FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
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, 1997
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
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) (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)
March 31, 1997
Assets
Cash:
Unrestricted $ 3,088
Restricted-tenant security deposits 65
Accounts receivable, net of allowance for
doubtful accounts of $94 7
Escrows for taxes 48
Restricted escrows 176
Other assets 157
Investment properties:
Leasehold interests $ 1,386
Buildings and related personal property 11,499
12,885
Less accumulated depreciation (5,888) 6,997
$10,538
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 20
Tenant security deposits 65
Other liabilities 107
Mortgage notes payable 9,158
Partners' Capital
General partner $ 5
Limited partners (25,186 units
issued and outstanding) 1,183 1,188
$10,538
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)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Revenues:
Rental income $ 575 $ 631
Other income 30 23
Total revenues 605 654
Expenses:
Operating 146 137
General and administrative 45 35
Maintenance 54 43
Depreciation 126 125
Interest 202 177
Property taxes 23 22
Total expenses 596 539
Net income $ 9 $ 115
Net income allocated to general partner (1%) $ -- $ 1
Net income allocated to limited partners (99%) 9 114
$ 9 $ 115
Net income per limited partnership unit $ .36 $ 4.53
<FN>
See Accompanying Notes to Consolidated Financial Statements
</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>
Partners' capital at
December 31, 1996 25,186 $ 5 $ 1,174 $ 1,179
Net income for the three
months ended March 31, 1997 -- -- 9 9
Partners' capital at
March 31, 1997 25,186 $ 5 $ 1,183 $ 1,188
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
d) VMS INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 9 $ 115
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 126 125
Amortization of loan fees and other costs 2 8
Change in accounts:
Restricted cash 3 --
Accounts receivable 60 (31)
Escrows for taxes (24) (28)
Other assets 31 1
Accounts payable 8 3
Tenant security deposit liabilities -- (4)
Other liabilities 12 35
Net cash provided by operating activities 227 224
Cash flows from investing activities:
Property improvements and replacements -- (36)
Net cash used in
investing activities -- (36)
Cash flows from financing activities:
Payments on mortgage notes payable (27) (35)
Net cash used in financing activities (27) (35)
Net increase in cash 200 153
Cash at beginning of period 2,888 2,589
Cash at end of period $3,088 $2,742
Supplemental disclosure of cash flow information:
Cash paid for Interest $ 202 $ 172
<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") 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 month period ended March 31,
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 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 $0 and $2,000 during the first three months of 1997 and 1996,
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 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 $36,000 and $38,000 in each of the three months ended March 31, 1997 and
1996, respectively for property management services. An affiliate of Insignia
has also provided partnership administration and management services for the
Partnership since March 1, 1994. Reimbursements for direct expenses relating to
these services totaled approximately $19,000 in each of the periods ending March
31, 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
quarters ended March 31, 1997 and 1996:
Average Occupancy
1997 1996
Centinella I 78% 73%
Centinella II 92% 96%
The General Partner attributes the increase in occupancy at Centinella I to a
lease renewal during 1996 which increased the space occupied by the tenant. The
decrease in occupancy at Centinella II is due to a tenant vacating the property
in June of 1996. This tenant occupied 1,029 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 $9,000 for the quarter ended March 31,
1997, compared to net income of $115,000 for the corresponding period of 1996.
Rental income decreased primarily due to the tenant move-out discussed above.
General and administrative expenses increased for the quarter ended March 31,
1997, compared to the quarter ended March 31, 1996, due to miscellaneous legal
fees related to modifications of the existing loans. Maintenance expenses
increased due to increased contract cleaning and trash removal. Also, interest
expense increased for the quarter ended March 31, 1997, as a result of increases
in the interest rates related to the property mortgages. Interest rates during
the first quarter 1997 were approximately 9% compared to approximately 7.4%
during the first quarter of 1996.
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 approximately $3,088,000 at March 31,
1997, compared to unrestricted cash of approximately $2,742,000 at March 31,
1996. Cash provided by operating activities was comparable to the same period
of 1996. Cash used in investing activities decreased due to no capital
expenditures being made during the first quarter of 1997. Cash used in
financing activities decreased due to lower principal payments.
The immediate source of future liquidity is expected to result from cash flow of
the commercial properties. The mortgage indebtedness of $9,158,000 originally
matured April 1, 1996. The sub-tier partnerships owning the respective
properties refinanced the debt with the existing lender for 5 years. The loans
will mature April 1, 2001, with an interest rate equal to the 11th District Cost
of Funds Index plus 4%. The interest rates are 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 sub-tier
partnerships, the limited partnership agreements of the respective sub-tier
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 sub-tier partnership was converted to a limited
partnership interest in the sub-tier 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 Sub-tier Partnership
Agreements continue 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 in 1996.
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. 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.
b) Reports on Form 8-K filed during the quarter ended March 31, 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
Date: May 14, 1997 By: /s/ Carroll D. Vinson
Carroll D. Vinson
President
Date: May 14, 1997 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 1997 First 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 LP II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 3,088
<SECURITIES> 0
<RECEIVABLES> 7
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 12,885
<DEPRECIATION> 5,888
<TOTAL-ASSETS> 10,538
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 9,158
0
0
<COMMON> 0
<OTHER-SE> 1,188
<TOTAL-LIABILITY-AND-EQUITY> 10,538
<SALES> 0
<TOTAL-REVENUES> 605
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 596
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 202
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9
<EPS-PRIMARY> .36<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
