SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- - --- ACT OF 1934
For the quarterly period ended December 25, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
Commission File Number 0-14941
CAMBRIDGE ADVANTAGED
PROPERTIES II LIMITED PARTNERSHIP
---------------------------------
(Exact name of registrant as specified in its charter)
Delaware 13-3330195
- - ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
625 Madison Avenue, New York, New York 10022
- - ---------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212)421-5333
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
--- ---
<PAGE>
PART I
Item 1. Financial Statements
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Balance Sheets
(Unaudited)
==========================
December 25, March 25,
1996 1996*
------------ ----------
ASSETS
Property and equipment, net of
accumulated depreciation
of $42,265,995 and $45,740,158
respectively $76,532,519 $88,408,189
Cash and cash equivalents 1,339,826 1,022,522
Cash - restricted for tenants'
security deposits 587,095 601,598
Mortgage escrow deposits 2,460,694 1,875,866
Deferred costs, net of accumulated
amortization of $825,577
and $674,955, respectively 2,336,148 1,945,386
Prepaid expenses and other assets 421,368 386,169
----------- -----------
Total assets $83,677,650 $94,239,730
=========== ===========
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $98,540,229 $116,955,198
Due to selling partners 0 641,303
Accounts payable, accrued expenses
and other liabilities 7,957,986 6,961,794
Tenants' security deposits payable 587,095 595,263
Due to general partners of subsidiaries
and their affiliates 1,766,118 1,760,369
Due to general partners and
affiliates (Note 3) 3,783,211 3,124,563
----------- -----------
Total liabilities 112,634,639 130,038,490
Minority interest 4,131,487 3,629,565
----------- -----------
Commitments and Contingencies (Note 7)
Partners' deficit:
Limited partners (32,440,044) (38,716,495)
General partners (648,432) (711,830)
----------- -----------
Total partners' deficit (33,088,476) (39,428,325)
----------- -----------
Total liabilities and partners' deficit $83,677,650 $94,239,730
=========== ===========
*Reclassified for comparative purposes
See Accompanying Notes to Consolidated Financial Statements
2
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Operations
(Unaudited)
=========================== ==========================
Three Months Ended Nine Months Ended
December 25, December 25,
--------------------------- --------------------------
1996 1995* 1996 1995
--------------------------- --------------------------
Revenues
Rentals, net $ 4,223,442 $ 4,489,990 $ 12,958,721 $ 13,357,258
Other 227,310 300,802 885,440 956,371
Gain on sale of
property
(Note 5) 0 0 5,457,073 0
------------ ------------ ------------ ------------
Total revenues 4,450,752 4,790,792 19,301,234 14,313,629
------------ ------------ ------------ ------------
Expenses
Selling and
renting 139,501 148,888 469,168 472,742
Administrative and
management 640,234 762,015 2,134,561 2,199,713
Administrative and
management-related
parties (Note 3) 771,626 237,121 1,239,833 725,517
Operating 358,161 362,023 1,046,577 1,017,373
Repairs and
maintenance 716,895 683,716 2,546,053 2,058,029
Taxes and
insurance 581,649 501,152 1,637,140 1,575,854
Interest 1,820,216 2,211,539 6,193,254 7,053,606
Depreciation and
amortization 870,570 1,039,150 2,832,634 3,104,914
------------ ------------ ------------ ------------
Total expenses 5,898,852 5,945,604 18,099,220 18,207,748
------------ ------------ ------------ ------------
Net income (loss)
before minority
interest (1,448,100) (1,154,812) 1,202,014 (3,894,119)
Minority interest
in (income) loss
of subsidiaries 12,264 12,333 (23,748) 9,147
------------ ------------ ------------ ------------
Income (loss)
before extra-
ordinary item (1,435,836) (1,142,479) 1,178,266 (3,884,972)
------------ ------------ ------------ ------------
Extraordinary item-
forgiveness of
indebtedness
income (Note 6) 0 0 5,161,583 1,400,000
------------ ------------ ------------ ------------
Net income
(loss) $ (1,435,836) $ (1,142,479) $ 6,339,849 $ (2,484,972)
============ ============ ============ ============
*Reclassified for comparative purposes
See Accompanying Notes to Consolidated Financial Statements
3
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statement of Partners' Deficit
(Unaudited)
=======================================
Limited General
Total Partners Partners
---------------------------------------
Balance-
March 26, 1996 $(39,428,325) $(38,716,495) $(711,830)
Net income-nine months
ended December 25,
1996 6,339,849 6,276,451 63,398
------------ ------------ ---------
