<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
Annual Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
Commission File
For the year ended December 31, 1998 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 of organization) (I.R.S. Employer I.D. No.)
5 Cambridge Center, Cambridge, Massachusetts 02142
- -------------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 234-3000
--------------
Securities registered pursuant to Section 12(b) of the Act:
None
----
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
-------------------------------------
(Title of Class)
Indicate by check mark whether the 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
Registrant's revenues for its most recent fiscal year were $1,476,000.
No market for the Limited Partnership Units exists and therefore, a market value
for such Units cannot be determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
<PAGE>
PART I
Item 1. Description of Business.
Development.
Winthrop Residential Associates II ("WRA II"), was originally organized
under the Uniform Limited Partnership Act of the State of Maryland on October
21, 1981, for the purpose of investing, as a limited partner, in other limited
partnerships which would develop, manage, own, operate and otherwise deal with
apartment complexes, the financing of which are assisted by federal, state or
local government agencies ("Local Limited Partnerships") pursuant to programs
which do not significantly restrict distributions to owners or the rates of
return on investments in such properties. On June 23, 1983, WRA II elected to
comply with and be governed by the Maryland Revised Uniform Limited Partnership
Act (the "Act") and filed its Agreement and Certificate of Limited Partnership
(the "Partnership Agreement") with the Maryland State Department of Assessments
and Taxation. In accordance with and upon filing its Certificate of Limited
Partnership pursuant to the Act, WRA II changed its name to Winthrop Residential
Associates II, A Limited Partnership (the "Partnership").
The general partners of the Partnership are One Winthrop Properties,
Inc., a Massachusetts corporation ("One Winthrop"), and Linnaeus-Hawthorne
Associates Limited Partnership ("Linnaeus-Hawthorne"). One Winthrop is a
wholly-owned subsidiary of First Winthrop Corporation ("First Winthrop"), which
in turn is wholly-owned by Winthrop Financial Associates, A Limited Partnership
("WFA"), a Maryland limited partnership. One Winthrop is the Partnership's
managing general partner. See "Employees" below.
In late 1982 the Partnership sold, pursuant to a Registration Statement
filed with the Securities and Exchange Commission, 25,000 Units of limited
partnership interest ("Units") at a purchase price of $1,000 per Unit (an
aggregate of $25,000,000). Capital contributions, net of selling commissions,
sales and registration costs, were utilized to purchase interests in 10 Local
Limited Partnerships and temporary short term investments.
The Partnership invests as a limited partner in Local Limited
Partnerships that own, operate and otherwise deal with apartment complexes with
original financing insured by the U.S. Department of Housing and Urban
Development ("HUD").
2
<PAGE>
Initially, the Partnership acquired equity interests ranging from 52.8%
to 99% in ten Local Limited Partnerships, owning 12 properties, for an aggregate
investment, including capitalizable and noncapitalizable fees and expenses, of
approximately $21,669,334. One of the Partnership's properties was sold in 1986
and a second in 1997. See "Item 2, Description of Properties" for information
relating to these properties.
In November 1997, the Partnership sold its interest in Westbury
Springs, L.P., a Local Limited Partnership, to an affiliate of the general
partner of the Local Limited Partnership for $1,447,000. As a result of the
Partnership's investment account having a zero balance at the date of sale, the
Partnership recognized a gain on sale of $1,447,000. The Partnership distributed
these proceeds during the first quarter of 1998.
Defaults
The Partnership holds limited partnership interests in Local Limited
Partnerships which own apartment properties, all of which were originally
financed with HUD-insured first mortgages. If a Local Limited Partnership
defaults on a HUD-insured mortgage, the mortgagee can assign the defaulted
mortgage to HUD and recover the principal owed on its first mortgage from HUD.
HUD, in its discretion, may then either (i) negotiate a workout agreement with
the Local Limited Partnership, (ii) sell the mortgage, or (iii) pursue its right
to transfer the ownership of the property from the Local Limited Partnership to
HUD through a foreclosure action. The objective of a workout agreement between
an owner and HUD is to secure HUD's sanction of a plan which, over time, will
cure any mortgage delinquencies. While a workout agreement is effective and its
terms are being met, HUD agrees not to pursue any remedies available to it as a
result of the default.
In March 1987, the Local Limited Partnership owning Southwest Parkway
defaulted on its mortgage. Over time, the Local Limited Partnership submitted
various proposals to HUD to cure the mortgage default, all of which had been
rejected. The Partnership was notified that this mortgage would be included in
an auction. In August 1996, the Local Limited Partnership owning Southwest
Parkway Apartments ("Southwest Parkway"), in an effort to avoid a foreclosure of
the property, filed a voluntary petition for reorganization under Chapter 11 of
the United States Bankruptcy Code. In November 1996, Southwest Parkway filed its
Bankruptcy Plan which was confirmed by the Bankruptcy Court in January 1997. The
plan included the payment to the lender of $4,100,000 as full satisfaction of
the outstanding indebtedness. In order to effect this transaction, the
Partnership invested an additional $1,799,000 in Southwest Parkway as a capital
3
<PAGE>
contribution and Southwest Parkway obtained a new first mortgage loan in the
amount of $2,200,000. As a result of this transaction, the Partnership
recognized an extraordinary gain of $2,522,000 on extinguishment of debt in
1997. See "Item 2, Description of Properties" for information with respect to
the origination of funds used to satisfy the outstanding indebtedness.
Employees
The Partnership does not have any employees. Until December 16, 1997,
Services were performed for the Partnership by the Managing General Partner, and
agents retained by it, including Winthrop Management, an affiliate of the
Managing General Partner. On October 28, 1997, affiliates of the Managing
General Partner and Insignia Financial Group, Inc. ("Insignia") entered into an
agreement pursuant to which, among other things, an affiliate of Insignia was to
be retained as the property manager at the Local Limited Partnership properties
then managed by Winthrop Management. This transfer of property management was
subject to certain conditions including HUD approval. As of March 1, 1998, HUD
approval had been obtained with respect to Southwest Parkway. The remaining
Local Limited Partnerships properties are managed by the Local Limited
Partnerships' respective general partners. Insignia subsequently merged with
and into Apartment Investment and Management Company.
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
right to receive fees from the Partnership as provided in the Partnership
Agreement. See "Item 12. Certain Relationships and Related Transactions."
4
<PAGE>
Item 2. Description of Properties.
