UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_______________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000 Commission file number 2-89185
GULLEDGE REALTY INVESTORS II, L.P.
State of Organization: VIRGINIA I.R.S. Employer Identification No. 54-1191237
ONE NORTH JEFFERSON AVENUE
ST. LOUIS, MISSOURI 63103
Registrant's telephone number, including area code: (314) 955-4188
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 of 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
GULLEDGE REALTY INVESTORS II, L.P.
(A LIMITED PARTNERSHIP)
INDEX
PAGE
PART I. FINANCIAL INFORMATION:
Balance Sheets
Statements of Operations
Statements of Changes in Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
Management's Financial Discussion
PART II. OTHER INFORMATION
SIGNATURES
BALANCE SHEETS
(UNAUDITED)
June 30, December 31,
ASSETS 2000 1999
Cash and cash equivalents $ 24,535 $ 14,777
Advances to Project Partnerships 11,567 9,595
Investment in Project
Partnership (Note B) 163,150 487,199
Total Assets $ 199,252 $ 511,571
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 4,667 $ 8,500
Payable to affiliates 636,300 589,720
Note payable and accrued
interest payable (Note B) 3,565,900 3,746,010
Capital contributions payable 50,000 50,000
Total Liabilities 4,256,867 4,394,230
Partners' Deficit (4,057,615) (3,882,659)
Total Liabilities and
Partners' Deficit $ 199,252 $ 511,571
See Notes to Financial Statements.
STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended Six Months Ended
March 31, June 30,
2000 1999 2000 1999
Revenue:
Interest income $ 175 $ 4,119 $ 1,065 $ 8,885
Distributions 33,012
Equity in income of
Project Partnerships 51,188 45,116 82,441 90,232
51,363 49,235 83,506 132,129
Expenses:
Asset management fee 28,645 28,645 57,290 57,290
Professional fees 2,000 2,000 4,667 4,000
Consulting fees 11,000 11,000 22,000 22,000
Operating expenses 5,900 17,724 868
Interest expense
(Note B) 78,390 77,529 156,781 155,920
125,935 119,174 258,462 240,078
Net loss $(74,572) $(69,939) $(174,956) $ (107,949)
See Notes to Financial Statements.
STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
(UNAUDITED)
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
<TABLE>
<CAPTION>
Special
Total General Limited Limited
<S> <C> <C> <C> <C>
Balances at January 1, 1999 $(3,967,099) $ (52,259) $(91,544) $(3,823,296)
Net loss for six months
ended June 30, 1999 (107,949) (1,187) (2,051) (104,711)
Balances at June 30, 1999 $(4,075,048) $ (53,446) $(93,595) $(3,928,007)
Balances at January 1, 2000 $(3,882,659) $ (51,330) $(89,940) $(3,741,389)
Net loss for six months
ended June 30, 2000 (174,956) (1,925) (3,324) (169,707)
Balances at June 30, 2000 $(4,057,615) $ (53,255) $(93,264) $(3,911,096)
Number of ownership units 11,814 131 225 11,458
</TABLE>
See Notes to Financial Statements.
STATEMENTS OF CASH FLOWS
(UNAUDITED)
Six Months Ended
June 30,
2000 1999
Cash Flows From Operating Activities:
Net loss $(174,956) $(107,949)
Adjustments to reconcile net loss
to net cash used in operating activities:
Equity in (income) of Project Partnership (82,441) (90,232)
Distributions from zero basis
Project Partnerships (33,012)
Change in assets and liabilities:
(Increase)/decrease in advances
to Project Partnerships (1,972) 13,162
Decrease in accrued interest note payable (180,110) (137,817)
Decrease in accounts payable (3,833) (3,500)
Increase/(decrease) in payable
to affiliates 46,580 (199,801)
Net Cash From Operating Activities (396,732) (559,149)
Cash Flows From Investing Activities:
Distributions from all Project Partnerships 406,490 387,595
Net Cash from Investing Activities 406,490 387,595
Increase/(decrease) In Cash 9,758 (171,554)
Cash and Cash Equivalents Beginning of Period 14,777 450,473
Cash and Cash Equivalents End of Period $ 24,535 $ 278,919
Supplemental disclosure of noncash financing and
investing activities:
Interest payments $ 336,891 $ 293,736
See Notes to Financial Statements.
