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EXCEL - IDEA: XBRL DOCUMENT - UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II /MI/Financial_Report.xls
EX-99.1 - EXHIBIT 99.1 - UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II /MI/v370854_ex99-1.htm
EX-32.2 - EXHIBIT 32.2 - UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II /MI/v370854_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II /MI/v370854_ex32-1.htm
EX-31.2 - EXHIBIT 31.2 - UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II /MI/v370854_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II /MI/v370854_ex31-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-K
 
x ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2013

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THESECURITIES EXCHANGE ACT OF 1934
 
Commission File No. 0-15940
 
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, Suite 300, 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act of 1933. Yes ¨   No x
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15 (d) of the Exchange Act of 1934. Yes ¨  No x
 
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K x
 
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
 
The estimated aggregate net asset value of the units as of February 1, 2014 held by non-affiliates, as estimated by the General Partner (based on a June 2013/February 2014 appraisal of Partnership properties), was $29,525,270.  As of February 1, 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.
 
DOCUMENTS INCORPORATED BY REFERENCE
NONE
 
 
 

PART I-

 

This Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such statements are based on assumptions and expectations which may not be realized and are inherently subject to risks and uncertainties, many of which cannot be predicted with accuracy and some of which might not even be anticipated. Future events and actual results, financial and otherwise, may differ materially from the results discussed in the forward-looking statements. Risks and other factors that might cause such a difference include, but are not limited to, the effect of economic and market conditions; financing risks, such as the inability to obtain debt financing on favorable terms; the level and volatility of interest rates; and failure of the Partnership’s properties to generate additional income to offset increases in operating expenses, as well as other risks listed herein under Item 1.
 
ITEM 1.                BUSINESS
 
General Development of Business
 
Uniprop Manufactured Housing Communities Income Fund II, a Michigan Limited Partnership (the "Partnership" or the “Fund”), acquired, maintains, leases, operates and ultimately will dispose of income producing residential real properties consisting of seven manufactured housing communities (the "Properties"). The Partnership was organized and formed under the laws of the State of Michigan on November 7, 1986.  Its principal offices are located at 280 Daines Street, Birmingham, Michigan 48009 and its telephone number is (248) 645-9220.
 
 
-2-

 
The Partnership filed an S-11 Registration Statement in November 1986, which was declared effective by the Securities and Exchange Commission on December 23, 1986. The Partnership thereafter sold 3,303,387 units (the "Units") of beneficial assignment of limited partnership interest representing capital contributions by unit holders (the "Unit Holders") to the Partnership of $20 per unit.  The sale of all 3,303,387 Units was completed in December 1987, generating $66,067,740 of contributed capital to the Partnership.
 
The Partnership originally acquired seven properties in 1987 and acquired two additional Properties in 1988.  Paradise Village was sold in 2007, and Country Roads was sold in 2008.  Today the Partnership owns seven manufactured home communities.  They are Ardmor Village, Camelot Manor, Dutch Hills, El Adobe, Stonegate, Sunshine Village and West Valley.  The Partnership does not intend to acquire any other communities.
 
The Partnership operates the Properties as manufactured housing communities with the primary investment objectives of: (1) providing cash from operations to investors; (2) obtaining capital appreciation; and (3) preserving capital of the Partnership.  There can be no assurance that such objectives can continue to be achieved.
 
On August 29, 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.
 
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 December 31, 2013 the balance on these notes was $19,196,759.
 
The Partnership incurred $665,193 in financing costs as a result of the 2013 refinancing which is being amortized over the term of the loans.  This 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 and reflected in amortization expense.
 
 
-3-

 
To facilitate credit approval from the lender, Roger Zlotoff, President of Uniprop AM, LLC and his spouse provided a “Guaranty of Recourse Obligations” for both loans.  The Board of Directors has approved a guaranty fee of $25,000 per year for Sunshine Village and $37,500 per year for West Valley payable to Mr. Zlotoff.  This fee effectively adds 30 basis points to the annual cost of the financing.
 
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 December 31, 2013 the balance on these five notes was $9,477,611.
 
Financial Information About Industry Segment
 
The Partnership's business and only industry segment is the operation of its seven manufactured housing communities.  Partnership operations commenced in April 1987, upon the acquisition of the first two Properties.  For a description of the Partnership's revenues, operating profit and assets please refer to Items 6 and 8.
 
Description of Business
 
General
 
The Sunshine Village, Ardmor Village and Camelot Manor Properties were acquired from affiliates of Genesis Associates Limited Partnership, the General Partner of the Partnership (the "General Partner").  The other six communities were purchased from unaffiliated third parties, of which two have been sold as of December 31, 2013.  The Partnership rents home sites in the Properties to owners of manufactured homes.  It was intended that the Partnership would hold the Properties for extended periods of time, originally anticipated to be seven to ten years after their acquisition.  The General Partner has the discretion to determine when a Property is to be sold; provided, however, that the determination of whether a particular Property should be disposed of will be made by the General Partner only after consultation with an independent consultant, Manufactured Housing Services Inc. (the "Consultant").  In making their decision, the General Partner and Consultant will consider relevant factors including current operating results of the particular Property and prevailing economic conditions, with a view to achieving maximum capital appreciation to the Partnership while considering relevant tax consequences and the Partnership's investment objectives.
 
Each year during the October/November time period, in conjunction with the preparation of the next annual operating budget, management performs a strategic review of each Property.  The strategic review analyzes numerous factors, including occupancy, revenue, expenses, capital expenditures, mortgage debt, and cash flow.  Management evaluates the “highest and best use” of each Property and the “sell versus hold” decision, which considers whether or not to put a Property on the market.
 
As part of this process, management may consult with the Regional Vice President for each Property, the Consultant for the Fund, industry experts, real estate brokers, and the appraiser (currently Cushman & Wakefield).
 
 
-4-

 
For 2013, management performed the aforementioned analyses and determined that it was in the best interest of the Limited Partners to hold all the remaining Properties through 2014.  A significant factor in this determination was the refinancing or exercise of interest rate re-set options of the first mortgage notes for each property during 2013.  The refinancing included a prepayment penalty in the event the mortgage notes are extinguished prior to maturity.  Since the mortgage notes were extended for several years, the applicable prepayment penalty is higher in the early years of the mortgage term.
 
In general, in order to determine whether to sell a Property in a particular year, management evaluates numerous factors, including, but not limited to, the following:
 
1. Macro-economic conditions
 
2. National commercial real estate markets
 
3. Local commercial real estate markets
 
4. Real estate lending market
 
5. Interest rates
 
6. Capitalization rates
 
7. Mortgage loan requirements for existing first mortgages
 
8. Prepayment Penalties
 
9. Federal Income Tax
 
10. Appraised values of the Properties
 
11. Property specific physical plant
 
12. The universe of potential buyers
 
13. Supply and demand dynamics
 
14. The cost of sale
 
Management believes that overall real estate values are tied to macro-economic factors such as GDP, employment and housing starts. The Properties owned by the Fund in particular are impacted by employment and housing starts, as both are measures of the ability of prospective customers to purchase or lease a manufactured home.  For the past year, Management has seen a slow but gradual improvement in these economic indicators.  The lease home program in operation at all the Properties has reflected this slight improvement as well.
 
The next factor is the state of the national commercial real estate market.  This analysis looks at the level of real estate values and the volume of purchase/sale activity as measured by the nation’s largest commercial real estate brokers.  This market has also seen improvement, although the market for manufactured home communities with occupancy below 70% has not experienced this recovery.
 
 
-5-

 
The local real estate market is also evaluated, which extracts the local market from the national data, as there are usually pockets of strength or weakness relative to a broader market as measured by the entire country.  The local market for each Property is considered; for example, Dutch Hills and Stonegate are more affected by the Lansing, Michigan market than the national market.  Regrettably, the Fund owns Properties in three of the hardest hit states in the nation, namely, Florida, Michigan and Nevada.  All three markets have shown slight improvement, although from a low base of economic activity.
 
The availability of commercial real estate loans, in other words the lending market, has a large impact on the value of the Properties. Most buyers will need financing from a commercial bank, conduit lender or commercial finance company in order to close on the purchase of a Property.  The Fund refinanced or re-set interest rates ofthe mortgage notes payable on its Properties during 2013, including new mortgage financing for Sunshine Village and West Valley.  The availability for financing for manufactured home communities with occupancy rates of 70% or above has improved significantly.  Financing for manufactured home communities with occupancy rates below 70% remains severely constrained.
 
Overall interest rates are a critical component to loan terms and impact capitalization rates.  Potential buyers are evaluating alternative investments, rates of return, and risk. Buyers obtain capital from investors and lenders, and both of those constituents are evaluating all of their alternatives.  Interest rates remain at historically low levels due to the actions of the Federal Reserve Bank of the United States.  The Fund took advantage of these rates through its refinancing and interest rate re-set options in 2013.
 
In addition to market data, management also examines the terms of the existing first mortgage on the Fund’s Properties to ensure, for example, that the loans can be pre-paid without penalties.  As mentioned above, the refinancing in 2013 caused the re-set of prepayment penalties at higher levels, and thus discourage a sale for the first few years.
 
Tax implications are also an important factor, since the decision to sell is based on the after-tax distributions to Limited Partners.  The Fund’s accounting firm is consulted regarding tax implications in order to determine the after tax impact of a sale.   
 
Finally, management always reviews the annual appraisals and discusses the market value computation with the appraiser.  The appraiser consolidates many of the aforementioned factors into the appraisal report and thus is an independent source of information and analysis.  Discussions with the Consultant for the Fund are also part of the evaluation process.  Property specific conditions are also considered, such as recent capital expenditures, overall maintenance, the local market for manufactured home communities, other communities for sale, investor sentiment for the market, among others. In addition, the likely pool of buyers in the market is considered and discussed with national real estate brokers such as Cushman & Wakefield which handled the marketing for two of the Fund’s Properties sold in prior years.
 
