UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarter period ended May 31, 2005
--------------------
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the transition period from To
------------ ------------
Commission file number 000-11023
MAXUS REAL PROPERTY INVESTORS-FOUR, L.P.
(Exact name of small business issuer as specified in its charter)
Missouri 43-1250566
---------------------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
104 Armour Road, North Kansas City, Missouri 64116
(Address of principal executive offices)
(816) 303-4500
(Issuer's telephone number)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 [ ]
1
INDEX
Page
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN
OF OPERATION 7
ITEM 3. CONTROLS AND PROCEDURES 9
PART II - OTHER INFORMATION 9
ITEM 1. LEGAL PROCEEDINGS 9
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS 10
SIGNATURES 11
EXHIBIT INDEX 12
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MAXUS REAL PROPERTY INVESTORS - FOUR, L.P.
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
May 31, November 30,
2005 2004
(Unaudited)
ASSETS:
Investment property
Land $ 1,014,000 1,014,000
Buildings and improvements 16,389,000 16,699,000
----------- -----------
17,403,000 17,713,000
Less accumulated depreciation 11,874,000 11,655,000
----------- ----------
Total investment property 5,529,000 6,058,000
Cash and cash equivalents 197,000 278,000
Escrows and reserves 86,000 192,000
Accounts receivable 514,000 110,000
Prepaid expenses 100,000 54,000
Deferred expenses, less accumulated amortization 57,000 62,000
Income tax deposit 15,000 17,000
----------- -----------
Total assets $ 6,498,000 6,771,000
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT:
Liabilities:
Mortgage notes payable $ 9,900,000 9,900,000
Accounts payable and accrued expenses 430,000 490,000
Real estate taxes payable 73,000 162,000
Refundable tenant deposits 44,000 52,000
----------- -----------
Total liabilities 10,447,000 10,604,000
Partners' deficit (3,949,000) (3,833,000)
----------- -----------
Total liabilities and partners' deficit $ 6,498,000 6,771,000
=========== ===========
3
MAXUS REAL PROPERTY INVESTORS - FOUR, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
May 31, May 31, May 31, May 31,
2005 2004 2005 2004
Revenues:
Rental $ 583,000 639,000 1,184,000 1,292,000
Other 36,000 45,000 79,000 93,000
---------- ---------- ---------- ----------
Total revenues 619,000 684,000 1,263,000 1,385,000
---------- ---------- ---------- ----------
Expenses:
Depreciation and amortization 165,000 161,000 319,000 321,000
Repairs and maintenance 89,000 66,000 151,000 137,000
Apartment turnover and leasing costs 36,000 28,000 63,000 50,000
Property management fees - related parties 41,000 44,000 83,000 89,000
Utilities 37,000 33,000 69,000 73,000
Real estate taxes 45,000 46,000 89,000 115,000
Insurance 33,000 19,000 60,000 36,000
Professional fees 18,000 26,000 37,000 49,000
Other 78,000 68,000 140,000 125,000
---------- ---------- ---------- ----------
Total expenses 542,000 491,000 1,011,000 995,000
---------- ---------- ---------- ----------
Net operating income 77,000 193,000 252,000 390,000
---------- ---------- ---------- ----------
Interest
Interest income --- (5,000) (1,000) (6,000)
Interest expense 185,000 185,000 369,000 369,000
---------- ---------- ---------- ----------
Net income (loss) $ (108,000) 13,000 (116,000) 27,000
========== ========== ========== ==========
Net income allocation:
General partner $ (2,000) --- (2,000) ---
Limited partners (106,000) 13,000 (114,000) 27,000
---------- ---------- ---------- ----------
$ (108,000) 13,000 (116,000) 27,000
========== ========== ========== ==========
Limited partners' data:
Net income (loss) per unit $ (9.42) 1.14 (10.13) 2.37
========== ========== ========== ==========
Weighted average limited partnership
units outstanding 11,249 11,367 11,249 11,398
========== ========== ========== ==========
4
MAXUS REAL PROPERTY INVESTORS-FOUR, L.P.
