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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, 1999
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
incorporation or organization Identification No.)
Five Cambridge Center, Cambridge, 02142-1493
MA
------------------------------------ ------------------------------
(Address of principal executive (Zip Code)
office)
Registrant's telephone number, including (617) 234-3000
area code ------------------------------
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 MARCH 31, 1999
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets (Unaudited)
<CAPTION>
March 31, December 31,
(In Thousands, Except Unit Data) 1999 1998
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<S> <C> <C>
Assets
Cash and cash equivalents $ 1,260 $ 1,304
Escrow deposits 448 457
Other assets 244 172
Real estate, net of accumulated depreciation of
$4,716 in 1999 and $4,644 in 1998 2,968 3,003
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Total Assets $ 4,920 $ 4,936
============== ==============
Liabilities and Partners' Capital
Liabilities:
Accounts payable, accrued expenses and other liabilities 370 377
Distribution payable 26 26
Loan payable - affiliate 501 501
Mortgage notes payable 3,535 3,546
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Total Liabilities 4,432 4,450
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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; 25,010 units
authorized, issued and outstanding. 1,489 1,487
General Partners' deficit (1,026) (1,026)
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Total Partners' Capital 463 461
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Total Liabilities and Partners' Capital $ 4,920 $ 4,936
============== ==============
</TABLE>
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1999
Consolidated Statements of Operations (Unaudited)
(In Thousands, Except Unit Data)
<CAPTION>
For the Three Months Ended
March 31, March 31,
1999 1998
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<S> <C> <C>
Income:
Rental income $ 308 $ 280
Income from Local Limited Partnership cash distributions 33 54
Interest income 12 16
Other income 12 4
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Total income 365 354
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Expenses:
General and administrative 25 20
Operating 129 113
Depreciation 72 53
Interest 71 50
Management fees 40 34
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Total expenses 337 270
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Net income before minority interest 28 84
Minority interest - (1)
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Net income $ 28 $ 83
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Net income allocated to General Partners $ 1 $ 4
============== ==============
Net income allocated to Limited Partners $ 27 $ 79
============== ==============
Net income per Unit of Limited Partnership interest $ 1.08 $ 3.16
============== ==============
Distributions per Unit of Limited Partnership Interest $ 1.00 $ 1.00
============== ==============
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1999
Consolidated Statement of Changes in Partners' Capital (Unaudited)
<CAPTION>
Units of
(In Thousands, Except Unit Data) Limited Limited General Total
Partnership Partners' Partners' Partners'
Interest Capital Deficit Capital
<S> <C> <C> <C> <C>
Balance - January 1, 1999 25,010 $ 1,487 $ (1,026) $ 461
Net income 27 1 28
Distributions (25) (1) (26)
------- ---------- ----------- ---------
Balance - March 31, 1999 25,010 $ 1,489 $ (1,026) $ 463
======= ========= =========== =========
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1999
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
For the Three Months Ended
March 31, March 31,
(In Thousands) 1999 1998
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<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 28 $ 83
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 72 53
Amortization 2 2
Minority interest in joint venture's operations - 1
Changes in assets and liabilities:
Decrease in escrow deposits 22 58
Increase in other assets (74) (111)
Decrease in accounts payable and
accrued expenses (7) (77)
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Net cash provided by operating activities 43 9
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Cash Flows From Investing Activities:
Deposits to replacement reserve (13) (13)
Property improvements (37) (21)
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Cash used in investing activities (50) (34)
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Cash Flows From Financing Activities:
Mortgage principal payments (11) (5)
Distributions to partners (26) (1,450)
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Cash used in financing activities (37) (1,455)
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Net decrease in cash and cash equivalents (44) (1,480)
Cash and cash equivalents, beginning of period 1,304 2,817
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Cash and cash equivalents, end of period $ 1,260 $ 1,337
============== ==============
Supplemental Disclosure of Cash Flow Information
Interest paid in cash $ 69 $ 48
============== ==============
Supplemental Disclosure of Non-Cash Financing
Activities
Accrued Distributions to Partners $ 26 $ 26
============== ==============
</TABLE>
See notes to consolidated financial statements.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1999
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, 1998.
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. The balance sheet at December 31, 1998 was derived from
audited financial statements at such date.
The results of operations for the three months ended March 31, 1999 and
1998, are not necessarily indicative of the results to be expected for
the full year.
2. Consolidation
The consolidated financial statements of the Partnership include the
accounts of the Partnership and two subsidiaries, Southwest Parkway, Ltd.
("Southwest Parkway") and Brookside, Ltd. ("Brookside"), which are Local
Limited Partnerships previously accounted for under the equity method of
accounting. All significant intercompany transactions and balances have
been eliminated.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1999
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 March 31, 1999, the Partnership retained an equity interest in
six Local Limited Partnerships owning eight apartment properties.
The Partnership also owns a 97% limited partnership interest in
Southwest Parkway Ltd. ("Southwest Parkway") and a 99% limited
partnership interest in Brookside, Ltd. ("Brookside") (collectively
referred to as the "Subsidiaries"). Affiliates of the general
partners of the Partnership are the general partners of the
Subsidiaries. Effective November 1, 1998, an affiliate of the
general partner of the Partnership assumed control as general
partner of Brookside. As a result of the transfer of control of
Brookside, the Partnership has consolidated 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. The Partnership invested $176,000 in November 1998 to
be used for capital improvements in Brookside. The Partnership's
primary sources of income are distributions from the Local Limited
Partnerships and rental income from the Subsidiaries. The
Partnership requires cash to pay the operating expenses of the
Subsidiaries, 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.
