ITEM 1. BUSINESS
General Development of Business
Uniprop Manufactured Housing Communities Income Fund, a Michigan Limited Partnership (the "Partnership"), acquired, maintains, operates and ultimately will dispose of income producing residential real properties consisting of four manufactured housing communities (the "Properties"). The Partnership was organized and formed under the laws of the State of Michigan on May 16, 1985. 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 (Registration No. 2-98180) in June 1985 which was declared effective by the Securities and Exchange Commission on September 24, 1985. The Partnership thereafter offered a maximum of 30,000 units of limited partnership interest representing capital contributions by the limited partners to the Partnership of $1,000 per unit (the "Units"). The sale of all 30,000 Units was completed in March 1986, generating $30 million of contributed capital to the Partnership.
On February 10, 1986, the Partnership acquired Aztec Estates, a 645-space manufactured housing community in Margate, Florida and Kings Manor, a 314-space manufactured housing community in Ft. Lauderdale, Florida. On March 4, 1986, the Partnership acquired Old Dutch Farms, a 293-space manufactured housing community in Novi, Michigan. On March 27, 1986, the Partnership acquired The Park of the Four Seasons, a 572-space manufactured housing community in Blaine, Minnesota.
The Partnership operates the Properties as manufactured housing communities with the primary investment objectives of: (1) obtaining net cash from operations; (2) obtaining capital appreciation; and (3) preserving capital. There can be no assurance that such objectives can be achieved.
On March 25, 1997 the Partnership borrowed $33,500,000 from Nomura Asset Capital Corporation and secured the borrowing with liens on its Properties. The interest rate on the financing is 8.24% and the term is 120 months. The loan is amortized over 360 months. On March 26, 1997 the Partnership distributed $30,000,000 to the Limited Partners, representing a full return of original capital contributions of $1,000 per unit held. The Partnership continues to own and operate its properties and expects to be able to continue to pay cash distributions to the Limited Partners, although in amounts substantially lower than the distributions paid prior to the financing. Limited Partners will continue to have an interest in the Partnership because their original capital contributions have appreciated since their initial investments were made and only the original capital contribution was returned on March 26, 1997.
Financial Information About Industry Segment
The Partnership's business and only industry segment is the operation of its four manufactured housing communities. 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 Properties were selected from 23 manufactured housing communities then owned by affiliates of P.I. Associates Limited Partnership, a Michigan limited partnership, the General Partner (the "General Partner") of the Partnership. 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 decisions they will consider relevant factors, including, current operating results of the particular Property, prevailing economic conditions and 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 homesites 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, have participated, 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 Margate/Fort Lauderdale area contains approximately seven communities offering approximately 2,713 housing sites competing with Aztec Estates. The Davie/Fort Lauderdale area contains approximately five communities offering approximately 1,765 housing sites competing with Kings Manor. Old Dutch Farms competes with approximately seven communities offering approximately 3,455 housing sites. Park of the Four Seasons competes with approximately 11 communities offering approximately 3,207 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 Aztec Estates and Kings Manor. 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 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 for 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 and Minnesota, 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 four manufactured housing communities for cash. As a result of the 1997 financing, the 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. Each of the Properties has a community center which includes offices, meeting rooms and game rooms. Each of the Properties, except Old Dutch Farms, has a swimming pool and tennis courts.
The table below contains certain information concerning the Partnership's four properties.
PROPERTY NAME YEAR NUMBER OF ------------- ---- --------- AND LOCATION CONSTRUCTED ACREAGE SITES ------------ ----------- ------- -----
Aztec Estates Sundial Circle Margate, FL 1970 100 645
Kings Manor State Road 84 & Flamingo Road Ft. Lauderdale, FL 1972 45 314
Old Dutch Farms Novi Road Novi, MI 1972 47 293
Park of the Four Seasons University Avenue Blaine, MN 1972 107 572
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 limited partners are restricted to certain matters of fundamental significance to the Partnership. The 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 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 Limited Partners, as a group, holding more than 50% of the then outstanding Units. No matters were submitted to Limited Partners for vote during 1998.
