<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 June 30, 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
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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
------------------------------- ---------------------
(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
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(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
--- ---
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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 June 30, 1998 2
Statements of Operations for the
Three and Six Months Ended
June 30, 1998 and 1997 3
Statement of Partners' Capital for
the Six Months Ended June 30, 1998 4
Statements of Cash Flows for
the Six Months Ended
June 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 13
</TABLE>
1
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Balance Sheet
June 30, 1998
(Unaudited)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 56,678
Restricted cash 57,645
Real estate taxes and other escrows 48,529
Other 327
----------
163,179
Assets held for sale 5,494,570
----------
Total assets $5,657,749
==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 87,514
Accrued real estate taxes 105,832
Tenants' security deposits 20,303
Mortgage loan payable 3,000,000
----------
Total liabilities 3,213,649
Partners' capital, 11,529 limited partnership units issued and outstanding
2,444,100
----------
Total liabilities and partners' capital $5,657,749
==========
</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 SIX MONTHS ENDED
JUNE 30 JUNE 30
1998 1997 1998 1997
-------------------------------------------------------
<S> <C> <C> <C> <C>
REVENUE
Rental $ 313,625 $ 302,762 $ 621,954 $ 601,402
Interest 1,565 1,592 2,831 2,513
Other 19,082 23,401 39,432 39,968
-------------------------------------------------------
Total revenue 334,272 327,755 664,217 643,883
EXPENSES
Property operations 117,627 84,335 179,889 142,596
Depreciation 76,742 153,484
General and administrative 134,211 61,358 234,791 137,157
Interest 58,125 62,229 116,250 124,458
Management fees - Affiliate 16,288 16,304 32,788 31,191
-------------------------------------------------------
Total expenses 326,251 300,968 563,718 589,886
-------------------------------------------------------
Net income $ 8,021 $ 26,787 $ 100,499 $ 53,997
=======================================================
Net income allocated to general partners $ 802 $ 2,679 $ 10,050 $ 5,400
=======================================================
Net income allocated to limited partners $ 7,219 $ 24,108 $ 90,449 $ 48,597
=======================================================
Net income allocated to limited partners per
limited partnership unit outstanding $ 0.63 $ 2.09 $ 7.85 $ 4.22
=======================================================
Limited partnership units outstanding 11,529 11,529 11,529 11,529
=======================================================
</TABLE>
3
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Statement of Partners' Capital
Six months ended June 30, 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) -- (143,717) (143,717)
Net income 10,050 90,449 100,499
--------------------------------------------
Balance at June 30, 1998 $12,720 $2,431,380 $2,444,100
============================================
</TABLE>
(A) Summary of 1998 quarterly cash distributions paid per limited partnership
unit:
First quarter $6.30
Second quarter $6.17
See accompanying notes.
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Chrisken Growth & Income L.P. II
(A Delaware Limited Partnership)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
1998 1997
--------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 100,499 $ 53,997
Adjustments to reconcile net income to net cash flows provided by
operating activities:
Depreciation -- 153,484
Amortization of deferred financing fees -- 8,208
Net changes in operating assets and liabilities:
Decrease (increase) in real estate taxes and other escrows
1,456 (10,055)
Decrease in other assets 12,064 8,061
Increase (decrease) in accounts payable and accrued expenses
15,832 (2,824)
Increase (decrease) in tenants' security deposits 445 (21)
--------------------------
Net cash flows provided by operating activities 130,296 210,850
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investment in real estate -- (9,163)
--------------------------
Cash flows used in investing activities -- (9,163)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (143,717) (222,683)
--------------------------
Cash flows used in financing activities (143,717) (222,683)
--------------------------
Net decrease in cash and cash equivalents (13,421) (20,996)
Cash and cash equivalents, beginning of period 70,099 142,419
--------------------------
Cash and cash equivalents, end of period $ 56,678 $ 121,423
==========================
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 116,250 $ 116,250
==========================
</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 debt was first extended to February 1, 1998, then to June
1, 1998, and most recently to December 1, 1998. 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 terminated sales negotiations.