Balance-
December 25,
1996 $(33,088,476) $(32,440,044) $(648,432)
============ ============ =========
See Accompanying Notes to Consolidated Financial Statements
4
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase in Cash and Cash Equivalents
(Unaudited)
========================
Nine Months Ended
December 25,
------------------------
1996 1995
------------------------
Cash flows from operating activities:
Net income (loss) $ 6,339,849 $ (2,484,972)
------------ ------------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Gain on sale of property (Note 5) (5,457,073) 0
Extraordinary item-forgiveness of
indebtedness income (Note 6) (5,161,583) (1,400,000)
Depreciation and amortization 2,832,634 3,104,914
Minority interest in income (loss)
of subsidiaries 23,748 (9,147)
Increase in cash-restricted
for tenants' security deposits (50,359) (16,004)
Increase in mortgage escrow deposits (994,993) (805,883)
Increase in prepaid expenses
and other assets (53,845) (13,632)
Increase in accounts payable, accrued
expenses and other liabilities 2,711,014 1,559,729
Increase in tenants' security
deposits payable 56,694 16,004
Increase in due to general partners of
subsidiaries and their affiliates 45,025 68,825
Decrease in due to general partners of
subsidiaries and their affiliates (39,276) (51,099)
Increase in due to general partners
and affiliates 658,648 132,099
------------ ------------
Total adjustments (5,429,366) 2,585,806
------------ ------------
Net cash provided by
operating activities 910,483 100,834
------------ ------------
Cash flows from investing activities:
Proceeds from sale of property 14,685,000 0
------------ ------------
See Accompanying Notes to Consolidated Financial Statements
5
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase in Cash and Cash Equivalents
(continued)
(Unaudited)
============================
Nine Months Ended
December 25,
----------------------------
1996 1995
----------------------------
Cash flows from financing activities:
Increase in deferred costs (541,384) (597,799)
Increase in capitalization of
consolidated subsidiaries
attributable to minority interest 478,174 115,529
Proceeds from mortgage note
payable 6,800,000 8,185,000
Principal payments of mortgage
notes payable (22,014,969) (7,293,445)
------------ ------------
Net cash (used in) provided by
financing activities (15,278,179) 409,285
------------ ------------
Net increase in cash and cash
equivalents 317,304 510,119
Cash and cash equivalents-
beginning of period 1,022,522 319,200
------------ ------------
Cash and cash equivalents-
end of period $ 1,339,826 $ 829,319
============ ============
See Accompanying Notes to Consolidated Financial Statements
6
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Increase in Cash and Cash Equivalents
(continued)
(Unaudited)
============================
Nine Months Ended
December 25,
----------------------------
1996 1995
----------------------------
Supplemental disclosures of noncash
activities:
Forgiveness of indebtedness (Note 6):
Decrease in mortgage notes
payable (3,200,000) (700,000)
Decrease in accounts payable,
accrued expenses
and other liabilities (1,320,280) (700,000)
Decrease in due to selling partners (641,303) 0
Summarized below are the components
of the gain on sale of property:
Decrease in property and equipment,
net of accumulated depreciation 9,193,658 0
Decrease in cash-restricted for
tenants' security deposits 64,862 0
Decrease in mortgage escrow
deposits 410,165 0
Decrease in prepaid expenses and
other assets 18,646 0
Decrease in accounts payable, accrued
expenses and other liabilities (394,542) 0
Decrease in tenants' security
deposits payable (64,862) 0
See Accompanying Notes to Consolidated Financial Statements
7
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 1996
(Unaudited)
Note 1 - General
The consolidated financial statements include the accounts of Cambridge
Advantaged Properties II Limited Partnership, (the "Partnership"), and twelve
subsidiary partnerships ("subsidiaries", "subsidiary partnerships" or "Local
Partnerships") one of which only has activity through the date of sale of its
property and the related assets and liabilities on May 31, 1996. The Partnership
is the sole limited partner, with an ownership interest of 98% in each of the
subsidiary partnerships. Through the rights of the Partnership and/or the
General Partner, which General Partner has a contractual obligation to act on
behalf of the Partnership, to remove the general partner of the subsidiary local
partnerships and to approve certain major operating and financial decisions, the
Partnership has a controlling financial interest in the subsidiary local
partnerships.
