UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the Quarter Ended March 31, 2017

 

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

 

Commission File No. 0-16701

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

a Michigan Limited Partnership

(Exact name of registrant as specified in its charter)

 

MICHIGAN (State or other jurisdiction of incorporation or organization)

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

 

280 Daines Street, Birmingham, Michigan 48009

(Address of principal executive offices) (Zip Code)

(248) 645-9220

(Registrant's telephone number, including area code)

 

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

units of beneficial assignments of limited partnership interest

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x         No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨   No ¨

 

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

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

 

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

 

As of March 31, 2017, the number of units of limited partnership interest of the registrant outstanding was 3,303,387. The Partnership units of interest are not traded in any public market.

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

INDEX

 

		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Balance Sheets March 31, 2017 (Unaudited) and December 31, 2016	3
	Statements of Operations Three months ended March 31, 2017 and 2016 (Unaudited)	4
	Statement of Partners’ Equity Three months ended March 31, 2017 (Unaudited)	4
	Statements of Cash Flows Three months ended March 31, 2017 and 2016 (Unaudited)	5
	Notes to Financial Statements March 31, 2017 (Unaudited)	6
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	8
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	11
ITEM 4.	CONTROLS AND PROCEDURES	11
PART II	OTHER INFORMATION	11
ITEM 1.	LEGAL PROCEEDINGS	11
ITEM 1A.	RISK FACTORS	11
ITEM 6.	EXHIBITS	12

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

BALANCE SHEETS

 

ASSETS		March 31, 2017				December 31, 2016
		(Unaudited)
Properties:
Land		$	3,594,573			$	3,594,573
Buildings And Improvements			16,652,714				16,652,714
Furniture And Equipment			159,658				159,658
Manufactured Homes and Improvements			3,644,083				3,468,208
			24,051,028				23,875,153
Less Accumulated Depreciation			(16,068,842	)			(15,907,387	)
			7,982,186				7,967,766
Cash And Cash Equivalents			6,984,972				7,202,852
Other Assets			1,033,630				898,439
Total Assets		$	16,000,788			$	16,069,057

 

LIABILITIES & PARTNERS' EQUITY		March 31, 2017				December 31, 2016
		(Unaudited)
Accounts Payable		$	35,621			$	13,388
Other Liabilities			362,740				299,133
Notes Payable - net of deferred financing costs			17,445,779				17,542,594
Total Liabilities			17,844,140				17,855,115
Partners' Equity:
General Partner			569,312				568,564
Unit Holders			(2,412,664	)			(2,354,622	)
Total Partners' Equity			(1,843,352	)			(1,786,058	)
Total Liabilities And Partners' Equity		$	16,000,788			$	16,069,057

 

See Notes to Financial Statements

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

STATEMENTS OF OPERATIONS		THREE MONTHS ENDED
		March 31, 2017				March 31, 2016
		(unaudited)				(unaudited)
Income:
Rental Income		$	1,134,129			$	1,042,026
Home Sale Income			0				1,001
Other			131,734				112,248
Total Income		$	1,265,863			$	1,155,275
Operating Expenses:
Administrative Expenses (Including $62,946and $59,271, in Property Management Fees Paid to an Affiliate for the Three Month Period Ended March 31, 2017 and 2016 Respectively)			439,185				756,707
Property Taxes			72,300				72,975
Utilities			58,041				52,945
Property Operations			215,294				218,044
Depreciation			161,454				179,905
Interest			244,748				252,812
Home Sale Expense			0				351
Total Operating Expenses		$	1,191,022			$	1,533,739
Income (Loss) from Continuing Operations		$	74,841			$	(378,464	)
Income from Discontinued Operations		$	0			$	7,397,848
Net Income		$	74,841			$	7,019,384
Income (Loss) Per Unit:
Continuing Operations			0.02				(0.11	)
Discontinued Operations			0.00				2.24
Total Income Per Unit			0.02				2.13
Distribution Per Unit:			0.04				0.04
Weighted Average Number Of Limited Partnership Units Outstanding			3,303,387				3,303,387

 

STATEMENT OF PARTNERS' EQUITY (Unaudited)

