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, 1996
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from.........to.........
Commission file number 0-10256
SHELTER PROPERTIES II LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0709233
(State or other jurisdiction of (I.R.S. 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 (864) 239-1000
Check whether the issuer (1) 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 .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) SHELTER PROPERTIES II LIMITED PARTNERSHIP
BALANCE SHEET
(Unaudited)
September 30, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 2,384,489
Restricted--tenant security deposits 151,163
Accounts receivable 34,145
Escrow for taxes 345,845
Restricted escrows 895,842
Other assets 251,518
Investment properties:
Land $ 1,814,055
Buildings and related personal property 22,283,543
24,097,598
Less accumulated depreciation (14,765,347) 9,332,251
$13,395,253
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 66,666
Tenant security deposits 151,473
Accrued taxes 288,293
Other liabilities 255,120
Mortgage notes payable 8,782,833
Partners' Capital (Deficit)
General partners $ (109,637)
Limited partners (27,500 units
issued and outstanding) 3,960,505 3,850,868
$13,395,253
See Accompanying Notes to Financial Statements
b) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $1,293,514 $1,229,228 $3,879,507 $3,731,652
Other income 92,859 105,276 278,688 252,370
Total revenues 1,386,373 1,334,504 4,158,195 3,984,022
Expenses:
Operating 472,274 477,484 1,416,528 1,416,455
General and administrative 37,445 123,650 133,424 298,182
Maintenance 235,137 199,322 558,036 544,708
Depreciation 273,965 273,496 809,350 806,133
Interest 202,849 206,510 611,362 622,111
Property taxes 95,394 93,535 288,471 269,768
Total expenses 1,317,064 1,373,997 3,817,171 3,957,357
Casualty gain (loss) -- 61,246 -- (3,124)
Net income $ 69,309 $ 21,753 $ 341,024 $ 23,541
Net income allocated
to general partners (1%) $ 693 $ 218 $ 3,410 $ 235
Net income allocated
to limited partners (99%) 68,616 21,535 337,614 23,306
$ 69,309 $ 21,753 $ 341,024 $ 23,541
Net income per limited
partnership unit $ 2.50 $ .78 $ 12.28 $ .85
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
c) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 27,500 $ 2,000 $27,500,000 $27,502,000
Partners' (deficit) capital
at December 31, 1995 27,500 $(113,047) $ 4,122,890 $ 4,009,843
Distributions to Partners -- (499,999) (499,999)
Net income for the nine months
ended September 30, 1996 3,410 337,614 341,024
Partners' (deficit) capital
at September 30, 1996 27,500 $(109,637) $ 3,960,505 $ 3,850,868
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
d) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
September 30,
1996 1995
Cash flows from operating activities:
Net income $ 341,024 $ 23,541
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 809,350 806,133
Amortization of discounts and loan costs 78,413 76,219
Net casualty (gain) loss -- 3,124
Change in accounts:
Restricted cash 1,034 (11,698)
Accounts receivable (17,280) (8,550)
Escrows for taxes (140,147) (206,284)
Other assets -- (6,000)
Accounts payable (199,189) 23,325
Tenant security deposit liabilities (1,268) 5,827
Accrued taxes 126,964 190,342
Other liabilities (15,453) 29,456
Net cash provided by operating activities 983,448 925,435
Cash flows from investing activities:
Property improvements and replacements (221,399) (259,346)
Deposits to restricted escrows (28,974) (49,997)
Receipts from restricted escrows 49,036 49,232
Net cash used in investing activities (201,337) (260,111)
Cash flows from financing activities:
Payments on mortgage notes payable (177,435) (164,489)
Distributions to partners (499,999) (600,000)
Net cash used in financing activities (677,434) (764,489)
Net increase (decrease) in cash and cash equivalents 104,677 (99,165)
Cash and cash equivalents at beginning of period 2,279,812 2,374,527
Cash and cash equivalents at end of period $2,384,489 $2,275,362
Supplemental disclosure of cash flow information:
Cash paid for interest $ 532,948 $ 545,894
See Accompanying Notes to Financial Statements
e) SHELTER PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Shelter Properties II Limited
Partnership (the "Partnership") have been prepared in accordance with generally
accepted accounting principles for interim financial information and with the
instructions to Form 10-QSB and Article 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 Corporate General Partner, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. Operating results for the three and nine month periods ended September
30, 1996, are not necessarily indicative of the results that may be expected for
the fiscal year ending December 31, 1996. For further information, refer to the
financial statements and footnotes thereto included in the Partnership's annual
report on Form 10-KSB for the year ended December 31, 1995.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.
