<PAGE>
U.S. 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 quarterly period ended September 30, 1997
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 0-11063
Winthrop Residential Associates II, A Limited Partnership
---------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
Maryland 04-2742158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Cambridge Center, Cambridge, MA 02142-1493
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 234-3000
Indicate by check mark whether 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
--- ---
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<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
(In Thousands, Except Unit Data) 1997 1996
------------- ------------
<S> <C> <C>
Assets
Cash and cash equivalents $ 1,265 $ 2,732
Escrow deposits 139 370
Other 139 5
Real estate (net of accumulated depreciation
of $3,147 in 1997) 2,504 --
------------ -----------
Total Assets $ 4,047 $ 3,107
============ ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 274 $ 70
Distribution payable 53 53
Due to affiliate 501 --
Mortgage payable 2,189 --
------------ -----------
Total Liabilities 3,017 123
------------ -----------
Partners Capital:
Limited Partners -
Units of Limited Partnership Interest,
$1,000 stated value per Unit; authorized,
issued and outstanding - 25,010 Units 2,042 3,898
General Partners (Deficit) (1,012) (914)
------------ -----------
Total Partners' Capital 1,030 2,984
------------ -----------
Total Liabilities and Partners' Capital $ 4,047 $ 3,107
============ ===========
</TABLE>
See notes to consolidated financial statements.
2 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
Consolidated Statements of Operations (Unaudited)
(In Thousands)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
Income:
Rental income $ 232 $ -- $ 658 $ --
Local limited partnership cash distributions 23 1,801 213 1,939
Interest income 16 36 51 82
Other 4 -- 15 --
--------------- --------------- --------------- ---------------
Total income 275 1,837 937 2,021
--------------- --------------- --------------- ---------------
Expenses:
General and administrative 25 19 64 62
Operating 120 -- 367 --
Depreciation 52 -- 154 --
Amortization 2 -- 6 --
Interest 47 -- 131 --
Management fees 41 26 110 99
--------------- --------------- --------------- ---------------
Total expenses 287 45 832 161
--------------- --------------- --------------- ---------------
Net (loss) income before extraordinary item (12) 1,792 105 1,860
Extraordinary gain on extinguishment of debt -- -- 2,522 --
--------------- --------------- --------------- ---------------
Net (loss) income $ (12) $ 1,792 $ 2,627 $ 1,860
=============== =============== =============== ===============
Net (loss) income allocated to General Partners $ (1) $ 90 $ 131 $ 93
=============== =============== =============== ===============
Net (loss) income allocated to Limited Partners $ (11) $ 1,702 $ 2,496 $ 1,767
=============== =============== =============== ===============
Net (loss) income per Unit of Limited Partnership
interest:
(Loss) income before extraordinary item $ (.44) $ 68.05 $ 4.00 $ 70.65
Extraordinary gain -- -- 95.80 --
--------------- --------------- --------------- ---------------
Net (loss) income $ (.44) $ 68.05 $ 99.80 $ 70.65
=============== =============== =============== ===============
Distributions per Unit of Limited Partnership
Interest $ 2.00 $ 24.00 $ 6.00 $ 32.00
=============== =============== =============== ===============
</TABLE>
See notes to consolidated financial statements.
3 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
Consolidated Statement of Changes in Partners' Capital (Unaudited)
<TABLE>
<CAPTION>
Units of
(In Thousands, Except Unit Data) Limited General Limited
Partnership Partners' Partners' Total
Interest Deficit Capital Capital
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Balance - January 1, 1997 25,010 $ (914) $ 3,898 $ 2,984
Adjustment due to
consolidation (221) (4,202) (4,423)
Net income 131 2,496 2,627
Distributions (8) (150) (158)
-------- -------- -------- --------
Balance - September 30, 1997 25,010 $ (1,012) $ 2,042 $ 1,030
======== ======== ======== ========
</TABLE>
See notes to consolidated financial statements.
