<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 March 31, 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)
One International Place, Boston, MA 02110
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (617) 330-8600
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_____
1 of 13
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1997
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets (Unaudited)
March 31, December 31,
(In Thousands, Except Unit Data) 1997 1996
--------- ------------
Assets
Cash and cash equivalents $ 1,335 $ 2,732
Escrow deposit 63 370
Other 127 5
Real Estate (net of accumulated deprecation
of $3,045 in 1997) 2,568 --
------- -------
Total assets $ 4,093 $ 3,107
======= =======
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 300 $ 70
Distribution payable 53 53
Due to affiliate 501 --
Mortgage payable 2,200 --
------- -------
Total Liabilities 3,054 123
------- -------
Partners Capital:
Limited Partners -
Units of Limited Partnership Interest,
$1,000 stated value per Unit; authorized, issued
and outstanding - 25,010 Units 2,050 3,898
General Partners (Deficit) (1,011) (914)
------- -------
Total Partners' Capital 1,039 2,984
------- -------
Total Liabilities and Partners' Capital $ 4,093 $ 3,107
======= =======
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1997
CONSOLIDATED STATEMENT OF OPERATIONS (UNAUDITED)
(IN THOUSANDS)
FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
1997 1996
------ ------
Income:
Rental income $ 212 $ --
Local limited partnership cash distributions 22 97
Interest income 20 22
Other 6 --
------ ------
Total income 260 119
------ ------
Expenses:
General and administrative 24 17
Operating 105 --
Depreciation 51 --
Interest 38 --
Management fees 33 33
------ ------
Total expenses 251 50
------ ------
Net income before extraordinary item 9 69
Extraordinary gain on extinguishment of debt 2,522 --
------ ------
Net income $2,531 $ 69
====== ======
Net income allocated to General Partners $ 127 4
====== ======
Net income allocated to Limited Partners $2,404 $ 65
====== ======
Net income per Unit of Limited Partnership interest:
Income before extraordinary item $ .32 $ 2.60
Extraordinary gain 95.80 --
------ ------
Net income $96.12 $ 2.60
====== ======
Distributions per Unit of Limited Partnership
Interest $ 2.00 $ 4.00
====== ======
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1997
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (UNAUDITED)
(IN THOUSANDS, EXCEPT UNIT DATA)
UNITS OF
LIMITED GENERAL LIMITED
PARTNERSHIP PARTNERS' PARTNERS' TOTAL
INTEREST DEFICIT CAPITAL CAPITAL
-------- ------- ------- -------
Balance - January 1, 1997 25,010 $ (914) $ 3,898 $ 2,984
Adjustment due to
consolidation (221) (4,202) (4,423)
Net income 127 2,404 2,531
Distributions (3) (50) (53)
------- ------- ------- -------
Balance - March 31, 1997 25,010 $(1,011) $ 2,050 $ 1,039
======= ======= ======= =======
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1997
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE THREE MONTHS ENDED
MARCH 31, MARCH 31,
(IN THOUSANDS) 1997 1996
------- -------
Cash Flows from Operating Activities:
Net income $ 2,531 $ 69
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 51 --
Gain on extinguishment of debt (2,522) --
Changes in assets and liabilities:
Decrease in escrow deposits 637 --
Increase in other assets (29) 8
Increase in accounts payable and
accrued expenses 14 33
------- -------
Net cash provided by operating activities 682 110
------- -------
Cash Flows From Investing Activities:
Property improvements (12) --
------- -------
Cash used in investing activities (12) --
------- -------
Cash Flows From Financing Activities:
Loan proceeds 2,200 --
Satisfaction of mortgage payable (4,148) --
Cash distributions (53) (105)
Deferred loan costs (66) --
------- -------
Net cash used in financing activities (2,067) (105)
------- -------
Net (decrease) increase in cash and cash equivalents (1,397) 5
Cash and cash equivalents, beginning of period 2,732 2,078
------- -------
Cash and cash equivalents, end of period $ 1,335 $ 2,083
======= =======
Supplemental Disclosure of Cash Flow Information
Interest paid in cash $ 38 $ --
======= =======
Supplemental Disclosure of Non-Cash Financing
Activities
Accrued Distributions to Partners $ 53 $ 105
======= =======
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10 - QSB MARCH 31, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
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 three months ended March 31, 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 closed 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, in January 1997, 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 (see Note 5).
