ITEM 1. BUSINESS
General Development of Business
Uniprop Manufactured Housing Communities Income Fund II, a Michigan Limited Partnership (the "Partnership"), acquired, maintains, operates and ultimately will dispose of income producing residential real properties consisting of nine 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) 645-9261.
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 acquired seven of the Properties in 1987 and acquired two additional Properties in 1988.
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 be achieved.
On August 20, 1998, the Partnership borrowed $30,000,000 (the "Loan") from GMAC Commercial Mortgage Corporation. It secured the Loan by placing new mortgages on seven of its nine properties. The Loan carries a fixed interest rate of 6.37% over its term of 126 months and is amortized over 360 months. The Partnership used the proceeds from the Loan to refinance the Partnership's outstanding indebtedness of $30,045,000, which was the result of a 1993 mortgage financing transaction.
Financial Information About Industry Segment
The Partnership's business and only industry segment is the operation of its nine 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.
Narrative Description of Business
General
The Sunshine Village, Ardmor Village and Camelot Manor Properties were selected from 25 manufactured housing communities then owned by 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. The Partnership rents space in the Properties to owners of manufactured homes thereby generating rental revenues. 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 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, and will make the decision with a view to achieving maximum capital appreciation to the Partnership considering relevant tax consequences and the Partnership's investment objectives.
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 tenants. 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 2,045 housing sites competing with Sunshine Village. Ardmor Village competes with approximately nine communities in the Lakeville, Minnesota area offering approximately 2,363 housing sites. Camelot Manor competes with approximately 16 communities in the Grand Rapids, Michigan area offering approximately 3,631 housing sites. In the Jacksonville, Florida area, Country Roads competes with approximately nine communities offering approximately 3,636 housing sites. The Tampa, Florida area contains approximately four communities offering approximately 1,190 housing sites competing with Paradise Village. Dutch Hills and Stonegate Manor compete with approximately 11 other communities in the Lansing, Michigan area offering approximately 3,438 housing sites. In the Las Vegas, Nevada area, West Valley and El
Adobe compete with approximately 13 other communities offering approximately 3,719 housing sites. The Properties also compete against other forms of housing, including apartment and condominium complexes.
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, Country Roads and Paradise 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 Florida properties 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 Florida Properties 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 from any party that it is considering or negotiating, 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.
Employees
The Partnership employs three part-time employees to perform Partnership management and investor relations services. The Partnership retains an affiliate, Uniprop, Inc., as the property manager for each of its Properties. Uniprop, Inc. 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, Inc. 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, Inc. Local managers are employees of the Partnership and are paid semi-monthly. The yearly salaries and expenses for local managers range from $20,000 to $40,000. Local managers have no direct management authority, make no decisions regarding operations and act only in accordance with
instructions from the property manager. They are utilized by the Partnership to provide on-site maintenance and administrative services. Uniprop, Inc., as property manager, has overall management authority for each Property.
ITEM 2.
ITEM 2. PROPERTIES
The Partnership purchased all nine manufactured housing communities for cash. As a result of the Loan, however, seven of the nine Properties are now 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. In January 1990, the Partnership did begin acquiring some homes in conjunction with its home purchase/lease program for Country Roads and Paradise Village. Each of the Properties has a community center which includes offices, meeting rooms and game rooms. The Ardmor Village community includes a resident manager's apartment. Country Roads has a 1,200 square foot rental cottage. 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 nine properties.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
In the opinion of the Partnership and its legal counsel, there are no material legal proceedings pending except such ordinary routine matters as are incident to the kind of business conducted by the Partnership. To the knowledge of the Partnership and its counsel, no legal proceedings have been instituted or are being contemplated by any governmental authority against the Partnership.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The voting privileges of the Unit Holders and limited partners are restricted to certain matters of fundamental significance to the Partnership. The Unit Holders and Limited Partners must approve certain major decisions of the General Partner if the General Partner proposes to act without the approval of the Consultant. The Unit Holders and Limited Partners also have a right to vote upon removal and replacement of the General Partner, dissolution of the Partnership, material amendments to the partnership agreement and the sale or other disposition of all or substantially all of the Partnership's assets, except in the ordinary course of the Partnership's disposing of the Properties. Such matters must be approved by Unit Holders and Limited Partners, as a group, holding more than 50% of the then outstanding interests.
