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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 0-20129
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ChrisKen Growth & Income L.P. II
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(Exact name of small business issuer as Specified in its
certificate of Limited partnership)
Delaware 36-3644609
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
345 North Canal Street, Chicago, Illinois 60606
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(Address of principal executive offices) (Zip Code)
(312) 454-1626
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(Issuer's telephone number)
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(Former name, former address and formal fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities 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
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CHRISKEN GROWTH & INCOME L.P. II
INDEX
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<CAPTION>
PART I Financial Information PAGE
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<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheet at September 30, 1998 2
Statements of Operations for the
Three and Nine Months Ended
September 30, 1998 and 1997 3
Statement of Partners' Capital for
the Nine Months Ended September 30, 1998 4
Statements of Cash Flows for
the Nine Months Ended
September 30, 1998 and 1997 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
or Plan of Operation 8
PART II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submissions of Matters to a Vote of
Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURE 12
</TABLE>
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Balance Sheet
September 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 52,796
Restricted cash 57,645
Real estate taxes and other escrows 82,124
Other 1,373
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193,938
Assets held for sale 5,494,570
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Total assets $5,688,508
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LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 47,378
Accrued real estate taxes 132,566
Tenants' security deposits 20,488
Mortgage loan payable 3,000,000
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Total liabilities 3,200,432
Partners' capital, 11,529 limited partnership
units issued and outstanding
2,488,076
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Total liabilities and partners' capital $5,688,508
==========
</TABLE>
See accompanying notes.
2
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1998 1997 1998 1997
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<S> <C> <C> <C> <C>
REVENUE
Rental $ 317,882 $ 301,461 $ 939,836 $ 902,863
Interest 1,095 1,928 3,926 4,441
Other 19,956 21,859 59,388 61,827
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Total revenue 338,933 325,248 1,003,150 969,131
EXPENSES
Property operations 79,433 90,147 259,322 232,743
Depreciation -- 76,742 -- 230,226
General and administrative 68,812 66,193 303,603 203,350
Interest 58,125 62,229 174,375 186,687
Management fees - Affiliate 16,727 16,316 49,515 48,507
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Total expenses 223,097 311,627 786,815 901,513
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Net income $ 115,836 $ 13,621 $ 216,335 $ 67,618
=================================================
Net income allocated to general partners
$ 11,584 $ 1,362 $ 21,634 $ 6,762
=================================================
Net income allocated to limited partners $ 104,252 $ 12,259 $ 194,701 $ 60,856
=================================================
Net income allocated to limited partners per
limited partnership unit outstanding
$ 9.04 $ 1.06 $ 16.89 $ 5.28
=================================================
Limited partnership units outstanding 11,529 11,529 11,529 11,529
=================================================
</TABLE>
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Statement of Partners' Capital
Nine months ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL ACCOUNTS
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GENERAL LIMITED
PARTNERS PARTNERS TOTAL
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<S> <C> <C> <C>
Balance at January 1, 1998 $ 2,670 $ 2,484,648 $ 2,487,318
Distributions (A) -- (215,577) (215,577)
Net income 21,634 194,701 216,335
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Balance at September 30, 1998 $ 24,304 $ 2,463,772 $ 2,488,076
========================================
</TABLE>
(A) Summary of 1998 quarterly cash distributions paid per limited partnership
unit:
First quarter $6.30
Second quarter $6.17
Third quarter $6.23
See accompanying notes.
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30
1998 1997
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 216,335 $ 67,618
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation -- 230,226
Amortization of deferred financing fees -- 12,312
Net changes in operating assets and liabilities:
Increase in real estate taxes and other escrows (32,139) (40,460)
Decrease in other assets 11,018 4,138
Increase in accounts payable and accrued expenses 2,430 31,364
Increase (decrease) in tenants' security deposits 630 (1,744)
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Net cash flows provided by operating activities 198,274 303,454
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investment in real estate -- (14,776)
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Cash flows used in investing activities -- (14,776)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (215,577) (337,660)
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Cash flows used in financing activities (215,577) (337,660)
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Net decrease in cash and cash equivalents (17,303) (48,982)
Cash and cash equivalents, beginning of period 70,099 142,419
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Cash and cash equivalents, end of period $ 52,796 $ 93,437
======================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 174,375 $ 174,375
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</TABLE>
See accompanying notes.
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Notes to Financial Statements
(Unaudited)
1. INTERIM ACCOUNTING POLICIES
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 310(b) of Regulations of S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
The financial statements are the representation of the General Partners and
reflect all adjustments which are, in the opinion of the General Partners,
necessary for a fair presentation of the financial position and results of
operations of the Partnership. The General Partners believe that all such
adjustments are normal and recurring. For further information, refer to the
financial statements and notes thereto included in the Chrisken Growth & Income
L.P. II's (the "Partnership") Annual Report on Form 10-KSB for the year ended
December 31, 1997.