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
----------------
May 31, May 31,
2005 2004
------ ------
Cash flows from operating activities:
Net income (loss) $ (116,000) 27,000
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 319,000 321,000
Changes in accounts affecting operations:
Accounts receivable 110,000 (252,000)
Tax Deposit 2,000 ---
Escrows and reserves 106,000 126,000
Prepaid expenses (46,000) (64,000)
Accounts payable and accrued expenses (60,000) 322,000
Real estate taxes payable (89,000) (53,000)
Refundable tenant deposits (8,000) (4,000)
---------- ----------
Net cash provided by operating activities 218,000 423,000
---------- ----------
Cash flows from investing activities:
Capital expenditures (299,000) (276,000)
---------- ----------
Cash flows from financing activities:
Distributions --- (227,000)
Repurchase of Partnership Units --- (44,000)
---------- ----------
Net cash used in financing activities --- (271,000)
---------- ----------
Net decrease in cash and cash equivalents (81,000) (124,000)
Cash and cash equivalents, beginning of period 278,000 466,000
---------- ----------
Cash and cash equivalents, end of period $ 197,000 342,000
========== ==========
Supplemental disclosure of cash flow information -
cash paid during the period for interest $ 369,000 369,000
Involuntary conversion of investment property to accounts receivable $ 514,000 ---
5
MAXUS REAL PROPERTY INVESTORS-FOUR, L.P.
(A LIMITED PARTNERSHIP)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 31, 2005 AND MAY 31, 2004
(1) Summary of Significant Accounting Policies
Refer to the financial statements of Maxus Real Property Investors - Four, L.P.,
formerly known as Nooney Real Property Investors - Four, L.P. (the "Partnership"
or the "Registrant"), for the year ended November 30, 2004, which are contained
in the Partnership's Annual Report on Form 10-KSB, for a description of the
accounting policies which have been continued without change. Also, refer to the
footnotes to those statements for additional details of the Partnership's
financial condition and results of operations. The details in those notes have
not changed except as a result of normal transactions in the interim. In the
opinion of the general partner, all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position,
results of operations and cash flows at May 31, 2005 and for all periods
presented have been made. The results for the periods ended May 31, 2005 are not
necessarily indicative of the results that may be expected for the entire year.
Certain classifications have been made to the prior period amounts to conform to
the current period presentation.
(a) Description of Business
The Partnership is a limited partnership organized under the laws of the State
of Missouri on February 9, 1982. The Partnership was organized to invest
primarily in income-producing real properties such as shopping centers, office
buildings and other commercial properties, apartment buildings, warehouses, and
light industrial properties. The Partnership's portfolio is comprised of a
402-unit apartment building located in West St. Louis County, Missouri
(Woodhollow Apartments).
(b) Basis of Accounting
The financial statements include only those assets, liabilities, and results of
operations of the partners which relate to the business of Maxus Real Property
Investors-Four, L.P. The statements do not include assets, liabilities, revenues
or expenses attributable to the partners' individual activities. No provision
has been made for federal and state income taxes since these taxes are the
responsibility of the partners.
(2) Repurchase of Partnership Interests
On June 14, 2004, the Partnership commenced an odd-lot offer to purchase up to
4,874 of the Partnership's limited partnership units from limited partners
holding 25 units or fewer (the "Offer"). The Offer expired on July 16, 2004. In
connection with the Offer, the Partnership redeemed 112 limited partnership
units of the Partnership at $507 per unit. No units were redeemed in the six
month period ended May 31, 2005. As a result, as of June 24, 2005, there are
11,249 outstanding limited partnership units.