Cash and Cash Equivalents:
Unrestricted - Unrestricted cash includes cash on hand and in banks and
Certificates of Deposit with original maturities of less than 90 days. At
certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Restricted cash - tenant security deposits - The Partnership requires security
deposits from lessees for the duration of the lease and such deposits are
considered restricted cash. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged the unit and is current on rental payments.
NOTE B - RECONCILIATION OF CASH FLOWS
The following is a reconciliation of the subtotal on the accompanying statements
of cash flows captioned "net cash provided by operating activities" to "net cash
used in operations," as defined in the partnership agreement. However, "net
cash used in operations" should not be considered an alternative to net income
as an indicator of the Partnership's operating performance or to cash flows as a
measure of liquidity.
NOTE B - RECONCILIATION OF CASH FLOWS - CONTINUED
Nine Months Ended
September 30,
1996 1995
Net cash provided by operating activities $ 983,448 $ 925,435
Payments on mortgage notes payable (177,435) (164,489)
Property improvements and replacements (221,399) (259,346)
Change in restricted escrows, net 20,062 (765)
Changes in reserves for net operating
liabilities (245,339) (16,418)
Additional reserves (625,000) (485,000)
Net cash used in operations $(265,663) $ (583)
In 1996 and 1995, the Corporate General Partner believed it to be in the best
interest of the Partnership to reserve an additional $625,000 and $485,000,
respectively, to fund continuing capital improvement needs in order for the
properties to remain competitive. The Partnership may need to fund major
plumbing repairs at Parktown due to underground water and sewer line leaks which
are responsible for foundation problems. The Corporate General Partner is
negotiating with the insurance provider to determine if the water problems are
covered by its property damage insurance.
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. Balances and other transactions with
Insignia Financial Group, Inc. ("Insignia") and certain of its affiliates in
1996 and 1995 are as follows:
Nine Months Ended
September 30,
1996 1995
Property management fees $202,136 $194,952
Reimbursement for services of affiliates 87,657 75,564
Due to general partners 58,000 58,000
NOTE C - TRANSACTIONS WITH AFFILIATED PARTIES - CONTINUED
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the Corporate General Partner. An affiliate of
the Corporate General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the current year's master policy. The current agent
assumed the financial obligations to the affiliate of the Corporate General
Partner who receives payments on these obligations from the agent. The amount
of the Partnership's insurance premiums accruing to the benefit of the affiliate
of the Corporate General Partner by virtue of the agent's obligations is not
significant.
NOTE D - CONTINGENCIES
The Corporate General Partner owns 100 Limited Partnership Units ("Units"). On
or about April 26 and 27, 1995, six entities ("Affiliated Purchaser") affiliated
with the Partnership commenced tender offers for limited partner interests in
six limited partnerships, including the Partnership (collectively, the "Shelter
Properties Partnerships"). On May 27, 1995, the Affiliated Purchaser acquired
6,026 units of the Partnership pursuant to the tender offer. On or about May
12, 1995, in the United States District Court for the District of South
Carolina, certain limited partners of the Shelter Properties Partnerships
commenced a lawsuit, on behalf of themselves, on behalf of a putative class of
plaintiffs, and derivatively on behalf of the partnerships, challenging the
actions taken by defendants (including Insignia, the acquiring entities and
certain officers of Insignia) in the management of the Shelter Properties
Partnerships and in connection with the tender offers and certain other matters.
The plaintiffs alleged that, among other things: (i) the defendants
intentionally mismanaged the partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the Shelter Properties
Partnerships in order to perpetuate the revenues derived by Insignia (an
affiliate of the Corporate General Partner) and its affiliates from the
partnerships, (ii) the defendants' actions reduced the demand for the Shelter
Properties Partnerships' limited partner interests in the limited resale market
by artificially depressing the trading prices for limited partner interests in
order to create a favorable environment for the tender offers; (iii) through the
tender offers, the acquiring entities sought to acquire effective voting control
over the Shelter Properties Partnerships while paying highly inadequate prices;
and (iv) the documents disseminated to the class in connection with the tender
offers contained false and misleading statements and omissions of material facts
concerning such issues as the advantages to limited partners of tendering
pursuant to the tender offers, the true value of the interest, the true
financial condition of the Shelter Properties Partnerships, the factors
affecting the likelihood properties owned by the partnerships will be sold or
liquidated in the near future, the liquidity and true value of the limited
partner interests, the reasons for the limited secondary market for limited
partner interests, and the true nature of the market for the underlying real
estate assets owned by the partnerships, all in violation of the federal
securities laws.
