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 March 31, 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)
March 31, 1996
Assets
Cash and cash equivalents:
Unrestricted $ 2,348,838
Restricted--tenant security deposits 152,785
Accounts receivable 19,088
Escrow for taxes 156,074
Restricted escrows 922,467
Other assets 271,244
Investment properties:
Land $ 1,814,055
Buildings and related personal property 22,116,662
23,930,717
Less accumulated depreciation (14,222,009) 9,708,708
$13,579,204
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 56,009
Tenant security deposits 152,754
Accrued taxes 95,395
Other liabilities 234,250
Mortgage notes payable 8,869,506
Partners' Capital (Deficit)
General partners $ (111,433)
Limited partners (27,500 units
issued and outstanding) 4,282,723 4,171,290
$13,579,204
See Accompanying Notes to Financial Statements
b) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
March 31,
1996 1995
Revenues:
Rental income $1,288,902 $1,257,378
Other income 89,631 72,969
Total revenues 1,378,533 1,330,347
Expenses:
Operating 386,305 411,939
General and administrative 48,457 40,273
Property management fees 66,347 65,740
Maintenance 149,674 151,422
Depreciation 266,011 264,120
Interest 204,719 208,224
Property taxes 95,573 85,536
Total expenses 1,217,086 1,227,254
Net income $ 161,447 $ 103,093
Net income allocated to general partners (1%) $ 1,614 $ 1,031
Net income allocated to limited partners (99%) 159,833 102,062
$ 161,447 $ 103,093
Net income per limited partnership unit $ 5.81 $ 3.71
See Accompanying Notes to Financial Statements
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
Net income for the three
months ended March 31, 1996 -- 1,614 159,833 161,447
Partners' (deficit) capital
at March 31, 1996 27,500 $(111,433) $ 4,282,723 $ 4,171,290
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
d) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 161,447 $ 103,093
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 266,011 264,120
Amortization of discounts and loan costs 25,954 25,225
Change in accounts:
Restricted cash (588) (3,976)
Accounts receivable (2,223) (324)
Escrows for taxes 49,624 (17,370)
Other assets -- (6,000)
Accounts payable (209,846) (55,953)
Tenant security deposit liabilities 13 3,278
Accrued taxes (65,934) 6,110
Other liabilities (36,323) 67,706
Net cash provided by operating activities 188,135 385,909
Cash flows from investing activities:
Property improvements and replacements (54,518) (50,674)
Deposits to restricted escrows (11,563) (34,180)
Receipts from restricted escrows 5,000 15,288
Net cash used in investing activities (61,081) (69,566)
Cash flows from financing activities:
Payments on mortgage notes payable (58,028) (53,794)
Distributions to partners -- (600,000)
Net cash used in financing activities (58,028) (653,794)
Net increase (decrease) in cash 69,026 (337,451)
Cash and cash equivalents at beginning of period 2,279,812 2,374,527
Cash and cash equivalents at end of period $2,348,838 $2,037,076
Supplemental disclosure of cash flow information:
Cash paid for interest $ 178,766 $ 182,999
<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 three month period ended March 31,
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 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 its space and is current on its 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.