The Partnership has invested in Local Limited Partnerships which own
properties located in diverse markets with respect to both the amount and nature
of competition affecting the properties. Some of the rental markets first became
overbuilt during the mid-1980's. Supply of apartments available for rent began
to exceed demand and consumers became very price sensitive. In order to attract
tenants, certain properties were required to maintain rental rates rather than
increase them to meet increasing costs. As a result, these properties were
forced to defer maintenance and replacements which were necessary to attract
tenants, thus exacerbating the competitive forces at work in these markets.
The following table sets forth certain information regarding the
properties owned by the Local Limited Partnerships in which the Partnership has
retained an interest and which continue to own apartment properties as of March
15, 1999:
<TABLE>
<CAPTION>
Date Number
of of
Property Name Location Acquisition(1) Units
- ------------- --------- -------------- ------
<S> <C> <C> <C>
Whisper Lake Orlando, FL 2/24/82 400
Apartments
Sanford Landing Sanford, FL 4/06/82 264
Apartments
Honeywood
Apartments Roanoke, VA 1/05/83 300
Brookside
Apartments(2) Sylacauga, AL 4/20/82 80
Southwest Parkway Wichita Falls, TX 6/22/82 200
Apartments (3)
Wedgewood Creek Gurnee, IL 6/24/82 198
Apartments
Mountain Vista I Albuquerque, NM 10/28/82 124
Mountain Vista II Albuquerque, NM 10/28/82 96
Cibola Village Albuquerque, NM 10/28/82 128
Apartments
Crofton Village Crofton, MD 10/04/82 258
Apartments
</TABLE>
- --------------------
(1) Represents the date on which the Partnership made its initial investment in
the Local Limited Partnership
(2) Consolidated effective November 1, 1998
(3) Consolidated effective January 1, 1997.
5
<PAGE>
The following table sets forth information relating to the first
mortgage encumbering each of the Local Limited Partnership's properties:
Principal Principal
Balance at Balance
December 31, Interest Period Maturity Due at
Property 1998 Rate Amortized Date Maturity
- -------- ---- ---- --------- ---- ---------
Whisper Lake $11,745,000 7.675% 40 years 4/1/2024 (1)
Sanford Landing 9,299,000 8.75% 40 years 6/1/2024 (1)
Honeywood 5,607,000 7.5% 40 years 12/1/2019 (1)
Brookside 1,384,000 7.5% 40 years 2/1/2023 (1)
Southwest Parkway 2,162,000 8.75% 27.5 years 2/1/2007 $1,898,000
Wedgewood Creek 8,793,000 7.5% 40 years 8/1/2024 (1)
Mountain Vista I 1,830,000 7.5% 38 years 10/1/2018 (1)
Mountain Vista II 1,945,000 7.5% 38 years 5/1/2020 (1)
Cibola Village 1,841,000 7.5% 37 years 2/1/2019 (1)
Crofton Village 9,410,000 8.2% 38 years 9/1/2006 (1)
(1) Loan at maturity is fully amortized.
In connection with the Bankruptcy of the Local Limited Partnership
which owns Southwest Parkway Apartments, on January 27, 1997 the Local Limited
Partnership obtained a new first mortgage loan in the principal amount of
$2,200,000. The loan bears interest at a rate of 8.75%, is amortized over a 27.5
year period and matures on February 1, 2007. The Local Limited Partnership paid
approximately $100,000 in transactional costs.
In order to obtain the remaining $2,000,000 needed by the Local Limited
Partnership to satisfy the then existing debt on the property pursuant to the
Bankruptcy Plan, the Partnership made a capital contribution of approximately
$1,799,000 and the balance was funded from the Local Limited Partnership's cash
reserves.
6
<PAGE>
The following table sets forth the Partnership's ownership interest in
each of the Local Limited Partnerships:
Apartment Complexes Owned by
The Local Limited Partnerships Ownership Interest
- ------------------------------ ------------------
Whisper Lake Apartments 99%
Sanford Landing Apartments 98%
Honeywood Apartments 95%
Brookside Apartments 99%
Southwest Parkway Apartments 97%
Wedgewood Creek Apartments 99%
Mountain Vista I 90%
Mountain Vista II 90%
Cibola Village Apartments 90%
Crofton Village Apartments 44%
The following chart provides comparative data for each property owned
by the Local Limited Partnerships regarding occupancy rates and average market
rental rates per apartment unit, for the last two years, where that data is
available to the Partnership:
<TABLE>
<CAPTION>
Average Monthly
Average Monthly Rental
Occupancy Rate Rate per Unit
Property 1998 1997 1998 1997
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C>
Whisper Lake 96% 94% $649 $588
Sanford Landing 96% 95% $585 $523
Honeywood 97% 98% $519 $516
Brookside 94% 89% $300 $332
Southwest Parkway 95% 90% $445 $411
Wedgewood Creek 96% 93% $749 $737
Mountain Vista I 80% 83% $555 $573
Mountain Vista II 86% 88% $555 $587
Cibola Village 90% 89% $509 $507
Crofton Village 98% 92% $727 $691
</TABLE>
7
<PAGE>
Set forth below is a table showing the gross carrying value and
accumulated depreciation and federal tax basis of each of the Partnership's
properties as of December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Property Gross Federal
Carrying Accumulated Tax
Value Depreciation Rate Method Basis
-------- ------------ ---- ------ ------
<S> <C> <C> <C> <C> <C>
Whisper Lake $14,250 $8,408 10-25 yrs. S/L $1,107
Sanford Landing 9,043 5,462 7-25 yrs. S/L 460
Honeywood 6,154 3,786 5-30 yrs. S/L 599
Brookside 1,812 1,212 10-25 yrs. S/L 55
Southwest Parkway 5,834 3,432 10-25 yrs. S/L 677
Wedgewood Creek 11,155 6,527 10-25 yrs. S/L 890
Mountain Vista I 3,288 1,936 5-27.5 yrs. S/L (1)
Mountain Vista II 2,984 1,759 5-27.5 yrs. S/L (1)
Cibola Village 3,105 1,760 5-27.5 yrs. S/L (1)
Crofton Village 10,462 6,185 10-25 yrs. S/L 1,379
</TABLE>
(1) The Partnership's aggregate Federal Tax Basis in the Local Limited
Partnership which owns Mountain Vista I, Mountain Vista II and Cibola Village is
$1,405.
The Partnership has no present intentions of investing any additional
funds in the Local Limited Partnerships.
Item 3. Legal Proceedings.
The Partnership is not a party nor are any of its properties subject to
any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the period
covered by this report.
8
<PAGE>
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters.