4 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
(Unaudited) For the Nine Months Ended
(In Thousands) September 30, September 30,
1997 1996
------------- -------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 2,627 $ 1,860
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 154 --
Amortization 6 --
Extraordinary gain on extinguishment of debt (2,522) --
Changes in assets and liabilities:
Decrease in escrow deposits 596 --
(Increase) decrease in other assets (30) 8
(Decrease) increase in accounts payable and
accrued expenses (15) 63
------------- -------------
Net cash provided by operating activities 816 1,931
------------- -------------
Cash Flows From Investing Activities:
Deposits to replacement reserve (35) --
Property improvements (49) --
------------- -------------
Cash used in investing activities (84) --
------------- -------------
Cash Flows From Financing Activities:
Loan proceeds 2,200 --
Satisfaction of mortgage payable (4,148) --
Mortgage principal payments (11) --
Cash distributions (158) (316)
Deferred loan costs (82) --
------------- -------------
Net cash used in financing activities (2,199) (316)
------------- -------------
Net (decrease) increase in cash and cash
equivalents (1,467) 1,615
Cash and cash equivalents, beginning of period 2,732 2,078
------------- -------------
Cash and cash equivalents, end of period $ 1,265 $ 3,693
============= =============
Supplemental Disclosure of Cash Flow Information
Interest paid in cash $ 131 $ --
============= =============
Supplemental Disclosure of Non-Cash Financing
Activities
Accrued Distributions to Partners $ 53 $ 605
============= =============
</TABLE>
See notes to consolidated financial statements.
5 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10 - QSB SEPTEMBER 30, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying financial statements, footnotes and discussions should
be read in conjunction with the financial statements, related footnotes
and discussions contained in the Partnership's annual report on Form
10-KSB for the year ended December 31, 1996.
The financial information contained herein is unaudited. In the opinion
of management, all adjustments necessary for a fair presentation of
such financial information have been included. All adjustments are of a
normal recurring nature, except for the accounting of the additional
investment in one of the Local Limited Partnerships as described in
Note 2. The balance sheet at December 31, 1996 was derived from audited
financial statements at such date.
The results of operations for the nine months ended September 30, 1997
and 1996 are not necessarily indicative of the results to be expected
for the full year.
2. Basis of Presentation
The Partnership owns a 99% limited partnership interest in Southwest
Parkway Ltd. ("Southwest Parkway"), a Local Limited Partnership. An
affiliate of the general partners of the Partnership is the general
partner of Southwest Parkway. This limited partnership interest, prior
to January 1, 1997, had been accounted for under the equity method. As
a result of the significant new capital contribution made by the
Partnership in January 1997, as described below, the Partnership has
attained substantive control of Southwest Parkway. Accordingly,
effective January 1, 1997, the financial statements include the
accounts of Southwest Parkway on a consolidated basis. All significant
intercompany transactions and balances have been eliminated.
Southwest Parkway, in an effort to avoid foreclosure and retain control
of its property, filed for protection under Chapter 11 of the United
States Bankruptcy Code in August 1996. Southwest Parkway negotiated an
agreement for a settlement with its lender that was approved by the
Bankruptcy Court as part of the confirmation of the plan of
reorganization in January 1997. The agreement, which was implemented in
January 1997, allowed Southwest Parkway to purchase its debt for
$4,100,000 and retain ownership of the property. In conjunction with
the purchase of the debt, the Partnership invested approximately
$1,770,000 in Southwest Parkway as a capital contribution. Southwest
Parkway obtained a new first mortgage in the amount of $2,200,000 and
recognized an extraordinary gain of $2,522,000 on the extinguishment of
debt.
