<PAGE>
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, 1999
[ ] 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
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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)
- --------------------------------------------------------------------------------
(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, 1999 2
Statements of Income for the
Three and Six Months Ended
June 30, 1999 and 1998 3
Statement of Partners' Capital for
the Six Months Ended June 30, 1999 4
Statements of Cash Flows for
the Six Months Ended
June 30, 1999 and 1998 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis
or Plan of Operation 7
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 11
</TABLE>
1
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CHRISKEN GROWTH & INCOME L.P. II
(A DELAWARE LIMITED PARTNERSHIP)
BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
<TABLE>
ASSETS
<S> <C>
Cash and cash equivalents $ 58,046
Restricted cash 57,645
Real estate taxes and other escrows 81,838
Other 2,595
------------------
200,124
Investment in real estate, at cost:
Land 598,548
Buildings and improvements 4,864,959
Equipment 104,060
------------------
5,567,567
Accumulated depreciation (298,053)
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5,269,514
Total assets $5,469,638
------------------
------------------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 91,373
Accrued real estate taxes 108,583
Tenants' security deposits 19,268
Mortgage loan payable 3,000,000
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Total liabilities 3,219,224
Partners' capital, 11,513 limited partnership units issued and outstanding 2,250,414
------------------
Total liabilities and partners' capital $5,469,638
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</TABLE>
SEE ACCOMPANYING NOTES.
2
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CHRISKEN GROWTH & INCOME L.P. II
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1999 1998 1999 1998
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<S> <C> <C> <C> <C>
REVENUE
Rental $315,978 $313,625 $631,862 $621,954
Interest 987 1,565 2,474 2,831
Other 19,671 19,082 40,979 39,432
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Total revenue 336,636 334,272 675,315 664,217
EXPENSES
Property operations 100,039 117,627 166,282 179,889
Depreciation 68,865 - 137,730 -
Interest 58,125 58,125 116,250 116,250
General and administrative 63,414 134,211 148,956 234,791
Management fees - Affiliate 16,999 16,288 33,652 32,788
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Total expenses 307,443 326,521 602,910 563,716
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Net income $ 29,193 $ 8,021 $ 72,405 $100,501
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Net income allocated to general partners $ 2,913 $ 802 $ 7,240 $ 10,050
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Net income allocated to limited partners $ 26,280 $ 7,219 $ 65,165 $ 90,449
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Net income allocated to limited partners per
limited partnership units outstanding $ 2.28 $ 2.09 $ 5.65 $ 7.85
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Limited partnership units outstanding 11,513 11,529 11,513 11,529
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</TABLE>
SEE ACCOMPANYING NOTES.
3
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CHRISKEN GROWTH & INCOME L.P. II
(A DELAWARE LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
PARTNERS' CAPITAL ACCOUNTS
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GENERAL PARTNERS LIMITED PARTNERS TOTAL
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<S> <C> <C> <C>
Balance at January 1, 1999 $21,212 $2,363,297 $2,384,509
Repurchase of limited partnership units (5,120) (5,120)
Distributions (A) -- (201,380) (201,380)
Net income 7,240 65,165 72,405
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Balance at June 30, 1999 $28,452 $2,221,962 $2,250,414
----------------------------------------------------------
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</TABLE>
(A) Summary of 1999 quarterly cash distributions paid per limited partnership
unit:
<TABLE>
<S> <C>
First quarter $8.83
Second quarter $8.65
</TABLE>
SEE ACCOMPANYING NOTES.
4
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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
1999 1998
-------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 72,405 $ 100,499
Adjustments to reconcile net income to net cash flows provided by operating
activities:
Depreciation 137,730 --
Net changes in operating assets and liabilities:
(Decrease) increase in real estate taxes and other escrows (45,807) 1456
(Decrease) increase in other assets (252) 12,064
Increase in accounts payable and accrued expenses 33,314 15,832
Increase in tenants' security deposits 445
Decrease in due to affiliates (3,541) --
-------------------------------------
Net cash flows provided by operating activities 193,849 130,296
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investment in real estate (42,473) --
-------------------------------------
Cash flows used in investing activities (42,473) --
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchase of limited partnership units (5,120)
Distributions (201,380) (143,717)
-------------------------------------
Cash flows used in financing activities (206,500) (143,717)
-------------------------------------
Net increase in cash and cash equivalents (53,124) (13,421)
Cash and cash equivalents, beginning of period 111,170 70,099
-------------------------------------
Cash and cash equivalents, end of period $ 58,046 $ 56,678
-------------------------------------
-------------------------------------
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 116,250 $ 116,250
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</TABLE>
SEE ACCOMPANYING NOTES.
5
<PAGE>
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, 1998.
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 a result of several extensions, to July 15, 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. On July 15, 1999, The Partnership refinanced the mortgage loan payable
with a $4,635,000 nonrecourse first mortgage loan which bears interest at 6.77%,
amortizes over 30 years with a monthly payment of $30,124 and matures in five
years.