All of these factors are considered by each year when deciding whether to sell or hold a Property for another year.  Management feels that this annual process is appropriate as it provides stability for stakeholders and yet allows management to potentially take advantage of a strong market. Listing a Property for sale can create many issues, for example, residents and potential residents learn that a Property is for sale and it impacts their decision to stay or rent a home site.  In some states, a Homeowners’ Association may have a Right of First Refusal.  On-site managers are also affected, as they fear they may lose their job once a new owner takes possession.  Thus, management is careful to fully analyze the impacts of a putting a Property on the market and then insuring a successful transaction in a reasonable timeframe.
 
 
-6-

 
Selling a Property is a complex decision and management has to consider numerous factors. However, it is management’s obligation to evaluate this option and it does so annually in order to provide a stable process that allows consideration of all the variables before making a final decision.
 
Competition
 
The business of owning and operating residential manufactured housing communities is highly competitive, and the Partnership may be competing with a number of established companies having greater financial resources.  Moreover, there has been a trend for manufactured housing community residents to purchase (where zoning permits) their manufactured home sites on a collective basis.  This trend may result in increased competition with the Partnership for residents.  In addition, the General Partner, its affiliates or both, has and may in the future participate directly or through other partnerships or investment vehicles in the acquisition, ownership, development, operation and sale of projects which may be in direct competition with one or more of the Properties.
 
Each of the Properties competes with numerous similar facilities located in its geographic area.  The Davie/Fort Lauderdale area contains approximately five communities offering approximately 2,157 housing sites competing with the Partnership’s Sunshine Village.  The Partnership’s Ardmor Village competes with approximately fourteen communities in the Lakeville, Minnesota area offering approximately 3,685 housing sites.  The Partnership’s Camelot Manor competes with approximately twelve communities in the Grand Rapids, Michigan area offering approximately 2,589 housing sites. The Partnership’s Dutch Hills and Stonegate Manor compete with approximately eleven other communities in the Lansing, Michigan area offering approximately 3,563 housing sites.  In the Las Vegas, Nevada area, the Partnership’s West Valley competes with approximately ten other communities offering approximately 2,428 housing sites and the Partnership’s El Adobe competes with seventeen other communities offering 5,578 home sites.  The Properties also compete against other forms of housing including apartments, condominium complexes and site built homes.
 
Governmental Regulations
 
The Properties owned by the Partnership are subject to certain state regulations regarding the conduct of the Partnership operations.  For example, the State of Florida regulates agreements and relationships between the Partnership and the residents of Sunshine Village. Under Florida law, the Partnership is required to deliver to new residents of those Properties a prospectus describing the property and all tenant rights, Property rules and regulations, and changes to Property rules and regulations.  Florida law also requires minimum lease terms, requires notice of rent increases, grants to tenant associations certain rights to purchase the community if being sold by the owner and regulates other aspects of the management of such properties.  The Partnership is required to give 90 days notice to the residents of Sunshine Village of any rate increase, reduction in services or utilities, or change in rules and regulations.  If a majority of the residents object to such changes as unreasonable, the matter must be submitted to the Florida Department of Professional Business Regulations for mediation prior to any legal adjudication of the matter.  In addition, if the Partnership seeks to sell Sunshine Village to the general public, it must notify any homeowners’ association for the residents, and the association shall have the right to purchase the Property on the price, terms and conditions being offered to the public within 45 days of notification by the owner.  If the Partnership receives an unsolicited bona fide offer to purchase the Property, it must notify any such homeowners’ association that it has received an offer, state to the homeowners’ association the price, terms and conditions upon which the Partnership would sell the Property, and consider (without obligation) accepting an offer from the homeowners’ association.  The Partnership has, to the best of its knowledge, complied in all material respects with all requirements of the States of Florida, Michigan, Minnesota and Nevada, where its operations are conducted.
 
 
-7-

 
Employees
 
The Partnership employs three part-time employees to perform Partnership management and investor relations’ services.  The Partnership retains an affiliate, Uniprop AM, LLC, as the property manager for each of its Properties.  Uniprop AM, LLC is paid a fee equal to the lesser of 5% of the annual gross receipts from each of the Properties or the amount which would be payable to unaffiliated third parties for comparable services.  Uniprop AM, LLC retains local managers on behalf of the Partnership at each of the Properties.  Salaries and fringe benefits of such local managers are paid by the Partnership and are not included in any property management fee payable to Uniprop AM, LLC.  The yearly salaries and expenses for local managers range from $25,000 to $52,000.  Community Managers are utilized by the Partnership to provide on-site maintenance and administrative services.  Uniprop AM, LLC, as property manager, has overall management authority for each property.
 
ITEM 1A.             RISK FACTORS
 
FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS
 
The following risks and uncertainties could cause our business, financial condition or results of operations to be materially adversely affected.  In that case, we might not be able to pay distributions on our Units, the net asset values of the Units could decline, and a Unit holder might lose all or a portion of its investment. 
 
1. Real Estate Investments.  The Partnership’s investments are subject to the same risks generally incident to the ownership of real estate including:  the uncertainty of cash flow to meet fixed or variable obligations, adverse changes in economic conditions, changes in the investment climate for real estate, adverse changes in local market conditions, changes in interest rates and the availability of mortgage funds or chattel financing, changes in real estate tax rates, governmental rules and regulations, acts of God and the inability to attract or retain residential tenants.
 
 
-8-

 
Residential real estate, including manufactured housing communities, is subject to adverse housing pattern changes and uses, vandalism, rent controls, rising operating costs and adverse changes in local market conditions such as a decrease in demand for residential housing due to a decrease in employment.  State governments also often regulate the relationship between manufactured housing community owners and residents.
 
The manufactured housing industry is now in the tenth consecutive year of declining unit sales due, in part, to lack of financing for the purchase of manufactured homes intended to be sited in land-lease communities.
 
As a result of the geographic concentration of our properties in Minnesota, Michigan, Florida and Nevada, we are exposed to the risks of downturns in the local  economy or other local real estate market conditions due to plants closing and industry slowdowns which could adversely affect occupancy rates, rental rates and property values in these markets.  Our income would also be adversely affected if residents were unable to pay rent or if sites were unable to be rented on favorable terms.
 
2. The General Partner and its Affiliates have Conflicts of Interest.  Although the General Partner has a fiduciary duty to manage the Partnership in a manner beneficial to the Unit holders, the directors and officers of the General Partner have a fiduciary duty to manage the General Partner in a manner beneficial to its owners. Furthermore, certain directors and officers of the General Partner are directors or officers of affiliates of the General Partner.  Conflicts of interest may arise between the General Partner and its affiliates and the Unit holders.  As a result of these conflicts, the General Partner may favor its own interests and the interests of its affiliates over the interests of the Unit holders.
 
3. Reliance on General Partner’s Direction and Management of the Properties.  The success of the Partnership will, to a large extent, depend on the quality of the management of the Properties by the General Partner and affiliates of the General Partner and their collective judgment with respect to the operation, financing and disposition of the Properties.  To the extent that the General Partner and its affiliates are unable to hire and retain quality management talent, the Partnership’s financial results and operations may be adversely affected. 
 
4. Federal Income Tax Risks.  Federal income tax considerations will materially affect the economic consequences of an investment in the Properties.  The tax consequences of the Partnership’s activities are complex and subject to many uncertainties.  Changes in the federal income tax laws or regulations may adversely affect the Partnership’s financial results and its ability to make distributions to the Unit holders.  Additionally, the tax benefits enjoyed by the Unit holders may be reduced or eliminated. 
 
 
-9-

 
5. Limited Liquidity of the Units.  The transfer of Units is subject to certain limitations.  The public market for such Units is very limited.  Unit Holders may not be able to liquidate their investment promptly or at favorable prices, if at all.
 
6. Competition.  The business of owning and operating residential manufactured housing communities is highly competitive.  The Partnership competes with a number of established communities having greater financial resources.  Moreover, there has been a trend for manufactured housing community residents to purchase home sites either collectively or individually.  Finally, the popularity and affordability of site built homes has also increased in recent years while the availability of chattel financing has decreased.  These trends have resulted in increased competition for tenants to occupy the Partnership properties.
 
7. Management and Control of Partnership Affairs.  The General Partner is vested with full authority as to the general management and supervision of the business affairs of the Partnership.  The Unit Holders do not have the right to participate in the management of the Partnership or its operations.  However, the vote of Unit Holders holding more than 50% of the outstanding voting interests is required to:  (a) amend the Partnership Agreement; (b) approve or disprove the sale of one property or a series of transactions of all or substantially all of the assets of the Partnership; (c) dissolve the Partnership; (d) remove the General Partner; or (e) approve certain actions by the General Partner that the Consultant recommends against.
 
8. Uninsured Losses.  The Partnership carries comprehensive insurance, including liability, fire and extended coverage, and rent loss insurance which is customarily obtained for real estate projects.  There are certain types of losses, however, that may be uninsurable or not economically insurable such as certain damage caused by a hurricane.  If such losses were to be incurred, the financial position and operations of the Partnership as well as the Partnership’s ability to make distributions would be adversely affected. 
 
9. Environmental Matters.  Because the Partnership deals with real estate, it is subject to various federal, state and local environmental laws, rules and regulations. Changes in such laws, rules and regulations may cause the Partnership to incur increased costs of compliance which may have a material adverse effect on the operations of the Partnership and its ability to make distributions to Unit holders. 
 
10. No Guarantee of Distributions.  The General Partner may withhold cash for extended periods of time if such cash is necessary to build cash reserves or for the conduct of the Partnership’s business.  A Unit holder will be required to pay federal income taxes, and, in some cases, state and local income taxes on the Unit holder’s share of the Partnership’s taxable income, whether or not cash distributions are made by the Partnership.  A Unit holder may not receive cash distributions from the Partnership equal to the holder’s share of taxable income or even equal to the tax liability that results from the Unit holder’s share of the Partnership’s taxable income.
 
 
-10-

 
11. The Partnership May Not be Able to Generate Sufficient Working Capital to Fund its Operations.  There can be no assurance that the Partnership will generate sufficient working capital from operations to operate the business or to fund distributions.  Further, there can be no assurance that the Partnership will be able to borrow additional funds on terms favorable to the Partnership, if at all, to meet unanticipated working capital needs or to make distributions to the Unit holders.
 
