-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MXcp76qQ5vUeUdMunNTVCw+mG052tayScfTvf2J3pb4lNC+kzW+3FmuqPPTpinvE iXjtMn2FcljiUgYZ0R5Vag== 0000897101-98-000335.txt : 19980331 0000897101-98-000335.hdr.sgml : 19980331 ACCESSION NUMBER: 0000897101-98-000335 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980330 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: GRIFFIN REAL ESTATE FUND II CENTRAL INDEX KEY: 0000319716 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 41398390 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-11200 FILM NUMBER: 98578854 BUSINESS ADDRESS: STREET 1: 510 MARQUETTE AVE STREET 2: SUITE 300 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 BUSINESS PHONE: 6128963800 MAIL ADDRESS: STREET 1: 510 MARQUETTE AVE STREET 2: SUITE 300 CITY: MINNEAPOLIS STATE: MN ZIP: 55402 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997. Commission file number 0-11200 GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP Minnesota 41-1398390 510 Marquette Avenue, Suite 300 Minneapolis, Minnesota 55402 Registrant's telephone number (612) 338-2828 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange on Title of each class which registered ------------------- ---------------- None None Securities registered pursuant to Section 12(g) of the act: $11,000,000 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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 ___ Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this form 10-K. [ ] Form 8-K dated June 12, 1997 is incorporated by reference in this report. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP TABLE OF CONTENTS PAGE PART I Item 1 Business................................................. 1-2 Item 2 Properties................................................. 3 Item 3 Legal Proceedings.......................................... 3 Item 4 Submission of Matters to a Vote of Limited Partner......................................... 3 PART II Item 5 Market for the Partnership's Limited Partnership Interests and Related Limited Partner Matters.................3 Item 6 Selected Financial Data.......................................4 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.............. 5-8 Item 8 Financial Statements and Supplementary Data................ 9 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........................ 9 PART III Item 10 The General Partner of the Partnership.....................9-11 Item 11 Management Remuneration and Transactions................. 11-12 Item 12 Limited Partnership Ownership of Certain Beneficial Owners and Management.......................... 12 Item 13 Certain Relationships and Related Transactions.............................................. 13 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K................................... 13 SIGNATURES ........................................................... 14 GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP PART I Item 1. Business The registrant, Griffin Real Estate Fund-II, A Limited Partnership (the "Partnership"), was organized on September 19, 1980 under the laws of the State of Minnesota. The Partnership was formed by the general partner, Investment Associates, a Minnesota general partnership, to acquire existing, income-producing real properties for rental purposes. On February 2, 1981 the Partnership commenced an offering of $10,000,000 pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933. The offering terminated December 15, 1982 upon the acceptance of 2200 units ($11,000,000), the maximum allowed under the registration. The Partnership is engaged solely in the business of real estate investment, and is limiting its investment to the real property acquired at its inception plus reasonable repairs and capital improvements. The goal of these investments is to generate both capital gain income and current income from cash flow. The Partnership does not invest in real estate mortgages, securities of or interests in persons primarily engaged in real estate activities, or in other securities. A presentation of information about industry segments is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. The General Partner manages and controls all of the affairs of the Partnership, including deciding when and on what terms properties should be sold or refinanced. As of December 31, 1997 the Partnership has made the real property investments set forth in the following table: Name, type of property Date of Type of and location (a) Size Purchase Ownership (b) ------------ --- ---- -------- ------------- 1. Lunnonhaus Village Apts. 285 units 5/06/82 Mortgage Note Golden, Colorado 2. Olde English Village Apts. 264 units 8/31/82 Mortgage Note West Des Moines, Iowa (a) Reference is made to Schedule III of this annual report. (b) Reference is made to Note 3 of Notes to Financial Statements filed with this annual report for the current outstanding principal balances and a description of the long-term indebtedness secured by the Partnership's real property investments; The Terms of Transactions between the Partnership and affiliates of the General Partner are described in Item 11 to which reference is hereby made. It is the Partnership's policy to conduct its business activities in accordance with the Partnership Agreement which may not be changed without a vote of a majority of the Limited Partnership units outstanding. Pursuant to the Partnership Agreement, the Partnership may not issue senior securities, make loans to other persons, invest in the securities of other entities for the purposes of exercising control, underwrite the securities of others or offer securities in exchange for property. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP As circumstances dictate, the Partnership has the right under the Partnership Agreement to borrow money, and to use its investments in real property as collateral for that debt. The amount of debt for acquisitions was subject to a maximum of 75% loan to value. Although not required, the General Partner intends to maintain this limit with any subsequent refinancings. No refinancings occurred in 1997, 1996, or 1995. There is no limit on the number of mortgages that may be taken out on any one piece of the Partnership's real properties. The Partnership Agreement provides for the redemption of limited partnership units under certain circumstances. In 1997, 1996, and 1995 the Partnership redeemed zero, zero and two units respectively. It is the policy of the General Partner to report on a quarterly basis to the limited partners. Each interim report contains limited financial reporting with a management discussion of operations and goals for the Partnership. The annual report contains financial statements that are audited by independent public accountants, and is accompanied by a management discussion of operations and goals. AVERAGE EFFECTIVE ANNUAL RENTAL PER UNIT Lunnonhaus Olde English Villas of Candleridge