The Partnership is a partnership and thus has no common stock. There is
no active market for the Units. Trading in the Units is sporadic and occurs
solely through private transactions.
As of March 1, 1999, there were 2,582 holders of 25,010 outstanding
Units.
The Partnership Agreement requires that if the Partnership has Cash
Available for Distribution, it be distributed quarterly to the Partners in
specified proportions. The Partnership Agreement defines Cash Available for
Distribution as Cash Flow less cash designated by the Managing General Partner
to be held for restoration or creation of reserves. Cash Flow, in turn, is
defined as cash derived from the Local Limited Partnerships (but excluding sale
or refinancing proceeds) and all cash derived from Partnership operations, less
cash used to pay operating expenses of the Partnership. For the years ended
December 31, 1998 and 1997, cash distributions paid or accrued to the Investor
Limited Partners as a group totaled $100,000 and $1,601,000.
9
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation.
The matters discussed in this Form 10-KSB 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-KSB 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 December 31, 1998, 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. In conjunction with a 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. 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 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
10
<PAGE>
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.
The level of liquidity based on cash and cash equivalents experienced a
$1,513,000 decrease at December 31, 1998, as compared to December 31, 1997. The
Partnerships $1,556,000 of cash used in financing activities and $400,000 of
cash used in investing activities was partially offset by $443,000 of cash
provided by operating activities. Cash used in financing activities included
$1,531,000 of distributions to partners and $25,000 of mortgage principal
payments. Cash used in investing activities included $178,000 of property
improvements, $170,000 in deposits to escrow accounts, and $52,000 of additions
to replacement reserves.
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
11
<PAGE>
to receive fees from the Partnership as provided in the Partnership Agreement.
In addition, on November 1, 1998, an affiliate of Coordinated Services of
Valdosta, LLC assumed management responsibilities of Brookside.
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 year ended December 31, 1998, Partnership distributions (paid
or accrued) aggregated $100,000 ($4.00 per unit) to its limited partners and
$5,000 to the general partners. For the year ended December 31, 1997,
Partnership distributions (paid or accrued) aggregated $1,601,000 ($64.01 per
unit) to its limited partners and $9,000 to the general partners of which
$1,447,000 related to the sale of the Partnership's interest in Westbury
Springs. 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 Registrant
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.
12
<PAGE>
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 Registrant.
This review indicated that significantly all of the computer programs used by
Coordinated Services, the 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 are utilized by
Coordinated Services, the 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 Registrant has to date not borne, nor is
it expected that the Registrant will bear any significant cost, in connection
with the upgrade of those systems to 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 no the General Partner are aware
of any external agent, including local general partners, with a Year 2000 issue
that would materially impact the Registrant's results of operations, liquidity
or capital resources. However, Coordinated Services and the General Partner have
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
Registrant. However, the effect of non-compliance by external agents is not
readily determinable.
Results of Operations
The Partnership's net income for the year ended December 31, 1998, was
$226,000, as compared to net income of $4,157,000, for year ended December 31,
1997. Net income for 1997 includes a $2,522,000 extraordinary gain on
extinguishment of debt from Southwest Parkway and a gain of $1,447,000 on the
sale of the Partnerships interest in Westbury Spring, LP., a Local Limited
Partnership. Net income before the extraordinary item and gain on sale increased
by $38,000 for the year ended December 31, 1998, as compared to the year ended
December 31, 1997. The increase is due to an increase in income of $139,000
which was partially offset by an increase in expenses of $101,000.
13
<PAGE>
Income increased for the year ended December 31, 1998, as compared to
1997, due to an increase in rental income of $55,000 at the Partnership's
Southwest Parkway property, the addition of rental income of $48,000 from the
consolidation of the Partnership's Brookside property and an increase in income
from Local Limited Partnership cash distributions of $56,000. The Partnership
received $263,000 and $111,000 of cash distributions from the Local Limited
Partnerships which own the Honeywood Apartments and the Crofton Village
Apartments, respectively, during the year ended December 31, 1998. In addition,
the Partnership received a residual cash distribution of $32,000 from Westbury
Springs, Ltd. The Partnership sold its interest in this Local Limited
Partnership during 1997. During the year ended December 31, 1997, the
Partnership received cash distributions from the Local Limited Partnerships of
$350,000 ($261,000 from Honeywood and $89,000 from Crofton Village). Expenses
increased due to various 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.
14
<PAGE>
Item 7. Financial Statements
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 1998
INDEX
Page
Independent Auditors' Report...............................................F - 2
Financial Statements:
Consolidated Balance Sheets as of December 31, 1998 and 1997...............F - 3
Consolidated Statements of Income for the Years Ended
December 31, 1998 and 1997............................................F - 4
Consolidated Statements of Partners' Capital for the Years Ended
December 31, 1998 and 1997............................................F - 5
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1998 and 1997............................................F - 6
Notes to Consolidated Financial Statements.................................F - 7
F - 1
<PAGE>
Independent Auditors' Report
To the Partners
Winthrop Residential Associates II, A Limited Partnership
We have audited the accompanying consolidated balance sheets of Winthrop
Residential Associates II, A Limited Partnership (a Maryland limited
partnership), and its subsidiaries as of December 31, 1998 and 1997, and the
related consolidated statements of income, partners' capital and cash flows for
the years then ended. These consolidated financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits. We
did not audit the financial statements of the Local Limited Partnerships, the
investments in which are reflected in the accompanying financial statements
using the equity method of accounting and were written down to zero (see Note
1). Those statements were audited by other auditors whose reports have been
furnished to us, and our opinion, insofar as it relates to the amounts included
for those Local Limited Partnerships, is based solely on the reports of other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits and
the reports of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Winthrop Residential Associates II,
A Limited Partnership, and its subsidiaries as of December 31, 1998 and 1997,
and the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
Certified Public Accountants
New York, New York
March 26, 1999
F - 2
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1998 1997
-------------------- ---------------------
<S> <C> <C>
ASSETS
Cash and cash equivalents $ 1,304 $ 2,817
Escrow deposits 457 177
Other assets 172 115
Real estate, net 3,003 2,450
-------------------- ---------------------
Total Assets $ 4,936 $ 5,559
==================== =====================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable, accrued expenses and other liabilities $ 377 $ 290
Distribution payable 26 1,452
Loan payable - affiliate 501 501
Mortgage notes payable 3,546 2,183
-------------------- ---------------------
Total Liabilities 4,450 4,426
-------------------- ---------------------
Minority interest 25 25
-------------------- ---------------------
Partners' Capital:
Limited Partners -
Units of Limited Partnership Interest,
$1,000 stated value per unit; 25,010
units authorized, issued and outstanding 1,487 2,102
General Partners' deficit (1,026) (994)
-------------------- ---------------------
Total Partners' Capital 461 1,108
-------------------- ---------------------
Total Liabilities and Partners' Capital $ 4,936 $ 5,559
==================== =====================
</TABLE>
See notes to consolidated financial statements.