NOTE D - CONTINGENCIES - CONTINUED
On September 27, 1995, the parties entered into a stipulation to settle the
matter. The principal terms of the stipulation require supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
the Affiliated Purchaser of which, approximately $640,000 is the Partnership's
portion; waiver by the Shelter Properties Partnerships' general partners of any
right to certain proceeds from a sale or refinancing of the Shelter Properties
Partnerships' properties; some restrictions on Insignia's ability to vote the
limited partner interests it acquired; payment of $1.25 million (which amount is
divided among the various partnerships and acquiring entities) for plaintiffs'
attorney fees and expenses in the litigation; and general releases of all the
defendants.
On June 24, 1996, after notice to the class and a hearing on the fairness and
adequacy of notice and the terms of settlement, the court orally approved the
settlement. The court signed the formal order on July 30, 1996. No appeal was
filed within thirty days after the court entered the formal order and the
settlement became effective on August 30, 1996. The Affiliated Purchaser made
the payments to investors in accordance with the settlement in early September
1996.
NOTE E - CASUALTY LOSS
In the second quarter of 1995, a fire occurred at Parktown Townhouses which
resulted in a casualty loss of $3,124. As a result of the fire, asbestos was
exposed and had to be removed before any other assessments or work could be
completed. Once the asbestos was removed, the insurance company was able to
perform its investigation and determine the amount of damages that were covered.
The estimated costs for removing the asbestos as previously reported were much
higher. Due to the potential cost of the previous estimate, the insurance
company contracted a national firm with more experience with asbestos removal to
re-assess the estimate. The second estimate deemed the removal costs to be
substantially lower which resulted in income for the three months ended
September 30, 1995.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for the
nine months ended September 30, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Parktown Townhouses
Deer Park, Texas 96% 96%
Raintree Apartments
Anderson, South Carolina 96% 96%
Signal Pointe Apartments
Winter Park, Florida 95% 95%
The Partnership realized net income of $341,024 for the nine months ended
September 30, 1996, and $69,309 for the three months ended September 30, 1996.
The Partnership realized net income of $23,541 and $21,753 for the corresponding
periods of 1995. The increase in net income for the nine months ended September
30, 1996, is primarily attributable to an increase in rental income and a
decrease in general and administrative expenses. Net income for the three
months ended September 30, 1996, increased primarily due to a decrease in
general and administrative expenses partially offset by a decrease in other
income and an increase in maintenance expenses. General and administrative
expenses decreased for the nine months and three months ended September 30,
1996, due to the reduction of legal fees associated with the lawsuits disclosed
in Item 1. "Legal Proceedings" below and professional fees in connection with
the partnership's required responses to certain tender offers made during 1995.
Maintenance expense increased for the three months ended September 30, 1996, due
to increased property improvements at both Raintree and Signal Pointe Apartments
during the third quarter of 1996. Other income decreased for the three months
ended September 30, 1996, due to decreases in both lease cancellation fees and
laundry income. In addition, a casualty loss of $3,124 occurred during the
second quarter of 1995 as a result of asbestos removed due to a fire at Parktown
which damaged four units. The asbestos had to be removed before any additional
assessment of the damages could be made. The estimated costs for removing the
asbestos as previously reported were much higher. Due to the potential cost of
the previous estimate, the insurance company contracted a national firm with
more experience with asbestos removal to re-assess the estimate. The second
estimate deemed the removal costs to be substantially lower which resulted in
income for the three months ended September 30, 1995.
As part of the ongoing business plan of the Partnership, the Corporate General
Partner monitors the rental market environment of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of
this plan, the Corporate General Partner attempts to protect the Partnership
from the burden of inflation-related increases in expenses by increasing rents
and maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
Corporate General Partner will be able to sustain such a plan.
At September 30, 1996, the Partnership held unrestricted cash of $2,384,489
compared to $2,275,362 at September 30, 1995. Net cash provided by operating
activities increased primarily as a result of an increase in rental income. Net
cash used in investing activities decreased due to a reduction in property
improvements and replacements and deposits to restricted escrows. Net cash used
in financing activities decreased due to the Partnership making less
distributions in 1996 as compared to 1995.
The Partnership has no material capital programs scheduled to be performed in
1996, although certain routine capital expenditures and maintenance expenses
have been budgeted. These capital expenditures and maintenance expenses will be
incurred only if cash is available from operations or is received from the
capital reserve account. The Partnership may need to fund major plumbing
repairs at Parktown due to underground water leaks which are responsible for
foundation problems. The Corporate General Partner is negotiating with the
insurance provider to determine if the water problems are covered by its
property damage insurance.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the partnership. The mortgage
indebtedness of $8,782,833, net of discount, is amortized over 257 months with
balloon payments totaling $7,369,887 due on November 15, 2002, at which time the
properties will either be refinanced or sold. Future cash distributions will
depend on the levels of net cash generated from operations, refinancings,
property sales and the availability of cash reserves. A cash distribution of
$499,999 was paid during the nine months ended September 30, 1996. During the
nine months ended September 30, 1995, distributions totaling $600,000 were
declared and paid.