6 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Proforma Financial Information
The proforma condensed, consolidated balance sheet of the Partnership
and Southwest Parkway at December 31, 1996 and proforma condensed,
consolidated statements of operations for the nine and three month
periods ended September 30, 1996 are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
December 31,
1996
-----------
<S> <C>
Cash $ 2,732
Other assets, primarily real estate 3,520
-----------
Total assets $ 6,252
===========
Liabilities, primarily a mortgage payable 7,715
Deficit (1,463)
-----------
Total liabilities and equity $ 6,252
===========
</TABLE>
<TABLE>
<CAPTION>
Nine months ended Three months ended
September 30, September 30,
1996 1996
------------ ------------
<S> <C> <C>
Total revenue $ 2,686 $ 2,058
------------ ------------
Operating and other expenses 594 213
Depreciation 160 54
Mortgage interest 285 40
------------ ------------
Total expenses 1,039 307
------------ ------------
Net Income $ 1,647 $ 1,751
============ ============
</TABLE>
4. Related Party Transactions
An affiliate of the Managing General Partner earned a fee for services
rendered in managing the Partnership's investments in the Local Limited
Partnerships of $75,000 and $99,000 during the nine months ended
September 30, 1997 and 1996, respectively.
Southwest Parkway is managed by an affiliate of its general partner,
which receives an annual fee of 5% of the gross receipts of the
property. Management fees aggregated $35,000 during the nine months
ended September 30, 1997.
As of September 30, 1997, Southwest Parkway is obligated to its general
partner for an operating deficit loan payable of $501,000. The loan is
non-interest bearing.
7 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
5. Mortgage Payable
In January 1997, Southwest Parkway obtained a new first mortgage in the
amount of $2,200,000. The loan bears interest at 8.75%, requires
monthly payments of approximately $18,000 and is being amortized over
27 1/2 years. The loan matures on February 1, 2007 with a balloon
payment of approximately $1,898,000. As specified in the loan
agreement, Southwest Parkway is required to make monthly payments of
approximately $4,000 to a replacement reserve account for future
capital improvements. Total capitalized loan costs were approximately
$82,000.
6. Subsequent Event
On October 28, 1997, affiliates of the general partner and Insignia
Financial Group, Inc. ("Insignia") entered into an agreement pursuant
to which, among other things, an affiliate of Insignia was retained as
the property manager at the Local Limited Partnership property that was
formerly managed by an affiliate of the Managing General Partner and
gained control of the local general partner of the Local Limited
Partnership through the purchase of Class B stock in the entity which
controls the stock of the local general partner. The new management
agreement has the same terms as the existing agreement.
8 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
Item 2. Management's Discussion and Analysis or Plan of Operation
This Item should be read in conjunction with the financial
statements and other items contained elsewhere in the report.
Liquidity and Capital Resources
As of September 30, 1997, the Partnership retained an equity
interest in eight Local Limited Partnerships owning ten apartment
properties. The Partnership also owns a 99% Limited Partnership
interest in Southwest Parkway Ltd. ("Southwest Parkway"). An
affiliate of the general partners of the Partnership is the
general partner of Southwest Parkway. In conjunction with the
substantial investment made by the Partnership, in January 1997,
in Southwest Parkway (which had been accounted for as another
Local Limited Partnership under the equity method), the financial
statements of the Partnership and Southwest Parkway have been
consolidated effective January 1, 1997. The Partnership's primary
sources of income are distributions from the Local Limited
Partnerships and rental income from Southwest Parkway. The
Partnership requires cash to pay the operating expenses of
Southwest Parkway, to make capital contributions or loans to any
of the Local Limited Partnerships which the Managing General
Partner deems to be in the Partnership's best interest to
preserve its ownership interest, as well as to pay its management
fees, general and administrative expenses.
