UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarter Ended March 31, 2014

 

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission File No. 0-16701

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

a Michigan Limited Partnership

(Exact name of registrant as specified in its charter)

MICHIGAN (State or other jurisdiction of incorporation or organization)

38-2702802 (I.R.S. employer identification number)

 

280 Daines Street, Birmingham, Michigan 48009

(Address of principal executive offices) (Zip Code)

 

(248) 645-9220

(Registrant's telephone number, including area code)

 

Securities registered pursuant to Section 12(g) of the Act:

units of beneficial assignments of limited partnership interest

 

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 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 ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes ¨   No ¨

 

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large Accelerated filer ¨    Accelerated filer ¨    Non-accelerated filer ¨    Smaller reporting company x

 

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934). Yes ¨   No x

 

As of March 31, 2014, the number of units of limited partnership interest of the registrant outstanding was 3,303,387.  The Partnership units of interest are not traded in any public market.

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

INDEX

 

		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Balance Sheets March 31, 2014 (Unaudited) and December 31, 2013	3
	Statements of Operations Three months ended March 31, 2014 and 2013 (Unaudited)	4
	Statement of Partners’ Equity Three months ended March 31, 2014 (Unaudited)	4
	Statements of Cash Flows Three months ended March 31, 2014 and 2013 (Unaudited)	5
	Notes to Financial Statements March 31, 2014 (Unaudited)	6
ITEM 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	7
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	10
ITEM 4.	CONTROLS AND PROCEDURES	10
PART II	OTHER INFORMATION	11
ITEM 1.	LEGAL PROCEEDINGS	11
ITEM 1A.	RISK FACTORS	11
ITEM 6.	EXHIBITS	12

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

BALANCE SHEETS

 

ASSETS		March 31,2014				December 31, 2013
			(Unaudited)
Properties:
Buildings And Improvements		$	42,434,357			$	42,431,157
Land			8,952,937				8,952,937
Furniture And Equipment			684,177				678,866
			52,071,471				52,062,960
Less Accumulated Depreciation			(36,159,640	)			(35,774,653	)
Net Property and Equipment			15,911,831				16,288,307
Cash And Cash Equivalents			8,425,124				8,584,140
Manufactured Homes and Improvements			4,125,108				4,075,639
Unamortized Finance Costs			991,649				1,013,113
Deferred Home Relocation Costs			537,703				605,239
Other Assets			1,157,646				841,522
Total Assets		$	31,149,061			$	31,407,960

 

LIABILITIES & PARTNERS' EQUITY		March 31,2014				December 31, 2013
		(Unaudited)
Accounts Payable		$	89,547			$	52,932
Other Liabilities			644,571				522,009
Notes Payable			28,505,621				28,674,370
Total Liabilities		$	29,239,739			$	29,249,311
Partners’ Equity:
General Partner			419,207				419,057
Unit Holders			1,490,115				1,739,592
Total Partners’ Equity			1,909,322				2,158,649
Total Liabilities And
Partners’ Equity		$	31,149,061			$	31,407,960

 

 See Notes to Financial Statements

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

 

STATEMENTS OF OPERATIONS		THREE MONTHS ENDED
(Unaudited)		March 31, 2014				March 31, 2013
Income:
Rental Income		$	1,793,963			$	1,735,269
Home Sale Income			139,455				40,404
Other			229,546				215,999
Total Income			2,162,964				1,991,672
Operating Expenses:
Administrative Expenses (Including $103,990 and $98,541, in Property Management Fees Paid to an Affiliate for the Three Month Period Ended March 31, 2014 and 2013, respectively)			684,986				642,580
Property Taxes			190,347				206,898
Utilities			153,868				154,170
Property Operations			210,972				198,016
Depreciation			414,987				428,979
Interest			383,090				360,681
Home Sale Expense			109,770				48,360
Total Operating Expenses			2,148,020				2,039,684
Net Income (Loss)		$	14,944				($48,012	)
Net Income (Loss) per Limited Partnership Unit		$	0.00				($0.01	)
Distribution Per Unit:		$	0.08			$	0.08
Weighted Average Number Of Units Of Beneficial Assignment Of Limited Partnership Interest Outstanding During The Period Ending March  31, 2014 and 2013			3,303,387				3,303,387

 

STATEMENT OF PARTNERS’ EQUITY (Unaudited)

		General Partner				Unit Holders				Total
Balance, December 31, 2013		$	419,057			$	1,739,592			$	2,158,649
Distributions			-				(264,271	)			(264,271	)
Net Income			150				14,794				14,944
Balance as of March 31, 2014		$	419,207			$	1,490,115			$	1,909,322

 

