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 June 30, 2012

¨ 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	38-2702802
(State or other jurisdiction of incorporation or organization)	(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

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

INDEX

 

		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Balance Sheets June 30, 2012 (Unaudited) and December 31, 2011	3
	Statements of Operations Six and Three months ended June 30, 2012 and 2011 (Unaudited)	4
	Statement of Partners’ Equity Six months ended June 30, 2012 (Unaudited)	5
	Statements of Cash Flows Six months ended June 30, 2012 and 2011 (Unaudited)	6
	Notes to Financial Statements June 30, 2012 (Unaudited)	7
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	8
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	10
ITEM 4.	CONTROLS AND PROCEDURES	11
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		June 30,2012				December 31, 2011
		(Unaudited)
Properties:
Land		$	8,952,937			$	8,952,937
Buildings And Improvements			42,105,167				42,031,798
Furniture And Fixtures			648,279				633,279
			51,706,383				51,618,014
Less Accumulated Depreciation			(33,488,276	)			(32,697,748	)
			18,218,107				18,920,266
Cash			5,409,049				6,239,427
Unamortized Finance Costs			582,790				596,666
Manufactured Homes and Improvements			2,756,246				2,049,935
Other Assets			1,296,455				955,929
Total Assets		$	28,262,647			$	28,762,223

 

LIABILITIES & PARTNERS' EQUITY		June 30,2012				December 31, 2011
		(Unaudited)
Accounts Payable		$	65,775			$	166,483
Other Liabilities			660,177				446,440
Notes Payable			21,676,000				21,905,364
Total Liabilities		$	22,401,952			$	22,518,287
Partners' Equity:
General Partner			422,384				420,931
Unit Holders			5,438,311				5,823,005
Total Partners' Equity			5,860,695				6,243,936
Total Liabilities And
Partners' Equity		$	28,262,647			$	28,762,223

 

See Notes to Financial Statements

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

STATEMENTS OF OPERATIONS		SIX MONTHS ENDED								THREE MONTHS ENDED
(unaudited)		June 30, 2012				June 30, 2011				June 30, 2012				June 30, 2011
Income:
Rental Income		$	3,624,587			$	3,598,177			$	1,790,831			$	1,810,139
Home Sale Income			147,721				60,399				127,621				3,000
Other			390,062				297,495				188,814				160,135
Total Income			4,162,370				3,956,071				2,107,266				1,973,274
Operating Expenses:
Administrative Expenses (Including $198,557, $192,910, $98,254 and $97,464, in Property Management Fees Paid to an Affiliate for the Six and Three Month Period Ended June 30, 2012 and 2011, respectively)			1,235,942				1,256,480				567,197				593,873
Property Taxes			445,437				458,109				219,168				229,047
Utilities			292,415				295,871				141,591				151,969
Property Operations			371,978				280,409				216,897				160,759
Depreciation			790,528				761,434				396,200				382,975
Interest			735,080				749,824				366,588				374,020
Home Sale Expense			145,689				71,798				119,113				13,251
Total Operating Expenses			4,017,069				3,873,925				2,026,754				1,905,894
Net Income		$	145,301			$	82,146			$	80,512			$	67,380
Income per Limited Partnership Unit:		$	0.04			$	0.02			$	0.02			$	0.02
Distribution Per Unit:		$	0.16			$	0.16			$	0.08			$	0.08
Weighted Average Number Of Units Of Beneficial Assignment Of Limited Partnership Interest Outstanding During The Six and Three Month Period Ended June 30, 2012 and 2011.			3,303,387				3,303,387				3,303,387				3,303,387

 

 

STATEMENT OF PARTNERS' EQUITY (Unaudited)

 

		General Partner				Unit Holders				Total
Balance, December 31, 2011		$	420,931			$	5,823,005			$	6,243,936
Distributions			0				(528,542	)			(528,542	)
Net Income			1,453				143,848				145,301
Balance as of June 30, 2012		$	422,384			$	5,438,311			$	5,860,695

 

See Notes to Financial Statements

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

STATEMENTS OF CASH FLOWS

(Unaudited)