		General Partner				Unit Holders				Total
Balance, December 31, 2016		$	568,564			$	(2,354,622	)		$	(1,786,058	)
Distributions			-				(132,135	)			(132,135	)
Net Income			748				74,093			$	74,841
Balance as of March 31, 2017		$	569,312			$	(2,412,664	)		$	(1,843,352	)

 

See Notes to Financial Statements

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

STATEMENTS OF CASH FLOWS

(Unaudited)

 

		THREE MONTHS ENDED
		March 31, 2017				March 31, 2016
Cash Flows From Operating Activities:
Net Income		$	74,841			$	7,019,384
Adjustments To Reconcile Net Income To Net Cash Provided By Operating Activities:
Depreciation			161,454				179,905
Amortization of Financing Costs			16,630				114,629
Amortization of Home Relocation Costs			0				41,604
Gain on Sale of Discontinued Operations			0				(8,069,909	)
Gain on Sale of Manufactured Homes			0				650
Increase In Other Assets			(135,191	)			(85,366	)
Increase In Accounts Payable			22,233				50,587
Increase In Other Liabilities			63,607				54,880
Total Adjustments			128,733				(7,713,020	)
Net Cash Provided By (Used In) Operating Activities			203,574				(693,636	)
Cash Flows Used In Investing Activities:
Investment in Manufactured Homes and Improvements			(175,875	)			(96,080	)
Proceeds from Sale of Discontinued Operations			0				10,551,474
Proceeds from Sale of Manufactured Homes			0				1,001
Net Cash Used In Investing Activities			(175,875	)			10,456,395
Cash Flows Used In Financing Activities:
Distributions To Unit Holders			(132,135	)			(3,633,725	)
Payments On Notes Payable			(113,444	)			(2,680,247	)
Net Cash Used In Financing Activities			(245,579	)			(6,313,972	)
(Decrease) Increase In Cash			(217,880	)			3,448,787
Cash, Beginning			7,202,852				10,789,645
Cash, Ending		$	6,984,972			$	14,238,432

 

See Notes to Financial Statements

 

 

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

 

NOTES TO FINANCIAL STATEMENTS

March 31, 2017 (Unaudited)

 

1.

Basis of Presentation and Accounting Policies:

 

The accompanying unaudited 2017 financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. The balance sheet at December 31, 2016 has been derived from the audited financial statements at that date. Operating results for the three months ended March 31, 2017 are not necessarily indicative of the results that may be expected for the year ending December 31, 2017, or for any other interim period. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership’s Form 10-K for the year ended December 31, 2016.

 

The Partnership initiated the Sunshine Village Paid Home Relocation Program (“Program”) during 2013. 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 Partnership incurred expenditures of $903,232, of which $816,203 was capitalized and amortized over the life of the residents’ three year rental period. These costs have been fully amortized as of December 31, 2016.

 

The carrying amounts of cash, accounts payable and notes payable approximate their fair values due to their short-term nature. The fair value of mortgage notes payable approximates their carrying amounts based on current borrowing rates.

 

2.

Mortgage Payable:

 

The Partnership has two mortgage notes payable with Cantor Commercial Real Estate collateralized by Sunshine Village, located in Davie, Florida and West Valley, located in Las Vegas, Nevada. The mortgages are payable in monthly installments of interest and principal through August, 2023. These refinanced notes bear interest at a fixed rate of 5.09% with principal payments based on a twenty-five year amortization period. As of March 31, 2017 the balance on these notes was $17,867,013, excluding deferred financing costs.

 

Future maturities on the notes payable for the next five years and thereafter are as follows: 2017 - $336,478; 2018 - $473,724; 2019 - $498,786; 2020 - $522,749; 2021 - $552,829 and thereafter - $15,482,447.

 

3.

Discontinued Operations:

 

As described in the Form 8-K dated February 29, 2016, the Partnership closed on the sale of Ardmor Village for a sale price of $10,587,274 less closing costs resulting in proceeds in the amount of $10,551,474 and the gain on the sale was approximately $8,070,000. The mortgage payable outstanding related to this property in the amount of $2,559,737, accrued interest of $8,742, prepayment penalty of $257,247, which was offset by a refund of the property tax escrow balance of $50,055, totaling $2,775,772 was paid in full at the time of closing. The Partnership also wrote off $97,999 of unamortized deferred financing costs related to the mortgage note in connection with this transaction. The net proceeds resulting from the sale and pay off of the mortgage note were approximately $7,690,000.

