<PAGE> 1
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 March 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-20129
Chrisken Growth & Income L.P. II
(Exact name of small business issuer as Specified in its
certificate of Limited partnership)
Delaware 36-3644609
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
345 North Canal Street, Chicago, Illinois 60606
(Address of principal executive offices) (Zip Code)
(312) 454-1626
(Issuer's telephone number)
(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 / /
<PAGE> 2
CHRISKEN GROWTH & INCOME L.P. II
INDEX
<TABLE>
<CAPTION>
PART I Financial Information PAGE
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<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Balance Sheet at March 31, 1998 2
Statements of Operations for the
Three Months Ended March 31,
1998 and 1997 3
Statement of Partners' Capital for
the Three Months Ended
March 31, 1998 4
Statements of Cash Flows for
the Three Months Ended
March 31, 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 10
Item 2. Changes in Securities 10
Item 3. Defaults Upon Senior Securities 10
Item 4. Submissions of Matters to a Vote of
Security Holders 10
Item 5. Other Information 10
Item 6. Exhibits and Reports on Form 8-K 10
SIGNATURE 12
</TABLE>
1
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Balance Sheet
March 31, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 95,426
Restricted cash 57,645
Real estate taxes and other escrows 67,631
Other 16,471
----------
237,173
Assets held for sale 5,494,570
----------
Total assets $5,731,743
==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 72,327
Accrued real estate taxes 132,006
Tenants' security deposits 19,908
Mortgage loan payable 3,000,000
----------
Total liabilities 3,224,241
Partners' capital, 11,529 limited partnership units issued and
outstanding 2,507,502
----------
Total liabilities and partners' capital $5,731,743
==========
</TABLE>
See accompanying notes.
2
<PAGE> 4
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1997
---------------------
<S> <C> <C>
REVENUE
Rental $308,329 $298,640
Interest 1,266 921
Other 20,350 16,567
---------------------
Total revenue 329,945 316,128
EXPENSES
Property operations 61,906 58,261
Depreciation - 76,742
Interest 58,125 62,229
General and administrative 100,580 75,799
Management fees - Affiliate 16,500 15,887
---------------------
Total expenses 237,111 288,918
---------------------
Net income $ 92,834 $ 27,210
=====================
Net income allocated to general partners $ 9,283 $ 2,721
=====================
Net income allocated to limited partners $ 83,551 $ 24,489
=====================
Net income allocated to limited partners per limited
partnership units outstanding $ 7.25 $ 2.12
=====================
Limited partnership units outstanding 11,529 11,529
=====================
</TABLE>
See accompanying notes.
3
<PAGE> 5
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Statement of Partners' Capital
Three months ended March 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL ACCOUNTS
------------------------------------
GENERAL LIMITED
PARTNERS PARTNERS TOTAL
------------------------------------
<S> <C> <C> <C>
Balance at January 1, 1998 $ 2,670 $2,484,648 $2,487,318
Distributions (A) - (72,650) (72,650)
Net income 9,283 83,551 92,834
------------------------------------
Balance at March 31, 1998 $11,953 $2,495,549 $2,507,502
====================================
</TABLE>
(A) Cash distributions paid per limited partnership unit were $6.30.
See accompanying notes.
4
<PAGE> 6
Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1998 1997
--------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $92,834 $ 27,210
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation - 76,742
Amortization of deferred financing fees - 4,104
Net changes in operating assets and liabilities:
Increase in real estate taxes and other escrows (17,646) (30,405)
Increase in other assets (4,080) (2,569)
Increase in accounts payable and accrued expenses 26,819 19,181
Increase in tenants' security deposits 50 360
Increase in due to affiliates - 147
--------------------
Net cash flows provided by operating activities 97,977 94,770
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investment in real estate - (2,349)
--------------------
Cash flows used in investing activities - (2,349)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (72,650) (108,972)
--------------------
Cash flows used in financing activities (72,650) (108,972)
--------------------
Net increase (decrease) in cash and cash equivalents 25,327 (16,551)
Cash and cash equivalents, beginning of period 70,099 142,419
--------------------
Cash and cash equivalents, end of period $95,426 $125,868
====================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $58,125 $ 58,125
====================
</TABLE>
See accompanying notes.
5
<PAGE> 7
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 debt was first extended to February 1, 1998 and then to
June 1, 1998. Both 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.
6
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Notes to Financial Statements (continued)
(Unaudited)
3. CONTINGENCIES
In February 1998, a lawsuit was filed against the Partnership by a prospective
buyer of the Property regarding termination of the contract to sell the
Property. The buyer seeks specific performance by virtue of the Property
transfer from the terminated sales contract. In the opinion of management of
the Partnership, such litigation and resultant effects will not have a material
adverse effect on the Partnership's financial statements. The ultimate outcome
of this matter cannot be determined and, accordingly, no provision for any loss
that may result has been made in the accompanying financial statements.
