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, 1996
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: 630-218-8000
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-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Balance Sheets
September 30, 1996 and December 31, 1995
(unaudited)
Assets
------
1996 1995
---- ----
Current assets:
Cash and cash equivalents including amounts
held by property manager (Note 1)............. $ 116,152 106,980
Accrued interest receivable..................... 328 41
------------ ------------
Total current assets.......................... 116,480 107,021
------------ ------------
Investment property (including acquisition fees
paid to Affiliates of $59,500 at September 30,
1996 and December 31, 1995 (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................... 274,413 246,990
------------ ------------
Total investment property, net of
accumulated depreciation.................... 1,260,848 1,288,271
------------ ------------
Installment contracts receivable (Note 3)......... 80,000 80,000
Accrued rents receivable (Notes l and 4).......... 78,234 74,812
Deferred loan costs (net of accumulated
amortization of $48,188 and $47,018 at
September 30, 1996 and December 31, 1995,
respectively) (Note 1).......................... - 1,170
Deferred leasing fees to Affiliates (net of
accumulated amortization of $12,661 and $10,662
at September 30, 1996 and December 31, 1995,
respectively) (Note 1).......................... 13,325 15,324
------------ ------------
Total assets...................................... $ 1,548,887 1,566,598
============ ============
See accompanying notes to financial statements.
-2-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
September 30, 1996 and December 31, 1995
(unaudited)
Liabilities and Partners' Capital
---------------------------------
1996 1995
---- ----
Current liabilities:
Accounts payable and accrued expenses........... $ - 926
Mortgage payable................................ 916,049 938,503
Accrued interest payable........................ 6,311 7,528
Due to Affiliates (Note 2)...................... 400 2,606
------------ ------------
Total current liabilities..................... 922,760 949,563
------------ ------------
Commission payable to Affiliates (Note 2)......... 135,000 135,000
------------ ------------
Total liabilities............................. 1,057,760 1,084,563
------------ ------------
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......................... 14,741 14,480
Cumulative cash distributions................. (8,861) (8,711)
------------ ------------
6,380 6,269
------------ ------------
Limited Partners:
Units of $1,000. Authorized 25,000 Units,
4,004.25 Units outstanding September 30,
1996 and at December 31, 1995 (net of
offering costs of $462,849, of which
$59,476 was paid to Affiliates)............. 3,541,408 3,541,408
Cumulative net income......................... 1,459,420 1,433,589
Cumulative cash distributions................. (4,526,031) (4,509,181)
------------ ------------
474,797 465,816
------------ ------------
Total Partners' capital..................... 481,177 472,085
------------ ------------
Total liabilities and Partners' capital........... $ 1,548,887 1,566,598
============ ============
See accompanying notes to financial statements.
-3-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Operations
For the three and nine months ended September 30, 1996 and 1995
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Income:
Rental income (Note 4)........... $ 51,661 51,661 154,983 154,983
Interest income.................. 3,318 3,016 9,275 8,851
Other income..................... - - - 2,388
---------- ---------- ---------- ----------
54,979 54,677 164,258 166,222
---------- ---------- ---------- ----------
Expenses:
Professional services to
Affiliates..................... 1,090 3,201 5,113 9,113
Professional services to
non-affiliates................. - - 18,600 15,600
General and administrative
expenses to Affiliates......... 3,627 3,725 10,492 11,433
General and administrative
expenses to non-affiliates..... 429 638 3,437 2,690
Property operating expenses to
Affiliates..................... 505 505 1,515 1,515
Property operating expenses to
non-affiliates................. - 1,219 - 1,344
Mortgage interest................ 25,377 22,667 68,417 61,105
Depreciation..................... 9,141 9,141 27,423 27,422
Amortization..................... 667 1,673 3,169 5,019
---------- ---------- ---------- ----------
40,836 42,769 138,166 135,241
---------- ---------- ---------- ----------
Net income......................... $ 14,143 11,908 26,092 30,981
========== ========== ========== ==========
See accompanying notes to financial statements.
-4-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Operations
(continued)
For the three and nine months ended September 30, 1996 and 1995
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------- -------------
1996 1995 1996 1995
---- ---- ---- ----
Net income allocated to:
General Partner.................. $ 142 119 261 310
Limited Partners................. 14,001 11,789 25,831 30,671
---------- ---------- ---------- ----------
Net income..................... $ 14,143 11,908 26,092 30,981
========== ========== ========== ==========
Net income allocated to the one
General Partner Unit............. $ 142 119 261 310
========== ========== ========== ==========
Net income per 4,004.25 weighted
average Limited Partner Units.... $ 3.50 2.94 6.45 7.66
========== ========== ========== ==========
See accompanying notes to financial statements.
-5-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the nine months ended September 30, 1996 and 1995
(unaudited)
1996 1995
---- ----
Cash flows from operating activities:
Net income...................................... $ 26,092 30,981
Adjustments to reconcile net income to net
cash provided by operating activities:
Accrued rents receivable...................... (3,422) (3,422)
Depreciation.................................. 27,423 27,422
Amortization.................................. 3,169 5,019
Changes in assets and liabilities:
Accrued interest receivable................. (287) 5
Accounts payable and accrued expenses....... (926) 1,231
Accrued interest payable.................... (1,217) 1,708
Due to Affiliates........................... (2,206) 1,866
------------ ------------
Net cash provided by operating activities......... 48,626 64,810
------------ ------------
Cash flows from financing activities:
Principal payments of long-term debt............ (22,454) (9,301)
Distributions................................... (17,000) (59,929)
------------ ------------
Net cash used in financing activities............. (39,454) (69,230)
------------ ------------
Net increase (decrease) in cash and cash
equivalents..................................... 9,172 (4,420)
Cash and cash equivalents at beginning of period.. 106,980 107,020
------------ ------------
Cash and cash equivalents at end of period........ $ 116,152 102,600
============ ============
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest....... $ 69,452 59,398
============ ============
See accompanying notes to financial statements.