2. MORTGAGE LOAN PAYABLE
The Partnership has a nonrecourse first mortgage loan payable of $3,000,000 to
an unaffiliated insurance company, which is collateralized by the Partnership's
real estate. The loan is payable in monthly installments of interest only at a
rate of 7.75% per annum. Principal and unpaid interest were originally due on
November 1, 1997. The due date of the outstanding principal has been extended,
as the result of several extensions, to June 1, 1999. All of the extensions were
provided by the lender without cost to the Partnership. Principal prepayments
are permitted, provided that: (a) the Partnership pays a prepayment penalty of
3% of the outstanding principal amount; (b) notice of prepayment be given to the
lender 90 days prior to remittance; and (c) prepayments be in multiples of
$10,000. The Partnership, in the normal course of business, expects to obtain an
extension on the mortgage loan or to refinance the mortgage loan with another
lender or repay the obligations from proceeds from sale of the property owned by
the Partnership (the "Property"). There can be no assurance that any refinancing
or sale transaction will be consummated by the Partnership. In the event that a
refinancing or sale is not consummated, the mortgage lender could exercise its
remedies which include the realization upon its security interest in the
Property in which case the Partnership would sustain a loss. No provision for
any gain or loss that may result from the outcome of this uncertainty has been
reflected in the accompanying financial statements.
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Notes to Financial Statements (continued)
(Unaudited)
3. LITIGATION
In February 1998, a lawsuit was filed against the Partnership and affiliated
entities by a prospective buyer of a certain properties owned by the Partnership
and affiliated entities. The buyer sought specific performance by virtue of the
transfer of properties under the provisions of a terminated sales contract. The
lawsuit was dismissed pursuant to a settlement agreement which provided for a
payment of $500,000 to the prospective buyer of the properties.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
ChrisKen Growth & Income L.P. II (the "Partnership") is a Delaware
limited partnership formed in 1989. The Partnership owns and operates a 144 unit
residential rental complex known as Barrington Estates (the "Property") located
in Indianapolis, Indiana. Pursuant to a public offering (the "Offering") the
Partnership sold 11,529 limited partnership units. The proceeds of the Offering
were used to acquire the Property.
Liquidity and Capital Resources
At September 30, 1998, the Partnership had cash and cash equivalents of
$52,796 compared to $70,099 at December 31, 1997. The decrease in cash and cash
equivalents during the nine months ended September 30, 1998 is the result of
property disposition and litigation costs, as discussed further below, offset by
improved property operations. Restricted cash represents operating and
contingency reserves equal to approximately 1% of the gross proceeds of the
Offering ($57,645 as of September 30, 1998 and December 31, 1997) which the
General Partners believe is adequate to satisfy cash requirement needs.
Management has budgeted the following major repairs or improvements to the
property to be completed during 1998: leveling a building which has settled over
time, glass patio door replacements, new playground equipment, garage additions,
and continued carpet and appliance replacement as needed due to obsolescence.
The General Partners believe that because the Partnership currently has
mortgage indebtedness of only $3,000,000 after substantial renovation of the
Property, the Property could be refinanced or secondary financing could be
obtained if necessary to provide additional funds. The current mortgage
indebtedness matured on November 1, 1997. The due date of the outstanding
principal has been extended, as the result of several extensions, to June 1,
1999. All of the extensions were provided by the lender without cost to the
Partnership. The loan bears interest at a rate of 7.75%.
The source of future liquidity and cash distributions to the Partners
is dependent primarily upon the cash generated by the Property. At September 30,
1998 the Property was generating, and the General Partners believe that the
Property will continue to generate, sufficient cash flow from operations to
service existing indebtedness.
Results of Operations
The Property was 100% occupied as of September 30, 1998, 96% as of
December 31, 1997, and 97% as of September 30, 1997. Management believes that
occupancy at the Property will be approximately 95 - 98% for the remainder of
1998 and the near term of 1999, as a result of stabilization in the market. The
Partnership had total revenues of $1,003,150 for the nine months ended September
30, 1998, compared to total revenues of $969,131 for the nine months ended
September 30, 1997. Revenues increased in 1998 from 1997 levels mainly due to a
2.4% increase in apartment rental rates and increased occupancy. Management
believes revenues will remain relatively constant provided that occupancy
remains stable. The Partnership had total expenses of $786,815 for the nine
months ended September 30, 1998, compared to $901,513 for the nine months ended
September 30, 1997. Total expenses decreased primarily due to decreased mortgage
interest expense and the elimination of depreciation expense partially offset by
increased property operations, general and administrative, and management fee
expenses. Mortgage interest expense is lower in the current
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period because prepaid mortgage loan costs were fully amortized as of November
1997. As stated above, the current loan was extended by the lender without cost
to the Partnership. In 1997 the Property was reclassified to "Assets Held for
Sale" which results in the suspension of the recognition of depreciation expense
pursuant to Statement of Financial Accounting Standards No. 121 "Impairment of
Long-Lived Assets and Long-Lived Assets to be Disposed of". Property operation
expenses are higher in 1998 as compared to 1997 primarily due to higher
janitorial, grounds maintenance, and structural repair expenditures offset by
reduced apartment painting and carpet replacement costs. Current period
structural repair expenditures include approximately $67,000 that would normally
be capitalized and identified as additions to investment in real estate, however
due to the aforementioned Statement of Financial Accounting Standards No. 121
"Impairment of Long- Lived Assets and Long-Lived Assets to be Disposed of", the
Partnership is precluded from capitalizing such expenditures and must treat them
as current period expenses. General and administrative expenses are higher in
1998 as compared to 1997 due to higher employee benefit costs, corporate suite
overhead, inflationary adjusted real estate taxes, and a timing difference in
the recognition of professional accounting and tax service expenses. General and
administrative expenses are also higher during the current period due to one
time non-recurring legal and other fees and expenses incurred in connection with
the possible sale of the Property that was not completed. The litigation was
settled in June 1998. The Partnership continues to classify the Property as
being held for sale, but is not presently in negotiations with any prospective
buyer. Management fees increased due to increased revenue collections.