Village Village Patricia Park Apartments Apartments Apartments Apartments Urbandale, IA Golden, CO W. Des Moines, IA Urbandale, IA - ---------- ------------- -------------- --------------------- --------------- 1997 $ 6,397 $ 7,453 $ 5,996 $ 5,650 - ---------- ------------- -------------- --------------------- --------------- 1996 6,494 7,114 6,094 6,095 - ---------- ------------- -------------- --------------------- --------------- 1995 6,605 6,699 6,329 6,435 - ---------- ------------- -------------- --------------------- --------------- 1994 6,345 6,311 6,094 6,214 - ---------- ------------- -------------- --------------------- --------------- 1993 6,148 6,054 5,942 6,005 - ---------- ------------- -------------- --------------------- --------------- SCHEDULE OF REAL ESTATE TAXES Lunnonhaus Olde English Villas of Candleridge Village Village Patricia Park Apartments Apartments Apartments Apartments Urbandale, IA Golden, CO W.Des Moines, IA Urbandale, IA - --------------- -------------- ------------ ---------------- -------------- 1997 Tax Rate (a) 89.573 (a) (a) Assessment (a) $74,071 (a) (a) - --------------- -------------- ------------ ---------------- -------------- 1996 Tax Rate 34.07312 89.059 34.07312 34.07312 Assessment $151,068 $65,983 $268,332 $127,987 - --------------- -------------- ------------ ---------------- -------------- 1995 Tax Rate 33.32970 89.412 33.32970 33.32970 Assessment $143,756 $66,244 $261,864 $121,792 - --------------- -------------- ------------ ---------------- -------------- 1994 Tax Rate 34.39191 90.98 34.66721 34.39191 Assessment $128,614 $59,799 $242,212 $119,900 - --------------- -------------- ------------ ---------------- -------------- 1993 Tax Rate 35.11437 90.98 34.98463 35.11437 Assessment $131,314 $59,799 $244,138 $122,420 - --------------- -------------- ------------ ---------------- -------------- (a) Data not yet available. It is the opinion of the General Partner that the Partnership's properties are adequately covered by insurance. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP Item 2. Properties The Partnership owns the real properties referred to in Item 1 to which reference is hereby made. Item 3. Legal Proceedings On September 20, 1995 Everest Investors, LLC ("Everest") filed a lawsuit in Hennepin County Minnesota's Fourth Judicial District Court against Investment Associates ("General Partner"), the general partner of Griffin Real Estate Fund-II, A Limited Partnership ("Partnership"). The lawsuit alleged that the General Partner had wrongfully denied Everest access to the books and records of the Partnership. The court granted, in part, Everest's request for access to the books and records and ordered the General Partner to provide Everest access to these records. The General Partner complied with this court order. Everest continued to seek access to additional books and records of the Partnership beyond the scope of the court order. The General Partner vigorously defended the Partnership's right to keep its proprietary records from being reviewed by Everest, who has not been admitted as a limited partner of the Partnership despite having been assigned a financial interest in 126 units by some original limited partners. The General Partner filed for a dismissal of the matter. The court heard arguments on September 29, 1995, October 26, 1995 and November 17, 1995. On November 27, 1995 the court dismissed Everest's lawsuit. Everest appealed the dismissal in the Minnesota Court of Appeals on March 12, 1996. Briefs were filed and oral arguments were heard by the court on July 1, 1996. On September 10, 1996 the court affirmed the dismissal. Item 4. Submission of Matters to a Vote of Limited Partners There were no matters submitted to a vote of the Limited Partners. PART II Item 5. Market for the Partnership's Limited Partnership Interests and Related Limited Partner Matters There are approximately 707 holders of record of units of the Partnership. There is no public market for units and it is not anticipated that a public market for units will develop. The General Partner will not redeem or repurchase units except upon death of the original limited partner. Reference is made to Item 6 in this annual report for a discussion of cash distributions made to the Limited Partners. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP Item 6. Selected Financial Data Griffin Real Estate Fund-II, A Limited Partnership For the Years Ended December 31, 1997, 1996, 1995, 1994, and 1993
1997 1996 1995 1994 1993 ---- ---- ---- ---- ---- Total Revenues $9,542,670 $ 5,589,366 $ 5,472,890 $ 5,148,672 $ 4,885,147 Net Income before extraordinary item 5,303,794 539,331 324,981 151,515 199,138 Net Income before extraordinary item per limited partnership unit (c) 2,359.35 234.49 141.24 65.81 86.50 Extraordinary item - Loss on extingishment of debt (142,121) - - - Extraordinary item - Loss on extingishment of debt per limited unit (c) (63.23) - - - Net Income 5,161,673 539,331 324,981 151,515 199,138 Net Income per limited partner unit (c) 2,296.12 234.49 141.24 65.81 86.50 Total Assets 9,902,298 14,308,137 14,837,677 15,184,304 15,175,828 Mortgages and Contracts for deed 9,031,201 14,510,958 14,801,452 15,067,907 15,245,768 Cash distributions per limited partner unit (b) $1,660.00 $ 357.54 $ 187.53 - -
(a) The above selected financial data should be read in conjunction with the financial statements and the related notes appearing in Exhibit 13 in this annual report. (b) Cash distributions of $3,518 per Limited Partnership unit have been made to the Limited Partners since the inception of the Partnership. These distributions have not resulted in taxable income to such Limited Partners and have therefore represented a return of capital. Each Partner's taxable income (or loss) from the Partnership in each year is equal to his allocable share of the taxable income (loss) of the Partnership, without regard to cash generated or distributed by the Partnership. (c) Net income before extraordinary item, extraordinary item and Net income per limited partnership unit is based upon the weighted average number of limited partnership units outstanding during the period, which is 2,185 for the current year. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. RESULTS OF OPERATIONS Summary of Operations - 1997 Compared to 1996 The year 1997 was a year of transition for the Partnership. The General Partner began the marketing of the properties for sale, resulting in the sale of two of the four apartment communities. The remaining two continue to be marketed for sale. Quarterly distributions from operations for 1997 were increased to $400 per unit (including distributions paid in January 1998) or an annual return of 8% of the limited partners' original investment. On May 27, 1997 the Partnership sold the Candleridge Apartments and the Villas of Patricia Park Apartments, therefore comparison of results from one year to the next is not possible for the Partnership taken as a whole. The following discussion is therefore limited to the two remaining properties that were held for the entire year. Lunnonhaus Village Apartments: Physical occupancy remained at or near 100% during 1997 which compares closely to 1996. Rental rates increased 4.4% and with a slight increase in other income, total revenues increased 5.0% over 1996. Operating expenses in total were up only slightly from 1996. Utilities increased 10% from $196,662 in 1996 to $216,333 in 1997. However, there were other expenses that decreased enough to largely offset this. Most notably, repairs and maintenance dropped 8.2% from $247,579 in 1996 to $228,727 in 1997. The decrease is mainly a result of fewer carpet and appliance replacements during 1997. Real estate tax expense increased by $10,423 from $65,871 in 1996 to $76,294 in 1997. Capital expenditures of $167,768 were used to repair sidewalks, steps, siding, roofs to remodel the clubhouse and to purchase laundry equipment. Olde English Village Apartments: Physical occupancy rebounded a bit during 1997 from the 87% level as of December 31, 1996. However, after reaching the low 90's it had slipped back to 88% by December 31, 1997 due to the soft Des Moines market. Rental rates increased almost 3%, but with the increases in vacancy and a decrease in other income, total income dropped 3.6% in 1997. Increased tenant turnover caused a commensurate increase in expenses in the areas of repairs and maintenance and in painting and decorating as the apartments were made rent ready. Repairs and maintenance increased from $223,822 in 1996 to $317,835 in 1997. Advertising also increased 68% in an attempt to lease the vacant units. The amount spent rose 68% from $16,011 in 1996 to $26,907 in 1997. Capital expenditures of $203,984 were used to patch and seal the parking lot, replace concrete, for wood, roof and window replacement, for fence repairs and restroom remodeling. The lease on the property's truck was also bought out. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP YEAR 2000 The year 2000 compliance issue concerns the inability of computerized information systems to accurately calculate, store or use a date after 1999. This could result in a system failure or miscalculations causing disruptions of operations. The General Partner is currently evaluating the accounting software to find out if a Year 2000 problem exists. If the results of that evaluation show that there is a problem, there will be a conversion to another software that is widely used in the real estate industry, is readily available and is Year 2000 compliant. Such a conversion, if necessary, would occur in 1999. The General Partner's current estimate is that the costs associated with the Year 2000 issue, and the consequences of incomplete or untimely resolution of the Year 2000 issue, will not have a material adverse affect on the results of operations or financial position of the Partnership in any given year. Summary of Operations - 1996 Compared to 1995 The year 1996 was a good one for the Partnership with consistent income performances from its properties. This comes despite a decrease in overall occupancy from 1995. Distributions continued and totaled $300 per unit (including distributions paid in January 1997) or an annual return of 6%. Physical occupancy decreased an average of 2.9% from 97.7% to 94.8%. Individually, physical occupancy decreased at three of the four properties. Candleridge Apartments decreased from an average of 97.5% to 95.3%, Olde English Village decreased from an average of 98.3% to 91.8% and Villas of Patricia Park Apartments decreased from an average of 95.5% to 92.8%. Physical occupancy of Lunnonhaus Apartments, however, remained the same at an average of 99.5%. Rental rates of the property portfolio increased 4.8%. Individually, rental rates increased at all properties, with increases ranging from the smallest increase of 2.6% at Villas of Patricia Park Apartments to the greatest increase of 7.0% at Lunnonhaus Village Apartments. As a result of increased rental rates and other income, the Partnership was able to overcome the decreases in occupancy and interest income to record an increase in overall revenue of approximately $116,500. Interest expense decreased for two reasons, the first being that three of the four properties have a fixed interest rate applied to steadily decreasing principal payments each month. The other reason for the decrease is that the variable interest rate for the loan on Olde English Village Apartments was lower in 1996 than in 1995. The rate decreased from 8.8% in 1995 to 8.527%, rose later in the year to a high of 8.719% and eventually declined again to end the year at 8.628%. This mortgage note is due June 30, 1997 but the Partnership intends to exercise its option to extend the maturity date. Real estate tax expense increased in total by approximately $65,500 due to increased assessed values despite the slight decline in tax rates for all properties. Administrative expenses dropped about $84,600 and are much closer to normal after the unusual legal fees incurred in 1995. These fees related to the tender offer and unsuccessful solicitation of consent by Everest Investors as discussed in Item 3 in this annual report. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP Despite increases in depreciation and in real estate taxes, the Partnership was able to reduce overall expenses by approximately $97,900 due to fewer repairs and maintenance expenditures and due to the decreases in interest and administrative expenses discussed above. The improvements in revenues and expenses combined to produce an increase in Net Income of about $214,400. During the year, the Partnership invested approximately $501,000 in physical improvements to the properties. The majority of the funds were spent at Lunnonhaus Village and Olde English Village. At Lunnonhaus Village most of the funds were spent on the clubhouse remodeling. At Olde English Village most of the funds were spent on common areas for floor coverings and paint. All properties did some landscaping and other smaller projects as well. LIQUIDITY The Partnership had approximately $628,333 of cash reserves on hand at December 31, 1997. This should provide the Partnership with ample liquidity with which to operate the properties and provide for capital improvements to the property portfolio in the near term and into the future. The Partnership will be committing approximately $65,000 each to external improvements to Lunnonhaus Village Apartments and Olde English Village Apartments. Although there can be no assurance of continuing cash flow from property operations, if anticipated cash flow is realized, the Partnership intends on continuing distributions in 1998 at an annual rate of $400 or 8% per limited partner unit until another property is sold. Candleridge and Villas of Patricia Park Apartments were both sold on May 27, 1997. Sales proceeds of $1,285 per unit were distributed on June 17, 1997 to unitholders of record on May 27, 1997. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP OCCUPANCY TABLE Lunnonhaus Olde English Villas Candleridge Village Village of Patricia Apartments Apartments Apartments Park Apartments Urbandale, IA Golden, CO W. Des Moines, IA Urbandale, IA ------------- ---------- ----------------- ------------- 3/31/97 96% 99% 89% 84% 6/30/97 * 100% 91% * 9/30/97 * 100% 93% * 12/31/97 * 100% 88% * 3/31/96 96% 100% 94% 96% 6/30/96 95% 98% 92% 91% 9/30/96 96% 100% 94% 95% 12/31/96 94% 100% 87% 89% 3/31/95 95% 100% 97% 93% 6/30/95 99% 99% 99% 96% 9/30/95 97% 99% 100% 98% 12/31/95 99% 100% 97% 95% 3/31/94 92% 100% 93% 97% 6/30/94 98% 99% 92% 95% 9/30/94 96% 100% 99% 98% 12/31/94 94% 99% 98% 98% 3/31/93 94% 99% 90% 95% 6/30/93 99% 98% 97% 100% 9/30/93 99% 99% 97% 98% 12/31/93 92% 99% 94% 94% * Indicates the Partnership did not own the property at the end of the quarter. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP Item 8. Financial Statements and Supplementary Data The Table of Contents to Financial Statements, Financial Statements and Supplementary Data listed in Item 14 are referenced herein as included in the exhibits attached to this report and are incorporated herein by reference. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure There have been no changes in independent auditors and as of the date of the filing, there were no material disagreements with the current independent auditors (Larson, Allen, Weishair & Co.,LLP) regarding any of the following: 1) Accounting principles or practices 2) Extent and quality of financial statement disclosure 3) Auditing scope or procedures PART III Item 10. The General Partner of the Partnership The General Partner of the Partnership is Investment Associates, a Minnesota general partnership formed in September of 1980 by certain directors and officers of Griffin Companies for the sole purpose of acting as General Partner of the Partnership. As General Partner, Investment Associates manages and controls the affairs of the Partnership and has general responsibility and authority in all matters affecting its business. Griffin Companies, A Minnesota corporation organized in 1969, is engaged in real estate brokerage, real estate investment counseling, and management of commercial and multi-family real estate. Griffin Companies and its Affiliates have organized and served as general partners in thirty-two privately placed partnerships and six publicly offered partnerships, which were formed for the purpose of real estate investment. The General Partner and its Affiliates provide executive, supervisory and certain administrative services for the Partnership's operations and the General Partner is responsible for determining whether, when and on what terms properties should be sold or refinanced. In addition, the books and records of the Partnership are maintained by Griffin Companies, and are subject to audit by independent certified public accountants. The partners of the General Partner intend to devote only as much of their time to the business of the Partnership as they determine to be reasonably required. Limited Partners have no right to participate in the management of the Partnership. Effective December 31, 1994 James R. Wadsworth, one of the partners of the General Partner, withdrew as a partner. Also effective July 22, 1997 Frederick R. Lamb one of the partners of the General Partners, withdrew as a partner. Their shares of ownership and their shares of future profits and losses were assigned to and split equally between Larry D. Fransen and Robert S. Dunbar. Mr. Fransen and Mr. Dunbar were already partners of the General Partner. The identity and business experience of each of the partners of the General Partner is as follows: GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP Larry D. Fransen (age 57) founded Griffin Companies in 1969. He is a Director and senior officer of each of its operating entities, in addition to serving as Chairman. Since 1969, he has acted as general partner in many partnerships investing in apartments, office buildings, warehouses, land and motels. Acting on behalf of Griffin Companies' clients, Mr. Fransen has negotiated the acquisition and disposition of more than one billion dollars in investment real estate properties nationwide. He is a member of numerous professional organizations, including the Greater Minneapolis Area Board of Realtors, the Minnesota Association of Realtors, the National Association of Realtors (NAR), Minnesota Multi Housing Association (MHA), National Multi-Housing Council (NMHC), the National Apartment Association (NAA), Commercial and Investment Institute, National Association of Real Estate Investment Trusts (NAREIT), and the Pension Real Estate Association (PREA). Mr. Fransen holds the CCIM (Certified Commercial Investment Member) designation of the Commercial Investment Institute, as well as the SRS (Specialist in Real Estate Securities) designation. For 13 years, he was an instructor for the Commercial Investment Institute and served as the group's national president in 1983. He has been awarded the Omega Tau Rho Medal of Service for his years of service to the National Association of Realtors. Robert S. Dunbar (age 58) is Chief Executive Officer of Griffin Companies. Following several years with Control Data Corporation where he held various administrative and management positions, he was named Executive Vice President of the U.S. Jaycees in 1970, with responsibility for planning, budgeting and administration of the national organization. In 1972, he joined Ed. Phillips & Sons Company in Minneapolis, Minnesota as a sales manager. In 1975 he was elected President of Westland Capital Corporation, a Minneapolis venture capital firm, where he was responsible for analyzing various companies for potential investment opportunities. He joined Griffin Companies in 1977. Mr. Dunbar is a member of the Institute of Real Estate Management (IREM) and the Minnesota Multi Housing Association (MHA). He holds the Certified Apartment Manager (CAM) designation of the National Apartment Association and is a Certified Property Manager (CPM) as designated by the National Association of Realtors. Mr. Dunbar also holds a Minnesota Real Estate Broker's License and has completed the necessary course work for their prestigious Certified Commercial Investment Member (CCIM) designation conferred by the Commercial Investment Institute. He is a member of the national Multi-Housing Council and The Executive Committee (T.E.C.). He also serves on the Board of Trustees of Northwestern College. Thomas A. Robeson (age 66) served as a Senior Vice President of Griffin Companies, which he joined in April 1980, until his departure on February 29, 1988. Mr. Robeson's previous business experience includes service in the Investment Division of a national insurance company, from 1955 to 1957, and from 1957 to 1972, with IBM Corporation, where he held various sales and management positions. