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 March 31, 1996
or
[ ] 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 II L.P.
(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 (864) 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
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
March 31, 1996
Assets
Cash:
Unrestricted $ 2,742
Restricted-tenant security deposits 66
Accounts receivable 76
Escrows for taxes and insurance 127
Other assets 59
Investment properties:
Leasehold interests $ 1,386
Buildings and improvements 10,515
Personal property 971
12,872
Less accumulated depreciation (5,383) 7,489
$10,559
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 27
Tenant security deposits 67
Other liabilities 117
Mortgage notes payable 9,266
Partners' Capital
General partners $ 4
Limited partners (25,186 units
issued and outstanding) 1,078 1,082
$10,559
See Accompanying Notes to Consolidated Financial Statements
b) INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Revenues:
Rental income $ 631 $ 590
Other income 23 17
Total revenues 654 607
Expenses:
Operating 99 89
General and administrative 35 65
Property management fees 38 33
Maintenance 43 49
Depreciation 125 128
Interest 177 211
Property taxes 22 25
Total expenses 539 600
Gain on disposition of investment
property -- 7
Net income $ 115 $ 14
Net income allocated to general partners $ 1 $ --
Net income allocated to limited partners 114 14
$ 115 $ 14
115 $ 14
Net income per limited partnership unit $ 4.53 $ .57
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
c) INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(in thousands, except unit data)
(unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Partners' capital at
December 31, 1995 25,186 $ 3 $ 964 $ 967
Net income for the three
months ended March 31, 1996 -- 1 114 115
Partners' capital at
March 31, 1996 25,186 $ 4 $ 1,078 $ 1,082
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 115 $ 14
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 125 128
Amortization of loan fees and other costs 8 4
Gain on disposition of investment property -- (7)
Change in accounts:
Accounts receivable (31) (23)
Escrows for taxes and insurance (28) (28)
Other assets 1 --
Accounts payable 3 13
Tenant security deposit liabilities (4) --
Other liabilities 35 (5)
Net cash provided by operating activities 224 106
Cash flows from investing activities:
Property improvements and replacements (36) --
Collections of notes receivable -- 7
Net cash (used in) provided by
investing activities (36) 7
Cash flows from financing activities:
Payments on mortgage notes payable (35) (24)
Net cash used in financing activities (35) (24)
Net increase in cash and cash equivalents 153 89
Cash and cash equivalents at beginning of period 2,589 1,895
Cash and cash equivalents at end of period $ 2,742 $ 1,984
Supplemental disclosure of cash flow information:
Cash paid for interest $ 172 $ 214
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
e) INVESTORS FIRST-STAGED EQUITY L.P. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated 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 three month period
ended March 31, 1996, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1996. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Partnership's annual report on Form 10-KSB for the year ended December 31, 1995.
Certain reclassifications have been made to the 1995 information to conform to
the 1996 presentation.
Note B - 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 approximately $405,000 and
$698,000. The $405,000 note was collected in 1993. The $698,000 promissory
note was renegotiated on May 1, 1994, to require monthly payments of
approximately $7,000 with additional payments made quarterly according to cash
flow. The note was reduced to approximately $441,000 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 Partnership agreed to further modify the terms of the note to assign the
note to the guarantor upon the payment of $150,000 in $50,000 increments on or
before May, August and November 15, 1995. This assignment effectively forgave
the remaining note balance of approximately $390,000 upon payment of $150,000.
The Partnership collected the three scheduled payments for May, August and
November in 1995.
As a result of collections on the Richmond note, the Partnership recognized a
gain of $7,000 for the three month period ended March 31, 1995. This gain had
originally been deferred due to the uncertainty of collecting the note.
Note C - 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 approximately
$2,000 and $3,000 in the first three months of 1996 and 1995, respectively, as
reimbursement for such 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 $19,000 and $36,000 for the quarters ending
March 31, 1996 and 1995, respectively.
Note D - 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.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consist of two commercial buildings.
