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 June 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT of 1934
For the transition period.........to.........
Commission file number 0-15647
INVESTORS FIRST-STAGED EQUITY L.P. II
(Exact name of small business issuer as specified in its charter)
Delaware 36-3375342
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
8700 West Bryn Mawr
Chicago, Illinois 60631
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (312) 399-8700
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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED BALANCE SHEET
(Unaudited)
June 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Cash:
Unrestricted $ 2,139,948
Restricted-tenant security
deposits 67,753
Accounts receivable 203,303
Note receivable 339,921
Escrows for taxes 42,058
Other assets 89,647
Investment properties:
Leasehold interests $ 1,385,874
Buildings and improvements 10,475,110
Personal property 970,590
12,831,574
Less accumulated depreciation (5,002,709) 7,828,865
$10,711,495
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 35,450
Tenant security deposits 67,753
Other liabilities 106,607
Deferred gain 339,921
Mortgage notes payable 9,369,944
Partners' Capital
General partners $ 1,108
Limited partners (25,186 units
issued and outstanding) 790,712 791,820
$10,711,495
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
1
<PAGE>
b) INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Rental income $599,205 $724,754 $1,154,713 $1,968,203
Other income 21,282 8,381 38,847 11,995
Total revenues 620,487 733,135 1,193,560 1,980,198
Expenses:
Operating 121,375 116,564 202,571 410,715
General and
administrative 58,052 127,626 123,998 132,863
Property management
fees 39,828 35,139 73,048 82,465
Maintenance 46,081 54,535 95,361 189,812
Depreciation 127,940 117,804 255,879 401,128
Amortization 6,876 18,016 13,753 52,092
Interest 155,345 220,490 366,412 818,236
Property taxes 16,473 55,116 41,557 128,106
Tenant reimbursements 6,807 (14,070) (27,836) (25,254)
Total expenses 578,777 731,220 1,144,743 2,190,163
Gain on sale of
properties 50,000 -- 57,357 --
Income (loss) before
extraordinary item 91,710 1,915 106,174 (209,965)
Extraordinary item-gain
on extinguishment of
debt -- -- -- 7,322,081
Net income $ 91,710 $ 1,915 $ 106,174 $7,112,116
Net income
allocated to general
partners $ 917 $ 19 $ 1,062 $ 164,096
Net income allocated to
limited partners 90,793 1,896 105,112 6,948,020
$ 91,710 $ 1,915 $ 106,174 $7,112,116
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Net income (loss) per
limited partnership unit:
Net income (loss)
before extraordinary item $ 3.60 $ 1.00 $ 4.17 $ (8.25)
Extraordinary item
-- -- -- 287.81
Net income per limited
partnership unit $ 3.60 $ 1.00 $ 4.17 $ 279.56
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
c) INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Partners' capital at
December 31, 1994 25,186 $ 46 $ 685,600 $ 685,646
Net income for the six months
ended June 30, 1995 -- 1,062 105,112 106,174
Partners' capital at
June 30, 1995 25,186 $ 1,108 $ 790,712 $ 791,820
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
d) INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
<S> <C> <C>
1995 1994
Cash flows from operating activities:
Net income $ 106,174 $ 7,112,116
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 255,879 401,128
Amortization of loan fees and other
costs 23,473 61,812
Extraordinary gain from the
extinguishment of debt -- (7,322,081)
Gain on sale of properties (57,357) --
Change in accounts:
Accounts receivable (39,789) (103,162)
Escrows for taxes (17,055) (78,731)
Other assets (5,834) 8,980
Accounts payable 2,217 30,040
Accrued taxes 1,484 44,994
Tenant security deposit liabilities -- (87,887)
Other liabilities (22,515) 299,636
Net cash provided by operating
activities 246,677 366,845
Cash flows from investing activities:
Property improvements and replacements -- (11,792)
Proceeds received from notes receivable 57,357 --
Net cash provided by (used in)
investing activities 57,357 (11,792)
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1995 1994
<S> <C> <C>
Cash flows from financing activities:
Payments on mortgage notes payable $ (59,482) $ (91,038)
Cash relinquished to lenders -- (390,348)
Net cash used in financing
activities (59,482) (481,386)
Net increase (decrease) in cash 244,552 (126,333)
Cash at beginning of period 1,895,396 1,815,291
Cash at end of period $2,139,948 $ 1,688,958
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 377,508 $ 880,487
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
SUPPLEMENTAL DISCLOSURE OF NON-CASH ACTIVITY
Foreclosure
