10-Q 1 sir2qsep.txt FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended September 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period to Commission file number 0-16798 SECURED INVESTMENT RESOURCES FUND, L.P. II (Exact name of registrant as specified in its charter) Delaware 36-3451000 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 4200 Blue Ridge Blvd., Ste LH-06, K.C., MO 64133 (Address of principal executive offices) (Zip Code) (Registrant's telephone number, including area code) (816) 353-6500 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests ("Units") 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 such shorter periods 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 SECURED INVESTMENT RESOURCES FUND, L.P. II INDEX PART I. FINANCIAL INFORMATION Page Item 1. Financial Statements (Unaudited): Balance Sheets - September 30, 1999 and December 31, 1998 3-4 Statements of Operations -- Three and Nine Months Ended June 30, 1999 and 1998 5 Statements of Partnership Capital -- Nine Months Ended September 30, 1999 and the Year Ended December 31, 1998 6 Statements of Cash Flows - Nine Months Ended September 30, 1999 and 1998 7-8 Notes to Financial Statements 8-9 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 11 PART II. OTHER INFORMATION Item 1. Legal Proceedings 11 Item 2. Changes in Securities 11 Item 3. Defaults Upon Senior Securities 11 Item 4. Submission of Matters to a Vote of Security Holders 11 Item 5. Other Information 11 Item 6. Exhibits and Reports on Form 8-K 11 SIGNATURES 12-13 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS SECURED INVESTMENT RESOURCES FUND, L.P. II BALANCE SHEETS September 30, 1999 December 31, (Unaudited) 1998 ASSETS INVESTMENT PROPERTIES Land and buildings $ 30,458,599 $ 30,458,599 Furniture, fixtures and equipment 2,032,403 1,695,055 32,491,002 32,153,654 Less accumulated depreciation and allowance for losses 12,622,383 11,856,495 19,868,619 20,297,159 RESTRICTED DEPOSITS Bond cash reserves 1,510,000 1,510,000 Bond principal reduction reserves 481,729 582,668 Restricted Deposits 28,750 28,750 2,020,479 2,121,418 OTHER ASSETS Cash 808,348 550,176 Rents and other receivables, less allowance of $151,537 in 1999 and $113,963 in 1998 143,259 37,613 Due from related parties (Note C) 269,046 269,046 Prepaid expenses 165,100 224,966 Debt issuance costs, net of accumulated amortization of $462,902 in 1999 and $406,256 in 1998 325,202 178,058 Commercial commissions, deposits and other 80,414 69,699 1,791,369 1,329,558 TOTAL ASSETS $ 23,680,467 $ 23,748,135 SECURED INVESTMENT RESOURCES FUND, L.P. II BALANCE SHEETS--CONTINUED September 30, 1999 December 31, (Unaudited) 1998 LIABILITIES AND PARTNERSHIP CAPITAL Mortgage debt (Note B) $ 22,393,368 $ 22,415,582 Deferred interest (Note B) 737,370 737,370 Accrued interest 58,398 58,398 Accounts payable and accrued expenses 530,663 271,425 Unearned revenue 6,748 32,415 Tenant security deposits 104,196 110,315 TOTAL LIABILITIES 23,830,743 23,625,505 PARTNERSHIP CAPITAL General Partner Capital contribution 1,000 1,000 Partnership deficit (211,876) (184,585) (210,876) (183,585) Limited Partner Capital contributions 18,901,831 18,901,831 Partnership deficit (18,841,231) (18,595,616) 60,600 306,215 TOTAL PARTNERSHIP CAPITAL (150,276) 122,630 $ 23,680,467 $ 23,748,135 See notes to financial statements. SECURED INVESTMENT RESOURCES FUND, L.P. II STATEMENTS OF OPERATIONS (Unaudited) Nine Months Ended Three Months Ended September 30, September 30, 1999 1998 1999 1998 REVENUES Rents $ 4,048,880 $ 4,583,500 $ 1,473,603 $ 2,047,938 Maintenance escalations and other 67,871 69,347 24,218 17,682 4,116,751 4,652,847 1,497,821 2,065,620 OPERATING AND ADMINISTRATIVE EXPENSES Property operating expenses 1,601,312 2,097,814 517,208 1,053,013 General and administrative expenses 75,492 102,222 27,368 35,417 Professional services 167,248 145,684 40,174 63,241 Management fees 185,956 194,112 64,505 83,926 Depreciation and amortization 822,534 816,433 274,235 272,144 2,852,542 3,356,265 923,490 1,507,751 NET OPERATING INCOME 1,264,209 1,296,582 574,331 557,869 NON-OPERATING EXPENSES Interest 