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 March 31, 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)
March 31, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 2,190
Restricted--tenant security deposits 141
Accounts receivable 7
Escrows for taxes 162
Restricted escrows 912
Other assets 234
Investment properties:
Land $ 1,814
Buildings and related personal property 22,855
24,669
Less accumulated depreciation (15,293) 9,376
$13,022
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 53
Tenant security deposits 141
Accrued taxes 103
Other liabilities 183
Mortgage notes payable 8,692
Partners' Capital (Deficit)
General partners $ (109)
Limited partners (27,500 units
issued and outstanding) 3,959 3,850
$13,022
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
March 31,
1997 1996
<S> <C> <C>
Revenues:
Rental income $1,294 $ 1,289
Other income 80 90
Total revenues 1,374 1,379
Expenses:
Operating 466 452
General and administrative 44 48
Maintenance 225 150
Depreciation 250 266
Interest 201 205
Property taxes 106 96
Total expenses 1,292 1,217
Net income $ 82 $ 162
Net income allocated to general
partners (1%) $ 1 $ 2
Net income allocated to limited
partners (99%) 81 160
$ 82 $ 162
Net income per limited partnership unit $ 2.95 $ 5.81
<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' capital (deficit)
at December 31, 1996 27,500 $ (110) $ 3,878 $ 3,768
Net income for the three
months ended March 31, 1997 -- 1 81 82
Partners' capital (deficit)
at March 31, 1997 27,500 $ (109) $ 3,959 $ 3,850
<FN>
See Accompanying Notes to Financial Statements
</TABLE>
d) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 82 $ 162
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 250 266
Amortization of discounts and loan costs 27 26
Change in accounts:
Restricted cash 7 (1)
Accounts receivable 12 (2)
Escrows for taxes 72 50
Accounts payable (104) (210)
Tenant security deposit liabilities (8) --
Accrued taxes (119) (66)
Other liabilities (7) (36)
Net cash provided by operating activities 212 189
Cash flows from investing activities:
Property improvements and replacements (173) (55)
Deposits to restricted escrows (10) (12)
Receipts from restricted escrows -- 5
Net cash used in investing activities (183) (62)
Cash flows from financing activities:
Payments on mortgage notes payable (62) (58)
Net cash used in financing activities (62) (58)
Net increase (decrease) in cash (33) 69
Cash and cash equivalents at beginning of period 2,223 2,280
Cash and cash equivalents at end of period $2,190 $2,349
Supplemental disclosure of cash flow information:
Cash paid for interest $ 174 $ 179
<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 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 month
period ended March 31, 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.
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 with such deposits being
considered restricted cash. Deposits are refunded when the tenant vacates,
provided the tenant has not damaged the unit and is current on its rental
payments.
NOTE B - RECONCILIATION OF CASH FLOWS
(dollar amounts in thousands)
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,
1997 1996
Net cash provided by operating activities $ 212 $ 189
Payments on mortgage notes payable (62) (58)
Property improvements and replacements (173) (55)
Change in restricted escrows, net (10) (7)
Changes in reserves for net operating
liabilities 147 265
Additional reserves (115) (340)
Net cash used in operations $ (1) $ (6)
In 1997 and 1996, the Corporate General Partner believed it to be in the best
interest of the Partnership to reserve an additional $115,000 and $340,000,
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. Balances and other transactions with
Insignia Financial Group, Inc. ("Insignia") and certain of its affiliates in
1997 and 1996 are as follows:
Three Months Ended
March 31,
(in thousands)
1997 1996
Property management fees $ 67 $ 66
Reimbursement for services of affiliates 30 30
Due to general partners 58 58
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
three months ended March 31, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Parktown Townhouses
Deer Park, Texas 95% 96%
Raintree Apartments
Anderson, South Carolina 88% 95%
Signal Pointe Apartments
Winter Park, Florida 96% 95%
The Corporate General Partner attributes the decrease in occupancy at Raintree
Apartments to the decline in three bedroom apartment rentals resulting from
increased purchases of new single-family homes in the area.
The Partnership realized net income for the three months ended March 31, 1997,
of $82,000 compared to $162,000 for the corresponding period of 1996. The
decrease in net income is primarily attributable to an increase in maintenance
expenses. Maintenance expense increased due to an exterior rehab project started
at Parktown Townhouses during 1996. This project was necessary to improve the
appearance of the Parktown Townhomes. The repairs and improvements made to this
property during 1997 include exterior painting, gutter repairs and landscaping.
Included in maintenance expense is approximately $86,000 of major repairs and
maintenance comprised primarily of gutter repairs, exterior painting and other
exterior building improvements.
As part of the ongoing business plan of the Partnership, the Corporate General
Partner monitors the rental market environment at each of its investment
properties 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 assurance that the Corporate General Partner will be able to sustain this
plan.
At March 31, 1997, the Partnership held unrestricted cash of $2,190,000 compared
to $2,349,000 at March 31, 1996. Net cash provided by operating activities
increased primarily as a result of significantly reduced payments of trade
payables during the first quarter of 1997 compared to the corresponding period
of 1996. Net cash used in investing activities increased due to increased
property improvements at Parktown Townhomes including primarily gutter and roof
replacements. Net cash used in financing activities increased due to increased
principal payments on the mortgage notes.
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 $8,692,000, net of discount, is amortized
over 257 months. In addition, the mortgage notes require balloon payments on
November 15, 2002, at which time the individual properties will either be sold
or refinanced. No cash distributions were made during the three months ended
March 31, 1997. Future cash distributions will depend on the levels of net cash
generated from operations, refinancings, property sales and cash reserves. As
of March 31, 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) into the Reserve Account.
PART II - OTHER INFORMATION
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, 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
(Principal Financial Officer
and Principal Accounting Officer)
Date: May 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties II Limited Partnership 1997 First 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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,190
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,669
<DEPRECIATION> 15,293
<TOTAL-ASSETS> 13,022
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,692
0
0
<COMMON> 0
<OTHER-SE> 3,850
<TOTAL-LIABILITY-AND-EQUITY> 13,022
<SALES> 0
<TOTAL-REVENUES> 1,374
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,292
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 201
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 82
<EPS-PRIMARY> 2.95<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