The Partnership's fiscal quarter ends December 25. All subsidiaries have fiscal
quarters ending September 30. Accounts of the subsidiary partnerships have been
adjusted for intercompany transactions from October 1 through December 25.
All intercompany accounts and transactions have been eliminated in
consolidation.
Increases (decreases) in the capitalization of consolidated subsidiaries
attributable to minority interest arise from cash contributions and cash
distributions to the minority interest partners.
Losses attributable to minority interests which exceed the minority interests'
investment in a subsidiary have been charged to the Partnership. Such losses
aggregated approximately $0 and $9,500 and $0 and $36,500 for the three and nine
months ended December 25, 1996 and 1995, respectively. The Partnership's
investment in each subsidiary is equal to the respective subsidiary's partners'
equity less minority interest capital, if any.
The unaudited financial statements have been prepared on the same basis as the
audited financial statements included in the Partnership's Form 10-K for the
year ended March 25, 1996. In the opinion of the general partners, the
accompanying unaudited financial statements contain all adjustments (consisting
only of normal recurring adjustments) necessary to present fairly the financial
position of the Partnership as of December 25, 1996, the results of operations
for the three and nine months ended December 25, 1996 and cash flows for the
nine months ended December
8
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 1996
(Unaudited)
Note 1 - General (continued)
25, 1996 and 1995, respectively. However, the operating results for the nine
months ended December 25, 1996 may not be indicative of the results for the
year.
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Asset and for Long-Lived Assets to Be Disposed Of".
Under SFAS No. 121, the Partnership is required to review long-lived assets and
certain identifiable intangibles for impairment whenever events or changes in
circumstances indicate that the book value of an asset may not be recoverable.
An impairment loss should be recognized whenever the review demonstrates that
the book value of a long-lived asset is not recoverable. Effective March 26,
1996, the Partnership adopted SFAS No. 121, consistent with the required
adoption period.
Property and equipment are carried at the lower of depreciated cost or estimated
amounts recoverable through future operations and ultimate disposition of the
property. Cost includes the purchase price, acquisition fees and expenses, and
any other costs incurred in acquiring the properties. As required by SFAS 121, a
provision for loss on impairment of assets is recorded when estimated amounts
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the fair
value. Property investments themselves are reduced to estimated fair value
(generally using discounted cash flows) when the property is considered to be
impaired and the depreciated cost exceeds estimate fair value. Through December
25, 1996, the Partnership has recorded approximately $1,116,000 as an allowance
for loss on impairment of assets.
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been omitted. It is suggested that these consolidated financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Partnership's March 25, 1996 Annual Report on Form 10-K.
As of December 25, 1996, several subsidiary partnerships are experiencing
financial difficulties. There is substantial doubt about the ability of some of
the subsidiary partnerships to continue as
9
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 1996
(Unaudited)
Note 1 - General (continued)
going concerns. Recoverability of a significant portion of the Partnership's
investments will depend upon material improvements in the ability of each
subsidiary partnership to meet its debt service obligations. In addition, the
level of cash distributions provided to the Partnership by the subsidiary
partnerships have not been sufficient, and may not be sufficient in the future,
to cover the Partnership's operating expenses. As a result, the Partnership has
required, and may in the future require, funding from other sources for such
purposes. The consolidated financial statements do not include any adjustments
that might result from the outcome of these uncertainties. See Note 7 and the
Partnership's March 25, 1996 Annual Report on Form 10-K for management's
intentions.
Note 2 - Due to Selling Partners
Notes payable in the original amount of $14,171,840 were issued to the selling
partners of the subsidiary partnerships as part of the purchase price. Payment
dates of these noninterest bearing notes were subject to various conditions
including breakeven and occupancy rental levels. In connection with the
refinancing of the mortgage debt of Suncreek 268, Ltd. ("Suncreek"), the balance
of the note payable to the selling partner amounting to $641,303 was forgiven
(see Note 4).
Note 3 - Related Party Transactions
One of the general partners of the Partnership, Related and Cambridge Associates
Limited Partnership ("Related/Cambridge Associates"), has a 1% interest as a
special limited partner in each of the subsidiary partnerships.