On or about June 8, 1998, the General Partner mailed out a proxy statement to Unit Holders. The Unit Holders and Limited Partners were asked to consent to the mortgage refinancing proposal, pursuant to which the Partnership would refinance seven of its nine properties at a fixed interest rate, as opposed to the former variable interest rate on its existing mortgage debt. On Monday, August 3, 1998, a special meeting of the Unit Holders and Limited Partners was held to vote on the proposals described in the proxy statement. At the meeting, all proposals considered and voted on by the Unit Holders and Limited Partners were approved by majority consent.
PART II
ITEM 5.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY HOLDER MATTERS
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 five percent (5.0%) of the Units have been transferred, excluding transfers on account of death or intra-family transfers. The Partnership believes there is no 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 Limited Partners in the event of the current sale of the Properties at their current appraised value, 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 March, 1999, the Properties were appraised at an aggregate fair market value of $79,600,000. Assuming a sale of the nine properties in March 1999, at the appraised value, less payment of selling expenses and mortgage debt, the net aggregate proceeds available for distribution to the Unit Holders is estimated to be $47,296,025 or $14.32 per unit. There can be no assurance that the estimated net asset value could ever be realized. As of March 1, 1999, the Partnership had approximately 4,675 Unit Holders.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data for the Partnership for the periods ended December 31, 1998, 1997, 1996, 1995 and 1994:
ITEM 7.
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.
In August 1998, in an effort to reduce the Partnership's interest payments associated with the 1993 mortgage financing, the General Partner, with majority consent from the Unit Holders and Limited Partners, refinanced seven of the nine Properties owned by the Partnership. As described in Item 1, the Partnership borrowed $30,000,000 from GMAC Commercial Mortgage Corporation. The Loan carries a fixed interest rate of 6.37% over its term of 120 months, amortized over 30 years. The Loan was secured by mortgages on the Partnership's Ardmor Village, Camelot Manor, Dutch Hills, El Adobe, Stonegate Manor, Sunshine Village and West Valley Properties. The Partnership used the proceeds from the Loan to refinance the Partnership's outstanding indebtedness of $30,045,000.
The General Partner acknowledges that the mortgages impose some risks to the Partnership, but 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 considers 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 the cash generated from operations in order to build capital reserves. As of December 31, 1998, the Partnership had $2,482,314 in reserves.
In February of 1994, the Partnership distributed $23,119,767 to the Unit Holders or $7.00 per $20.00 Unit held. Of this amount, $13,572,978 (or $4.11 per Unit), restored the shortfall in the Unit Holders 10.0% cumulative preferred return, and $9,546,789 (or $2.89 per unit), was a partial return of the Limited Partners' original capital contributions.
As a result of the Loan, the Partnership liquidated its Class D Certificate at cost, or $1,502,250 and realized $2,427,994 from the liquidation of its 20.98% interest in the Class R Certificate. On November 13, 1998 the Partnership distributed net proceeds from the liquidation of the Class D and R Certificates of $2,543,608 to the Unit Holders, or $.77 per unit held.
Results of Operations
Distributions
For the year ended December 31, 1998, the Partnership made distributions to the Unit Holders of $4,723,832, which is equal, on an annualized basis, to 8.4% on their adjusted capital contributions, or $1.43 per $17.11 unit. Of the $1.43 distributed to Unit Holders in 1998, $.77 was the result of the liquidation of the Class D and R Certificates. Distributions paid to Unit Holders totaled $2,114,171 in 1997 and $1,783,868 in 1996.
The distributions paid in 1998 were less than the amount required for the annual 10.0% preferred return to the Unit Holders by approximately $928,252. As described in Note 7 to the Partnership's financial statements, the cumulative preferred return deficit through December 1998 was approximately $15,624,000. No distributions can be made to the General Partner until the cumulative preferred return deficit has been distributed to the Unit Holders. At December 31, 1998, the unpaid amount to be distributed to the General Partner approximately $6,600,000.
Net Income
For the years ended December 31, 1998, 1997 and 1996 income before extraordinary item was $931,443, $1,167,256 and $395,975 on total revenues of $12,419,636, $11,922,526 and $11,250,156, respectively. The decrease from 1997 to 1998 was due primarily to property operating expenses, which increased approximately $707,000, whereas total revenues increased only $497,000. The increase in net income from 1996 to 1997 was the result of higher occupancy and higher average rent at the properties.
