-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OgkaTU3AbWkdLbnphTIQ3W/Xn4GlouTcWdlgDaG9s5tJX0q2uqHOHyjhIvju8Fyk K2/5WIpKJMTMBCxpbArgxQ== 0000319723-96-000003.txt : 19960801 0000319723-96-000003.hdr.sgml : 19960801 ACCESSION NUMBER: 0000319723-96-000003 CONFORMED SUBMISSION TYPE: 10QSB PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19960630 FILED AS OF DATE: 19960731 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SHELTER PROPERTIES II LTD PARTNERSHIP CENTRAL INDEX KEY: 0000319723 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 570709233 STATE OF INCORPORATION: SC FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10QSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-10256 FILM NUMBER: 96601538 BUSINESS ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLZ STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8032391000 MAIL ADDRESS: STREET 1: ONE INSIGNIA FINANCIAL PLZ STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10QSB 1 FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report (As last amended by 34-32231, eff. 6/3/93.) 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, 1996 or [ ] 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 0-10256 SHELTER PROPERTIES II LIMITED PARTNERSHIP (Exact name of small business issuer as specified in its charter) South Carolina 57-0709233 (State or other jurisdiction of (I.R.S. 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 Securities Exchange Act of 1934 during the preceding 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) SHELTER PROPERTIES II LIMITED PARTNERSHIP BALANCE SHEET (Unaudited) June 30, 1996 Assets Cash and cash equivalents: Unrestricted $ 2,202,536 Restricted--tenant security deposits 148,864 Accounts receivable 23,143 Escrow for taxes 250,576 Restricted escrows 911,324 Other assets 261,381 Investment properties: Land $ 1,814,055 Buildings and related personal property 22,188,587 24,002,642 Less accumulated depreciation (14,491,382) 9,511,260 $13,309,084 Liabilities and Partners' Capital (Deficit) Liabilities Accounts payable $ 74,509 Tenant security deposits 148,833 Accrued taxes 192,898 Other liabilities 284,642 Mortgage notes payable 8,826,643 Partners' Capital (Deficit) General partners $ (110,330) Limited partners (27,500 units issued and outstanding) 3,891,889 3,781,559 $13,309,084 See Accompanying Notes to Financial Statements b) SHELTER PROPERTIES II LIMITED PARTNERSHIP STATEMENTS OF OPERATIONS (Unaudited)
Three Months Ended Six Months Ended June 30, June 30, 1996 1995 1996 1995 Revenues: Rental income $1,297,091 $1,245,046 $2,585,993 $2,502,424 Other income 96,198 74,125 185,829 147,094 Total revenues 1,393,289 1,319,171 2,771,822 2,649,518 Expenses: Operating 491,602 461,292 944,254 938,971 General and administrative 47,522 134,259 95,979 174,532 Maintenance 173,225 193,964 322,899 345,386 Depreciation 269,374 268,517 535,385 532,637 Interest 203,794 207,377 408,513 415,601 Property taxes 97,504 90,697 193,077 176,233 Total expenses 1,283,021 1,356,106 2,500,107 2,583,360 Casualty loss -- (64,370) -- (64,370) Net income (loss) $ 110,268 $ (101,305) $ 271,715 $ 1,788 Net income (loss) allocated to general partners (1%) $ 1,103 $ (1,013) $ 2,717 $ 18 Net income (loss) allocated to limited partners (99%) 109,165 (100,292) 268,998 1,770 $ 110,268 $ (101,305) $ 271,715 $ 1,788 Net income (loss) per limited partnership unit $ 3.97 $ (3.65) $ 9.78 $ .06 See Accompanying Notes to Financial Statements
c) SHELTER PROPERTIES II LIMITED PARTNERSHIP STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited)
Limited Partnership General Limited Units Partners Partners Total Original capital contributions 27,500 $ 2,000 $27,500,000 $27,502,000 Partners' (deficit) capital at December 31, 1995 27,500 $(113,047) $ 4,122,890 $ 4,009,843 Distributions to Partners -- (499,999) (499,999) Net income for the six months ended June 30, 1996 2,717 268,998 271,715 Partners' (deficit) capital at June 30, 1996 27,500 $(110,330) $ 3,891,889 $ 3,781,559 See Accompanying Notes to Financial Statements
d) SHELTER PROPERTIES II LIMITED PARTNERSHIP STATEMENTS OF CASH FLOWS (Unaudited)