ITEM 1B.      UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 2.                PROPERTIES
 
The Partnership originally purchased all seven remaining manufactured housing communities for cash. All Properties are currently encumbered with mortgages.
 
Each of the Properties is a modern manufactured housing community containing lighted and paved streets, side-by-side off-street parking and complete underground utility systems.  The Properties consist of only the underlying real estate and improvements, not the actual homes themselves.    Each of the Properties has a community center, which includes offices, meeting rooms and game rooms. Each of the Properties, except Stonegate Manor, has a swimming pool.  Several of the Properties also have laundry rooms, playground areas, garage and maintenance areas and recreational vehicle or boat storage areas.
 
The table below contains certain information concerning the Partnership's seven properties.
 
Property Name
 
 
 
 
 
Number
and Location
 
Year Constructed
 
Acreage
 
of Sites
 
 
 
 
 
 
 
Ardmor Village
 
 
 
 
 
 
Cedar Avenue S.
 
 
 
 
 
 
Lakeville, MN
 
1974
 
74
 
339
 
 
 
 
 
 
 
Camelot Manor
 
 
 
 
 
 
Camelot Blvd. S.W.
 
 
 
 
 
 
Grand Rapids, MI
 
1973
 
57
 
335
 
 
 
 
 
 
 
Dutch Hills
 
 
 
 
 
 
Upton Road
 
 
 
 
 
 
E. Lansing, MI
 
1975
 
42.8
 
278
 
 
 
 
 
 
 
El Adobe
 
 
 
 
 
 
N. Lamb Blvd.
 
 
 
 
 
 
Las Vegas, NV
 
1975
 
36
 
367
 
 
-11-

 
Property Name
 
 
 
 
 
Number
and Location
 
Year Constructed
 
Acreage
 
of Sites
 
 
 
 
 
 
 
Stonegate Manor
 
 
 
 
 
 
Eaton Rapids Drive
 
 
 
 
 
 
Lansing, MI
 
1968
 
43.6
 
308
 
 
 
 
 
 
 
Sunshine Village
 
 
 
 
 
 
Southwest 5th St.
 
 
 
 
 
 
Davie, FL
 
1972
 
45
 
356
 
 
 
 
 
 
 
West Valley
 
 
 
 
 
 
W. Tropicana Ave
 
 
 
 
 
 
Las Vegas, NV
  
1972
  
53
 
421
 
ITEM 3.                LEGAL PROCEEDINGS
 
The Partnership has filed a lawsuit against the City of Las Vegas.  The primary complaint is that the City of Las Vegas charges what is being viewed as a “discriminatory” monthly service fee to keep sewer capacity available on vacant manufactured home community sites, but does not charge the same monthly service fee on vacant site built home sites.  It is unknown at this time what the outcome of the lawsuit will be.
 
ITEM 4.                RESERVED
 
PART II
 
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
 
There is no established public trading market for the Units of the Partnership and it is not anticipated that one will ever develop.  During the last twelve months, less than ten percent (10.0%) of the Units have been transferred, including transfers due to death or intra-family transfers.  The Partnership believes there is no formal secondary market, or the substantial equivalent thereof, and none will develop.
 
The General Partner calculates the estimated net asset value of each Unit by dividing (i) the amount of distributions that would be made to the Unit Holders in the event of the current sale of the Properties at their current appraised value, plus cash reserves less the outstanding balances of the mortgages on the mortgaged Properties and sales expenses (but without consideration to tax consequences of the sale), by (ii) 3,303,387.   In June 2013 and February 2014, the Properties were appraised at an aggregate fair market value of $51,150,000 plus cash reserves of $8,584,140, as of December 31, 2013. Assuming a sale of the seven properties at February 1, 2014, at the appraised value plus the cash reserves less payment of 3% selling expenses and mortgage debt, the net aggregate proceeds available for distribution to the Unit Holders is estimated to be $29,525,270 or $8.94 per Unit.  There can be no assurance that the estimated net asset value could ever be realized.  As of December 31, 2013, the Partnership had 2,577 Unit Holders holding 3,303,387 units.
 
 
-12-

 
The following table sets forth the distributions per limited partnership unit for each calendar quarter in the last two fiscal years.  Distributions were paid in the periods immediately subsequent to the periods in which such distributions were declared.
 
 
 
Distribution per
 
Quarter Ended
 
Limited Partnership Unit
 
March 31, 2013
 
$
0.08
 
June 30, 2013
 
$
0.08
 
September 30, 2013
 
$
0.62
 
December 31, 2013
 
$
0.08
 
March 31, 2012
 
$
0.08
 
June 30, 2012
 
$
0.08
 
September 30, 2012
 
$
0.08
 
December 31, 2012
 
$
0.08
 
 
The Partnership intends to continue to declare quarterly distributions.  However, distributions are determined by the General Partner and will depend on the results of the Partnership’s operations.
 
The Partnership has no equity compensation plans.
 
ITEM 6.                SELECTED FINANCIAL DATA
 
Not required.
 
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
 
Capital Resources
 
The capital formation phase of the Partnership began on April 1, 1987 when Sunshine Village and Ardmor Village were purchased by the Partnership and operations commenced.  It ended on January 15, 1988 when El Adobe, the Partnership's last property, was purchased.  The total capital raised through December 1987 was $66,067,740 of which approximately $58,044,000 was used to purchase the nine Properties after deducting sales commissions, advisory fees and other organization and offering costs.
 
As described in Item 1, 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 mortgage notes 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.
 
 
-13-

 
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 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 December 31, 2013 the balance on these notes was $19,196,759.
 
The Partnership incurred $665,193 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.  Unamortized finance costs of $179,395 related to the refinanced mortgage notes payable were written off and fees of $72,020 paid during 2013 as a result of the refinancing and reflected in amortization expense.
 
To satisfy the requirements of Cantor Commercial Real Estate, the ownership of the fee title of each of the properties was transferred into bankruptcy remote special purpose entities. The fee title to the Sunshine Village real property is now held by Sunshine Village MHP, LLC.  The fee title to the West Valley real property is now held by West Valley MHP, LLC.  Both of these entities are wholly owned by IF II, Holdings, LLC, a newly formed holding company which is wholly owned by the Partnership.  Sunshine Village MHP, LLC, West Valley MHP, LLC and IF II, Holdings, LLC are all disregarded entities for federal income tax purposes. 
 
The ownership transfers were made solely to meet the requirements of the lender and do not change the beneficial or economic ownership by the Partnership.  In addition, to facilitate credit approval from the lender, Roger Zlotoff, President of Uniprop AM, LLC and his spouse provided a “Guaranty of Recourse Obligations” for both loans.  The Board of Directors has approved a guaranty fee of $25,000 per year for Sunshine Village and $37,500 per year for West Valley payable to Mr. Zlotoff.  This fee effectively adds 30 basis points to the annual cost of the financing. 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 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 December 31, 2013 the balance on these five notes was $9,477,611.
 
 
-14-

 
Future maturities on the notes payable for the next five years and thereafter are as follows: 2014 - $674,410; 2015 - $709,585; 2016 - $744,498; 2017 - $785,396; 2018 - $826,361and thereafter - $24,934,120.
 
The General Partner acknowledges that the mortgages pose some risks to the Partnership, but believes that such risks are not greater than risks typically associated with real estate financing.
 
Liquidity
 
The Partnership has, since inception, generated adequate amounts of cash to meet its operating needs.  The Partnership retains cash reserves, which it believes will be adequate to maintain the Properties. All funds in excess of operating needs, amounts sufficient to pay debt service, and cash reserves are distributed to the Unit Holders on a quarterly basis.   While the Partnership is not required to maintain a working capital reserve, the Partnership has not distributed all of the cash generated from operations or from property sales in order to maintain capital reserves.  As of December 31, 2013, the Partnership had $8,584,140 in cash balances.
 
Results of Operations
 
Distributions
 
For the year ended December 31, 2013, the Partnership made distributions to the Unit Holders of $2,840,913, which is equal, on an annualized basis, to a 5.0% return on their adjusted capital contributions ($0.86 per $17.11 Unit).  Distributions paid to Unit Holders for years 2012 and 2011 was $1,057,084, respectively.
 
The distributions paid in 2013 were less than the amount required for the annual 10.0% preferred return to the Unit Holders by approximately $2,811,182.  As described in Note 5 to the Partnership’s financial statements, the cumulative preferred return deficit through December 2013 was approximately $67,140,000.  No distributions can be made to the General Partner in regard to its incentive management interest until the cumulative preferred return deficit has been distributed to the Unit Holders.  At December 31, 2013, the unpaid amount to be distributed to the General Partner was approximately $13,173,000.
 
Revenue and Net (Loss) Income
 
For the year ended December 31, 2013, net loss was $599,278, compared to net income of $411,988 for the year ended December 31, 2012. Gross revenue was $7,974,154 and $8,234,570, in 2013 and 2012, respectively. 
 
 
-15-

 
Partnership Management
 
Certain employees of the Partnership are also employees of affiliates of the General Partner.  The Partnership paid these employees an aggregate of $303,804, and $273,984, in 2013 and 2012 respectively, to perform partnership management and investor relation services for the Partnership.
 
Critical Accounting Policies
 
In the course of developing and evaluating accounting policies and procedures, we use estimates, assumptions and judgments to determine the most appropriate methods to be applied.  Such processes are used in determining capitalization of costs related to real estate investments and potential impairment of real estate investments.
 
Real estate assets are stated at cost less accumulated depreciation.  Revenue from the sale of manufactured homes is recognized upon transfer of title at the closing of the sale transactions. Expenditures for property maintenance are charged to operations as incurred, while significant renovations are capitalized.  Depreciation of the buildings is recorded on the straight-line method using an estimated useful life of thirty years.
 