NOTES TO FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
Note A Summary of Significant Accounting Policies
Partnership Organization
Gulledge Realty Investors II, L.P. (the Registrant) is a limited partnership
organized in December 1983 under the laws of the Commonwealth of Virginia for
the purpose of acquiring limited partner interests in real estate limited
partnerships (Project Partnerships). These Project Partnerships are known as
Colony Place Associates, Ltd., Country Oaks Apartments Limited Partnership,
Florence Housing Limited Partnership, Hawthorn Housing Limited Partnership,
Olympic Housing Limited Partnership, Pine West Ltd., and Rancho Vista
Associates. Each of the Project Partnerships owns an operating real estate
project which receives mortgage interest subsidies and/or rental assistance from
the United States Department of Housing and Urban Development (HUD) or Farmer's
Home Administration. The Registrant commenced operations in March 1984.
The financial statements include only those assets, liabilities, and results of
operations which relate to the business of the Registrant and do not include any
assets, liabilities, or operating results attributable to the partners'
individual activities. These financial statements should be read in conjunction
with the Registrant's annual report on Form 10-K for the year ended December 31,
1999. All adjustments which, in the opinion of management, are necessary for a
fair presentation of the results of operations for the interim period have been
reflected. All such adjustments consist of normal recurring accruals, unless
otherwise disclosed in these interim financial statements. The results of
operations, for the six months ended June 30, 2000, are not necessarily
indicative of the results for the year ending December 31, 2000. Where
appropriate, prior year's financial information has been reclassified to conform
with the current year presentation.
Comprehensive losses for the six month periods ended June 30, 2000 and 1999 were
equal to the Registrant's net losses.
Cash and Cash Equivalents
Cash equivalents consist of interest bearing money market account balances.
Investments in Project Partnerships
The investment in Project Partnerships is accounted for using the equity method
of accounting. Under the equity method, investments are reflected at cost,
adjusted for the Registrant's share of the Project Partnerships' income or loss.
The Registrant is under no obligation to contribute
additional capital, or to lend monies necessary to fund cash flow deficiencies
of the Project Partnerships, because the Registrant is a limited partner in such
partnerships. The investment account will not be reduced below zero because the
Partnership is not liable for Project Partnership losses in excess of such
investment. Losses in subsequent years will be maintained separately for tax
purposes. These losses are available to be applied toward any possible future
income from these partnerships. Any distributions received from the Project
Partnerships, subsequent to reducing the investment account to zero, will be
recognized as income in the year received.
Use of Estimates
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ significantly from
those estimated.
Income Taxes
No provision has been made for current or deferred income taxes since they are
the responsibility of each partner. Profits (or gains) and losses of the
Registrant are allocated to the partners in accordance with the partnership
agreement.
Segment Reporting
In fiscal year 1998, the company adopted Statement of Financial Accounting
Standards (SFAS) No. 131, "Disclosures About Segments of an Enterprise and
Related Information." SFAS No. 131 requires that a public business enterprise
report financial and descriptive information about its reportable operating
segments. The Partnership's principal line of business is investing in Project
Partnerships that own and operate Projects that are financed and/or operated
under federal or state housing assistance programs. Management has considered
the requirements of SFAS 131 and believes that the partnership operates in one
business segment.
Note B Investment in Project Partnership and Note Payable
The Hawthorn project partnership refinanced its mortgage during 1997. Proceeds
from the refinancing were used to make a partial payment on the promissory note
which had come due December 31, 1996. The remaining balance of the promissory
note was renegotiated. The mortgage was refinanced under HUD regulations which
limit the amount of debt that can be collateralized by the project.
