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 September 30, 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.)
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 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)
September 30, 1996
Assets
Cash:
Unrestricted $ 2,848
Restricted-tenant security deposits 65
Accounts receivable 89
Escrows for taxes and insurance 202
Other assets 42
Investment properties:
Leasehold interests 1,386
Buildings and improvements 10,529
Personal property 970
12,885
Less accumulated depreciation (5,636) 7,249
$10,495
Liabilities and Partners' Capital
Liabilities
Accounts payable 26
Tenant security deposits 65
Other liabilities 59
Mortgage notes payable 9,203
Partners' Capital
General partner $ 5
Limited partners (25,186 units
issued and outstanding) 1,137 1,142
$10,495
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)
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
Revenues:
Rental income $ 619 $ 616 $1,856 $1,799
Other income 38 16 90 55
Total revenues 657 632 1,946 1,854
Expenses:
Operating 160 128 436 401
General and administrative 31 42 115 182
Maintenance 60 48 162 143
Depreciation 126 128 378 384
Interest 212 170 602 537
Property taxes 25 25 70 67
Total expenses 614 541 1,763 1,714
Gain on disposition of
investment property
(Note B) -- 50 -- 107
Net income $ 43 $ 141 $ 183 $ 247
Net income allocated
general partner $ -- $ 2 $ 2 $ 3
Net income allocated
limited partners 43 139 181 244
$ 43 $ 141 $ 183 $ 247
Net income per
limited partnership unit $ 1.71 $ 5.52 $ 7.19 $ 9.70
See Accompanying Notes to Consolidated Financial Statements
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
Liquidating distributions to
partners (Note D) -- (8) (8)
Net income for the nine months
September 30, 1996 -- 2 181 183
Partners' capital at
September 30, 1996 25,186 $ 5 $ 1,137 $ 1,142
See Accompanying Notes to Consolidated Financial Statements
d) INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
</TABLE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 183 $ 247
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 378 384
Amortization of loan fees and other costs 23 36
Bad debt expense 10 --
Gain on disposition of investment property -- (107)
Change in accounts:
Restricted cash 1 3
Accounts receivable (54) 56
Escrows for taxes (103) (45)
Other assets 3 (11)
Accounts payable 3 (1)
Tenant security deposit liabilities (7) (3)
Other liabilities (23) 3
Net cash provided by operating activities 414 562
Cash flows from investing activities:
Property improvements and replacements (50) --
Collections of notes receivable -- 107
Net cash (used in) provided by investing
activities (50) 107
Cash flows from financing activities:
Payments on mortgage notes payable (97) (95)
Liquidating distributions to partners (8) --
Net cash used in financing activities (105) (95)
Net increase in cash 259 574
Cash at beginning of period 2,589 1,895
Cash at end of period $2,848 $2,469
Supplemental disclosure of cash flow information:
Cash paid for interest $ 643 $ 544
<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 MAERIL, Inc. ("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, 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 $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 based on available cash flow.
The note was reduced to $441,000, with an equivalent reduction in the deferred
gain, and the maturity was extended to July 1999.
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 $107,000 during the nine months ending September 30, 1995. This gain
had originally been deferred due to the uncertain collectability of 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.
Affiliates of VMS Staged Equity II, Inc., the former General Partner, received
approximately $10,000 and $9,600 during the first nine months of 1996 and 1995,
respectively, as reimbursement for such out-of-pocket expenses.
Pursuant to an agreement dated July 14, 1994, a transaction was contemplated in
which VMS Staged Equity II, Inc. would be replaced as General Partner by
MAERIL, Inc., an affiliate of Insignia Financial Group, Inc. ("Insignia").
The substitution of MAERIL, Inc. as the General Partner was finalized during
the second quarter of 1996.
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 $56,000 and $102,000 for the periods
ending September 30, 1996 and 1995, respectively.
NOTE D - REFINANCING
The mortgage indebtedness of $9,203,000 matured 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
Cost of Funds Index plus 4%. The interest rates will be adjusted monthly with
payment amounts adjusting every six months.
To facilitate the refinancing of the mortgage indebtedness owed by the subtier
partnerships, the limited partnership agreements of the respective subtier
partnerships were amended, effective July 11, 1996, as follows:
1. The general partnership interest owned by VMS Investors First-Staged
Equity, L.P. II, ("VMS IFSE II"), in the Partnership was converted to a limited
partnership interest in the Partnership, such that VMS IFSE II is the sole
limited partner owning a 99.0% limited partnership interest in the Partnership.
2. The limited partnership interest owned by MAERIL, Inc. ("MAERIL") in the
Partnership was converted to a general partnership interest in the Partnership
and was assigned by MAERIL to Centinella GP Limited Partnership ("Centinella
GP") which was admitted to the Partnership as the new general partner.
Centinella GP now owns a 1.0% general partnership interest in the Partnership.
3. Banyon Short Term Income Trust, ("Special Limited Partner") withdrew from
the Partnership as of July 11, 1996. The interest of the Special Limited
Partner in certain distributions of Capital Items was allocated among the
remaining Partners, pro rata, in accordance with their partnership interest,
from and after July 11, 1996.
4. Except as specifically amended and modified, the Partnership Agreement
continues unchanged and in full force and effect.
As consideration for withdrawing from the subtier partnerships, a liquidating
distribution in the amount of approximately $8,000 was paid to the Special
Limited Partner.
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 periods ending September 30, 1996 and 1995:
Average Occupancy
1996 1995
Centinella I 76% 73%
Centinella II 95% 100%
The General Partner attributes the increase in occupancy at Centinella I to
a lease renewal at the end of 1995 which increased the space occupied by
956 square feet. The decrease in occupancy at Centinella II is due to a
tenant vacating the property on January 15, 1996. This tenant occupied
2,710 square feet of space. Additionally, a tenant occupying approximately
1,400 square feet vacated the property during the third quarter of 1996.