Whitney Management Corp., an affiliate of the Related General Partner, is the
general partner of one and managing agent of four properties.
Pursuant to a Completion Guarantee, the local general partner of Suncreek funded
operating deficits in the amounts of $0 and $50,000 and, $105,000 and $191,000
for the three and nine months ended December 25, 1996 and 1995, respectively.
10
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 1996
(Unaudited)
Note 3 - Related Party Transactions (continued)
The costs incurred to related parties for the three and nine months ended
December 25, 1996 and 1995 were as follows:
Three Months Ended Nine Months Ended
December 25, December 25,
------------------- --------------------
1996 1995 1996 1995
------------------- --------------------
Partnership
management
fees (a) $543,750 $ 15,000 $ 573,750 $ 45,000
Expense reimburse-
ment (b) 26,466 14,309 67,594 62,361
Property manage-
ment fees (c) 199,410 205,812 590,489 610,156
Local adminis-
trative fee (d) 2,000 2,000 8,000 8,000
-------- -------- ---------- --------
$771,626 $237,121 $1,239,833 $725,517
======== ======== ========== ========
(a) After all other expenses of the Partnership are paid, an annual partnership
management fee of up to .5% of invested assets is payable to the Partnership's
general partners and affiliates. Partnership management fees owed to the general
partners amounting to approximately $1,031,000 and $457,000 were accrued and
unpaid as of December 25, 1996 and March 25, 1996, respectively.
(b) An affiliate of the Related General Partner performs services for the
Partnership which include, but are not limited to: accounting and financing
management, registrar, transfer and assignment functions, asset management,
investor communications, printing and other administrative services. The amount
of reimbursement from the Partnership is limited by the provisions of the
Partnership Agreement. Another affiliate of the General Partners performs asset
monitoring for the Partnership. These services include site visits and
evaluations of the subsidiary partnerships' performance. Expense reimbursements
and asset monitoring fees owed to the Related General Partner amounting to
approximately $441,000 and $373,000 were accrued and unpaid as of December 25,
1996 and March 25, 1996, respectively.
(c) Property management fees paid by subsidiary partnerships amounted to
$210,333 and $219,151 and $644,692 and $650,170 for the three and nine months
ended December 25, 1996 and 1995, respectively. Of these fees $112,979 and
$121,547 and $329,994 and $357,315 were incurred to affiliates of the subsidiary
partnerships. In addition, $142,089 and $150,839 and $423,548 and $449,815
11
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 1996
(Unaudited)
Note 3 - Related Party Transactions (continued)
were incurred to affiliates of the Related General Partner for the three and
nine months ended December 25, 1996 and 1995, respectively. Of such amounts
incurred to affiliates of the Related General Partner, $55,658 and $66,574 and
$163,053 and $196,974 are also included in amounts incurred to affiliates of the
subsidiary partners because they were incurred to affiliates of both.
(d) Related/Cambridge Associates, a limited partner of the subsidiary
partnerships is entitled to receive a local administrative fee of up to $2,500
per year from each subsidiary partnership.
Note 4 - Mortgage Notes Payable
In 1985, Suncreek, a subsidiary partnership, obtained a $10,000,000 variable
rate mortgage loan securing tax exempt mortgage revenue bonds issued by the
County of Sacramento, California (the "County"), which was scheduled to mature
April 2007 and required monthly interest payments. The mortgage loan and the
bonds were secured by the property as well as a $10,000,000 irrevocable letter
of credit, obtained by Suncreek as additional collateral and credit enhancement
for the underlying bonds. On April 20, 1995 the letter of credit expired.
Consequently, the Resolution Trust Company ("RTC") purchased the bonds and
Suncreek entered into negotiations relating to a restrutcturing or discounted
payoff of the bonds to effect a refinancing of the mortgage loan.
In April 1996, Suncreek completed the refinancing. The 1985 bonds were refunded
and the existing mortgage debt of $10,000,000 was fully satisfied for $6,800,000
resulting in forgiveness of indebtedness income of $3,200,000. The refunded 1996
bonds, secured by a mortgage on the property and an irrevocable letter of
credit, bear interest at a "low floater" variable rate. The bonds mature on
April 1, 2026 and the letter of credit expires on April 15, 2006.