7
<PAGE> 9
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 March 31, 1998, the Partnership had cash and cash equivalents of
$95,426 compared to $70,099 at December 31, 1997. The increase in cash and cash
equivalents during the three months ended March 31, 1998 is the result of
increased net operating income partially offset by an increase of real estate
tax and insurance escrows. Restricted cash represents operating and contingency
reserves equal to approximately 1% of the gross proceeds of the Offering
($57,645 as of March 31, 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 in debtedness 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 was first extended to February 1, 1998 and then to June 1, 1998. Both
extensions were provided by the lender without cost to the Partnership. The loan
bears interest at a rate of 7.75%. The General Partners are currently exploring
refinancing alternatives and anticipate replacing the current loan prior to or
by June 1, 1998. There can be no assurance that the terms of such loan will be
on terms as favorable as those of the existing mortgage indebtedness.
The source of future liquidity and cash distributions to the Partners
is dependent primarily upon the cash generated by the Property. At March 31,
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 97% occupied as of March 31, 1998, 96% as of December
31, 1997, and 97% as of March 31, 1997. Management believes that occupancy at
the Property will be approximately 95 - 98% for the remainder of 1998, as a
result of stabilization in the market. The Partnership had total revenues of
$329,945 for the three months ended March 31, 1998, compared to total revenues
of $316,128 for the three months ended March 31, 1997. Revenues increased in
1998 from 1997 levels mainly due to a 2.4% increase in apartment rental rates.
Management believes revenues will remain relatively constant provided that
occupancy remains stable. The Partnership had total expenses of $237,111 for the
three months ended March 31, 1998, compared to $288,918 for the three months
ended March 31, 1997. Total expenses decreased primarily due to decreased
mortgage interest expense and the elimination of depreciation expense partially
offset by increased
8
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property operations, general and administrative, and management fee expenses.
Mortgage interest expense is lower in the current 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. General and administrative expenses are
higher in 1998 as compared to 1997 due to higher advertising 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
legal fees incurred as the result of the litigation discussed below. Management
fees increased due to increased revenue collections.
For the three months ended March 31, 1998, the Partnership had net
income of $92,834 compared to net income of $27,210 for the three months ended
March 31, 1997, as the result of increased revenue and reduced expenses for the
three months ended March 31, 1998 compared to the same period in 1997 as
described above.
Net cash flows provided by operating activities for the three months
ended March 31, 1998 were $97,977 compared to net cash flows provided by
operating activities of $94,770 for the three months ended March 31, 1997. The
increase in net cash flows provided by operating activities was attributable
primarily to increases in net income and accounts payable and accrued expenses,
partially offset by an increase in other assets, and real estate taxes and other
escrows. The Partnership paid distributions of $72,650 during the three months
ended March 31, 1998, as compared to $108,972 during the three months ended
March 31, 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 future litigation and mortgage loan refinancing
costs. The General Partners anticipate that the level of additional 1998
quarterly distributions to Limited Partners is dependant on overall Property
performance, future litigation costs, and the terms and costs of the new
mortgage loan.
"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.
9
<PAGE> 11
PART II
CHRISKEN GROWTH AND INCOME L.P. II
(A DELAWARE LIMITED PARTNERSHIP)
ITEM 1. LEGAL PROCEEDINGS.
In October 1997, four affiliated limited partnerships, including the
Partnership, executed a non-binding letter of intent pursuant to which they
were exploring a possible sale of their properties to Vinings Investment
Properties, L.P. ("Vinings"). The letter of intent was allowed to expire,
although the confidentiality provision remains in effect. On December 5, 1997,
the Partnership and 15 other affiliated limited partnerships (collectively with
the Partnership, the "ChrisKen Partnerships") executed a second, non-binding
letter of intent (the "LOI") pursuant to which the ChrisKen Partnerships were
exploring a possible sale of their properties to Vinings. A separate purchase
price was proposed for each property, with the aggregate proposed purchase
price to be $87,770,000, payable in a combination of cash and units of limited
partnership interest to be issued by Vinings ("Vinings Units"), with the
balance to paid through Vinings' assumption or repayment of all outstanding
mortgage indebtedness and costs relating thereto. The Vinings Units were to be
issued to electing limited partners in certain of the ChrisKen Partnerships who
were accredited investors (as such term is defined in Rule 501(a) of Regulation
D promulgated under the Securities Act of 1933, as amended). The Vinings Units
were convertible, upon satisfaction of certain conditions, into shares of
common stock of the Vinings general partner, Vinings Investment Trust (the
"Vinings REIT"). Shares of the Vinings REIT trade on the NASDAQ Small Cap
market. The quarterly report on Form 10-Q file by the Vinings REIT as of and
for the quarter ended September 30, 1997 (the last available public filing),
stated that there were 1,080,512 shares outstanding, with reported high and low
bid and asked prices of $4.25 and $4.25.