There are prospective tenants being shown the spaces and the Partnership
expects to attract new tenants during the fourth quarter.
The Partnership realized net income of $183,000 for the nine months ended
September 30, 1996, compared to net income of $247,000 for the
corresponding period of 1995. The Partnership realized net income of
$43,000 for the three months ended September 30, 1996, compared to net
income of $141,000 for the corresponding period of 1995. Net income for the
three and nine months ended September 30, 1996, decreased primarily due to
increases in operating, maintenance and interest expenses, partially offset
by an increase in rental and other income and a decrease in general and
administrative expenses.
Other income increased for the three and nine month periods ended September
30, 1996, compared to the corresponding periods of 1995, due to higher
interest income resulting from increases in interest rates combined with
higher cash balances. General and administrative expenses decreased for the
three and nine months ended September 30, 1996, compared to the
corresponding periods of 1995, due to decreased expense reimbursements.
Interest expense increased for the three month period ending September 30,
1996, compared to the corresponding period of 1995, as a result of
increases in the mortgage interest rates from approximately 6.99% effective
April 1, 1995, to 8.98% effective May 1, 1996. Maintenance expenses
increased for the three and nine months ended September 30, 1996, compared
to the corresponding period of 1995, as a result of increased contract
trash removal and HVAC repairs at Centinella I.
The gain on disposition of investment property for the nine months ended
September 30, 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.
Pursuant to an agreement dated July 14, 1994, a transaction was
contemplated in which VMS Staged Equity II, Inc. would be replaced as
General Partner by MAERIL, Inc., an affiliate of Insignia Financial Group,
Inc. ("Insignia"). The substitution of MAERIL, Inc. as the General Partner
was finalized during the second quarter of 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership held unrestricted cash of $2,848,000 at September 30, 1996,
compared to unrestricted cash of $2,469,000 at September 30, 1995. Cash
provided by operating activities decreased primarily due to increased
fundings for tax escrows and increases in operating, maintenance and
interest expenses. Cash used in investing activities increased due to
increased capital expenditures related to tenant improvements at both
properties during 1996.
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
$698,000. The $405,000 promissory 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 $441,000 with an
equivalent reduction in the deferred gain. The maturity was extended to
July 1999.
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 $107,000 during the nine months ended
September 30, 1995. This gain had originally been deferred due to the
uncertain collectability of 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. The mortgage indebtedness of $9,203,000
matured April 1, 1996. The sub-tier 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 Cost 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 partners may include cash generated from the
Partnership's properties and the sale or refinancing of these properties.
To facilitate the refinancing of the mortgage indebtedness owed by the
subtier partnerships, the limited partnership agreements of the respective
subtier partnerships were amended, effective July 11, 1996, as follows:
1. The general partnership interest owned by VMS Investors First-Staged
Equity, L.P. II, ("VMS IFSE II"), in the Partnership was converted to a
limited partnership interest in the Partnership, such that VMS IFSE II is
the sole limited partner owning a 99.0% limited partnership interest in
the Partnership.
2. The limited partnership interest owned by MAERIL, Inc. ("MAERIL") in
the Partnership was converted to a general partnership interest in the
Partnership and was assigned by MAERIL to Centinella GP which was
admitted to the Partnership as the new general partner. Centinella GP
now owns a 1.0% general partnership interest in the Partnership.
3. Banyon Short Term Income Trust, ("Special Limited Partner") withdrew
from the Partnership as of July 11, 1996. The interest of the Special
Limited Partner in certain distributions of Capital Items was allocated
among the remaining Partners, pro rata, in accordance with their
partnership interest, from and after July 11, 1996.
4. Except as specifically amended and modified, the Partnership
Agreement continues unchanged and in full force and effect.
As consideration for withdrawing from the subtier partnerships, a
liquidating distribution in the amount of approximately $8,000 was paid
to the Special Limited Partner.
PART II - OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Pursuant to an agreement dated July 14, 1994, a transaction was
contemplated in which VMS Staged Equity II, Inc. would be
replaced as the General Partner by MAERIL, Inc., an affiliate of
Insignia Financial Group, Inc. ("Insignia"). The details of the
transaction are documented in the Schedule 14C, Definitive
Information Statement for VMS Investors First-Staged Equity L.P.
II, filed March 29, 1996, incorporated by reference hereto and
attached as an exhibit to this Form 10-QSB. The substitution of
MAERIL, Inc. as the General Partner was completed during the
second 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.
Exhibit 99, Schedule 14C, Definitive Information Statement, is
filed as an exhibit to this report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 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: MAERIL, Inc.
General Partner
Date: November 8, 1996 By: /s/Carroll D. Vinson
Carroll D. Vinson
President
Date: November 8, 1996 By: /s/Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from VMS
Investors First-Staged Equity L.P. II 1996 Third Quarter 10-QSB and is qualified
in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000790882
<NAME> VMS INVESTORS FIRST-STAGED EQUITY L.P. II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 2,848
<SECURITIES> 0
<RECEIVABLES> 89
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,885
<DEPRECIATION> 5,636
<TOTAL-ASSETS> 10,495
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 9,203
0
0
<COMMON> 0
<OTHER-SE> 1,142
<TOTAL-LIABILITY-AND-EQUITY> 10,495
<SALES> 0
<TOTAL-REVENUES> 1,946
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,763
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 602
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 183
<EPS-PRIMARY> 7.19<F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet.
<F2> Multiplier is 1.
</FN>
</TABLE>