3. PARTNERS' CAPITAL
Effective April 1, 1999, the Partnership retired 16 limited partnership units at
a cost of $5,120.
4. RELATED PARTY TRANSACTIONS
During the second quarter the President of the Managing General Partner and
other related parties purchased 102 limited partnership units of the Partnership
at a cost of $320 per unit.
6
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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, 1999, the Partnership had cash and cash equivalents of
$58,046 compared to $111,170 at December 31, 1998. The decrease in cash and cash
equivalents during the six months ended June 30, 1999, is the result of
increased net operating income offset by the issuance of a refundable mortgage
loan application fee which was refunded in July 1999. Restricted cash represents
operating and contingency reserves equal to approximately 1% of the gross
proceeds of the Offering ($57,645 as of June 30, 1999, and December 31, 1998)
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 1999: glass patio door replacements
($19,000), porch and clubhouse exterior lighting ($4,000), and continued carpet
($37,000) and appliance ($11,000) replacement as needed due to obsolescence.
The current mortgage indebtedness of $3,000,000 matured on November 1,
1997. Through a series of extensions, provided by the lender at no cost, the
maturity of the loan was extended to July 15, 1999. The loan required
interest-only payments of $19,375 per month at 7.75% per annum. The Partnership
recently secured a new mortgage loan with the current lender in the amount of
$4,635,000 with a 6.77% interest rate, 30 year amortization, and a five year
maturity. The new mortgage loan was funded on July 15, 1999, and the old loan
was paid in full. Under the terms of the new loan monthly principal and interest
payment will be $30,124 effective September 1, 1999.
An analysis of capital improvement funding needs has resulted in a
determination that reserves in excess of the operating and contingency reserves
discussed above are not necessary, therefore net proceeds from the new loan of
$130 per Limited Partnership Unit will be distributed pro rata to the Limited
Partners in August 1999. The General Partners will not receive a pro rata
distribution of the loan proceeds. In addition to providing current beneficial
financing terms, the General Partners believe the new loan should be very
attractive to potential buyers of the Property as it is assumable for a 1% fee
subject to lender approval.
In April 1999, Peachtree Partners, which is not affiliated with the
Partnership or its General Partners, submitted an unsolicited offer to the
Partnership's Limited Partners to purchase up to 525, or approximately 4.6%, of
the outstanding Limited Partnership Units of the Partnership. As of the close of
the Peachtree Partners offer period, May 5, 1999, the Partnership's records
indicate that 192 Units were sold by Limited Partners to Peachtree Partners. On
April 23, 1999, the General Partners submitted an offer, with an expiration date
of May 31, 1999, to the Limited Partners whereby the Partnership, the General
Partners and certain third parties, would purchase up to 4.6% of the outstanding
Units of the Partnership. As a result of the Partnership's offer, its records
indicate that 118 Units were purchased by the Partnership or affiliates.
Management believes that the Unit sales to Peachtree Partners or purchases of
Units by the Partnership, or affiliates, will not adversely affect the
management or liquidity of the Partnership.
7
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The source of future liquidity and cash distributions to the Partners
is dependent primarily upon the cash generated by the Property. At June 30,
1999, the Property was generating, and the General Partners believe that the
Property will continue to generate, sufficient cash flow from operations to
service the existing and new mortgage indebtedness.
RESULTS OF OPERATIONS
The Property was 97% occupied as of June 30, 1999, 96% as of December
31, 1998, and 98% as of June 30, 1998. Management believes that occupancy at the
Property will be approximate ly 95 - 98% for the remainder of 1999. The
Partnership had total revenues of $675,315 for the six months ended June 30,
1999, compared to total revenues of $664,217 for the six months ended June
30, 1998. Revenues increased in 1999 from 1998 levels mainly due to a 1.6%
increase in apartment rental rates. Management believes revenues will remain
relatively constant provided that occupancy remains stable. The Partnership had
total expenses of $602,910 for the six months ended June 30, 1999, compared to
$563,718 for the six months ended June 30, 1998. Total expenses increased
primarily due to the reinstatement of depreciation expense, partially offset by
decreased property operations and general and administrative expenses. Before
depreciation expense, the Partnership had total expenses of $465,180 for the six
months ended June 30, 1999, compared to $563,718 for the six months ended June
30, 1998. 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 (SFAS 121)"IMPAIRMENT OF
LONG-LIVED ASSETS AND LONGLIVED ASSETS TO BE DISPOSED OF". However, negotiations
with the potential buyer of the Property were terminated on June 1, 1998. Also
pursuant to SFAS 121, the Property was reclassified to "Held for Investment" and
depreciation expense recognition was resumed. The Partnership is not currently
marketing the Property. Property operation expenses decreased in 1999 as
compared to 1998 primarily due to reduced grounds maintenance, structural
repair, and carpet and appliance replacement costs, partially offset by higher
water and sewer, plumbing, heating and air conditioning and apartment painting
expenditures. General and administrative expenses decreased in 1999 as compared
to 1998 primarily due to legal fees and property disposition costs incurred in
1998, in connection with the possible sale of the Property last year, for which
there are no comparable expenses in 1999. General and administrative expenses
also decreased during the current period due to lower marketing, insurance and
professional accounting and tax service expenses, partially offset by increased
training, advertising and administrative expenses. Management fees increased due
to increased revenue collections.
