FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1998
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 0-16798
SECURED INVESTMENT RESOURCES FUND, L.P. II
(Exact name of registrant as specified in its charter)
Delaware 36-3451000
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5453 W. 61st Place, Mission, Kansas 66205
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number,
including area code) (913) 384-5700
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Limited Partnership Interests ("Units")
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or such shorter periods 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
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
INDEX
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements (Unaudited):
Balance Sheets -- June 30, 1998 and
December 31, 1997 3-4
Statements of Operations -- Three and Six
Months Ended June 30, 1998 and 1997 5
Statements of Partnership Capital --
Six Months Ended June 30, 1998
and the Years Ended December 31, 1997,
and 1996 6
Statements of Cash Flows -- Six Months
Ended June 30, 1998 and 1997 7-8
Notes to Financial Statements 9-10
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 12
Item 2. Changes in Securities 12
Item 3. Defaults Upon Senior Securities 12
Item 4. Submission of Matters to a Vote of
Security Holders 12
Item 5. Other Information 12
Item 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 13
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
SECURED INVESTMENT RESOURCES FUND, L.P. II
BALANCE SHEETS
June 30,
1998 December 31,
(Unaudited) 1997
ASSETS
INVESTMENT PROPERTIES
Land and buildings $ 36,618,354 $ 36,499,895
Furniture, fixtures and equipment 2,161,419 2,095,962
38,779,773 38,595,857
Less accumulated depreciation
and allowance for losses 13,690,785 13,184,260
25,088,988 25,411,597
RESTRICTED DEPOSITS
Bond cash reserves 1,510,000 1,510,000
Bond principal reduction reserves 550,887 519,567
Restricted Deposits 28,750 28,750
2,089,637 2,058,517
OTHER ASSETS
Cash 679,731 867,658
Rents and other receivables,
less allowance of $141,717
in 1998 and $122,350 in 1997 57,413 55,968
Due from related parties (Note C) 104,423 179,423
Prepaid expenses 216,544 117,532
Debt issuance costs, net of
accumulated amortization of
$368,492 in 1998 and $330,728
in 1997 215,822 253,586
Commercial commissions, deposits
and other 61,006 60,679
1,334,939 1,534,846
TOTAL ASSETS 28,513,564 $ 29,004,960
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
BALANCE SHEETS--CONT'D.
June 30,
1998 December 31,
(Unaudited) 1997
LIABILITIES AND PARTNERSHIP CAPITAL
Mortgage debt (Note B) $ 27,423,237 $ 27,442,267
Deferred interest (Note B) 737,370 737,370
Accrued interest 799,278 799,278
Accounts payable and accrued
expenses 653,570 548,265
Unearned revenue 4,969 12,736
Tenant security deposits 154,084 149,662
TOTAL LIABILITIES 29,772,508 29,689,578
PARTNERSHIP CAPITAL
General Partner
Capital contribution 1,000 1,000
Partnership deficit (198,399) (195,875)
(197,399) (194,875)
Limited Partner
Capital contributions 18,901,831 18,901,831
Partnership deficit (19,963,375) (19,391,572)
(1,061,544) (489,741)
TOTAL PARTNERSHIP CAPITAL (1,258,944) (684,618)
$ 28,513,564 $ 29,004,960
See notes to financial statements.
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
STATEMENTS OF OPERATIONS (Unaudited)
Six Months Ended Three Months Ended
June 30, June 30,
1998 1997 1998 1997
REVENUES
Rents $2,535,562 $2,958,583 $1,293,183 $1,484,493
Maintenance escalations
and other 51,665 59,482 24,949 29,972
2,587,227 3,018,065 1,138,141 1,514,465
OPERATING AND
ADMINISTRATIVE EXPENSES
Property operating
expenses 1,044,801 1,295,485 522,366 669,034
General and
administrative
expenses 66,805 75,977 36,837 39,899
Professional services 82,443 51,602 50,154 26,009
Management fees 110,176 130,088 55,445 65,575
1,304,225 1,553,152 664,802 800,517
NET OPERATING INCOME 1,283,002 1,464,913 653,339 713,948
NON-OPERATING EXPENSES
Interest 991,075 1,221,854 512,895 615,597
Depreciation and
amortization 544,289 672,050 272,145 336,025
1,535,364 1,893,904 785,040 951,622
PARTNERSHIP INCOME (LOSS) $ (252,361) $ (428,991) $ (131,701) $ (237,674)
Allocation of income (loss):
General Partner (2,524) (4,290) (1,317) (2,377)
Limited Partner (249,837) (424,701) (130,384) (235,297)
$ (252,361) $ (428,991) $ (131,701) $ (237,674)
Partnership income (loss)
per limited partnership
unit $ (4.66) $ (7.91) $ (2.43) $ (4.38)
See notes to financial statements.