-6-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
September 30, 1996
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1995, which are
included in the Partnership's 1995 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, 1996, the Partnership has repurchased a total of 34 Units ($33,993) from
various Limited Partners through the Unit Repurchase Program. At September 30,
1996, included in cash and cash equivalents, is approximately $13,000
restricted for use by the Unit Repurchase Program. The Limited Partners share
in their portion of benefits of ownership of the Partnership's real property
investment according to the number of Units held. Inland Real Estate
Investment Corporation is the General Partner.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting periods.
Actual results could differ from those estimates.
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.
-7-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1996
(unaudited)
The investment properties are carried at the lower of aggregate cost or net
realizable value. Periodically, the Partnership will review its real estate
portfolio and if the investment property suffers an impairment in value which
is deemed to be other than temporary, the investment property would be reduced
to the net realizable value of the property. As of September 30, 1996, there
have been no such impairments. The Partnership uses the straight-line method
of depreciation with a useful life of thirty years for buildings and
improvements. Maintenance and repair expenses are charged to operations as
incurred. Significant improvements are capitalized and depreciated over their
estimated useful lives.
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.
The carrying amount of cash and cash equivalents, rents and other receivables,
accounts payable and accrued expenses and accrued real estate taxes
approximates fair value because of the relative short maturity of these
instruments.
The principal balance of the Partnership's mortgage loan collateralized by the
Scandinavian Health Club property is due October 1996 (Note 5). The
Partnership believes that it is not practicable to value this debt instrument.
No provision for Federal income taxes has been made as the liability for such
taxes is that of the Partners rather than the Partnership.
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of" was issued in March 1995 and
is effective for fiscal years beginning after December 15, 1995. This
pronouncement is not expected to have a material effect on the financial
position or results of operations of 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.
-8-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1996
(unaudited)
(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 $400 and $2,606 remained unpaid at September 30, 1996 and
December 31, 1995, 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, 1996 and 1995, have been incurred and paid to
an Affiliate and are included in the Partnership's property operating expenses
to Affiliates.
(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.
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.
-9-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
September 30, 1996
(unaudited)
(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 1996
of rental income for the period of occupancy for which stepped rent increases
apply and $78,234 and $74,812 in related accounts receivable as of September
30, 1996 and December 31, 1995, respectively. These amounts will be collected
over the terms of the related leases as scheduled rent payments are made.
(5) Mortgage Payable
The General Partner obtained a six-month extension from the current first
mortgage holder on the mortgage loan collateralized by the Scandinavian Health
Club property effective May 1, 1996. The interest rate decreased from 9.625%
to 8.25%. In addition, the Partnership is making additional monthly principal
payments of $2,000.
-10-
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, 1996, the Partnership has
repurchased 34 Units ($33,993) from various Limited Partners through the Unit
Repurchase Program.
At September 30, 1996, the Partnership had cash and cash equivalents of
$116,152, which includes approximately $13,000 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.
The General Partner has agreed to make, if necessary, a Supplemental Capital
Contribution. The Supplemental Capital Contribution shall be in an amount
which will enable the Partnership to pay a liquidating distribution to the
Limited Partners equal to their Adjusted Invested Capital plus a noncompounded
Minimum Return of 2% per annum on their Invested Capital. After consideration
of the Supplemental Capital Contribution, the Partnership believes that it has
sufficient funds to satisfy its obligations.
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.
-11-
The mortgage loan collateralized by the Scandinavian Health Club property
ballooned in May 1996 and was extended on a temporary basis. In the meantime,
the General Partner has agreed to refinance the property with the current
lender for a term of two years. Payments will be based on an interest rate of
8.25%, adjusted annually, with a ten year amortization period. The partnership
will pay a two point loan fee.
The General Partner continues to work with the tenant to obtain an extension of
the lease which should enable the Partnership to secure longer term financing
or sell the property.
The decrease in professional services to Affiliates for the three and nine
months ended September 30, 1996, as compared to the three and nine months ended
September 30, 1995, is due to a decrease in accounting fees to Affiliates,
however there was an increase in accounting fees to non-affiliates during the
same period.
The decrease in general and administrative expenses to Affiliates for the three
and nine months ended September 30, 1996, as compared to the three and nine
months ended September 30, 1995, is due to decreases in data processing,
postage and mortgage servicing fees.
The increase in mortgage interest expense for the nine months ended September
30, 1996, as compared to the nine months ended September 30, 1995, is due to an
increase in the adjustable rate mortgage on the health club property from
7.375% to 9.625% in May 1995. Beginning in May 1996, the interest rate
decreased to 8.25%.
PART II - Other Information
Items 1 through 5 are omitted because of the absence of conditions under which
they are required.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule
(b) Reports on Form 8-K:
None
-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.
INLAND REAL ESTATE GROWTH FUND II, L.P.
By: Inland Real Estate Investment Corporation
General Partner
/S/ ROBERT D. PARKS
By: Robert D. Parks
Chairman
Date: November 13, 1996
/S/ PATRICIA A. CHALLENGER
By: Patricia A. Challenger
Senior Vice President
Date: November 13, 1996
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: November 13, 1996
-13-
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
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<PP&E> 1535261
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0
0
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<OTHER-SE> 481177
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