In connection with the refinancing under which Suncreek will pay a substantially
lower interest rate on a lower principal amount, the Partnership amended the
terms of its partnership agreement with Robert Randall, ("Randall"), the general
partner of Suncreek, to reflect the elimination of the land lease together with
all accrued and unpaid land lease payments, Randall's contribution to Suncreek
of the underlying land, as well as the elimination of all other existing
guarantee agreements between the partners. In addition, the balance of a note
payable to the selling partner amounting to $641,303 which represented a portion
of the original purchase price was forgiven.
12
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 1996
(Unaudited)
Note 4 - Mortgage Notes Payable (continued)
The first mortgage note of Apple Creek Associates of Denton, Ltd. ("Apple
Creek") matured during February 1995. Since the maturity date Apple Creek had
been involved in negotiations to obtain a loan modification on the first
mortgage and had continued to make required interest and principal payments. On
February 29, 1996, Apple Creek executed a loan modification agreement, which
provided among other things for an extension of the maturity date of the loan
for five years . Terms of the note require monthly payments of principal and
interest computed at an interest rate of 8.5%, based on an amortization period
of 25 years. In addition, Apple Creek agreed to remit on a quarterly basis 25%
of cash flow generated by the property to be applied to a principal reduction.
During the first three years of the loan extension, Apple Creek has the option
to make additional principal reductions in an amount not to exceed $300,000. As
a condition of the loan modification agreement, Apple Creek was required to pay
for all closing costs and pay a 1% fee of the restated principal balance at
closing. In September 1996, the second and third mortgage notes which matured on
February 27, 1995 and were accruing interest at 12% per annum since that date
were purchased by an affiliate of the Related General Partner. Apple Creek is
presently negotiating a modification of the junior notes with the new mortgage
noteholder.
Note 5 - Sale of Property
On May 31, 1996 the property and the related assets and liabilities of McAdam
Park-336 ("McAdam") were sold to Fannie Mae for $14,685,000 resulting in no net
proceeds to the Partnership after repayment of McAdam's mortgage debt. For
financial reporting purposes a gain on the sale of property in the amount of
$5,457,073 was realized and forgiveness of indebtedness income of $1,320,280 was
also realized as a result of forgiveness of interest on mortgage debt and
advances from the mortgage note holder. For tax purposes, the entire gain to be
realized by the Partnership is anticipated to be approximately $9,800,000.
Note 6 - Extraordinary Items
During June 1995, Woodridge, Ltd. ("Woodridge") completed a refinancing of its
first mortgage debt which matured on June 1, 1995. Under the refinancing,
$7,285,000 in variable rate first mortgage tax exempt refunding bonds were
issued by the Kansas Development Finance Authority on behalf of Woodridge. The
refunding proceeds extinguished the existing mortgage in the
13
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 1996
(Unaudited)
Note 6 - Extraordinary Items (continued)
amount of $7,850,000 and accrued interest of $700,000 at a discounted pay-off of
approximately $6,250,000 in cash plus a $900,000 second mortgage payable only
from available net cash flow and principal due at its maturity in June of 2005.
Monthly amortization payments will be paid to a sinking fund escrow account to
be used to redeem bonds at a sale or refinancing. These payments are calculated
on a 30-year schedule at a 10.65% interest rate. Effective December 1, 1995,
Woodridge elected to refund the bonds with a fixed rate to the maturity of the
bonds June 1, 2005. The fixed rate of interest is 5.9% per annum. As a result of
the refinancing, an extraordinary gain of $1,400,000 was realized, as a result
of forgiveness of former mortgage debt in the amount of $700,000 and forgiveness
of accrued interest in the amount of $700,000.
In April 1996, Suncreek completed a refinancing of its mortgage debt resulting
in forgiveness of indebtedness income of $3,200,000 which was realized as a
result of forgiveness of former mortgage debt. In addition, the balance of a
note payable to the selling partner amounting to $641,303 which represented a
portion of the original purchase price was also forgiven (see Note 4).
On May 31, 1996 the property and the related assets and liabilities of McAdam
were sold to Fannie Mae for $14,685,000. For financial reporting purposes,
forgiveness of indebtedness income of $1,320,280 was realized (see Note 5).
Note 7 - Commitments and Contingencies
The following disclosures include changes and/or additions to disclosures
regarding the subsidiary partnerships which were included in the Partnership's
Annual Report on Form 10-K for the period ended March 25, 1996 (see Note 4 for a
discussion of the elimination of Suncreek's land lease together with all accrued
and unpaid land lease payments and Note 5 for a discussion of the sale of the
property and the related assets and liabilities of McAdam).