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP Mr. Robeson entered the real estate field in 1972 when he joined a real estate firm in St. Paul, Minnesota. His responsibilities included brokerage, management and syndication of various types of real estate. In 1975, Mr. Robeson joined a Minneapolis investment company where he was involved in the brokerage of a wide range of commercial, industrial, and investment real estate. In 1978, he was promoted to Vice President and Manager of the Commercial-Investment Division of that company. He has experience in the acquisition and disposition of shopping centers, apartment buildings, commercial office buildings, motels, net leased industrial warehouse and manufacturing facilities, and industrial, commercial and residential unimproved property. Mr. Robeson holds the professional designation CCIM (Certified Commercial Investment Member of the Realtors National Marketing Institute). He is a member of the International Association for Financial Planning and of several real estate organizations, including the National Association of Industrial and Office Parks, the Upper Midwest Chapter of the Realtors National Marketing Institute, the Greater Minneapolis Area Board of Realtors, the Minnesota Association of Realtors and the National Association of Realtors. Messrs. Fransen and Dunbar together own 100% of the issued and outstanding shares of common stock of Griffin Companies. The partners of the General Partner represent and warrant that they have a collective personal net worth on an unaudited cost basis and on an unaudited estimated current value basis (measured as total assets at estimated current value less all liabilities) in excess of $1,500,000. The assets of the partners of the General Partner are largely invested in interests in real property and in Griffin Companies, therefore it may be difficult to precisely value such assets or to liquidate such assets expeditiously or on terms favorable to the seller. Item 11. Management Remuneration and Transactions Partners of the General Partner receive no current or proposed direct remuneration in such capacity. The Partnership is required to pay a management fee to Griffin Companies and the General Partner is entitled to receive a share of cash distributions, when and as cash distributions are made to the Limited Partners, and a share of profits or losses as described below: * Profits, losses, and cash flow distributions, other than from refinancing or from the sale of Partnership properties, are allocated 95% to the limited partners and 5% to the general partner. * Net proceeds from refinancing or from the sale of property other than upon liquidation, less any necessary liability reserves or debt payments, will be distributed in the following order subject to the general partner receiving at least 1% of the distributions: ** First, to the limited partners to the extent that prior distributions are less than the original capital contribution plus 6% per annum (as defined in the Partnership Agreement); ** Second, any unpaid real estate commissions due to the general partner on the resale of the Partnership properties; GRIFFIN REAL ESTATE FUND II, A LIMITED PARTNERSHIP ** Third, any remaining balance, 80% to the limited partners and 20% to the general partner. The Partnership is entitled to engage in various transactions involving affiliates of the General Partner of the Partnership. Griffin Companies ("Griffin"), an affiliate of the General Partner, may be reimbursed for direct expenses relating to the administration of the Partnership and operation of the Partnership real property investments. Griffin received approximately $23,857, $24,064 and $20,918 in 1997, 1996, and 1995 respectively, for these expenses. Reference is made to Note 4 of Notes to Financial Statements appearing elsewhere in this annual report for a description of related party transactions. Item 12. Limited Partnership Ownership of Certain Beneficial Owners and Management Everest Investors, LLC, located at 11755 Wilshire Boulevard, Suite 2360 Los Angeles, California 90025, is the only person or "group" known by the Partnership to own beneficially more than 5% of the outstanding units of the Partnership. Everest Investors, LLC has only a financial interest in their units which were assigned by the original owners of 126 units. Everest has not been admitted as a limited partner of the partnership. Amount and Nature Percent of Class of Beneficial Outstanding at Title of Class Ownership December 31, 1997 -------------- ----------------- ----------------- Limited Partnership Units 126 units, purchased at 5.8% $2,387.50 per unit The individual general partners of the General Partner as a group have the following interest in the Partnership: Amount and Nature Percent of Class of Beneficial Outstanding at Title of Class Ownership December 31, 1997 -------------- ----------------- ----------------- Limited Partnership Units 26 units purchased at 1.2% $4,462 per unit No partner of the General Partner possesses a right to acquire beneficial ownership of interest of the Partnership. There exists no arrangement, known to the Partnership, the operation of which may at subsequent date result in a change in control of the Partnership. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP Item 13. Certain Relationships and Related Transactions The partners of Investment Associates, the general partner of the Partnership, are also owners and employees of Griffin Companies, a Minnesota corporation. Accounts payable - affiliates consists of unpaid management fees to and advances from Griffin Companies. The following is a summary of approximate fees incurred for the years ended December 31: 1997 1996 1995 ---- ---- ---- Property management fees $259,996 $302,319 $ 292,361 Major improvement supervisory fees 68,502 73,408 98,705 PART IV Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K The following documents are filed as part of this report: Exhibit 13: Financial Statements and Schedules. An 8-K was filed on June 12, 1997 in regards to the sale of the Candleridge Apartments and Villas of Patricia Park Apartments on May 27, 1997. Proforma Financial Information was included with this filing. No annual report or proxy material for the fiscal year 1997 has been sent to the Partners of the Partnership. An annual report will be sent to the Partners subsequent to this filing substantially similar to this form 10K. GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of 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. Dated: March 30, 1998 Griffin Real Estate Fund-II, A Limited Partnership By: Larry D. Fransen\s\ Larry D. Fransen for the General Partner Investment Associates Pursuant to the requirements of the Securities and Exchange Act of 1934, this Report has been signed below by the following person on behalf of the Registrant and in the capacity and on the date indicated. Dated: March 30, 1998 By: Larry D. Fransen\s\ Larry D. Fransen Managing General Partner of the General Partner Investment Associates EX-13 2 ANNUAL REPORT EXHIBIT 13 GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES INCLUDED IN ANNUAL REPORT (FORM 10-K) FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 TABLE OF CONTENTS Page Independent Auditor's Report .......................................... 