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, 2013

¨ 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	(I.R.S. employer
incorporation or organization)	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 March 31, 2013 (Unaudited) and December 31, 2012		3
	Statements of Operations Three months ended March 31, 2013 and 2012 (Unaudited)		4
	Statement of Partners’ Equity Three months ended March 31, 2013 (Unaudited)
	Statements of Cash Flows Three months ended March 31, 2013 and 2012 (Unaudited)		5
	Notes to Financial Statements March 31, 2013 (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		9
ITEM 4.	CONTROLS AND PROCEDURES		10
PART II	OTHER INFORMATION		10
ITEM 1.	LEGAL PROCEEDINGS
ITEM 1A.	RISK FACTORS
ITEM 6.	EXHIBITS

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

BALANCE SHEETS

 

ASSETS		March 31,2013				December 31, 2012
		(Unaudited)
Properties:
Land		$	8,952,937			$	8,952,937
Buildings And Improvements			42,324,942				42,321,607
Furniture And Fixtures			655,624				651,604
			51,933,503				51,926,148
Less Accumulated Depreciation			(34,695,803	)			(34,266,824	)
			17,237,700				17,659,324
Cash And Cash Equivalents			4,696,797				5,117,789
Unamortized Finance Costs			561,976				568,914
Manufactured Homes and Improvements			3,349,968				3,208,757
Other Assets			1,051,598				1,079,723
Deferred Home Relocation Costs			429,377				0
Total Assets		$	27,327,416			$	27,634,507

 

LIABILITIES & PARTNERS' EQUITY		March 31,2013				December 31, 2012
		(Unaudited)
Accounts Payable		$	124,873			$	27,904
Other Liabilities			598,556				568,830
Notes Payable			21,317,430				21,438,933
Total Liabilities		$	22,040,859			$	22,035,667
Partners' Equity:
General Partner			424,570				425,050
Unit Holders			4,861,987				5,173,790
Total Partners' Equity			5,286,557				5,598,840
Total Liabilities And
Partners' Equity		$	27,327,416			$	27,634,507

 

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, 2013				March 31, 2012
Income:
Rental Income		$	1,735,269			$	1,833,756
Home Sale Income			40,404				20,100
Other			215,999				201,248
Total Income			1,991,672				2,055,104
Operating Expenses:
Administrative Expenses (Including $98,541 and $100,303, in Property Management Fees Paid to an Affiliate for the Three Month Period Ended March 31, 2013 and 2012, respectively)			642,580				668,745
Property Taxes			206,898				226,269
Utilities			154,170				150,824
Property Operations			198,016				155,081
Depreciation			428,979				394,328
Interest			360,681				368,492
Home Sale Expense			48,360				26,576
Total Operating Expenses			2,039,684				1,990,315
Net Income		$	(48,012	)		$	64,789
Income per Limited Partnership Unit		$	(0.01	)		$	0.02
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, 2013 and 2012			3,303,387				3,303,387

 

 

STATEMENT OF PARTNERS' EQUITY (Unaudited)
		General Partner				Unit Holders				Total
Balance, December 31, 2012		$	425,050			$	5,173,790			$	5,598,840
Distributions			–				(264,271	)			(264,271	)
Net Income			(480	)			(47,532	)			(48,012	)
Balance as of March 31, 2013		$	424,570			$	4,861,987			$	5,286,557

 

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 31,2013				March 31,2012
Cash Flows From Operating Activities:
Net (Loss) Income		($	48,012	)		$	64,789
Adjustments To Reconcile Net Income
To Net Cash Provided By
Operating Activities:
Depreciation			428,979				394,328
Amortization of Financing Costs			6,938				6,938
Amortization of Home Relocation Costs			34,241				0
Payment of Home Relocation Costs			(463,618	)			0
Increase in Manufactured Homes and Home Improvements			(141,211	)			(300,417	)
Decrease (Increase) In Other Assets			28,125				(21,513	)
Increase (Decrease) In Accounts Payable			96,969				(90,868	)
Increase In Other Liabilities			29,726				74,463
Total Adjustments			20,149				62,931
Net Cash (Used In) Provided By Operating Activities			(27,863	)			127,720
Cash Flows Used In Investing Activities:
Purchase of property and equipment			(7,355	)			(15,000	)
Net Cash Used In By Investing Activities			(7,355	)			(15,000	)
Cash Flows Used In Financing Activities:
Distributions To Unit Holders			(264,271	)			(264,271	)
Payments On Mortgage			(121,503	)			(113,735	)
Net Cash Used In Financing Activities			(385,774	)			(378,006	)
(Decrease) Increase In Cash			(420,992	)			(265,286	)
Cash, Beginning			5,117,789				6,239,427
Cash, Ending		$	4,696,797			$	5,974,141

 

See Notes to Financial Statements

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

NOTES TO FINANCIAL STATEMENTS

March 31, 2013 (Unaudited)

 

1.

Basis of Presentation:

 

The accompanying unaudited 2013 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, 2012 has been derived from the audited financial statements at that date. Operating results for the three months ended March 31, 2013 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013, 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, 2012.