  See Notes to Financial Statements

 

  

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

STATEMENTS OF CASH FLOWS

(Unaudited) 

		THREE MONTHS ENDED
		March 31, 2014				March 31, 2013
Cash Flows From Operating Activities:
Net Income (Loss)		$	14,944				($48,012	)
Adjustments To Reconcile Net Income (Loss)
To Net Cash Provided By
Operating Activities:
Depreciation			414,987				428,979
Amortization of Financing Costs			21,464				6,938
Amortization of Home Relocation Costs			69,036				34,241
Payment of Home Relocation Costs			(1,500	)			(463,618	)
Increase in Manufactured Homes and Home Improvements			(79,469	)			(141,211	)
(Increase) Decrease In Other Assets			(316,124	)			28,125
Increase In Accounts Payable			36,616				96,969
Increase In Other Liabilities			122,562				29,726
Total Adjustments			267,572				20,149
Net Cash Provided By (Used In) Operating Activities			282,516				(27,863	)
Cash Flows Used In Investing Activities:
Purchase of property and equipment			(8,512	)			(7,355	)
Net Cash Used In Investing Activities			(8,512	)			(7,355	)
Cash Flows Used In Financing Activities:
Distributions To Unit Holders			(264,271	)			(264,271	)
Payments On Notes Payable			(168,749	)			(121,503	)
Net Cash Used In Financing Activities			(433,020	)			(385,774	)
Decrease In Cash			(159,016	)			(420,992	)
Cash, Beginning			8,584,140				5,117,789
Cash, Ending		$	8,425,124			$	4,696,797

 

See Notes to Financial Statements

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

 

NOTES TO FINANCIAL STATEMENTS

March 31, 2014 (Unaudited)

 

1. Basis of Presentation and Accounting Policies:

 

The accompanying unaudited 2014 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 notes 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. The balance sheet at December 31, 2013 has been derived from the audited financial statements at that date. Operating results for the three months ended March 31, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or for any other interim period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership’s Form 10-K for the year ended December 31, 2013.

 

During the fourth quarter of 2012, Management initiated the Sunshine Village Paid Home Relocation Program (“Program”). The Program was offered exclusively to residents of Seminole Estates, a 704 site, 55 and over manufactured home community in Hollywood, Florida that announced its closure. The Program expired in the first quarter of 2013. As of March 31, 2014, all 41 residents have successfully relocated. The Partnership has incurred expenditures of $903,232, of which $816,203 has been capitalized and is being amortized as a reduction of rental revenue over the life of the residents’ three year rental period. The Program is completed and Management estimates no additional relocation costs will be incurred. At March 31, 2014, $537,703 remains unamortized.

 

We have evaluated subsequent events through the date of this filing. We do not believe there are any material subsequent events which would require further disclosure.

 

2. Mortgage Payable:

 

During 2008, the Partnership refinanced its existing mortgage note payable and executed seven new mortgages payable with StanCorp Mortgage Investors LLC (“StanCorp”) in the amount of $23,225,000 secured by the seven remaining properties of the Partnership. To pay off the prior mortgage balance of $25,277,523 and the costs of refinancing, the Partnership transferred $2,735,555 from cash reserves. These mortgages were payable in monthly installments of interest and principal through September 2033. The Partnership incurred $693,798 in financing costs as a result of the 2008 refinancing which was being amortized over the original term of the loans. These costs included a 1% fee payable to an affiliate of the General Partner. Unamortized finance costs of $179,395 related to the refinanced mortgage notes payable were written off in 2013 as a result of the refinancing discussed below.

 

On July 18, 2013, the Partnership refinanced two of the existing mortgage notes payable and executed two new mortgage notes payable in the amount of $19,320,000 secured by Sunshine Village, located in Davie, Florida and West Valley, located in Las Vegas, Nevada with a new lender, namely Cantor Commercial Real Estate. The mortgages are payable in monthly installments of interest and principal through August, 2023. These refinanced notes bear interest at a fixed rate of 5.09% with principal payments based on a twenty-five year amortization period. As of March 31, 2014 the balance on these notes was $19,098,873.

 

The Partnership incurred $676,321 in financing costs as a result of the 2013 refinancing which is being amortized over the life of the loans. This included a 1% fee payable to Uniprop AM LLC, an affiliate of the General Partner. Unamortized finance costs of $179,395 related to the refinanced mortgage notes payable were written off in 2013 as a result of the refinancing and reflected in amortization expense. Additionally, the Partnership incurred a fee with StanCorp totaling $72,020 related to the refinancing, which was reflected as part of interest expense on the statement operations for the year ending December 31, 2013.