Galveston
- - ---------
Galveston-Stewart's Landing, Ltd. ("Galveston") has sustained continued
operating deficits and has a net partners' deficiency of approximately
$5,827,000 at December 25, 1996. Galveston's mortgage note was originally due to
HUD. During 1995, HUD assigned and transferred the mortgage note to Beal Bank.
On December 14, 1995, Galveston was notified that the mortgage note
14
<PAGE>
CAMBRIDGE ADVANTAGED PROPERTIES II
LIMITED PARTNERSHIP AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 25, 1996
(Unaudited)
Note 7 - Commitments and Contingencies (continued)
was in default and Galveston was in arrears on required principal and interest
in the amount of approximately $427,000 and $2,359,000, respectively. Beal Bank
has commenced foreclosure proceedings. In order to stay such proceedings,
Galveston filed a voluntary petition under Chapter 11 of the United States
Bankruptcy Code in August 1996. As of December 25, 1996 the Partnership had
advanced $606,445 of interest-free loans to Galveston of which approximately
$549,000 remains unpaid at December 25, 1996. The Partnership's investment in
Galveston has been reduced to zero by prior years' losses. The minority interest
balance was zero at both December 25, 1996 and March 25, 1996. Galveston's net
loss after minority interest amounted to approximately $85,000 and $58,000 and,
$171,000 and $350,000 for the three and nine months ended December 25, 1996 and
1995, respectively.
15
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The Partnership's capital has been invested primarily in 12 Local Partnerships,
in which the Partnership made an initial investment of $29,354,485 (including
acquisition expenses) in the Local Partnerships. These investments are highly
illiquid. On May 31, 1996, the property and the related assets and liabilities
owned by one of the Local Partnerships was sold to a third party (see below). In
addition, the Partnership has obtained loans from an affiliate of the Related
General Partner, which together with Partnership funds, have been advanced to
five Local Partnerships. Approximately $469,000 of such advances were forgiven
as a result of the above sale.
During the nine months ended December 25, 1996, cash and cash equivalents of the
Partnership and its twelve consolidated Local Partnerships (including the
activity through the date of sale for the Local Partnership above) increased
approximately $317,000. This increase was primarily attributable to cash flow
provided by operating activities ($910,000), proceeds from sale of property
($14,685,000) and an increase in capitalization of consolidated subsidiaries
attributable to minority interest ($478,000) which exceeded an increase in
deferred costs ($541,000), and net repayments of mortgage notes payable
($15,215,000). Cash flow provided by operating activities included timing
differences relating to payment of certain expenses of the Local Partnerships
including cash flow interest which is included in accounts payable and accrued
expenses at September 30, 1996. Included in the adjustments to reconcile the net
income to cash flow provided by operating activities is gain on sale of property
($5,457,000), forgiveness of indebtedness income ($5,162,000) and depreciation
and amortization ($2,833,000).
The Partnership's primary sources of funds are the cash distributions from
operations of the Local Partnerships in which the Partnership has invested.
These sources are available to meet obligations of the Partnership. However, the
cash distributions received from the Local Partnerships to date have not been
sufficient to meet all such obligations of the Partnership. During the nine
months ended December 25, 1996 and 1995 such distributions amounted to
approximately $9,000 and $16,000, respectively. Accordingly, the Related General
Partner advanced funds totaling approximately $1,992,000 and $1,980,000 at
December 25, 1996 and March 25, 1996, respectively, to meet the Partnership's
third party obligations. In addition, certain fees and expense reim-
16
<PAGE>
bursements owed to the General Partners amounting to approximately $1,472,000
and $831,000 were accrued and unpaid as of December 25, 1996 and March 25, 1996,
respectively. Without the General Partners' advances and continued accrual
without payment of certain fees and expense reimbursements, the Partnership will
not be in a position to meet its obligations. The General Partners have
continued advancing and allowing the accrual without payment of these amounts
but are under no obligation to do so.