For the six months ended June 30, 1999, the Partnership had net income
of $72,405 compared to net income of $100,499 for the six months ended June 30,
1998, as the result of increased revenue primarily from increased rental rates,
offset by increased expenses, primarily due to the reinstallment of depreciation
expense, for the six months ended June 30, 1999, compared to the same period in
1998 as discussed above.
Net cash flows provided by operating activities for the six months
ended June 30, 1999, were $193,849 compared to net cash flows provided by
operating activities of $130,296 for the six months ended June 30, 1998. The
increase in net cash flows provided by operating activities was attributable
primarily to a increase in net income before depreciation expense and an
increase in accounts payable offset by a decrease in real estate taxes and other
escrows. The Partnership paid distributions of $201,380 during the six months
ended June 30, 1999, as compared to $143,717 during the six months ended June
30, 1998. The increase in distributions in 1999 as compared to the same period
8
<PAGE>
one year ago is due in part to the reconciliation of distributions paid in 1998
to distributable proceeds available during that period and the absence of
litigation costs in the current period as compared to the six months ended June
30, 1998. The General Partners anticipate that the level of additional 1999
quarterly distributions to Limited Partners is dependant on overall Property
performance and the increased financing costs as the result of the new mortgage
loan.
YEAR 2000 READINESS.
Information provided within this note constitutes a year 2000 readiness
disclosure pursuant to the provisions of the Year 2000 Information Readiness and
Disclosure Act.
The Year 2000 issue is the result of computer programs being written
and microchips being programmed using two digits rather than four to define the
applicable year. If not corrected, any program having time-sensitive software or
equipment incorporating embedded microchips may recognize a date using "00" as
the year 1900 rather than the year 2000 or may not recognize the year 2000 as a
leap year. This could result in a variety of problems including miscalculations,
loss of data and failure of entire systems. Critical areas that could be
affected are accounts receivable, accounts payable, general ledger, cash
management, computer hardware, telecommunications and property operating
systems.
The Partnership receives certain ancillary and management services from
ChrisKen Management. The services provided include all of the Partnership's
critical functions that utilize software that may have time-sensitive
applications. ChrisKen Management has completed testing all mission critical
software. ChrisKen Management has obtained documentation related to year 2000
readiness from its banking and other outside vendors. In addition, ChrisKen
Management has developed a methodology to determine that all property operating
mission critical systems are year 2000 ready. The evaluation, testing and
remediation activities related to property operating systems are completed.
Costs relating to ChrisKen Management's systems are the responsibility of
ChrisKen Management; therefore, the Partnership will incur no costs relating to
these systems. Costs relating to property level systems and equipment will be
charged to the Property.
ChrisKen Management expects to complete a contingency plan by September
30, 1999. ChrisKen Management believes that based on the status of the
Partnership's real estate portfolio and its limited number of transactions,
aside from catastrophic failures of banks, governmental agencies, etc., it could
carry out substantially all of its critical administrative and accounting
operations on a manual basis or easily convert to systems that are year 2000
ready. ChrisKen Management has targeted September 30, 1999, for the completion
of contingency plans relating to property operating systems.
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
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PART II
CHRISKEN GROWTH AND INCOME L.P. II
(A DELAWARE LIMITED PARTNERSHIP)
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) Exhibits.
Exhibit 27, Financial Data Schedule
(B) Reports on Form 8 - K.
No Reports on Form 8-K were filed during the quarter
ended June 30, 1999.
10
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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, 1999 By: /s/John F. Kennedy
------------------
John F. Kennedy
Director and President
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0000850625
<NAME> CHRISKEN GROWTH & INCOME L.P. II
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 115,691
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 200,124
<PP&E> 5,567,567
<DEPRECIATION> 298,053
<TOTAL-ASSETS> 5,469,638
<CURRENT-LIABILITIES> 219,224
<BONDS> 3,000,000
0
0
<COMMON> 0
<OTHER-SE> 2,250,414
<TOTAL-LIABILITY-AND-EQUITY> 5,469,638
<SALES> 631,862
<TOTAL-REVENUES> 675,315
<CGS> 0
<TOTAL-COSTS> 486,660
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 116,250
<INCOME-PRETAX> 72,405
<INCOME-TAX> 0
<INCOME-CONTINUING> 72,405
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 72,405
<EPS-BASIC> 5.65
<EPS-DILUTED> 5.65
</TABLE>
