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, 2000
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 60523
(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
March 31, 2000 and December 31, 1999
(unaudited)
Assets
------
2000 1999
---- ----
Current assets:
Cash and cash equivalents including amounts
held by property manager (Note 1)............. $ 331,420 287,520
Accrued interest receivable..................... 455 465
------------ ------------
Total current assets.......................... 331,875 287,985
------------ ------------
Investment property (including acquisition fees
paid to Affiliates of $59,500) (Notes 1 and 2):
Land............................................ 438,388 438,388
Building and improvements....................... 1,096,872 1,096,872
------------ ------------
1,535,260 1,535,260
Less accumulated depreciation................... 401,912 392,772
Total investment property, net of accumulated ------------ ------------
depreciation................................ 1,133,348 1,142,488
------------ ------------
Accrued rents receivable (Notes l and 3).......... 28,511 32,424
Deferred leasing fees to Affiliates (net of
accumulated amortization of $21,987 and $21,321
at March 31, 2000 and December 31, 1999,
respectively) (Note 1).......................... 3,998 4,664
------------ ------------
Total assets...................................... $ 1,497,733 1,467,561
============ ============
See accompanying notes to financial statements.
-2-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Balance Sheets
(continued)
March 31, 2000 and December 31, 1999
(unaudited)
Liabilities and Partners' Capital
---------------------------------
2000 1999
Current liabilities: ---- ----
Accounts payable................................ $ 8,835 -
Current portion of long-term debt (Note 4)...... 786,081 786,081
Due to Affiliates (Note 2)...................... 21,855 878
------------ ------------
Total current liabilities..................... 816,771 786,959
------------ ------------
Commission payable to Affiliates (Note 2)......... 135,000 135,000
Total liabilities............................. 951,771 921,959
------------ ------------
Partners' capital (Notes 1 and 2):
General Partner:
Capital contribution.......................... 500 500
Cumulative net income......................... 16,753 16,749
Cumulative cash distributions................. (9,939) (9,939)
------------ ------------
7,314 7,310
Limited Partners: ------------ ------------
Units of $1,000. Authorized 25,000 Units,
3,921.25 Units outstanding at March 31, 2000
and December 31, 1999 (net of offering
costs of $462,849, of which $59,476 was
paid to Affiliates)......................... 3,534,495 3,534,495
Cumulative net income......................... 1,658,565 1,658,209
Cumulative cash distributions................. (4,654,412) (4,654,412)
------------ ------------
538,648 538,292
------------ ------------
Total Partners' capital..................... 545,962 545,602
------------ ------------
Total liabilities and Partners' capital........... $ 1,497,733 1,467,561
============ ============
See accompanying notes to financial statements.
-3-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Operations
For the three months ended March 31, 2000 and 1999
(unaudited)
2000 1999
Income: ---- ----
Rental income (Note 3).......................... $ 51,661 51,661
Interest income................................. 4,211 2,291
------------ ------------
55,872 53,952
------------ ------------
Expenses:
Professional services to Affiliates............. 1,009 419
Professional services to non-affiliates......... 16,600 14,000
General and administrative expenses to
Affiliates.................................... 6,220 6,194
General and administrative expenses to
non-affiliates................................ 2,754 7,237
Property operating expenses to Affiliates....... 556 556
Mortgage interest to Affiliates................. 18,567 11,867
Mortgage interest to non-affiliates............. - 5,543
Depreciation.................................... 9,140 -
Amortization.................................... 666 1,612
------------ ------------
55,512 47,428
------------ ------------
Net income........................................ $ 360 6,524
============ ============
Net income allocated to:
General Partner................................. 4 65
Limited Partners................................ 356 6,459
------------ ------------
Net income........................................ $ 360 6,524
============ ============
Net income allocated to the one General
Partner Unit.................................... $ 4 65
============ ============
Net income per 3,921.25 weighted average
Limited Partnership Units....................... $ .09 1.61
============ ============
See accompanying notes to financial statements.
