FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT of 1934
For the transition period.........to.........
Commission file number 0-17568
BRUNNER COMPANIES INCOME PROPERTIES L.P. II
(Exact name of small business issuer as specified in its charter)
Delaware 31-1247944
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (803) 239-1000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) BRUNNER COMPANIES INCOME PROPERTIES L.P. II
STATEMENT OF NET ASSETS IN LIQUIDATION
(Unaudited)
September 30, 1995
Assets
Cash:
Unrestricted $ 111,013
Restricted-tenant security deposits 16,184
Accounts receivable 22,272
Tax and insurance escrows 149,342
Restricted escrow 284,904
Investment properties (Notes A and B) 24,722,420
25,306,135
Liabilities
Accounts payable 6,771
Tenant security deposits 16,984
Accrued taxes 172,166
Other liabilities 161,340
Mortgage notes payable, in default
(Notes A, B and C) 24,722,420
Estimated costs during the period of
liquidation (Notes A and B) 151,454
25,231,135
Net assets in liquidation (Note A) $ 75,000
[FN]
See Accompanying Notes to Financial Statements
b) BRUNNER COMPANIES INCOME PROPERTIES L.P. II
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
Revenues:
Rental income $ 828,469 $ 717,275 $2,357,860 $2,421,606
Other income 5,281 9,332 15,486 293,825
Total revenues 833,750 726,607 2,373,346 2,715,431
Expenses:
Operating 59,306 76,273 192,880 217,688
General and administrative 28,221 33,303 85,625 95,350
Property management fees 22,034 28,597 75,612 95,392
Depreciation 244,475 248,349 727,860 745,144
Amortization 10,551 7,234 25,871 24,774
Interest 718,019 639,406 2,161,673 1,918,219
Property taxes 57,388 54,014 172,556 166,629
Tenant reimbursements (80,400) (96,004) (219,760) (249,503)
Total expenses 1,059,594 991,172 3,222,317 3,013,693
Adjustment to liquidation
basis (Notes A and B) 130,142 -- 130,142 --
Net loss $ (95,702) $(264,565) $ (718,829) $ (298,262)
Net loss allocated to general
partner (1%) $ (957) $ (2,646) $ (7,188) $ (2,982)
Net loss allocated to Class A
limited partners (98.01%) (93,798) (259,300) (704,525) (292,327)
Net loss allocated To Class B
limited partners (.99%) (947) (2,619) (7,116) (2,953)
$ (95,702) $(264,565) $ (718,829) $ (298,262)
Net loss per limited
partnership unit $ (.11) $ (.30) $ (.82) $ (.34)
[FN]
See Accompanying Notes to Financial Statements
c) BRUNNER COMPANIES INCOME PROPERTIES L.P. II
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)/NET ASSETS IN LIQUIDATION
(Unaudited)
General Limited Partners
Partner Class A Class B Total
Partners' capital (deficit) at
December 31, 1994 $(52,394) $ 821,278 $ 24,945 $ 793,829
Net loss for the nine months
ended September 30, 1995 (7,188) (704,525) (7,116) (718,829)
Net assets in liquidation
at September 30, 1995 $(59,582) $ 116,753 $ 17,829 $ 75,000
[FN]
See Accompanying Notes to Financial Statements
d) BRUNNER COMPANIES INCOME PROPERTIES L.P. II
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1995 1994
Cash flows from operating activities:
Net loss $ (718,829) $ (298,262)
Adjustment to liquidation basis (130,142) --
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation 727,860 745,144
Amortization of loan costs and
leasing commissions 105,499 24,774
Change in accounts:
Restricted cash (4,317) (2,670)
Accounts receivable 20,564 6,917
Tax and insurance escrows 71,484 45,572
Other assets (155,255) (63,275)
Accounts payable (19,415) 1,890
Tenant security deposit liabilities 5,117 4,340
Accrued taxes (46,067) (46,126)
Other liabilities 77,152 15,828
Net cash (used in) provided by operating
activities (66,349) 434,132
Cash flows from investing activities:
Property improvements and replacements (209,766) --
Deposits to restricted escrow (675,402) --
Receipts from restricted escrow 390,498 --
Net cash used in investing activities (494,670) --
Cash flows from financing activities
Loan extension costs (57,878) (10,000)
Net cash used in financing activities (57,878) (10,000)
Net (decrease) increase in cash (618,897) 424,132
Cash at beginning of period 729,910 350,260
Cash at end of period $ 111,013 $ 774,392
Supplemental disclosure of cash information:
Cash paid for interest $2,009,277 $1,918,219
[FN]
See Accompanying Notes to Financial Statements
e) BRUNNER COMPANIES INCOME PROPERTIES L.P. II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
On September 30, 1995, the Partnership adopted the liquidation basis of
accounting. Throughout 1995, the Managing General Partner has marketed the
Partnership's properties for sale and sought to refinance the mortgage notes
payable on a long-term basis. These efforts were unsuccessful and the mortgage
notes payable matured on September 1, 1995. Currently, the Partnership is in
default on these mortgage notes and the lender has notified the Partnership of
its intent to foreclose on all of the properties. The Managing General Partner