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 and it is not anticipated that one will ever develop. During the last two years, less than four percent of the Units have been transferred each year, 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 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 sales expenses (but without consideration to tax consequences of the sale), by 30,000. In March 1999, the Properties were appraised at an aggregate fair market value of $57,300,000. Assuming a sale of the four properties at the appraised value in March 1999, less payment of 3.0% selling expenses, mortgage debt of $33,119,108, the $1,970,000 Contingent Purchase Price due to certain partners of the General Partner, and after the 80/20% split of sale or financing proceeds with the General Partner, the net aggregate proceeds available for distribution to the Limited Partners is estimated to be $16,393,514 or $546 per unit as of March 31, 1999. There can be no assurance that the estimated net asset value could ever be realized. As of March 31, 1999, the Partnership had approximately 2,650 limited partners holding Units.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes selected financial data for Uniprop Manufactured Housing Communities Income Fund, a Michigan Limited 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 February 10, 1986, when Aztec Estates and Kings Manor were purchased by the Partnership and operations commenced. On March 4, 1986, and March 27, 1986, Old Dutch Farms and Park of the Four Seasons were purchased, respectively. From the $30,000,000 capital raised from the sale of the units, $26,400,000 was used to purchase the four Properties after deducting sales commissions, advisory fees and other organization and offering costs.
The Partnership had no capital expenditure commitments as of December 31, 1998 and does not anticipate any during the next fiscal year.
In an effort to provide Limited Partners with a full return of original capital contributions of $1,000 per unit, the General Partner, with majority consent from the Limited Partners, mortgaged the four Properties owned by the Partnership on March 25, 1997 in the aggregate amount of $33,500,000. 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 have been distributed to the Partners, quarterly.
While the Partnership is not required to maintain a working capital reserve, it has not distributed all the cash generated from operations in order to build cash reserves. As of December 31, 1998, the Partnership cash reserves amounted to $537,777. The amount of any funds placed in reserves is at the discretion of the General Partner. The Partnership expects to generate adequate amounts of cash to meet its operating needs and debt service during the next fiscal year.
The Partnership has a renewable line of credit of $600,000 with National City Bank of Michigan/Illinois (formerly First of America Bank). The interest rate floats 180 basis points above 1 month LIBOR, which on December 31, 1998 was 5.08%. The sole purpose for the line of credit is to purchase new and used homes to be used as model homes and offered for sale with the Partnership's communities. Over the past three years, sales of the new and used model homes has been growing and the General Partner believes that continuing the model home program is in the best interest of the Partnership. As of December 31, 1998, the outstanding balance on the line of credit was $469,523.
On March 25, 1997 the Partnership completed the financing pursuant to which the Partnership borrowed $33,500,000 from Nomura Asset Capital Corporation and secured the borrowing with liens on its Properties. The interest rate on the financing is 8.24%, and the term is 120 months. The loan is amortized over 360 months. On March 26, 1997, the Partnership distributed $30,000,000 of the financing proceeds to the Limited Partners, representing a full return of original capital contributions of $1,000 per unit held. The Partnership continues its operations and expects to be able to continue to pay cash distributions to the Limited Partners, although, due to payment of debt service resulting from the financing, in amounts substantially lower than paid prior to the financing. Limited Partners will continue to have an interest in the Partnership because their original capital contributions have appreciated since their initial investments were made. Only the original capital contribution was returned on March 26, 1997.
Net Cash from Operations available for aggregate distributions to all Partners in UMHCIF during the year ended December 31, 1998 amounted to $1,453,460. Management considers Net Cash from Operations to be a supplemental measure of the Partnership's operating performance. Net Cash from Operations is defined to mean net income computed in accordance with generally accepted accounting principles ("GAAP"), plus real estate related depreciation and amortization. Net Cash from Operations does not represent
cash generated from operating activities in accordance with GAAP and is not necessarily indicative of cash available to fund cash needs. Net Cash from Operations should not be considered as an alternative to net income as the primary indicator of the Partnership's operating performance or as an alternative to cash flow as a measure of liquidity.
The yearly Partnership Management Distribution due and paid to the General Partner for 1998 was $551,500, or 1.0% of the most recent appraised value of the properties held by the Partnership.
