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
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
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)
(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 Exchange Act during the past 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, 1998
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 1,565
Receivables and deposits 304
Restricted escrows 946
Other assets 202
Investment properties:
Land $ 1,814
Buildings and related personal property 23,089
24,903
Less accumulated depreciation (16,240) 8,663
$11,680
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 77
Tenant security deposits 130
Accrued property taxes 105
Other liabilities 216
Mortgage notes payable 8,498
Partners' (Deficit) Capital
General partners' $ (121)
Limited partners' (27,500 units
issued and outstanding) 2,775 2,654
$ 11,680
See Accompanying Notes to Financial Statements
b)
SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1998 1997
Revenues:
Rental income $1,365 $1,282
Other income 76 80
Total revenues 1,441 1,362
Expenses:
Operating 631 679
General and administrative 52 44
Depreciation 244 250
Interest 196 201
Property taxes 105 106
Total expenses 1,228 1,280
Net Income $ 213 $ 82
Net income allocated to general
partners (1%) $ 2 $ 1
Net income allocated to limited
partners (99%) 211 81
$ 213 $ 82
Net income per limited partnership unit $ 7.67 $ 2.95
Distributions per limited partnership unit $27.02 $ --
See Accompanying Notes to Financial Statements
c)
SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partners' Partners' Total
Original capital contributions 27,500 $ 2 $ 27,500 $ 27,502
Partners' (deficit) capital
at December 31, 1997 27,500 $ (116) $ 3,307 $ 3,191
Distribution to partners -- (7) (743) (750)
Net income for the three
months ended March 31, 1998 -- 2 211 213
Partners' (deficit) capital
at March 31, 1998 27,500 $ (121) $ 2,775 $ 2,654
See Accompanying Notes to Financial Statements
d)
SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 213 $ 82
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 244 250
Amortization of discounts and loan costs 27 27
Change in accounts:
Receivables and deposits 54 83
Other assets 17 --
Accounts payable 27 (104)
Tenant security deposits payable -- (8)
Accrued property taxes (74) (119)
Other liabilities (16) (7)
Net cash provided by operating activities 492 204
Cash flows from investing activities:
Property improvements and replacements (97) (173)
Net deposits to restricted escrows (5) (10)
Net cash used in investing activities (102) (183)
Cash flows from financing activities:
Payments on mortgage notes payable (68) (62)
Distribution to partners (750) --
Net cash used in financing activities (818) (62)
Net decrease in cash and cash equivalents (428) (41)
Cash and cash equivalents at beginning of period 1,993 2,222
Cash and cash equivalents at end of period $1,565 $2,181
Supplemental disclosure of cash flow information:
Cash paid for interest $ 169 $ 174
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") 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, 1998, are not necessarily indicative of the results that
may be expected for the fiscal year ending December 31, 1998. 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,
1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 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.
Three Months Ended
March 31,
1998 1997
(in thousands)
Net cash provided by operating activities $ 492 $ 204
Payments on mortgage notes payable (68) (62)
Property improvements and replacements (97) (173)
Change in restricted escrows, net (5) (10)
Changes in reserves for net operating
liabilities (8) 155
Additional reserves (314) (115)
Net cash used in operations $ -- $ (1)
For the three months ended March 31, 1998 and 1997, the Corporate General
Partner believed it to be in the best interest of the Partnership to reserve an
additional $314,000 and $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 Corporate General Partner is wholly-owned by
Insignia Properties Trust ("IPT"), an affiliate of Insignia Financial Group,
Inc. ("Insignia"). 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
affiliates of the Corporate General Partner in 1998 and 1997 are as follows:
Three Months Ended
March 31,
1998 1997
(in thousands)
Property management fees (included in operating expenses) $ 72 $ 67
Reimbursement for services of affiliates, including
$5,000 of construction services reimbursements in 1997
(included in investment properties, general and
administrative, and operating expenses) 32 30
Due to general partners (included in other liabilities) 58 58
From January 1, 1997, through August 31, 1997, the Partnership insured its
properties under a master policy through an agency affiliated with the Corporate
General Partner, with an 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 which received payments 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" subordinated 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
owed by the Partnership.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
the third quarter of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the Corporate General Partner of the
Partnership.