anticipates that the Partnership's properties will be foreclosed upon by the
lender during the fourth quarter of 1995 and does not expect to contest any of
these proceedings. As a result of the foreclosures, the Partnership will be
liquidated.
As a result of the decision to liquidate, the Partnership changed its basis
of accounting for its financial statements at September 30, 1995 from the going
concern basis of accounting to the liquidation basis of accounting.
Consequently, assets have been valued at estimated net realizable value and
liabilities are presented at their estimated settlements amounts, including
estimated costs associated with carrying out the liquidation. The valuation of
assets and liabilities necessarily requires many estimates and assumptions and
there are substantial uncertainties in carrying out the liquidation. The
actual realization of assets and settlement of liabilities could be higher or
lower than amounts indicated and is based upon the Managing General Partner's
estimates as of the date of the financial statements.
The investment properties were adjusted to their estimated net realizable
value. The net realizable value for Cumberland, Cunningham, and Pinecrest was
calculated based on purchase offers received by the Managing General Partner.
The net realizable value of Hampton Plaza was determined using net operating
income of the property capitalized at a rate deemed reasonable for the type of
property. Prior to the change from the going concern basis to the liquidation
basis of accounting, investment properties were stated at the lower of cost or
estimated fair value.
The statement of net assets in liquidation as of September 30, 1995, includes
$151,454 of accrued costs that the Managing General Partner estimates will be
incurred during the period of liquidation, based on the assumption that the
liquidation process will be completed by December 31, 1995. The costs include
cash flow payments required to be sent to the lender and anticipated costs to
terminate the Partnership. Because the success in realization of assets and the
settlement of liabilities is based on the Managing General Partner's best
estimates, the liquidation period may be shorter than projected or it may be
extended beyond the projected period.
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information under the liquidation basis of accounting and with the instructions
to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of the
Managing General Partner, all adjustments considered necessary for a fair
presentation on the liquidation basis have been included. For further
information, refer to the financial statements and footnotes thereto included
in the Partnership's annual report on Form 10-KSB for the fiscal year ended
December 31, 1994.
Reclassifications
Certain reclassifications have been made to the 1994 information to conform
to the 1995 presentation.
Note B - Adjustment to Liquidation Basis of Accounting
At September 30, 1995, in accordance with the liquidation basis of
accounting, assets were adjusted to their estimated net realizable value and
liabilities were adjusted to their settlement amount including estimated costs
associated with carrying out the liquidation. The net adjustment required to
convert to the liquidation basis of accounting was an increase in net assets of
$130,142. Significant adjustments are summarized as follows:
Increase (Decrease)
in Net Assets
Adjustment from book value of investment
properties to estimated net realizable value $(2,307,665)
Adjustment to record estimated liabilities
associated with the liquidation (Note A) (151,454)
Adjustment of debt to settlement amount 2,927,580
Adjustment of other assets and liabilities (338,319)
Net increase in net assets $ 130,142
Note C - Mortgage Notes Payable
The principal balances of the mortgage notes payable at September 30, 1995
are as follows:
Cumberland Plaza $ 6,500,000
Cunningham Place 6,200,000
Hampton Plaza 8,700,000
Pinecrest Plaza 6,250,000
27,650,000
Adjustment to settlement amount (2,927,580)
$24,722,420
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
At September 30, 1995, the Partnership adopted the liquidation basis of
accounting. The Partnership's mortgage notes payable are in default and the
lender has notified the Managing General Partner of its intent to foreclose on
the Partnership's properties (See Note A in the Notes to Financial Statements
in Item 1). As a result of these events, the Partnership recognized a gain on
the adjustment to the liquidation basis of accounting of $130,142. This
adjustment is the net result of adjusting the Partnership's assets to their
estimated net realizable value and the liabilities to their estimated
settlement amount. Also included in the liquidation adjustment is an estimate
of costs associated with carrying out the liquidation (See Note B in the Notes
to the Financial Statements).
