ITEM 1: BUSINESS
It should be noted that this 10-K contains forward-looking information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty, including trends in the real estate investment market, projected leasing and sales, and the future prospects for the Registrant. Actual results could differ materially from those contemplated by such statements.
Nooney Real Property Investors-Two, L.P. (the "Registrant") is a limited partnership formed under the Missouri Uniform Limited Partnership Law on September 26, 1979, to invest, on a leveraged basis, in income-producing real properties such as shopping centers, office buildings, apartment complexes, office/warehouses and light industrial properties. The Registrant originally invested in six real property investments described in Item 2
ITEM 2: PROPERTIES
On October 3, l979, the Registrant purchased the Maple Tree Shopping Center (the "Center") located at the corner of Clayton and Clarkson Roads in West St. Louis County, Missouri. Constructed in l974 of steel and masonry block, the Center contains approximately 72,000 net rentable square feet and is located on a 7.8 acre site which provides paved parking for 366 cars. The purchase price of the Center was $3,184,053. The Center was 100% leased by 18 tenants at year end.
On October 15, l980, the Registrant purchased Park Plaza I & II, ("Park Plaza") an office/warehouse center located at 5707-5797 Park Plaza Court in Indianapolis, Indiana. Park Plaza consists of two one-story, concrete block buildings. Park Plaza I was built in l975 and Park Plaza II in l979. Park Plaza is located on a 9 acre site which provides paved parking for 150 cars. The purchase price of Park Plaza was $2,411,163. The buildings contain a total of approximately 95,000 net rentable square feet and were 100% leased by 29 tenants at year end.
On March 27, l981, the Registrant purchased Morenci Professional Park Buildings A, B, C, D & G ("Morenci"), an office/warehouse complex located at 62nd Street and Guion Road in Indianapolis, Indiana. Morenci consisted of five one-story, masonry buildings located on a 13.35 acre site. Buildings A, B, C & D were built in l975 and building G was built in l979. The total purchase price, excluding Building G, of Morenci was $3,009,924. On November 14, 1991, Building G was sold to a party unaffiliated with the Registrant. The remaining buildings contain a total of approximately 105,600 net rentable square feet. A major tenant occupying 49% of the property vacated as of December 31, 1995. Leasing during 1996 was strong and the buildings were 80% leased by 39 tenants at year end.
On March 27, l981, the Registrant purchased the Jackson Industrial Building A ("Jackson A"), a warehouse building located at Post Road and 30th Street in Indianapolis, Indiana. Jackson A is a one-story, masonry building and is located on a 21.87 acre site. The building, originally constructed in l976 and subsequently expanded in l980, contains approximately 320,000 net rentable square feet. The purchase price of Jackson A was $6,089,929. Jackson A was 100% leased by 2 tenants at year end.
Reference is made to Note 3 to Notes to Financial Statements filed herewith as Exhibit 99.3 in response to Item 8 for a description of the mortgage indebtedness secured by the Registrant's real property investments. Reference is also made to Note 6 to Notes to Financial Statements for a discussion of revenues derived from major tenants.
The following table sets forth certain information as of November 30, 1996, relating to the properties owned by the Partnership.
* Space subleased to DeBasio Furniture ** Space subleased to Medicine & More
ITEM 3:
ITEM 3: LEGAL PROCEEDINGS
The Registrant is not a party to any material pending legal proceedings.
ITEM 4:
ITEM 4: SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth quarter of fiscal 1996.
PART II
ITEM 5:
ITEM 5: MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
As of February 1, 1997, there were 1,061 record holders of Interests in the Registrant. There is no public market for the Interests and it is not anticipated that a public market will develop.
There were no cash distributions paid to the Limited Partners during fiscal 1995 or fiscal 1996.