1,537,115 1,457,997 523,405 466,922 Gain on sale of property - 1,567,326 - 1,567,326 PARTNERSHIP INCOME (LOSS) (272,906) 1,405,911 50,926 1,658,273 Allocation of income (loss): General Partner (27,291) 14,059 509 16,583 Limited Partner (245,615) 1,391,852 50,417 1,641,690 $ (272,906) $ 1,405,911 $ 50,926 $ 1,658,273 Partnership income (loss) per limited partnership unit $ (5.08) $ (25.96) $ .95 $ 30.61 See notes to financial statements. SECURED INVESTMENT RESOURCES FUND, L.P. II STATEMENTS OF PARTNERSHIP CAPITAL (Unaudited) Nine Months Ended September 30, 1999 (Unaudited) and the Years Ended December 31, 1998 and 1997 General Limited Partner Partner Total Balances at December 31, 1997 $ (194,875) $ (489,741) $ (684,616) Partnership profit 11,290 1,117,742 1,129,032 Distribution - (321,786) (321,786) Balances at December 31, 1998 (183,585) 306,215 122,630 Partnership Loss (27,291) (245,615) (272,906) Balances at September 30, 1999 $ (210,876) $ 60,600 $ (150,276) See notes to financial statements. SECURED INVESTMENT RESOURCES FUND, L.P. II, STATEMENTS OF CASH FLOWS (Unaudited) Nine Months Ended September 30, 1999 1998 OPERATING ACTIVITIES Partnership income (loss) $ (272,906) $ 1,405,911 Adjustments to reconcile partnership loss to net cash provided by operating activities: Depreciation and amortization 822,534 816,433 Amortization of bond discount 113,400 113,400 Gain on debt restructuring - - Provision for losses on rents and other receivables 37,574 22,717 Changes in assets and liabilities: Rents and other receivables (143,220) (125,023) Prepaid expenses 59,866 (85,489) Commercial commissions, deposits and other (10,715) (2,915) Accounts payable and accrued expenses 259,238 (32,214) Accrued interest - (722,760) Unearned revenue (25,667) (3,356) Tenant security deposits (6,119) (32,559) NET CASH PROVIDED BY OPERATING ACTIVITIES 833,985 1,354,145 INVESTING ACTIVITIES Purchases of and improvements to investment properties (337,348) (213,734) Release (purchase) of restricted bond cash reserves 100,939 (46,975) NET CASH USED IN INVESTING ACTIVITIES (236,409) (260,709) FINANCING ACTIVITIES Principal payments on long-term debt (135,614) (851,414) Debt Issuance Costs (203,790) 56,646 Distributions to limited partners - (318,862) NET CASH USED IN FINANCING ACTIVITIES (339,404) (1,113,630) INCREASE IN CASH AND CASH EQUIVALENTS 258,172 (20,194) CASH AND CASH EQUIVALENTS BEGINNING OF PERIOD 550,176 867,658 CASH AND CASH EQUIVALENTS END OF PERIOD $ 808,348 $ 847,464 See Notes to Financial Statements. SECURED INVESTMENT RESOURCES FUND, L.P. II NOTES TO FINANCIAL STATEMENTS (Unaudited) SEPTEMBER 30, 1999 NOTE A--BASIS OF PRESENTATION The accompanying unaudited 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 footnotes 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. Operating results for the nine month period ended September 30, 1999 are not necessarily indicative of the results that may be expected for the year ended December 31, 1999. For further information, refer to the financial statements and footnotes thereto included in the Partnership's annual report on Form 10-K for the year ended December 31, 1998. NOTE B--MORTGAGE DEBT Mortgage debt consists of the following: September 30, December 31, 1999 1998 Collateralized by Investment Property First Mortgages Oak Terrace Active Retirement Center and Healthcare Center $ 12,800,000 $ 12,800,000 Less bond discount (1,786,042) (1,899,442) Sunwood Village Apartments 7,885,612 7,940,528 Forest Park Shopping Ctr. 971,931 1,026,797 Bayberry Crossing Shopping Ctr. 2,521,867 2,547,699 $ 22,393,368 $ 22,415,582 Interest expense totaled $1,537,115 and $1,457,997 during the first nine months of 1999 and 1998, respectively. The Partnership has the option to currently pay or defer payment of interest due on the hedged portion ($10,700,000) of the Oak Terrace Active Retirement Center financing. As of September 30, 1999 and December 31, 1998, $737,370 of deferred interest has been accrued. SECURED INVESTMENT RESOURCES FUND, L.P. II NOTES TO FINANCIAL STATEMENTS (Unaudited)--CONTINUED NOTE C--RELATED PARTY TRANSACTIONS SPECS, Inc., a Kansas Corporation in