F - 3
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997
-------------------- ---------------------
<S> <C> <C>
Income:
Rental income $ 989 $ 886
Income from Local Limited Partnership cash distributions 406 350
Interest income 60 74
Other income 21 27
Gain on sale of interest in Local Limited Partnership - 1,447
-------------------- ---------------------
Total income 1,476 2,784
-------------------- ---------------------
Expenses:
General and Administrative 112 90
Operating 540 489
Depreciation 235 214
Interest 216 185
Management fees 147 146
-------------------- ---------------------
Total expenses 1,250 1,124
-------------------- ---------------------
Net income before minority interest and
extraordinary item 226 1,660
Minority interest - (25)
-------------------- ---------------------
Income before extraordinary item 226 1,635
Extraordinary gain on extinguishment of debt - 2,522
-------------------- ---------------------
Net income $ 226 $ 4,157
==================== =====================
Net income allocated to General Partners $ 11 $ 150
==================== =====================
Net income allocated to Limited Partners $ 215 $ 4,007
==================== =====================
Net income per Unit of Limited Partnership interest:
Income before extraordinary item $ 8.60 $ 64.42
Extraordinary gain - 95.80
-------------------- ---------------------
Net income $ 8.60 $ 160.22
==================== =====================
Distributions per Unit of Limited Partnership Interest $ 4.00 $ 64.01
==================== =====================
</TABLE>
See notes to consolidated financial statements.
F - 4
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
YEARS ENDED DECEMBER 31, 1998 AND 1997
(In Thousands, Except Unit Data)
<TABLE>
<CAPTION>
Units of
Limited Limited General
Partnership Partners' Partners' Total
Interest Capital Deficit Capital
---------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Balance - January 1, 1997 25,010 $ 3,898 $ (914) $ 2,984
Adjustment due to consolidation (4,202) (221) (4,423)
Net income 4,007 150 4,157
Distributions (1,601) (9) (1,610)
---------------- ---------------- --------------- ----------------
Balance - December 31, 1997 25,010 2,102 (994) 1,108
Adjustment due to consolidation (730) (38) (768)
Net income 215 11 226
Distributions (100) (5) (105)
---------------- ---------------- --------------- ----------------
Balance - December 31, 1998 25,010 $ 1,487 $ (1,026) $ 461
================ ================ =============== ================
</TABLE>
See notes to consolidated financial statements.
F - 5
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------
1998 1997
--------------------- ---------------------
<S> <C> <C>
Cash Flows from Operating Activities:
Net income $ 226 $ 4,157
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 235 214
Amortization 8 7
Extraordinary gain on extinguishment of debt - (2,522)
Gain on sale of interest in Local Limited Partnership - (1,447)
Minority interest in joint ventures' operations - 25
Adjustment to consolidate Local Limited Partnership 19 -
Changes in assets and liabilities:
Increase in other assets (4) (9)
Increase (decrease) in accounts payable and accrued expenses (41) 4
--------------------- ---------------------
Net cash provided by operating activities 443 429
--------------------- ---------------------
Cash Flows From Investing Activities:
Proceeds from sale of interest in Local Limited Partnership - 1,447
Deposits to replacement reserve (52) (46)
Escrow deposits (170) 569
Property improvements (178) (56)
--------------------- ---------------------
Net cash (used in) provided by investing activities (400) 1,914
--------------------- ---------------------
Cash Flows From Financing Activities:
Loan proceeds - 2,200
Satisfaction of mortgage payable - (4,148)
Mortgage principal payments (25) (17)
Distributions to partners (1,531) (211)
Deferred loan costs - (82)
--------------------- ---------------------
Net cash used in financing activities (1,556) (2,258)
--------------------- ---------------------
Net (decrease) increase in cash and cash equivalents (1,513) 85
Cash and cash equivalents, beginning of period 2,817 2,732
--------------------- ---------------------
Cash and cash equivalents, end of period $ 1,304 $ 2,817
===================== =====================
Supplemental Disclosure of Cash Flow Information
Cash paid for interest $ 207 $ 163
===================== =====================
Supplemental Disclosure of Non-Cash Financing Activities
Accrued Distributions to Partners $ 26 $ 1,452
===================== =====================
</TABLE>
See Notes 1 and 7, with respect to consolidation of Local Limited Partnerships
in 1998 and 1997.
See notes to consolidated financial statements.
F - 6
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Winthrop Residential Associates II, A Limited Partnership (the
"Partnership") was organized on October 21, 1981 under the Uniform
Limited Partnership Act of the State of Maryland to invest in limited
partnerships (the "Local Limited Partnerships") which develop, manage,
operate and otherwise deal in government assisted apartment complexes
and which do not significantly restrict distributions to owners or the
rate of return on investments in such properties. The Partnership has
investments in eight Local Limited Partnerships owning ten apartment
complexes located throughout the United States.
The Partnership was capitalized with $25,000,000 of contributions
representing 25,000 investor limited partnership units. The offering
closed on November 17, 1982. The general partners and the initial
limited partner (10 units) contributed $12,000.
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. Losses of subsidiaries have not been
allocated to its minority interests since there is no obligation on the
part of the minority partners to fund such losses.
Southwest Parkway was consolidated effective January 1, 1997, in
connection with a significant new capital contribution by the
Partnership and a substantive transfer of control to an affiliate of
the Partnership's general partners. Brookside was consolidated
effective November 1, 1998, when an affiliate of the general partners
of the Partnership assumed control as general partner of Brookside.
Cash and Cash Equivalents
The Partnership considers all highly liquid investments with an
original maturity of three months or less at the time of purchase to be
cash equivalents. The carrying amount of cash and cash equivalents
approximates its fair value due to its short term nature.
Uses of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts in the financial statements and
accompanying notes. Actual results could differ from those estimates.
F - 7
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Real Estate
Real estate is stated at cost, less accumulated depreciation. The
Partnership records impairment losses for long-lived assets used in
operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the asset's
carrying amount. The impairment loss is measured by comparing the fair
value of the asset to its carrying amount.