Net income plus depreciation and amortization less distributions to Unit Holders, was ($1,694,214), $903,864 and $556,384, for the years ended December 31, 1998, 1997 and 1996, respectively. The shortfall reflected in 1998 was funded with proceeds from the liquidation of the Class D and R Certificates.
Partnership Management
Net expenses for the management of the Partnership (i.e. gross expenses for such management, less transfer fees, interest on reserves, interest on funds awaiting
distribution, and certain non-recurring income) were $413,691 in 1998, $155,024 in 1997 and $177,328 in 1996.
The increase in partnership management expenses from 1997 to 1998 was due to costs associated with the proxy completed in 1998. The decrease from 1996 to 1997 was due to higher interest income on cash reserves and lower administrative expenses.
Property Operations
Overall, as illustrated in the table below, the Partnership's nine properties had a combined average occupancy of 93.4% (3,111/3,330 sites) as of December 1998, versus 92.5% in December 1997, and 91.0% in December 1996. The average monthly rent was approximately $348 per home site in December 1998, versus $333 in December 1997 and $327 in December 1996, an increase each year of 4.5% and 1.8%, respectively.
The table below summarizes gross revenues and net operating income for the Partnership and Properties during 1998, 1997 and 1996.
COMPARISON OF YEAR ENDED DECEMBER 31, 1998 TO YEAR ENDED DECEMBER 31, 1997
Gross revenues increased $497,110, or 4.2%, to $12,419,636 in 1998, compared to $11,922,526 in 1997. The increase was primarily the result of higher average occupancy and an increase in rental income due to higher average monthly rents. (See table on previous page.)
As described in the Statements of Income, the Partnership's operating expenses increased $707,033, or 16.3%, to $5,054,906 in 1998, compared to $4,347,873 in 1997. The increase is due primarily to increases in marketing expenses, repairs and maintenance to the Properties and wages. The Partnership's administrative expenses also increased $234,784, or 23.5%, to $1,233,734 in 1998, compared to $998,950 in 1997. The increase
in administrative expenses is due to costs associated with the proxy completed in 1998.
Also reported in the Statements of Income is a gain of $250,998 on the extinguishment of debt, which includes the gain on the liquidation of the Class R Certificate, less loan prepayment penalties and the write-off of unamortized financing costs related to the original 1993 financing.
As a result of the foregoing factors, net income increased slightly from $1,167,256 in 1997 to $1,182,441 in 1998.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Gross revenues increased $672,370, or 6.0%, to $11,922,526 in 1997, compared to $11,250,156 in 1996. The increase was primarily the result of higher average occupancy and an increase in rental income due to higher average monthly rents.
As described in the Statements of Income, the Partnership's operating expenses decreased $98,911, or .09%, to $10,755,270 in 1997, compared to $10,854,181 in 1996. The decrease is the result of lower property operating expenses and lower depreciation and amortization.
As a result of the foregoing factors, net income increased significantly from $395,975 in 1996 to $1,167,256 in 1997.
Year 2000 Costs
The Partnership is currently assessing its significant business relations with external parties, including its banking and vendor relations, to determine if the failure of such parties to be year 2000 compliant would have a material adverse effect upon the Partnership. In the event that any banks, vendors or other parties with whom the Partnership conducts significant business do not successfully and timely achieve year 2000 compliance, the Partnership's operations may be affected. To date, nothing has come to the attention of Management that leads it to conclude that such adverse effect may be likely. Management, however, cannot provide assurance that the year 2000 issue will not have an impact on the Partnerships operations. The Partnership has completed a review of its information systems and believes its business technologies are fully compliant with any issues that may arise as a result of year 2000 issues.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Partnership's financial statements for the fiscal year ended December 31, 1998, 1997 and 1996, and supplementary data are filed with this Report under Item 14.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no changes in the Partnership's independent public accountants nor have there been any disagreements during the past two fiscal years.
ITEM 10.
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 which has two general partners, Uniprop, Inc., the managing General Partner and Paul M. Zlotoff.
