FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL
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 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the transition period.........to.........
Commission file number 0-15647
VMS 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.)
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) VMS INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
September 30, 1997
Assets
Cash:
Unrestricted $ 2,890
Restricted-tenant security deposits 59
Accounts receivable, net of allowance
for doubtful accounts of $31 9
Escrows for taxes 50
Restricted escrows 176
Other assets 129
Investment properties:
Leasehold interests $ 1,386
Buildings and related personal property 11,526
12,912
Less accumulated depreciation (6,145) 6,767
$ 10,080
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 25
Tenant security deposits 53
Other liabilities 173
Mortgage notes payable 9,097
Partners' Capital
General partner $ 6
Limited partners (25,186 units
issued and outstanding) 726 732
$ 10,080
See Accompanying Notes to Consolidated Financial Statement
b)
VMS INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 506 $ 619 $ 1,664 $ 1,856
Other income 35 38 100 90
Total revenues 541 657 1,764 1,946
Expenses:
Operating 156 160 436 436
General and administrative 40 31 127 115
Maintenance 68 60 162 162
Depreciation 129 126 383 378
Interest 202 212 603 602
Property taxes 15 25 62 70
Bad debt recovery, net (62) -- (62) --
Total expenses 548 614 1,711 1,763
Net (loss) income $ (7) $ 43 $ 53 $ 183
Net income allocated to
general partner (1%) $ -- $ -- $ 1 $ 2
Net (loss) income allocated to
limited partners (99%) (7) 43 52 181
Net (loss) income $ (7) $ 43 $ 53 $ 183
Net (loss) income per limited
partnership unit: $ (.28) $ 1.71 $ 2.06 $ 7.19
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
c)
VMS 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>
Original capital contributions 25,186 $ -- $ 25,186 $ 25,186
Partners' capital at
December 31, 1996 25,186 $ 5 $ 1,174 $ 1,179
Net income for the nine months
ended September 30, 1997 -- 1 52 53
Distribution to partners -- -- (500) (500)
Partners' capital at
September 30, 1997 25,186 $ 6 $ 726 $ 732
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
d)
VMS INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 53 $ 183
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 383 378
Amortization of loan fees and lease commissions 14 23
Bad debt recovery, net (62) --
Change in accounts:
Restricted cash 9 1
Accounts receivable 120 (44)
Escrows for taxes (26) (103)
Other assets 47 3
Accounts payable 13 3
Tenant security deposit liabilities (12) (7)
Other liabilities 78 (23)
Net cash provided by operating activities 617 414
Cash flows used in investing activities:
Property improvements and replacements (27) (50)
Cash flows from financing activities:
Payments on mortgage notes payable (88) (97)
Distributions to partners (500) (8)
Net cash used in financing activities (588) (105)
Net increase in unrestricted cash and
cash equivalents 2 259
Unrestricted cash and cash equivalents at beginning of period 2,888 2,589
Unrestricted cash and cash equivalents at end of period $2,890 $2,848
Supplemental disclosure of cash flow information:
Cash paid for interest $ 598 $ 643
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
e)
VMS INVESTORS FIRST-STAGED EQUITY L.P. II
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of VMS Investors
First-Staged Equity L.P. II (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 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. (the "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 year ended December 31, 1997. 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, 1996.
Certain reclassifications have been made to the 1996 information to conform to
the 1997 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATES AND RELATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The General Partner and its affiliates may be reimbursed for direct expenses
relating to the Partnership's administration and other costs paid on behalf of
the Partnership.
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.
Affiliates of VMS Staged Equity II, Inc. received approximately $10,000 during
the first nine months of 1996 as reimbursement for out-of-pocket expenses.
The Partnership has engaged an affiliate 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. Affiliates of Insignia collected
fees of approximately $110,000 and approximately $112,000 in each of the nine
months ended September 30, 1997 and 1996, respectively, for property management
services. An affiliate of Insignia has also provided partnership administration
and management services for the Partnership. Reimbursements for direct expenses
relating to these services totaled approximately $61,000 and approximately
$56,000 in each of the nine months ended September 30, 1997 and 1996,
respectively.
NOTE C - REFINANCING
The mortgage indebtedness of $9,203,000 matured April 1, 1996. The subtier
partnerships owning the respective properties refinanced the debt with the
existing lender for 5 years. The loans mature April 1, 2001, 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 sub-tier
partnerships, Banyon Short Term Income Trust ("Special Limited Partner")
withdrew from the Partnership as of July 11, 1996. As consideration for
withdrawing from the sub-tier partnerships, a liquidating distribution in the
amount of approximately $8,000 was paid to the Special Limited Partner.
NOTE D - DISTRIBUTION
During the nine months ended September 30, 1997, the General Partner declared
and paid a distribution to the limited partners attributable to cash flow from
operations totaling approximately $500,000.