Accordingly, HUD would not approve the mortgage refinance unless the promissory
note was no longer a liability of the project. Therefore, the general partner
of the Registrant and the noteholder agreed to have the promissory note assumed
by the Registrant. The promissory note is now collateralized by the partners'
interests in the Hawthorn project partnership. Principal and interest due on
the promissory note are only payable from surplus cash received by the
Registrant from the Hawthorn project partnership. The Registrant is not
required to make any payments from surplus cash it receives from any other
project. The promissory note plus accrued interest totaled $3,565,900 at
June 30, 2000, and bears simple interest at a rate of 9%. Any principal and
interest remaining unpaid on June 30, 2002, will be due in full.
In conjunction with assuming the liability for the promissory note, the
Registrant also recorded a corresponding investment in Hawthorn. The investment
account was then reduced by previously unrecorded losses of Hawthorn in
accordance with the equity method of accounting. The investment account will be
adjusted in future years by the Registrant's share of any additional income or
loss from Hawthorn as reported on Hawthorn's annual audited financial
statements. This investment account will also be reduced whenever the
Registrant receives a distribution from Hawthorn. Therefore, until the
investment account is reduced to zero, the Registrant will not recognize
distribution income in future years from the Hawthorn project partnership.
None of the Project Partnerships are experiencing significant cash flow
deficiencies after adding back non-cash items such as depreciation, amortization
and accrued interest on promissory notes not currently payable to the operating
losses of the Project Partnerships.
MANAGEMENT'S FINANCIAL DISCUSSION
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
The Registrant is a limited partnership formed to acquire limited partner
interests in real estate limited partnerships (Project Partnerships). The
Registrant's investments in the Project Partnerships are recorded using the
equity method of accounting (see Note A).
The primary reasons for the increase in net loss for the six months ended
June 30, 2000 compared to the six months ended June 30, 1999 were due to the
increase in operating expenses, a reduction of interest income due to the lower
cash equivalent balance and a decrease in distribution income due to the fact
that no project partnership had paid a distribution by June 30, 2000.
The Registrant is liable for a promissory note that bears simple interest at a
rate of 9%. Principal and interest payable totaled $3,565,900 at June 30, 2000.
Principal and interest can only be paid from distributions received from
Hawthorn. The Registrant is not required to use distributions from any other
Project Partnership to make payments on this promissory note.
The Registrant's ownership interest in three other Project Partnerships (Colony
Place, Florence Housing, and Olympic Housing) is pledged as collateral in
connection with promissory notes issued by the respective Project Partnerships.
The Colony Place promissory note was due June 30, 1997 and had been extended to
November 30, 1999, while the general partner attempted to locate a buyer for the
project. A buyer was not located before November 30, 1999. This note is
currently in default. Therefore, the noteholder may demand payment and the
project may revert to the noteholder.
The Florence Housing promissory note matured December 31, 1999. Currently, the
Noteholder is in the initial stages of negotiating a sale. Because the
promissory note is in default, the general partner may be obligated to accept an
offer to sell solely to avoid foreclosure. A successful foreclosure action
would cause dissolution of the Project Partnership which could cause adverse tax
consequences without any monetary compensation to the investors. The Olympic
Housing promissory note expires December 31, 2000. Although the general partner
has successfully extended the maturity date of this note in the past, there can
be no guarantee that it will be successful in future negotiations. If the
general partner is unsuccessful in renegotiating this promissory note when due,
the Registrant could lose its ownership interest in the Project Partnership.
There could be significant adverse tax consequences to investors if the general
partner is unsuccessful in extending the maturity date of the promissory note.
FOR THE SIX MONTHS ENDED JUNE 30, 2000 AND 1999
PART II OTHER INFORMATION
Item 6: Exhibits and Reports on Form 8-K
(b) Reports on Form 8-K - There were no reports filed on Form 8-K for
the quarter ended June 30, 2000.
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.
GULLEDGE REALTY INVESTORS II, L.P.
By:GULL-AGE Properties, Inc.
Managing General Partner
Date: August 15, 2000 By:/s/Robert L. Proost
Robert L. Proost
President and Treasurer