The cash available, after payment of the Partnership Management Distribution of $551,500 from Net Cash from Operations was $901,960. From this amount the General Partner elected to make a total distribution of $300,000 for 1998, 80.0% of which, or $240,000, was paid to the Limited Partners and 20.0% of which, or $60,000, was paid to the General Partner. The remaining Net Cash from Operations was used to reduce debt and purchase certain equipment.
Results of Operations
a. Distributions
For the year ended December 31, 1998, the Partnership made distributions to Limited Partners of $8.00 per unit held, or $240,000. In 1997 the Partnership made distributions to Limited Partners of $1,052 per unit held, or $31,568,400. In 1996 the Partnership made distributions to Limited Partners equal, on an annualized basis, to 10.0% of their original capital contributions (their 10.0% Preferred Return), or $3,000,000. The General Partner received distributions totaling $611,500, $871,000, and $600,000 during the same periods. Included in the 1997 distributions was $30,000,000, which was the result of the 1997 financing, constituting a complete return of the Limited Partners original capital contributions of $1,000 per unit.
b. Net Income
For the years ended December 31, 1998, 1997 and 1996 net income was $516,887, $1,059,785 and $2,974,453 on total revenues of $8,451,561, $8,234,904 and $7,751,358. The decline in net income from 1997 to 1998 is due primarily to the Partnership's first full year of interest payments associated with the 1997 financing and an increase in property operating expenses. The decline in net income from 1996 to 1997 was primarily the result of the mortgage interest incurred related to the 1997 financing.
Net income, plus depreciation and amortization, less distributions to all Partners, was $601,960, $650,476 and $159,195, for the years ended December 31,1998, 1997, and 1996, respectively. The $650,476 indicated for 1997 excludes the effects of the 1997 financing, which resulted in a $30,000,000 distribution to Limited Partners.
c. Partnership Management
Net expenses for the management of the Partnership (i.e. gross expenses for such management, less transfer fees, interest on reserves and interest on funds awaiting distribution) were $246,847 in 1998, $459,343 in 1997 and $357,469 in 1996.
The decrease in net expenses for the management of the Partnership from 1997 to 1998 is due to lower legal and professional fees. The increase in net expenses from 1996 to 1997 is a result of higher legal expenses associated with the Proxy Statement that was submitted to the Limited Partners in connection with the 1997 financing.
d. Property Operations
Overall, the four Properties had a combined average occupancy of 97.4% (1,776/1,824 sites) as of December 1998; 98.2% as of December 1997; and 97.0% as of December 1996. The average collected monthly rent as of December 1998 was approximately $398 per homesite versus $386 as of December 1997 and $373 as of December 1996, an increase each year of 3.1% and 3.5%, 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 $216,657, or 2.6%, to $8,451,561 in 1998, compared to $8,234,904 in 1997. The increase was primarily the result of the 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 $759,555, or 10.6%, to $7,934,674 in 1998, compared to $7,175,119 in 1997. The increase is primarily due to the Partnership's first full year of interest payments associated with the mortgage debt and an increase in property operating expenses. The increase in property operating expenses is specifically related to non-recurring costs associated with the removal of older homes from the Properties and expenses incurred related to improvements to the vacant homesites. The higher operating expenses were partially offset by a decrease in administrative costs in 1998 from 1997.
As a result of the foregoing factors, net income decreased from $1,059,785 in 1997 to $516,887 in 1998.
COMPARISON OF YEAR ENDED DECEMBER 31, 1997 TO YEAR ENDED DECEMBER 31, 1996
Gross revenues increased $483,548, or 6.2%, to $8,234,904 in 1997, compared to $7,751,356 in 1996. The increase is primarily due to higher occupancy and higher average monthly rents. (See table on previous page.)
As described in the Statements of Income, the Partnership's operating expenses increased $2,398,214, or 50.2%, to $7,175,119 in 1997, compared to $2,974,453 in 1996. The significant increase in operating expenses is the result of the 1997 financing. In 1996, the Partnership had no mortgage debt.