Southwest Parkway in an effort to avoid foreclosure and retain
control of the property, filed for protection under Chapter 11 of
the United States Bankruptcy Code in August 1996. Southwest
Parkway negotiated an agreement for a settlement with its lender
that was approved by the Bankruptcy Court as part of the
confirmation of the plan of reorganization in January 1997. The
agreement, which was closed in January 1997, allowed Southwest
Parkway to purchase its debt for $4,100,000 and retain ownership
of the property. Southwest Parkway recognized an extraordinary
gain of $2,522,000 on the extinguishment of debt. In conjunction
with the purchase of the debt, the Partnership invested
approximately $1,770,000 in Southwest Parkway in January 1997, as
a capital contribution. Southwest Parkway obtained a new first
mortgage in the amount of $2,200,000. The loan bears interest at
8.75%, requires monthly payments of approximately $18,000 and is
being amortized over 27 1/2 years. The loan matures on February
1, 2007 with a balloon payment of approximately $1,898,000. As
specified in the loan agreement, Southwest Parkway is required to
make monthly payments of approximately $4,000 to a replacement
reserve account for future capital improvements. As a result of
this transaction, the Partnership preserved its equity in the
property.
To date, all cash requirements have been satisfied by interest
income earned on short-term investments, cash distributed to the
Partnership by the Local Limited Partnerships and the operations
of Southwest Parkway. If the Partnership funds any operating
deficits, it will use monies from its operating reserves. The
Managing General Partner's current policy is to maintain a
reserve balance sufficient to provide the Partnership the
flexibility to preserve its economic interest in the Local
Limited Partnerships.
9 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
Item 2. Management's Discussion and Analysis or Plan of Operation (Continued)
The level of liquidity based on cash and cash equivalents
experienced a $1,467,000 decline at September 30, 1997, as
compared to December 31, 1996. The reduction resulted primarily
from the satisfaction of the Southwest Parkway mortgage as
described above. The Partnership's $816,000 of cash provided by
operating activities was more than offset by $49,000 of property
improvements, $35,000 of deposits to replacement reserve
(investing activities) and $2,199,000 of cash used in financing
activities. Financing activities consisted of mortgage payable
satisfaction of $4,148,000, mortgage principal payments of
$11,000, cash distributed to partners of $158,000 and deferred
loan costs of $82,000, which were only partially offset by loan
proceeds of $2,200,000.
The Partnership is not obligated to provide any additional funds
to the Local Limited Partnerships to fund operating deficits. The
Partnership will determine on a case by case basis whether to
fund any operating deficits. If a Local Limited Partnership
sustains continuing operating deficits and has no other sources
of funding, it is likely that it will eventually default on its
mortgage obligations and risk a foreclosure on its property by
the lender. If a foreclosure were to occur, the Partnership would
share these consequences in proportion to its ownership interest
in the Local Limited Partnership.
The Partnership is contemplating investing an additional $100,000
to be used for capital improvements in the Local Limited
Partnership owning Brookside Apartments ("Brookside"). The
Partnership is currently negotiating with the general partner of
the Local Limited Partnership which holds title to Brookside
pursuant to which an affiliate of the general partner of the
Partnership would be appointed as general partner of the
Brookside Local Limited Partnership and assume responsibility for
managing Brookside. Such transfer is subject to the approval of
the U.S. Department of Housing and Urban Development.
The general partner of the Local Limited Partnership owning the
Westbury Springs property has agreed to purchase the property or
the Partnership's limited partnership interest in the Local
Limited Partnership. The current agreement provides for a closing
by December 31, 1997. If the sale is consummated, it is
anticipated the Partnership will receive net proceeds of no less
than $1,400,000.
As of September 30, 1997, Partnership distributions (paid or
accrued) aggregated $150,000 ($6.00 per unit) to its limited
partners and $8,000 to the general partners. Distributions
declined for the nine months ended September 30, 1997, as
compared to 1996, primarily due to a distribution of $500,000 of
refinancing proceeds received from the Local Limited Partnership
owning the Crofton Village Apartments during 1996. The ability of
the Partnership to continue to make distributions to its partners
is dependent upon the financial performance of the Local Limited
Partnerships and Southwest Parkway.
