Uniprop Manufactured Housing Communities Income Fund Ii 10-Q 2011 Q3 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the Quarter Ended September 30, 2011

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

Commission File No. 0-16701

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

a Michigan Limited Partnership

(Exact name of registrant as specified in its charter)

MICHIGAN	38-2702802
(State or other jurisdiction of	(I.R.S. employer
incorporation or organization)	identification number)

280 Daines Street, Birmingham, Michigan 48009

(Address of principal executive offices) (Zip Code)

(248) 645-9220

(Registrant's telephone number, including area code)

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

units of beneficial assignments of limited partnership interest

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x         No ¨

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

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

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

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

UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

	INDEX
		Page
PART I	FINANCIAL INFORMATION
ITEM 1.	FINANCIAL STATEMENTS
	Balance Sheets September 30, 2011 (Unaudited) and December 31, 2010	3
	Statements of Operations Nine and Three months ended September 30, 2011 and 2010 (Unaudited)	4
	Statement of Partners’ Equity Nine months ended September 30, 2011 (Unaudited)	4
	Statements of Cash Flows Nine months ended September 30, 2011 and 2010 (Unaudited)	5
	Notes to Financial Statements September 30, 2011 (Unaudited)	6
ITEM 2.	MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	7
ITEM 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	9
ITEM 4.	CONTROLS AND PROCEDURES	10
PART II	OTHER INFORMATION	10
ITEM 1.	LEGAL PROCEEDINGS	10
ITEM 1A.	RISK FACTORS	10
ITEM 6.	EXHIBITS	11

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UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

BALANCE SHEETS

	September 30,2011			December 31, 2010
	(Unaudited)
ASSETS
Properties:
Land	$	8,952,937		$	8,952,937
Buildings And Improvements		41,884,246			41,670,535
Furniture And Fixtures		633,279			615,260
		51,470,462			51,238,732
Less Accumulated Depreciation		(32,318,283	)		(31,175,620	)
		19,152,179			20,063,112
Cash And Cash Equivalents		6,289,410			5,671,854
Investments, at Fair Value		0			1,423,003
Unamortized Finance Costs		603,604			624,418
Manufactured Homes and Improvements		1,929,953			1,064,356
Other Assets		1,376,361			1,131,641
Total Assets	$	29,351,507		$	29,978,384

LIABILITIES & PARTNERS' EQUITY	September 30,2011		December 31, 2010
	(Unaudited)
Accounts Payable	$	90,882	$	137,898
Other Liabilities		667,272		338,643
Notes Payable		22,016,929		22,341,976
Total Liabilities	$	22,775,083	$	22,818,517
Partners' Equity:
General Partner		421,613		419,519
Unit Holders		6,154,811		6,740,348
Total Partners' Equity		6,576,424		7,159,867
Total Liabilities And
Partners' Equity	$	29,351,507	$	29,978,384

See Notes to Financial Statements

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UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS	NINE MONTHS ENDED				THREE MONTHS ENDED
(unaudited)	September 30, 2011		September 30, 2010		September 30, 2011		September 30, 2010
Income:
Rental Income	$	5,410,713	$	5,434,529	$	1,812,536	$	1,783,968
Home Sale Income		66,199		153,665		5,800		41,030
Other		465,174		541,784		167,679		144,740
Total Income		5,942,086		6,129,978		1,986,015		1,969,738
Operating Expenses:
Administrative Expenses (Including $291,009, $289,010, $98,099 and $95,056, in Property Management Fees Paid to an Affiliate for the Nine and Three Month Period Ended September 30, 2011 and 2010, respectively)		1,814,367		1,718,990		557,887		547,261
Property Taxes		687,135		761,829		229,026		253,878
Utilities		429,949		470,241		134,078		158,998
Property Operations		451,524		444,121		171,115		162,154
Depreciation		1,142,663		1,123,076		381,229		376,503
Interest		1,121,725		1,142,909		371,901		379,283
Home Sale Expense		85,353		196,942		13,555		56,753
Total Operating Expenses		5,732,716		5,858,108		1,858,791		1,934,830
Net Income	$	209,370	$	271,870	$	127,224	$	34,908
Income per Limited Partnership Unit:		0.06		0.08		0.04		0.01
Distribution Per Unit:		0.24		0.24		0.08		0.08
Weighted Average Number Of Units
Of Beneficial Assignment Of Limited Partnership
Interest Outstanding During The Nine and Three Month
Period Ended September 30, 2011 and 2010.		3,303,387		3,303,387		3,303,387		3,303,387

