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 June 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)
June 30, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 2,202,536
Restricted--tenant security deposits 148,864
Accounts receivable 23,143
Escrow for taxes 250,576
Restricted escrows 911,324
Other assets 261,381
Investment properties:
Land $ 1,814,055
Buildings and related personal property 22,188,587
24,002,642
Less accumulated depreciation (14,491,382) 9,511,260
$13,309,084
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 74,509
Tenant security deposits 148,833
Accrued taxes 192,898
Other liabilities 284,642
Mortgage notes payable 8,826,643
Partners' Capital (Deficit)
General partners $ (110,330)
Limited partners (27,500 units
issued and outstanding) 3,891,889 3,781,559
$13,309,084
See Accompanying Notes to Financial Statements
b) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Revenues:
Rental income $1,297,091 $1,245,046 $2,585,993 $2,502,424
Other income 96,198 74,125 185,829 147,094
Total revenues 1,393,289 1,319,171 2,771,822 2,649,518
Expenses:
Operating 491,602 461,292 944,254 938,971
General and administrative 47,522 134,259 95,979 174,532
Maintenance 173,225 193,964 322,899 345,386
Depreciation 269,374 268,517 535,385 532,637
Interest 203,794 207,377 408,513 415,601
Property taxes 97,504 90,697 193,077 176,233
Total expenses 1,283,021 1,356,106 2,500,107 2,583,360
Casualty loss -- (64,370) -- (64,370)
Net income (loss) $ 110,268 $ (101,305) $ 271,715 $ 1,788
Net income (loss) allocated
to general partners (1%) $ 1,103 $ (1,013) $ 2,717 $ 18
Net income (loss) allocated
to limited partners (99%) 109,165 (100,292) 268,998 1,770
$ 110,268 $ (101,305) $ 271,715 $ 1,788
Net income (loss) per limited
partnership unit $ 3.97 $ (3.65) $ 9.78 $ .06
<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 six
months ended June 30, 1996 2,717 268,998 271,715
Partners' (deficit) capital
at June 30, 1996 27,500 $(110,330) $ 3,891,889 $ 3,781,559
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
d) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 271,715 $ 1,788
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 535,385 532,637
Amortization of discounts and loan costs 52,091 50,630
Casualty loss -- 64,370
Change in accounts:
Restricted cash 3,333 (7,954)
Accounts receivable (6,278) (8,003)
Escrows for taxes (44,878) (111,425)
Other assets -- (6,000)
Accounts payable (191,346) 33,285
Tenant security deposit liabilities (3,908) 6,936
Accrued taxes 31,569 96,421
Other liabilities 14,069 (10,520)
Net cash provided by operating activities 661,752 642,165
Cash flows from investing activities:
Property improvements and replacements (126,443) (159,508)
Deposits to restricted escrows (20,890) (42,077)
Receipts from restricted escrows 25,470 31,186
Net cash used in investing activities (121,863) (170,399)
Cash flows from financing activities:
Payments on mortgage notes payable (117,166) (108,617)
Distributions to partners (499,999) (600,000)
Net cash used in financing activities (617,165) (708,617)
Net decrease in cash (77,276) (236,851)
Cash and cash equivalents at beginning of period 2,279,812 2,374,527
Cash and cash equivalents at end of period $2,202,536 $2,137,676
Supplemental disclosure of cash flow information:
Cash paid for interest $ 356,423 $ 364,971
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
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 six month period ended June 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.
Six Months Ended
June 30,
1996 1995
Net cash provided by operating activities $ 661,752 $ 642,165
Payments on mortgage notes payable (117,166) (108,617)
Property improvements and replacements (126,443) (159,508)
Change in restricted escrows, net 4,580 (10,891)
Changes in reserves for net operating
liabilities 197,439 7,260
Additional reserves (625,000) (372,000)
Net cash used in operations $ (4,838) $ (1,591)
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 $372,000,
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 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:
Six Months Ended
June 30,
1996 1995
Property management fees $134,815 $130,514
Reimbursement for services of affiliates 58,671 52,290
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 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 partners 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 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
the Affiliated Purchaser of which, approximately $640,000 is Shelter Properties
II's portion; waiver by the Shelter Properties Partnerships' general partners of
any right to certain proceeds from a sale or refinancing of the 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. Plaintiffs' counsel has not yet submitted a formal written order
for approval. If no appeal is taken within thirty days after the court enters
that formal order, the settlement will become effective. No class member
appeared at the hearing to oppose the settlement and thus it appears that an
appeal is unlikely. While approximately 60 unit holders opted out of the
settlement, no more than 1% of the unit holders in any one of the Partnerships
opted out.
