UNIPROP MANUFACTURED HOUSING COMMUNITIES INCOME FUND II /MI/ - 10-K filing on 2017-03-10

Summary of Accounting Policies

12 Months Ended

Dec. 31, 2016

Accounting Policies [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure and Significant Accounting Policies [Text Block]

1. Summary of Accounting Policies	*Organization and Business*

	Uniprop Manufactured Housing Communities Income Fund II, a Michigan Limited Partnership (the “Partnership”) acquired, maintains, operates and will ultimately dispose of income producing residential real properties consisting of two manufactured housing communities (the “properties”) at December 31, 2016, located in Florida and Nevada. The Partnership was organized and formed under the laws of the State of Michigan on November 7, 1986. The general partner is Genesis Associates Limited Partnership (“General Partner”).

	In accordance with its Prospectus dated December 1986, the Partnership sold 3,303,387 units of beneficial assignment of limited partnership interest (“Units”) for $66,068,000. The Partnership purchased its original nine properties for an aggregate purchase price of approximately $58,000,000. Three of the properties costing approximately $16,008,000 were previously owned by entities which were affiliates of the general partner. One property was sold in 2007, one was sold in 2008, four were sold in 2015, and one sold in 2016, leaving a total of two properties on December 31, 2016. As described in Note 8, subsequent to December 31, 2016, the Partnership’s unitholders approved a plan of dissolution which involves selling the remaining two properties.
	In connection with the refinancing discussed in Note 2, to satisfy the requirements of Cantor Commercial Real Estate, the ownership of the fee title of the two properties was transferred into bankruptcy remote special purpose entities. The fee title to the Sunshine Village real property is now held by Sunshine Village MHP, LLC. The fee title to the West Valley real property is now held by West Valley MHP, LLC. Both of these entities are wholly owned by IF II, Holdings, LLC, a newly formed holding company which is wholly owned by the Partnership. Sunshine Village MHP, LLC, West Valley MHP, LLC and IF II, Holdings, LLC are all disregarded entities for federal income tax purposes. The ownership transfers were made solely to meet the requirements of the lender and do not change the beneficial or economic ownership by the Partnership.

	*Principles of Consolidation*

	The consolidated financial statements include the accounts of the Partnership and all of its wholly owned subsidiaries as described above. All material intercompany accounts and transactions have been eliminated in consolidation.

	*Use of Estimates*

	The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of (1) assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements, and (2) revenues and expenses during the reporting period. Actual results could differ from these estimates.

	*Fair Values of Financial Instruments*

	The carrying amounts of cash and accounts payable approximate their fair values due to their short-term nature. The fair value of notes payable approximates their carrying amounts based on current borrowing rates.

	*Property and Equipment*

	Property and equipment are stated at cost. Depreciation is provided using the straight-line method over a period of thirty years except for furniture and equipment which is depreciated over a period ranging from three to ten years.

	Accumulated depreciation on continuing properties for tax purposes was approximately $14,908,000 and $14,366,000 as of December 31, 2016 and 2015, 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.

	*Manufactured Homes and Improvements*

	Manufactured homes and improvements that are unoccupied and held for lease or sale are stated at the lower of cost or fair value based on the specific identification method. Manufactured homes and improvements leased to tenants are reported at cost less accumulated depreciation. The fair values of homes held for sale are assessed quarterly based on recent sales of similar homes, guide book values and condition. Impairments are recognized to reduce the carrying amount of each home to the lower of cost or estimated fair value. Occupied lease homes are subject to depreciation using estimated useful lives of 27.5 years, with depreciation commencing at lease inception. Depreciation expense related to these homes for the years ended December 31, 2016 and 2015 was $73,000 and $60,000, respectively. The following table summarizes the reported amount of manufactured homes and improvements for continuing properties at December 31, 2016 and 2015:

		2016
		# of Homes			Amount
Unoccupied - Available for sale			10		$	528,406
Leased to tenants:
Cost			69			2,939,802
Accumulated Depreciation						(345,000)

Total			79		$	3,123,208

		2015
		# of Homes			Amount
Unoccupied - Available for sale			12		$	662,692
Leased to tenants:
Cost			57			2,239,650
Accumulated Depreciation						(380,000)