Manufactured homes and improvements include homes that are vacant and held for sale and occupied lease homes.  The fair values of homes held for sale are assessed quarterly based on recent sales of similar homes, guide book values and condition.  Impairments are recognized to reduce the carrying amount of each home to the lower of cost or estimated fair value.  Occupied lease homes are subject to depreciation using estimated useful lives of 27.5 years, with depreciation commencing at lease inception.
 
In determining the fair value of the Company’s properties for purposes of assessing potential impairment and disclosure, the Partnership engaged an independent valuation firm to appraise the fair value of each property using the discounted cash flow or comparable sale methods.  These methods consider future cash flow projections on a property by property basis, future capitalization rates, current interest rates and current market conditions of the geographical location of each property. In preparing these financial statements, the Partnership’s management has made its best estimates and judgment of certain amounts included in the financial statements. Nevertheless, actual results may differ from these estimates under different assumptions or conditions.
 
Property Operations
 
Overall, as illustrated in the table below, the Partnership's seven remaining properties had a combined average occupancy of 48% for the years ended December 31, 2013, and 2012.  The average monthly rent (not weighted average) was approximately $519 per home site for the year ended December 31, 2013, as compared to $505 for the year ended December 31, 2012.  The manufactured housing industry in general has experienced lower retail sales over the past two years due to restrictive financing and the ease at which site-built homes, until recently, could be acquired and financed. 
 
 
-16-

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Total
 
Occupied Sites
 
Occupancy Rate
 
 
Average Rent
 
 
 
Sites
 
2013
 
2012
 
2013
 
2012
 
 
2013
 
 
2012
 
Ardmor Village
 
339
 
148
 
148
 
44
%
44
%
$
539
 
$
524
 
Camelot Manor
 
335
 
109
 
105
 
33
%
31
%
 
424
 
 
417
 
Dutch Hills
 
278
 
105
 
109
 
38
%
39
%
 
428
 
 
420
 
El Adobe
 
367
 
170
 
187
 
46
%
51
%
 
561
 
 
535
 
Stonegate Manor
 
308
 
103
 
111
 
33
%
36
%
 
418
 
 
410
 
Sunshine Village
 
356
 
256
 
219
 
72
%
62
%
 
627
 
 
627
 
West Valley
 
421
 
301
 
301
 
72
%
71
%
 
636
 
 
603
 
Overall
 
2,404
 
1,192
 
1,180
 
48
%
48
%
$
519
 
$
505
 
 
The following table summarizes gross revenues and net operating income for the Partnership and Properties during 2013 and 2012.
 
 
 
 
 
 
 
 
 
 
NET OPERATING INCOME
 
 
 
 
GROSS REVENUE
 
 
AND NET (LOSS) INCOME
 
 
 
 
2013
 
 
2012
 
 
2013
 
 
2012
 
Ardmor Village
 
$
976,702
 
$
947,941
 
$
515,110
 
$
427,861
 
Camelot Manor
 
 
737,198
 
 
604,130
 
 
251,020
 
 
258,030
 
Dutch Hills
 
 
656,402
 
 
741,125
 
 
207,876
 
 
229,151
 
El Adobe
 
 
939,870
 
 
1,122,304
 
 
375,280
 
 
584,709
 
Stonegate Manor
 
 
660,289
 
 
693,004
 
 
141,319
 
 
302,475
 
Sunshine Village
 
 
1,699,915
 
 
1,807,162
 
 
820,179
 
 
825,213
 
West Valley
 
 
2,293,910
 
 
2,281,871
 
 
1,590,885
 
 
1,626,182
 
 
 
 
7,964,286
 
 
8,197,537
 
 
3,901,669
 
 
4,253,621
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Partnership Management Income and Expense
 
$
9,868
 
$
37,033
 
 
(629,204)
 
 
(536,825)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Other Expenses
 
 
 
 
 
 
 
 
(385,323)
 
 
(258,476)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Interest Expense
 
 
 
 
 
 
 
 
(1,778,592)
 
 
(1,462,413)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Depreciation
 
 
 
 
 
 
 
 
(1,707,828)
 
 
(1,583,919)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
TOTAL
 
$
7,974,154
 
$
8,234,570
 
$
(599,278)
 
$
411,988
 
 
 
-17-

 
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 Year Ended December 31, 2013 to Year Ended December 31, 2012
 
Total revenues decreased $260,416 to $7,974,154 in 2013, compared to $8,234,570 in 2012.  This was mainly due to decreased rental income as a result of the amortization of relocation expenses relating to the Sunshine Village relocation program, and decreased home sale activity. 
 
The Partnership’s operating expenses increased $750,850 to $8,573,432 in 2013, compared to $7,822,582 in 2012. This was mainly due to the write off of certain unamortized finance costs as a result of the 2013 refinancing disclosed above, and costs associated with the relocation program at Sunshine Village that did not meet capitalization threshold and were therefore charged to expense as incurred.  In addition, property repair and maintenance expenses increased in 2013 mainly due to lease home and sewer and water repairs.  Lastly, property tax expense increased due to timing of payments in 2013 and refunds received in prior year which reduced the 2012 expense.
 
As a result of the aforementioned factors, The Partnership experienced a net loss of $599,278 in 2013 compared to net income of $411,988 in 2012.
 

IMPORTANT DISCLOSURES

 
The General Partner believes it is important to disclose certain recent events to the Unit Holders along with a description of the actions taken by the General Partner to respond to the events.
 
Industry conditions have improved modestly, allowing for slightly increased home sales activity, especially at the Dutch Hills and Stonegate properties located in Lansing, Michigan.  However, the overall sales volume is not sufficient to increase occupancy significantly, and the average sales price is relatively low as most of the homes sold are pre-owned as opposed to new.  The lease home program, on the other hand, has been fairly successful, at all three Michigan properties especially, and the leasing income has provided additional cash flow and a good return on the investment of the lease home inventory.
 
 
-18-

 
On August 29, 2008, the Partnership refinanced its existing mortgage note payable and executed seven new mortgage notes payable with StanCorp 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.  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 were amortized over the term of the loans.  These costs included a 1% fee payable to an affiliate of the General Partner.
 
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 mortgage notes 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 December 31, 2013 the balance on these notes was $19,196,759.
 
The Partnership incurred $665,193 in financing costs as a result of the 2013 refinancing which is being amortized over the term of the loans.  This included a 1% fee payable to an affiliate of the General Partner.    Unamortized finance costs of $179,395 related to the mortgage notes payable refinanced were written off during and fees of $72,020 paid during 2013 as a result of the refinancing and reflected in amortization expense. 
 
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 December 31, 2013 the balance on these five notes was $9,477,611.
 
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 December 31, 2013, all 41 residents have successfully relocated.  The Partnership has incurred expenditures of $901,732, of which $814,703 has been capitalized and is being amortized as a reduction of rental revenue over the life of the residents’ three year rental period.  Management estimates less than $5,000 of additional relocation costs will be incurred to complete the Program.  At December 31, 2013, $605,239 remains unamortized.
 
ITEM 7A.             QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
The Partnership is exposed to interest rate risk 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.
 
 
-19-

 
Notes Payable: At December 31, 2013 the Partnership had notes payable outstanding in the amount of $28,674,370, collateralized by the seven remaining properties within the Partnership.  Interest on these notes is accrued at a fixed rate of 5.00% or 5.09% as a result of the refinancing and interest rate re-set options executed during 2013. 
 
The Partnership does not enter into financial instruments transactions for trading or other speculative purposes or to manage its interest rate exposure.
 
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
 
The following Partnership’s financial statements for the fiscal years ended December 31, 2013 and 2012, and supplementary data are filed with this Report:
 
(i) Reports of Independent Registered Public Accounting Firm
 
(ii) Consolidated Balance Sheets as of December 31, 2013 and 2012
 
(iii) Consolidated Statements of Operations for the fiscal years ended December 31, 2013 and 2012.
 
(iv) Consolidated Statements of Partners' Equity for the fiscal years ended December 31, 2013 and 2012.
 
(v) Consolidated Statements of Cash Flows for the fiscal years ended December 31, 2013 and 2012.
 
(vi) Schedule III - Real Estate and Accumulated Depreciation as of  December 31, 2013.
  
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
There has been no change in the Partnership's independent registered public accounting firm nor have there been any disagreements during the Partnership’s most recent two fiscal years.
 
 
-20-

 
ITEM 9A(T).       CONTROLS AND PROCEDURES
 
The Partnership maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Partnership’s Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Partnership’s management, including its Principal Executive Officer and Principal Financial Officer, as appropriate to allow timely decisions regarding required disclosure based closely on the definition of “disclosure controls and procedures” in Rule 13a – 14(c).  In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.   As of the end of the period covered by this report (the evaluation date), the Partnership conducted an evaluation under the supervision and with the participation of its Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of its disclosure controls and procedures (as defined in Rule 13a – 14(c) under the Securities Exchange Act of 1934 (“the Exchange Act”)).  Based on this evaluation, the Principal Executive Officer and Principal Financial Officer concluded that, as of the evaluation date, the Partnership’s disclosure controls and procedures were effective to reasonably ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f).  Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. There has been no change in the Partnership’s internal control over financial reporting during its most recently completed quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.  Based on our assessment of the effectiveness of internal control over financial reporting, management concluded that our internal control over financial reporting was effective as of December 31, 2013.
 
This annual report does not include an attestation report from the Partnership’s registered public accounting firm regarding internal control over financial reporting.  Management’s report was not subject to attestation by the Partnership’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Partnership to provide only management’s report in this annual report.
 

PART III

 
ITEM 10.              DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
 
The Partnership, as an entity, does not have any officers or directors.  The General Partner, Genesis Associates Limited Partnership is a Michigan limited partnership, of which Uniprop, Inc. is the General Partner.
 
 
-21-

 
Information concerning officers of Uniprop, Inc., during the last five years or more is as follows:
 
Paul M. Zlotoff, 64, became the Chairman of Uniprop, Inc. in May 1986 and was its President from 1979 through 1997.  Mr. Zlotoff currently, and in the past, has acted as the general partner for various other limited partnerships owning manufactured housing communities and some commercial properties. On May 13, 2011, Mr. Zlotoff resigned his position as Principal Executive Officer.
 