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
STATEMENTS OF PARTNERSHIP CAPITAL (Unaudited)
Six Months Ended June 30, 1998 (Unaudited) and
the Years Ended December 31, 1997 and 1996
General Limited
Partner Partner Total
Balances at January 1, 1996 $ (184,586) $ 528,868 $ 344,282
Partnership loss (19,935) (191,525) (193,460)
Balances at December 31, 1996 (186,521) 337,343 150,822
Partnership loss (8,354) (827,084) (835,438)
Balances at December 31, 1997 (194,875) (489,741) (684,616)
Partnership loss (2,524) (249,837) (252,361)
Distribution 0 (321,966) (321,966)
Balances at June 30, 1998 $ (197,399) $(1,061,544) $(1,258,943)
See notes to financial statements.
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II,
STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended
June 30,
1998 1997
OPERATING ACTIVITIES
Partnership income $ (252,361) $ (428,991)
Adjustments to reconcile
partnership loss to net cash
provided by operating
activities:
Depreciation and amortization 544,289 672,050
Amortization of bond discount 75,600 75,600
Gain on debt restructuring 0 0
Provision for losses on rents
and other receivables 19,367 31,525
Changes in assets and liabilities:
Rents and other receivables (20,812) (47,367)
Prepaid expenses (99,012) (17,547)
Commercial commissions, deposits
and other (327) 21,713
Accounts payable
and accrued expenses 105,306 113,829
Accrued interest 0 92,022
Unearned revenue (7,768) (29,298)
Tenant security deposits 4,422 (2,606)
NET CASH PROVIDED BY
OPERATING ACTIVITIES 368,704 480,930
INVESTING ACTIVITIES
Purchases of and improvements
to investment properties (183,916) (46,333)
Purchase of restricted bond
cash reserves (31,120) (34,216)
NET CASH USED IN
INVESTING ACTIVITIES (215,036) (80,549)
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
STATEMENTS OF CASH FLOWS (Unaudited)--CONT'D.
Six Months Ended
June 30,
1998 1997
FINANCING ACTIVITIES
Principal payments on
long-term debt $ (94,630) $ (90,532)
Debt Issuance Costs 0 (16,500)
Due (to) from related
parties 75,000 0
NET CASH USED IN
FINANCING ACTIVITIES (19,630) (107,032)
DISTRIBUTION (321,966) 0
INCREASE IN CASH
AND CASH EQUIVALENTS (187,927) 293,349
CASH AND CASH EQUIVALENTS
BEGINNING OF PERIOD 867,658 561,667
CASH AND CASH EQUIVALENTS
END OF PERIOD $ 679,731 $ 855,016
See notes to financial statements.
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
NOTES TO FINANCIAL STATEMENTS (Unaudited)
June 30, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. 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 management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the six month period
ended June 30, 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 financial statements and footnotes thereto included in the Partnership's
annual report on Form 10-K for the year ended December 31, 1997.
NOTE B--MORTGAGE DEBT
Mortgage debt consists of the following:
June 30, December 31,
1998 1997
Collateralized by Investment
Property
First Mortgages:
Oak Terrace Active Retirement
Center and Healthcare Center $ 12,800,000 $ 12,800,000
less bond discount (1,975,042) (2,050,642)
Sunwood Village Apartments 7,975,260 8,008,454
Thomasbrook Apartments 4,984,179 4,984,179
Forest Park Shopping Ctr. 1,070,490 1,114,184
Bayberry Crossing Shopping Ctr. 2,568,349 2,586,092
$ 27,423,236 $ 27,442,267
Interest expense totaled $991,075 and $1,221,854 during the first half of 1998
and 1997, respectively.
On May 17, 1996 the Partnership refinanced the matured first mortgage on
Sunwood Village Apartments. The terms of the new mortgage are $8,100,000 at
8.625% interest with monthly principal and interest payments in the amount of
$63,000 through the loan maturity date of June 1, 2001 (5 years).
<PAGE>
SECURED INVESTMENT RESOURCES FUND, L.P. II
NOTES TO FINANCIAL STATEMENTS (Unaudited)--CONT'D.
NOTE B--MORTGAGE DEBT--CONT'D.
The Partnership continues to negotiate with the first mortgage lender, and
other potential lenders, to refinance Thomasbrook, despite the ongoing
foreclosure proceeding.
The Partnership recognized a gain of $352,227 upon payment of the refinanced
note due the forgiveness of all the deferred interest relating to the original
note.
The Partnership has the option to currently pay or defer payment of interest
due on the hedged portion ($8,400,000) of the Oak Terrace Active Retirement
Center financing. As of June 30, 1997 and December 31, 1996, $737,370 of
deferred interest has been accrued and is reflected in long-term accrued
interest.
