FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934
For the transition period.........to.........
Commission file number 0-17568
BRUNNER COMPANIES INCOME PROPERTIES L.P. II
(Exact name of small business issuer as specified in its charter)
Delaware 31-1247944
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (803) 239-1000
Check whether the issuer (1) filed all reports required to be filed by
Section 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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) BRUNNER COMPANIES INCOME PROPERTIES L.P. II
BALANCE SHEET
(Unaudited)
June 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Cash:
Unrestricted $ 209,319
Restricted-tenant security deposits 12,867
Accounts receivable 89,193
Restricted escrow (Note C) 415,484
Tax and insurance escrows 99,250
Other assets 222,274
Investment properties:
Land $ 4,346,523
Buildings and related personal
property 29,016,576
33,363,099
Less accumulated depreciation (6,246,333) 27,116,766
$28,165,153
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 13,090
Tenant security deposits 16,984
Accrued taxes 114,777
Other liabilities 199,600
Mortgage notes payable (Note C) 27,650,000
Partners' Capital (Deficit)
General partner $ (58,625)
Class A Limited Partners - 856,350 units 210,551
Class B Limited Partners - 8,650 units 18,776 170,702
$28,165,153
</TABLE>
See Accompanying Notes to Financial Statements
1
<PAGE>
b) BRUNNER COMPANIES INCOME PROPERTIES L.P. II
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 744,014 $ 834,317 $1,529,391 $1,704,331
Other income 5,509 279,174 10,205 284,493
Total revenues 749,523 1,113,491 1,539,596 1,988,824
Expenses:
Operating 75,934 63,221 133,574 141,415
General and administrative 28,146 27,820 57,404 62,047
Property management fees 29,112 24,179 53,578 66,795
Depreciation 243,281 246,539 483,385 496,795
Amortization 8,102 7,492 15,320 17,540
Interest 730,022 639,407 1,443,654 1,278,813
Property taxes 57,253 53,738 115,168 112,615
Tenant reimbursements (65,693) (26,876) (139,360) (153,499)
Total expenses 1,106,157 1,035,520 2,162,723 2,022,521
Net (loss) income $ (356,634) $ 77,971 $ (623,127) $ (33,697)
Net (loss) income allocated
to general partner (1%) $ (3,566) $ 780 $ (6,231) $ (337)
Net (loss) income allocated
to Class A limited
partners (98.01%) (349,537) 76,419 (610,727) (33,027)
Net (loss) income allocated
to Class B limited
Partners (.99%) (3,531) 772 (6,169) (333)
$ (356,634) $ 77,971 $ (623,127) $ (33,697)
Net (loss) income per limited
partnership unit $ (.41) $ .09 $ (.71) $ (.04)
</TABLE>
See Accompanying Notes to Financial Statements
2
<PAGE>
c) BRUNNER COMPANIES INCOME PROPERTIES L.P. II
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
General Limited Partners
Partner Class A Class B Total
<S> <C> <C> <C> <C>
Original capital contributions $ 1,000 $8,499,670 $ 86,500 $8,587,170
Partners' capital (deficit) at
December 31, 1994 $(52,394) $ 821,278 $ 24,945 $ 793,829
Net loss for the six months
ended June 30, 1995 (6,231) (610,727) (6,169) (623,127)
Partners' capital (deficit)
at June 30, 1995 $(58,625) $ 210,551 $ 18,776 $ 170,702
</TABLE>
See Accompanying Notes to Financial Statements
3
<PAGE>
d) BRUNNER COMPANIES INCOME PROPERTIES L.P. II
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (623,127) $ (33,697)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation 483,385 496,795
Amortization of loan costs and
leasing commissions 70,944 17,540
Change in accounts:
Restricted cash (1,000) (1,670)
Accounts receivable 38,449 (57,316)
Tax and insurance escrows 121,576 101,545
Other assets (20,127) (26,151)
Accounts payable (13,096) (5,369)
Tenant security deposit liabilities 5,117 1,670
Accrued taxes (103,456) (100,140)
Other liabilities 46,077 15,356
Net cash provided
by operating activities 4,742 408,563
Cash flows from investing activities:
Property improvements and replacements (51,971) --
Deposits to restricted escrow (624,634) --
Receipts from restricted escrow 209,150 --
Net cash used in
investing activities (467,455) --
</TABLE>
See Accompanying Notes to Financial Statements
4
<PAGE>
BRUNNER COMPANIES INCOME PROPERTIES L.P. II
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Cash flows from financing activities:
Loan extension costs $ (57,878) $ (2,500)
Net cash used in financing
activities (57,878) (2,500)
Net (decrease) increase in cash (520,591) 406,063
Cash at beginning of period 729,910 350,260
Cash at end of period $ 209,319 $ 756,323
Supplemental disclosure of cash
flow information:
Cash paid for interest $1,460,842 $1,278,813
</TABLE>
See Accompanying Notes to Financial Statements
5
<PAGE>
e) BRUNNER COMPANIES INCOME PROPERTIES L.P. II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Going Concern
The accompanying financial statements have been prepared assuming the
Partnership will continue as a going concern. At June 30, 1995, the
Partnership had unrestricted cash of $209,319. As discussed in Note C,
the mortgage notes payable of $27,650,000 mature on September 1, 1995.
