<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, 1998
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OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-11063
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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
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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
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FORM 10-QSB SEPTEMBER 30, 1998
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PART I - FINANCIAL INFORMATION
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Item 1. Financial Statements.
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
(In Thousands, Except Unit Data) 1998 1997
--------------------- --------------------
<S> <C> <C>
Assets
- ------
Cash and cash equivalents $ 1,366 $ 2,817
Escrow deposits 204 177
Other assets 132 115
Real estate (net of accumulated depreciation
of $3,367 in 1998 and $3,207 in 1997) 2,436 2,450
--------------------- --------------------
Total Assets $ 4,138 $ 5,559
===================== ====================
Liabilities and Partners' Capital
- ---------------------------------
Liabilities:
Accounts payable and accrued expenses $ 212 $ 290
Distribution payable 26 1,452
Due to affiliate 501 501
Mortgage payable 2,167 2,183
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Total Liabilities 2,906 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 2,196 2,102
General Partners' deficit (989) (994)
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Total Partners' Capital 1,207 1,108
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Total Liabilities and Partners' Capital $ 4,138 $ 5,559
===================== ====================
</TABLE>
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
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FORM 10-QSB SEPTEMBER 30, 1998
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Consolidated Statements of Operations (Unaudited)
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
For the Three Months Ended For the Nine Months Ended
September 30, September 30, September 30, September 30,
1998 1997 1998 997
------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
Income:
Rental income $ 228 $ 232 $ 692 $ 658
Income from Local Limited Partnership cash distributions 33 23 266 213
Interest income 15 16 44 51
Other income 4 4 13 15
------------- ------------ ---------- ------------
Total income 280 275 1,015 937
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Expenses:
General and administrative 26 25 81 64
Operating 69 120 339 367
Depreciation 53 52 160 154
Interest 50 49 149 137
Management fees 37 41 108 110
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Total expenses 235 287 837 832
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Net income (loss) before extraordinary item 45 (12) 178 105
Extraordinary gain on extinguishment of debt -- -- -- 2,522
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Net income (loss) $ 45 $ (12) $ 178 $ 2,627
============= ============ ========== ============
Net income (loss) allocated to General Partners $ 2 $ (1) $ 9 $ 131
============= ============ ========== ============
Net income (loss) allocated to Limited Partners $ 43 $ (11) $ 169 $ 2,496
============= ============ ========== ============
Net income (loss) per Unit of Limited Partnership interest:
Income before extraordinary item $ 1.72 $ (.44) $ 6.76 $ 4.00
Extraordinary gain -- -- -- 95.80
------------- ------------ ---------- ------------
Net income (loss) $ 1.72 $ (.44) $ 6.76 $ 99.80
============= ============ ========== ============
Distributions per Unit of Limited Partnership Interest $ 1.00 $ 2.00 $ 3.00 $ 6.00
============= ============ ========== ============
</TABLE>
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
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FORM 10-QSB SEPTEMBER 30, 1998
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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, 1998 25,010 $ (994) $ 2,102 $ 1,108
Net income 9 169 178
Distributions (4) (75) (79)
------------------ ------------------- ------------------- --------------------
Balance - September 30, 1998 25,010 $ (989) $ 2,196 $ 1,207
================== =================== =================== ====================
</TABLE>
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
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FORM 10-QSB SEPTEMBER 30, 1998
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<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows (Unaudited) For the Nine Months Ended
September 30, September 30,
(In Thousands) 1998 1997
--------------------- --------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 178 $ 2,627
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 160 154
Amortization 6 6
Extraordinary gain on extinguishment of debt -- (2,522)
Changes in assets and liabilities:
Decrease in escrow deposits 13 596
Increase in other assets (23) (30)
Decrease in accounts payable and
accrued expenses (78) (15)
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Net cash provided by operating activities 256 816
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Cash Flows From Investing Activities:
Deposits to replacement reserve (40) (35)
Property improvements (146) (49)
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Cash used in investing activities (186) (84)
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Cash Flows From Financing Activities:
Loan proceeds -- 2,200
Satisfaction of mortgage payable -- (4,148)
Mortgage principal payments (16) (11)
Cash distributions (1,505) (158)
Deferred loan costs -- (82)
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Net cash used in financing activities (1,521) (2,199)
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Net decrease in cash and cash equivalents (1,451) (1,467)
Cash and cash equivalents, beginning of period 2,817 2,732
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Cash and cash equivalents, end of period $ 1,366 $ 1,265
===================== ====================
Supplemental Disclosure of Cash Flow Information
Interest paid in cash $ 143 $ 131
===================== ====================
Supplemental Disclosure of Non-Cash Financing Activities
- --------------------------------------------------------
Accrued Distributions to Partners $ 26 $ 53
===================== ====================
</TABLE>
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
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FORM 10-QSB SEPTEMBER 30, 1998
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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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 September
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 nine months ended September 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
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FORM 10-QSB SEPTEMBER 30, 1998
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Item 2. Management's Discussion and Analysis or Plan of Operation
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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 September 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.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
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FORM 10-QSB SEPTEMBER 30, 1998
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Item 2. Management's Discussion and Analysis or Plan of Operation
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(Continued)
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Liquidity and Capital Resources (Continued)
-------------------------------------------
The level of liquidity based on cash and cash equivalents
experienced a $1,451,000 decrease at September 30, 1998, as
compared to December 31, 1997. The Partnership's $256,000 of
cash provided by operating activities was more than offset by
$186,000 of cash used in investing activities and $1,521,000 of
cash used in financing activities. Investing activities
consisted of property improvements of $146,000 and deposits to
replacement reserves of $40,000. Financing activities consisted
of cash distributed to partners of $1,505,000 and mortgage
principal payments of $16,000.