Information concerning Mr. Zlotoff's age and principal occupations, as well as for other officers and directors of Uniprop, Inc., during the last five years or more is as follows:
Paul M. Zlotoff, 49, is and has been an individual general partner of Genesis Associates since its inception in November 1986. Mr. Zlotoff became the Chairman of Uniprop, Inc. in May 1986 and was its President from 1979 through 1997. He is also an individual general partner of P.I. Associates Limited Partnership, the general partner of Uniprop Manufactured Housing Communities Income Fund, a public limited partnership which owns and operates four manufactured housing communities. 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.
Steven P. Adler, 48, became President of Uniprop, Inc. on January 1, 1998. Previously, Mr. Adler had been Vice President - Acquisitions and Director of Operations for Uniprop, Inc. since 1984. Mr. Adler is a past member of the Michigan Mobile Home Commission. He has been involved in the manufactured housing industry since 1978. Mr. Adler's responsibilities on behalf of Uniprop, Inc. include property acquisitions, and the overall direction for the operation of properties, including management, marketing and construction. Mr. Adler obtained a B.A. from Bard College, a M.S. in Resource Management and a M.A. in Sociology from the University of New Hampshire.
Gloria Koster, 45, became Chief Financial Officer of Uniprop, Inc. on January 1, 1998. Previously, Ms. Koster had been Vice President - Finance of Uniprop, Inc. since July 1989. She is responsible for accounting, financial controls, data processing, cash management, financial reporting, budgeting, financing, and tax matters. Prior to joining Uniprop, Inc., Ms. Koster had been with Michigan National Bank for 13 years, most recently as a first vice-president. Ms. Koster has a M.B.A. from the University of Detroit.
Terry Winter, 39, became Chief Investment Officer of Uniprop, Inc. on January 1, 1998. Previously, Mr. Winter had been Vice President - Public Programs of Uniprop, Inc. since August 1990. He is responsible for financial analysis of properties, placement of
investments, management and marketing for public and private programs. From March 1989 until August 1990, Mr. Winter was vice president of marketing/business development in Dallas, Texas, with Home Owners Funding Corp. of America, a mortgage banking originator and servicer specializing in loans for manufactured homes and manufactured housing communities. From February 1987 to March 1989, he had been Vice President of loan services at Home Owners. From July 1982 until February 1987, before assets of that company were acquired by Home Owners in 1987, Mr. Winter had been Vice President of real estate management with Commodore Financial Services Corp. Mr. Winter has a B.B.A. in finance from Wayne State University.
ITEM 11.
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, Inc., 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, Inc. during the next fiscal year.
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
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 and/or limited partners have no right to participate in the management of the Partnership and have limited voting privileges only on certain matters of fundamental significance. No person owns of record or beneficially, more than five percent of the Partnership's Units.
ITEM 13.
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 the sellers 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 and Limited Partner 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.
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 and Limited Partner 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 $928,252 less than the 10% cumulative preferred return due Unit Holders. Any such amounts unpaid in a taxable year will be accumulated and paid from distributable cash from capital transactions, but only after each Unit Holder and Limited Partner has first received his 10% cumulative preferred return and 125% of his capital contribution. For 1998, approximately $500,000 was accumulated for the General Partner, and the General Partner's aggregate accumulated incentive management interest as of December 1998 was approximately $6,600,000. 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 could be made to the General Partner until the approximately $15,624,000, 10% cumulative preferred return deficit as of December 31, 1998, is first distributed to the Unit Holders. In February of 1994, as part of the 1993 mortgage financing, $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 and Limited Partner 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, Inc. 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, 1998. The Partnership does not anticipate that any such amounts will be paid or become payable to the General Partner during the next fiscal year.