As a result of the foregoing factors, net income decreased from $2,974,453 in 1996 to $1,059,785 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 years 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 of the Partnership is P.I. Associates Limited Partnership. P.I. Associates is a Michigan limited partnership. From November 1985 until March 19, 1997, Paul M. Zlotoff served as the sole general partner of P.I. Associates. In order to address concerns raised by the lender in connection with the Financing, on March 19, 1997, GP P.I. Associates Corp. was admitted as a corporate General Partner of the Partnership. GP P.I. Associates Corp. is wholly owned by Paul M. Zlotoff. Under the amended partnership agreement of
P.I. Associates, all actions taken by P.I. Associates must be approved by both general partners.
Information concerning Mr. Zlotoff's age and principal occupations during the last five years or more is as follows:
Paul M. Zlotoff, 49, is and has been an individual general partner of P.I. Associates since its inception in May 1985. 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 Genesis Associates Limited Partnership, the general partner of Uniprop Manufactured Housing Communities Income Fund II, a public limited partnership which owns and operates nine manufactured housing communities. Mr. Zlotoff currently, and in the past, has acted as the general partner for various other limited partnerships owning manufactured home communities, as well as some commercial properties.
The following individuals are the directors and officer of GP P.I. Associates Corp.:
Name and Age Position Held - ------------ -------------
Paul M. Zlotoff, 49 Director and President, Secretary and Treasurer
Arthur Weiss, 50 Director
Steve Adler, 48 Director
Arthur Weiss, 50 has been practicing law at Jaffe, Raitt, Heuer & Weiss, Professional Corporation ("JRH&W"), which has represented the company in various matters since 1976. Mr. Weiss is currently a shareholder, director and vice president of JRH&W.
Arthur Weiss is an Independent Director, meaning that he has not been, at any time, in the five years preceding his appointment: (a) a stockholder, director, officer, employee, or partner of GP P.I. Associates Corp., P.I. Associates, or the Partnership; (b) a customer, supplier, or other person who derives more than 10% of its purchases or revenues from its activities with GP P.I. Associates Corp., P.I. Associates, or the Partnership; (c) a person or other entity controlling or under common control with any such stockholder, partner, customer, supplier or other person referenced in subparagraph (a) or (b) above; or (d) a member of the immediate family of any such stockholder, director, officer employee, partner, customer, supplier or other person referenced in subparagraph (a) or (b) above.
Steve Adler, 48, became President of Uniprop, Inc. on January 1, 1998. Previously, Mr. Adler had been Vice President of acquisitions and development and director of operations for Uniprop since 1984 when he joined Uniprop. Mr. Adler is also the president
of Uniprop Homes, the marketing affiliate of Uniprop. In this capacity, he is responsible for developing new home sales, and establishing resale operations in each of Uniprop's 39 family and adult retirement communities.
Under the Articles of Incorporation of GP P.I. Associates Corp., until such time as the notes payable to the lender, in connection with the 1997 financing, have been discharged and the liens have been released from the Properties, certain major corporate actions may be taken only with the unanimous vote of the directors of GP P.I. Associates Corp. These actions include:
a) Filing or consenting to the filing of any bankruptcy, insolvency or reorganization case or proceeding, instituting any proceedings under any applicable insolvency law or otherwise seeking relief under any laws relating to the relief from debts or the protection of debtors generally;
b) Seeking or consenting to the appointment of a receiver, liquidator, assignee, trustee, sequestrator, custodian or any similar official for GP P.I. Associates Corp., P.I. Associates, or the Partnership or a substantial portion of any of their properties;
c) Making any assignment for the benefit of the creditors of GP P.I. Associates Corp., P.I. Associates, or the Partnership; or
d) Taking any action in furtherance of the foregoing subparagraphs (a) through (c).