For the nine months ended September 30, 1998, Partnership
distributions (paid or accrued) aggregated $75,000 ($3.00 per
Unit) to its limited partners and $4,000 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 agreed to invest an additional $176,000 to be
used for capital improvements in the Local Limited Partnership
owning Brookside Apartments ("Brookside"). Effective November
1, 1998, an affiliate of the general partner of the
Partnership, WFC Realty, Inc., has been approved by the general
partner of the Local Limited Partnership to assume
responsibilities as general partner of Brookside. In addition,
an affiliate of Coordinated Services of Valdosta, LLC, has been
approved by the U.S. Department of Housing and Urban
Development to assume management responsibilities of Brookside.
As a result of the transfer of control of Brookside, the
Partnership will consolidate the accounts of Brookside
effective November 1, 1998. Prior to November 1, 1998,
Brookside was a Local Limited Partnership accounted for under
the equity method.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
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FORM 10-QSB SEPTEMBER 30, 1998
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Item 2. Management's Discussion and Analysis or Plan of Operation
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Liquidity and Capital Resources (Continued)
-------------------------------------------
The Partnership is dependent upon Coordinated Services and the
management agents of the Local Limited Partnerships for
management and administrative services. Coordinated Services
has completed an assessment and believes that their computer
systems will function properly with respect to dates in the
Year 2000 and thereafter (the "Year 2000 Issue"). The
management agents of the Local Limited Partnerships are at
various stages of completing an assessment of their computer
systems. These Year 2000 costs, if any, are the responsibility
of the individual management agents. The Partnership does not
expect that it will incur any material costs associated with,
or be materially affected by, the Year 2000 Issue.
Results of Operations
---------------------
The Partnership's net income for the nine months ended
September 30, 1998, was $178,000, as compared to net income of
$2,627,000, for the nine months ended September 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 $73,000 for the nine
months ended September 30, 1998, as compared to the nine months
ended September 30, 1997. The increase is due to an increase in
income of $78,000, which was only partially offset by an
increase in expenses of $5,000.
Income increased for the nine months ended September 30, 1998,
as compared to 1997, primarily due to an increase in rental
income of $34,000, at the Partnership's Southwest Parkway
property and an increase in income from Local Limited
Partnership cash distributions of $53,000. 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 $78,000 of cash distributions from the
Local Limited Partnerships which own the Honeywood Apartments
and the Crofton Village Apartments, respectively, during the
nine months ended September 30, 1998. During the nine months
ended September 30, 1997, the Partnership received cash
distributions from the Local Limited Partnerships of $213,000
($146,000 from Honeywood and $67,000 from Crofton Village).
Expenses decreased by $10,000 at the Partnership's Southwest
property primarily due to a decrease in operating expenses of
$28,000 which was partially offset by an increase in interest
expense of $12,000. General and administrative expenses
increased by $17,000 due to an increase in certain professional
services. All other items of income and expense remained
relatively constant.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
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FORM 10-QSB SEPTEMBER 30, 1998
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PART - II - OTHER INFORMATION
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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, 1998.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
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FORM 10-QSB SEPTEMBER 30, 1998
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SIGNATURES
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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 12, 1998
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
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FORM 10-QSB SEPTEMBER 30, 1998
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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
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Exhibit 99
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
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FORM 10-QSB SEPTEMBER 30, 1998
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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, 1998:
Net Income $ 45,000
Add: Depreciation 53,000
Amortization 2,000
Less: Cash to reserves (74,000)
---------
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 September 30,
1998:
<TABLE>
<CAPTION>
Entity Receiving Form of
Compensation Compensation Amount
------------ ------------ ------
<S> <C> <C> <C>
General Partners Interest in Cash Available for Distribution $ 1,000
WFC Realty Co., Inc.
(Initial Limited Partner) Interest in Cash Available for Distribution $ 5
</TABLE>
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<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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 1,366,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 5,803,000
<DEPRECIATION> (3,367,000)
<TOTAL-ASSETS> 4,138,000
<CURRENT-LIABILITIES> 0
<BONDS> 2,167,000
<COMMON> 0
0
0
<OTHER-SE> 1,207,000
<TOTAL-LIABILITY-AND-EQUITY> 4,138,000
<SALES> 0
<TOTAL-REVENUES> 971,000
<CGS> 0
<TOTAL-COSTS> 607,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 149,000
<INCOME-PRETAX> 178,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 178,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 178,000
<EPS-PRIMARY> 6.76
<EPS-DILUTED> 6.76
</TABLE>
