<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 June 30, 1998
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
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(Exact name of small business issuer as specified in its charter)
Maryland 04-2742158
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Cambridge Center, Cambridge, MA 02142-1493
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(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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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets (Unaudited)
June 30, December 31,
(In Thousands, Except Unit Data) 1998 1997
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Assets
- ------
Cash and cash equivalents $ 1,426 $ 2,817
Escrow deposits 171 177
Other assets 161 115
Real estate (net of accumulated deprecation
of $3,314 in 1998 and $3,207 in 1997) 2,405 2,450
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Total Assets $ 4,163 $ 5,559
======= =======
Liabilities and Partners' Capital
- ---------------------------------
Liabilities:
Accounts payable and accrued expenses $ 250 $ 290
Distribution payable 26 1,452
Due to affiliate 501 501
Mortgage payable 2,173 2,183
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Total Liabilities 2,950 4,426
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Minority interest 25 25
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Partners Capital:
Limited Partners -
Units of Limited Partnership Interest,
$1,000 stated value per Unit; authorized, issued
and outstanding - 25,010 Units 2,178 2,102
General Partners' deficit (990) (994)
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Total Partners' Capital 1,188 1,108
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Total Liabilities and Partners' Capital $ 4,163 $ 5,559
======= =======
See notes to consolidated financial statements.
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<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
Consolidated Statements of Operations (Unaudited)
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Six Months Ended
June 30, June 30, June 30, June 30,
1998 1997 1998 1997
------ ------ ------ ------
<S> <C> <C> <C> <C>
Income:
Rental income $ 184 $ 214 $ 464 $ 426
Income from Local Limited Partnership cash distributions 179 168 233 190
Interest income 13 15 29 35
Other income 5 5 9 11
------ ------ ------ ------
Total income 381 402 735 662
------ ------ ------ ------
Expenses:
General and administrative 35 41 55 65
Operating 157 116 270 221
Depreciation 54 51 107 102
Interest 49 50 99 88
Management fees 37 36 71 69
------ ------ ------ ------
Total expenses 332 294 602 545
------ ------ ------ ------
Net income before minority interest and extraordinary item 49 108 133 117
Minority interest 1 -- -- --
------ ------ ------ ------
Income before extraordinary item 50 108 133 117
Extraordinary gain on extinguishment of debt -- -- -- 2,522
------ ------ ------ ------
Net income $ 50 $ 108 $ 133 $2,639
====== ====== ====== ======
Net income allocated to General Partners $ 3 $ 5 $ 7 $ 132
====== ====== ====== ======
Net income allocated to Limited Partners $ 47 $ 103 $ 126 $2,507
====== ====== ====== ======
Net income per Unit of Limited Partnership interest:
Income before extraordinary item $ 1.88 $ 4.12 5.04 4.44
Extraordinary gain -- -- -- 95.80
------ ------ ------ ------
Net income $ 1.88 $ 4.12 $ 5.04 $100.24
====== ====== ====== ======
Distributions per Unit of Limited Partnership Interest $ 1.00 $ 2.00 $ 2.00 $ 4.00
====== ====== ====== ======
</TABLE>
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
Consolidated Statement of Changes in Partners' Capital (Unaudited)
Units of
(In Thousands, Except Unit Data) Limited General Limited
Partnership Partners' Partners' Total
Interest Deficit Capital Capital
------- ------- ------- -------
Balance - January 1, 1998 25,010 $ (994) $ 2,102 $ 1,108
Net income 7 126 133
Distributions (3) (50) (53)
------- ------- ------- -------
Balance - June 30, 1998 25,010 $ (990) $ 2,178 $ 1,188
======= ======= ======= =======
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
Consolidated Statements of Cash Flows (Unaudited) For the Six Months Ended
June 30, June 30,
(In Thousands) 1998 1997
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Cash Flows from Operating Activities:
Net income $ 133 $ 2,639
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 107 102
Amortization 4 4
Extraordinary gain on extinguishment of debt -- (2,522)
Changes in assets and liabilities:
Decrease in escrow deposits 32 623
Increase in other assets (50) (10)
Decrease in accounts payable and
accrued expenses (40) (46)
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Net cash provided by operating activities 186 790
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Cash Flows From Investing Activities:
Deposits to replacement reserve (26) (23)
Property improvements (62) (36)
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Cash used in investing activities (88) (59)
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Cash Flows From Financing Activities:
Loan proceeds -- 2,200
Satisfaction of mortgage payable -- (4,148)
Mortgage principal payments (10) (5)
Cash distributions (1,479) (105)
Deferred loan costs -- (77)
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Net cash used in financing activities (1,489) (2,135)
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Net decrease in cash and cash equivalents (1,391) (1,404)
Cash and cash equivalents, beginning of period 2,817 2,732
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Cash and cash equivalents, end of period $ 1,426 $ 1,328
======= =======
Supplemental Disclosure of Cash Flow Information
Interest paid in cash $ 95 $ 84
======= =======
Supplemental Disclosure of Non-Cash Financing Activities
Accrued Distributions to Partners $ 26 $ 53
======= =======
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
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, 1997.