Note F - Casualty Loss
In the second quarter of 1995, a fire occurred at Parktown Townhouses which
resulted in a casualty loss of $64,370. As a result of the fire, asbestos was
exposed and had to be removed before any other assessments or work could be
completed. The casualty loss in the second quarter of 1995 only included the
removal of asbestos. Once the asbestos was removed, the insurance company was
able to perform its investigation and determine the amount of damages that were
covered.
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
six months ended June 30, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Parktown Townhouses
Deer Park, Texas 96% 97%
Raintree Apartments
Anderson, South Carolina 96% 96%
Signal Pointe Apartments
Winter Park, Florida 95% 95%
The Partnership's net income for the six months ended June 30, 1996, was
$271,715 with the second quarter having net income of $110,268. The Partnership
reported net income of $1,788 and a net loss of $101,305 for the corresponding
periods in 1995. The increase in net income is primarily attributable to an
increase in other income and decreases in general and administrative and
maintenance expenses. Other income increased due to management's aggressiveness
in collecting fees related to tenants moving out and increased interest income
due to higher interest rates and increased cash balances. General and
administrative expense decreased due to the reduction of legal fees associated
with the lawsuits disclosed in the Legal Proceeding section below and
professional expenses in connection with the tender offerings during 1995.
Maintenance expense decreased for the six months and the three months ended June
30, 1996, due to non recurring repairs at both Raintree and Parktown during
1995. In addition, a casualty loss of $64,370 occurred during the second
quarter of 1995 as a result of asbestos removed due to a fire at Parktown which
damaged four units and exposed asbestos. The asbestos had to be removed before
any additional assessment of the damages could be made. Partially offsetting
the increase in net income was an increase in property tax expense due to
increased tax rates at Raintree Apartments and Parktown Townhouses.
As part of the ongoing business plan of the Partnership, the Corporate General
Partner monitors the rental market environment of its investment property to
assess the feasibility of increasing rent, 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 June 30, 1996, the Partnership had unrestricted cash of $2,202,536 compared
to $2,137,676 at June 30, 1995. Net cash provided by operating activities
increased primarily as a result of the increase in net income as discussed
above. Net cash used in investing activities decreased due to the reduction in
property improvements and replacements and required deposits to restricted
escrows. Net cash used in financing activities decreased due to the Partnership
making a smaller distribution 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 $8,826,643, 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 six months ended June 30, 1996. During the six
months ended June 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 partners 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 Shelter Properties II's
portion; waiver by the Shelter Properties Partnerships' general partners of any
right to certain proceeds from a sale or refinancing of the 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. Plaintiffs' counsel has not yet submitted a formal written order
for approval. If no appeal is taken within thirty days after the court enters
that formal order, the settlement will become effective. No class member
appeared at the hearing to oppose the settlement and thus it appears that an
appeal is unlikely. While approximately 60 unit holders opted out of the
settlement, no more than 1% of the unit holders in any one of the Shelter
Properties Partnerships opted out.
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 June 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: July 31, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties II Ltd. Partnership Second Quarter 10-QSB and is qualified in its
entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000319723
<NAME> SHELTER PROPERTIES II LTD PARTNERSHIP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 2,202,536
<SECURITIES> 0
<RECEIVABLES> 23,143
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,002,642
<DEPRECIATION> 14,491,382
<TOTAL-ASSETS> 13,309,084
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,826,643
0
0
<COMMON> 0
<OTHER-SE> 3,781,559
<TOTAL-LIABILITY-AND-EQUITY> 13,309,084
<SALES> 0
<TOTAL-REVENUES> 2,771,822
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,500,107
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 408,513
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 271,715
<EPS-PRIMARY> 9.78
<EPS-DILUTED> 0
<FN>
<F1>The Partnership has an unclassified balance sheet.
</FN>
</TABLE>