Depreciation
Depreciation is computed using the straight-line method over estimated
useful lives of 15 to 25 years for buildings and improvements and 5 to
10 years for personal property.
Loan Costs
At December 31, 1998 and 1997, loan costs of $172,000 and $82,000,
respectively, are included in other assets in the accompanying balance
sheet and are being amortized on a straight-line basis over the life of
the respective loan. Accumulated amortization totaled $64,000 and
$7,000, at December 31, 1998 and 1997, respectively.
Investments in Local Limited Partnerships
The Partnership accounts for its investment in six of the Local Limited
Partnerships using the equity method. Under the equity method of
accounting, the investment cost is subsequently adjusted by the
Partnership's share of the Local Limited Partnership's results of
operations and by distributions received. Costs relating to the
acquisition and selection of the investment in the Local Limited
Partnerships are capitalized to the investment account and amortized
over the life of the investment. Costs in excess of the Partnership's
initial basis in the net assets of the Local Limited Partnership are
amortized over the estimated useful lives of the underlying assets.
Equity in the loss of Local Limited Partnerships, amortization of
investment costs and costs in excess of initial basis are not
recognized to the extent that the investment balance would become
negative, since the Partnership is not obligated to advance funds to
the Local Limited Partnerships.
Net Income Per Limited Partnership Unit
Net income per limited partnership unit is computed by dividing net
income allocated to the limited partners by the 25,010 units
outstanding.
F - 8
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
Taxable income or loss of the Partnership is reported in the income tax
returns of its partners. Accordingly, no provision for income taxes is
made in the financial statements of the Partnership.
Concentration of Credit Risk
Principally all of the Partnership's cash and cash equivalents consist
of certificates of deposit held by banks with original maturity dates
of three months or less.
Segment Reporting
In June 1997, the Financial Accounting Standards Board issued SFAS No.
131, "Disclosures about Segments of an Enterprise and Related
Information," which is effective for years beginning after December 15,
1997. SFAS 131 established standards for the way that public business
enterprises report information about operating segments in annual
financial statements and requires that those enterprises report
selected information about operating segments in interim financial
reports. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The
Partnership has one reportable segment, residential real estate. The
Partnership evaluates performances based on net operating income, which
is income before depreciation, amortization, interest and non-operating
items.
Reclassification
Certain reclassifications have been made to the 1997 balances to
conform to the 1998 presentation.
2. ALLOCATION OF PROFITS, LOSSES AND DISTRIBUTIONS
In accordance with the partnership agreement, profits and losses not
arising from a sale or refinancing and cash available for distribution
are allocated 5% to the general partners and 95% to the limited
partners. Gains and distributions of proceeds arising from a sale or
refinancing are allocated first to the limited partners to the extent
of their Adjusted Capital Contribution (as defined) and then in
accordance with the partnership agreement, however, the general partner
is allocated at least 1% of the gain. In the event that there is no
cash to be distributed from a sale or refinancing, gains are allocated
5%, to the general partners and 95%, to the limited partners.
3. TRANSACTIONS WITH RELATED PARTIES
One Winthrop Properties, Inc. ("One Winthrop" or the "Managing General
Partner") and WP Management Co., Inc. ("WP Management"), the manager of
the Partnership's investments in the Local Limited Partnerships, are
wholly owned subsidiaries of First Winthrop Corporation, which in turn
is controlled by Winthrop Financial Associates, A Limited Partnership
("WFA").
F - 9
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
3. TRANSACTIONS WITH RELATED PARTIES (Continued)
WP Management is entitled to a fee for services rendered in managing
the Partnership's investments in the Local Limited Partnerships equal
to 10% of the Partnership's share of cash distributions from operations
of the Local Limited Partnerships, not to exceed one half of 1% of the
sum of (a) the amount of the Partnership's aggregate total investment
in all Local Limited Partnerships, plus (b) the Partnership's allocable
share of all liens and mortgages secured by the projects of all Local
Limited Partnerships. The fee is noncumulative and commenced at the
closing of each Local Limited Partnership's permanent loan. The minimum
fee is $100,000 per annum. For the year ended December 31, 1997, WP
Management earned $100,000 for managing the Partnership's investments
in the Local Limited Partnerships.
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. 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. In
connection therewith, Coordinated Services, which is a related party
for financial reporting purposes only, earned fees of $100,000 for the
year ended December 31, 1998. Coordinated Services is affiliated with
the management agent of Brookside. For the year ended December 31,
1998, the management agent received management and other fees of
approximately $31,000.
Affiliates of the Managing General Partner were paid management fees,
based on 5% of the gross receipts of the property, of approximately
$45,000 and $46,000 during 1998 and 1997, respectively. As of December
31, 1998 and 1997, Southwest Parkway is obligated to its general
partner for an operating deficit loan payable of $501,000. The loan is
non-interest bearing. An affiliate of the Managing General Partner
received a fee of approximately $17,000, in connection with refinancing
the Southwest Parkway debt in 1997.
4. REAL ESTATE
<TABLE>
<CAPTION>
Real estate is comprised of the following: December 31,
--------------------------------------------
1998 1997
------------------ ----------------
<S> <C> <C>
Land $ 318,000 $ 263,000
Buildings, Improvements and
Personal Property 7,329,000 5,394,000
------------------ ----------------
7,647,000 5,657,000
Accumulated Depreciation (4,644,000) (3,207,000)
------------------- -----------------
$ 3,003,000 $ 2,450,000
================== ================
</TABLE>
F - 10
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
5. SALE OF INTEREST
During November 1997, the Partnership sold its interest in Westbury
Springs, L.P., a Local Limited Partnership, to an affiliate of the
general partner of the Local Limited Partnership for $1,447,000. The
Partnership recognized a $1,447,000 gain on sale, as a result of the
Partnership's investment account having a zero balance at the date of
sale. The Partnership distributed these proceeds to the limited
partners in February 1998.
6. MORTGAGE NOTES PAYABLE
In January 1997, Southwest Parkway obtained a new first mortgage in the
amount of $2,200,000. The mortgage has a current balance of $2,162,000
bears interest at 8.75%, requires monthly payments of $17,647 and is
being amortized over approximately 27 years. The loan matures on
February 1, 2007, with a balloon payment of approximately $1,898,000,
and is secured by the deed of trust on the rental property. 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. In connection with the discounted payoff of
the old mortgage, the Partnership recognized an extraordinary gain of
$2,522,000 on the extinguishment of debt in 1997.