 

Effective September 1, 2013, the available interest rate re-set option was accepted on the five remaining mortgage notes with StanCorp. The new rate on these five notes is 5.00% and the amortization period is twenty years. Another rate re-set option is available in five years. As of March 31, 2014 the balance on these five notes was $9,406,748.

 

Future maturities on the notes payable for the next five years and thereafter are as follows: 2014 - $505,661; 2015 - $709,585; 2016 - $744,498; 2017 - $785,396; 2018 - $826,361 and thereafter - $24,934,120.

  

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Critical Accounting Policies

 

See Part II, Item 7 – Critical Accounting Policies, our consolidated financial statements and related notes in Part IV, Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the SEC on March 14, 2014 for accounting policies and related estimates we believe are the most critical to understanding condensed consolidated financial statements, financial conditions and results of operations and which require complex management judgment and assumptions or involve uncertainties. There have been no material changes to the critical accounting policies and estimates previously disclosed in that report.

 

Liquidity and Capital Resources

 

Uniprop Manufactured Housing Communities Income Fund II, a Michigan Limited Partnership’s (the “Partnership”) liquidity is based, in part, upon its investment strategy. Upon acquisition, the Partnership anticipated owning the properties for seven to ten years. All of the properties have been owned by the Partnership for more than ten years. The General Partner may elect to have the Partnership own the properties for as long as, in the opinion of the General Partner, it is in the best interest of the Partnership to do so.

 

 

The Partnership expects to meet its short-term liquidity needs generally through its working capital and cash provided by operating activities.

 

The Partnership's capital resources consist primarily of its seven manufactured home communities. As described in Note 2, the Partnership refinanced its existing mortgage note payable and executed seven new mortgage notes payable with StanCorp Mortgage Investors, LLC (the “StanCorp Financing”) in the aggregate amount of $23,225,000 secured by the seven properties of the Partnership in August, 2008. To pay off the prior mortgage balance of $25,277,523 and the costs of refinancing, the Partnership transferred $2,735,555 from cash reserves. The mortgages were payable in monthly installments of interest and principal through September 2033. The Partnership incurred $693,798 in financing costs as a result of the 2008 refinancing which were being amortized over the term of the loans. These costs included a 1% fee payable to an affiliate of the General Partner. Unamortized finance costs of $179,375 were written off during 2013 as a result of the refinancing discussed below.

 

On July 18, 2013, the Partnership refinanced two of the existing mortgage notes payable and executed two new mortgages payable in the amount of $19,320,000 secured by Sunshine Village, located in Davie, FL and West Valley, located in Las Vegas, NV with a new lender, namely Cantor Commercial Real Estate. The mortgage notes are payable in monthly installments of interest and principal through August, 2023. The refinanced notes bear interest at a fixed rate of 5.09% with principal payments based on a twenty-five year amortization period. As of March 31, 2014 the balance on these notes was $19,098,873.

 

The Partnership incurred $676,321 in financing costs as a result of the 2013 refinancing which is being amortized over the term of the loans. These costs included a 1% fee payable to an affiliate of the General Partner.

 

Net closing proceeds after deducting the payoff of the prior mortgages of $11,383,289 and the payment of closing costs and fees to third parties of $665,193 were $7,271,518. The net loan proceeds have been added to cash reserves of the Partnership.

 

Effective September 1, 2013, the interest rate re-set option was accepted on the five remaining notes with StanCorp. The new rate on these five notes is 5.00% and the amortization period is twenty years. Another rate re-set option is available in five years. As of March 31, 2014 the balance on these notes was $9,406,748.

 

The General Partner has decided to distribute $264,271, or $.08 per unit, to the unit holders for the first quarter ended March 31, 2014. The General Partner will continue to monitor cash flow generated by the Partnership’s seven properties during the coming quarters. If cash flow generated is greater or lesser than the amount needed to maintain the current distribution level, the General Partner may elect to reduce or increase the level of future distributions paid to Unit Holders.

 

As of March 31, 2014, the Partnership’s cash balance amounted to $8,425,124. The level of cash balance maintained is at the discretion of the General Partner.

 

Results of Operations

 

Overall, as illustrated in the following table, the Partnership's seven properties reported combined occupancy of 48% at the end of March 2014, versus 47% at the end of March 2013. The average monthly homesite rent as of March 31, 2014 was approximately $523 versus $514 from March 2013 (average rent not a weighted average).