ITEM 7:
ITEM 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
Cash reserves as of November 30, 1996 are $596,247, a decrease of $32,111 from year ended November 30, 1995. The decrease in cash was due to the expenditures necessary during the year for capital expenditures, leasing and tenant finish costs. As indicated in last year's report, a major tenant occupying 49% of the space at Morenci Professional Park vacated in December 1995. The Registrant had significant expenditures to fix the spaces up for re-leasing. In addition, a partial roof replacement at Jackson Industrial Park was done during the year. The Registrant expects to fund anticipated capital expenditures for 1997 from cash flow provided by operations and the current level of cash reserves. The anticipated capital expenditures in 1997 by property are as follows:
Other Capital Leasing Capital Total ---------------------------------------- Park Plaza I & II $ 62,120 $ 147 $ 62,267 Morenci 52,040 55,588 107,628 Maple Tree Shopping Center 71,521 0 71,521 Jackson Industrial 0 10,000 10,000 -------------------------------------- $185,681 $ 65,735 $251,416
Morenci Professional Park and Jackson Industrial have leasing capital to fund tenant alterations to their respective suites along with lease commissions for new leases signed. At Park Plaza I & II, the Registrant has forecasted resurfacing of sections of the front parking areas and concrete repair/replacement. At Morenci Professional Park, the Registrant has forecasted other capital to construct model units to facilitate leasing and asphalt resurfacing. At Maple Tree Shopping Center, the Registrant has scheduled the enclosure of its waste storage bins in an effort to comply with city ordinances, a new center identification sign and re-roofing of one section of the Center.
As of November 1, 1996, the Registrant negotiated an extension of the second mortgages secured by Park Plaza I & II, Morenci Professional Park, and Maple Tree. The term of the extension is for a period of one year at a rate of 1.5% over the then corporate base rate. As of November 30, 1996, interest rate on the debt was 9.75%. The balance of the debt on Park Plaza I & II and Morenci as of November 30, 1996, is $246,619. The balance of the debt on Maple Tree as of November 30, 1996, is $276,772.
The first mortgage debt on Morenci Professional Park and Park Plaza I & II have maturity dates of October 1, 2005, and December 31, 2003, respectively.
On November 1, 1995, the Registrant refinanced the existing first deed of trust on Jackson Industrial for a period of five years at a rate of 9.31%, being amortized over 18 years.
The future liquidity of the Registrant is dependent on its ability to fund future capital expenditures and mortgage payments from operations and cash reserves, maintain occupancy, and negotiate with lenders the refinancing of mortgage debt as it matures. Until such time as the real estate market recovers and profitable sale of the properties is feasible, the Registrant will continue to manage the properties to achieve its investment objectives.
Results of Operations
The results of operations for the Registrant's properties for the years ended November 30, 1996, 1995, and 1994 are detailed in the schedule below. Expenses of the Registrant are excluded.
Jackson Industrial Maple Tree Park Plaza Morenci
Revenues $ 864,995 $ 543,132 $ 478,980 $ 405,786 Expenses 847,648 479,561 359,583 490,772 --------------------------------------------------------
Net Income (Loss) $ 17,347 $ 63,571 $ 119,397 $ (84,986) =========================================================
Revenues $ 886,870 $ 524,832 $ 436,685 $ 489,455 Expenses 953,738 469,795 329,971 423,981 ---------------------------------------------------------
Net Income (Loss) $ (66,868) $ 55,037 $ 106,714 $ 65,474 =========================================================
Revenues $ 901,244 $ 537,252 $ 445,968 $ 475,852 Expenses 1,000,259 491,040 345,685 456,575 ---------------------------------------------------------
Net Income (Loss) $ (99,015) $ 46,212 $ 100,283 $ 19,277 =========================================================
At Jackson Industrial revenues decreased slightly due to less real estate tax reimbursements from one tenant whose lease renewed in 1995 with a more current base year. Expenses were down due to a successful real estate tax appeal and the real estate taxes being lower.
Maple Tree Shopping Center had increases in base rental revenues ($12,240) and percentage rent income ($21,816) over the prior year offset by bad debt expense ($9,895). Expenses increased from 1995 to 1996 due primarily to increases in real estate tax expense ($8,872) and administrative expenses ($3,989) offset by decreases in cleaning ($1,017) and insurance ($3,472).
Net income at Park Plaza I & II for the year-ended November 30, 1996 was higher than 1995 due to the following. Revenues increased ($42,000) as a result of a combination of base rental rate increases ($24,423) and escalation income ($17,035). While expenses increased in the categories of fire and crime prevention ($9,014), snow removal ($8,178), and real estate taxes ($19,286) offset by decreases in parking lot landscaping ($4,035) and administrative expenses ($5,980).