(3) Involuntary Conversion
On April 17, 2005, Woodhollow incurred a fire in one building. The damage was
limited to the 22 units in that building. The majority of the damages, of
approximately $619,000, net of a $10,000 insurance deductible, are covered by
insurance. The $10,000 is reflected in Repairs and Maintenance expense in the
three months ended May 31, 2005. We currently have $514,000 expected as a
reimbursement from the insurance company due from the fire. Woodhollow is also
covered by a second policy, which provides business interruption insurance.
Currently we are in discussions with the insurance company in regards to the
possibility of a reimbursement to the Partnership under this policy for its lost
rental income due to the April 17, 2005 fire.
On April 16, 2004, Woodhollow incurred a fire in another building. The damage
was limited to the 22 units in that building. The damages (approximately
$310,000) were covered by insurance, less a $10,000 insurance deductible and
additional make-ready expenses of approximately $10,000. The insurance policy
also covers loss of rents and the insurance company paid $30,000 towards the
amount of rental loss sustained by the Partnership.
6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This 10-QSB contains forward-looking information (as defined in the Private
Securities Litigation Reform Act of 1995) that involves risk and uncertainty,
including trends in the real estate investment market, general market
conditions, projected leasing and sales, competition and future prospects for
the Partnership. Actual results could differ materially from those contemplated
by such statements. Readers should carefully review the risk factors described
in the Partnership's Annual Report on Form 10-KSB for the year ended November
30, 2004.
CRITICAL ACCOUNTING POLICIES
Refer to the Financial Statements of the Partnership for the year ended November
30, 2004, which are contained in the Partnership's Annual Report in Form 10-KSB,
for a description of the accounting policies, which have been continued without
change, unless otherwise noted herein.
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect amounts reported in the accompanying financial
statements. The most significant assumptions and estimates relate to revenue
recognition for leases, treatment of capital expenditures, depreciable lives of
investment property, capital expenditures and the valuation of investment
property. Application of these assumptions and estimates require the exercise of
judgment as to future uncertainties and, as a result, actual results could
differ from these estimates.
Revenue Recognition
The Partnership leases its property pursuant to operating leases with terms
generally of six or twelve months. Rental income is recognized when received;
this method approximates recognition using the straight-line method over the
related lease term.
Investment Property Useful Lives
The Partnership is required to make subjective assessments as to the useful
lives of its property for the purposes of determining the amount of depreciation
to reflect on an annual basis with respect to the property. These assessments
have a direct impact on the Partnership's net income.
Investment property is depreciated over its estimated useful life of 30 to 31
years using the straight-line method. Furnishings and appliances are depreciated
over periods ranging from 5 to 7 years using the straight-line method. Land
improvements are depreciated over the estimated useful life of 15 years.
Capital Expenditures
For reporting purposes, the Partnership capitalizes all carpet, vinyl,
appliance, and HVAC replacements. The Partnership expenses all other
expenditures that total less than $10,000. Expenditures over $10,000 and
expenditures related to contracts over $10,000 are evaluated individually for
capitalization.
Impairment of Investment Property Values
The Partnership is required to make subjective assessments as to whether there
are impairments in the value of its investment property. Management's estimates
of impairment in the value of the investment property have a direct impact on
the Partnership's net income.
The Partnership follows the provisions of Statement of Financial Accounting
Standards (SFAS) No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets". The Partnership assesses the carrying value of its
long-lived asset whenever events or changes in circumstances indicate that the
carrying amount of the underlying asset may not be recoverable. Certain factors
that may occur and indicate that an impairment exists include, but are not
limited to: significant underperformance relative to projected future operating
results; significant changes in the manner of the use of the asset; and
significant adverse industry or market economic trends. If the carrying value of
the property may not be recoverable based upon the existence of one or more of
the above indicators of impairment, management measures the impairment based on
projected discounted cash flows using a discount rate determined by
7
management to be commensurate with the risk inherent in the property, compared
to the property's current carrying value.