Uniprop, Inc. received and will receive property management fees for each Property managed by it. Uniprop, Inc. 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, Inc., or the amount which would be payable to an unaffiliated third party for comparable services. During the last fiscal year, Uniprop, Inc. received the following property management fees totaling $611,741: Ardmor Village, $61,605; Camelot Manor, $56,054; Country Roads, $41,840; Dutch Hills, $47,536; El Adobe, $85,696; Paradise Village, $72,272; Stonegate Manor, $55,033; Sunshine Village, $76,643; and West Valley, $115,062. 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 $222,949 during 1998 to perform local property management, data processing and investor relation services for the Partnership. It is anticipated comparable amounts will be paid in the next fiscal year.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements
The following financial statements and related documents are filed with this Report:
(1) Report of Independent Certified Public Accountants
(2) Balance Sheets as of December 31, 1998 and 1997
(3) Statements of Income for the fiscal years ended December 31, 1998, 1997 and 1996
(4) Statements of Partners' Equity for the fiscal years ended December 31, 1998, 1997 and 1996
(5) Statements of Cash Flows for the fiscal years ended December 31, 1998, 1997 and 1996
(6) Schedule III - Real Estate and Accumulated Depreciation for the fiscal years ended December 31, 1998, 1997 and 1996
(b) Reports on Form 8-K
The Partnership did not file any Forms 8-K during the fourth quarter of 1998.
(c) 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 Income Fund II Agreement of Limited Partnership
4(a) First Amendment to Uniprop Income Fund II Agreement of Limited Partnership (April 1, 1987)
10(a) Form of Management Agreement between the Partnership and Uniprop, Inc.
10(b) Form of Consulting Agreement between 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:
2 Mortgage notes, made as of August 20, 1998, between Uniprop Manufactured Housing Communities Income Fund II and GMACCM.
The following exhibits are attached to this Report:
27 Financial Data Schedule
28 Letter summary of the estimated fair market values of the Partnership's nine manufactured housing communities, as of March 1, 1999
(d) Other Financial Statements
There are no other financial statements required by the instructions contained in Regulation S-X or, the information is included elsewhere in the financial statements or the notes thereto.
[BDO SEIDMAN, LLP LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners Uniprop Manufactured Housing Communities Income Fund II (a Michigan limited partnership)
We have audited the accompanying balance sheets of Uniprop Manufactured Housing Communities Income Fund II (a Michigan limited partnership), as of December 31, 1998 and 1997 and the related statements of income, partners' equity and cash flows for each of the three years in the period ended December 31, 1998. We have also audited the schedule listed under Item 14 of Form 10-K. These financial statements and the schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and the schedule are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements and the schedule. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and the schedule. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Uniprop Manufactured Housing Communities Income Fund II at December 31, 1998 and 1997 and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1998 in conformity with generally accepted accounting principles.
Also, in our opinion, the schedule listed under Item 14 of Form 10-K presents fairly, in all material respects, the information set forth therein.
BDO SEIDMAN, LLP Troy, Michigan February 5, 1999
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
BALANCE SHEETS
See accompanying notes to financial statements.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
See accompanying notes to financial statements.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
See accompanying notes to financial statements.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF ORGANIZATION AND BUSINESS ACCOUNTING POLICIES 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 nine manufactured housing communities (the "properties") 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.
In accordance with its Prospectus dated December 1986, the Partnership sold 3,303,387 units of beneficial assignment of limited partnership interest ("Units") for $66,067,740. The Partnership purchased the properties for an aggregate purchase price of approximately $56,000,000. Three of the properties costing approximately $16,008,000 were previously owned by entities which were affiliates of the general partner.
The general partner is Genesis Associates Limited Partnership. Uniprop Beneficial Corporation was the initial limited partner who assigned to those persons purchasing units a beneficial limited partnership interest when the minimum number of units were sold.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect (1) the reported amounts of 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 cash equivalents, marketable securities, and notes payable approximate their fair values.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided using the straight-line method over the following estimated useful lives:
Buildings and improvements 30 years Manufactured homes and improvements 30 years Furniture and equipment 3-10 years
Accumulated depreciation for tax purposes was $16,805,437 and $15,210,638 as of December 31, 1998 and 1997, 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. No impairment loss recognition has been required through December 31, 1998.
MORTGAGE-BACKED SECURITIES
In connection with the Partnership's 1993 financing transaction (see Note 2), the Partnership was required to use approximately 5% of its mortgage proceeds to purchase a subordinated portion of the mortgage-backed securities ("Class D Certificates"). These Class D Certificates were not rated, carried a fixed interest rate of 7.5% per annum and were subordinated to the Class A, B and C mortgage certificates issued as part of the aforementioned financing transaction. The Partnership was issued a Class D Certificate in 1993 with a face amount of $1,502,250, which represented cost.