Results of Operations
Net income increased for the nine months ended September 30, 1997
by $767,000, as compared to the nine months ended September 30,
1996. The increase includes net income of $2,503,000 recognized
due to the consolidation of Southwest Parkway ($2,522,000 of
extraordinary gain). Excluding Southwest Parkway, net income
decreased by $1,736,000 due to a decrease in Local Limited
Partnership cash distributions of $1,726,000 and a decrease in
management fees of $24,000.
10 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
Item 2. Management's Discussion and Analysis or Plan of Operation (Continued)
Results of Operations (Continued)
In 1997, Local Limited Partnerships owning Honeywood and Crofton
Village Apartments made cash distributions to the Partnership of
$146,000 and $67,000, respectively, as compared to $1,939,000
(includes $1,391,000 of refinancing proceeds distributed from the
Local Limited Partnership owning Crofton Village during the third
quarter of 1996) in the prior comparative period.
Net income decreased for the three months ended September 30,
1997 by $1,804,000, as compared to the three months ended
September 30, 1996, primarily due to a decrease in Local Limited
Partnership cash distributions of $1,778,000.
11 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
PART - II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
27. Financial Data Schedule
99. Supplementary Information Required Pursuant to
Section 9.4 of the Partnership Agreement.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the three months
ended September 30, 1997.
12 of 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
WINTHROP RESIDENTIAL ASSOCIATES II,
-----------------------------------
A LIMITED PARTNERSHIP
---------------------
BY: ONE WINTHROP PROPERTIES, INC.
Managing General Partner
BY: /s/ Michael L. Ashner
-------------------------
Michael L. Ashner
Chief Executive Officer
BY: /s/ Edward V. Williams
-------------------------
Edward V. Williams
Chief Financial Officer
Dated: November 13, 1997
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<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
Exhibit Index
<TABLE>
<CAPTION>
<S> <C> <C>
Exhibit Page No.
------- --------
27. Financial Data Schedule -
99. Supplementary Information Required Pursuant to
Section 9.4 of the Partnership Agreement. 15
</TABLE>
14 of 15
<PAGE>
Exhibit 99
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB SEPTEMBER 30, 1997
Supplementary Information Required Pursuant to Section 9.4 of the Partnership
Agreement
1. Statement of Cash Available for Distribution for the three months
ended September 30, 1997:
Net Loss $ (12,000)
Add: Depreciation 52,000
Amortization 2,000
Cash from reserves 11,000
----------
Cash Available for Distribution $ 53,000
==========
Distributions allocated to General Partners $ 3,000
==========
Distributions allocated to Limited Partners $ 50,000
==========
2. Fees and other compensation paid or accrued by the
Partnership to the general partners, or their affiliates,
during the three months ended September 30, 1997:
Entity Receiving Form of
Compensation Compensation Amount
---------------- ----------------------------------- -------
W.P. Management
Co., Inc. Property Management Fees $25,000
General Partners Interest in Cash Available for
Distribution $ 3,000
WFC Realty Co., Inc.
(Initial Limited
Partner) Interest in Cash Available for
Distribution $ 10
15 of 15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary financial information extracted from Winthrop
Residential Associates II, A Limited Partnership and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,265,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,651,000
<DEPRECIATION> 3,147,000
<TOTAL-ASSETS> 4,047,000
<CURRENT-LIABILITIES> 0
<BONDS> 2,189,000
<COMMON> 0
0
0
<OTHER-SE> 1,030,000
<TOTAL-LIABILITY-AND-EQUITY> 4,047,000
<SALES> 0
<TOTAL-REVENUES> 886,000
<CGS> 0
<TOTAL-COSTS> 637,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 131,000
<INCOME-PRETAX> 105,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 105,000
<DISCONTINUED> 0
<EXTRAORDINARY> 2,522,000
<CHANGES> 0
<NET-INCOME> 2,627,000
<EPS-PRIMARY> 99.80
<EPS-DILUTED> 99.80
</TABLE>