The Partnership's operating cash flows during 1995 are expected to be
inadequate to enable the Partnership to repay this debt.
The Managing General Partner is currently marketing the properties
for sale and seeking to refinance the mortgage notes payable on a long-
term basis. However, there can be no assurance that the refinancing
will be successful and that the Partnership will have sufficient funds
to finance its operations through the year ending December 31, 1995.
These conditions raise substantial doubt about the Partnership's ability
to continue as a going concern.
The financial statements do not include any adjustments relating to
the recoverability and classification of recorded asset amounts or the
amounts and classification of liabilities that might be necessary should
the Partnership be unable to continue as a going concern.
Note B - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item
310(b) of Regulation S-B. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of the
Managing General Partner, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three and six month periods
ended June 30, 1995, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1995. For
further information, refer to the financial statements and footnotes
thereto included in the Partnership's annual report on Form 10-KSB for
the fiscal year ended December 31, 1994.
Reclassifications
Certain reclassifications have been made to the 1994 information to
conform to the 1995 presentation.
6
<PAGE>
Note C - Mortgage Notes Payable and Restricted Escrow
The Partnership signed an agreement with the mortgage lender in
February 1995, whereby the maturity date of the mortgage debt was
extended to September 1, 1995. As part of the agreement, the
Partnership entered into a "Reserve and Escrow Agreement" with the
lender. This agreement calls for the Partnership to deposit, into an
escrow account held by the lender, Partnership cash excluding a $10,000
per property reserve and a $110,000 Partnership reserve, which is to be
held by the Partnership. This cash was generated by rental revenues
subject to the lender's collateral agreement. The escrow held by the
lender is to be used for tenant improvements, capital improvements,
lease commissions, and operating reserves. The Partnership is permitted
to hold a reserve of approximately $110,000 for estimated Partnership
expenses. Each month the Partnership is to remit the net cash flow of
each property (less $2,280 per month, per property, for estimated
Partnership expenses) to the escrow. As a result of this agreement, the
Partnership has deposited approximately $624,000 into this escrow and
has had receipts from the escrow of approximately $209,000 for tenant
improvements, lease commissions and operating activities. In addition,
under certain circumstances, as defined in the new note agreement,
additional interest may be payable to the lender as a result of a sale
or refinancing of a property. The amount of additional interest, if
any, to be paid will be dependent upon the amount of sales or
refinancing proceeds and the net residual value of the property at that
time. As a material inducement to enter into this extension, the
Partnership also agreed to not seek, apply for, or cause the entry of
any order enjoining, staying, or otherwise prohibiting or interfering
with Lender's obtaining an order granting relief from the automatic stay
and enforcement of any rights of the Lender under the loan documents
including, but not limited to, Lender's right to possession of the
properties, collection of rents and/or the commencement/continuation of
action to foreclose under the loan documents.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of four retail
centers. The following table sets forth the average occupancy of the
properties for the six months ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
Average
Occupancy
1995 1994
<S> <C> <C>
Cumberland Plaza
McMinnville, Tennessee 98% 96%
Cunningham Place
Clarksville, Tennessee 45% 100%
Hampton Plaza
Clarksville, Tennessee 69% 96%
Pinecrest Plaza
Morehead, Kentucky 98% 99%
</TABLE>
The decrease in occupancy at Cunningham Place is due to the move-out
in late 1994 of an anchor tenant occupying 81,922 square feet. The
tenant is still obligated to pay rent through the lease term which
expires in 2007. It is unknown to what extent this vacancy will
negatively impact the performance of the shopping center. Certain
tenants in the shopping center have the option to terminate their lease
or pay a much reduced rental rate based on tenant sales due to the
vacancy of this anchor tenant. The decrease in occupancy at Hampton
Plaza is attributable to the move-out of three tenants occupying 68,450
square feet in 1994 and one tenant occupying 4,400 square feet in 1995.