In March of 1994, the Partnership lost Kendall Mall, a commercial
property located in Dade County, Florida, through foreclosure to The
Travelers Insurance Company, the holder of the second mortgage (See Note
B of the financial statements). In connection with this transaction,
the following accounts were adjusted by the following non-cash amounts
noted:
Relinquishment of cash $ (390,348)
Accounts receivable (189,658)
Escrow deposits for taxes and insurance (177,215)
Other assets (34,187)
Investment properties (18,890,910)
Accumulated depreciation 7,678,412
Accounts payable 425,435
Tenant security deposits 69,313
Advances due to affiliates of the general
partner 1,006
Mortgage payable 18,830,233
Aggregate gain on transaction (7,322,081)
7
<PAGE>
e) INVESTORS FIRST-STAGED EQUITY L.P. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item
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
General Partner, all adjustments (consisting of normal recurring
accruals) considered necessary for a fair presentation have been
included. Operating results for the six month period ended June 30,
1995, are not necessarily indicative of the results that may be expected
for the fiscal year ending December 31, 1995. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-KSB for the fiscal year ended
December 31, 1994.
Certain reclassifications have been made to the 1994 information to
conform to the 1995 presentation.
Note B - Foreclosure of Kendall Mall
Mortgage notes and accrued interest payable of Kendall Mall consisted
of a first mortgage in the principal amount of $2,976,405, with an
interest rate of 8.5%, which matured on August 1993; a second mortgage
in the principal amount of $10,894,365, with an interest rate of 14%
maturing in February 1994; and accrued mortgage interest of $4,959,465.
The second mortgage lender on Kendall Mall began foreclosure
proceedings in 1992 and exercised its rights under the assignment of
rents provision of the second mortgage agreement. The first mortgage
note matured in August 1993. The Partnership was unable to repay all
amounts due on the note, and the first mortgage lender declared the loan
in default. A final judgment of foreclosure was issued in February and
the property was sold at public auction on March 16, 1994.
Note C - Notes Receivable
In 1992, a contract was executed for the sale of the Chester Holiday
Inn and the Richmond Holiday Inn for a combined price of $10,745,000.
In conjunction with this sale, the buyer delivered to the Partnership
two interest bearing promissory notes in the principal amounts of
$405,000 and $697,627. The $405,000 note was collected in 1993. The
$697,627 promissory note was renegotiated on May 1, 1994, to require
monthly payments of $7,357 with additional payments made quarterly based
upon available cash flow. Also, the note was reduced to $441,420 with an
equivalent reduction in the deferred gain and the maturity was extended
to July 1999. This note is collateralized by a second mortgage on the
Richmond Holiday Inn and a personal guarantee of the buyer. The note
holder is currently in default and collection of the remaining balance
is uncertain.
8
<PAGE>
Note C - Notes Receivable - continued
As a result of collections on the Richmond note, the Partnership
recognized a gain of $57,357 through the six months ending June 30,
1995. The remaining deferred gain of $339,921 will be recognized as the
notes are collected.
Note D - Transactions with Affiliates and Related Parties
The Partnership has no employees and is dependent on the General
Partner or its affiliates for the management and administration of all
partnership activities. The General Partner or its affiliates may be
reimbursed for direct expenses relating to the Partnership's
administration and other costs paid on behalf of the Partnership. The
General Partner or its affiliates received $5,891 and $18,478 in the
first six months of 1995 and 1994, respectively, as reimbursement for
such advances and out-of-pocket expenses.
Pursuant to an agreement dated July 14, 1994, a transaction is
pending in which the current General Partner would be replaced by
MAERIL, Inc., an affiliate of Insignia Financial Group, Inc.
("Insignia"). The substitution of MAERIL, Inc. as the General Partner
is expected, but there is no assurance that the transaction will be
consummated.
The Partnership has engaged affiliates of Insignia to provide day-to-
day management of the Partnership's properties under an agreement which
provides for fees equal to 6% of revenues on each property. An
affiliate of Insignia has provided partnership administration and
management services for the Partnership since March 1, 1994.