The mortgage encumbering Brookside in the amount of $1,384,000 is self
amortizing and is payable in monthly installments of $10,348, including
interest at 7 1/2%, through February 1, 2023, the date of maturity. The
mortgage is collateralized by the rental property, security interest,
liens and endorsements common to first mortgage loans.
The estimated fair value of the Partnership's debt approximates its
carrying amount.
Principal payments on the mortgage notes are due as follows:
1999 $ 45,000
2000 49,000
2001 53,000
2002 57,000
2003 61,000
Thereafter 3,281,000
-------------------
$ 3,546,000
===================
F - 11
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
7. INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS
As of December 31, 1998, the Partnership's equity interests in six
Local Limited Partnerships is summarized, as follows:
<TABLE>
<CAPTION>
Local Limited Partnership Percentage Ownership
----------------------------------------------------------------------------------------- -------------------------
<S> <C>
Whisper Lake, Ltd. (Whisper Lake Apartments) 99
Sanford Landing Apartments, Ltd. (Sanford Landing Apartments) 98
Honeywood Associates (Honeywood Apartments) 95
Wedgewood Creek Limited Partnership (Wedgewood Creek Apartments) 99
First Investment Limited Partnership IX (Mountain Vista I, 90
Mountain Vista II and Cibola Village Apartments)
Crofton Village Limited Partnership (Crofton Village Apartments) 44
</TABLE>
In addition, the Partnership holds a 97% limited partnership interest
in Southwest Parkway, which was accounted for under the equity method
prior to January 1997, and a 99% limited partnership interest in
Brookside, which was accounted for under the equity method prior to
November 1998. Southwest Parkway currently has a housing assistance
contract with the Federal Housing Administration which accounts for
approximately 31% of rental revenue. This contract expires on June 30,
1999.
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 during 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
$1,799,000 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.
Effective November 1, 1998, an affiliate of the general partner of the
Partnership assumed control as general partner of Brookside. In
addition, an affiliate of Coordinated Services of Valdosta, LLC assumed
management responsibilities 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 to be used for capital
improvements in Brookside.
As of December 31, 1998, the Partnership has Limited Partnership equity
interests in six Local Limited Partnerships that own eight apartment
complexes. These Local Limited Partnerships have outstanding mortgages
totaling $50,470,000 which are secured by the Local Limited
Partnerships' real property, security interests, liens and endorsements
common to first mortgage loans.
F - 12
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
7. INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS (Continued)
The combined balance sheets of the Local Limited Partnerships are as
follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------
1998 1997
-------------------- ---------------------
<S> <C> <C>
ASSETS
Real estate, at cost:
Land $ 4,025 $ 4,079
Buildings, net of accumulated depreciation
of $35,823 and $34,679 in 1998
and 1997, respectively 20,594 23,291
Cash and cash equivalents 1,138 1,095
Other assets, net of accumulated amortization
of $1,519 and $1,517 in 1998 and
1997, respectively 3,380 3,772
-------------------- ---------------------
Total Assets $ 29,137 $ 32,237
==================== =====================
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Notes payable $ 2,012 $ 2,428
Loans payable 473 473
Mortgage notes payable 50,470 52,488
Accounts payable and accrued expenses 2,465 2,489
-------------------- ---------------------
Total Liabilities 55,420 57,878
-------------------- ---------------------
Partners' Deficit:
Winthrop Residential Associates II (23,869) (23,268)
Other partners (2,414) (2,373)
-------------------- ---------------------
Total Deficit (26,283) (25,641)
-------------------- ---------------------
Total Liabilities and Partners' Deficit $ 29,137 $ 32,237
==================== =====================
</TABLE>
F - 13
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
7. INVESTMENTS IN LOCAL LIMITED PARTNERSHIPS (Continued)
The combined statements of operations of the Local Limited Partnerships
are as follows (in thousands):
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------------------
1998 1997
-------------------- ---------------------
<S> <C> <C>
Income:
Rental income $ 12,121 $ 12,882
Other income 580 511
-------------------- ---------------------
Total Income 12,701 13,393
-------------------- ---------------------
Expenses:
Interest 4,061 4,427
Depreciation and amortization 2,418 2,616
Taxes and insurance 1,271 1,318
Other operating expenses 5,828 5,728
-------------------- ---------------------
Total Expenses 13,578 14,089
-------------------- ---------------------
Net loss $ (877) $ (696)
==================== =====================
Net loss allocated to
Winthrop Residential Associates II $ (918) $ (688)
==================== =====================
Net income (loss) allocated to
other partners $ 41 $ (8)
==================== =====================
</TABLE>
F - 14
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
8. PROFORMA FINANCIAL INFORMATION
The following proforma condensed, consolidated balance sheet assumes
that the Partnership, Southwest Parkway and Brookside were consolidated
at December 31, 1997, and the proforma condensed, consolidated
statements of operations assume that the Partnership, Southwest Parkway
and Brookside were consolidated at January 1, 1997 (in thousands):
<TABLE>
<CAPTION>
December 31,
1997
-------------------
<S> <C>
Cash $ 2,919
Other assets, primarily real estate
3,517
-------------------
Total assets $ 6,436
===================
Liabilities, primarily mortgage notes payable $ 4,619
Distribution payable 1,452
Capital 365
-------------------
Total liabilities and partners' capital $ 6,436
===================
<CAPTION>
Years Ended December 31,
----------------------------------------------
1998 1997
------------------- -------------------
<S> <C> <C>
Total revenue $ 1,732 $ 3,091
------------------- -------------------
Operating and other expenses 946 942
Depreciation
290 280
Mortgage interest 295 291
------------------- -------------------
Total expenses 1,531 1,513
------------------- -------------------
Extraordinary gain on extinguishment of debt - 2,522
------------------- -------------------
Net income $ 201 $ 4,100
=================== ===================
</TABLE>
The proforma results do not necessarily represent the results which
would have occurred if the transaction had taken place on the basis
assumed above, nor are they indicative of the results of future
operations.
F - 15
<PAGE>
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1998 AND 1997
(Continued)
9. TAXABLE INCOME
The Partnership's taxable income differs from net income for financial
reporting purposes as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------------------- --------------------
<S> <C> <C>
Net income for financial reporting purposes $ 226 $ 4,157
Differences in equity in Local Limited
Partnership's income/loss for financial
reporting and tax reporting purposes 510 2,672
Income from Local Limited Partnership cash
distributions (406) (350)
------------------- --------------------
Taxable income $ 330 $ 6,479
=================== ====================
</TABLE>
F - 16
<PAGE>
Item 8. Changes in and Disagreements on Accounting and
Financial Disclosure.