OVERVIEW
The Partnership currently operates one apartment community. The last commercial
building was sold in 2000. Cash is primarily generated by renting apartment
units to tenants, or securing loans with the Partnership's assets. Cash is used
primarily to pay operating expenses (repairs and maintenance, payroll,
utilities, taxes, and insurance), make capital expenditures for property
improvements, repay and interest on outstanding loans or to pay cash
distributions to unit holders. The key performance indicators for revenues are
occupancy rates and rental rates. Revenues are also impacted by concessions
(discounts) offered as rental incentives. The key performance indicator for
operating expenses is total operating expense per apartment unit. A significant
change in the turnover rate of rental units can also cause a significant change
in operating expenses. Management also evaluates total taxes, utilities and
insurance rates for each property.
General economic trends that management evaluates include construction of
apartment units (supply), unemployment rates, job growth, and interest rates
(demand). The apartment industry is sensitive to extremely low interest rates,
which tend to increase home ownership and decrease apartment occupancy rates.
The apartment industry is also sensitive to increased unemployment rates, which
tend to cause possible renters to double up in a unit or share a non-rental
dwelling with relatives or acquaintances. New construction in an area with low
occupancy rates can cause a further decline in occupancy or rental rates.
Economic trends appear to indicate that interest rates have bottomed out and
have begun to rise. It also appears that unemployment rates are beginning to
decline, with job growth beginning to rise. If the trends are correct and if the
trends continue, the Partnership believes it should be able to begin reducing
concessions, raising rental rates and increasing occupancy, which should improve
revenues. In such case, the Partnership believes variable operating expenses
will tend to increase, but fixed expense coverage would improve.
Liquidity and Capital Resources
Cash and cash equivalents as of May 31, 2005 were $197,000, a decrease of
$81,000 from November 30, 2004. Cash provided by operating activities for the
six months ended May 31, 2005 was $218,000, a decrease of $205,000 compared to
the same period in 2004. The decrease is primarily due to the company's net loss
and an increase from accounts receivable due from the insurance company for the
fire on the complex. We have accrued accounts payable of $211,000 and accounts
receivable of $514,000 for the rebuilding and the insurance reimbursement
respectively of the building damaged by fire. Investing activities used $299,000
primarily due to repairs from the fire of $211,000, work on siding and guttering
along with other investments in property improvements including carpet,
flooring, HVAC and appliance replacements of $58,000. No cash was used for
financing activities for the six-month period ended May 31, 2005. Cash used in
financing activities for the same period in 2004 was $271,000, comprised
primarily of $227,000 of distributions of $10 per limited partner unit, which
were paid in January and April 2004, and $57,000 to repurchase 112 limited
partner units.
Contractual Obligations
The mortgage note payable is secured by Woodhollow Apartments and calls for
monthly interest payments of $61,000, with interest fixed at 7.45%. The
principal balance is due December 1, 2010. In the event of prepayment by the
Partnership, the note requires a substantial prepayment penalty.
Management believes the Partnership's current cash position and the property's
ability to provide operating cash flow should enable the Partnership to fund
anticipated capital expenditures and meet debt obligations.
RESULTS OF OPERATIONS
For the three and six month periods ended May 31, 2005, the Partnership's
revenues were $619,000 and $1,263,000, respectively. Revenues decreased by
$65,000 (9.5%) and $122,000 (8.8%) respectively for the three and six-month
periods ended May 31, 2005 as compared to the same periods ended May 31, 2004.
This decrease was primarily due to an increase in vacancy loss of $60,000 and
$106,000 for the three and six-month periods ended May 31, 2005,
8
respectively.
For the three and six month periods ended May 31, 2005, the Partnership's
operating expenses were $542,000 and $1,011,000, respectively. Expenses
increased by $51,000 (10.4%) and $16,000 (1.6%) respectively for the three and
six month periods ended May 31, 2005 as compared to the same periods ended May
31, 2004. The increase in expenses was primarily due to an increase in insurance
and an increase in other operating expenses. These increases were partially
offset by decreases in real estate taxes.
