FORM 10-QSB--QUARTERLY OR TRANSITIONAL 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 September 30, 1997
[ ] 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)
(864) 239-1000
(Issuer's telephone number)
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)
September 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 1,664
Restricted--tenant security deposits 137
Accounts receivable 20
Escrow for taxes 340
Restricted escrows 932
Other assets 249
Investment properties:
Land $ 1,814
Buildings and related personal property 22,904
24,718
Less accumulated depreciation (15,734) 8,984
$ 12,326
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 48
Tenant security deposits 137
Accrued taxes 310
Other liabilities 212
Mortgage notes payable 8,598
Partners' (Deficit) Capital
General partners $ (117)
Limited partners (27,500 units
issued and outstanding) 3,138 3,021
$ 12,326
See Accompanying Notes to Financial Statements
b) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenues:
Rental income $ 1,373 $ 1,293 $ 4,008 $ 3,879
Other income 85 93 243 279
Total revenues 1,458 1,386 4,251 4,158
Expenses:
Operating 528 473 1,487 1,417
General and administrative 48 37 141 133
Maintenance 182 235 586 558
Depreciation 267 274 771 809
Interest 199 202 600 611
Property taxes 103 96 313 289
Total expenses 1,327 1,317 3,898 3,817
Loss on disposal of property (95) -- (95) --
Net income $ 36 $ 69 $ 258 $ 341
Net income allocated
to general partners (1%) $ -- $ 1 $ 3 $ 3
Net income allocated
to limited partners (99%) 36 68 255 338
Net income $ 36 69 $ 258 $ 341
Net income per limited
partnership unit $ 1.31 $ 2.47 $ 9.27 $ 12.29
See Accompanying Notes to Financial Statements
c) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(in thousands, except unit data)
(Unaudited)
Limited
Partnership General Limited
Units Partners Partners Total
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 -- (10) (995) (1,005)
Net income for the nine months
ended September 30, 1997 -- 3 255 258
Partners' (deficit) capital
at September 30, 1997 27,500 $ (117) $ 3,138 $ 3,021
See Accompanying Notes to Financial Statements
d) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
Net income $ 258 $ 341
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 771 809
Amortization of discounts and loan costs 81 78
Loss on disposal of property 95 --
Change in accounts:
Restricted cash 11 1
Accounts receivable (1) (17)
Escrows for taxes (106) (140)
Other assets (35) --
Accounts payable (109) (199)
Tenant security deposit liabilities (12) (1)
Accrued taxes 88 127
Other liabilities 22 (16)
Net cash provided by operating activities 1,063 983
Cash flows from investing activities:
Property improvements and replacements (397) (221)
Deposits to restricted escrows (29) (29)
Receipts from restricted escrows -- 49
Net cash used in investing activities (426) (201)
Cash flows from financing activities:
Payments on mortgage notes payable (191) (177)
Distributions to partners (1,005) (500)
Net cash used in financing activities (1,196) (677)
Net (decrease) increase in unrestricted cash and
cash equivalents (559) 105
Unrestricted cash and cash equivalents at beginning
of period 2,223 2,280
Unrestricted cash and cash equivalents at end
of period $ 1,664 $ 2,385
Supplemental disclosure of cash flow information:
Cash paid for interest $ 519 $ 533
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" 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 nine month periods ended September 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.
Nine Months Ended
September 30,
(in thousands)
1997 1996
Net cash provided by operating activities $ 1,063 $ 983
Payments on mortgage notes payable (191) (177)
Property improvements and replacements (397) (221)
Change in restricted escrows, net (29) 20
Changes in reserves for net operating
liabilities 142 245
Additional reserves (588) (1,115)
Net cash used in operations $ -- $ (265)
For the nine months ended September 30, 1997 and 1996, the Corporate General
Partner believed it to be in the best interest of the Partnership to reserve an
additional $588,000 and $1,115,000, 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:
Nine Months Ended
September 30,
(in thousands)
1997 1996
Property management fees $ 207 $ 202
Reimbursement for services of affiliates
(including $12,000 and $3,000 of
construction oversight costs for the nine
months ended September 30, 1997 and 1996,
respectively) 103 72
Due to general partners 58 58
From January 1, 1996, through August 31, 1997, the Partnership insured 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 master
policy. The agent assumed the financial obligations to the affiliate of the
Corporate General Partner who receives payment on these obligations from the
agent. The amount of the Partnership's insurance premiums that accrued to the
benefit of the affiliate of the Corporate General Partner by virtue of the
agent's obligations was not significant.