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 June 30, 1998, the Partnership had cash and cash equivalents of
$56,678 compared to $70,099 at December 31, 1997. The decrease in cash and cash
equivalents during the six months ended June 30, 1998 is the result of increased
expenditures that would normally be classified as additions to investment in
real estate, as further discussed below, and the incurrence of property
disposition and litigation costs also further discussed 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 June 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 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, then to June 1, 1998, and most
recently to December 1, 1998. 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
General Partners are currently exploring refinancing alternatives and anticipate
replacing the current loan prior to or by December 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 June 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 98% occupied as of June 30, 1998, 96% as of December
31, 1997, and 94% as of June 30, 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 $664,217
for the six months ended June 30, 1998, compared to total revenues of $643,883
for the six months ended June 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 $563,718
for the six months ended June 30, 1998, compared to
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$589,886 for the six months ended June 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 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 $55,000 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 because
one-time, nonrecurring property disposition expenses and legal fees are being
recognized as the result of the litigation and property disposition discussed
below. Management fees increased due to increased revenue collections.
For the six months ended June 30, 1998, the Partnership had net income
of $100,499 compared to net income of $53,997 for the six months ended June 30,
1997, as the result of increased revenue and reduced expenses for the six months
ended June 30, 1998 compared to the same period in 1997 as described above.
Net cash flows provided by operating activities for the six months
ended June 30, 1998 were $130,296 compared to net cash flows provided by
operating activities of $210,850 for the six months ended June 30, 1997. The
decrease in net cash flows provided by operating activities was attributable
primarily to the suspension of the recognition of depreciation expense as
discussed above offset by an increase in net income, a decrease 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 $143,717
during the six months ended June 30, 1998, as compared to $222,683 during the
six months ended June 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 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.
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
9
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have a material adverse effect on the Partnership's business, financial
condition, and results of 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)
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
confidentially provision remained 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 traded on the NASDAQ Small Cap market. The
quarterly report on Form 10-Q filed 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 June 30,
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 Investment Properties, L.P.,
Case No. 98 CH 1193, pending in the Circuit Court of Cook County)
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seeking a declaratory judgment that there was no binding or enforceable contract
with the Vinings. Vinings 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 denied that there was any binding and enforceable
contract with Vinings, and denied that Vinings had any right to purchase the
real estate and property of any of the ChrisKen Partnerships. A motion to
dismiss the Complaint had been filed on behalf of the ChrisKen Partnerships, the
General Partners and CREMCO.
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.
All of the litigation was dismissed with prejudice pursuant to a
Settlement Agreement and Mutual Release which provided in relevant part: (1) the
dismissal with prejudice and without cost to each of the three cases described
above; (2) mutual releases of any and all claims relating to the matters,
transactions, act or events identified in or related to the three cases; and (3)
payment to Vinings of Five Hundred Thousand and 00/100 Dollars ($500,000.00) in
exchange for the delivery by Vinings to the ChrisKen Partnerships of all due
diligence materials obtained by Vinings in connection with the proposed
acquisition of the properties owned by the ChrisKen Partnerships, including but
not limited to: environmental audits; engineering reports, appraisals, marketing
and demographic studies; comparative rental properties; on-site inspections;
personalty schedules; financial analyses; title reports and documentation
evidencing exceptions; licenses and certificates; state and local tax analyses;
deferred maintenance cost estimates and reserves; property specific plans and
specifications; forecasts and projections; lists of limited partners' names and
addresses; together with such other and additional due diligence material
provided by in-house and third party vendors.
Items 2 through 5 are omitted because of the absence of conditions
under which they are required.
<TABLE>
<CAPTION>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<S> <C>
(a) EX 27 Financial Data Schedule
</TABLE>
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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: August 11, 1998 By: /s/ John F. Kennedy
--------------------------------------
John F. Kennedy
Director and President
13
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 114,323
<SECURITIES> 0
<RECEIVABLES> 327
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 163,179
<PP&E> 5,494,570
<DEPRECIATION> 0
<TOTAL-ASSETS> 5,657,749
<CURRENT-LIABILITIES> 213,649
<BONDS> 3,000,000
0
0
<COMMON> 0
<OTHER-SE> 2,444,100
<TOTAL-LIABILITY-AND-EQUITY> 5,657,749
<SALES> 621,954
<TOTAL-REVENUES> 664,217
<CGS> 0
<TOTAL-COSTS> 447,468
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,250
<INCOME-PRETAX> 100,499
<INCOME-TAX> 0
<INCOME-CONTINUING> 100,499
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 100,499
<EPS-PRIMARY> 7.85
<EPS-DILUTED> 7.85
</TABLE>