To date, all cash requirements have been satisfied by interest
income earned on short-term investments, rental income from the
Subsidiaries 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
FORM 10-QSB MARCH 31, 1999
Item 2. Management's Discussion and Analysis or Plan of Operation
Liquidity and Capital Resources (Continued)
The level of liquidity based on cash and cash equivalents
experienced a $44,000 decrease at March 31, 1999, as compared to
December 31, 1998. The Partnership's $43,000 of net cash provided by
operating activities was more than offset by $50,000 of cash used in
investing activities and $37,000 of cash used in financing
activities. Cash used in investing activities included $37,000 of
property improvements and $13,000 of additions to replacement
reserves. Cash used in financing activities included $26,000 of
distributions to partners and $11,000 of mortgage principal
payments.
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.
For the three months ended March 31, 1999, the Partnership accrued
distributions aggregating $25,000 ($1.00 per unit) to its limited
partners and $1,000 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 its Subsidiaries.
Year 2000
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. The
Partnership is dependent upon the General Partner and its affiliates
and Coordinated Services for management and administrative services.
Any computer programs or hardware that have date-sensitive software
or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send
invoices, or engage in similar normal business activities.
During the first half of 1998, Coordinated Services, the General
Partner and its affiliates completed their assessment of the various
computer software and hardware used in connection with the
management of the Partnership. This review indicated that
significantly all of the computer programs used by the Managing
General Partner and its affiliates are off-the-shelf "packaged"
computer programs which are easily upgraded to be Year 2000
compliant. In addition, to the extent that custom programs
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1999
Item 2. Management's Discussion and Analysis or Plan of Operation
Year 2000 (Continued)
are utilized by the Managing General Partner and its affiliates,
such custom programs are Year 2000 compliant.
Following the completion of its assessment of the computer software
and hardware, Coordinated Services, the General Partner and its
affiliates began upgrading those systems which required upgrading.
To date, significantly all of these systems have been upgraded. The
Partnership has to date not borne, nor is it expected that the
Partnership will bear, any significant costs in connection with the
upgrade of those systems requiring remediation. It is expected that
all systems will be remediated, tested and implemented during the
first half of 1999.
To date, neither Coordinated Services or the General Partner are
aware of any external agent with a Year 2000 issue that would
materially impact the Partnership's results of operations, liquidity
or capital resources. However, the Managing General Partner has no
means of ensuring that external agents will be Year 2000 compliant.
The General Partner does not believe that the inability of external
agents to complete their Year 2000 resolution process in a timely
manner will have a material impact on the financial position or
results of operations of the Partnership. However, the effect of
non-compliance by external agents is not readily determinable.
Results of Operations
Net income decreased by $55,000 for the three months ended March 31,
1999, as compared to the comparable period in 1998. The decrease is
due to an increase in expenses of $66,000 which more than offset an
increase in income of $11,000.
Income increased for the three months ended March 31, 1999, as
compared to the comparable period in 1998, primarily due to the
addition of rental income of $70,000 from the consolidation of the
Partnership's Brookside property which was offset by a decrease in
rental income of $42,000 at the Partnership's Southwest Parkway
property and a decrease in income from Local Limited Partnership
cash distributions of $21,000. The Partnership received $33,000 of
cash distributions from the Local Limited Partnership which owns the
Crofton Village Apartments during the three months ended March 31,
1999. During the three months ended March 31, 1998, the Partnership
received residual cash distributions of $32,000 from the Local
Limited Partnership which owns Westbury Springs, Ltd., which was
sold in 1997, and $22,000 from the Local Limited Partnership which
owns Crofton Village Apartments. Expenses increased due to increases
in operating, administrative, interest and depreciation expenses.
The increases were primarily due to additional expenses of the
Partnership's Brookside property, which was consolidated effective
November 1, 1998.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1999
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, 1999.
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1999
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/ Thomas C. Staples
-------------------------------
Thomas C. Staples
Chief Financial Officer
Dated: May 14, 1999
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WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
FORM 10-QSB MARCH 31, 1999
Exhibit Index
Exhibit Page No.
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
FORM 10-QSB MARCH 31, 1999
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, 1999:
Net Income $ 28,000
Add: Depreciation 72,000
Amortization 2,000
Less: Cash to reserves (76,000)
----------
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 March 31, 1999:
Entity Receiving Form of
Compensation Compensation Amount
- ------------------ -------------------------------------------- ---------
General Partners Interest in Cash Available for Distribution $ 1,000
WFC Realty Co., Inc. Interest in Cash Available for Distribution $ 5
(Initial Limited Partner)
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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> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,260,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,684,000
<DEPRECIATION> (4,716,000)
<TOTAL-ASSETS> 4,920,000
<CURRENT-LIABILITIES> 0
<BONDS> 3,535,000
<COMMON> 0
0
0
<OTHER-SE> 463,000
<TOTAL-LIABILITY-AND-EQUITY> 4,920,000
<SALES> 0
<TOTAL-REVENUES> 353,000
<CGS> 0
<TOTAL-COSTS> 241,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 71,000
<INCOME-PRETAX> 28,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 28,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,000
<EPS-PRIMARY> 1.08
<EPS-DILUTED> 1.08
</TABLE>