Joel Schwartz, CPA, 52, became Chief Financial Officer of Uniprop Inc. on June 1, 2004.  Mr. Schwartz was responsible for all financial affairs including accounting operations, banking relationships, raising mortgage capital, asset management and investor relations.  From 1998 to 2004, Mr. Schwartz was Chief Financial Officer for Village Green Companies.  From 1990 to 1998, Mr. Schwartz was Project Manager for Ford Motor Land Services Corporation.  Mr. Schwartz was also an Associate at Plante & Moran CPA’s from 1983 to 1989.  Mr. Schwartz received his B.A. from Michigan State University in 1983 with a major in accounting and received an MBA from the University of Michigan in 1990. On June 1, 2011, Mr. Schwartz resigned his position as Chief Financial Officer.
 
Jody Burttram, 53, became Independent Director of Genesis Associates in 2007.  As Independent Director, Mr. Burttram is responsible for the oversight and approval of management decisions and planning for the Partnership. Currently, Mr. Burttram is Principal of Harbinger Capital Advisors LLC, a boutique investment banking firm located in Orlando, Florida. Mr. Burttram was Chief Operating Officer of Century Capital Markets and CNL Capital Corp. from 1998 to 2005. Previously, Mr. Burttram was Vice President of International Banking, First Union National Bank from 1983 to 1992.
 
Susann Kehrig, formerly Szepytowski, 50, is Vice President of Finance of Uniprop, Inc.  She has been with Uniprop since November 11, 1991.  Ms. Kehrig is primarily responsible for the Accounting and Human Resource functions for the Partnership.  Ms. Kehrig received her B.S. from Oakland University as a finance major, and received an MBA from Baker College with a concentration in Accounting.  On June 1, 2011, Ms. Kehrig replaced Mr. Schwartz as the new Principal Financial Officer. 
 
Roger Zlotoff, 53, is President and Chief Operating Officer of Uniprop, Inc.  He has been with Uniprop since October 18, 1999.  Mr. Zlotoff is primarily responsible for raising equity capital, managing partnership investments, evaluating acquisitions of existing properties and leading the development process for new properties.  From 1997 to 1999, Mr. Zlotoff served as Director of Business Development for Vistana, Inc. in Orlando, FL.  Previously, Mr. Zlotoff was Managing Director for Sterling Finance International from 1994 to 1997 and was a corporate banker with First Union National Bank from 1988 to 1994.  Mr. Zlotoff received his B.A. from the University of Central Florida as a philosophy major, and received his Masters Degree in International Business from the University of South Carolina. On May 13, 2011 Mr. Zlotoff was appointed as Principal Executive Officer.
 
Paul M. Zlotoff and Roger Zlotoff are brothers.
 
 
-22-

 
 
CODE OF ETHICS
 
Because the Partnership has no executive officers, the Partnership has not adopted a code of ethics for the Partnership.  A code of ethics has been established for the Directors, Officers, and Employees of Uniprop.  A copy of the code of ethics is available at no charge upon request.
 
ITEM 11.
EXECUTIVE COMPENSATION
 
The Partnership has no executive officers and therefore, no officers received a salary or remuneration exceeding $100,000 during the last fiscal year.  The General Partner of the Partnership and an affiliate, Uniprop AM, LLC, received certain compensation and fees during the fiscal year in the amounts described in Item 13.  Depending upon the results of operations and other factors, the Partnership anticipates that it will provide similar compensation to the General Partner and Uniprop AM, LLC. during the next fiscal year.
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED UNITHOLDER MATTERS
 
The Partnership is a limited partnership duly formed pursuant to the Uniform Limited Partnership Act, as amended, of the State of Michigan.  The General Partner, Genesis Associates Limited Partnership, is vested with full authority as to the general management and supervision of business and the other affairs of the Partnership, subject to certain constraints in the Partnership Agreement and consulting agreement.   Unit holders have no right to participate in the management of the Partnership and have limited voting privileges only on certain matters of fundamental significance.  To the knowledge of the Partnership, no person owns of record or beneficially, more than five percent of the Partnership's Units.
 
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
 
The following discussion describes all of the types of compensation, fees or other distributions paid by the Partnership or others to the General Partner or its affiliates from the operations of the Partnership during the last fiscal year, as well as certain of such items which may be payable during the next fiscal year.  Certain of the following arrangements for compensation and fees were not determined by arm's length negotiations between the General Partner, its affiliates and the Partnership.
 
Paul M. Zlotoff has an interest in the original sellers of Sunshine Village and Ardmor Village and is entitled to share in a contingent purchase price with respect to each Property, when and if the Properties are sold and the sellers become entitled thereto.  The maximum amounts which could be payable to Paul M. Zlotoff are as follows: Sunshine Village, $1,108,260 and Ardmor Village, $946,236.  The cash purchase price and contingent purchase price for each Property were determined by reference to the average of two independent real estate appraisals which were obtained by the General Partner.  Such appraisals are only estimates of value and are not necessarily indicative of the actual real estate value.  Each seller will become entitled to any unpaid contingent purchase price upon the sale, financing or other disposition of each such Property, but, only after the receipt by each Unit Holder of aggregate distributions equal to the sum of (i) his 10% cumulative preferred return plus (ii) 125% of his capital contribution.  The actual amounts to be received, if any, will depend upon the results of the Partnership's operations and the amounts received upon the sale, financing or other disposition of the Properties and are not determinable at this time.  The Partnership does not anticipate any such amount will become payable during the next fiscal year, nor do unpaid amounts carry over from year to year.
 
 
-23-

 
The Partnership will pay an Incentive Management Interest to the General Partner for managing the Partnership's affairs, including: determining distributions, negotiating agreements, selling or financing properties, preparing records and reports, and performing other ongoing Partnership responsibilities.  This incentive management interest is 15% of distributable cash from operations in any quarter.  However, in each quarter, the General Partner's right to receive any net cash from operations is subordinated to the extent necessary to first provide each Unit Holder his 10% cumulative preferred return.  During the last fiscal year, the General Partner received no distributions on account of its Incentive Management Interest from operations because distributions were approximately $2,811,000 less than the 10% cumulative preferred return due Unit Holders.  Any such amounts of Incentive Management Interest unpaid in a taxable year will be accumulated and paid from distributable cash from capital transactions, but only after each Unit Holder has first received his 10% cumulative preferred return and 125% of his capital contribution. For 2013, approximately $212,000 was accumulated for the General Partner, and the General Partner's aggregate accumulated Incentive Management Interest as of December 2013 was $13,173,000.  The actual Incentive Management Interest from operations to be accumulated or paid during the next fiscal year will depend upon the results of the Partnership's operations and is not determinable at this time.  The Partnership does not anticipate any such amount will be distributed to the General Partner during the next fiscal year and will again be accumulated with payment deferred.  No distributions of Incentive Management Interest may be made to the General Partner until the 10% cumulative preferred return of approximately $67,140,000, as of December 31, 2013, is first distributed to the Unit Holders.  In February of 1994, as part of the 1993 mortgage financing with mortgage backed securities held with Bankers Trust, $23,119,767 was distributed to the Unit Holders, $13,572,978 of which eliminated the Unit Holders' preferred return deficit through December 31, 1993.
 
The Partnership must also pay an Incentive Management Interest from capital transactions to the General Partner for its services rendered to the Partnership. The General Partner will be entitled to receive its share of distributable cash from capital transactions after (i) each Unit Holder has received aggregate distributions in an amount equal to the sum of (a) his 10% cumulative preferred return plus (b) 125% of his capital contribution, (ii) any contingent purchase prices have been paid, and (iii) any property disposition fees to Uniprop AM, LLC have been paid.  The General Partner's share of distributable cash from capital transactions so payable will be (i) 100% of such distributable cash from capital distributions until the General Partner's share of the aggregate capital distributions made under section 11c(iii) and 11c(v) of the Partnership Agreement equal 25% and (ii) thereafter, 25% of such distributable cash from capital transactions.  No Incentive Management Interest from capital transactions was paid to the General Partner for the fiscal year ended December 31, 2013.  The Partnership does not anticipate that any such amounts will be paid or become payable to the General Partner during the next fiscal year.
 
 
-24-

 
Uniprop AM, LLC received and will receive property management fees for each Property managed by it.  Uniprop AM, LLC is primarily responsible for the day-to-day management of the Properties and for the payment of the costs of operating each Property out of the rental income collected.  The property management fees are equal to the lesser of 5% of the annual gross receipts from the Properties managed by Uniprop AM, LLC, or the amount which would be payable to an unaffiliated third party for comparable services.  During the last fiscal year, Uniprop AM, LLC received property management fees totaling $402,000.  The actual amounts to be received during the next fiscal year will depend upon the results of the Partnership's operations and are not determinable at this time.
 
Certain employees of affiliates of the General Partner were paid an aggregate of $303,804 during 2013 to perform partnership management, and investor relation services for the Partnership.  It is anticipated comparable amounts will be paid in the next fiscal year.  Uniprop Homes, Inc., a related entity, received commissions totaling $7,340 in 2013 for certain services provided as a broker/dealer of manufactured homes for the communities.  Uniprop Homes, Inc. represented the communities in the sale of new and pre-owned homes to community residents.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
The Partnership retained Plante Moran, PLLC to audit its financial statements and provide other services for the year ended December 31, 2013. 
 
The aggregate fees billed to the Partnership for professional services performed by Plante Moran, PLLC during 2013 and 2012 were as follows.
 
 
 
2013
 
2012
 
(1) Audit Fees
 
$
73,000
 
$
71,000
 
(2) Audit-Related Fees
 
$
0
 
$
0
 
(3) Tax Fees
 
$
24,000
 
$
19,000
 
(4) All Other Fees
 
$
0
 
$
0
 
(5) Total
 
$
97,000
 
$
90,000
 
 
Audit fees:  pertain to the audit of the Partnership’s annual financial statements, including reviews of the interim financial statements contained in the Partnership’s Quarterly Reports on Form 10-Q.
 
