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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 March 31, 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
- ------------------------------- ----------------------
(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
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<CAPTION>
PART I FINANCIAL INFORMATION PAGE
<S> <C>
Item 1. Financial Statements (UNAUDITED)
Balance Sheet at March 31, 1999 2
Statements of Income for the
Three Months Ended March 31,
1999 and 1998 3
Statement of Partners' Capital for
the Three Months Ended
March 31, 1999 4
Statements of Cash Flows for
the Three Months Ended
March 31, 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 and Use of Proceeds 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
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1
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Chrisken Growth & Income L.P. II
(A DELAWARE LIMITED PARTNERSHIP)
Balance Sheet
March 31, 1999
(UNAUDITED)
<TABLE>
<S> <C>
ASSETS
Cash and cash equivalents $ 123,782
Restricted cash 57,645
Real estate taxes and other escrows 54,679
Other 6,956
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243,062
Investment in real estate, at cost:
Land 598,548
Buildings and improvements 4,844,862
Equipment 92,681
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5,779,153
Accumulated depreciation (229,188)
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Total assets $5,549,965
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----------
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 68,545
Accrued real estate taxes 136,019
Tenants' security deposits 19,478
Mortgage loan payable 3,000,000
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Total liabilities 3,224,042
Partners' capital, 11,529 limited partnership
units issued and outstanding
2,325,923
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Total liabilities and partners' capital $5,549,965
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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)
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<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
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<S> <C> <C>
REVENUE
Rental $315,884 $308,329
Interest 1,487 1,266
Other 21,308 20,350
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Total revenue 338,679 329,945
EXPENSES
Property operations 66,243 61,906
Depreciation 68,865 -
Interest 58,125 58,125
General and administrative 85,581 100,580
Management fees - Affiliate 16,651 16,500
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Total expenses 295,465 237,111
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Net income $ 43,214 $ 92,834
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---------------------
Net income allocated to general partners $ 4,321 $ 9,283
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---------------------
Net income allocated to limited partners $ 38,893 $ 83,551
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Net income allocated to limited partners per
limited partnership units outstanding $ 3.37 $ 7.25
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Limited partnership units outstanding 11,529 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
Three months ended March 31, 1999
(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, 1999 $21,212 $2,363,297 $2,384,509
Distributions (A) - (101,800) (101,800)
Net income 4,321 38,893 43,214
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Balance at March 31, 1999 $25,533 $2,300,390 $2,325,923
----------------------------------------
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</TABLE>
(A) Cash distributions paid per limited partnership unit were $8.83.
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>
THREE MONTHS ENDED
MARCH 31
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 43,214 $ 92,834
Adjustments to reconcile net income to net cash flows
provided by operating activities:
Depreciation 68,865 -
Net changes in operating assets and liabilities:
Increase in real estate taxes and other escrows (16,648) (17,646)
Increase in other assets (4,613) (4,080)
Increase in accounts payable and accrued expenses 37,922 26,819
Increase in tenants' security deposits 210 50
Decrease in due to affiliates (3,541) -
------------------------
Net cash flows provided by operating activities 125,409 97,977
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to investment in real estate (10,997) -
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Cash flows used in investing activities (10,997) -
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions (101,800) (72,650)
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Cash flows used in financing activities (101,800) (72,650)
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Net increase in cash and cash equivalents 12,612 25,327
Cash and cash equivalents, beginning of period 111,170 70,099
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Cash and cash equivalents, end of period $ 123,782 $ 95,426
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Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 58,125 $ 58,125
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</TABLE>
SEE ACCOMPANYING NOTES.
5
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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, 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 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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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, 1999, the Partnership had cash and cash equivalents of
$123,782 compared to $111,170 at December 31, 1998. The increase in cash and
cash equivalents during the three months ended March 31, 1999 is the result
of increased net operating income and a net decrease in the real estate
tax/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, 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 replacement ($11,000) 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 has been extended to June 1, 1999. The loan requires
interest-only payments $19,375 per month at 7.75% per annum. The Partnership
recently executed a loan application 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. With an anticipated June 30, 1999, closing date, the anticipated
monthly principal and interest payment will be $30,124 effective August 1,
1999, under the terms of the new loan. The current lender has agreed to
extend the maturity of the current mortgage until the closing of the new loan.