At Morenci Professional Park, revenues decreased significantly due to the fact that a major tenant vacated at the end of 1995. During 1996, significant re-leasing was done and the property ended the year at an occupancy rate of 80%. Revenues at Morenci decreased from 1995 to 1996 due to the lower occupancy wherein base rental income was down ($117,789) offset by increases in common area maintenance income ($17,081) and tax reimbursement income ($12,725). Expenses at Morenci were higher due to an increase in amortization expense ($22,623), repairs and maintenance ($5,018), snow removal ($8,242), real estate taxes ($5,560) and vacancy expense to clean up the vacant spaces and get them ready for re-leasing ($31,443) offset by decreases in sewer ($4,027) and water ($5,150).
The occupancy at the registrants properties at year end remained high with the exception of Morenci Professional Park which ended the year at 80% occupancy. Morenci's occupancy was higher than the Registrant had anticipated achieving as re-leasing was faster than anticipated. The occupancy levels at November 30 are as follows:
Occupancy rates at November 30 1996 1995 1994 ------------------------------------- Park Plaza I & II 100% 100% 100% Morenci Professional Park 80% 99% 94% Maple Tree 100% 96% 98% Jackson Industrial 100% 100% 100%
Jackson Industrial has two tenants who lease 100% of the available space. The major tenant who occupies approximately 70% of the available space has a lease which runs until July 2000. The tenant has an option to cancel as of July 1998. The tenant is in process of relocating its operation and vacating the space and has been attempting to sublease the space unsuccessfully thus far. The Registrant anticipates that the tenant will exercise its option to cancel as of its cancellation date of July 1998. The other tenant has a lease which expires at the end of July 1997. Subsequent to year-end the Registrant and that tenant have exercised a five year extension of the lease.
Maple Tree Shopping Center remained 100% occupied during the fourth quarter. The Center has two major tenants who occupy 18% and 42% of the available space. Their leases have expirations of April 30, 2000 and July 31, 1999, respectively and each has several renewal options.
Occupancy at Park Plaza I & II remained 100% during the fourth quarter. Renewal leases were signed with three tenants who occupy a combined total of 14,400 square feet. At Park Plaza, no tenant occupies more than 10% of the total space.
During the fourth quarter, the occupancy level at Morenci Professional Park increased from 68% to 80%. Leasing activity consisted of signing seven new leases for a total of 14,400 square feet renewing three leases for tenants occupying 6,000 square feet offset by two tenants vacating 2,400 square feet. As previously stated, the leasing during 1996 was better than anticipated and the Registrant feels that leasing activity in 1997 will remain brisk. No tenant occupies more than 10% of the total space.
1996 Comparisons
As of November 30, 1996, the Registrants consolidated revenues are $2,316,648 compared to $2,341,704 for the year-ended November 30, 1995. On a consolidated basis revenues decreased $25,056 or approximately 1%. Consolidated revenues remained relatively stable from 1995 to 1996 and the fluctuations between individual properties were analyzed above.
The Registrant's consolidated expenses for the year-ended November 30, 1996, were $2,299,722. When compared to year-ended November 30, 1995, consolidated revenues increased $12,462 or less than 1%.
Net income is $16,926 or $1.40 per limited partnership unit. In 1995, the net income was $54,444 or $4.49 per limited partnership share. Cash flow provided by operations for the yearended November 30, 1996 were $693,291. This cash flow enabled the Registrant to fund capital expenditures of $392,866 and to reduce loan balances by $332,536.
1995 Comparisons
As of November 30, 1995, the Registrant's consolidated revenues are $2,341,704 compared to $2,357,368 for the year ended November 30, 1994. On a consolidated basis, revenues decreased $15,664 or less than 1%. Even though consolidated revenues remained relatively stable from 1994 to 1995, the individual properties had changes from year to year. These changes have been previously analyzed.