 
-25-

 
Tax fees:  pertain to services performed for tax compliance and tax consulting, including preparation of tax returns and partners Schedule K-1 processing. 
 
The services performed by Plante & Moran, PLLC  in 2013 and 2012 were pre-approved by the General Partner.
 
PART IV
 
ITEM 15. EXHIBITS AND  FINANCIAL STATEMENT SCHEDULES
 
(a)           Financial Statements
 
(1)           The following financial statements and related documents are filed with this report:
 
(i) Reports of Independent Registered Public Accounting Firm
 
(ii) Balance Sheets as of December 31, 2013 and 2012
 
(iii) Statements of Operations for the fiscal years ended December 31, 2013 and 2012.
 
(iv) Statements of Partners' Equity for the fiscal years ended December 31, 2013 and 2012.
 
(v) Statements of Cash Flows for the fiscal years ended December 31, 2013 and 2012.
 
(2) The following financial statement schedule is filed with this report:
 
Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2013.
 
(3) Exhibits
 
The following exhibits are incorporated by reference to the S-11 Registration Statement of the Partnership filed November 12, 1986, as amended on December 22, 1986 and January 16, 1987:
 
3(a)         Certificate of Limited Partnership for the Partnership
 
3(b)         Uniprop Manufactured Housing Communities Income Fund II Agreement of Limited  Partnership
 
4(a) First Amendment to Uniprop Manufactured Housing Communities Income Fund II Agreement of Limited Partnership (April 1, 1987)
 
 
-26-

 
10(a)       Form of Management Agreement between the Partnership and Uniprop AM, LLC.
 
10(b) Form of Consulting Agreement among the Partnership, the General Partner and Consultant
 
The following exhibits are incorporated by reference to the Form 10-K for the fiscal year ended December 31, 1997:
 
4(b) Form of Beneficial Assignment Certificate (BAC) for the Partnership (Originally submitted with Form 10-K for the fiscal year ended December 31, 1987.)
 
10(c) Contingent Purchase Price Agreement with Sunrise Broward Associates, Ltd. (As last submitted with Form 10-K for the fiscal year ended December 31, 1997.)
 
10(d) Contingent Purchase Price Agreement with Ardmor Associates Limited Partnership. (As last submitted with Form 10-K for the fiscal year ended December 31, 1997.)
 
10(e) Incentive Acquisition Fee Agreement between the Partnership and Uniprop, Inc. (As last submitted with Form 10-K for the fiscal year ended December 31, 1997.)
 
The following exhibit is incorporated by reference to the Form 8-K that was filed on September 8, 1998:
 
10(f) Mortgage notes, made as of August 20, 1998, between Uniprop Manufactured Housing Communities Income Fund II and GMAC CMC.
 
The following exhibit is incorporated by reference to the Form 10-K for the fiscal year ended December 31, 2005:
 
10(g) Second Amended and Restated Consulting Agreement among the Partnership, the General Partner, and Consultant, January 9, 2005
 
10(h) Line of Credit Loan Agreement between the Partnership and National City  Bank, October 19, 2005.
 
 
-27-

 
The following exhibit is incorporated by reference to the Form 8-K that was filed on January 17, 2007
 
10(i) Contract for Sale and Purchase of Real and Personal Property between Uniprop Manufactured Housing Communities Income Fund II and Nelson C. Steiner for the sale of Paradise Village.
 
The following exhibit is incorporated by reference to the Form 8-K that was filed on March 13, 2007
 
10(j) Termination of Contract for Sale and Purchase of Real and Personal Property between Uniprop Manufactured Housing Communities Income Fund II and Nelson C. Steiner for the sale of Paradise Village and Contract for Sale and Purchase of Real and Personal Property between Uniprop Manufactured Housing Communities Income Fund II and a private buyer for the sale of  Paradise Village.
 
The following exhibit is incorporated by reference to the Form 8-K that was filed on May 17, 2007
 
10(k) Closure of the Sale of Paradise Village between Uniprop Manufactured Housing Communities Income Fund II and a private buyer.
 
The following exhibit is incorporated by reference to the Form 8-K that was filed on August 27, 2008.
 
10(l) Closure of the Sale of Country Roads between Uniprop Manufactured Housing Communities Income Fund II and a private buyer.
 
The following exhibit is incorporated by reference to the Form 8-K that was filed on July 14, 2009.
 
10(m) Change in Registrant’s Certifying Accountant from BDO Seidman, LLP to Plante & Moran, PLLC.
 
The following exhibit is incorporated by reference to the Form 8-K that was filed on May 13, 2011.
 
10(n) Change in Principal Executive Officer from Paul Zlotoff to Roger Zlotoff.
 
The following exhibit is incorporated by reference to the Form 8-K that was filed on June 6, 2011.
 
10(o) Change in Principal Financial Officer from Joel Schwartz to Susann Kehrig, formerly Szepytowski.
 
 
-28-

 
The following exhibit is incorporated by reference to the Form 8-K that was filed on June 3, 2013.
 
10(p) Acceptance of mortgage interest rate reset option for the Ardmor Village, Camelot Manor, Dutch Hills, El Adobe, and Stonegate properties with StanCorp Mortgage Investors and execution of term Sheet for the refinancing of the Sunshine Village and West Valley properties with Cantor Commercial Real Estate.
 
The following exhibit is incorporated by reference to the Form 8-K that was filed on July 26, 2013.
 
10(q) Refinance of the Sunshine Village and West Valley properties with Cantor Commercial Real Estate.
 
The following exhibit is incorporated by reference to the Form 10-Q that was filed on November 13, 2013.
 
10(r) Mortgage Notes made as of July 18 2013, between Sunshine Village MHP, LLC, West Valley MHP, LLC and Cantor Commercial Real Estate.
 
The following exhibits are attached to this Report:
 
99.1 Letter summary of the estimated fair market values of the Partnership's seven manufactured housing communities, as of February 1, 204.
 
31.1 Certificate of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
31.2 Certificate of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
32.1 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
32.2 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
 
-29-

 
SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Uniprop Manufactured Housing Communities Income Fund II, a Michigan Limited Partnership, 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., Managing General Partner
 
 
 
 
 
 
 
 
By:
/s/ Roger I. Zlotoff
 
 
 
 
Roger I. Zlotoff, President
 
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
 
Dated:  March 14, 2014
 
By:
/s/ Susann Kehrig
 
By:
/s/ Roger I. Zlotoff
 
Susann Kehrig
 
 
Roger I. Zlotoff
 
Principal Financial Officer
 
 
Principal Executive Officer
 
(Vice President Finance of
 
 
(President & Chief Executive Officer of
 
Uniprop, Inc.)
 
 
Uniprop, Inc.)
 
 
-30-

 
EXHIBIT INDEX
 
EXHIBIT
NUMBER
 
DESCRIPTION
 
METHOD OF FILING
 
PAGE
 
 
 
 
 
 
 
3(a)
 
Certificate of Limited Partnership for the Partnership
 
Incorporated by reference to the S-11 Registration Statement of the Partnership filed November 12, 1986, as amended on December 22, 1986 and January 16, 1987 (the "Registration Statement").
 
 
 
 
 
 
 
 
 
3(b)
 
Uniprop Manufactured Housing Communities Income Fund II Agreement of Limited Partnership
 
Incorporated by reference to the Registration Statement.
 
 
 
 
 
 
 
 
 
4(a)
 
First Amendment to Uniprop Manufactured Housing Communities Income Fund II Agreement of Limited Partnership (April 1, 1987)
 
Incorporated by reference to the Registration Statement.
 
 
 
 
 
 
 
 
 
4(b)
 
Form of Beneficial Assignment Certificate (BAC) for the Partnership (originally filed with Form 10-K for the fiscal year ended December 31, 1987)
 
Incorporated by reference to Form 10-K for fiscal year ended December 31, 1997.
 
 
 
 
 
 
 
 
 
 
10(a)
 
Form of Management Agreement between the Partnership and Uniprop AM, LLC
 
Incorporated by reference to the Registration Statement.
 
 
 
 
 
 
 
 
 
10(b)
 
Form of Consulting Agreement among the Partnership, the General Partner and Consultant
 
Incorporated by reference to the Registration Statement.
 
 
 
 
 
 
 
 
 
10(c)
 
Contingent Purchase Price Agreement with Sunrise Broward Associates, Ltd. (originally filed with Form 10-K for the fiscal year ended December 31, 1987)
 
Incorporated by reference to Form 10-K for fiscal year ended December 31, 1997.
 
 
 
 
 
 
10(d)
 
Contingent Purchase Price Agreement with Ardmor Associates Limited Partnership (originally filed with Form 10-K for the fiscal year ended December 31, 1987)
 
Incorporated by reference to Form 10-K for fiscal year ended December 31, 1997.
 
 
 
 
 
 
 
 
 
10(e)
 
Incentive Acquisition Fee Agreement between the Partnership and Uniprop, Inc. (originally filed with Form 10-K for the fiscal year ended December 31, 1987)
 
Incorporated by reference to Form 10-K for fiscal year ended December 31, 1997.
 
 
 
 
 
 
 
 
 
10(f)
 
Mortgage Notes, made on August 20, 1998 between Uniprop Manufactured Home Communities Income Fund II and GMAC CMC
 
Incorporated by reference to the Form 8-K filed on September 8, 1998.
 
 
 
 
 
 
 
 
 
10(g)
 
Second Amended and Restated Consulting Agreement among the Partnership, the General Partner and Consultant January 9, 2005
 
Incorporated by reference to Form 10-K for fiscal year ended December 31, 2005.
 
 
 
 
 
 
 
 
 
10(h)
 
Line of Credit Loan Agreement between the Partnership and National City Bank October 19, 2006
 
Incorporated by reference to Form 10-K for fiscal year ended December 31, 2005.
 
 
 
 
 
 
 
 
 
10(i)
 
Contract for Sale and Purchase of Real and Personal Property for the sale of Paradise Village January 17, 2007.
 