STATEMENT OF PARTNERS' EQUITY (Unaudited)

	General Partner		Unit Holders			Total
Balance, December 31, 2010	$	419,519	$	6,740,348		$	7,159,867
Distributions		0		(792,813	)		(792,813	)
Net Income		2,094		207,276			209,370
Balance as of September 30, 2011	$	421,613	$	6,154,811		$	6,576,424

See Notes to Financial Statements

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UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A  MICHIGAN LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

(Unaudited)

	NINE MONTHS ENDED
	September 30,2011			September 30,2010
Cash Flows From Operating Activities:
Net Income	$	209,370		$	271,870
Adjustments To Reconcile Net Income
To Net Cash Provided By
Operating Activities:
Depreciation		1,142,663			1,123,076
Amortization		20,814			20,814
Increase in Manufactured Homes and Home Improvements		(865,597	)		(414,577	)
Increase In Other Assets		(244,720	)		(125,339	)
(Decrease) Increase In Accounts Payable		(47,016	)		14,700
Increase In Other Liabilities		328,629			210,692
Total Adjustments		334,773			829,366
Net Cash Provided By Operating Activities		544,143			1,101,236
Cash Flows From Investing Activities:
Redemption of Investments		1,423,003			0
Purchase of property and equipment		(231,730	)		(195,772	)
Net Cash Provided By (Used In) Investing Activities		1,191,273			(195,772	)
Cash Flows Used In Financing Activities:
Distributions To Unit Holders		(792,813	)		(792,813	)
Payments On Mortgage		(325,047	)		(303,978	)
Net Cash Used In Financing Activities		(1,117,860	)		(1,096,791	)
Increase (Decrease) In Cash and Equivalents		617,556			(191,327	)
Cash, Beginning		5,671,854			7,370,544
Cash, Ending	$	6,289,410		$	7,179,217

See Notes to Financial Statements

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UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II,

A MICHIGAN LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

September 30, 2011 (Unaudited)

1. Basis of Presentation:

The accompanying unaudited 2011 financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Accordingly, they do not include all of the information and notes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included.  The balance sheet at December 31, 2010 has been derived from the audited financial statements at that date.  Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011, or for any other interim period.  For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership’s Form 10-K for the year ended December 31, 2010.

We have evaluated subsequent events through the date of this filing. We do not believe there are any material subsequent events which would require further disclosure.

2. Mortgage Payable:

On August 29, 2008, the Partnership refinanced its existing mortgage note payable and executed seven new mortgages payable in the amount of $23,225,000 secured by the seven properties of the Partnership. To pay off the prior mortgage balance of $25,277,523 and the costs of refinancing, the Partnership transferred $2,735,555 from cash reserves.  The mortgages are payable in monthly installments of interest and principal through September 2033.  Interest on these notes is accrued at a fixed rate of 6.625% for five years, at which time, the rate will reset to the lender’s then prevailing market rate.  As of September 30, 2011 the balance on these notes was $22,016,929.

The Partnership incurred $693,798 in financing costs as a result of the refinancing which is being amortized over the life of the loan.  This included a 1% fee payable to an affiliate of the General Partner.

Future maturities on the note payable for the next five years and thereafter are as follows: remainder of 2011 - $111,564; 2012 - $466,432; 2013 - $498,289; 2014 - $532,321; 2015 - $568,678 and thereafter - $19,839,644.