The Registrant's consolidated expenses for the year ended November 30, 1995 are $2,287,260. When compared to year ended November 30, 1994, consolidated expenses decreased $105,152 or 4.40%. The decrease is attributable to interest expense, real estate taxes, and other operating expenses. The decrease in interest expense is attributable to all the Registrant's properties. All the properties, except for Jackson Industrial, have long-term loans with original amortization periods ranging from 25 to 30 years. As these loans amortize, each payment is applied less to interest and more to principal resulting in a decrease in interest expense. As previously stated, the decrease in real estate taxes is attributable to Jackson Industrial. The decrease in other operating expenses is comprised of several categories and they are: vacancy expense ($16,134); administrative ($9,154); snow removal ($8,797); and insurance ($4,675). Offsetting the aforementioned expense decreases were increases in professional services ($12,830) and office expenses ($5,507).
With revenues remaining relatively flat and expenses decreasing, the Registrant had favorable operating results for the year ended November 30, 1995. Net income is $54,444 or $4.49 per limited partnership unit, an increase in net income of $89,488 or $7.38 per limited partnership unit when
comparing November 30, 1995, to November 30, 1994. Cash flow provided by operations for the year ended November 30, 1995, is $493,356 which enabled the Registrant to fund capital expenditures of $135,205 and reduce loan balances by $332,832.
Inflation
The effects of inflation did not have a material impact upon the Registrant's operation in fiscal l996, and are not expected to materially affect the Registrant's operation in l997.
Interest Rates
Interest rates on floating rate debt went up in 1995 and remained constant in 1996. Future increases in the prime interest rate can adversely affect the operations of the Registrant.
ITEM 8:
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Financial Statements of the Registrant are filed herewith as Exhibit 99.3 and are incorporated herein by reference (see Item 14(a)(1)). The supplementary financial information specified by Item 302 of Regulation S-K is provided in Item 7.
ITEM 9:
ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
PART III
ITEM 10:
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The General Partners of the Registrant responsible for all aspects of the Registrant's operations are Gregory J. Nooney, Jr., age 66, and Nooney Investors, Inc., a Missouri corporation. Gregory J. Nooney, Jr. is a senior officer of Nooney Company, the sponsor of the Registrant.
The background and experience of the General Partners are as follows:
Gregory J. Nooney, Jr. joined Nooney Company in 1954 and is currently Chairman of the Board and Chief Executive Officer.
John J. Nooney is a Special General Partner of the Partnership and as such, does not exercise control of the affairs of the Partnership.
John J. Nooney joined Nooney Company in 1958 and was President and Treasurer until he resigned in 1992. Mr. Nooney is currently Chairman of the Board of Dalton Investments, a real estate asset management firm.
Nooney Investors, Inc., a wholly-owned subsidiary of Nooney Company, was formed in June 1979 for the purpose of being a general and/or limited partner in the Registrant and other limited partnerships. Gregory J. Nooney, Jr. is a director of Nooney Investors, Inc.
Gregory J. Nooney, Jr. and John J. Nooney are brothers. Gregory J. Nooney, Jr. and Faith L. Nooney (wife of John J. Nooney) are stockholders of Nooney Company, with Gregory J. Nooney, Jr. controlling all voting stock of Nooney Company.
The General Partners will continue to serve as General Partners until their withdrawal or their removal from office by the Limited Partners.
Certain of the General Partners act as general partners of limited partnerships and hold directorships of companies with a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 or subject to the requirements of Section 15(d) of the Act. A list of such directorships, and the limited partnerships for which the General Partners serve as general partners, is filed herewith as Exhibit 99.1 and incorporated herein by reference.
During 1993 Lindbergh Boulevard Partners, L.P. filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code. Gregory J. Nooney, Jr. is the general partner of Nooney Ltd. II, L.P, which in turn is the general partner of Nooney Development Partners, L.P., which in turn is the general partner of Nooney-Hazelwood Associates, L.P., which is the general partner of Lindbergh Boulevard Partners, L.P. Lindbergh Boulevard Partners, L.P. emerged from bankruptcy on May 17, 1994, when its Plan of Reorganization was confirmed.
ITEM 11:
ITEM 11: EXECUTIVE COMPENSATION
The General Partners are entitled to a share of distributions and a share of profits and losses as more fully described under the headings "Compensation to General Partners and Affiliates" on pages 8-11 and "Profits and Losses for Tax Purposes; Distributions; and Expenses of General Partners" on pages A-14 to A-17 of the Prospectus of the Registrant dated November 16, 1979, as supplemented and filed pursuant to Rule 424(c) of the Securities Act of 1933 (the "Prospectus"), which are incorporated herein by reference.