Incorporated by reference to the Form 8-K filed on January 17, 2007.
 
 
 
 
 
 
 
 
 
10(j)
 
Termination of Contract for Sale and Purchase of Real and Personal Property for the sale of Paradise Village January 17, 2007. Contract for Sale and Purchase of Real and Personal Property for the sale of Paradise Village March 13, 2007.
 
Incorporated by reference to the Form 8-K filed on March 13, 2007.
 
 
 
 
 
10(k)
 
Closure of the Sale of Paradise Village May 17, 2007.
 
Incorporated by reference to the Form 8-K filed on May 17, 2007.
 
 
 
 
 
 
 
 
 
10(l)
 
Closure of the Sale of Country Roads August 27, 2008.
 
Incorporated by reference to the Form 8-K filed on August 27, 2008.
 
 
 
 
 
 
 
 
 
10(m)
 
Change in Registrant’s Certifying Accountant July 14, 2009.
 
Incorporated by reference to the Form 8-K filed on July 14, 2009.
 
 
 
 
 
 
 
 
 
10(n)
 
Change in Principal Executive Officer May 13, 2011.
 
Incorporated by reference to the Form 8-K filed on May 13, 2011.
 
 
 
 
 
 
 
 
 
10(o)
 
Change in Principal Financial Officer June 6, 2011.
 
Incorporated by reference to the Form 8-K filed on June 6, 2011.
 
 
 
 
 
 
 
 
 
10(p)
 
Acceptance of mortgage interest rate reset option for the Ardmor Village, Camelot Manor, Dutch Hills, El Adobe, and Stonegate properties with StanCorp Mortgage Investors and execution of term sheet for the refinancing of the Sunshine Village and West Valley properties with Cantor Commercial Real Estate.
 
Incorporated by reference to the Form 8-K filed on June 3, 2013.
 
 
 
 
 
 
 
 
 
10(q)
 
Refinance of the Sunshine Village and West Valley properties with Cantor Commercial Real Estate.
 
Incorporated by reference to the Form 8-K filed on July 26, 2013.
 
 
 
 
 
 
 
 
 
10(r)
 
Mortgage Notes made as of July 18, 2013, between Sunshine Village MHP, LLC, West Valley MHP, LLC and Cantor Commercial Real Estate.
 
Incorporated by reference to the Form 10-Q filed on November, 13, 2013.
 
 
 
 
 
99.1
 
Letter summary of the estimated fair market values of the Partnership's seven manufactured housing communities, as of February 1, 2014.
 
Filed herewith.
 
 
 
 
 
 
 
 
 
31.1
 
Certificate of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed herewith.
 
 
 
 
 
 
 
 
 
31.2
 
Certificate of Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
 
Filed herewith.
 
 
 
 
 
 
 
 
 
*32.1
 
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Filed herewith.
 
 
 
 
 
 
 
 
 
*32.2
 
Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
 
Filed herewith.
 
 
 
*      This certificate is being furnished solely to accompany the report pursuant to 18 U.S.C. 1350 and is not being filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and is not to be incorporated by reference into any filing of the Partnership, whether made before or after the date hereof, regardless of any general incorporation language in such filing. 
 
 
 
 Report of Independent Registered Public Accounting Firm
 
To the Partners
Uniprop Manufactured Housing Communities
    Income Fund II
(a Michigan limited partnership)
 
We have audited the accompanying consolidated balance sheets of Uniprop Manufactured Housing Communities Income Fund II (a Michigan limited partnership) as of December 31, 2013 and 2012 and the related consolidated statements of operations, partners' equity, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Partnership is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Partnership’s internal control over financial reporting.  Accordingly, we express no such opinion. Our audits of the consolidated financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Uniprop Manufactured Housing Communities Income Fund II at December 31, 2013 and 2012 and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.
 
 
/s/ Plante & Moran, PLLC
 
Auburn Hills, Michigan
March 14, 2014
 
 
 
Uniprop Manufactured Housing
Communities Income Fund II
(a Michigan limited partnership)
 
Consolidated Balance Sheets
 
 
December 31,
 
2013
 
2012
 
 
 
 
 
 
 
 
 
Assets
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Property and Equipment
 
 
 
 
 
 
 
Buildings and improvements
 
$
42,431,157
 
$
42,321,607
 
Land
 
 
8,952,937
 
 
8,952,937
 
Furniture and equipment
 
 
678,866
 
 
651,604
 
 
 
 
 
 
 
 
 
 
 
 
52,062,960
 
 
51,926,148
 
Less accumulated depreciation
 
 
35,774,653
 
 
34,226,824
 
 
 
 
 
 
 
 
 
Net Property and Equipment
 
 
16,288,307
 
 
17,699,324
 
 
 
 
 
 
 
 
 
Cash
 
 
8,584,140
 
 
5,117,789
 
Manufactured homes and improvements
 
 
4,075,639
 
 
3,168,757
 
Unamortized financing costs - net
 
 
1,013,113
 
 
568,914
 
Deferred home relocation costs - net
 
 
605,239
 
 
-
 
Other assets
 
 
841,522
 
 
1,079,723
 
 
 
 
 
 
 
 
 
 
 
$
31,407,960
 
$
27,634,507
 
 
 
 
 
 
 
 
 
Liabilities and Partners’ Equity
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Notes payable
 
$
28,674,370
 
$
21,438,933
 
Accounts payable
 
 
52,932
 
 
27,904
 
Other liabilities
 
 
522,009
 
 
568,830
 
 
 
 
 
 
 
 
 
Total Liabilities
 
 
29,249,311
 
 
22,035,667
 
 
 
 
 
 
 
 
 
Partners’ Equity
 
 
 
 
 
 
 
Unit holders - 3,303,387 units issued and outstanding
 
 
1,739,592
 
 
5,173,790
 
General partner
 
 
419,057
 
 
425,050
 
 
 
 
 
 
 
 
 
Total Partners’ Equity
 
 
2,158,649
 
 
5,598,840
 
 
 
 
 
 
 
 
 
 
 
$
31,407,960
 
$
27,634,507
 
 
See accompanying notes to financial statements.
 
 
 
 
Uniprop Manufactured Housing
Communities Income Fund II
(a Michigan limited partnership)
 
Consolidated Statements of Operations
 
 
Year Ended December 31,
 
2013
 
2012
 
Revenue
 
 
 
 
 
 
 
Rental
 
$
7,020,241
 
$
7,170,664
 
Home sale income
 
 
103,606
 
 
251,771
 
Other
 
 
850,307
 
 
812,135
 
 
 
 
 
 
 
 
 
 
 
 
7,974,154
 
 
8,234,570
 
 
 
 
 
 
 
 
 
Operating Expenses
 
 
 
 
 
 
 
Administrative
 
 
2,595,338
 
 
2,468,378
 
Property taxes
 
 
816,566
 
 
696,669
 
Utilities
 
 
593,071
 
 
587,017
 
Property operations
 
 
974,461
 
 
762,886
 
Depreciation
 
 
1,707,828
 
 
1,583,919
 
Interest
 
 
1,778,592
 
 
1,462,413
 
Home sale expense
 
 
107,576
 
 
261,300
 
 
 
 
 
 
 
 
 
 
 
 
8,573,432
 
 
7,822,582
 
 
 
 
 
 
 
 
 
Net (Loss) Income
 
$
(599,278)
 
$
411,988
 
 
 
 
 
 
 
 
 
Total (Loss) Income Per Limited Partnership Unit
 
$
(.18)
 
$
.12
 
 
 
 
 
 
 
 
 
Distributions Per Limited Partnership Unit
 
$
.86
 
$
.32
 
 
 
 
 
 
 
 
 
Weighted Average Number of Limited Partnership Units Outstanding
 
 
3,303,387
 
 
3,303,387
 
 
 
 
 
 
 
 
 
Net (Loss) Income Allocable to General Partner
 
$
(5,993)
 
$
4,119
 
 
 
 
 
 
 
 
 
Distributions Allocable to General Partner
 
$
-
 
$
-
 
 
See accompanying notes to financial statements.
 
 
 
 
Uniprop Manufactured Housing
Communities Income Fund II
(a Michigan limited partnership)
 
Consolidated Statements of Partners’ Equity
Years Ended December 31, 2013 and 2012
 
 
 
 
General
 
 
 
 
 
 
 
 
Partner
 
Unit Holders
 
Total
 
Balance, January 1, 2012
 
$
420,931
 
$
5,823,005
 
$
6,243,936
 
 
 
 
 
 
 
 
 
 
 
 
Distributions to unit holders
 
 
-
 
 
(1,057,084)
 
 
(1,057,084)
 
 
 
 
 
 
 
 
 
 
 
 
Net income for the year
 
 
4,119
 
 
407,869
 
 
411,988
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2012
 
 
425,050
 
 
5,173,790
 
 
5,598,840
 
 
 
 
 
 
 
 
 
 
 
 
Distributions to unit holders
 
 
-
 
 
(2,840,913)
 
 
(2,840,913)
 
 
 
 
 
 
 
 
 
 
 
 
Net income for the year
 
 
(5,993)
 
 
(593,285)
 
 
(599,278)
 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2013
 
$
419,057
 
$
1,739,592
 
$
2,158,649
 
 
See accompanying notes to financial statements.
 