One new tenant moved into 16,000 square feet in June 1995. Two new
tenants have signed leases for a total of 42,450 square feet (22% of the
leasable square footage), and will likely move in during the third
quarter of 1995 after tenant improvements are complete. During the six
months ended June 30, 1995, the Partnership paid $51,971 for tenant
improvements relating to these new tenants. The Managing General Partner
has been notified by an anchor tenant of its intent to vacate the
Hampton Plaza by the end of 1995 and the Cumberland Plaza by the end of
1996. This tenant will continue to pay its rental payments on both
properties through the year 2008 when the leases expire. It is unknown
to what extent this vacancy will negatively impact the performance of
the shopping centers.
The Partnership incurred a net loss of $623,127 for the six months
ended June 30, 1995, compared to a net loss of $33,697 for the
corresponding period in 1994. The net loss for the three months ended
June 30, 1995, was $356,634 compared to net income of $77,971 for the
three months ended June 30, 1994. The increase in net loss was
primarily attributable to a decrease in total revenues and an increase
in interest expense. The decrease in occupancy at Hampton Plaza was the
primary reason for the decrease in rental income. The decreased
occupancy, along with a decrease in reimbursable expenses, also resulted
in lower levels of tenant reimbursements. Other income decreased for the
six months ended June 30, 1995, as a result of a tenant paying an early
termination fee of $275,000 in 1994. Interest expense increased as a
result of a higher interest rate on the mortgage
8
<PAGE>
notes payable from 9.25% to 10.04% resulting from the loan extension.
Also included in interest expense is amortization of loan costs incurred
to obtain the loan extension. Property management fees decreased for
the six months ended June 30, 1995, compared to the corresponding period
in 1994 as a result of the Partnership entering into new property
management agreements at lower fee percentages, which were effective
January 1, 1995.
At June 30, 1995, the Partnership had unrestricted cash of $209,319
compared to $729,910 at December 31, 1994. Net cash provided by
operating activities decreased in the first six months of 1995 as a
result of the decrease in rental and other income and the increase in
interest expense as explained above. Net cash used in investing
activities increased due to deposits to the restricted escrow and tenant
improvements paid in the first six months of 1995. Loan costs of
$57,878 have been incurred in 1995 to extended the maturity dates of the
Partnership's mortgage notes payable to September 1, 1995, thus creating
the increase in cash used in financing activities.
Currently, the Managing General Partner of the Partnership's
properties is attempting to increase occupancy and improve operations to
enhance the opportunity for a long-term extension on the Partnership's
notes payable. Major improvements are currently being made at Hampton
Plaza for new tenants. These tenants are anticipated to move in during
the third quarter. The Partnership is also negotiating with Wal-Mart,
which has vacated Cunningham Plaza and is planning to vacate Hampton
Plaza and Cumberland Plaza. Rental payments are still being made by
Wal-Mart, as the leases do not expire until the years 2007 and 2008. In
order to stabilize the operations of the other tenants at the Retail
Centers, the Partnership is in search of new anchor tenants which would
sub-lease the spaces from Wal-Mart.
Due to the loan extension agreement, the Partnership is required to
remit net cash flow of the properties to the restricted escrow held by
the lender. No distributions were made in 1994 or the first six months
of 1995. Any future cash distributions will depend on the levels of net
cash generated from refinancings and property sales. The Managing
General Partner does not expect to make future cash distributions.
9
<PAGE>
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit
to this report.
b) Reports on Form 8-K:
No reports were filed for the quarter ended June 30, 1995.
10
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
BRUNNER COMPANIES INCOME PROPERTIES L.P. II,
a Delaware limited partnership
By: Brunner Management Limited
Partnership, an Ohio limited
Partnership, its General Partner
By: 104 Management, Inc., an Ohio
corporation, its Managing General
Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Controller and Principal
Accounting Officer
Date: August 11, 1995
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Brunner Companies Income Properties L.P. II's 1995 Second Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 209,319
<SECURITIES> 0
<RECEIVABLES> 89,193
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 410,629
<PP&E> 33,363,099
<DEPRECIATION> 6,246,333
<TOTAL-ASSETS> 28,165,153
<CURRENT-LIABILITIES> 344,451
<BONDS> 27,650,000
<COMMON> 0
0
0
<OTHER-SE> 170,702
<TOTAL-LIABILITY-AND-EQUITY> 28,165,153
<SALES> 0
<TOTAL-REVENUES> 1,539,596
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,162,723
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,443,654
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (623,127)
<EPS-PRIMARY> (.71)
<EPS-DILUTED> 0
</TABLE>