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10 - QSB MARCH 31, 1997
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
3. PROFORMA FINANCIAL INFORMATION
The proforma condensed, consolidated balance sheet of the Partnership
and Southwest Parkway at December 31, 1996 and proforma condensed,
consolidated income statement for the three month period ended March
31, 1996 are summarized as follows (in thousands):
December 31,
1996
-------
Total assets, primarily real estate $ 6,252
=======
Liabilities, primarily a mortgage payable 7,715
Deficit (1,463)
-------
Total Liabilities and Equity $ 6,252
=======
March 31,
1996
-------
Total Revenue $ 339
-------
Operating and other expenses 180
Depreciation 53
Mortgage interest 119
-------
Total Expenses 352
Net Loss $ (13)
=======
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 $25,000 and $33,000 during the three months ended March
31, 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 $8,000 during the three months
ended March 31, 1997.
As of March 31, 1997, Southwest Parkway is obligated to its general
partner for an operating deficit loan payable of $501,000. The loan is
non-interest bearing.
5. MORTGAGE PAYABLE
In January 1997, Southwest Parkway obtained a new first mortgage in the
amount of $2,200,000. The loan requires monthly payments of
approximately $18,000 at 8.75% interest and is being amortized over 27
1/2 years. The loan matures on February 1, 2007 with a balloon payment
of $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 $66,000.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10 - QSB MARCH 31, 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 March 31, 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, management fees,
general and administrative expenses or 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.
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 requires monthly
payments of approximately $18,000 at 8.75% interest and is being
amortized over 27 1/2 years. The loan matures on February 1, 2007 with
a balloon payment of $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 and cash distributed to the
Partnership by the Local Limited Partnerships. 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.
Therefore, a lack of cash distributed by the Local Limited Partnerships
to the Partnership in the future should not deplete the reserves,
though it may restrict the Partnership from making distributions.
8 of 13
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10 - QSB MARCH 31, 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
$1,397,000 decline at March 31, 1997, as compared to December 31, 1996.
The reduction resulted primarily from the additional investment in
Southwest Parkway as described above. The Partnership's $682,000 of
cash provided by operating activities was more than offset by $12,000
of property improvements (investing activities) and $2,067,000 of cash
used in financing activities. Financing activities consisted of
mortgage payable satisfaction of $4,148,000, cash distributed to
partners of $53,000 and deferred loan costs of $66,000, which was 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. If the sale is consummated, it is anticipated the
Partnership will receive net proceeds of no less than $1,400,000.
As of March 31, 1997, Partnership distributions (paid or accrued)
aggregated $50,000 ($2.00 per unit) to its limited partners and $3,000
to the general partners. The ability of the Partnership to continue to
make distributions to its partners is dependent upon the financial
performance of the Local Limited Partnerships.
Results of Operations
Net income increased for the three months ended March 31, 1997 by
$2,462,000, as compared to the three months ended March 31, 1996.
The increase includes net income of $2,518,000 recognized due to the
consolidation of Southwest Parkway ($2,523,000 of extraordinary gain).
Excluding Southwest Parkway, net income decreased $57,000 due to a
decrease in Local Limited Partnership cash distributions of $75,000.
9 of 13
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10 - QSB MARCH 31, 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 March 31, 1997.
10 of 13
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10 - QSB MARCH 31, 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.
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: May 14, 1997
11 of 13
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
MARCH 31, 1997
Exhibit Index
Exhibit Page No.
27. Financial Data Schedule -
99. Supplementary Information Required Pursuant to
Section 9.4 of the Partnership Agreement. 12
12 of 13
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
MARCH 31, 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
March 31, 1997:
Net Income $2,531,000
Add: Depreciation 51,000
Less: Extraordinary gain on extinguishment of debt (2,522,000)
Cash to reserves (7,000)
----------
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 March 31, 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 $ 20
13 of 13
<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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 1,335,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 4,093,000
<CURRENT-LIABILITIES> 0
<BONDS> 2,200,000
<COMMON> 0
0
0
<OTHER-SE> 1,039,000
<TOTAL-LIABILITY-AND-EQUITY> 4,093,000
<SALES> 0
<TOTAL-REVENUES> 240,000
<CGS> 0
<TOTAL-COSTS> 189,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 38,000
<INCOME-PRETAX> 9,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 9,000
<DISCONTINUED> 0
<EXTRAORDINARY> 2,522
<CHANGES> 0
<NET-INCOME> 2,531
<EPS-PRIMARY> 96.12
<EPS-DILUTED> 96.12
</TABLE>