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. 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 formed pursuant to the Michigan Uniform Limited Partnership Act, as amended. The General Partner, P.I. Associates Limited Partnership, is vested with full authority as to the general management and supervision of the business and other affairs of the Partnership, subject to certain constraints in the partnership agreement and consulting agreement. 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 successors to the sellers of all the Properties acquired by the Partnership and may be entitled to share in a contingent purchase price with respect to each Property, when and if the successors to the sellers become entitled thereto. Each of the sellers has been dissolved and liquidated and their interests in the Contingent Purchase Price have been assigned to certain partners of the General Partner. The contingent purchase price for each Property was determined by reference to the average of two independent real estate appraisals that 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 becomes entitled to any unpaid contingent purchase price upon the sale, financing or other disposition of one or more Properties, but, only after the receipt by each Limited Partner of any shortfall in his 9% cumulative preferred return plus the return of his adjusted capital contribution. Because the Financing resulted in a complete return of the Limited Partners' capital contributions, and because the Limited Partners have received their cumulative preferred return in full, the successors to the sellers did receive $1,500,000 in partial payment of the Contingent Purchase Price on or about May 15, 1997. The maximum amounts which could be payable to the successors to the sellers are as follows: Aztec Estates, $1,374,323; Kings Manor, $529,724; Old Dutch Farms, $452,359; and Park of the Four Seasons, $1,113,594. The partial payment made for each property was as follows: Aztec Estates, $594,088; Kings Manor, $228,987; Old Dutch Farms, $195,544; and Park of the 4 Seasons, $481,381. The maximum amount remaining which could be payable to the successors of the sellers are as follows: Aztec Estates, $780,235; Kings Manor, $300,737; Old Dutch Farms, $256,815; and Park of the Four Seasons, $632,213. 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 paid and will continue to 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. As a result of the March 25, 1997 Financing and full return of the $30,000,000 original capital contributions of the Limited Partners, no further Preferred Return or Cumulative Return will apply, and the payment of the Incentive Management Interest will not be contingent on the satisfaction of those returns. The Incentive Management Interest is 20% of the net cash from operations (cash revenues less cash operating expenses and specified reserves) in any
taxable year. As of December 31, 1998, the General Partner had earned and was entitled to an incentive management interest of $195,000. The actual amount to be received in future years will depend upon the results of the Partnership's operations and is not determinable at this time. Because the Limited Partners have received the return of their adjusted capital contributions, the General Partner also has a right to receive 20% of any sale or financing proceeds.
The General Partner is also entitled to a quarterly Partnership Management Distribution equal to one-fourth of 1% of the most recent appraised value of the Properties of the Partnership. The Partnership Management Distribution for each quarter is paid in arrears, 45 days after the end of each fiscal quarter. The Partnership Management Distribution was proposed by the General Partner and approved by the Limited Partners to compensate, in part, for the substantial reduction in the amounts expected to be paid to the General Partner pursuant to the Incentive Management Interest following the financing. Based on the Properties' March 1998 aggregate appraised value of $55,800,000, the Partnership Management Distribution due to the General Partner was 558,000. The Partnership Management Distribution paid to the General Partner during 1998 was $551,500, a portion of which was calculated on the 1997 aggregate appraised value of $53,200,000. As of December 31, 1998, the Partnership Management Distribution due the General Partner totaled $139,500. This amount was paid to the General Partner on February 15, 1999 from cash reserves. Based on the Properties' March 1999 aggregate appraised value of $57,300,000, the Partnership Management Distribution due the General Partner for the Partnership's 1999 fiscal year will be $573,000 ($57,300,000 x 1.0% = $573,000).
Uniprop, Inc., an affiliate of the General Partner, 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 $419,223: Aztec Estates, $158,345; Kings Manor, $73,140; Old Dutch Farms, $68,927; and Park of the Four Seasons, $118,811. In addition, certain employees of the Partnership are also employees of affiliates of the General Partner. During the last fiscal year, these employees received an aggregate of $141,046 for performing local property management, data processing and investor relations' services for the Partnership. 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.
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 and Statements of Income for the fiscal years ended December 31, 1998, 1997 and 1996
(3) Statements of Partners' Equity for the fiscal years ended December 31, 1998, 1997 and 1996
(4) Statements of Cash Flows for the fiscal years ended December 31, 1998, 1997 and 1996
(5) 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 June 4, 1985, as amended on August 1, 1985 and September 11, 1985:
3(a) Amended Certificate of Limited Partnership for the Partnership
3(b) Agreement of Limited Partnership for the Partnership
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 fiscal year ended December 31, 1997:
3(c) Certificate of Amendment to the Certificate of Limited Partnership for the Partnership (originally filed with Form 10-Q for the fiscal quarter ended June 30, 1986).
