FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
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, 1997
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
(in thousands, except unit data)
(Unaudited)
June 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 2,367
Restricted--tenant security deposits 142
Accounts receivable 15
Escrow for taxes 254
Restricted escrows 922
Other assets 267
Investment properties:
Land $ 1,814
Buildings and related personal property 22,980
24,794
Less accumulated depreciation (15,547) 9,247
$ 13,214
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 43
Tenant security deposits 142
Accrued taxes 207
Other liabilities 192
Mortgage notes payable 8,645
Partners' Capital (Deficit)
General partners $ (108)
Limited partners (27,500 units
issued and outstanding) 4,093 3,985
$ 13,214
See Accompanying Notes to Financial Statements
b) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 1,341 $ 1,297 $ 2,635 $ 2,586
Other income 78 96 158 186
Total revenues 1,419 1,393 2,793 2,772
Expenses:
Operating 493 492 959 944
General and administrative 49 48 93 96
Maintenance 179 173 404 323
Depreciation 254 269 504 535
Interest 200 204 401 409
Property taxes 104 97 210 193
Total expenses 1,279 1,283 2,571 2,500
Net income $ 140 $ 110 $ 222 $ 272
Net income allocated
to general partners (1%) $ 1 $ 1 $ 2 $ 3
Net income allocated
to limited partners (99%) 139 109 220 269
Net income $ 140 $ 110 $ 222 $ 272
Net income per limited
partnership unit $ 5.05 $ 3.96 $ 8.00 $ 9.78
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
c) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 27,500 $ 2 $ 27,500 $ 27,502
Partners' (deficit) capital
at December 31, 1996 27,500 $ (110) $ 3,878 $ 3,768
Distributions to partners -- (5) (5)
Net income for the six
months ended June 30, 1997 2 220 222
Partners' (deficit) capital
at June 30, 1997 27,500 $ (108) $ 4,093 $ 3,985
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
d) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 222 $ 272
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 504 535
Amortization of discounts and loan costs 54 52
Change in accounts:
Restricted cash 7 3
Accounts receivable 4 (6)
Escrows for taxes (20) (45)
Other assets (43) --
Accounts payable (113) (191)
Tenant security deposit liabilities (7) (4)
Accrued taxes (16) 32
Other liabilities 1 14
Net cash provided by operating activities 593 662
Cash flows from investing activities:
Property improvements and replacements (299) (126)
Deposits to restricted escrows (19) (21)
Receipts from restricted escrows -- 25
Net cash used in investing activities (318) (122)
Cash flows from financing activities:
Payments on mortgage notes payable (126) (117)
Distributions to partners (5) (500)
Net cash used in financing activities (131) (617)
Net increase (decrease) in unrestricted cash and
cash equivalents 144 (77)
Unrestricted cash and cash equivalents
at beginning of period 2,223 2,280
Unrestricted cash and cash equivalents
at end of period $ 2,367 $ 2,203
Supplemental disclosure of cash flow information:
Cash paid for interest $ 347 $ 356
<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" or the "Registrant") 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 Shelter Realty II Corporation (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 six month periods ended June 30, 1997, are
not necessarily indicative of the results that may be expected for the fiscal
year ending December 31, 1997. 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, 1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.
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,
(in thousands)
1997 1996
Net cash provided by operating activities $ 593 $ 662
Payments on mortgage notes payable (126) (117)
Property improvements and replacements (299) (126)
Change in restricted escrows, net (19) 4
Changes in reserves for net operating
liabilities 187 197
Additional reserves (336) (625)
Net cash used in operations $ -- $ (5)
In 1997 and 1996, the Corporate General Partner believed it to be in the best
interest of the Partnership to reserve an additional $336,000 and $625,000,
respectively, to fund continuing capital improvement needs in order for the
properties to remain competitive.
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. The following payments were made to
the Corporate General Partner and affiliates in 1997 and 1996:
Six Months Ended
June 30,
(in thousands)
1997 1996
Property management fees $ 136 $ 135
Reimbursement for services of affiliates 70 59
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.
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, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Parktown Townhouses
Deer Park, Texas 95% 96%
Raintree Apartments
Anderson, South Carolina 91% 96%
Signal Pointe Apartments
Winter Park, Florida 96% 95%
The decrease in occupancy at Raintree Apartments is due to tenants vacating the
property to purchase homes. This property is located in a favorable housing
market.
The Partnership's net income for the six months ended June 30, 1997, was
approximately $222,000 with $140,000 of this income being attributable to the
second quarter. The Partnership reported net income of approximately $272,000
and approximately $110,000 for the corresponding periods in 1996. Net income
for the six months ended June 30, 1997 decreased primarily due to an increase in
maintenance expenses.
The increased maintenance expense is a result of an exterior rehabilitation
project started at Parktown Townhouses during 1996. This project was necessary
to improve the appearance of the property. The repairs and improvements made to
this property during 1997 include exterior painting, gutter repairs and
landscaping.
Included in maintenance expense for the six months ended June 30, 1997, is
approximately $128,000 of major repairs and maintenance comprised primarily of
gutter repairs, exterior painting and other exterior building improvements.
Included in maintenance expense for the six months ended June 30, 1996, is
approximately $88,000 of major repairs and maintenance comprised primarily of
exterior and interior building improvements and major landscaping.
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 June 30, 1997, the Partnership had unrestricted cash and cash equivalents of
approximately $2,367,000 compared to $2,203,000 at June 30, 1996. Net cash
provided by operating activities decreased primarily as a result of the decrease
in net income as discussed above. Also contributing to the decrease in net cash
provided by operating activities was the prepayment of a portion of the annual
insurance premiums. Net cash used in investing activities increased due to the
increase in property improvements and replacements, primarily at Parktown
Townhouse. Net cash used in financing activities decreased due to the
Partnership making a lesser distribution in 1997 as compared to 1996.
The Partnership has no material capital programs scheduled to be performed in
1997, although certain routine capital expenditures and maintenance expenses
have been budgeted. The Corporate General Partner is currently evaluating the
necessity of the replacement or repair of water and sewer lines at Parktown due
to possible underground leaks. These capital expenditures and maintenance
expenses will be incurred only if cash is available.
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 properties 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 approximately $8,645,000, net of discount, is amortized
over 257 months. In addition, the mortgage notes require balloon payments of
$7,370,000 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. The Managing General Partner is evaluating the
economic position of the Partnership and the Partnership's ability to make a
distribution. A cash distribution of $5,000 was paid to the South Carolina tax
department on behalf of the limited partners during the six months ended June
30, 1997. During the six months ended June 30, 1996, distributions totaling
$500,000 were declared and paid. As of June 30, 1997, the Reserve Account was
fully funded; however, if it becomes necessary to draw upon these reserves,
distributions may also be restricted by the requirement to deposit net operating
income (as defined in the mortgage note agreement) into the Reserve Account.
PART II - OTHER INFORMATION
ITEM 1. 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, 1997.
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
Vice President and Treasurer
Date: July 29, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties II Limited Partnership 1997 Second 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> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,367
<SECURITIES> 0
<RECEIVABLES> 15
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,794
<DEPRECIATION> 15,547
<TOTAL-ASSETS> 13,214
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,645
0
0
<COMMON> 0
<OTHER-SE> 3,985
<TOTAL-LIABILITY-AND-EQUITY> 13,214
<SALES> 0
<TOTAL-REVENUES> 2,793
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,571
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401
<INCOME-PRETAX> 222
<INCOME-TAX> 0
<INCOME-CONTINUING> 222
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 222
<EPS-PRIMARY> 8.00<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