NOTE D - DISTRIBUTIONS TO PARTNERS
During the first quarter of 1998, the Partnership declared and paid a $750,000
cash distribution. Of this amount, $248,000 was refinance proceeds from prior
years, $108,000 was sales proceeds from prior years, and $394,000 was from
operations.
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, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Parktown Townhouses
Deer Park, Texas 95% 95%
Raintree Apartments
Anderson, South Carolina 90% 88%
Signal Pointe Apartments
Winter Park, Florida 96% 96%
The Partnership realized net income for the three months ended March 31, 1998,
of approximately $213,000 compared to approximately $82,000 for the
corresponding period of 1997. The increase in net income is primarily
attributable to an increase in rental revenues and a decrease in operating
expenses. Rental revenues increased primarily due to increased rental rates at
Parktown Townhouses and Signal Pointe Apartments and an increase in occupancy at
Raintree Apartments. Occupancy remained stable at Parktown Townhouses and
Signal Pointe Apartments. Operating expenses decreased primarily as a result of
fewer major repairs and maintenance items at all of the Partnership's investment
properties during 1998. Included in operating expense for the three months
ended March 31, 1998, is approximately $7,000 of major repairs and maintenance
comprised primarily of exterior building improvements and parking lot repairs.
Included in operating expense for the three months ended March 31, 1997, is
approximately $86,000 of major repairs and maintenance comprised primarily of
gutter repairs, exterior painting and other exterior building improvements, most
of which was part of the rehabilitation project at Parktown Townhouses.
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 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 this
plan.
At March 31, 1998, the Partnership held cash and cash equivalents of
approximately $1,565,000 compared to approximately $2,181,000 at March 31, 1997.
For the three months ended March 31, 1998, cash and cash equivalents decreased
approximately $428,000, compared to a decrease of approximately $41,000 for the
three months ended March 31, 1997. Net cash provided by operating activities
increased primarily as a result of an increase in net income as previously
discussed. Also contributing to the increase in net cash provided by operating
activities was a decrease in cash used for accounts payable and accrued taxes
related to the timing of payments. Net cash used in investing activities
decreased primarily due to a reduction in property improvements and
replacements. Net cash used in financing activities increased primarily due to
a distribution being paid to the partners in the first quarter of 1998.
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 $8,498,000, 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. Cash distributions of $750,000 were paid during the three months
ended March 31, 1998. Future cash distributions will depend on the levels of
net cash generated from operations, refinancings, property sales and the
availability of cash reserves.
Year 2000
The Partnership is dependent upon the Corporate General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed no
later than December 31, 1998, which is prior to any anticipated impact on its
operating systems. The Corporate General Partner believes that with
modifications to existing software and conversions to new software, the Year
2000 Issue will not pose significant operational problems for its computer
systems. However, if such modifications and conversions are not made, or are not
completed timely, the Year 2000 Issue could have a material impact on the
operations of the Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results,
performance or achievements of the Partnership to be materially different from
any future results, performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements speak only as of
the date of this quarterly report. The Partnership expressly disclaims any
obligation or undertaking to release publicly any updates or revisions to any
forward-looking statements contained herein to reflect any change in the
Partnership's expectations with regard thereto or any change in events,
conditions or circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled ROSALIE NUANES, ET AL. V. INSIGNIA
FINANCIAL GROUP, INC., ET AL. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Corporate General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia and its affiliates of
interests in certain general partner entities, past tender offers by Insignia
affiliates as well as a recently announced agreement between Insignia and
Apartment Investment and Management Company. The complaint seeks monetary
damages and equitable relief, including judicial dissolution of the Partnership.
The Corporate General Partner was only recently served with the complaint which
it believes to be without merit, and intends to vigorously defend the action.
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, 1998.
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: April 29, 1998
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<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Shelter Properties II Limited Partnership 1998 First Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
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<NAME> SHELTER PROPERTIES II LIMITED PARTNERSHP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,565
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<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,903
<DEPRECIATION> 16,240
<TOTAL-ASSETS> 11,680
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,498
0
0
<COMMON> 0
<OTHER-SE> 2,654
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