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ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Critical Accounting Policies

See Part II, Item 7 – Critical Accounting Policies, our consolidated financial statements and related notes in Part IV, Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2010 filed with the SEC on February 22, 2011 for accounting policies and related estimates we believe are the most critical to understanding condensed consolidated financial statements, financial conditions and results of operations and which require complex management judgment and assumptions or involve uncertainties.  There have been no material changes to the critical accounting policies and estimates previously disclosed in that report.

Liquidity and Capital Resources

Partnership liquidity is based, in part, upon its investment strategy.  Upon acquisition, the Partnership anticipated owning the properties for seven to ten years.   All of the properties have been owned by the Partnership for more than ten years.  The General Partner may elect to have the Partnership own the properties for as long as, in the opinion of the General Partner, it is in the best interest of the Partnership to do so.

The Partnership's capital resources consist primarily of its seven manufactured home communities. On August 29, 2008, the Partnership refinanced these properties with Stancorp Mortgage Investors, LLC (the “Refinancing”) in the amount of $23,225,000 secured by the seven properties of the Partnership. To pay off the prior mortgage balance of $25,277,523 and the costs of refinancing, the Partnership transferred $2,735,555 from cash reserves.  The mortgages are payable in monthly installments of interest and principal through September 2033.  Interest on these notes are accrued at a fixed rate of 6.625% for five years, at which time, the rate will reset to the lenders then prevailing market rate.  As of September 30, 2011 the balance on these notes was $22,016,929.

The Partnership incurred $693,798 in financing costs as a result of the refinancing which is being amortized over the life of the loan.  This included a 1% fee payable to an affiliate of the General Partner.

As a result of the Refinancing, all of the Partnership’s seven properties are mortgaged. At the time of the Refinancing, the aggregate principal amount due under the seven mortgage notes was $23,225,000 and the aggregate fair market value of the Partnership’s mortgaged properties was $73,550,000.  The Partnership expects to meet its short-term liquidity needs generally through its working capital provided by operating activities.

The General Partner has decided to distribute $264,271, or $.08 per unit, to the unit holders for the third quarter ended September 30, 2011. The General Partner will continue to monitor cash flow generated by the Partnership’s seven properties during the coming quarters.  If cash flow generated is greater or lesser than the amount needed to maintain the current distribution level, the General Partner may elect to reduce or increase the level of future distributions paid to Unit Holders.

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As of September 30, 2011, the Partnership’s cash balance amounted to $6,289,410. The level of cash balance maintained is at the discretion of the General Partner.

Results of Operations

Overall, as illustrated in the following table, the Partnership's seven properties reported combined occupancy of 49% at the end of September 2011 versus 50% at the end of September 2010. The average monthly homesite rent as of September 30, 2011 was approximately $493; versus $482 from September 2010 (average rent not a weighted average).

	Total		Occupancy		Capacity			Average*
	Occupied		Sites		Rate			Rent
Ardmor Village		339		155		46	%	$	510
Camelot Manor		335		101		30	%		409
Dutch Hills		278		113		41	%		412
El Adobe		367		195		53	%		522
Stonegate Manor		308		108		35	%		402
Sunshine Village		356		225		63	%		605
West Valley		421		313		74	%		588
Total on 9/30/11:		2,404		1,210		49	%	$	493
Total on 9/30/10:		2,404		1,248		50	%	$	482
*Not a weighted average