 

		SIX MONTHS ENDED
		June 30,2012				June 30,2011
Cash Flows From Operating Activities:
Net Income		$	145,301			$	82,146
Adjustments To Reconcile Net Income
To Net Cash Provided By
Operating Activities:
Depreciation			790,528				761,434
Amortization			13,876				13,876
Increase in Manufactured Homes and Home Improvements			(706,311	)			(395,840	)
Increase In Other Assets			(340,526	)			(360,321	)
(Decrease) Increase In Accounts Payable			(100,708	)			10,068
Increase In Other Liabilities			213,737				304,648
Total Adjustments			(129,404	)			333,865
Net Cash Provided By Operating Activities			15,897				416,011
Cash Flows From Investing Activities:
Redemption of Investments			0				1,423,003
Purchase of property and equipment			(88,369	)			(156,861	)
Net Cash (Used In) Provided By Investing Activities			(88,369	)			1,266,142
Cash Flows Used In Financing Activities:
Distributions To Unit Holders			(528,542	)			(528,542	)
Payments On Mortgage			(229,364	)			(214,700	)
Net Cash Used In Financing Activities			(757,906	)			(743,242	)
(Decrease) Increase In Cash			(830,378	)			938,911
Cash, Beginning			6,239,427				5,671,854
Cash, Ending		$	5,409,049			$	6,610,765

 

See Notes to Financial Statements

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

NOTES TO FINANCIAL STATEMENTS

June 30, 2012 (Unaudited)

 

1.          Basis of Presentation:

 

The accompanying unaudited 2011 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, 2011 has been derived from the audited financial statements at that date. Operating results for the three and six months ended June 30, 2012 are not necessarily indicative of the results that may be expected for the year ending December 31, 2012, 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, 2011.

 

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:

 

On August 29, 2008, the Partnership refinanced its existing mortgage note payable and executed seven new mortgages payable in the amount of $23,225,000 secured by the seven 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. The mortgages are payable in monthly installments of interest and principal through September 2033. Interest on these notes is accrued at a fixed rate of 6.625% for five years, at which time, the rate will reset to the lender’s then prevailing market rate. As of June 30, 2012 the balance on these notes was $21,676,000.

 

The Partnership incurred $693,798 in financing costs as a result of the refinancing which is being amortized over the life of the loan. This included a 1% fee payable to an affiliate of the General Partner.

 

Future maturities on the note payable for the next five years and thereafter are as follows: remainder of 2012 - $237,068; 2013 - $498,289; 2014 - $532,321; 2015 - $568,678; 2016 - $607,519; and thereafter - $19,232,125.

 

 

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, 2011 filed with the SEC on March 9, 2012 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

 

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's capital resources consist primarily of its seven manufactured home communities. On August 29, 2008, the Partnership refinanced these properties with Stancorp Mortgage Investors, LLC (the “Refinancing”) in the amount of $23,225,000 secured by the seven 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. The mortgages are payable in monthly installments of interest and principal through September 2033. Interest on these notes are accrued at a fixed rate of 6.625% for five years, at which time, the rate will reset to the lenders then prevailing market rate. As of June 30, 2012 the balance on these notes was $21,676,000.

 

The Partnership incurred $693,798 in financing costs as a result of the refinancing which is being amortized over the life of the loan. This included a 1% fee payable to an affiliate of the General Partner.

 

As a result of the Refinancing, all of the Partnership’s seven properties are mortgaged. At the time of the Refinancing, the aggregate principal amount due under the seven mortgage notes was $23,225,000 and the aggregate fair market value of the Partnership’s mortgaged properties was $73,550,000. The Partnership expects to meet its short-term liquidity needs generally through its working capital provided by operating activities.

 

The General Partner has decided to distribute $264,271, or $.08 per unit, to the unit holders for the second quarter ended June 30, 2012. 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 June 30, 2012, the Partnership’s cash balance amounted to $5,409,049. 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 June 2012 versus 49% at the end of June 2011. The average monthly homesite rent as of June 30, 2012 was approximately $505; versus $493 from June 2011 (average rent not a weighted average).

