FORM 10-QSB--QUARTERLY OR TRANSITIONAL 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
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from.........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)
March 31, 1998
Assets
Cash and cash equivalents $ 2,790
Receivables and deposits, net of allowance
for doubtful accounts of $33 142
Restricted escrows 684
Other assets 82
Investment properties:
Leasehold interests $ 1,386
Buildings and related personal property 11,631
13,017
Less accumulated depreciation (6,404) 6,613
$10,311
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 60
Tenant security deposit liabilities 53
Accrued property taxes 21
Other liabilities 427
Mortgage notes payable 9,041
Partners' Capital
General partner $ 5
Limited partners (25,186 units
issued and outstanding) 704 709
$10,311
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
March 31,
1998 1997
Revenues:
Rental income $ 545 $ 575
Other income 23 30
Total revenues 568 605
Expenses:
Operating 190 200
General and administrative 29 45
Depreciation 127 126
Interest 208 202
Property taxes 23 23
Total expenses 577 596
Net (loss) income $ (9) $ 9
Net (loss) income allocated to general partner (1%) $ -- $ --
Net (loss) income allocated to limited partners (99%) (9) 9
$ (9) $ 9
Net (loss) income per limited partnership unit $ (.36) $ .36
See Accompanying Notes to Consolidated Financial Statements
c)
VMS INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS 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, 1997 25,186 $ 5 $ 713 $ 718
Net loss for the three months
ended March 31, 1998 -- -- (9) (9)
Partners' capital at
March 31, 1998 25,186 $ 5 $ 704 $ 709
See Accompanying Notes to Consolidated Financial Statements
d)
VMS INVESTORS FIRST-STAGED EQUITY L.P. II
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net (loss) income $ (9) $ 9
Adjustments to reconcile net (loss) income to net
cash provided by operating activities:
Depreciation 127 126
Amortization of loan costs and lease commissions 7 2
Change in accounts:
Receivables and deposits (42) 57
Other assets 5 3
Accounts payable 44 8
Accrued property taxes 21 23
Other liabilities 232 (1)
Net cash provided by operating activities 385 227
Cash flows from investing activities:
Property improvements and replacements (83) --
Net deposits to restricted escrows (112) --
Net cash used investing activities (195) --
Cash flows used in financing activities:
Payments on mortgage notes payable (28) (27)
Net increase in cash and cash equivalents 162 200
Cash and cash equivalents at beginning of period 2,628 2,888
Cash and cash equivalents at end of period $2,790 $3,088
Supplemental disclosure of cash flow information:
Cash paid for interest $ 203 $ 202
See Accompanying Notes to Consolidated Financial Statements
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. (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, 1998, are not necessarily indicative of the results that may be
expected for the year ended December 31, 1998. 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, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 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 is a wholly-owned subsidiary of Insignia Properties Trust
("IPT"), an affiliate of Insignia Financial Group, Inc. ("Insignia"). The
Partnership Agreement provides for certain payments to affiliates for services
and as reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership. The following expenses were paid or accrued to the General Partner
and affiliates for the three months ended March 31, 1998 and 1997:
1998 1997
(in thousands)
Property management fees (included in operating
expenses) $ 54 $ 36
Reimbursement for services of affiliates (included
in general and administrative expenses and
investment property) 19 19
Included in reimbursement for services of affiliates at March 31, 1998, is
approximately $4,000 of construction oversight reimbursements.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in IPT,
with Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust. The closing, which is anticipated to happen in
the third quarter of 1998, is subject to customary conditions, including
government approvals and the approval of Insignia's shareholders. If the
closing occurs, AIMCO will then control the General Partner of the Partnership.
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, 1998 and 1997:
Average Occupancy
1998 1997
Centinella I 68% 78%
Centinella II 92% 92%
The decrease in 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.
Although occupancy at Centinella II is relatively high at March 31, 1998, in the
third quarter of 1998, the anchor tenant at Centinella II will be vacating their
current space, which approximates 48,000 square feet or approximately 76% of the
total leaseable square feet of the property. The General Partner believes that
cash on hand will be sufficient to cover debt service payments temporarily. The
General Partner is confident that at least part of this space will be re-leased
prior to the end of 1998. Additionally, repairs and improvements are planned to
update the appearance of the property and help attract new tenants. However,
there is no guarantee that the General Partner will be successful in leasing the
space.
The Partnership realized a net loss of approximately $9,000 for the quarter
ended March 31, 1998, compared to net income of $9,000 for the corresponding
period of 1997. The decrease in net income is due primarily to a decrease in
rental income but was partially offset by a decrease in expenses. Rental income
decreased due to the reduced occupancy level at Centinella I, as discussed
above. The decrease in expenses is mainly due to a decrease in operating and
general and administrative expenses, but was partially offset by an increase in
interest expense. General and administrative expenses decreased for the quarter
ended March 31, 1998, compared to the quarter ended March 31, 1997, due to
miscellaneous legal fees incurred in 1997 related to modifications of the
existing loans. Operating expenses decreased primarily due to a decrease in
contract cleaning at Centinella II. Interest expense increased for the quarter
ended March 31, 1998, as a result of increases in the interest rates related to
the property mortgages. Interest rates during the first quarter of 1998 were
slightly higher than during the first quarter of 1997.
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 had cash and cash equivalents of approximately $2,790,000 at
March 31, 1998, compared to cash and cash equivalents of approximately
$3,088,000 at March 31, 1997. Cash and cash equivalents increased approximately
$162,000 and $200,000 for the periods ended March 31, 1998 and 1997,
respectively. Cash provided by operating activities increased for the period
ended March 31, 1998, as compared to March 31, 1997, primarily due to an
increase in other liabilities but was partially offset by an increase in
receivables and deposits. The increase in other liabilities is mainly due to an
increase in prepaid rent at Centinella II, due to the anchor tenant prepaying
its rent through July 1998. Tenant receivables increased due to the timing of
the collection of monthly rents. Cash used in investing activities increased
due to an increase in property improvements and replacements at both properties
and an increase in deposits to restricted escrows. There were no property
improvements or replacements during the three months ended March 31, 1997, while
improvements are beginning to be made in 1998 in an effort to attract new
tenants to occupy vacant spaces, as well as, prepare for the move-out of the
anchor tenant in Centinella II in the third quarter of 1998. Deposits to
restricted escrows during the quarter ended March 31, 1998, resulted from the
deposit of excess cash as required by the mortgage notes. These proceeds are to
be used to fund tenant improvements in connection with the organization, renewal
and modification of tenant leases and for paying leasing commissions. Net cash
used in financing activities resulted from principal payments made on the
mortgage notes payable for the three months ended March 31, 1998.
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 approximately $9,041,000 matures
April 2001 and is amortized over 25 years. At maturity, approximately
$8,629,000 of balloon payments are due. There were no cash distributions during
the quarters ended March 31, 1998 or March 31, 1997. Future cash distributions
will depend on the levels of cash generated from operations, property sales and
the availability of cash reserves.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performances or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
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 March 31, 1998:
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/Director
By: /s/ Robert D. Long, Jr.
Robert D. Long, Jr.
Vice President/CAO
Date: May 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
VMS Investors First-Staged Equity, L.P. II 1998 First Quarter 10-QSB
and is qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
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<NAME> VMS INVESTORS FIRST-STAGED EQUITY, L.P. II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,790
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<RECEIVABLES> 142
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 13,017
<DEPRECIATION> (6,404)
<TOTAL-ASSETS> 10,311
<CURRENT-LIABILITIES> 0<F1>
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0
0
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