Six Months Ended June 30, 1996 1995 Cash flows from operating activities: Net income $ 271,715 $ 1,788 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 535,385 532,637 Amortization of discounts and loan costs 52,091 50,630 Casualty loss -- 64,370 Change in accounts: Restricted cash 3,333 (7,954) Accounts receivable (6,278) (8,003) Escrows for taxes (44,878) (111,425) Other assets -- (6,000) Accounts payable (191,346) 33,285 Tenant security deposit liabilities (3,908) 6,936 Accrued taxes 31,569 96,421 Other liabilities 14,069 (10,520) Net cash provided by operating activities 661,752 642,165 Cash flows from investing activities: Property improvements and replacements (126,443) (159,508) Deposits to restricted escrows (20,890) (42,077) Receipts from restricted escrows 25,470 31,186 Net cash used in investing activities (121,863) (170,399) Cash flows from financing activities: Payments on mortgage notes payable (117,166) (108,617) Distributions to partners (499,999) (600,000) Net cash used in financing activities (617,165) (708,617) Net decrease in cash (77,276) (236,851) Cash and cash equivalents at beginning of period 2,279,812 2,374,527 Cash and cash equivalents at end of period $2,202,536 $2,137,676 Supplemental disclosure of cash flow information: Cash paid for interest $ 356,423 $ 364,971 See Accompanying Notes to Financial Statements
e) SHELTER PROPERTIES II LIMITED PARTNERSHIP NOTES TO FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited financial statements of Shelter Properties II Limited Partnership (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 Article 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 the Corporate General Partner, 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, 1996, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1996. For further information, refer to the financial statements and footnotes thereto included in the Partnership's annual report on Form 10-KSB for the year ended December 31, 1995. Certain reclassifications have been made to the 1995 information to conform to the 1996 presentation. Cash and Cash Equivalents: Unrestricted - Unrestricted cash includes cash on hand and in banks and Certificates of Deposit with original maturities of less than 90 days. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Restricted cash - tenant security deposits - The Partnership requires security deposits from lessees for the duration of the lease and such deposits are considered restricted cash. Deposits are refunded when the tenant vacates, provided the tenant has not damaged the unit and is current on rental payments. Note B - Reconciliation of Cash Flows The following is a reconciliation of the subtotal on the accompanying statements of cash flows captioned "net cash provided by operating activities" to "net cash used in operations," as defined in the partnership agreement. However, "net cash used in operations" should not be considered an alternative to net income as an indicator of the Partnership's operating performance or to cash flows as a measure of liquidity. Six Months Ended June 30, 1996 1995 Net cash provided by operating activities $ 661,752 $ 642,165 Payments on mortgage notes payable (117,166) (108,617) Property improvements and replacements (126,443) (159,508) Change in restricted escrows, net 4,580 (10,891) Changes in reserves for net operating liabilities 197,439 7,260 Additional reserves (625,000) (372,000) Net cash used in operations $ (4,838) $ (1,591) In 1996 and 1995, the Corporate General Partner believed it to be in the best interest of the Partnership to reserve an additional $625,000 and $372,000, respectively, to fund continuing capital improvement needs in order for the properties to remain competitive. The Partnership may need to fund major plumbing repairs at Parktown due to underground water leaks which are responsible for foundation problems. The Corporate General Partner is negotiating with the insurance provider to determine if the water problems are covered by its property damage insurance. Note C - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the Corporate General Partner and its affiliates for the management and administration of all partnership activities. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Balances and other transactions with Insignia Financial Group, Inc. ("Insignia") and certain of its affiliates in 1996 and 1995 are as follows: Six Months Ended June 30, 1996 1995 Property management fees $134,815 $130,514 Reimbursement for services of affiliates 58,671 52,290 Due to general partners 58,000 58,000 Note C - Transactions with Affiliated Parties - continued The Partnership insures its properties under a master policy through an agency and insurer unaffiliated with the Corporate General Partner. An affiliate of the Corporate General Partner acquired, in the acquisition of a business, certain financial obligations from an insurance agency which was later acquired by the agent who placed the current year's master policy. The current agent assumed the financial obligations to the affiliate of the