For the nine months ended September 30, 1998, the Partnership had net
income of $216,335 compared to net income of $67,618 for the nine months ended
September 30, 1997, as the result of increased revenue and reduced expenses for
the nine months ended September 30, 1998 compared to the same period in 1997 as
described above.
Net cash flows provided by operating activities for the nine months
ended September 30, 1998 were $198,274 compared to net cash flows provided by
operating activities of $303,454 for the nine months ended September 30, 1997.
The decrease in net cash flows provided by operating activities was attributable
primarily to increased expenditures that would normally be classified as
additions to investment in real estate, an increase in real estate taxes and
other escrows, a decrease in other assets, and an increase in accounts payable
and accrued expenses. The Partnership paid distributions of $215,577 during the
nine months ended September 30, 1998, as compared to $337,660 during the nine
months ended September 30, 1997. The decrease in distributions in 1998 as
compared to the same period one year ago is due in part to the reconciliation of
distributions paid in 1997 to distributable proceeds available during that
period and the Partnership's recognition of litigation, disposition, and
potential mortgage loan refinancing costs. The General Partners anticipate that
the level of additional future quarterly distributions to Limited Partners is
dependant on overall Property performance and the terms and costs of a new
mortgage loan.
The Partnership's internal operations use a significant number of
computer software programs and operating systems. To the extent that these
software applications contain code that is unable to appropriately interpret the
upcoming calendar year 2000, some level of modification or possibly even
replacement of such source code or applications will be necessary. The
Partnership is in the process of identifying the software applications that are
not "Year 2000" compliant. Given the information known at this time about the
Partnership's ongoing efforts to upgrade and maintain critical business systems
as necessary, it is currently not anticipated that the "Year 2000" issue or
related costs will have a material adverse effect on the Partnership's business,
financial condition, and results of
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operations. However, the Partnership is still analyzing its software
applications and those utilized by key suppliers and, to the extent they are not
fully "Year 2000" compliant, there can be no assurance that the costs necessary
to update software and potential systems interruptions would not have a material
adverse effect on the Partnership's business, financial condition, and results
of operation.
"Safe Harbor" statement under the U.S. Private Securities Litigation
Reform Act of 1995: Some statements in this Form 10-Q are forward looking and
actual results may differ materially from those stated. As discussed herein,
among the factors that may affect actual results are changes in rental rates,
occupancy levels in the market place in which Barrington Estates competes and/or
unanticipated changes in expenses or capital expenditures.
10
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PART II
CHRISKEN GROWTH AND INCOME L.P. II
(A DELAWARE LIMITED PARTNERSHIP)
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) No exhibits are being filed with this Report.
(b) No Current Reports on Form 8-K were filed during the three
months ended September 30, 1998.
11
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Signatures
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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 thereto duly authorized.
ChrisKen Growth & Income L.P. II
--------------------------------------
(Registrant)
By: ChrisKen Income Properties
Inc., II Managing General
Partner
Date: November 11, 1998 By: /s/John F. Kennedy
------------------------
John F. Kennedy
Director and President
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<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000850625
<NAME> CHRISKEN GROWTH & INCOME L.P. II
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 110,441
<SECURITIES> 0
<RECEIVABLES> 1,373
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 193,938
<PP&E> 5,494,570
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,688,508
<CURRENT-LIABILITIES> 200,432
<BONDS> 3,000,000
0
0
<COMMON> 0
<OTHER-SE> 2,488,076
<TOTAL-LIABILITY-AND-EQUITY> 5,688,508
<SALES> 939,836
<TOTAL-REVENUES> 1,003,150
<CGS> 0
<TOTAL-COSTS> 612,440
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 174,375
<INCOME-PRETAX> 216,335
<INCOME-TAX> 0
<INCOME-CONTINUING> 216,335
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 216,335
<EPS-PRIMARY> 16.89
<EPS-DILUTED> 16.89
</TABLE>