On September 26, 1997, an affiliate of the Corporate General Partner purchased
Lehman Brothers' Class "D" surbordinated bonds of SASCO 1992-M1. These bonds
are secured by 55 multi-family apartment mortgage loan pairs held in Trust,
including Parktown Townhouses, Raintree Apartments, and Signal Pointe Apartments
owned by the Partnership.
NOTE D - DISTRIBUTIONS TO PARTNERS
During the third quarter of 1997, the Partnership declared and paid a cash
distribution from operations in the amount of $1,005,000. Cash distributions
totaling $500,000, attributable to prior years debt refinancing proceeds, were
declared and paid during the nine months ended September 30, 1996.
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, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Parktown Townhouses
Deer Park, Texas 96% 96%
Raintree Apartments
Anderson, South Carolina 92% 96%
Signal Pointe Apartments
Winter Park, Florida 96% 95%
Occupancy at Raintree Apartments decreased as a result of new construction in
the Anderson, South Carolina market and an increase in new home purchases by
prospective tenants.
The Partnership's net income for the nine months ended September 30, 1997 was
approximately $258,000 compared to net income of approximately $341,000 for the
nine months ended September 30, 1996. Net income for the three months ended
September 30, 1997, was approximately $36,000 compared to $69,000 for the three
month period ended September 30, 1996.
The decrease in net income for the three and nine months ended September 30,
1997, compared to the same period in 1996, can be attributed to a decrease in
other income, increases in operating expense and maintenance expense and a loss
on disposal of property. Other income decreased primarily due to a decrease in
corporate rental revenue at Raintree Apartments. Corporate rental revenue
decreased because the company leasing the corporate units did not take the
furnished package, thus reducing revenue for the units. The increase in
operating expenses for the three and nine months ended September 30, 1997,
compared to the same period in 1996 is primarily due to increases in water and
sewer utilities at Parktown Townhouses and an increase in rental concessions at
Signal Pointe Apartments. The increase in maintenance expenses for the nine
month period in 1997, compared to 1996, can be attributed to 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. However, maintenance expense decreased for the three
months ended September 30, 1997, due to the completion of parking lot repairs at
Signal Pointe Apartments in the third quarter of 1996. The loss on disposal of
property resulted from a roof replacement at Parktown Townhouses. The
replacement of the roof resulted in the write-off of the old roof that had not
been fully depreciated at the time of replacement. Partially offsetting the
decrease in net income for the three and nine months ended September 30, 1997,
was an increase in rental revenue. Rental revenue increased as a result of
rental rate increases at Raintree Apartments and Signal Pointe Apartments.
Included in maintenance expense for the nine months ended September 30, 1997, is
approximately $145,000 of major repairs and maintenance comprised primarily of
gutter repairs, exterior painting and other exterior building improvements.
Included in maintenance expense for the nine months ended September 30, 1996, is
approximately $121,000 of major repairs and maintenance comprised primarily of
parking lot repairs, exterior 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 September 30, 1997, the Partnership held unrestricted cash and cash
equivalents of approximately $1,664,000, compared to approximately $2,385,000 at
September 30, 1996. Contributing to the increase in net cash provided by
operating activities is a lesser increase in tax escrows, a lesser decrease in
accounts payable and an increase in other liabilities. Net cash used in
investing activities increased due to an increase in property improvements and
replacements, primarily at Parktown Townhouses. Net cash used in financing
activities increased due to an increase in distributions to partners.
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
Townhouses due to possible underground leaks. 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 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 $8,598,000, 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. During the nine months ended September 30, 1997,
distributions totaling $1,005,000 were declared and paid. During the nine
months ended September 30, 1996, distributions totaling $500,000 were declared
and paid. As of September 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 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, 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: November 4, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties II Limited Partnership 1997 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> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,664
<SECURITIES> 0
<RECEIVABLES> 20
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,718
<DEPRECIATION> 15,734
<TOTAL-ASSETS> 0
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,598
0
0
<COMMON> 0
<OTHER-SE> 3,021
<TOTAL-LIABILITY-AND-EQUITY> 12,326
<SALES> 0
<TOTAL-REVENUES> 4,251
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,898
<LOSS-PROVISION> 600
<INTEREST-EXPENSE> 258
<INCOME-PRETAX> 0
<INCOME-TAX> 258
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 258
<EPS-PRIMARY> 9.27<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
