324,833
---------- ---------
Installment contracts receivable (Note 3).............. 80,000 80,000
Accrued rents receivable (Notes l and 4)............... 73,672 70,250
Deferred loan costs (net of accumulated
amortization of $46,011 and $42,991 at
September 30, 1995 and December 31, 1994,
respectively) (Note 1)............................... 2,177 5,197
Deferred leasing fees to Affiliates (net of
accumulated amortization of $9,995 and $7,996
at September 30, 1995 and December 31, 1994,
respectively) (Note 1)............................... 15,991 17,990
---------- ---------
Total assets........................................... $1,571,901 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)
September 30, 1995 and December 31, 1994
(unaudited)
Liabilities and Partners' Capital
---------------------------------
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Current liabilities:
Accounts payable and accrued expenses........... $ 1,655 424
Current portion of long-term debt............... 941,136 14,439
Accrued interest payable........................ 7,549 5,841
Due to Affiliates (Note 2)...................... 2,041 175
----------- -----------
Total current liabilities..................... 952,381 20,879
----------- -----------
Commission payable to Affiliates (Note 2)......... 135,000 135,000
Long-term debt, less current portion.............. - 935,998
----------- -----------
Total liabilities............................. 1,087,381 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......................... 14,342 14,032
Cumulative cash distributions................. (8,568) (2,131)
----------- -----------
6,274 12,401
----------- -----------
Limited Partners:
Units of $1,000. Authorized 25,000 Units,
4,004.25 Units outstanding September 30,
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......................... 1,419,871 1,389,200
Cumulative cash distributions................. (4,492,983) (4,439,491)
----------- -----------
468,296 491,117
----------- -----------
Total Partners' capital..................... 474,570 503,518
----------- -----------
Total liabilities and Partners' capital........... $ 1,571,901 1,605,345
=========== ===========
</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
For the three and nine months ended September 30, 1995 and 1994
(unaudited)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
-------------------- --------------------
1995 1994 1995 1994
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Income:
Rental income (Note 4)...................... $51,661 51,661 154,983 154,983
Interest income............................. 3,016 8,451 8,851 25,996
Other income................................ - 222 2,388 4,281
------- ------- -------- --------
54,677 60,334 166,222 185,260
------- ------- -------- --------
Expenses:
Professional services to
Affiliates................................ 3,201 2,439 9,113 9,975
Professional services to
non-affiliates............................ - 196 15,600 18,940
General and administrative
expenses to Affiliates.................... 3,725 2,657 11,433 8,648
General and administrative
expenses to non-affiliates................ 638 1,986 2,690 7,931
Property operating expenses to
Affiliates................................ 505 505 1,515 1,515
Property operating expenses to
non-affiliates.............................. 1,219 - 1,344 22
Mortgage interest........................... 22,667 17,608 61,105 50,215
Depreciation................................ 9,141 9,141 27,422 27,422
Amortization................................ 1,673 1,674 5,019 5,020
------- ------- -------- --------
42,769 36,206 135,241 129,688
------- ------- -------- --------
Operating income............................. 11,908 24,128 30,981 55,572
Gain on sale of investment property
(Note 3)................................... - 49 - 145
------- ------- -------- --------
Net income................................... $11,908 24,177 30,981 55,717
======= ======= ======== ========
</TABLE>
See accompanying notes to financial statements.
-4-
<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Operations
(continued)
For the three and nine months ended September 30, 1995 and 1994
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
---------------- ---------------
1995 1994 1995 1994
------- ------ ------ ------
Net income allocated to:
General Partner.................. $ 119 242 310 557
Limited Partners................. 11,789 23,935 30,671 55,160
------- ------ ------ ------
Net income..................... $11,908 24,177 30,981 55,717
======= ====== ====== ======
Net income allocated to the one
General Partner Unit:
Operating income................. 119 242 310 556
Gain on sale of investment
property....................... - - - 1
------- ------ ------ ------
$ 119 242 310 557
======= ====== ====== ======
Net income per weighted average
Limited Partner Unit (4,004.25
for 1995 and 1994):
Operating income................. 2.94 5.96 7.66 13.74
Gain on sale of investment
property....................... - .02 - .04
------- ------ ------ ------
$ 2.94 5.98 7.66 13.78
======= ====== ====== ======
See accompanying notes to financial statements.