Reimbursements for direct expenses relating to these services totalled
approximately $81,796 at June 30, 1995. For the period from January 1,
through July 14, 1994, Insignia assigned a portion of its fees to an
affiliate of the General Partner. Payments to this affiliate under this
assignment were approximately $9,477 during the six months ending June
30, 1994.
Note E - Legal Proceedings
Certain affiliates of the General Partner and certain officers and
directors of such affiliates are parties to certain pending legal
proceedings. The adverse outcome of any one or more legal proceedings
against an affiliate of the General Partner which provides financial
support or services to the Partnership could have a materially adverse
effect on the present and future operations of the Partnership.
However, the inclusion of this discussion is not intended as a
representation by the Partnership that any particular proceeding is
material. There can be no assurance as to the outcome of any of these
legal proceedings.
9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
The Partnership's investment properties consist of two commercial
buildings. The following table sets forth the average occupancy of this
property for the six months ended June 30, 1995 and 1994:
<TABLE>
<CAPTION>
Average
Occupancy
<S> <C> <C>
1995 1994
Centinella Valley Medical Building I 73% 75%
Centinella Valley Medical Building II 100% 100%
</TABLE>
The Partnership had net income of $106,174 for the six months ended
June 30, 1995, as compared to net income of $7,112,116 for the six
months ended June 30, 1994. The net income reported at June 30, 1994,
was primarily the result of an extraordinary gain on extinguishment of
debt related to the foreclosure of Kendall Mall (see Note B to the
Consolidated Financial Statements). The Partnership had net income of
$91,710 for the three month period ended June 30, 1995, as compared to
net income of $1,915 for the corresponding period in 1994. Rental
revenues decreased for the six months ending June 30, 1995, as compared
to the same period in 1994 due primarily to the foreclosure of Kendall
Mall in March of 1994. Rental revenues decreased for the three month
period ending June 30, 1995, as compared to the corresponding period in
1994 due to a drop in occupancy at Centinella I. Other income increased
for the three and six month periods ended June 30, 1995 and 1994 as a
result of higher interest income. Tenant reimbursements decreased for
the three months ended June 30, 1995, compared to the three months ended
June 30, 1994, due to reduced levels of recoverable expenses and billing
adjustments reflecting final billings for 1994 expense recoveries made
during the second quarter of 1995.
Operating, general and administrative, property tax, and maintenance
expenses decreased for the six month period ending June 30, 1995, as
compared to the six month period ending June 30, 1994, primarily as a
result of the foreclosure of the Kendall Mall property. Additionally,
operating expenses decreased at the remaining investment properties as a
result of reduced office supplies, tax and license fees, and other
miscellaneous operating costs. Maintenance expense further decreased
due to a reduction in contract trash removal at Centinella II. Interest
expense decreased for the three and six months ended June 30, 1995,
resulting from mortgage interest rates decreasing from approximately 9%
to 7% effective April 1995. Amortization expense decreased as a portion
of the related assets were fully amortized by December 31, 1994.
General and administrative expenses decreased for the three months ended
June 30, 1995, as compared to the corresponding period in 1994 primarily
due to legal expenses relating to the Kendall Mall foreclosure
recognized in the three months ending June 30, 1994.
The gain on sale of properties for the three and six month periods
ending June 30, 1995, relates to promissory note collections associated
with the sale of Richmond Holiday Inn (see Note C to the Consolidated
Financial Statements).
As part of the ongoing business plan of the Partnership, the General
Partner monitors the rental market environment of each of its investment
properties to
10
<PAGE>
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 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 General
Partner will be able to sustain such a plan.
Liquidity and Capital Resources
The Partnership acquired its interests in two shopping centers and
two medical office buildings on June 1, 1986, and in the two hotels on
October 1, 1986, through the acquisition of a 99.99% Partnership
interests in existing sub-tier partnerships. The acquisition cost,
which was evidenced by the assumption of existing indebtedness, was
equal to the original purchase price of the properties by the sub-tier
partnerships plus all costs to carry the properties.