In 1998, as part of the refinancing of its note payable (see Note 2), the Partnership redeemed the Class D Certificate at cost.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
FINANCING COSTS
Costs to obtain financing have been capitalized and are amortized using the straight-line method over the 30-year term of the related mortgage note payable.
INVESTMENT
The "Investment" of $998,995 reflected on the Partnership's 1997 balance sheet represents a 20.98% residual interest ("Class R Certificates") of the trust fund which was established as part of the original 1993 financing transaction (see Note 2). The owners of the Class R Certificates are the respective owners of the properties participating in the mortgage-backed securities transaction, with their ownership interest based on the amount each property contributed to the value of the Class R Certificates. These certificates had no principal or interest amount associated with them, but represented the amount which the Partnership would be entitled to receive after all other classes of certificates had been reduced to zero. The "Investment" had been accounted for using the equity method of accounting, subject to management's estimation of the carrying value of the investment.
In 1998, as part of the refinancing of its note payable (see Note 2), the Partnership redeemed the Class R Certificates. As a result, the Partnership recognized a gain of $1,419,896 on the redemption of the certificates, which has been included in the calculation of the extraordinary gain on the extinguishment of debt (see Note 2).
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.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
COMPREHENSIVE INCOME
On January 1, 1998, the Partnership adopted Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income", which establishes standards for the reporting and display of comprehensive income, its components and accumulated balances. Comprehensive income is defined to include all changes in equity except those resulting from investments by owners and distributions to owners. Among other disclosures, SFAS 130 requires that all items that are required to be recognized under current accounting standards as components of comprehensive income be reported in a financial statement that is displayed with the same prominence as other financial statements. For the year ended December 31, 1998, comprehensive income for the Partnership did not differ from net income.
2. NOTES PAYABLE In 1993, the Partnership mortgaged seven of its properties in connection with a financing transaction which involved twenty-one other properties, thirteen of which are owned in part by affiliates of the general partner. The borrowings totalled $30,045,000, were secured by the mortgages on the Partnership's properties as well as the mortgages on the other twenty-one properties, and were funded through the issuance of mortgage-backed securities. The proceeds of the mortgage notes payable were used primarily to eliminate the cumulative preferred return deficit owed to the unit holders that existed as of December 31, 1993, and also to distribute a return of capital to the unit holders.
In 1998, the Partnership refinanced the aforementioned note payable by entering into a new note agreement totalling $30,000,000. These borrowings are secured by mortgages on the Partnership's properties. The note is payable in monthly installments of $188,878, including interest at 6.37%, through March, 2009. Thereafter, the monthly installment and interest rate will be adjusted based on the provisions of the agreement through the note maturity date of September 2028. The outstanding balance on the note payable at December 31, 1998 was $29,915,975.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
In connection with the refinancing, the Partnership recorded a gain on the extinguishment of debt of $250,998, which includes the gain on the redemption of the Class R Certificates ($1,419,896), less loan prepayment penalties ($300,450) and the write-off of unamortized financing costs related to the original 1993 financing ($868,448).
Future maturities on the note payable for the next five years are as follows: 1999 - $345,000; 2000 - $362,000; 2001 - $392,000; 2002 - $418,000; and 2003 - $445,000.
3. OTHER ASSETS At December 31, 1998, "Other Assets" included cash of approximately $425,000 in an escrow account for property taxes, insurance, and capital improvements, as required by the Partnership's note payable agreement. The account is restricted from operating use.
At December 31, 1998 and 1997, "Other assets" also included cash of approximately $216,000, in a security deposit escrow account for three of the Partnership's properties, which is required by the laws of the state in which they are located and is restricted from operating use.
4. OTHER Other liabilities consisted of: LIABILITIES
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
5. RELATED PARTY MANAGEMENT AGREEMENT TRANSACTIONS
The Partnership has an agreement with an affiliate of the general partner to manage the properties owned by the Partnership. The management agreement is automatically renewable annually, but may be terminated by either party upon sixty days written notice. The property management fee is the lesser of 5% of annual gross receipts from the properties managed, or the amount which would be payable to an unaffiliated third party for comparable services.
REPORT OF FEES
During the years ended December 31, 1998, 1997 and 1996, the affiliate earned property management fees of $611,741, $585,394 and $552,846, respectively, as permitted in the Agreement of Limited Partnership. These fees are included with "Administrative" expenses in the respective statements of income. The Partnership owed $335 to the affiliate at December 31, 1998, and was owed $19,765 by the affiliate at December 31, 1997.