	Gross Revenue				Net Operating Income and Net Income						Gross Revenue				Net Operating Income and Net Income
	9/30/2011		9/30/2010		9/30/2011			9/30/2010			09/30/2011		09/30/2010		09/30/2011			09/30/2010
	three months ended				three months ended						nine months ended				nine months ended
Ardmor	$	244,685	$	251,991	$	119,546		$	122,152		$	737,077	$	761,591	$	350,285		$	378,307
Camelot Manor		133,491		140,800		28,675			27,268			410,327		431,580		79,662			100,397
Dutch Hills		157,017		154,298		58,412			41,184			442,659		443,125		141,737			145,406
El Adobe		298,559		303,797		149,384			145,220			907,888		980,137		486,332			540,851
Stonegate		157,574		156,029		59,999			48,770			456,419		467,510		138,325			146,387
Sunshine		425,485		398,440		213,105			195,011			1,274,829		1,287,278		617,917			585,981
West Valley		565,136		556,494		391,213			352,193			1,699,427		1,737,808		1,190,733			1,152,716
		1,981,947		1,961,849		1,020,334			931,798			5,928,626		6,109,029		3,004,991			3,050,045
Partnership Management		4,068		7,889		(90,288	)		(100,188	)		13,460		20,949		(419,168	)		(416,787	)
Other Expense		—		—		(49,692	)		(40,916	)		—		—		(112,065	)		(95,403	)
Interest Expense		—		—		(371,901	)		(379,283	)		—		—		(1,121,725	)		(1,142,909	)
Depreciation		—		—		(381,229	)		(376,503	)		—		—		(1,142,663	)		(1,123,076	)
	$	1,986,015	$	1,969,738	$	127,224		$	34,908		$	5,942,086	$	6,129,978	$	209,370		$	271,870

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

Comparison of Three Months Ended September 30, 2011 to Three Month Ended September 30, 2010

Gross revenues increased $16,277 to $1,986,015 in 2011, from $1,969,738 in 2010.  This was mainly due to higher lease home income, as part of new home leasing programs at the Camelot Manor property in Grand Rapids, Michigan, the Dutch Hills property in East Lansing, Michigan, and the Stonegate property in Lansing, Michigan.

As described in the Statements of Operations, total operating expenses decreased $76,039, to $1,858,791 in 2011, as compared to $1,934,830 in 2010.  This was mainly due to decreased home sale activity.

As a result of the aforementioned factors, the Partnership experienced Net Income of $127,224 for the third quarter of 2011 as compared to Net Income of $34,908 for the third quarter of 2010.

Comparison of Nine Months Ended September 30, 2011 to Nine Months Ended September 30, 2010

Gross revenues decreased $187,892 to $5,942,086 in 2011, from $6,129,978 in 2010.  The decrease was mainly due to slightly lower occupancy and decreased home sale activity. In addition, other income in 2010 was higher as a result of proceeds from insurance claims received during the year.

As described in the Statements of Operations, total operating expenses decreased $125,392, to $5,732,716 in 2011, as compared to $5,858,108 in 2010.  The decrease was primarily a result of decreased home sale expenses.

As a result of the aforementioned factors, the Partnership experienced Net Income of $209,370 in 2011 as compared to Net Income of $271,870 in 2010.

ITEM 3.

QUANTITATIVE AND QUALITATIVE

DISCLOSURES ABOUT MARKET RISK

The Partnership is exposed to interest rate rise primarily through its borrowing activities.

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There is inherent roll over risk for borrowings as they mature and are renewed at current market rates.  The extent of this risk is not quantifiable or predictable because of the variability of future interest rates and the Partnership’s future financing requirements.

Note Payable:  At September 30, 2011 the Partnership had notes payable outstanding in the amount of $22,016,929.  Interest on these notes is at a fixed annual rate of 6.625% through September 2013, at which time, the rate will reset to the lender’s then prevailing market rate.

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

ITEM 4.

                      CONTROLS AND PROCEDURES

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

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

PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

ITEM 1A. RISK FACTORS

In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item IA.  Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010, which could materially affect our business, financial condition or future results.  The risks described in our Annual Report on Form 10-K are not the only risks facing our Company.  Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may adversely affect our business, financial condition and/or operating results.

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ITEM 6.

                     EXHIBITS

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

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SIGNATURES

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

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

Dated: November 9, 2011

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