-5-
<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the nine months ended September 30, 1995 and 1994
(unaudited)
1995 1994
-------- ------
Cash flows from operating activities:
Net income..................................... $ 30,981 55,717
Adjustments to reconcile net income to net
cash provided by operating activities:
Accrued rents receivable...................... (3,422) (3,422)
Depreciation.................................. 27,422 27,422
Amortization.................................. 5,019 5,020
Gain on sale of investment property........... - (145)
Changes in assets and liabilities:
Accrued interest receivable................. 5 181
Accounts payable and accrued expenses....... 1,231 (409)
Accrued interest payable.................... 1,708 637
Due to Affiliates........................... 1,866 (188)
Real estate tax deposits held for others.... - (1,235)
Unearned income............................. - (251)
-------- --------
Net cash provided by operating activities........ 64,810 83,327
-------- --------
Cash flows from investing activities:
Principal payments collected................... - 1,006
-------- --------
Net cash provided by investing activities........ - 1,006
-------- --------
Cash flows from financing activities:
Principal payments of long-term debt........... (9,301) (10,794)
Distributions.................................. (59,929) (311,175)
-------- --------
Net cash used in financing activities............ (69,230) (321,969)
-------- --------
Net decrease in cash and cash equivalents........ (4,420) (237,636)
Cash and cash equivalents at beginning of period. 107,020 345,030
-------- --------
Cash and cash equivalents at end of period....... $102,600 107,394
======== ========
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest....... $ 59,398 49,578
======== ========
See accompanying notes to financial statements.
-6-
<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
September 30, 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 September
30, 1995, the Partnership has repurchased a total of 34 Units ($33,993) from
various Limited Partners through the Unit Repurchase Program. At September 30,
1995, included in cash and cash equivalents, is approximately $12,500
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.
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)
September 30, 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.
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 $2,041 and $175 remained unpaid at September 30, 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 $1,515 for the
nine months ended September 30, 1995 and 1994, have been incurred and paid to
an Affiliate and are included in the Partnership's property operating expenses
to Affiliates.
-8-
<PAGE>
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 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 September 30, 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 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.
(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 $3,422 in 1995 and 1994 of
rental income for the period of occupancy for which stepped rent increases apply
and $73,671 and $70,250 in related accounts receivable as of September 30, 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 October 1995, the Partnership paid a distribution of $16,342, of which
$16,199 was distributed to the Limited Partners and $143 was distributed to the
General Partner.
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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 September 30, 1995, the Partnership has
repurchased 34 Units ($33,993) from various Limited Partners through the Unit
Repurchase Program.
At September 30, 1995, the Partnership had cash and cash equivalents of
$102,600 which includes approximately $12,500 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 and nine months ended September 30,
1995, as compared to the three and nine months ended September 30, 1994, due to
the prepayment of the remaining original installment contract receivable in
October 1994. As of September 30, 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, collateralized by five of
the buildings previously sold, which require interest-only payments at the rate
of 10% per annum with a final balloon payment due June 30, 1998.
-10-
<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 September 30, 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 Affiliates and non-affiliates for the
nine months ended September 30, 1995, as compared to the nine months ended
September 30, 1994, is due to a decrease in accounting fees.
The increase in general and administrative expenses to Affiliates for the three
and nine months ended September 30, 1995, as compared to the three and nine
months ended September 30, 1994, is due to an increase in investor services
expenses. The decrease in general and administrative expenses to non-affiliates
for the nine months ended September 30, 1995, as compared to the nine months
ended September 30, 1994, is due to a decrease in the Illinois replacement tax.
The increase in mortgage interest expense for the three and nine months ended
September 30, 1995, as compared to the three and nine months ended September
30, 1994, is due to increases in the adjustable rate mortgage on the health
club property from 6.5% to 7.375% in May 1994, and then to 9.625% in May 1995.
PART II
Items 1 through 6 (b) are omitted because of the absence of conditions under
which they are required.
-11-
<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: November 13, 1995
By: Cynthia M. Hassett
Principal Financial Officer and
Principal Accounting Officer
Date: November 13, 1995
-12-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 102,600
<SECURITIES> 0
<RECEIVABLES> 50
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 102,650
<PP&E> 1,535,261
<DEPRECIATION> 237,850
<TOTAL-ASSETS> 1,571,901
<CURRENT-LIABILITIES> 952,381
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 474,570
<TOTAL-LIABILITY-AND-EQUITY> 1,571,901
<SALES> 0
<TOTAL-REVENUES> 166,222
<CGS> 0
<TOTAL-COSTS> 2,859
<OTHER-EXPENSES> 71,277
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 61,105
<INCOME-PRETAX> 30,981
<INCOME-TAX> 0
<INCOME-CONTINUING> 30,981
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,981
<EPS-PRIMARY> 7.66
<EPS-DILUTED> 7.66
</TABLE>