Three Months Ended
March 31,
1996 1995
Net cash provided by operating activities $ 188,135 $ 385,909
Payments on mortgage notes payable (58,028) (53,794)
Property improvements and replacements (54,518) (50,674)
Change in restricted escrows, net (6,563) (18,892)
Changes in reserves for net operating
liabilities 265,277 6,529
Additional reserves (340,000) (300,000)
Net cash used in operations $ (5,697) $ (30,922)
In 1996 and 1995, the Corporate General Partner believed it to be in the best
interest of the Partnership to reserve an additional $340,000 and $300,000,
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
discussing with the insurance provider if the water problems are covered by
liability 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:
Three Months Ended
March 31,
1996 1995
Property management fees $ 66,347 $ 65,740
Reimbursement for services of affiliates 29,774 27,261
Due to general partners 58,000 58,000
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
Affiliated Purchaser of which, approximately $640,000 is Shelter Properties II's
portion; waiver by the Shelter Properties Partnership's 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
April 23, 1996, the court gave preliminary approval of the establishment of the
class for the purposes of the settlement and of the settlement terms, and
ordered that notice of the settlement be sent to the class. Notice has been
sent. A final hearing has been scheduled for June 24, 1996. If a certain
number of class members opt out, the settlement may be cancelled. Class members
also have the right to object to the settlement, which could lead to alterations
in the terms of settlement or even cancellation of the settlement. No assurance
can be given that this matter will be settled on the terms, set forth above or
otherwise.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consists of three apartment
complexes. The following table sets forth the average occupancy of the
properties for the three months ended March 31, 1996 and 1995:
Average
Occupancy
Property 1996 1995
Parktown Townhouses
Deer Park, Texas 96% 97%
Raintree Apartments
Anderson, South Carolina 95% 98%
Signal Pointe Apartments
Winter Park, Florida 95% 96%
The Corporate General Partner considers the decrease in occupancy at
Raintree Apartments to be temporary as apartment rentals generally increase
during the spring and summer months in this market. Raintree is a small
property and a three percent change in occupancy does not reflect a material
change in the number of tenants at this property.
The Partnership's net income for the three months ended March 31, 1996, was
$161,447 versus $103,093 for the corresponding period in 1995. The increase in
net income is attributable to an increase in other income due to management more
aggressively collecting fees related to tenants moving out and increased
interest income due to higher interest rates and increased cash balances.
Partially offsetting the increase in net income was an increase in general and
administrative expense and property tax expense. General and administrative
expense increased due to an increase in cost reimbursements and an increase in
insurance expense due to additional coverage. Property tax expense increased as
a result of the increase in the 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 March 31, 1996, the Partnership had unrestricted cash of $2,348,838
compared to $2,037,076 at March 31, 1995. Net cash provided by operating
activities decreased primarily as a result of a decrease in accounts payable due
to timing of payments to vendors. Also other liabilities decreased due to
timing of prepaid rental income from tenants. Net cash used in investing
activities remained relatively constant for the period ending March 31, 1996, as
compared to 1995. Net cash used in financing activities decreased due to the
Partnership making a distribution during the first three months of 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 discussing with the
insurance provider if the water problems are covered by 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 $8,869,506, net of discount, is amortized over 257 months with a
balloon payment of $7,369,887 due on November 15, 2002, at this time the
properties will either be refinanced or sold. Future cash distributions will
depend on the levels of net cash generated from operations, refinancing,
property sales and the availability of cash reserves. No cash distributions
were made during the three months ended March 31, 1996. During the three
months ended March 31, 1995, distributions totaling $600,000 were declared and
paid. The Corporate General Partner plans to make a distribution during the
second quarter of 1996.
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 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 Partnership's 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
April 23, 1996, the court gave preliminary approval of the establishment of the
class for the purposes of the settlement and of the settlement terms, and
ordered that notice of the settlement be sent to the class. Notice has been
sent. A final hearing has been scheduled for June 24, 1996. If a certain
number of class members opt out, the settlement may be cancelled. Class members
also have the right to object to the settlement, which could lead to alterations
in the terms of settlement or even cancellation of the settlement. No assurance
can be given that this matter will be settled on the terms, set forth above or
otherwise.
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 March 31, 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: May 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties II 1996 1st Quarter 10-QSB and is qualified in its entirety by
reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000319723
<NAME> SHELTER PROPERTIES II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,348,838
<SECURITIES> 0
<RECEIVABLES> 19,088
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 23,930,717
<DEPRECIATION> 14,222,009
<TOTAL-ASSETS> 13,579,204
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,869,506
0
0
<COMMON> 0
<OTHER-SE> 4,171,290
<TOTAL-LIABILITY-AND-EQUITY> 13,579,204
<SALES> 0
<TOTAL-REVENUES> 1,378,533
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,217,086
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204,719
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 161,447
<EPS-PRIMARY> 5.81
<EPS-DILUTED> 0
<FN>
<F1>The Partnership has an unclassified balance sheet.
</FN>
</TABLE>