-4-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Statements of Cash Flows
For the three months ended March 31, 2000 and 1999
(unaudited)
2000 1999
Cash flows from operating activities: ---- ----
Net income...................................... $ 360 6,524
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation.................................. 9,140 -
Amortization.................................. 666 1,612
Changes in assets and liabilities:
Accrued rents receivable.................... 3,913 3,913
Accrued interest receivable................. 10 102
Accounts payable and accrued expenses....... 8,834 6,436
Accrued interest payable.................... 18,567 11,867
Due to Affiliates........................... 2,410 1,156
------------ ------------
Net cash provided by operating activities......... 43,900 31,610
------------ ------------
Cash flows from financing activities:
Proceeds from note payable to Affiliate......... - 786,081
Pay-off of long-term debt....................... - (780,288)
------------ ------------
Net cash provided by financing activities......... - 5,793
------------ ------------
Net increase in cash and cash equivalents......... 43,900 37,403
Cash and cash equivalents at beginning of period.. 287,520 185,913
------------ ------------
Cash and cash equivalents at end of period........ $ 331,420 223,316
============ ============
Supplemental disclosure of cash flow information:
Cash paid for mortgage and other interest....... $ - 5,543
============ ============
See accompanying notes to financial statements.
-5-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
March 31, 2000
(unaudited)
Readers of this Quarterly Report should refer to the Partnership's audited
financial statements for the fiscal year ended December 31, 1999, which are
included in the Partnership's 1999 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,
2000, the Partnership has repurchased a total of 117 Units ($40,906) from
various Limited Partners. At March 31, 2000, included in cash and cash
equivalents, is approximately $8,000 restricted for use by the Unit Repurchase
Program. The Limited Partners of the Partnership 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.
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.
-6-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
March 31, 2000
(unaudited)
Statement of Financial Accounting Standards No. 121 requires the Partnership to
record an impairment loss on its property to be held for investment whenever
its carrying value cannot be fully recovered through estimated undiscounted
future cash flows from their operations and sale. The amount of the impairment
loss to be recognized would be the difference between the property's carrying
value and the property's estimated fair value. The Partnership's policy is to
consider a property to be held for sale or disposition when the Partnership has
committed to sell such property and active marketing activity has commenced.
Effective September 23, 1998, the Partnership's investment property was held
for sale and the Partnership listed and was actively marketing the Scandinavian
Health Club property for sale at an amount in excess of its carrying value. The
listing agreement expired on January 31, 1999, however, the property was
included in a sealed bid auction in June 1999. The sole acceptable contract
received from the sealed bid auction was terminated by the potential purchaser
on July 28, 1999. In accordance with SFAS 121, any property identified as "held
for sale or disposition" is no longer depreciated. The Partnership which had
ceased depreciation as of September 23, 1998, began depreciation of the
property as of July 28, 1999 and all previously unrecognized depreciation was
recorded as of December 31, 1999. Adjustments for impairment loss for such a
property are made in each period as necessary to report the property at the
lower of carrying value or fair value less cost to sell. As of March 31, 2000,
the Partnership has not recognized any such impairment on its property.
(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, of which $3,288 and $878
remained unpaid at March 31, 2000 and December 31, 1999, respectively.
In connection with the sales at Wellington Place apartment complex during 1991,
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.
-7-
INLAND REAL ESTATE GROWTH FUND II, L.P.
(a limited partnership)
Notes to Financial Statements
(continued)
March 31, 2000
(unaudited)
An Affiliate of the General Partner is entitled to receive Property Management
Fees for management and leasing services. Management fees of $556 for both the
three months ended March 31, 2000 and 1999, have been incurred and paid to an
Affiliate and are included in the Partnership's property operating expenses to
Affiliates.