NOTE C--RELATED PARTY TRANSACTIONS
SPECS, Inc., a Kansas Corporation in which the individual General Partner has
a minority interest, receives property management fees for providing property
management services. SPECS, Inc. also performs various professional services
for the Partnership, primarily tax accounting, audit preparation, SEC 10Q and
10K preparation, and investor services. Property management fees paid by the
Partnership to SPECS, Inc. are as follows:
Six Months Ended
June 30,
1997 1996
Property Management Fees $ 110,176 $ 130,088
Amounts due from related parties consist of the following:
June 30, December 31,
1998 1997
Secured Investment Resources
II, Inc. $ 174,423 $ 174,423
Secured Investment Resources
Fund, L.P. 5,000 5,000
Sunwood Village Apartments (75,000)
$ 104,423 $ 179,423
The amount due from SIR II, Inc. represents excess syndication costs.
NOTE D--CASH DISTRIBUTIONS
In May, 1998, the Partnership made a distribution of $321,966 to limited
partners only. Prior to May, 1998, no distributions had been made since
<PAGE>
April, 1990. The General Partners determined that adequate cash flow and
working capital is available to fund the operations, and as a result, were
able to approve the cash distribution. Future distriubtions will only be made
from excess cash flow not needed for working capital reserves.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Results of Operations
Revenues for the first six months of 1998 decreased by $460,838 (14.2%)
compared to the same period of last year. The weaker residential market has
caused the bulk of the decrease in rental income when comparing the first six
months of 1998 to the same period of 1997. Residential rents decreased by
$436,460 and miscellaneous revenues decreased by $42,706. During the same
period, commercial rents increased by $18,328.
Operating and Administrative expenses decreased $248,927 (19.2%) when
comparing the first six months of 1998 with the same period of 1997. Higher
property operating expenses are primarily due to higher resident turnover.
Interest expense for the first six months decreased $230,779 (18.9%) over the
1997 first six months expense.
The Partnership anticipates that operating results for the first six months
will be representative of the results for the remainder of the year.
Liquidity and Capital Reserves
During the first six months $368,704 of cash was provided by operating
activities, $215,036 was used for investing activities and $19,630 was used to
reduce long term debt. In addition, excess cash flows existed to the extent
that allowed the General Partners to make a cash distribution of $321,966 to
limited partners.
Although the cash position has improved, the Partnership is past due on the
Thomasbrook Apartment first mortgage. The General Partner believes that
working capital will be available during the remainder of the year to reduce
this past due balance and fund known, on-going operating and capital
requirements. The General Partner also anticipates that 1998 cash flow from
operations will improve because of stronger occupancy and rental rate
increases.
It is the General Partner's intent to evaluate the Partnership's portfolio to
determine if it is prudent to offer one or more properties for sale or possible
restructure of the related financing packages. Any unleveraged portion of the
net sale proceeds or favorable refinancing terms could generate additional
working capital.
<PAGE>
PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
The first mortgage lender for Thomasbrook Apartments
continues the previously filed foreclosure proceeding.
A receiver has been appointed to manage the property.
Item 2. CHANGES IN SECURITIES
Inapplicable.
Item 3. DEFAULTS UPON SENIOR SECURITIES
None.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS
Inapplicable.
Item 5. OTHER INFORMATION
Inapplicable.
Item 6. EXHIBIT AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during
the quarter ended June 30, 1997.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SECURED INVESTMENT RESOURCES FUND, L.P. II
A Delaware Limited Partnership
(Registrant)
By:
James R. Hoyt
as Individual General Partner
Date: May 28, 1999
By: Secured Investment Resources II, Inc.
as Corporate General Partner
By:
James R. Hoyt, President
Date: May 28, 1999
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SECURED INVESTMENT RESOURCES FUND, L.P. II
A Delaware Limited Partnership
(Registrant)
By: /s/ James R. Hoyt
James R. Hoyt
as Individual General Partner
Date: May 28, 1999
By: Secured Investment Resources II, Inc.
as Corporate General Partner
By: /s/ James R. Hoyt
James R. Hoyt, President
Date: May 28, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 679,731
<SECURITIES> 2,089,637
<RECEIVABLES> 199,130
<ALLOWANCES> 141,717
<INVENTORY> 0
<CURRENT-ASSETS> 1,334,939
<PP&E> 38,779,773
<DEPRECIATION> 13,690,785
<TOTAL-ASSETS> 28,513,564
<CURRENT-LIABILITIES> 2,349,271
<BONDS> 27,423,237
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 28,513,564
<SALES> 0
<TOTAL-REVENUES> 2,587,228
<CGS> 0
<TOTAL-COSTS> 1,304,225
<OTHER-EXPENSES> 544,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 991,075
<INCOME-PRETAX> (252,361)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (252,361)
<EPS-BASIC> (4.66)
<EPS-DILUTED> 0
</TABLE>