Certain employees of the Partnership are also employees of affiliates of the general partner. These employees were paid by the Partnership $222,949, $177,046 and $196,491 in 1998, 1997 and 1996, respectively, to perform local property management and investor relations services for the Partnership.
CONTINGENT PURCHASE PRICE
A general partner of Genesis Associates Limited Partnership has an interest in the sellers of two of the properties acquired by the Partnership and is entitled to share in a contingent purchase price that will not exceed $2,054,000. Additional amounts to be paid, 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.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
FINANCING COSTS
In 1998, as part of the financing transaction described in Note 2, the Partnership paid approximately $300,000 in financing costs to an affiliate of the general partner.
6. RECONCILIATION OF FINANCIAL STATEMENT INCOME AND TAXABLE INCOME
7. PARTNERS' Subject to the orders of priority under certain specified CAPITAL conditions more fully described in the Agreement of Limited Partnership, distributions of partnership funds and allocations of net income from operations are principally determined as follows:
DISTRIBUTIONS
Distributable cash from operations in the Agreement (generally defined as net income plus depreciation and amortization) is to be distributed to unit holders until they have received a 10% cumulative preferred return. After the unit holders have received their 10% cumulative preferred return, all remaining cash from operations is distributed to the general partner in the form of an incentive management interest until the total amount received by the general partner is equal to 15% of the aggregate amount of cash distributed from operations in a given year. Amounts payable to but not paid to the general partner will be accumulated and paid from future capital transactions after the unit holders have first received their 10% preferred return and 125% of their UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
capital contributions. Thereafter, 85% of distributable cash from operations is to be paid to the unit holders and 15% to the general partner.
Annual distributable cash from operations was less than the amount required for the annual 10% preferred return to the unit holders by approximately $928,000 and $3,538,000 in 1998 and 1997, respectively. No distributions can be made to the general partner until the cumulative preferred return deficit of approximately $15,624,000 has been distributed to the unit holders.
At December 31, 1998, the general partner's cumulative incentive management interest to be distributed was approximately $6.6 million. The actual amount to be accumulated or paid in the future depends on the results of the Partnership's operations and is not currently determinable; however, no such distribution to the general partner is anticipated during fiscal 1999.
ALLOCATION OF NET INCOME
Net income is principally allocated 99% to the unit holders and 1% to the general partner until the cumulative amount of net income allocated to the unit holders equals the aggregate cumulative amount of cash distributable to the unit holders. After sufficient net income has been allocated to the unit holders to equal the amount of cash distributable to them, all the net income is to be allocated to the general partner until it equals the amount of cash distributed to it.
8. SUPPLEMENTAL Interest paid during 1998, 1997 and 1996 was approximately CASH FLOW $2,531,000, $2,654,000 and $2,621,000, respectively. INFORMATION
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO SCHEDULE III DECEMBER 31, 1998
1. RECONCILIATION OF The following table reconciles the land from LAND January 1, 1996 to December 31, 1998:
2. RECONCILIATION OF The following table reconciles the buildings and BUILDINGS AND improvements from January 1, 1996 to IMPROVEMENTS December 31, 1998:
3. RECONCILIATION OF The following table reconciles the accumulated ACCUMULATED depreciation from January 1, 1996 to DEPRECIATION December 31, 1998:
4. TAX BASIS OF The aggregate cost of buildings and improvements for BUILDINGS AND federal income tax purposes is equal to the cost IMPROVEMENTS basis used for financial statement purposes.
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/ Paul M. Zlotoff -------------------------------- Paul M. Zlotoff, Chairman Dated: March 31, 1999
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.
By: /s/ Gloria A. Koster By: /s/ Paul M. Zlotoff -------------------------------- --------------------------- Gloria A. Koster Paul M. Zlotoff, Chairman of (Chief Financial Officer of Uniprop, Inc. Uniprop, Inc.)
Dated: March 31, 1999 Dated: March 31, 1999
By: /s/ Andrew Feuereisen -------------------------------- Andrew Feuereisen (Controller of Uniprop, Inc.)
Dated: March 31, 1999
EXHIBIT INDEX