(3) 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 a decrease of $3,913 in
both 1999 and 1998, of rental income for the period of occupancy for which
stepped rent increases apply and $28,511 and $32,424 in related accounts
receivable as of March 31, 2000 and December 31, 1999, respectively. Those
amounts are expected to be collected over the terms of the related leases as
scheduled rent payments are made.
(4) Note Payable to Affiliate
As of February 1, 1999, the General Partner of the Partnership advanced funds
on a short-term basis to the Partnership to pay off its mortgage payable
balance of $780,288 plus accrued interest through the maturity date. The note
payable to the General Partner of $786,081 has a current interest rate of 9.5%
and requires monthly interest only payments. A final balloon payment of all
outstanding principal and all accrued and unpaid interest, if any, was due on
December 31, 1999 and was extended to December 31, 2000. This note may be
extended at the Partnership's option.
(5) Subsequent Events
On May 1, 2000, in order to reduce interest expense, the Partnership made a
$286,081 principal paydown on the note payable to an Affiliate.
-8-
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Certain statements in this "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and elsewhere in this quarterly report on
Form 10-Q constitute "forward-looking statements" within the meaning of the
Federal Private Securities Litigation Reform Act of 1995. These forward-
looking statements involve known and unknown risks, uncertainties and other
factors which may cause the Partnership's actual results, performance or
achievements to be materially different from any future results, performance or
achievements expressed or implied by these forward-looking statements. These
factors include, among other things, federal, state or local regulations;
adverse changes in general economic or local conditions; inability of borrower
to meet financial obligations; uninsured losses; and potential conflicts of
interest between the Partnership and its Affiliates, including the General
Partner.
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, not including the General Partner's
contribution, 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, 2000, the Partnership has repurchased 117 Units ($40,906) from various
Limited Partners through the Unit Repurchase Program.
At March 31, 2000, the Partnership had cash and cash equivalents of $331,420,
which includes approximately $8,000 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's property is generating sufficient cash flow to cover
operating expenses and debt service. To the extent that this source is
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 this 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.
-9-
Results of Operations
As of September 23, 1998, the Partnership listed and was actively marketing the
Scandinavian Health Club property for sale at an amount in excess of its
carrying value. The listing agreement expired on January 31, 1999, however, the
property was included in a sealed bid auction in June 1999. The sole acceptable
contract received from the sealed bid auction was terminated by the potential
purchaser on July 28, 1999. The Partnership which had ceased depreciation as of
September 23, 1998, began depreciation of the property as of July 28, 1999 and
all previously unrecognized depreciation was recorded as of December 31, 1999.
The Company intends to continue to seek a purchaser and to sell the property at
an amount in excess of its book value.
The increase in mortgage interest to Affiliates and the decrease in mortgage
interest to non-affiliates for the three months ended March 31, 2000, as
compared to the three months ended March 31, 1999, is the result of the
refinancing of the mortgage payable. As of February 1, 1999, the General
Partner of the Partnership advanced funds on a short-term basis to the
Partnership to pay off its mortgage payable balance of $780,288 plus accrued
interest through the maturity date. The note payable to the General Partner of
$786,081 has a current interest rate of 9.5% and requires monthly interest only
payments. A final balloon payment of all outstanding principal and all accrued
and unpaid interest, if any, is due on December 31, 2000. This note may be
extended at the Partnership's option.
The increase in professional services to Affiliates and non-affiliates for the
three months ended March 31, 2000, as compared to the three months ended March
31, 1999, is due to an increase in accounting fees.
The decrease in general and administrative expenses to non-affiliates for the
three months ended March 31, 2000, as compared to the three months ended March
31, 1999, is due to a decrease in the Illinois Replacement Tax.
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
-10-
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: May 11, 2000
/S/ PATRICIA A. DELROSSO
By: Patricia A. DelRosso
Senior Vice President
Date: May 11, 2000
/S/ KELLY TUCEK
By: Kelly Tucek
Principal Financial Officer and
Principal Accounting Officer
Date: May 11, 2000
-11-
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