4 Form of Certificate of Limited Partnership Interest in the Partnership (Originally filed with Form 10-K for the fiscal year ended December 31, 1986)
10(c) Contingent Purchase Price Agreement between the Partnership, Aztec Estates (Originally filed with Form 10-K for the fiscal year ended December 31, 1987)
10(d) Contingent Purchase Price Agreement between the Partnership and O.D.F. Mobile Home Park (Originally filed with Form 10-K for the fiscal year ended December 31, 1987)
10(e) Contingent Purchase Price Agreement between the Partnership and The Park of the Four Seasons (Originally filed with Form 10-K for the fiscal year ended December 31, 1987)
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 four 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.
[IBDO LETTERHEAD]
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Partners Uniprop Manufactured Housing Communities Income Fund (a Michigan limited partnership)
We have audited the accompanying balance sheets of Uniprop Manufactured Housing Communities Income Fund (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 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 (A MICHIGAN LIMITED PARTNERSHIP)
BALANCE SHEETS
See accompanying notes to financial statements.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
See accompanying notes to financial statements.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
See accompanying notes to financial statements.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS ================================================================================
1. SUMMARY OF ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Uniprop Manufactured Housing Communities Income Fund, a Michigan Limited Partnership (the "Partnership") acquired, maintains, operates and will ultimately dispose of income producing residential real properties consisting of four manufactured housing communities (the "properties") located in Florida, Minnesota and Michigan. The Partnership was organized and formed under the laws of the State of Michigan on May 16, 1985.
The general partner of the Partnership is P. I. Associates Limited Partner ship. Taxable investors acquired 20,230 Class A units, and 9,770 Class B units were acquired by tax exempt investors. Depreciation is allocated only to holders of Class A units and to the general partner.
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 VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts of the Partnership's financial instruments, which consist of the line of credit and note payable, approximate their fair values.
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
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS ================================================================================
Accumulated depreciation for tax purposes was $10,989,216 and $10,060,608 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.
FINANCING COSTS
As a result of management's present intent to refinance the note payable after ten years, costs to obtain the 1997 financing (see Note 2) are amortized over a ten-year period.
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.
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.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS ================================================================================
2. NOTE PAYABLE
In 1997, the Partnership entered into a $33,500,000 note payable agreement. The borrowings are secured by mortgages on the Partnership's properties and the assignment of all current and future leases and rents. The note is payable in monthly installments of $251,439, including interest, through March 2027. The interest rate is 8.24% per annum through June 2007; thereafter, the interest rate will be adjusted based on the provisions of the note agreement. The loan may be prepaid without penalty beginning in January 2007. There are certain requirements and restrictions contained in the note payable agreement. The Partnership is in compliance with these requirements.
The proceeds of the note were used primarily to return to the limited partners their original $30,000,000 capital contribution, to pay certain amounts to the general partner and affiliates of the general partner as described in Notes 6 and 8, and to pay related financing costs.
Future maturities on the note payable for the next five years are as follows: 1999 - $250,000; 2000 - $265,000; 2001 - $295,000; 2002 - $320,000; and 2003 - $350,000.
3. OTHER ASSETS
At December 31, 1998 and 1997, "Other assets" included cash of approximately $372,000 and $56,000, respectively, in an escrow account for property taxes, capital improvements, and debt service payments, as required by the Partnership's note payable agreement, which is restricted from operating use.
At December 31, 1998 and 1997, "Other assets" also included cash of $241,000 and $211,000, respectively, in a security deposit escrow account for two of the Partnership's properties, as required by the laws of the state in which they are located, which is restricted from operating use.
4. LINE-OF-CREDIT
The Partnership currently has an unsecured $600,000 revolving line-of-credit agreement with a bank. Interest on outstanding balances is charged at 1.80% in excess of LIBOR; the Partnership's interest rate at December 31, 1998 was 7.06%.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS ================================================================================
5. OTHER LIABILITIES
Other liabilities consisted of:
6. RELATED PARTY TRANSACTIONS
MANAGEMENT AGREEMENT
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 $419,223, $404,514 and $387,855, respectively, as permitted in the Agreement of Limited Partnership. These fees are included with "Administrative" expenses in the respective statements of income. The Partnership was owed $776 and $9,230 by the affiliate at December 31, 1998 and 1997, respectively.