Total			69		$	2,522,342

	*Financing Costs*

	Deferred financing costs have been capitalized and are being amortized on a straight-line basis over the term of the related mortgage notes payable. In connection with the 2016 and 2015 sale of properties and repayment of mortgage notes payable described in Note 3, unamortized deferred financing costs totaling $97,999 and $242,785, were written off and included in amortization expense. Amortization and write off of deferred financing costs totaled $164,519 and $324,874 for December 31, 2016 and 2015, respectively. Amortization expense is included in interest expense in the consolidated statement of operations. Accumulated amortization expense related to these costs for continuing operations was $227,330 and $160,810 at December 31, 2016 and 2015, respectively.
	*Deferred Home Relocation Costs* The Partnership initiated the Sunshine Village Paid Home Relocation Program (the “Program”) during 2013. The Program was offered exclusively to residents of Seminole Estates, a 704 site, age 55 and over manufactured home community in Hollywood, Florida that announced its closure. The Partnership incurred expenditures of $903,232, of which $816,203 was capitalized and amortized over the life of the residents’ three year rental periods. These costs have been fully amortized as of December 31, 2016.

	Amortization of these costs recognized for the years ended December 31, 2016 and 2015 totaled $54,394 and $276,201, respectively, and have been recorded as a reduction to rental revenue. *Notes Receivable* The Company provides financing options for certain tenants executing home purchases. Tenant financing loan receivables, referred to as home loan contracts, and are periodically evaluated for collectability based on past credit history with tenants and their current financial condition.

	The need for an allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, adverse situations that may affect the borrowers’ ability to repay, estimated value of the underlying collateral, and prevailing economic conditions. The evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. Financing loans receivable are placed on nonaccrual status when they become 30 or more days past due. The Partnership considers the notes delinquent upon maturity without satisfaction of the outstanding balance, per the terms of the note agreement. Notes receivable are reported at cost and are included in Other Assets on the consolidated balance sheet. Notes receivable related to continuing operations totaled $169,839 and $187,074 at December 31, 2016 and 2015, respectively. Interest is recognized according to the terms of the note. A loan is considered impaired when, based on current information and events, it is probable that the Partnership will be unable to collect the balance either through the scheduled payments of principal and interest when due according to the contractual terms of the loan agreement or through settlement with the borrower by surrender of collateral. Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. As of December 31, 2016 and 2015, no allowance for loan losses was recorded as all amounts were deemed collectible.
	*Revenue Recognition*

	Rental income attributable to home site leases is recorded when due from the lessees. Revenue from the sale of manufactured homes is recognized upon transfer of title at the closing of the sale transaction.

	*Other Revenue*

	Other revenue consists of home lease income, interest income, rental late fees, utility charges and miscellaneous income. Income from utility charges is recognized based upon actual monthly usage.

	*Income Taxes*

	Federal income tax regulations and state income tax regulations in the states in which the Partnership operates 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. *Recent Accounting Pronouncement* In April 2015, the FASB published Accounting Standards Update (ASU) 2015-03, which changed the presentation and disclosure of debt issuance costs in the financial statements by requiring these amounts to be presented as a direct deduction from the carrying amount of the related debt. The new guidance does not change the subsequent accounting for debt issuance costs and these amounts will continue to be amortized over the term of the related debt. However, amortization of debt issuance costs is now required to be reported as a component of interest expense. The new standard was effective in 2016 for all entities, and the Partnership adopted the new standard as of January 1, 2016. The adoption resulted in reclassification of net deferred financing costs of $437,864 and $504,383 from “Unamortized financing costs” to “Notes payable”, on the Balance Sheets as of December 31, 2016 and 2015, respectively. *Upcoming Accounting Pronouncement* In May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers (Topic 606), which will supersede the current revenue recognition requirements in Topic 605, Revenue Recognition. The ASU is based on the principle that revenue is recognized to depict the transfer of goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU also requires additional disclosure about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The ASU permits application of the new revenue recognition guidance to be applied using one of two retrospective application methods. The Partnership plans to apply the standard using the modified retrospective method. While the Partnership is in the process of making its preliminary assessment, it does not believe this will have a material impact on revenue recognition policies.

	In November 2016, the FASB issued ASU 2016-18 "Statement of Cash Flows (Topic 230): Restricted Cash." This update requires inclusion of restricted cash and restricted cash equivalents with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The guidance will be effective for fiscal years beginning after December 15, 2017, including interim periods within that year. The Partnership is currently evaluating the impact of the adoption of this ASU.