1 Balance Sheets, December 31, 1997 and 1996 ............................ 2 Statements of Operations for the Years Ended December 31, 1997, 1996 and 1995 ...................................... 3 Statements of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 ................................ 4 Statements of Changes in Partners' Equity (Deficit) for the Years Ended December 31, 1997, 1996 and 1995 .................. 5 Notes to Financial Statements ......................................... 6-10 Financial Statement Schedules ......................................... 11 III Real Estate and Accumulated Depreciation, December 31, 1997........................................................ 11 All schedules other than those indicated in the Table of Contents have been omitted as the required information is inapplicable or the information is presented in the financial statements or related notes. INDEPENDENT AUDITOR'S REPORT Griffin Real Estate Fund-II, A Limited Partnership Minneapolis, Minnesota We have audited the accompanying balance sheets of Griffin Real Estate Fund-II, A Limited Partnership, as of December 31, 1997 and 1996 and the related statements of operations, changes in partner's equity (deficit), and cash flows for each of the years in the three-year period ended December 31, 1997. Our audits also included the financial statement schedules listed in the table of contents at Exhibit 13. These financial statements and financial statement schedules are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Griffin Real Estate Fund-II, A Limited Partnership, as of December 31, 1997 and 1996, and the results of its operations and its cash flows of each of the years in the three-year period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, the financial statement schedules, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. LARSON, ALLEN, WEISHAIR & CO., LLP Minneapolis, Minnesota March 10, 1998 -1- GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP BALANCE SHEETS DECEMBER 31, 1997 AND 1996 ASSET 1997 1996 ------------ ------------ Cash and cash equivalents $ 628,333 $ 1,001,510 Escrow deposits 224,511 338,312 Receivables and other assets 19,784 31,440 ------------ ------------ Total 872,628 1,371,262 ------------ ------------ PROPERTY AND EQUIPMENT: Land 1,529,374 2,160,676 Buildings and improvements 16,430,929 22,530,068 Furniture and equipment 1,339,243 2,076,669 ------------ ------------ Total 19,299,546 26,767,413 Less accumulated depreciation 10,292,116 13,959,999 ------------ ------------ Property and equipment - net 9,007,430 12,807,414 ------------ ------------ Debt financing costs (net of accumulated amortization - 1997, $188,078; 1996, $241,738) 22,240 129,461 ------------ ------------ TOTAL ASSETS $ 9,902,298 $ 14,308,137 ============ ============ LIABILITIES AND PARTNERS' EQUITY (DEFICIT) LIABILITIES: Accounts payable: Affiliate $ 8,657 $ 2,275 Other 135,272 190,051 Security deposits 90,063 141,163 Accrued expenses: Real estate taxes 342,403 593,395 Interest 60,576 99,256 Mortgage notes payable 9,031,201 14,510,958 ------------ ------------ Total liabilities 9,668,172 15,537,098 ------------ ------------ PARTNERS' EQUITY (DEFICIT): General Partner (462,914) (536,068) Limited Partners 697,040 (692,893) ------------ ------------ Total Partners' Equity (Deficit) 234,126 (1,228,961) ------------ ------------ TOTAL LIABILITIES AND PARTNERS' EQUITY (DEFICIT) $ 9,902,298 $ 14,308,137 ============ ============ See Notes to Financial Statements -2- GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- REVENUES: Rent (less vacancies: 1997, $268,496; 1996, $249,891; 1995, $117,629) $ 4,335,378 $ 5,263,634 $ 5,142,356 Interest 45,414 39,501 47,135 Other 208,541 286,231 283,399 Gain on sale of property 4,953,337 -- -- ----------- ----------- ----------- Total revenues 9,542,670 5,589,366 5,472,890 ----------- ----------- ----------- EXPENSES: Interest 903,543 1,187,555 1,239,396 Depreciation and amortization 803,521 980,071 960,367 Real estate taxes 470,006 611,626 546,083 Repairs and maintenance 662,336 678,240 716,057 Utilities 411,435 452,082 460,305 Salaries and employee benefits 458,340 515,722 509,800 Management fees to related parties 259,996 302,319 292,361 Administrative 150,699 175,891 260,500 Insurance 108,003 133,277 151,849 Bad debts 5,479 3,336 (227) Other 5,518 9,916 11,418 ----------- ----------- ----------- Total expenses 4,238,876 5,050,035 5,147,909 ----------- ----------- ----------- NET INCOME BEFORE EXTRAORDINARY ITEM 5,303,794 539,331 324,981 EXTRAORDINARY ITEM - LOSS ON EXTINGUISHMENT OF DEBT (142,121) -- -- ----------- ----------- ----------- NET INCOME $ 5,161,673 $ 539,331 $ 324,981 =========== =========== =========== NET INCOME ALLOCATED TO GENERAL PARTNER $ 144,640 $ 26,967 $ 16,249 =========== =========== =========== NET INCOME ALLOCATED TO LIMITED PARTNERS $ 5,017,033 $ 512,364 $ 308,732 =========== =========== =========== PER UNIT: NET INCOME BEFORE EXTRAORDINARY ITEM $ 2,359.35 $ 234.49 $ 141.24 EXTRAORDINARY ITEM (63.23) -- -- ----------- ----------- ----------- NET INCOME $ 2,296.12 $ 234.49 $ 141.24 =========== =========== ===========
See Notes to Financial Statements -3- GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1997 1996 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 5,161,673 $ 539,331 $ 324,981 Adjustments to reconcile net income to net cash provided by operating activities: Gain on sale of property (4,953,337) -- -- Extraordinary Item - Loss on extinguishment of debt 142,121 -- -- Depreciation and amortization 803,521 980,071 960,367 Decrease (increase) in: Receivables and other assets 11,656 14,121 4,340 Escrows 113,801 (6,364) 293,962 Increase (decrease) in: Accounts payable (48,397) 13,264 28,647 Security deposits (51,100) (2,409) 11,795 Accrued expenses (289,672) 33,101 (5,571) ----------- ----------- ----------- Net cash provided by operating activities 890,266 1,571,115 1,618,521 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment 8,365,575 -- -- Purchase of property and equipment (371,752) (501,083) (596,924) ----------- ----------- ----------- Net cash provided (used) by investing activities 7,993,823 (501,083) (596,924) CASH FLOWS FROM FINANCING ACTIVITIES: Repurchase of limited partner units -- -- (8,530) Distributions to partners (3,698,586) (822,333) (431,494) Payments on mortgages and contracts for deed (5,479,757) (290,494) (266,455) Prepayment penalties on mortgages (52,235) -- -- Payments for debt financing costs (26,688) -- (13,485) ----------- ----------- ----------- Net cash used by financing activities (9,257,266) (1,112,827) (719,964) ----------- ----------- ----------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (373,177) (42,795) 301,633 CASH AND CASH EQUIVALENTS - BEGINNING OF YEAR 1,001,510 1,044,305 742,672 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS - END OF YEAR $ 628,333 $ 1,001,510 $ 1,044,305 =========== =========== =========== CASH PAID FOR INTEREST $ 942,224 $ 1,188,805 $ 1,234,866 =========== =========== ===========