After an analysis of capital improvement funding needs has been
completed, and after a reserve from proceeds of the new loan for such capital
improvements has been established, net proceeds from the new loan will be
distributed prorata to Partners. 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.
The source of future liquidity and cash distributions to the Partners is
dependent primarily upon the cash generated by the Property. At March 31,
1999 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 March 31, 1999, 96% as of December
31, 1998, and 97% as of March 31, 1998. Management believes that occupancy
at the Property will be approximately 95 - 98% for the remainder of 1999.
The Partnership had total revenues of $338,679 for the three months ended
March 31, 1999, compared to total revenues of $329,945 for the three months
ended March 31, 1998. Revenues increased in 1999 from 1998 levels mainly due
to a 3.2%
7
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increase in apartment rental rates. Management believes revenues will remain
relatively constant provided that occupancy remains stable. The Partnership
had total expenses of $295,465 for the three months ended March 31, 1999,
compared to $237,111 for the three months ended March 31, 1998. Total
expenses increased primarily due to the reinstatement of depreciation expense
and increased property operation expenses, partially offset by decreased
general and administrative expenses. Before depreciation expense, the
Partnership had total expenses of $226,600 for the three months ended March
31, 1999, compared to $237,111 for the three months ended March 31, 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 LONG-LIVED 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 June 1,
1998. The Partnership is not currently marketing the Property. Property
operation expenses are higher in 1999 as compared to 1998 primarily due to
higher grounds maintenance, water and sewer, plumbing, and apartment painting
expenditures offset by reduced structural repair, janitorial, and carpet
replacement costs. General and administrative expenses decreased in 1999 as
compared to 1998 primarily due to legal fees and property disposition costs
incurred in 1998 incurred 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 insurance and professional accounting and tax service expenses,
partially offset by increased training and administrative expenses.
Management fees increased due to increased revenue collections.
For the three months ended March 31, 1999, the Partnership had net
income of $43,214 compared to net income of $92,834 for the three months
ended March 31, 1998, due to increased revenue, primarily the result of
increased rental rates, offset by increased expenses, primarily due to the
reinstallment of depreciation expense, for the three months ended March 31,
1999 compared to the same period in 1998 as discussed above.
Net cash flows provided by operating activities for the three months
ended March 31, 1999 were $125,409 compared to net cash flows provided by
operating activities of $97,977 for the three months ended March 31, 1998.
The increase in net cash flows provided by operating activities was
attributable primarily to increases in net income before depreciation expense
and accounts payable and accrued expenses, partially offset by an decrease in
amounts due to affiliates. The Partnership paid distributions of $101,800
during the three months ended March 31, 1999, as compared to $72,650 during
the three months ended March 31, 1998. The increase in distributions in 1999
as compared to the same period 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 quarter ended March 31, 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.
8
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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 is in the process of testing all mission
critical software and it is anticipated that this testing will be completed
by June 30, 1999. ChrisKen Management is in the process of obtaining
documentation related to year 2000 readiness from its banking and other
outside vendors and it is anticipated that this phase will be competed by
June 30, 1999. 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 expected to be completed by June 30, 1999.
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.
SUBSEQUENT EVENTS
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 207 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. The Partnership's
records indicate that its offer has not been accepted by any of the
Partnership's Limited Partners. 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.
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 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) Exhibits.
Exhibit 27, Financial Data Schedule
(B) Reports on Form 8-K.
No Reports on Form 8-K were filed during the quarter ended
March 31, 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: May 12, 1999 By: /s/John F. Kennedy
---------------------
John F. Kennedy
Director and President
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 181,427
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 243,062
<PP&E> 5,779,153
<DEPRECIATION> 229,188
<TOTAL-ASSETS> 5,549,965
<CURRENT-LIABILITIES> 224,042
<BONDS> 3,000,000
0
0
<COMMON> 0
<OTHER-SE> 2,325,923
<TOTAL-LIABILITY-AND-EQUITY> 5,549,965
<SALES> 315,884
<TOTAL-REVENUES> 338,679
<CGS> 0
<TOTAL-COSTS> 237,340
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58,125
<INCOME-PRETAX> 43,214
<INCOME-TAX> 0
<INCOME-CONTINUING> 43,214
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,214
<EPS-PRIMARY> 3.37
<EPS-DILUTED> 3.37
</TABLE>