There were no disagreements with Imowitz Koenig & Co., LLP regarding
the 1998 or 1997 audits of the Partnership's financial statements.
32
<PAGE>
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
The Partnership has no officers or directors. One Winthrop Properties,
Inc., the managing general partner of the Partnership (the "Managing General
Partner"), manages and controls substantially all of the Partnership's affairs
and has general responsibility and ultimate authority in all matters affecting
its business. As of March 1, 1999, the names of the directors and executive
officers of the Managing General Partner and the position held by each of them,
are as follows:
Has Served as
Position Held with the a Director or
Name Managing General Partner Officer Since
- ---- ------------------------ --------------
Michael L. Ashner Chief Executive Officer 1-96
and Director
Thomas C. Staples Chief Financial Officer 1-99
Peter Braverman Executive Vice President 1-96
Carolyn Tiffany Chief Operating Officer 10-95
and Clerk
Michael L. Ashner, age 46, has been the Chief Executive Officer of
Winthrop Financial Associates, A Limited Partnership ("WFA") and the Managing
General Partner since January 15, 1996. From June 1994 until January 1996, Mr.
Ashner was a Director, President and Co-chairman of National Property Investors,
Inc., a real estate investment company ("NPI"). Mr. Ashner was also a Director
and executive officer of NPI Property Management Corporation ("NPI Management")
from April 1984 until January 1996. In addition, since 1981 Mr. Ashner has been
President of Exeter Capital Corporation, a firm which has organized and
administered real estate limited partnerships.
Thomas C. Staples, age 43, has been the Chief Financial Officer of WFA
since January 1, 1999. From March 1996 through December 1998, Mr. Staples was
Vice President/Corporate Controller of WFA. From May 1994 through February 1996,
Mr. Staples was the Controller of the Residential Division of Winthrop
Management.
Peter Braverman, age 47, has been a Vice President of WFA and the
Managing General Partner since January 1996. From June 1995 until January 1996,
Mr. Braverman was a Vice President of
33
<PAGE>
NPI and NPI Management. From June 1991 until March 1994, Mr. Braverman was
President of the Braverman Group, a firm specializing in management consulting
for the real estate and construction industries. From 1988 to 1991, Mr.
Braverman was a Vice President and Assistant Secretary of Fischbach Corporation,
a publicly traded, international real estate and construction firm.
Carolyn Tiffany, age 32, has been employed with WFA since January 1993.
From 1993 to September 1995, Ms. Tiffany was a Senior Analyst and Associate in
WFA's accounting and asset management departments. Ms. Tiffany was a Vice
President in the asset management and investor relations departments of WFA from
October 1995 to December 1997, at which time she became the Chief Operating
Officer of WFA.
One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of the following
limited partnerships which either have a class of securities registered pursuant
to Section 12(g) of the Securities and Exchange Act of 1934, or are subject to
the reporting requirements of Section 15(d) of such Act: Winthrop Partners 79
Limited Partnership; Winthrop Partners 80 Limited Partnership; Winthrop Partners
81 Limited Partnership; Winthrop Residential Associates I, A Limited
Partnership; Winthrop Residential Associates III, A Limited Partnership; 1626
New York Associates Limited Partnership; 1999 Broadway Associates Limited
Partnership; Nantucket Island Associates Limited Partnership; One Financial
Place Limited Partnership; Presidential Associates I Limited Partnership;
Riverside Park Associates Limited Partnership; Springhill Lake Investors Limited
Partnership; Twelve AMH Associates Limited Partnership; Winthrop California
Investors Limited Partnership; Winthrop Growth Investors I Limited Partnership;
Winthrop Interim Partners I, A Limited Partnership; Southeastern Income
Properties Limited Partnership; and Southeastern Income Properties II Limited
Partnership.
Except as indicated above, neither the Partnership nor the Managing
General Partner has any significant employees within the meaning of Item 401(b)
of Regulation S-B. There are no family relationships among the officers and
directors of the Managing General Partner.
Based solely upon a review of Forms 3 and 4 and amendments thereto
furnished to the Partnership under Rule 16a-3(e) during the Partnership's most
recent fiscal year and Forms 5 and amendments thereto furnished to the
Partnership with respect to its most recent fiscal year, the Partnership is not
aware of any director, officer, beneficial owner of more than ten percent of the
units of limited partnership interest in the Partnership that
34
<PAGE>
failed to file on a timely basis, as disclosed in the above Forms, reports
required by section 16(a) of the Exchange Act during the most recent fiscal year
or prior fiscal years.
Effective December 16, 1997, the Managing General Partner and certain
of its affiliates entered into an agreement with Coordinated Services of
Valdosta, LLC ("Coordinated Services") to provide for the daily asset and
property management services and investor services for the Partnership. See
"Item 11, Security Ownership of Certain Beneficial Owners and Management."
Coordinated Services of Valdosta LLC is a Georgia limited liability corporation
with headquarters in Valdosta, Georgia. Founded in 1997, its managing member is
Investor Service Group, Inc., a Georgia Corporation. The principals of Investor
Service Group are Mary T. Johnson and James L. Dewar, Jr.
Mary T. Johnson is the Manager of Coordinated Services. Ms. Johnson is
also Executive Vice President of Dewar Realty, Inc. and Dewar Properties, Inc.
Ms. Johnson is a graduate of Valdosta State University and is a licensed Georgia
Real Estate Broker. Ms. Johnson has 21 years of experience in property
management, asset management, investor services, and development of apartment
and assisted living properties. Ms. Johnson is currently responsible for the
asset management of over 150 investor partnerships and property management of
over 50 apartment communities.
James L. Dewar, Jr. is the founder of Dewar Realty, Inc. and Dewar
Properties, Inc. Mr. Dewar is a graduate of the University of Georgia and is a
licensed Georgia Real Estate Broker. Mr. Dewar has 32 years experience in real
estate construction, property management and development of apartment and
assisted living properties. Mr. Dewar has produced over $100 million in
conventional and government funded family and elderly apartment communities.
Item 10. Executive Compensation.
The Partnership is not required to and did not pay any compensation to
the officers or directors of the Managing General Partner. The Managing General
Partner does not presently pay any compensation to any of its officers or
directors. (See Item 12, "Certain Relationships and Related Transactions.")
35
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and
Management.
(a) Security ownership of certain beneficial owners.