The Partnership realized a net loss of $718,829 for the nine months ended
September 30, 1995, compared to a net loss of $298,262 for the corresponding
period of 1994. The net loss for the three months ended September 30, 1995,
was $95,702 compared to a net loss of $264,565 for the three months ended
September 30, 1994. The increase in net loss for the nine month period was
primarily attributable to a decrease in other income and an increase in
interest expense. Other income decreased for the nine months ended September
30, 1995, as a result of a tenant at Hampton Plaza paying an early termination
fee of $275,000 in 1994. Interest expense increased as a result of the
interest rate on the mortgage notes payable increasing from 9.25% to 10.04% in
1995 as a result of the loan extension. Also included in the 1995 interest
expense is amortization of loan costs incurred to extend the maturity date of
the mortgage notes payable to September 1, 1995. Also contributing
to the increase in net loss for the nine months ended September 30, 1995, was a
decrease in rental income primarily due to a decrease in average occupancy at
Hampton Plaza. The decreased occupancy at Hampton, along with a decrease in
reimbursable expenses, also resulted in lower levels of tenant reimbursements.
Partially mitigating these items was the gain on the adjustment to the
liquidation basis of $130,142, as discussed above. Property management fees
decreased for the nine months ended September 30, 1995, compared to the
corresponding period of 1994 as a result of the Partnership entering into new
property management agreements at lower fee percentages, which were effective
January 1, 1995.
Rental income for the three month period ended September 30, 1995, increased
compared to the corresponding period of 1994 due to increased occupancy for the
quarter at Hampton Plaza. Occupancy in the third quarter of 1995 reached 100%
at Hampton Plaza, which in the third quarter of 1994 had declined to 68%.
At September 30, 1995, the Partnership held unrestricted cash of $111,013
compared to $729,910 at December 31, 1994. Net cash provided by operating
activities for the first nine months of 1995 decreased as a result of the
decrease in rental and other income and increase in interest expense noted
above. Net cash used in investing activities increased due to net deposits of
$284,904 to the restricted escrow and tenant improvements paid in the first
nine months of 1995. Loan costs of $57,878 were paid in 1995 to extended the
maturity dates of the Partnership's mortgage notes payable to September 1, 1995,
resulting in the increase in cash used in financing activities.
The Partnership is required to remit net cash flow of the properties to the
restricted escrow held by the lender. No cash distributions have been made in
1994 or the first nine months of 1995. Currently the Partnership has estimated
net assets in liquidation of $75,000. The actual realization of assets and
settlement of liabilities could be higher or lower than amounts estimated by
the Managing General Partner as of the date of the financial statements. In
addition, the actual distribution of any net assets remaining after liquidation
will be dictated by the Partnership's Agreement of Limited Partnership based
upon the partner's tax basis in any remaining net assets.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
No reports were filed for the quarter ended September 30, 1995.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BRUNNER COMPANIES INCOME PROPERTIES L.P. II,
a Delaware limited partnership
By: Brunner Management Limited
Partnership, an Ohio limited Partnership,
its General Partner
By: 104 Management, Inc., an Ohio corporation,
its Managing General Partner
By: /s/Carroll D. Vinson
Carroll D. Vinson
President
By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Controller and Principal
Accounting Officer
Date: November 14, 1995