FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
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, 1997
or
[ ] 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
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) VMS INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
(Unaudited)
June 30, 1997
Assets
Cash:
Unrestricted $ 2,782
Restricted-tenant security deposits 58
Accounts receivable, net of allowance
for doubtful accounts of $29 29
Escrows for taxes 29
Restricted escrows 176
Other assets 132
Investment properties:
Leasehold interests $ 1,386
Buildings and related personal property 11,523
12,909
Less accumulated depreciation (6,016) 6,893
$ 10,099
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 16
Tenant security deposits 58
Other liabilities 134
Mortgage notes payable 9,124
Partners' Capital
General partner $ 6
Limited partners (25,186 units
issued and outstanding) 761 767
$ 10,099
See Accompanying Notes to Consolidated Financial Statements
b) VMS INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues:
Rental income $ 583 $ 606 $ 1,158 $ 1,237
Other income 35 29 65 52
Total revenues 618 635 1,223 1,289
Expenses:
Operating 134 139 280 276
General and administrative 42 49 87 84
Maintenance 40 59 94 102
Depreciation 128 127 254 252
Interest 199 213 401 390
Property taxes 24 23 47 45
Total expenses 567 610 1,163 1,149
Net income $ 51 $ 25 $ 60 $ 140
Net income allocated to
general partner (1%) $ 1 $ -- $ 1 $ 1
Net income allocated to
limited partners (99%) 50 25 59 139
Net income $ 51 $ 25 $ 60 $ 140
Net income per limited
partnership unit: $ 1.99 $ .99 $ 2.34 $ 5.52
See Accompanying Notes to Consolidated Financial Statements
c) VMS INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(in thousands, except unit data)
(unaudited)
Limited
Partnership General Limited
Units Partner Partners Total
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 six
months ended June 30, 1997 -- 1 59 60
Distribution to partners -- -- (472) (472)
Partners' capital at
June 30, 1997 25,186 $ 6 $ 761 $ 767
See Accompanying Notes to Consolidated Financial Statements
d)
VMS INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1997
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 60 $ 140
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 254 252
Amortization of loan fees and lease commissions 9 16
Bad debt expense -- 10
Change in accounts:
Restricted cash 10 --
Accounts receivable 38 (40)
Escrows for taxes (5) (77)
Other assets 49 --
Accounts payable 4 2
Tenant security deposit liabilities (7) (4)
Other liabilities 39 63
Net cash provided by operating activities 451 362
Cash flows used in investing activities:
Property improvements and replacements (24) (50)
Cash flows from financing activities:
Payments on mortgage notes payable (61) (63)
Distributions to partners (472) --
Net cash used in financing activities (533) (63)
Net (decrease) increase in unrestricted cash and
cash equivalents (106) 249
Unrestricted cash and cash equivalents at beginning of period 2,888 2,589
Unrestricted cash and cash equivalents at end of period $2,782 $2,838
Supplemental disclosure of cash flow information:
Cash paid for Interest $ 398 $ 367
<FN>
See Accompanying Notes to Consolidated Financial Statements
</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
six month periods ended June 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 six 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 $72,000 and $73,000 in each of the six months ended June 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 $36,000 and $37,000 in each of the six months ended June
30, 1997 and 1996, respectively.
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
six months ended June 30, 1997 and 1996:
Average Occupancy
1997 1996
Centinella I
Inglewood, California 78% 76%
Centinella II
Inglewood, California 92% 96%
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 and 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 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
Partnership expects to obtain new tenants for this space during 1997.
The Partnership realized net income of $51,000 and $60,000, respectively, for
the three and six months ended June 30, 1997, compared to net income of $25,000
and $140,000, respectively, for the corresponding periods of 1996. The decrease
in net income for the six months ended June 30, 1997, as compared to the
corresponding period of 1996, is primarily due to a decrease in total revenues
and an increase in total expenses. The decrease in total revenues is due to a
decrease in rental income due to the tenant move-outs, as discussed above. The
increase in total expenses is primarily due to an increase in interest expense.
Interest expense increased for the six months ended June 30, 1997, as compared
to the six months ended June 30, 1996, as a result of increases 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 7.9% to 8.8% for the six months ended June 30, 1996, versus the
six months ended June 30, 1997. Net income for the three months ended June 30,
1997, increased as compared to the corresponding period of 1996, due to a slight
decrease in expenses.
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 $2,782,000 at
June 30, 1997, compared to $2,838,000 at June 30, 1996. Net cash provided by
operating activities increased due to a decrease in accounts receivable and
other assets and a lesser increase in escrows for taxes. This was partially
offset by a decrease in net income, as previously explained. 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, which were accrued at
December 31, 1996. 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 discussion below). Cash flows used in investing
activities decreased due to fewer capital expenditures during the first six
months of 1997, as compared to the first six months of 1996. Net cash used in
financing activities increased due to distributions to partners. In June 1997,
a $472,000 distribution was made to the limited partners. During the first six
months of 1996, there were no distributions.
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 $9,124,000 originally matured April
1, 1996. The sub-tier partnerships owning the respective properties refinanced
the debt with the existing lender for 5 years. Mortgage indebtedness matures in
April 2001 and accrues interest at a rate equal to the 11th District Cost of
Funds Index plus 4%. The interest rates are adjusted monthly with payments
adjusting every six months. 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 June 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
(Registrant)
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: August 6, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from VMS
Investors First-Staged Equity L.P. II 1997 Second 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,782
<SECURITIES> 0
<RECEIVABLES> 29
<ALLOWANCES> 29
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,909
<DEPRECIATION> 6,016
<TOTAL-ASSETS> 10,099
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 9,124
0
0
<COMMON> 0
<OTHER-SE> 767
<TOTAL-LIABILITY-AND-EQUITY> 10,099
<SALES> 0
<TOTAL-REVENUES> 1,223
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,163
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 401
<INCOME-PRETAX> 60
<INCOME-TAX> 0
<INCOME-CONTINUING> 60
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 60
<EPS-PRIMARY> 2.34<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