The following table sets forth the average occupancy of the properties for the
quarters ended March 31, 1996 and 1995:
Average Occupancy
1996 1995
Centinella I 73% 73%
Centinella II 96% 100%
The General Partner attributes the decrease in occupancy at Centinella II to a
tenant vacating the property on January 15, 1996. This tenant occupied 2,710
square feet of space. There are prospective tenants being shown the space and
the Partnership expects to obtain a new tenant during the second quarter.
The Partnership realized net income of $115,000 for the quarter ended March 31,
1996, compared to net income of $14,000 for the corresponding period of 1995.
General and administrative expenses decreased for the quarter ended March 31,
1996, compared to the quarter ended March 31, 1995, due to decreased expense
reimbursements resulting from lower administration costs. Additionally,
interest expense decreased for the quarter ended March 31, 1996, as a result of
decreases in the interest rates related to the property mortgages. Interest
rates for the first quarter 1996 were approximately 7.4% compared to
approximately 10% for the first quarter of 1995.
The gain on disposition of investment property for the three month period ending
March 31, 1995, relates to the promissory note collections associated with the
sale of Richmond Holiday Inn (see "Note B" of the Notes to 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
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 held unrestricted cash of $2,742,000 at March 31, 1996, compared
to unrestricted cash of $1,984,000 at March 31, 1995. Cash provided by
operating activities increased primarily due to increased rental revenues and
lower operating costs including lower interest payments. Cash used in investing
activities increased due to increased capital expenditures during the first
quarter of 1996. Cash used in financing activities increased due to increased
principal payments.
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 according to cash flow. The note was reduced
to $441,420 with an equivalent reduction in the deferred gain. 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 Partnership agreed to further modify the terms of the note to assign the
note to the guarantor upon the payment of $150,000 in $50,000 increments on or
before May, August and November 15, 1995. This assignment effectively forgave
the remaining note balance of approximately $390,000 upon payment of $150,000.
As a result of collections on the Richmond note, the Partnership recognized a
gain of $7,000 for the three months ended March 31, 1995. This gain had
originally been deferred due to the uncertainty of collecting the note.
As of December 31, 1995, the partnership had collected all scheduled payments
related to the note.
The immediate source of future liquidity is expected to result from cash flow of
the commercial properties. 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 approximately $9,266,000 has balloon payments totalling
$9,200,000 due April 1, 1996. The subtier partnerships owning the respective
properties have executed letters of intent to refinance the debt with the
existing lender for 5 years. The proposed loans will mature April 1, 2000, with
an interest rate equal to the 11th District Code of Funds Index plus 4%. The
interest rates will be adjusted monthly with payments adjusting every six
months. 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 1 of the
Partnership's report on Form 10-KSB for the year ended December 31, 1995.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There have been no new material developments or changes from Part I, Item 3 of
the Partnership's report on the Form 10-KSB for the year ended December 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 quarter of 1996.
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, 1996.
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: May 10, 1996
By: /s/Joel A. Stone
Joel A. Stone
President
Date: May 10, 1996 By: /s/ Thomas A. Gatti
Thomas A. Gatti, Senior Vice-President
and Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from VMS
Investors First-Staged Equity L.P. II 1996 First Quarter 10-QSB and is qualified
in its entirety by refernce to such 10-QSB filing.
</LEGEND>
<CIK> 0000790882
<NAME> VMS INVESTORS FIRST-STAGED EQUITY L.P. II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 2,742
<SECURITIES> 0
<RECEIVABLES> 76
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,872
<DEPRECIATION> 5,383
<TOTAL-ASSETS> 10,559
<CURRENT-LIABILITIES> 211
<BONDS> 9,266
0
0
<COMMON> 0
<OTHER-SE> 1,082
<TOTAL-LIABILITY-AND-EQUITY> 10,559
<SALES> 0
<TOTAL-REVENUES> 654
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 539
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 115
<EPS-PRIMARY> 4.53
<EPS-DILUTED> 0
<FN>
<F1>The Registrant has an unclassified balance sheet.
</FN>
</TABLE>