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. Certain amounts have been
reclassified to conform to the June 30, 1998 presentation. The balance
sheet at December 31, 1997 was derived from audited financial statements
at such date.
The results of operations for the six months ended June 30, 1998 and
1997, are not necessarily indicative of the results to be expected for
the full year.
2. Consolidation
The accompanying financial statements have been prepared on a
consolidated basis, including the accounts of Southwest Parkway. All
significant intercompany transactions and balances have been eliminated.
Prior to January 1, 1997, Southwest Parkway was a Local Limited
Partnership accounted for under the equity method.
6 of 13
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
Item 2. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosure contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Partnership from time to
time. The discussion of the Partnership's liquidity, capital resources
and results of operations, including forward-looking statements
pertaining to such matters, does not take into account the effects of any
changes to the Partnership's operations. Accordingly, actual results
could differ materially from those projected in the forward-looking
statements as a result of a number of factors, including those identified
herein.
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 June 30, 1998, the Partnership retained an equity interest in seven
Local Limited Partnerships owning nine 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 since 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.
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 Local
Limited Partnership would lose its investment in the property and would
incur a tax liability due to the recapture of tax benefits taken in prior
years. The Partnership would share in these consequences in proportion to
its ownership interest in the Local Limited Partnership.
To date, all cash requirements have been satisfied by interest income
earned on short-term investments, rental income from Southwest Parkway
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.
7 of 13
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
Item 2. Management's Discussion and Analysis or Plan of Operation (Continued)
Liquidity and Capital Resources (Continued)
The level of liquidity based on cash and cash equivalents experienced a
$1,391,000 decrease at June 30, 1998, as compared to December 31, 1997.
The Partnership's $186,000 of cash provided by operating activities was
significantly offset by $88,000 of cash used in investing activities and
$1,489,000 of cash used in financing activities. Investing activities
consisted of property improvements of $62,000 and deposits to replacement
reserves of $26,000. Financing activities consisted of cash distributed
to partners of $1,479,000 and mortgage principal payments of $10,000.
For the six months ended June 30, 1998, 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 and Southwest
Parkway.
On December 16, 1997, the Managing General Partner and certain of its
affiliates entered into a Services Agreement with Coordinated Services of
Valdosta, LLC ("Coordinated Services") pursuant to which Coordinated
Services was retained to provide asset management and investor services
to the Partnership and certain affiliated partnerships. As a result of
this agreement, Coordinated Services has the right to direct the day to
day affairs of the Partnership, including, without limitation, reviewing
and analyzing potential sale, refinancing or restructuring proposals by
Local Limited Partnerships, preparation of all Partnership reports,
maintaining Partnership records and maintaining bank accounts of the
Partnership. Coordinated Services is not permitted, however, without the
consent of the Managing General Partner, or as otherwise required under
the terms of the Partnership's Agreement of Limited Partnership (the
"Partnership Agreement") to, among other things, cause the Partnership to
consent to a sale of an asset or cause the Partnership to file for
bankruptcy. As compensation for providing these services, the Managing
General Partner and its affiliates assigned to Coordinated Services all
of their rights to receive fees from the Partnership as provided in the
Partnership Agreement.