The Partnership held unrestricted cash of $2,139,948 for the quarter
ended June 30, 1995, compared to unrestricted cash of $1,688,958 for the
quarter ended June 30, 1994. Cash provided by operating activities
decreased primarily due to increased payments of accrued audit and
insurance fees. Cash provided by investing activities increased due to
collections from the notes receivable in combination with reduced
capital expenditures in 1995. Cash used in financing activities
decreased as a result of decreased mortgage payments due to the
foreclosure of Kendall Mall. The cash relinquished to lenders in the
first quarter of 1994 also relates to the foreclosure of Kendall Mall.
Due to continuing cash flow problems at Kendall Mall, the Partnership
was unable to repay all amounts due on the note and the first mortgage
lender declared the loan in default. In March of 1994, the second
mortgage holder foreclosed upon the property.
In 1992, a contract was executed for the sale of the Chester Holiday
Inn and the Richmond Holiday Inn for a combined price of $10,745,000.
In conjunction with this sale, the buyer delivered to the Partnership
two interest bearing promissory notes in the principal amounts of
$405,000 and $697,627. The $405,000 promissory note was collected in
1993. The $697,627 promissory note was renegotiated on May 1, 1994, to
require monthly payments of $7,357 with additional payments made
quarterly based upon available cash flow. Also, the note was reduced to
$441,420 with an equivalent reduction in the deferred gain and the
maturity was extended to July 1999. This note is collateralized by a
second mortgage on the Richmond Holiday Inn and a personal guarantee of
the buyer. The note holder is currently in default and collection of
the remaining balance is uncertain.
As a result of collections on the Richmond note, the Partnership
realized a gain of $57,357 through the six months ending June 30, 1995.
The remaining deferred gain of $339,921 is being recognized as the notes
are collected.
11
<PAGE>
The immediate source of future liquidity is expected to result from
cash flow of the commercial properties and any collection of amounts due
under the promissory note from the sale of the Richmond Holiday Inn.
Distributions to Limited Partners in the short-term are likely to be
deferred until such time as the General Partner determines that
available cash will not be needed to fund future costs. The mortgage
indebtedness of $9,369,944 has balloon payments of $9,301,130 due April
1, 1996. Refinancing of the debt is being discussed with a new lender,
however, the negotiations have not been finalized. A single tenant
occupies 47,816 square feet of Centinella II (approximately 76% of the
leasable space) under a lease expiring in January of 1996. Renewal
discussions are ongoing but no lease agreement has been reached and
there is no assurance these discussions will be successful. Failure to
re-lease this space would impair the Partnership's ability to refinance
the debt. In the long term, sources of liquidity and cash distributions
to the Limited Partners may include cash generated from the
Partnership's properties and the sale or refinancing of these
properties.
Developments - VMS Realty Partners and Affiliates
There have been no material developments or changes from the Recent
Developments-VMS Realty Partners and Affiliates disclosed in Part I,
Item 2 of the Partnership's report on Form 10-QSB for the quarter ended
March 31, 1995.
12
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no new developments or changes from Part II, Item 1 of the
Partnership's report on Form 10-QSB for the quarter ended March 31,
1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Partnership did not submit any matter to a vote of its holders of
Limited Partnership Interests during the first or second quarter of
1995.
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 June 30, 1995.
13
<PAGE>
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.
INVESTORS FIRST-STAGED EQUITY L.P. II
(Registrant)
By: VMS Realty Investment II,
General Partner
Date: August 10, 1995 By: /s/ Joel A. Stone
Joel A. Stone
President
Date: August 10, 1995 By: /s/ Thomas A. Gatti
Thomas A. Gatti,
Senior Vice-President and
Principal Accounting Officer
14
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Investors First-Staged Equity L.P. II's 1995 Second Quarter 10-QSB and
is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 2,139,948
<SECURITIES> 0
<RECEIVABLES> 543,224
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,882,630
<PP&E> 12,831,574
<DEPRECIATION> 5,002,709
<TOTAL-ASSETS> 10,711,495
<CURRENT-LIABILITIES> 209,810
<BONDS> 9,369,944
<COMMON> 0
0
0
<OTHER-SE> 791,820
<TOTAL-LIABILITY-AND-EQUITY> 10,711,495
<SALES> 0
<TOTAL-REVENUES> 1,193,560
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,144,743
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 366,412
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 106,174
<EPS-PRIMARY> 4.17
<EPS-DILUTED> 0
<PAGE>
</TABLE>