See Notes to Financial Statements -4- GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP CHANGES IN PARTNERS' EQUITY (DEFICIT) FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995 GENERAL LIMITED PARTNER'S PARTNERS' EQUITY EQUITY (DEFICIT) (DEFICIT) TOTAL ----------- ----------- ----------- PARTNERS' DEFICIT DECEMBER 31, 1994 $ (516,592) $ (314,324) $ (830,916) NET INCOME 16,249 308,732 324,981 REPURCHASE OF TWO UNITS -- (8,530) (8,530) DISTRIBUTIONS (21,575) (409,919) (431,494) ----------- ----------- ----------- PARTNERS' DEFICIT DECEMBER 31, 1995 (521,918) (424,041) (945,959) NET INCOME 26,967 512,364 539,331 DISTRIBUTIONS (41,117) (781,216) (822,333) ----------- ----------- ----------- PARTNERS' DEFICIT DECEMBER 31, 1996 (536,068) (692,893) (1,228,961) NET INCOME 144,640 5,017,033 5,161,673 DISTRIBUTIONS (71,486) (3,627,100) (3,698,586) ----------- ----------- ----------- PARTNERS' EQUITY (DEFICIT) DECEMBER 31, 1997 $ (462,914) $ 697,040 $ 234,126 =========== =========== =========== See Notes to Financial Statements -5- GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Description of the Partnership - Griffin Real Estate Fund-II, A Limited Partnership (the Partnership), was organized on September 18, 1980 under the laws of the State of Minnesota. As of December 31, 1997 there are 2,200 limited partnership units authorized and 2,185 outstanding. Sale of Properties - On May 27, 1997 the Partnership sold the Candleridge Apartments and Villas of Patricia Park Apartments for $8,400,000. Sales costs of $34,427 were incurred as well as prepayment penalties of $52,235 related to the properties' mortgage notes. Statements of Cash Flows - For the purpose of the statements of cash flows, the Partnership considers all highly liquid debt instruments with an original maturity of three months or less to be cash equivalents. Cash equivalents of $628,333 and $1,001,510 at December 31, 1997 and 1996 respectively, consist of government money market portfolios with banks and are recorded at cost which approximates market value. The Partnership places its temporary cash investments with high credit quality financial institutions. At times such investments may be in excess of the FDIC insurance limit. Use of Estimates - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expense during the reported period. Actual results could differ from those estimates. Financial Instruments - The carrying amounts for all financial instruments approximates fair value. The carrying amounts for cash, receivables, accounts payable and accrued liabilities, and loans payable approximate fair value because of the short maturity of these instruments. The fair value of long-term debt approximates the current rates at which the Partnership could borrow funds with similar remaining maturities. Properties and Depreciation - Properties are stated at cost including capitalized acquisition fees and are depreciated using a straight-line method over the estimated useful lives of the related assets (buildings, 25 years; furnishings and equipment, 5 years). For income tax purposes, the Partnership depreciates the buildings over 15 to 19 years using the Accelerated Cost Recovery System. Building improvements made subsequent to January 1, 1987 are depreciated over 27.5 years using the Modified Cost Recovery System for tax purposes. Escrow Deposits - The escrow deposits consist of funds held for future payment of real estate taxes, insurance premiums and replacement reserves for major expenditures. Leases - Apartment leases are generally renewable on a six month to one year basis. -6- GRIFFIN REAL ESTATE FUND II, A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 Offering Costs - Expenses incurred in connection with the registration and offering of the partnership units syndication costs, including selling commissions and advertising, are recorded as a reduction of Partners' Equity. Such costs are not deductible for income tax purposes by the Partnership nor its partners. Debt Financing Costs - Costs incurred in connection with securing financing on Partnership properties have been capitalized and are being amortized on the straight-line basis over the remaining life of the related financing agreement. Income Taxes - The financial statements of the Partnership do not include a provision for income taxes as the income and losses of the Partnership are allocated to the individual partners for inclusion in their income tax returns. Net Income Per Limited Partnership Unit - The net income per limited partnership unit is computed by dividing the net income allocated to limited partners by the weighted average number of limited partnership units outstanding during the year. 2. ORGANIZATION The Partnership was formed by the general partner, Investment Associates, a Minnesota general partnership, to acquire existing, income-producing real properties for rental purposes. Investment Associates is not required to make any capital contributions to the Partnership. The Limited Partnership Agreement and Certificate of Limited Partnership (Partnership Agreement) contains certain provisions, among others, described as follows: * The management and general responsibility of operating the Partnership business shall be vested exclusively in the general partner. * Profits, losses, and cash flow distributions, other than from refinancing or from the sale of Partnership properties, are allocated 95% to the limited partners and 5% to the general partner. * Net proceeds from refinancing or from the sale of property other than upon liquidation, less any necessary liability reserves or debt payments, will be distributed in the following order subject to the general partner receiving at least 1% of the distributions: ** First, to the limited partners to the extent that prior distributions are less than the original capital contribution plus 6% per annum (as defined in the Partnership Agreement); ** Second, any unpaid real estate commissions due to the general partner on the resale of the Partnership properties; -7- GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996 AND 1995 ** Third, any remaining balance, 80% to the limited partners and 20% to the general partner. * The Partnership will terminate on December 31, 2021 or earlier upon the sale of substantially all of the properties or the occurrence of certain other events as stated in the Partnership Agreement. 