PART II - OTHER INFORMATION
ITEM 1.LEGAL PROCEEDINGS
The Corporate General Partner owns 100 Limited Partnership Units ("Units"). On
or about April 26 and 27, 1995, six entities ("Affiliated Purchaser") affiliated
with the Partnership commenced tender offers for limited partner interests in
six limited partnerships, including the Partnership (collectively, the "Shelter
Properties Partnerships"). On May 27, 1995, the Affiliated Purchaser acquired
6,026 units of the Partnership pursuant to the tender offer. On or about May
12, 1995, in the United States District Court for the District of South
Carolina, certain limited partners of the Shelter Properties Partnerships
commenced a lawsuit, on behalf of themselves, on behalf of a putative class of
plaintiffs, and derivatively on behalf of the partnerships, challenging the
actions taken by defendants (including Insignia, the acquiring entities and
certain officers of Insignia) in the management of the Shelter Properties
Partnerships and in connection with the tender offers and certain other matters.
The plaintiffs alleged that, among other things: (i) the defendants
intentionally mismanaged the partnerships and acted contrary to the limited
partners' best interests by prolonging the existence of the partnerships in
order to perpetuate the revenues derived by Insignia (an affiliate of the
Corporate General Partner) and its affiliates from the partnerships, (ii) the
defendants' actions reduced the demand for the partnerships' limited partner
interests in the limited resale market by artificially depressing the trading
prices for limited partner interests in order to create a favorable environment
for the tender offers; (iii) through the tender offers, the acquiring entities
sought to acquire effective voting control over the partnerships while paying
highly inadequate prices; and (iv) the documents disseminated to the class in
connection with the tender offers contained false and misleading statements and
omissions of material facts concerning such issues as the advantages to limited
partners of tendering pursuant to the tender offers, the true value of the
interest, the true financial condition of the partnerships, the factors
affecting the likelihood that properties owned by the partnerships will be sold
or liquidated in the near future, the liquidity and true value of the limited
partner interests, the reasons for the limited secondary market for limited
partner interests, and the true nature of the market for the underlying real
estate assets owned by the Shelter Properties Partnerships, all in violation of
the federal securities laws.
On September 27, 1995, the parties entered into a stipulation to settle the
matter. The principal terms of the stipulation require supplemental payments to
tendering limited partners aggregating approximately $6 million to be paid by
Affiliated Purchaser of which, approximately $640,000 is the Partnership's
portion; waiver by the Shelter Properties Partnerships' general partners of any
right to certain proceeds from a sale or refinancing of the Shelter Properties
Partnerships' properties; some restrictions on Insignia's ability to vote the
limited partner interests it acquired; payment of $1.25 million (which amount is
divided among the various partnerships and acquiring entities) for plaintiffs'
attorney fees and expenses in the litigation; and general releases of all the
defendants.
On June 24, 1996, after notice to the class and a hearing on the fairness and
adequacy of notice and the terms of settlement, the court orally approved the
settlement. The court signed the formal order on July 30, 1996. No appeal was
filed within thirty days after the court entered the formal order and the
settlement became effective on August 30, 1996. The Affiliated Purchaser made
the payments to investors in accordance with the settlement in early September
1996.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1996.
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.
SHELTER PROPERTIES II LIMITED PARTNERSHIP
By: Shelter Realty II Corporation
Corporate General Partner
By:/s/ William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By:/s/ Ronald Uretta
Ronald Uretta
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Date: November 7, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties II Ltd. Partnership 1996 Third Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000319723
<NAME> SHELTER PROPERTIES II LIMITED PARTNERSHIP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,384,489
<SECURITIES> 0
<RECEIVABLES> 34,145
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,097,598
<DEPRECIATION> 14,765,347
<TOTAL-ASSETS> 13,395,253
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,782,833
0
0
<COMMON> 0
<OTHER-SE> 3,850,868
<TOTAL-LIABILITY-AND-EQUITY> 13,395,253
<SALES> 0
<TOTAL-REVENUES> 4,158,195
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,817,171
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 611,362
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 341,024
<EPS-PRIMARY> 12.28
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
</FN>
</TABLE>