In the LOI, Vinings conditioned its proposed purchase of the Property
on approval by the limited partners, of the sale, to Vinings, of properties
owned by certain of the other ChrisKen Partnerships as well as completion of
due diligence regarding operations and conditions of the properties, approval
of the sale transaction by the Vinings REIT's board of directors, securing
financing to complete the transaction and, if Vinings could not complete the
transaction on or before February 23, 1998, approval by the Vinings REIT's
shareholders, which could have extended the closing to August 1998 or later.
Additionally, as Vinings owned only two properties, a condition of the
transaction requested by the General Partners and required by the financing
source last proposed by Vinings, was that ChrisKen Real Estate Management
Company, Inc. (CREMCO) be merged into Vinings, either directly or through a
merger with the existing property manager for Vinings, to ensure continuity and
depth of property management on a going forward basis. Because the time frame
for completion and certain of the other conditions imposed by Vinings were
unattractive, the ChrisKen Partnerships requested additional protections,
including the right to solicit other potential purchasers if Vinings were
unable to close by March 31, 1998. After Vinings rejected those protections
and declined to discuss the terms on which the merger would occur or meet with
the ChrisKen Partnerships' lenders, all ChrisKen Partnerships ceased
negotiations on or about January 25, 1998.
On January 30, 1998, after being threatened with litigation over the
proposed sale of the properties, the ChrisKen Partnerships filed an action
(Springdale Associates, Ltd. et. al. v. Vinings
10
<PAGE> 12
Investment Properties, L.P., Case No. 98 CH 1193, pending in the Circuit
Court of Cook County) seeking a declaratory judgment that there is no binding
or enforceable contract with the Vinings. Vinings has counterclaimed, alleging,
inter alia, that there was an enforceable contract.
On February 3, 1998, Vinings filed a complaint (Vinings Investment
Properties, L.P. v. Kennedy et. al., Case No. 98 CH 1421, pending in the
Circuit Court of Cook County) seeking specific performance, and other relief,
arising out of a claim by Vinings that it allegedly entered into an enforceable
and binding contract to purchase the properties owned by the ChrisKen
Partnerships. The ChrisKen Partnerships deny that there is any binding and
enforceable contract with Vinings, and deny that Vinings has any right to
purchase the real estate and property of any of the ChrisKen Partnerships. A
motion to dismiss the Complaint has been filed on behalf of the ChrisKen
Partnerships, the General Partners and CREMCO. Counsel to the ChrisKen
Partnerships has only just begun its investigation and is presently unable to
determine whether an outcome unfavorable to the Company is probable or remote.
On March 27, 1998, the general partners of the ChrisKen Partnerships,
in their representative capacities as general partners of the ChrisKen
Partnerships, brought an action (ChrisKen Income Properties, Inc. II et. al. v.
Vinings Investment Properties Trust, Peter D. Anzo, Stephanie A. Reed et. al.,
Civil Action No. 1 98-CV-0934, pending in the United States District Court for
the Northern District of Georgia) seeking injunctive and other relief for an
alleged breach of the confidentiality agreement between the parties and other
misconduct, including misrepresentation of availability of financing and intent
with respect to providing property management expertise.
Items 2 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.
11
<PAGE> 13
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 thereto duly authorized.
Chrisken Growth & Income L.P. II
(Registrant)
By: Chrisken Income Properties
Inc., II Managing General
Partner
Date: May 22, 1998 By: /s/John F. Kennedy
------------------
John F. Kennedy
Director and President
12
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<CURRENCY> US DOLLAR
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 153,071
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 237,173
<PP&E> 5,494,570
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,731,743
<CURRENT-LIABILITIES> 224,241
<BONDS> 3,000,000
0
0
<COMMON> 0
<OTHER-SE> 2,507,502
<TOTAL-LIABILITY-AND-EQUITY> 5,731,743
<SALES> 308,329
<TOTAL-REVENUES> 329,945
<CGS> 0
<TOTAL-COSTS> 178,986
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,125
<INCOME-PRETAX> 92,834
<INCOME-TAX> 0
<INCOME-CONTINUING> 92,834
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 92,834
<EPS-PRIMARY> 7.25
<EPS-DILUTED> 7.25
</TABLE>