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
nine months ended September 30, 1997 and 1996:
Average Occupancy
1997 1996
Centinella I (1)
Inglewood, California 75% 75%
Centinella II (2)
Inglewood, California 92% 94%
(1) The low occupancy at Centinella I can be attributed to the neighborhood in
which this property is located. The property is a medical office building
located near the regional hospital. Several medical offices vacated the
property due to rumors that the hospital would be re-locating. The current
plan is to not re-locate the hospital and therefore the General Partner is
hopeful that occupancy will improve. The new owner of the hospital is
hoping to expand and has requested that certain improvements be made at
Centinella I in order to make it more attractive and therefore included in
the expansion process. Lobby enhancements have been started as the first
phase of these improvements.
(2) The decrease in occupancy at Centinella II is due to two tenants vacating
the property since June 1996. These tenants occupied 2,405 square feet of
space, collectively. Several prospective tenants are considering the space
and the General Partner expects to obtain new tenants for this space during
1997. Although, in the first quarter of 1998, the anchor tenant at
Centinella II will be vacating their current space, which approximates
45,000 square feet. If the General Partner cannot find a new tenant to
lease this space, the Partnership would not be able to make its monthly
debt service payment.
The Partnership realized a net loss of approximately $7,000 and net income of
approximately $53,000 for the three and nine months ended September 30, 1997,
respectively, compared to net income of approximately $43,000 and approximately
$183,000 for the corresponding periods of 1996, respectively. The decrease in
net income for the three and nine months ended September 30, 1997, as compared
to the corresponding period of 1996, is primarily due to a decrease in rental
income. The decrease in rental income is partially due to the tenant move-outs,
as discussed above. Also, there was a reduction in the estimated recovery of
common area maintenance and tax expenses. This was partially offset by a
decrease in total expenses primarily due to the recovery of tenant amounts that
had been previously reserved. Interest expense increased for the nine months
ended September 30, 1997, as compared to the nine months ended September 30,
1996, as a result of an increase in the interest rates on the mortgage debt
encumbering these properties. The mortgages on these properties are based on
variable rates and the average interest rate has increased from 7.4% to 8.9% for
the nine months ended September 30, 1996, versus the nine months ended September
30, 1997.
Included in maintenance expense for the nine months ended September 30, 1997, is
approximately $5,000 of major repairs and maintenance comprised primarily of
exterior painting.
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.
The Partnership held unrestricted cash and cash equivalents of approximately
$2,890,000 at September 30, 1997, compared to approximately $2,848,000 at
September 30, 1996. Net cash provided by operating activities increased,
despite a decrease in net income, due to a decrease in accounts receivable and
other assets, an increase in other liabilities and a lesser increase in escrows
for taxes. Accounts receivable decreased due to the timing of payments received
from tenants. Other assets decreased due to the collection of reimbursements of
tax amounts, which were paid by the properties on behalf of the tenants and had
been accrued at December 31, 1996. Other liabilities increased as a result of
the timing of various payments. Escrows for taxes increased by a lesser amount
due to decreased escrow requirements as a result of the refinance of the
properties during the prior year (see "Note C"). Cash flows used in investing
activities decreased due to fewer capital expenditures during the first nine
months of 1997, as compared to the first nine months of 1996. Net cash used in
financing activities increased due to distributions to partners. During the
nine months ended September 30, 1997, a $500,000 distribution was made to the
limited partners (see "Note D"). During the first nine months of 1996, there
was a liquidating distribution of $8,000 paid to the Special Limited Partner
(see "Note C").
The Partnership's primary source of cash is from the operations of its
properties and from financing placed on such properties. Cash from these
sources is utilized for property operations, capital improvements, and/or
repayment of debt. 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 investment 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 $9,097,000 matures April 2001 and is
amortized over 25 years. At maturity, $8,629,000 of balloon payments are due.
As mentioned previously, the Partnership paid out $500,000 in distributions to
its limited partners during the nine months ended September 30, 1997. Future
cash distributions will depend on the levels of cash generated from operations,
property sales and the availability of cash reserves.
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 filed during the quarter ended September 30,
1997:
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
VMS INVESTORS FIRST-STAGED EQUITY L.P. II
By: MAERIL, Inc.
General Partner
By: /s/ Carroll D. Vinson
Carroll D. Vinson
President
By: /s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: November 10, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from VMS
Investors First-Staged Equity L.P. II 1997 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-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 2,890
<SECURITIES> 0
<RECEIVABLES> 9
<ALLOWANCES> 31
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,912
<DEPRECIATION> 6,145
<TOTAL-ASSETS> 10,080
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 9,097
0
0
<COMMON> 0
<OTHER-SE> 732
<TOTAL-LIABILITY-AND-EQUITY> 10,080
<SALES> 0
<TOTAL-REVENUES> 1,764
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,711
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 603
<INCOME-PRETAX> 53
<INCOME-TAX> 0
<INCOME-CONTINUING> 53
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 53
<EPS-PRIMARY> 2.06<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