Woodhollow was 85% occupied at May 31, 2005, as compared to 88% as of May 31,
2004. Twenty-two (22) units, or approximately 5% of the property, are vacant due
to the fire described below. Based on industry information, the average
occupancy of the sub-market Woodhollow competes with is in the mid 80% range.
Tenants lost to homes purchased have declined recently.
On April 17, 2005, Woodhollow incurred a fire in one building. The damage was
limited to the 22 units in that building. The majority of the damages, of
approximately $619,000, net of a $10,000 insurance deductible, are covered by
insurance. The $10,000 is reflected in Repairs and Maintenance expense in the
three months ended May 31, 2005. We currently have $514,000 expected as a
reimbursement from the insurance company due from the fire. Woodhollow is also
covered by a second policy, which provides business interruption insurance.
Currently we are in discussions with the insurance company in regards to the
possibility of a reimbursement to the Partnership under this policy for its lost
rental income due to the April 17, 2005 fire.
On April 16, 2004, Woodhollow incurred another fire in one building. The damage
was limited to the 22 units in that building. The damages (approximately
$310,000) were covered by insurance, less a $10,000 insurance deductible and
additional make-ready expenses of approximately $10,000. The insurance policy
also covers loss of rents and the insurance company paid $30,000 towards the
amount of rental loss sustained by the Partnership.
INFLATION
The effects of inflation did not have a material impact upon the Registrant's
operations in fiscal 2004 and are not expected to materially affect the
Registrant's operations in 2005.
OFF-BALANCE SHEET ARRANGEMENTS
The Partnership does not have any "off-balance sheet arrangements" as defined in
Item 303(c) of Regulations S-B promulgated under the Securities Exchange Act of
1934, as amended.
ITEM 3: CONTROLS AND PROCEDURES
The Registrant's managing general partner, including the managing general
partner's principal executive officer and principal financial officer, after
evaluating the design and effectiveness of the Registrant's disclosure controls
and procedures (as defined in Exchange Act Rules 13a-15(e) or 15d-15(e)) as of
the end of the period covered by this report (the "Evaluation Date"), have
concluded that as of the Evaluation Date, the Registrant's disclosure controls
and procedures were adequately designed and operating effectively to ensure that
material information relating to the Registrant would be made known to them by
others within the Registrant, particularly during the period in which this Form
10-QSB Quarterly Report was being prepared.
There has been no change in the Registrant's internal control over financial
reporting during its most recent fiscal quarter that has materially affected, or
is reasonably likely to materially affect, its internal control over financial
reporting.
PART II. OTHER INFORMATION
ITEM 1: LEGAL PROCEEDINGS
None
9
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS
See Exhibit Index on Page 12
10
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
MAXUS REAL PROPERTY INVESTORS-FOUR, L.P.
By: MAXUS CAPITAL CORP.
General Partner
Dated: July 12, 2005 By: /s/ David L. Johnson
------------- ---------------------
David L. Johnson
President and Chief Executive Officer
(Principal Executive Officer)
Dated: July 12, 2005 By: /s/ John W. Alvey
------------- ---------------------
John W. Alvey
Vice President, Treasurer and
Chief Financial Officer
(Principal Financial and Accounting Officer)
11
EXHIBIT INDEX
Exhibit
Number Description
3.1 Amended and Restated Agreement and Certificate of Limited Partnership dated
April 7, 1982 is incorporated by reference from Exhibit 3.1 to the Form
10-K for the fiscal year ended November 30, 1999 filed by the Registrant
(File No. 000-11023).
3.2 Amendment of Certificate of Limited Partnership dated December 21, 1999 is
incorporated by reference to the Form 8-K filed by the Registrant on
January 21, 2000 under the Securities Act of 1933 (File No. 000-11023).
31.1 Certification of the Chief Executive Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer Pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
32.2 Certification of the Chief Financial Officer Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
12