 
 
 
Uniprop Manufactured Housing
Communities Income Fund II
(a Michigan limited partnership)
 
Consolidated Statements of Cash Flows
 
 
Year Ended December 31,
 
 
2013
 
 
2012
 
 
 
 
 
 
 
 
 
Cash Flows From Operating Activities
 
 
 
 
 
 
 
Net (Loss) Income
 
$
(599,278)
 
$
411,988
 
Adjustments to reconcile net (loss) income to net cash provided by (used in) operating
     activities
 
 
 
 
 
 
 
Depreciation
 
 
1,707,828
 
 
1,583,919
 
Amortization and write-off of deferred financing costs
 
 
232,121
 
 
27,752
 
Amortization of home relocation costs
 
 
209,464
 
 
-
 
Payment of home relocation costs
 
 
(814,703)
 
 
-
 
Increase in manufactured homes and improvements
 
 
(1,066,882)
 
 
(1,257,230)
 
Decrease (increase) in other assets
 
 
238,201
 
 
(123,794)
 
Increase (decrease) in accounts payable
 
 
25,028
 
 
(138,579)
 
(Decrease) increase in other liabilities
 
 
(46,821)
 
 
122,390
 
 
 
 
 
 
 
 
 
Net Cash (Used In) Provided By Operating Activities
 
 
(115,042)
 
 
626,446
 
 
 
 
 
 
 
 
 
Cash Flows From Investing Activities
 
 
 
 
 
 
 
Purchase of property and equipment
 
 
(136,810)
 
 
(224,569)
 
 
 
 
 
 
 
 
 
Net Cash Used In Investing Activities
 
 
(136,810)
 
 
(224,569)
 
 
 
 
 
 
 
 
 
Cash Flows From Financing Activities
 
 
 
 
 
 
 
Distributions to unit holders
 
 
(2,840,913)
 
 
(1,057,084)
 
Repayments of notes payable
 
 
(12,084,563)
 
 
(466,431)
 
Proceeds from notes payable refinancing
 
 
19,320,000
 
 
-
 
Payments of deferred financing costs
 
 
(676,321)
 
 
-
 
 
 
 
 
 
 
 
 
Net Cash Provided By (Used In) Financing Activities
 
 
3,718,203
 
 
(1,523,515)
 
 
 
 
 
 
 
 
 
Net Increase (Decrease) In Cash
 
 
3,466,351
 
 
(1,121,638)
 
Cash, at beginning of year
 
 
5,117,789
 
 
6,239,427
 
 
 
 
 
 
 
 
 
Cash, at end of year
 
$
8,584,140
 
$
5,117,789
 
 
See accompanying notes to financial statements.
 
 
 
Uniprop Manufactured Housing
Communities Income Fund II
(a Michigan limited partnership)
 
Notes to Consolidated Financial Statements
 
 
1.
Summary of Accounting Policies
Organization and Business
 
 
 
 
 
Uniprop Manufactured Housing Communities Income Fund II, a Michigan Limited Partnership (the “Partnership”) acquired, maintains, operates and will ultimately dispose of income producing residential real properties consisting of seven manufactured housing communities (the “properties”) at December 31, 2013, and 2012,  located in Florida, Michigan, Nevada and Minnesota. The Partnership was organized and formed under the laws of the State of Michigan on November 7, 1986.  The general partner is Genesis Associates Limited Partnership.
 
 
 
 
 
In accordance with its Prospectus dated December 1986, the Partnership sold 3,303,387 units of beneficial assignment of limited partnership interest (“Units”) for $66,068,000. The Partnership purchased its original nine properties for an aggregate purchase price of approximately $58,000,000. Three of the properties costing approximately $16,008,000 were previously owned by entities which were affiliates of the general partner.  One property was sold in 2007 and one was sold in 2008 leaving a total of seven properties on December 31, 2013.
 
 
 
 
 
In connection with the refinancing discussed in Note 2, to satisfy the requirements of Cantor Commercial Real Estate, the ownership of the fee title of each of the properties was transferred into bankruptcy remote special purpose entities. The fee title to the Sunshine Village real property is now held by Sunshine Village MHP, LLC.  The fee title to the West Valley real property is now held by West Valley MHP, LLC.  Both of these entities are wholly owned by IF II, Holdings, LLC, a newly formed holding company which is wholly owned by the Partnership.  Sunshine Village MHP, LLC, West Valley MHP, LLC and IF II, Holdings, LLC are all disregarded entities for federal income tax purposes.  The ownership transfers were made solely to meet the requirements of the lender and do not change the beneficial or economic ownership by the Partnership.
 
 
 
Uniprop Manufactured Housing
Communities Income Fund II
(a Michigan limited partnership)
 
Notes to Consolidated Financial Statements
 
 
 
 
Principles of Consolidation
 
 
 
 
 
The consolidated financial statements include the accounts of the Partnership and all of its wholly owned subsidiaries as described above.  All material intercompany accounts and transactions have been eliminated in consolidation.
 
 
 
 
 
Use of Estimates
 
 
 
 
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of (1) assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from these estimates.
 
 
 
Fair Values of Financial Instruments
 
 
 
 
 
The carrying amounts of cash and accounts payable approximate their fair values due to their short-term nature.  The fair value of notes payable approximates their carrying amounts based on current borrowing rates.
 
 
 
 
 
Property and Equipment
 
 
 
 
 
Property and equipment are stated at cost. Depreciation is provided using the straight-line method over a period of thirty years except for furniture and equipment which is depreciated over a period ranging from three to ten years.
 
 
 
 
 
Accumulated depreciation on continuing properties for tax purposes was $35,904,000 and $33,975,000 as of December 31, 2013 and 2012, respectively.
 
 
 
 
 
Long-lived assets such as property and equipment are evaluated for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable through the estimated undiscounted future cash flows from the use of these assets. When any such impairment exists, the related assets will be written down to fair value.
 
 
 
Uniprop Manufactured Housing
Communities Income Fund II
(a Michigan limited partnership)
 
Notes to Consolidated Financial Statements
 
 
 
 
Manufactured Homes and Improvements
 
 
 
 
 
Manufactured homes and improvements are stated at the lower of cost or fair value based on the specific identification method and represent manufactured homes held for sale.
 
Manufactured homes and improvements include homes that are vacant and held for sale and occupied lease homes.  The fair values of homes held for sale are assessed quarterly based on recent sales of similar homes, guide book values and condition.  Impairments are recognized to reduce the carrying amount of each home to the lower of cost or estimated fair value.  Occupied lease homes are subject to depreciation using estimated useful lives of 27.5 years, with depreciation commencing at lease inception.  Depreciation expense related to these homes for the years ending December 31, 2013 and 2012 was $160,000 and $40,000, respectively.  Accumulated depreciation for the years then ended was $200,000 and $40,000, respectively.
 
 
 
 
 
Financing Costs
 
 
 
 
 
As a result of the refinance of the mortgage note payable during 2008, costs to obtain that financing (see Note 2) were capitalized and amortized over the 25-year term of the related mortgage note payable.
 
The Partnership incurred $676,321 in financing costs as a result of the 2013 refinancing described in Note 2 below, which is being amortized over the life of the new mortgage notes payable.  This included a 1% fee payable to an affiliate of the General Partner. 
 
Amortization and write off of deferred financing costs totaled $232,121 and $27,752 for December 31, 2013 and 2012, respectively.  Unamortized deferred financing costs in the amount of $179,375 related to the mortgage notes payable that were refinanced were written off in 2013 and included in amortization expense.  Amortization expense is included in interest expense in the consolidated statement of operations.
 
 
 
Uniprop Manufactured Housing
Communities Income Fund II
(a Michigan limited partnership)
 
Notes to Consolidated Financial Statements
 
 
 
 
Deferred Home Relocation Costs
 
 
 
 
 
The Partnership initiated the Sunshine Village Paid Home Relocation Program (the “Program”) during 2013.  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.  The Partnership has incurred expenditures of $901,732, of which $814,703 has been capitalized and is being amortized over the life of the resident’s three year rental period.  Amortization of these costs recognized for the year ended December 31, 2013 totaled $209,464 and has been recorded as a reduction to rental revenue.
 
 
 
 
 
Revenue Recognition
 
 
 
 
 
Rental income attributable to leases is recorded when due from the lessees.  Revenue from the sale of manufactured homes is recognized upon transfer of title at the closing of the sale transaction.
 
 
 
 
 
Other Revenue
 
 
 
 
 
Other revenue consists of home lease income, interest income, rental late fees, utility charges and miscellaneous income. Income from utility charges is recognized based upon actual monthly usage.
 
 
 
 
 
Income Taxes
 
 
 
 
 
Federal income tax regulations provide that any taxes on income of a partnership are payable by the partners as individuals. Therefore, no provision for such taxes has been made at the partnership level.

2.
Notes Payable
During 2008, the Partnership refinanced a mortgage note payable and executed new notes payable to StanCorp Mortgage Investors, LLC  in the aggregate 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.  The mortgages are payable in monthly installments of interest and principal through September 2033. In connection with the 2008 mortgage debt, the Partnership incurred $693,798 in financing costs as a result of the refinancing which were deferred and amortized over the life of the mortgage of 25 years. These costs included a 1% refinance fee of $232,250 paid to Uniprop AM LLC, a related party.
 
 
 
Uniprop Manufactured Housing
Communities Income Fund II
(a Michigan limited partnership)
 
Notes to Consolidated Financial Statements
 
 
 
 
Effective July, 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 notes bear interest at a fixed rate of 5.09% with principal payments based on a twenty-five year amortization period.  As of December 31, 2013 the balance on these notes was $19,196,759.
 
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.  These costs included a 1% fee payable to a Uniprop AM LLC, an affiliate of the General Partner.  Unamortized finance costs of $179,395 related to the mortgage notes payable that were refinanced were written off during 2013 as a result of the refinancing.  Additionally, the Partnership incurred a fee with StanCorp totaling $72,020 related to the refinancing, which has been reflected as part of interest expense on the statement of operations.
 
In connection with the refinancing of the two the mortgage notes payable discussed above, a guaranty of recourse obligations was put in place by Roger Zlotoff, President of Uniprop AM, LLC and his spouse.  The Board of Directors has approved a guaranty fee of $25,000 per year for Sunshine Village and $37,500 per year for West Valley payable to Mr. Zlotoff related to this agreement.
 
Effective September, 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 December 31, 2013 the balance on these five notes was $9,477,611.
 
 
 
Uniprop Manufactured Housing
Communities Income Fund II
(a Michigan limited partnership)
 
Notes to Consolidated Financial Statements
 
 
 
 
Future maturities on the notes payable for the next five years and thereafter are as follows:  2014 - $674,410; 2015 - $709,585; 2016 - $744,498; 2017 - $785,396; 2018 - $826,361 and thereafter - $24,934,120.