 

 

As a result of the property sale, the associated financial results have been classified as “discontinued operations” in the accompanying financial statements for all historical periods presented.

 

The following is a summary of results of operations of the property classified as discontinued operations for the period ending March 31, 2016: Total Revenue was $170,650, and Total Operating Expenses were $134,096. For the period ending March 31, 2017, there were no results of operations from activities classified as discontinued operations.

 

Total Cash Flows Used in Operating Activities of the property classified as discontinued operations for the period ending March 31, 2016 were $618,698. In addition, Total Cash Flows Provided by Investing Activities of the property classified as discontinued operations were $10,552,475. For the period ending March 31, 2016, there were no cash flows from activities classified as discontinued operations.

 

As described in the Form 8-K dated January 17, 2017, a special meeting of the unit holders and the limited partners of the Fund was held on January 17, 2017. At the special meeting, the unit holders and limited partners voted on the proposed plan of dissolution of the Partnership. At the special meeting, 2,066,861 units were represented either in person or by proxy, which represented 62.568% of the units outstanding and entitled to vote.

 

The votes cast regarding the proposed plan of dissolution were as follows: 1,988,742 For; 61,220 Against; and 16,899 Abstain.

 

The affirmative vote represented a majority in interest outstanding as of the record date of the unit holders and limited partners, as a group. Accordingly, the plan of dissolution was approved, which is consistent with the provisions of the Partnership Agreement.

 

4.

Subsequent Event:

 

The Board of Directors has discussed and determined a strategy to sell the two remaining properties and dissolve the Partnership. The Board has instructed Management to sell Sunshine Village only via a sealed bid process.  As of April 21, 2017 an Offering Memorandum and bid instructions were sent to 6 brokerage firms and 20 qualified principals.  The Fund has informed the brokers and the bidders of the following terms and conditions:

 

1.

The Fund will not pay a real estate brokerage commission; all bids must include an indemnification from the bidder

2.

Sealed bids are due, in writing, to the attorney for the Fund by June 2, 2017

3.

Bids will be compiled by the attorney for the Fund by June 7, 2017 and the Fund plans to respond to all bidders no later than June 23, 2017

 

 

4.

All bids are subject to compliance with Florida Statute 723 which provides a 45 day Right of First Refusal for the Homeowners’ Association

5.

The Fund reserves the right to cancel the bidding process at any time for any reason or no reason

 

Management of the Fund has communicated with the Consultant for the Fund to discuss the sale process and prepare the Consultant to receive a recommendation for the highest and best bid in the event Management makes a determination to make a recommendation to the Consultant.

 

5.

Upcoming Accounting Pronouncement

 

In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede the current revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The ASU permits application of the new revenue recognition guidance to be applied using one of two retrospective application methods. The Partnership plans to apply the standard using the modified retrospective method. While the Partnership is in the process of making its preliminary assessment, it does not believe this will have a material impact on revenue recognition policies.

 

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Critical Accounting Policies

 

See Part II, Item 7 – Critical Accounting Policies, our consolidated financial statements and related notes in Part IV, Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2016 filed with the SEC on March 10, 2017 for accounting policies and related estimates we believe are the most critical to understanding condensed consolidated financial statements, financial conditions and results of operations and which require complex management judgment and assumptions or involve uncertainties. There have been no material changes to the critical accounting policies and estimates previously disclosed in that report.

 

Liquidity and Capital Resources

 

Uniprop Manufactured Housing Communities Income Fund II, a Michigan Limited Partnership’s (the “Partnership”) liquidity is based, in part, upon its investment strategy. On February 26, 2016 the sale of Ardmor Village closed as described previously, leaving the Fund with only two properties: Sunshine Village and West Valley.

 

 

Management does not believe that it is economically rational to operate a limited partnership that has a class of securities registered under the Securities Exchange Act of 1934 with only two properties. The costs of compliance are simply too high when amortized over only two properties.