  

		Total		Occupied		Occupancy		Average*
		Capacity		Sites		Rate		Rent
Ardmor Village		339		147		43%		$554
Camelot Manor		335		111		33%		424
Dutch Hills		278		105		38%		428
El Adobe		367		168		46%		561
Stonegate Manor		308		98		32%		418
Sunshine Village		356		255		72%		643
West Valley		421		298		71%		636
Total on 3/31/14:		2,404		1,182		48%		$523
Total on 3/31/13:		2,404		1,174		47%		$514

 *Not a weighted average

  

		Gross Revenue								Net Operating Income  and Net Income (Loss)
		3/31/2014				3/31/2013				3/31/2014				3/31/2013
		three months ended								three months ended
Ardmor		$	249,559			$	229,117			$	110,332			$	96,620
Camelot Manor			223,956				176,958				89,641				42,176
Dutch Hills			163,480				170,986				57,766				54,120
El Adobe			244,847				255,390				85,197				117,527
Stonegate			171,463				164,678				44,121				69,593
Sunshine			509,070				420,043				217,576				188,814
West Valley			596,061				571,526				426,649				406,331
			2,158,436				1,988,698				1,031,282				975,181
Partnership Management			4,528				2,974				(149,496	)			(160,530	)
Other Expense			--				--				(68,765	)			(73,003	)
Interest Expense			--				--				(383,090	)			(360,681	)
Depreciation			--				--				(414,987	)			(428,979	)
		$	2,162,964			$	1,991,672			$	14,944				($48,012	)

 

Net Operating Income (“NOI”) is a non-GAAP financial measure equal to net income, the most comparable GAAP financial measure, plus depreciation, interest expense, partnership management expense, and other expenses. The Partnership believes that NOI is useful to investors and the Partnership’s management as an indication of the Partnership’s ability to service debt and pay cash distributions. NOI presented by the Partnership may not be comparable to NOI reported by other companies that define NOI differently, and should not be considered as an alternative to net income as an indication of performance or to cash flows as a measure of liquidity or ability to make distributions.

 

 

Comparison of Quarter Ended March 31, 2014 to Quarter Ended March 31, 2013

 

Net revenues increased $171,292 to $2,162,964 in 2014, from $1,991,672 in 2013. This was due to increased rental income as a result of the increased occupancy at Sunshine Village related to the success of the relocation program. There were also increases in home sale income and other income, specifically lease home income.

 

As described in the Statements of Operations, total operating expenses increased $108,336, to $2,148,020 in 2014, as compared to $2,039,684 in 2013. This was the result of increases in administrative and home sale expenses.

 

As a result of the aforementioned factors, the Partnership experienced Net Income of $14,944 for the first quarter of 2014 compared to a Net Loss of $48,012 for the first quarter of 2013.

  

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

The Partnership is exposed to interest rate rise primarily through its borrowing activities. There is inherent roll over risk for borrowings as they mature and are renewed at current market rates. The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Partnership’s future financing requirements.

 

Notes Payable: At March 31, 2014 the Partnership had notes payable outstanding in the amount of $28,505,621. Interest on two of these notes is at a fixed annual rate of 5.09% through August 2023. Interest on the five remaining notes is at a fixed rate of 5.00% through August 2018, at which time a rate reset option is available.

 

The Partnership does not enter into financial instruments transactions for trading or other speculative purposes or to manage its interest rate exposure.

  

ITEM 4. CONTROLS AND PROCEDURES

 

As of the end of the period covered by this report, the Partnership carried out an evaluation, under the supervision and with the participation of the Principal Executive Officer and the Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15. Based upon, and as of the date of, this evaluation, the Principal Executive Officer and the Principal Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information required to be disclosed in the quarterly report is recorded, processed, summarized and reported as and when required.

 

 

There was no change in the Partnership’s internal controls over financial reporting that occurred during the most recent completed quarter that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

None.

 

ITEM 1A. RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item IA. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition and/or operating results.

 

 

 

ITEM 6. EXHIBITS

 

Exhibit 31.1	Principal Executive Officer Certification pursuant to Rule 13a-14(a)/15d-14(a) of The Securities and Exchange Act of 1934, as amended
Exhibit 31.2	Principal Financial Officer Certification pursuant to Rule 13a-14(a)/15d-14(a) of The Securities and Exchange Act of 1934, as amended
Exhibit 32.1	Certifications pursuant to 18 U.S C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes –Oxley Act of 2002.

 

 

 

 

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.

 

	Uniprop Manufactured Housing Communities
	Income Fund II, a Michigan Limited Partnership
	BY:	Genesis Associates Limited Partnership, General Partner
		BY:	Uniprop, Inc.,
			Its Managing General Partner
			By:	/s/ Roger I. Zlotoff
				Roger I. Zlotoff, President
			By:	/s/ Susann Kehrig
				Susann Kehrig, Principal Financial Officer

 

Dated: May 13, 2014