Corporate General Partner who receives payments on these obligations from the agent. The amount of the Partnership's insurance premiums accruing to the benefit of the affiliate of the Corporate General Partner by virtue of the agent's obligations is not significant. Note D - Contingencies The Corporate General Partner owns 100 Limited Partnership Units ("Units"). On or about April 26 and 27, 1995, six entities ("Affiliated Purchaser") affiliated with the Partnership commenced tender offers for limited partner interests in six limited partnerships, including the Partnership (collectively, the "Shelter Properties Partnerships"). On May 27, 1995, the Affiliated Purchaser acquired 6,026 units of the Partnership pursuant to the tender offer. On or about May 12, 1995, in the United States District Court for the District of South Carolina, certain limited partners of the Shelter Properties Partnerships commenced a lawsuit, on behalf of themselves, on behalf of a putative class of plaintiffs, and derivatively on behalf of the partnerships, challenging the actions taken by defendants (including Insignia, the acquiring entities and certain officers of Insignia) in the management of the Shelter Properties Partnerships and in connection with the tender offers and certain other matters. The plaintiffs alleged that, among other things: (i) the defendants intentionally mismanaged the partnerships and acted contrary to the limited partners' best interests by prolonging the existence of the partnerships in order to perpetuate the revenues derived by Insignia (an affiliate of the Corporate General Partner) and its affiliates from the partnerships, (ii) the defendants' actions reduced the demand for the partnerships' limited partner interests in the limited resale market by artificially depressing the trading prices for limited partners interests in order to create a favorable environment for the tender offers; (iii) through the tender offers, the acquiring entities sought to acquire effective voting control over the partnerships while paying highly inadequate prices; and (iv) the documents disseminated to the class in connection with the tender offers contained false and misleading statements and omissions of material facts concerning such issues as the advantages to limited partners of tendering pursuant to the tender offers, the true value of the interest, the true financial condition of the partnerships, the factors affecting the likelihood that properties owned by the partnerships will be sold or liquidated in the near future, the liquidity and true value of the limited partner interests, the reasons for the limited secondary market for limited partner interests, and the true nature of the market for the underlying real estate assets owned by the partnerships, all in violation of the federal securities laws. On September 27, 1995, the parties entered into a stipulation to settle the matter. The principal terms of the stipulation require supplemental payments to tendering limited partners aggregating approximately $6 million to be paid by the Affiliated Purchaser of which, approximately $640,000 is Shelter Properties II's portion; waiver by the Shelter Properties Partnerships' general partners of any right to certain proceeds from a sale or refinancing of the partnerships' properties; some restrictions on Insignia's ability to vote the limited partner interests it acquired; payment of $1.25 million (which amount is divided among the various partnerships and acquiring entities) for plaintiffs' attorney fees and expenses in the litigation; and general releases of all the defendants. On June 24, 1996, after notice to the class and a hearing on the fairness and adequacy of notice and the terms of settlement, the court orally approved the settlement. Plaintiffs' counsel has not yet submitted a formal written order for approval. If no appeal is taken within thirty days after the court enters that formal order, the settlement will become effective. No class member appeared at the hearing to oppose the settlement and thus it appears that an appeal is unlikely. While approximately 60 unit holders opted out of the settlement, no more than 1% of the unit holders in any one of the Partnerships opted out. Note F - Casualty Loss In the second quarter of 1995, a fire occurred at Parktown Townhouses which resulted in a casualty loss of $64,370. As a result of the fire, asbestos was exposed and had to be removed before any other assessments or work could be completed. The casualty loss in the second quarter of 1995 only included the removal of asbestos. Once the asbestos was removed, the insurance company was able to perform its investigation and determine the amount of damages that were covered. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The Partnership's investment properties consist of three apartment complexes. The following table sets forth the average occupancy of the properties for the six months ended June 30, 1996 and 1995: Average Occupancy Property 1996 1995 Parktown Townhouses Deer Park, Texas 96% 97% Raintree Apartments Anderson, South Carolina 96% 96% Signal Pointe Apartments Winter Park, Florida 95% 95% The Partnership's net income for the six months ended June 30, 1996, was $271,715 with the second quarter having net income of $110,268. The Partnership reported net income of $1,788 and a net loss of $101,305 for the corresponding periods in 1995. The increase in net income is primarily attributable to an increase in other income and decreases in general and administrative and maintenance expenses. Other income increased due to management's aggressiveness in collecting fees related to tenants moving out and increased interest income due to higher interest rates and increased cash balances. General and administrative expense decreased due to the reduction of legal fees associated with the lawsuits disclosed in the Legal Proceeding section below and professional expenses in connection with the tender offerings during 1995. Maintenance expense decreased for the six months and the three months ended June 30, 1996, due to non recurring repairs at both Raintree and Parktown during 1995. In addition, a casualty loss of $64,370 occurred during the second quarter of 1995 as a result of asbestos removed due to a fire at Parktown which damaged four units and exposed asbestos. The asbestos had to be removed before any additional assessment of the damages could be made. Partially offsetting the increase in net income was an increase in property tax expense due to increased tax rates at Raintree Apartments and Parktown Townhouses. As part of the ongoing business plan of the Partnership, the Corporate General Partner monitors the rental market environment of its investment property to assess the feasibility of increasing rent, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the Corporate 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 Corporate General Partner will be able to sustain such a plan. At June 30, 1996, the Partnership had unrestricted cash of $2,202,536 compared to $2,137,676 at June 30, 1995. Net cash provided by operating activities increased primarily as a result of the increase in net income as discussed above. Net cash used in investing activities decreased due to the reduction in property improvements and replacements and required deposits to restricted escrows. Net cash used in financing activities decreased due to the Partnership making a smaller distribution in 1996 as compared to 1995. The Partnership has no material capital programs scheduled to be performed in 1996, although certain routine capital expenditures and maintenance expenses have been budgeted. These capital expenditures and maintenance expenses will be incurred only if cash is available from operations or is received from the capital reserve account. The Partnership may need to fund major plumbing repairs at Parktown due to underground water leaks which are responsible for foundation problems. The Corporate General Partner is negotiating with the insurance provider to determine if the water problems are covered by its property damage insurance. 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 property 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 $8,826,643, net of discount, is amortized over 257 months with balloon payments totaling $7,369,887 due on November 15, 2002, at which time the properties will either be refinanced or sold. Future cash distributions will depend on the levels of net cash generated from operations, refinancings, property sales and the availability of cash reserves. A cash distribution of $499,999 was paid during the six months ended June 30, 1996. During the six months ended June 30, 1995, distributions totaling $600,000 were declared and paid. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS The Corporate General Partner owns 100 Limited Partnership Units ("Units"). On or about April 26 and 27, 1995, six entities ("Affiliated Purchaser") affiliated with the Partnership commenced tender offers for limited partner interests in six limited partnerships, including the Partnership (collectively, the "Shelter Properties Partnerships"). On May 27, 1995, the Affiliated Purchaser acquired 6,026 units of the Partnership pursuant to the tender offer. On or about May 12, 1995, in the United States District Court for the District of South Carolina, certain limited partners of the Shelter Properties Partnerships commenced a lawsuit, on behalf of themselves, on behalf of a putative class of plaintiffs, and derivatively on behalf of the partnerships, challenging the actions taken by defendants (including Insignia, the acquiring entities and certain officers of Insignia) in the management of the Shelter Properties Partnerships and in connection with the tender offers and certain other matters. The plaintiffs alleged that, among other things: (i) the defendants intentionally mismanaged the partnerships and acted contrary to the limited partners' best interests by prolonging the existence of the partnerships in order to perpetuate the revenues derived by Insignia (an affiliate of the Corporate General Partner) and its affiliates from the partnerships, (ii) the defendants' actions reduced the demand for the partnerships' limited partner interests in the limited resale market by artificially depressing the trading prices for limited partners interests in order to create a favorable environment for the tender offers; (iii) through the tender offers, the acquiring entities sought to acquire effective voting control over the partnerships while paying highly inadequate prices; and (iv) the documents disseminated to the class in connection with the tender offers contained false and misleading statements and omissions of material facts concerning such issues as the advantages to limited partners of tendering pursuant to the tender offers, the true value of the interest, the true financial condition of the partnerships, the factors affecting the likelihood that properties owned by the partnerships will be sold or liquidated in the near future, the liquidity and true value of the limited partner interests, the reasons for the limited secondary market for limited partner interests, and the true nature of the market for the underlying real estate assets owned by the Shelter Properties Partnerships, all in violation of the federal securities laws. On September 27, 1995, the parties entered into a stipulation to settle the matter. The principal terms of the stipulation require supplemental payments to tendering limited partners aggregating approximately $6 million to be paid by Affiliated Purchaser of which, approximately $640,000 is Shelter Properties II's portion; waiver by the Shelter Properties Partnerships' general partners of any right to certain proceeds from a sale or refinancing of the partnerships' properties; some restrictions on Insignia's ability to vote the limited partner interests it acquired; payment of $1.25 million (which amount is divided among the various partnerships and acquiring entities) for plaintiffs' attorney fees and expenses in the litigation; and general releases of all the defendants. On June 24, 1996, after notice to the class and a hearing on the fairness and adequacy of notice and the terms of settlement, the court orally approved the settlement. Plaintiffs' counsel has not yet submitted a formal written order for approval. If no appeal is taken within thirty days after the court enters that formal order, the settlement will become effective. No class member appeared at the hearing to oppose the settlement and thus it appears that an appeal is unlikely. While approximately 60 unit holders opted out of the settlement, no more than 1% of the unit holders in any one of the Shelter Properties Partnerships opted out. 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: None filed during the quarter ended June 30, 1996. SIGNATURES In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SHELTER PROPERTIES II LIMITED PARTNERSHIP By: Shelter Realty II Corporation Corporate General Partner By:/s/ William H. Jarrard, Jr. William H. Jarrard, Jr. President and Director By:/s/ Ronald Uretta Ronald Uretta Treasurer (Principal Financial Officer and Principal Accounting Officer) Date: July 31, 1996 EX-27 2
5 This schedule contains summary financial information extracted from Shelter Properties II Ltd. Partnership Second Quarter 10-QSB and is qualified in its entirety by reference to such 10-QSB filing. 0000319723 SHELTER PROPERTIES II LTD PARTNERSHIP 1 6-MOS DEC-31-1996 JUN-30-1996 2,202,536 0 23,143 0 0 0 24,002,642 14,491,382 13,309,084 0 8,826,643 0 0 0 3,781,559 13,309,084 0 2,771,822 0 0 2,500,107 0 408,513 0 0 0 0 0 0 271,715 9.78 0 The Partnership has an unclassified balance sheet.
-----END PRIVACY-ENHANCED MESSAGE-----