 

As a result, management intends to liquidate Sunshine Village and West Valley, and then dissolve the Fund in accordance with the Partnership Agreement, as described previously.

 

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

 

On July 18, 2013, the Partnership refinanced its existing mortgage notes payable and executed two new mortgages payable in the amount of $19,320,000 secured by Sunshine Village, located in Davie, FL and West Valley, located in Las Vegas, NV with a new lender, namely Cantor Commercial Real Estate. The mortgage notes are payable in monthly installments of interest and principal through August, 2023. The refinanced notes bear interest at a fixed rate of 5.09% with principal payments based on a twenty-five year amortization period. As of March 31, 2017 the balance on these notes was $17,867,013, excluding deferred financing costs.

 

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

 

The General Partner has decided to distribute $132,135, or $0.04 per unit, to the unit holders for the first quarter ended March 31, 2017. The General Partner will continue to monitor cash flow generated by the Partnership’s properties during the coming quarters. If cash flow generated is greater or lesser than the amount needed to maintain the current distribution level, the General Partner may elect to reduce or increase the level of future distributions paid to Unit Holders.

 

As of March 31, 2017, the Partnership’s cash balance amounted to $6,984,972. The level of cash balance maintained is at the discretion of the General Partner.

 

Results of Operations

 

Overall, as illustrated in the following table, the Partnership's two properties reported combined occupancy of 71% at the end of March 2017 and 2016. The average monthly homesite rent as of March 31, 2017 was approximately $705 versus $682 from March 2016 (average rent not a weighted average).

 

		Total				Occupied				Occupancy				Average*
		Capacity				Sites				Rate				Rent
Sunshine Village			356				259				73	%			717
West Valley			421				295				70	%			692
Total on 3/31/17:			777				554				71	%		$	705
Total on 3/31/16:			777				552				71	%		$	682

*Not a weighted average

 

 

		Gross Revenue								Net Operating (Loss) Income and Net Income
		3/31/2017				3/31/2016				3/31/2017				3/31/2016
		three months ended								three months ended
Sunshine			607,821				523,492				356,160				267,791
West Valley			654,603				625,288				406,241				408,590
			1,262,424				1,148,780				762,401				676,381
Partnership Management			3,439				6,495				(165,452	)			(486,582	)
Other Expense			—				—				(115,906	)			(135,546	)
Interest Expense			—				—				(244,748	)			(252,812	)
Depreciation			—				—				(161,454	)			(179,905	)
Continuing Operations		$	1,265,863			$	1,155,275			$	74,841			$	(378,464	)
Discontinued Operations		$	0			$	170,650			$	0			$	7,397,848
		$	1,265,863			$	1,325,925			$	74,841			$	7,019,384

 

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

 

Comparison of Quarter Ended March 31, 2017 to Quarter Ended March 31, 2016

 

As described in the Statement of Operations, gross revenues from continuing operations increased by $110,588, to $1,265,863, in 2017, from $1,155,275, in 2016. This was due to an increase in rental income as a result of increases in market rent values from the prior year.

 

As described in the Statements of Operations, total operating expenses from continuing operations decreased $342,717 to $1,191,022 in 2017, as compared to $1,533,739 in 2016. This was mainly due to a decrease in administrative expenses.

 

As a result of the aforementioned factors, the Partnership experienced Net Income from continuing operations of $74,841 for the first quarter of 2017 compared to a Net Loss of $378,464 for the first quarter of 2016.

 

 

ITEM 3.

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

 

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

 

Notes Payable: At March 31, 2017 the Partnership had notes payable outstanding in the amount of $17,867,013, excluding deferred financing costs. Interest on these notes is at a fixed annual rate of 5.09% through August 2023.

 

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

 

ITEM 4.

CONTROLS AND PROCEDURES

 

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

 

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

 

PART II - OTHER INFORMATION

 

ITEM 1.

LEGAL PROCEEDINGS

 

None.

 

ITEM 1A.

RISK FACTORS

 

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item IA. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Company. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition and/or operating results.

 

 

ITEM 6.

EXHIBITS

 

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

 

101.1NS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definitions Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

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

 

Dated: May 10, 2017