The Partnership is contemplating investing an additional $100,000 to
$150,000 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 an affiliate of
Coordinated Services would assume responsibility for managing Brookside.
Such transfer would be subject to the approval of the U.S. Department of
Housing and Urban Development.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
Item 2. Management's Discussion and Analysis or Plan of Operation
Results of Operations
The Partnership's net income for the six months ended June 30, 1998, was
$133,000, as compared to net income of $2,639,000, for the six months
ended June 30, 1997. Net income for 1997 includes a $2,522,000
extraordinary gain on extinguishment of debt from Southwest Parkway. Net
income before the extraordinary item increased by $16,000 for the six
months ended June 30, 1998, as compared to the six months ended June 30,
1997. The increase is due to an increase in income of $73,000, which was
only partially offset by an increase in expenses of $57,000.
Income increased for the six months ended June 30, 1998, as compared to
1997, primarily due to an increase in rental income of $38,000, at the
Partnership's Southwest Parkway property and an increase in income from
Local Limited Partnership cash distributions of $43,000. Income from
Local Limited Partnership cash distributions increased primarily due to
the receipt of a residual cash distribution of $32,000 from Westbury
Springs, Ltd. The Partnership sold its interest in this Local Limited
Partnership during 1997. The Partnership received $156,000 and $45,000 of
cash distributions from the Local Limited Partnerships which own the
Honeywood Apartments and the Crofton Village Apartments, respectively,
during the six months ended June 30, 1998. During the six months ended
June 30, 1997, the Partnership received cash distributions from the Local
Limited Partnerships of $190,000 ($146,000 from Honeywood and $44,000
from Crofton Village). Expenses increased primarily due to an increase in
operating expenses of $49,000, at the Partnership's Southwest Parkway
property. All other items of income and expense remained relatively
constant.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
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
June 30, 1998.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
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: August 11, 1998
11 of 13
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
Exhibit Index
Exhibit Page No.
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27. Financial Data Schedule -
99. Supplementary Information Required Pursuant to
Section 9.4 of the Partnership Agreement. 13
12 of 13
<PAGE>
Exhibit 99
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB JUNE 30, 1998
Supplementary Information Required Pursuant to Section 9.4 of the Partnership
Agreement
1. Statement of Cash Available for Distribution for the three months
ended June 30, 1998:
Net Income $ 50,000
Add: Depreciation 54,000
Amortization 2,000
Less: Minority interest in joint venture's operations (1,000)
Cash to reserves (79,000)
--------
Cash Available for Distribution $ 26,000
========
Distributions allocated to General Partners $ 1,000
========
Distributions allocated to Limited Partners $ 25,000
========
2. Fees and other compensation paid or accrued by the Partnership to
the general partners, or their affiliates, during the three months
ended June 30, 1998:
Entity Receiving Form of
Compensation Compensation Amount
------------ ------------ ------
General Partners Interest in Cash Available
for Distribution $ 2,000
WFC Realty Co., Inc. Interest in Cash Available
(Initial Limited Partner) for Distribution $ 5
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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 1,426,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,719,000
<DEPRECIATION> (3,314,000)
<TOTAL-ASSETS> 4,163,000
<CURRENT-LIABILITIES> 0
<BONDS> 2,173,000
<COMMON> 0
0
0
<OTHER-SE> 1,188,000
<TOTAL-LIABILITY-AND-EQUITY> 4,163,000
<SALES> 0
<TOTAL-REVENUES> 706,000
<CGS> 0
<TOTAL-COSTS> 448,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 99,000
<INCOME-PRETAX> 133,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 133,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 133,000
<EPS-PRIMARY> 5.04
<EPS-DILUTED> 5.04
</TABLE>