 

As described in the Form 10K for year ended December 31, 2012, management initiated the Sunshine Village Paid Home Relocation Program (the “Program”). The Program was offered exclusively to residents of Seminole Estates, a 704 site, age 55 and over manufactured home community in Hollywood, Florida that announced its closure. As of March 31, 2013, 25 residents have successfully relocated. The Partnership has incurred expenditures of $498,467, of which $463,618 has been capitalized and is being amortized over the life of the resident’s three year rental period. Management estimates an additional $600,000 of relocation costs will be incurred to complete the Program.

 

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. Management believes that the prevailing market rate will be lower than the current fixed rate of 6.625% at the time of rate reset.  However, changes in market conditions and other factors could cause the lender’s prevailing market interest rate to change.  Management is unable to predict at this time what the lender’s prevailing market rate will be at time of rate reset. As of March 31, 2013, the balance on these notes was $21,317,430.

 

The Partnership incurred $693,798 in financing costs as a result of the refinancing which is being amortized over the life of the mortgage of 25 years. This included a 1% fee payable to an affiliate of the General Partner.

 

Future maturities on the note payable for the next five calendar years and thereafter are as follows: remainder of 2013 - $376,786; 2014 - $532,321; 2015 - $568,678; 2016 - $607,519; 2017 - $649,012 and thereafter - $18,583,024.

 

 

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, 2012 filed with the SEC on March 21, 2013 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. Management believes that the prevailing market rate will be lower than the current fixed rate of 6.625% at the time of rate reset.  However, changes in market conditions and other factors could cause the lender’s prevailing market interest rate to change.  Management is unable to predict at this time what the lender’s prevailing market rate will be at time of rate reset. As of March 31, 2013 the balance on these notes was $21,317,430.

 

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.

 

 

The General Partner has decided to distribute $264,271, or $.08 per unit, to the unit holders for the first quarter ended March 31, 2013. 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, 2013, The Partnership has incurred expenditures of $498,467, to fund the relocation program at Sunshine Village. Management approximates an additional $600,000 of relocation costs will be incurred to complete the program.

 

As of March 31, 2013, the Partnership’s cash balance amounted to $4,696,797. 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 47% at the end of March 2013, versus 48% at the end of March 2012. The average monthly homesite rent as of March 31, 2013 was approximately $514 versus $505 from March 2012 (average rent not a weighted average).

 

		Total Capacity				Occupied Sites				Occupancy Rate				Average* Rent
Ardmor Village			339				149				44	%		$	539
Camelot Manor			335				106				32	%			417
Dutch Hills			278				107				38	%			428
El Adobe			367				167				46	%			548
Stonegate Manor			308				106				34	%			418
Sunshine Village			356				240				67	%			627
West Valley			421				299				71	%			618
Total on 3/31/13:			2,404				1,174				47	%		$	514
Total on 3/31/12:			2,404				1,186				48	%		$	505

*Not a weighted average

 

		Gross Revenue								Net Operating Income  and Net Income
		3/31/2013				3/31/2012				3/31/2013				3/31/2012
		three months ended								three months ended
Ardmor		$	229,117			$	254,814			$	96,620			$	114,024
Camelot Manor			176,958				137,564				42,176				34,148
Dutch Hills			170,986				150,006				54,120				43,291
El Adobe			255,390				300,073				117,527				160,596
Stonegate			164,678				174,779				69,593				37,077
Sunshine			420,043				437,967				188,814				226,032
West Valley			571,526				579,499				406,331				410,066
			1,988,698				2,034,702				975,181				1,025,234
Partnership Management			2,974				20,402				(160,530	)			(164,364	)
Other Expense			—				—				(73,003	)			(33,261	)
Interest Expense			—				—				(360,681	)			(368,492	)
Depreciation			—				—				(428,979	)			(394,328	)
		$	1,991,672			$	2,055,104			$	(48,012	)		$	64,789

 

 

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, 2013 to Quarter Ended March 31, 2012

 

Gross revenues decreased $63,432 to $1,991,672 in 2013, from $2,055,104 in 2012. This was due to decreased rental income as a result of both lower occupancy rates and the amortization of relocation expenses related to the Sunshine Village relocation program. The decrease was offset by an increase in other income, specifically lease home income and home sale income.

 

As described in the Statements of Operations, total operating expenses increased $49,369, to $2,039,684 in 2013, as compared to $1,990,315 in 2012. This was a result of an increase in property operations expenses, mainly due to the expenses related to the Sunshine Village relocation program in 2013.

 

As a result of the aforementioned factors, the Partnership experienced a Net Loss of $48,012 for the first quarter of 2013 compared to Net Income of $64,789 for the first quarter of 2012.

 

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 March 31, 2013 the Partnership had notes payable outstanding in the amount of $21,317,430. 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. Management believes that the prevailing market rate will be lower than the current fixed rate of 6.625% at the time of rate reset.  However, changes in market conditions and other factors could cause the lender’s prevailing market interest rate to change.  Management is unable to predict at this time what the lender’s prevailing market rate will be at time of rate reset.

 

 

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, 2012, 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 15, 2013