The General Partners own all the outstanding general partnership
interests. No person or group is known by the Partnership to be the beneficial
owner of more than 5% of the outstanding Units at December 31, 1998. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited
and, in some circumstances, are subject to the prior receipt of certain opinions
of counsel or judicial decisions.
Under the Partnership Agreement, the right to manage the business of
the Partnership is vested in the General Partners and is generally to be
exercised only by the Managing General Partner, although approval of
Linnaeus-Hawthorne is required as to all investments in Local Limited
Partnerships and in connection with any votes or consents arising out of the
ownership of a Local Limited Partnership interest.
(b) Security ownership of management.
None of the officers, directors or general partners of the General
Partners or their respective officers, directors or general partners owned any
Units at December 31, 1998 in individual capacities; however, WFC Realty Co.,
Inc., a wholly owned subsidiary of First Winthrop, (of which certain officers
and directors of the Managing General Partner are officers or directors) owns 95
units (.38%).
(c) Changes in control.
There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the Partnership.
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
36
<PAGE>
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
right to receive fees from the Partnership as provided in the Partnership
Agreement.
Item 12. Certain Relationships and Related Transactions.
The General Partners and their affiliates are entitled to receive
various fees, commissions, cash distributions, allocations of taxable income or
loss and expense reimbursements from the Partnership. WP Management Co., Inc.
("WP Management"), an affiliate of the Managing General Partner, is entitled to
a fee for services rendered in managing the Partnership's investments equal to
10% of the Partnership's share of cash distributions from the Local Limited
Partnerships, not to exceed 1/2 of 1% of the sum of (a) the amount of the
Partnership's aggregate total investment in all Local Limited Partnerships, plus
(b) the Partnership's allocable share of all liens and mortgages secured by the
projects of all Local Limited Partnerships. The fee is noncumulative and
commences at the closing of each Local Limited Partnership's permanent loan. For
the year ended December 31, 1997, WP Management earned approximately $100,000.
The Partnership's general partners are entitled to 5% of cash available
for distribution. The general partners received $5,304 and $9,214 of cash
distributions in 1998 and 1997, respectively.
For the year ended December 31, 1998, the Partnership allocated $6,188
of taxable income to the Managing General Partner and $10,314 to the Associate
General Partner.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits:
The Exhibits listed on the accompanying Index to Exhibits are
filed as part of this Annual Report and incorporated in this
Annual Report as set forth in said Index.
(b) Reports on Form 8-K - None
37
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized this 13th day of April
1999.
WINTHROP RESIDENTIAL ASSOCIATES II,
A LIMITED PARTNERSHIP
By: ONE WINTHROP PROPERTIES, INC.
Managing General Partner
By: /s/ Michael L. Ashner
---------------------------
Michael Ashner
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature/Name Title Date
- -------------- ----- -----
/s/ Michael Ashner Chief Executive April 13, 1999
- ------------------ Officer and Director
Michael Ashner
/s/ Thomas Staples Chief Financial Officer April 13, 1999
- ------------------
Thomas Staples
38
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Title of Document Page
<S> <C> <C>
3. Agreement and Certificate of Limited Partnership of Winthrop
Residential Associates II, A Limited Partnership, dated as of
June 23, 1983 (incorporated by reference to the Registrant's
Annual Report on Form 10-K for the fiscal year ended December
31, 1983)
4. Agreement and Certificate of Limited Partnership of Winthrop
Residential Associates II, A Limited Partnership, dated as of
June 23, 1983 (incorporated herein by reference to the
Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1983)
10.1 Agreement between Winthrop Residential Associates II, A
Limited Partnership and The Artery Organization, Inc.
(incorporated herein by reference to the Registrant's
Registration Statement on Form S-11, File No. 2-74784)
10.2 Service Agreement, dated December 16, 1997, by and between
First Winthrop Corporation, Winthrop Financial Co., Inc., WFC
Realty Co., Inc., WFC Realty Saugus, Inc., Winthrop
Properties, Inc., Winthrop Metro Equities Corporation,
Winthrop Lisbon Realty, Inc. and Northwood Realty Co., Inc.
and Coordinated Services of Valdosta, LLC. (incorporated by
reference to the Registrant's Annual Report on Form 10KSB for
the year ended December 31, 1998).
16. Letter from Arthur Andersen LLP dated September 19, 1996
(incorporated herein by reference to Registrant's Current
Report on Form 8-K dated September 19, 1996).
27. Financial Data Schedule
99. Supplementary Information required pursuant to Section 9.4. of
the Partnership Agreement
</TABLE>
39
<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> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,304,000
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 7,647,000
<DEPRECIATION> (4,644,000)
<TOTAL-ASSETS> 4,936,000
<CURRENT-LIABILITIES> 0
<BONDS> 3,546,000
<COMMON> 0
0
0
<OTHER-SE> 461,000
<TOTAL-LIABILITY-AND-EQUITY> 4,936,000
<SALES> 0
<TOTAL-REVENUES> 1,416,000
<CGS> 0
<TOTAL-COSTS> 922,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 216,000
<INCOME-PRETAX> 226,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 226,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 226,000
<EPS-PRIMARY> 8.60
<EPS-DILUTED> 8.60
</TABLE>
<PAGE>
Exhibit 99
WINTHROP RESIDENTIAL ASSOCIATES II, A LIMITED PARTNERSHIP
DECEMBER 31, 1998
Supplementary Information Required Pursuant to Section 9.4 of the Partnership
Agreement (Unaudited)
1. Statement of Cash Available for Distribution for the:
<TABLE>
<CAPTION>
Year Ended Three Months Ended
December 31, 1998 December 31, 1998
----------------- -----------------
<S> <C> <C>
Net Income: $ 226,000 $ 48,000
Add: Depreciation 235,000 75,000
Amortization 8,000 2,000
Less: Cash to reserves (364,000) (99,000)
------------------ ----------------
Cash Available for Distribution $ 105,000 $ 26,000
================== ================
Distributions allocated to General Partners $ 5,000 $ 1,000
================== ================
Distributions allocated to Limited Partners $ 100,000 $ 25,000
================== ================
</TABLE>
2. Fees and other compensation paid or accrued by the Partnership to the
General Partners, or their affiliates, during the three months ended
December 31, 1998:
<TABLE>
<CAPTION>
Entity Receiving Form of
Compensation Compensation Amount
------------------------------- --------------------------------------------------- -------------------------
<S> <C> <C>
General Partners Interest in Cash Available for Distribution $ 1,300
WFC Realty Co., Inc.
(Initial Limited Partner) Interest in Cash Available for Distribution $ 5
</TABLE>