which the individual General Partner has a minority interest, receives property management fees for providing property management services. SPECS, Inc. also performs various professional services for the Partnership, primarily tax accounting, audit preparation, SEC 10Q and 10K preparation, and investor services. Property management fees paid by the Partnership to SPECS, Inc. are as follows: NINE MONTHS ENDED SEPTEMBER 30, 1999 1998 Property Management Fees $ 185,956 $ 194,122 Amounts due from related parties consist of the following: September 30, December 31, 1999 1998 Secured Investment Resources II, Inc. $ 174,423 $ 174,423 Secured Investment Resources Fund, L.P. 94,623 94,623 $ 269,046 $ 269,046 The amount due from SIR II, Inc. represents excess syndication costs. NOTE D--CASH DISTRIBUTIONS No cash distributions have been made since October, 1998. Future distributions will only be made from excess cash flow not needed for working capital reserves. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Results of Operations Revenues (excluding $727,123 in 1998 relating to Thomasbrook Apartments which was sold in September 1998) for the first nine months of 1999 increased by $191,027 (4.8%) compared to the same period of last year. The commercial property at Forest Park Center in St. Louis remained strong, the rental income at Bayberry Center decreased due to vacancy and bad debt. The Partnership has increased the rental rates at Oak Terrace and occupancy at Sunwood Village has increase. The Partnership feels that the strong market at Oak Terrace and Sunwood Village will continue through 1999. Operating and Administrative expenses increased $68,163 (2.4%) when comparing the first nine months of 1999 with the same period of 1998 (expenses for 1998 included $572,186 for Thomasbrook Apartments). Higher property operating expenses are primarily due to higher resident turnover. Professional services increased $21,564 (1.5%) over the same period in the prior year due to legal expenses incurred in connection with the planned refinancing of the loan on the Oak Terrace properties. Professional services in the prior year were incurred in connection with the foreclosure proceedings and subsequent sale of Thomasbrook Apartments. Interest expense for the first nine months increased $79,118 (5.0%) over the 1998 first nine months expense. The Partnership anticipates that operating results for the first nine months will be representative of the results for the remainder of the year. Liquidity and Capital Reserves During the first nine months $833,985 of cash was provided by operating activities, $236,409 was used for investing activities and $339,404 was used to reduce long-term debt and incur loan fees. It is the General Partner's intent to evaluate the Partnership's portfolio to determine if it is prudent to offer one or more properties for sale or possible restructure of the related financing packages. Any unleveraged portion of the net sale proceeds or favorable refinancing terms could generate additional working capital. PART II. OTHER INFORMATION Item 1. LEGAL PROCEEDINGS Inapplicable. Item 2. CHANGES IN SECURITIES Inapplicable. Item 3. DEFAULTS UPON SENIOR SECURITIES None. Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Inapplicable. Item 5. OTHER INFORMATION Inapplicable. Item 6. EXHIBIT AND REPORTS ON FORM 8-K (a) Exhibits None. (b) Reports on Form 8-K There were no reports on Form 8-K filed during the quarter ended June 30, 1999. 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. SECURED INVESTMENT RESOURCES FUND, L.P. II A Delaware Limited Partnership (Registrant) By: James R. Hoyt as Individual General Partner Date: January 10, 2002 By: Secured Investment Resources II, Inc. as Corporate General Partner By: James R. Hoyt, President Date: January 10, 2002 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SECURED INVESTMENT RESOURCES FUND, L.P. II A Delaware Limited Partnership (Registrant) By: James R. Hoyt as Individual General Partner Date: January 10, 2002 By: Secured Investment Resources II, Inc. as Corporate General Partner By: James R. Hoyt, President Date: January 10, 2002