Certain employees of the Partnership are also employees of affiliates of the general partner. These employees were paid by the Partnership the amounts of $141,046, $128,094 and $130,321, in 1998, 1997 and 1996, respectively, to perform local property management and investor relations services for the Partnership.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
================================================================================
CONTINGENT PURCHASE PRICE
The general partner of P.I. Associates has an interest in the sellers of all the properties acquired by the Partnership and is entitled to share in a contingent purchase price with respect to each property. Each seller will become entitled to any unpaid contingent purchase price upon the sale, financing or other distribution of one or more of the properties, but, only after the receipt by the limited partners of any shortfall in their 9% cumulative preferred return, plus the return of their adjusted capital contribution.
Since inception of the Partnership, there has been no shortfall in the 9% cumulative return and, as described in Note 2, the Partnership used a portion of the proceeds from the 1997 financing to return the limited partners' original capital contribution. As a result, $1,500,000 of the proceeds from the financing transaction was used to make a partial payment in 1997 on the contingent purchase price. This amount was recorded as "Buildings and Improvements" in the accompanying balance sheets. The total remaining contingent purchase price will not exceed $1,970,000. 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; such amounts are not determinable at this time. Therefore, no liability related to this remaining contingency has been recorded at December 31, 1998.
FINANCING COSTS
In 1997, as part of the financing transaction described in Note 2, the Partnership paid approximately $335,000 in financing costs to an affiliate of the general partner.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS ================================================================================ 7. RECONCILIATION OF FINANCIAL STATEMENT INCOME AND TAXABLE INCOME
8. PARTNERS' CAPITAL
Subject to the orders of priority under certain specified conditions more fully described in the Agreement of Limited Partnership (as amended on February 6, 1997), distributions of partnership funds and allocations of net income from operations are principally determined as follows:
DISTRIBUTIONS
The general partner receives a Partnership Management Distribution equal to .25% quarterly of the appraised value of the properties of the Partnership (equal to $551,500 annually based on current appraisals). Thereafter, distributions are made at the discretion of the general partner, and are allocated 20% to the general partner as an Incentive Management Interest and 80% to the limited partners.
The Partnership Management Distribution and the Incentive Management Interest represent payment for managing the Partnership's affairs. At December 31, 1998, the general partner had earned but not yet received a Partnership Management Distribution and an Incentive Management Interest of approximately $139,500 and $195,000, respectively. These amounts are not yet considered payable at December 31, 1998; they will be charged to the general partner's capital account when paid.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS ================================================================================
ALLOCATION OF NET INCOME
Net income is to be allocated in the same manner as distributions except that:
a) Depreciation expense is allocated only to the general partner and the Class A (taxable) limited partners and,
b) In all cases, the general partner is to be allocated at least 1% of all Partnership items.
9. SUPPLEMENTAL CASH FLOW INFORMATION
Cash paid for interest totaled approximately $2,854,000, $1,984,000 and $35,000 in 1998, 1997 and 1996, respectively.
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998 ================================================================================
UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND (A MICHIGAN LIMITED PARTNERSHIP)
NOTES TO SCHEDULE III DECEMBER 31, 1998 ================================================================================
1. RECONCILIATION OF BUILDINGS AND IMPROVEMENTS
The following table reconciles buildings and improvements from January 1, 1996 to December 31, 1998:
There were no additions to land during this three-year period.
2. RECONCILIATION OF ACCUMULATED DEPRECIATION
The following table reconciles the accumulated depreciation from January 1, 1996 to December 31, 1998:
3. TAX BASIS OF BUILDINGS AND IMPROVEMENTS
The aggregate cost of buildings and improvements for federal income tax purposes is equal to the cost 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, a Michigan Limited Partnership, has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Uniprop Maufactured Housing Communities Income Fund, a Michigan Limited Partnership
BY: P.I. Associates Limited Partnership, General Partner
Dated: March 31, 1999 BY: /s/ Paul M. Zlotoff -------------------------------- Paul M. Zlotoff, General Partner
BY: GP P.I. Associates Corp.
BY: /s/ Paul M. Zlotoff -------------------------------- Paul M. Zlotoff, President
EXHIBIT INDEX