3. MORTGAGE NOTES PAYABLE Mortgage notes payable consist of the following at December 31: 1997 1996 ----------- ----------- Mortgage note (Villas of Patricia Park), monthly installments of $20,717 including interest at 8.375% $ - $ 2,443,129 Mortgage note (Candleridge) monthly installments of $23,917 including interest at 8.375% - 2,820,469 Mortgage note (Olde English Village) monthly installments of $48,411 Principal and interest (8.517% at December 31, 1997) due July 1, 2000 5,263,528 5,373,502 Mortgage note (Lunnonhaus) monthly installments of $31,166 including interest at 7%, due June 2014 3,767,673 3,873,858 ----------- ----------- Total mortgage notes payable $ 9,031,201 $14,510,958 =========== =========== All property is pledged as collateral to the mortgage notes payable. Future principal maturities are as follows: 1998 $ 229,848 1999 248,862 2000 5,151,693 2001 140,384 2002 150,532 Later 3,109,882 ---------- Total $9,031,201 ========== During 1997, the Partnership extended the Olde English Village Mortgage Note. On June 15, 1995, the prepayment provisions of the Candleridge Apartments contract for deed and the Villas of Patricia Park mortgage note were modified. Terms of these extensions and prepayment provisions, as modified, were as follows: Olde English Village: Loan amount of $5,600,000 with variable monthly installments of principal and interest. Interest is adjusted quarterly to 350 basis points above the Treasury yield. Although the mortgage note was due June 30, 1997, it carried an option, which the Partnership exercised, to extend the maturity date for an additional term of 3 years to July 1, 2000. The extension -8- GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996, AND 1995 required an extension fee payment equal to 1/2 of 1% of the outstanding principal balance at the time of extension, or $26,688. Candleridge Apartments: Prepayment of the note was subject to a prepayment premium ranging from 1% to 3% depending on the year of the loan in which it was prepaid. The prepayment premium did not apply if the lender called the note. Villas of Patricia Park: Prepayment of the note was subject to a prepayment premium ranging from 1% to 3% depending upon the year of the loan in which it was prepaid. The prepayment premium did not apply if the lender called the note. The lender has the right to call the Olde English Village note upon certain events. The Lunnonhaus mortgage is subject to The Department of Housing and Urban Development regulations. All of the above debt is non-recourse to the individual partners. 4. RELATED PARTY TRANSACTIONS The partners of Investment Associates, the general partner of the Partnership, are also owners and employees of Griffin Companies, a Minnesota corporation. Accounts payable - affiliates consists of unpaid management fees to and advances from Griffin Companies. The following is a summary of approximate fees incurred for the years ended December 31: 1997 1996 1995 ---- ---- ---- Property management fee $259,996 $302,319 $292,361 Major improvement supervisory fees 68,502 73,408 98,705 5. TAXABLE INCOME The net income shown on the financial statements is reconciled to the taxable income as follows: 1997 1996 1995 ---- ---- ---- Net income per financial statements $5,161,673 $ 539,331 $ 324,981 Excess of tax depreciation under(over) book depreciation 278,673 (60,174) (211,027) Gain on sale of property for tax purposes in excess of gain for financial statements 2,140,024 -- -- Rental income for financial statements in excess of rental income for tax purposes 21,752 3,319 (5,670) ---------- ---------- ---------- Taxable income $7,602,122 $ 482,476 $ 108,284 ========== ========== ========== -9- GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 1997, 1996, AND 1995 6. PARTNERS' DEFICIT RECONCILIATION Reconciliation of financial statement deficit to tax return deficit is as follows: 1997 1996 1995 ---- ---- ---- Equity (deficit) per financial statements $ 234,126 $(1,228,961) $ (945,959) Cumulative excess of tax depreciation over financial statement depreciation (5,344,720) (7,763,417) (7,703,316) Prepaid rent recognized as income for tax purposes 95,818 74,066 70,820 ----------- ----------- ----------- Deficit per tax return $(5,014,776) $(8,918,312) $(8,578,455) =========== =========== =========== -10- GRIFFIN REAL ESTATE FUND-II, A LIMITED PARTNERSHIP REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997 SCHEDULE III
Costs Capitalized Subsequent Initial Cost to to Gross Amount at Which Carried Partnership (a) Acquisition at Close of Period (b) (c) --------------- ----------- -------------------------- Date Bldgs/ Land/Bldg Buildings Accumulated of Date Description Encumbrances Land Improve Improve Land & Improve Total Deprec. (d) Const Acquired - ------------------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- ---- ------- GOLDEN, CO Lunnonhaus Village $ 3,767,673 $ 714,045 $ 8,049,914 $ 1,373,020 $ 714,045 $ 9,422,934 $10,136,979 $ 5,526,988 1975 5/06/82 W. DES MOINES, IA Olde English Village 5,263,528 815,329 6,745,860 1,601,378 815,329 8,347,238 9,162,567 4,765,128 1972 8/31/82 ----------- ----------- ----------- ----------- ----------- ----------- ----------- --------- Total $ 9,031,201 $ 1,529,374 $14,795,774 $ 2,974,398 $ 1,529,374 $17,770,172 $19,299,546 $10,292,116 =========== =========== =========== =========== =========== =========== =========== ===========
(a) The cost to the Partnership represents the original purchase price of the properties. (b) The aggregate cost of real estate owned at December 31, 1997 for federal income tax purposes is $19,299,546. (c) Reconciliation of property: 1995 1996 1997 ----------- ----------- ----------- Balance at beginning of period $25,669,406 $26,266,330 $26,767,413 Additions during period Improvements 596,924 501,083 371,752 Dispositions - - (7,839,619) ----------- ----------- ----------- Balance at end of period $26,266,330 $26,767,413 $19,299,546 =========== =========== =========== (d) Reconciliation of accumulated depreciation: Balance at beginning of period $12,183,949 $13,062,669 $13,959,999 Depreciation expense for period 878,720 897,330 759,499 Dispositions - - (4,427,382) ----------- ----------- ----------- Balance at end of period $13,062,669 $13,959,999 $10,292,116 =========== =========== =========== Depreciation calculated on 5-27.5 year lives using the straight-line method on real porperty and accelerated for personal property. -11- EX-27 3 FINANCIAL DATA SCHEDULE
5 YEAR DEC-31-1997 DEC-31-1997 628,333 0 19,784 0 0 872,628 19,299,546 10,292,116 9,902,298 636,971 9,031,201 0 0 0 234,126 9,902,298 0 9,497,256 0 0 3,335,333 0 858,129 5,303,794 0 5,303,794 0 (142,121) 0 5,161,673 2,296.12 0 THIS ENTITY IS A LIMITED PARTNERSHIP. THE OTHER STOCKHOLDERS EQUITY LINE REPRESENTS TOTAL PARTNERSHIP EQUITY. THE EPS-PRIMARY LINE REPRESENTS NET INCOME PER LIMITED PARTNERSHIP UNIT.
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