 

		Total Capacity				Occupied Sites				Occupancy Rate				Average* Rent
Ardmor Village			339				149				44	%		$	524
Camelot Manor			335				99				30	%			417
Dutch Hills			278				109				39	%			420
El Adobe			367				192				52	%			535
Stonegate Manor			308				108				35	%			410
Sunshine Village			356				219				62	%			627
West Valley			421				300				71	%			603
Total on 6/30/12:			2,404				1,176				48	%		$	505
Total on 6/30/11:			2,404				1,216				49	%		$	493

*Not a weighted average

 

		Gross Revenue								Net Operating Income and Net Income								Gross Revenue								Net Operating Income and Net Income
		6/30/2012				6/30/2011				6/30/2012				6/30/2011				06/30/2012				06/30/2011				06/30/2012				06/30/2011
		three months ended								three months ended								six months ended								six months ended
Ardmor		$	236,104			$	243,275			$	112,023			$	100,366			$	489,918			$	492,392			$	226,047			$	230,739
Camelot Manor			143,778				130,130				43,326				27,985				281,342				276,836				77,474				50,987
Dutch Hills			189,310				144,186				61,512				41,024				339,316				285,642				104,803				83,325
El Adobe			291,717				318,774				163,653				170,741				591,790				609,329				324,249				336,948
Stonegate			173,252				149,490				51,414				36,184				348,031				298,845				88,491				78,326
Sunshine			499,689				412,136				201,344				204,200				937,656				849,344				427,376				404,812
West Valley			570,650				570,267				413,168				405,408				1,150,149				1,134,291				823,234				799,520
			2,103,500				1,968,258				1,046,440				985,908				4,138,202				3,946,679				2,071,674				1,984,657
Partnership Management			3,766				5,016				(117,541	)			(123,568	)			24,168				9,392				(281,905	)			(328,880	)
Other Expense			-				-				(85,599	)			(37,965	)			-				-				(118,860	)			(62,373	)
Interest Expense			-				-				(366,588	)			(374,020	)			-				-				(735,080	)			(749,824	)
Depreciation			-				-				(396,200	)			(382,975	)			-				-				(790,528	)			(761,434	)
		$	2,107,266			$	1,973,274			$	80,512			$	67,380			$	4,162,370			$	3,956,071			$	145,301			$	82,146

 

 

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 Three Months Ended June 30, 2012 to Three Months Ended June 30, 2011

 

Gross revenues increased $133,992 to $2,107,266 in 2012, from $1,973,274 in 2011. This was mainly due to increased home sale activity and other income, specifically lease home income. This was offset slightly by decreased rental income due to lower occupancy.

 

As described in the Statements of Operations, total operating expenses increased $120,860, to $2,026,754 in 2012, as compared to $1,905,894 in 2011. This was due to increases in property operations and home sale expense.

 

As a result of the aforementioned factors, the Partnership experienced Net Income of $80,512 for the second quarter of 2012 compared to Net Income of $67,380 for the second quarter of 2011.

 

Comparison of Six Months Ended June 30, 2012 to Six Months Ended June 30, 2011

 

Gross revenues increased $206,299 to $4,162,370 in 2012, from $3,956,071 in 2011. The increase mainly due to increased home sale activity and other income, specifically lease home income.

 

As described in the Statements of Operations, total operating expenses increased $143,144, to $4,017,069 in 2012, as compared to $3,873,925 in 2011. The increase was primarily a result of increased property operations and home sale expense.

 

As a result of the aforementioned factors, the Partnership experienced Net Income of $145,301 in 2012 as compared to Net Income of $82,146 in 2011.

 

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.

 

 

Note Payable: At June 30, 2012 the Partnership had notes payable outstanding in the amount of $21,676,000. Interest on these notes is at a fixed annual rate of 6.625% through September 2013, at which time, the rate will reset to the lender’s then prevailing market rate.

 

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, 2011, 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 Szepytowski
				Susann E. Szepytowski, Principal Financial Officer

 

Dated: August 8, 2012