During fiscal l996, there were no cash distributions paid to the General Partners by the Registrant.
See Item 13 below for a discussion of transactions between the Registrant and certain affiliates of the General Partners.
ITEM 12:
ITEM 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security Ownership of Certain Beneficial Owners.
Title Name of Amount and Nature of Percentage of Class Beneficial Owner Beneficial Ownership of Class -------- ---------------- -------------------- -------- Limited Liquidity Fund XI 10 Units 0.08% Partnership Liquidity Fund XVI 3 Units 0.02% Interests Liquidity Fund Growth+ Partners 45 Units 0.37% Liquidity Fund Income-Growth Investors 38 Units 0.31% Liquidity Fund Tax Exempt Partners II 298 Units 2.46% Liquidity Fund 73, L.P. 196 Units 1.70% LF 74, L.P. 266 Units 2.12%
The aggregate amount beneficially owned by the above listed reporting persons totals 856 Units, or 7.06% of the outstanding interests of the Registrant. The sole general partner of each of the above reporting persons is Liquidity Financial Group, L.P., a California limited partnership. Voting and dispositive power is exercised on behalf of each reporting person by its general partner.
(b) Security Ownership of Management.
None of the General Partners is known to the Registrant to be the beneficial owner, either directly or indirectly, of any Interests in the Registrant.
(c) Changes in Control.
There are no arrangements known to the Registrant, the operation of which may at a subsequent date result in a change in control of the Registrant.
ITEM 13:
ITEM 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
(a) Transactions with Management and Others.
Certain affiliates of the General Partners are entitled to certain fees and other payments from the Registrant in connection with certain transactions of the Registrant as more fully described under the headings "Compensation to General Partners and Affiliates" on pages 8-11 and "Management" on pages 23-25 of the Prospectus, which are incorporated herein by reference.
Nooney Krombach Company, the manager of Registrant's properties, is a wholly-owned subsidiary of Nooney Company. Nooney Krombach Company is entitled to receive monthly compensation from the Registrant for property management and leasing services, plus administrative expenses. During fiscal l996 the Registrant paid property management fees of $114,645 to Nooney Krombach Company.
The Registrant paid Nooney Krombach Company $30,000 during fiscal l996 as reimbursement for indirect expenses incurred in connection with management of the Registrant.
See Item 11 above for a discussion of cash distributions paid to the General Partners during fiscal l996.
(b) Certain Business Relationships.
The relationship of certain of the General Partners to certain of their affiliates is set forth in Item 13(a) above. Also see Item 13(a) above for a discussion of amounts paid by the Registrant to the General Partners or their affiliates during fiscal 1996 in connection with various transactions.
(c) Indebtedness of Management.
Not Applicable.
(d) Transactions with promoters.
Not Applicable.
PART IV
ITEM 14:
ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
(1) Financial Statements (filed herewith as Exhibit 99.3):
Independent auditors' report Balance sheets Statements of operations Statements of partners' equity (deficiency in assets) Statements of cash flows Notes to financial statements
(2) Financial Statement Schedules (filed herewith as Exhibit 99.3):
Schedule - Reconciliation of partners' equity (deficit) Schedule III - Real estate and accumulated depreciation
All other schedules are omitted because they are inapplicable or not required under the instructions.
(3) Exhibits:
See Exhibit Index on Page 17.
(b) Reports on Form 8-K
During the last quarter of the period covered by this report, the Registrant filed no reports on Form 8-K.
(c) Exhibits:
See Exhibit Index on Page 17.
(d) Not Applicable
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) under the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NOONEY REAL PROPERTY INVESTORS-TWO, L.P.
Date: February 28, 1997 /s/ Gregory J. Nooney, Jr. ---------------------------- -------------------------- Gregory J. Nooney, Jr. General Partner
Nooney Investors, Inc. General Partner
Date: February 28, l997 By:/s/ Gregory J. Nooney, Jr. ----------------------------- ------------------------------ Gregory J. Nooney, Jr. Chairman of the Board and Chief Executive Officer
By:/s/ Patricia A. Nooney ------------------------------ Patricia A. Nooney Senior Vice President and Secretary