In 1985, Suncreek, a subsidiary partnership, obtained a $10,000,000 variable
rate mortgage loan securing tax exempt mortgage revenue bonds issued by the
County of Sacramento, California (the "County"), which was scheduled to mature
April 2007 and required monthly interest payments. The mortgage loan and the
bonds were secured by the property as well as a $10,000,000 irrevocable letter
of credit, obtained by Suncreek as additional collateral and credit enhancement
for the underlying bonds. On April 20, 1995 the letter of credit expired.
Consequently, the Resolution Trust Company ("RTC") purchased the bonds and
Suncreek entered into negotiations relating to a restrutcturing or discounted
payoff of the bonds to effect a refinancing of the mortgage loan.
In April 1996, Suncreek completed the refinancing. The 1985 bonds were refunded
and the existing mortgage debt of $10,000,000 was fully satisfied for $6,800,000
resulting in forgiveness of indebtedness income of $3,200,000. The refunded 1996
bonds, secured by a mortgage on the property and an irrevocable letter of
credit, bear interest at a "low floater" variable rate. The bonds mature on
April 1, 2026 and the letter of credit expires on April 15, 2006.
In connection with the refinancing under which Suncreek will pay a substantially
lower interest rate on a lower principal amount, the Partnership amended the
terms of its partnership agreement with Robert Randall, ("Randall"), the general
partner of Suncreek, to reflect the elimination of the land lease together with
all accrued and unpaid land lease payments, Randall's contribution to Suncreek
of the underlying land, as well as the elimination of all other existing
guarantee agreements between the partners. In addition, the balance of a note
payable to the selling partner amounting to $641,303 which represented a portion
of the original purchase price was forgiven.
The first mortgage note of Apple Creek Associates of Denton, Ltd. ("Apple
Creek") matured during February 1995. Since the maturity date Apple Creek had
been involved in negotiations to obtain a loan modification on the first
mortgage and had continued to make required interest and principal payments. On
February 29,
17
<PAGE>
1996, Apple Creek executed a loan modification agreement, which provided among
other things for an extension of the maturity date of the loan for five years .
Terms of the note require monthly payments of principal and interest computed at
an interest rate of 8.5%, based on an amortization period of 25 years. In
addition, Apple Creek agreed to remit on a quarterly basis 25% of cash flow
generated by the property to be applied to a principal reduction. During the
first three years of the loan extension, Apple Creek has the option to make
additional principal reductions in an amount not to exceed $300,000. As a
condition of the loan modification agreement, Apple Creek was required to pay
for all closing costs and pay a 1% fee of the restated principal balance at
closing. In September 1996, the second and third mortgage notes which matured on
February 27, 1995 and were accruing interest at 12% per annum since that date
were purchased by an affiliate of the Related General Partner. Apple Creek is
presently negotiating a modification of the junior notes with the new mortgage
noteholder.
On May 31, 1996 the property and the related assets and liabilities of McAdam
Park-336 ("McAdam") were sold to Fannie Mae for $14,685,000 resulting in no net
proceeds to the Partnership after repayment of McAdam's mortgage debt. For
financial reporting purposes a gain on the sale of property in the amount of
$5,457,073 was realized and forgiveness of indebtedness income of $1,320,280 was
also realized as a result of forgiveness of interest on mortgage debt and
advances from the mortgage note holder. For tax purposes, the entire gain to be
realized by the Partnership is anticipated to be approximately $9,800,000.
For a discussion of contingencies affecting certain Local Partnerships, see Note
7 to the Financial Statements.
Management is not aware of any trends or events, commitments or uncertainties,
which have not otherwise been disclosed, that will or are likely to impact
liquidity in a material way. Management believes the only impact would be from
laws that have not yet been adopted. The portfolio is diversified by the
location of the properties around the United States so that if one area of the
country is experiencing downturns in the economy, the remaining properties in
the portfolio may be experiencing upswings. However, the geographic
diversification of the portfolio may not protect against a general downturn in
the national economy.
Results of Operations
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No.
18
<PAGE>
121, "Accounting for the Impairment of Long-Lived Asset and for Long-Lived
Assets to Be Disposed Of". Under SFAS No. 121, the Partnership is required to
review long-lived assets and certain identifiable intangibles for impairment
whenever events or changes in circumstances indicate that the book value of an
asset may not be recoverable. An impairment loss should be recognized whenever
the review demonstrates that the book value of a long-lived asset is not
recoverable. Effective March 26, 1996, the Partnership adopted SFAS No. 121,
consistent with the required adoption period.
Property and equipment are carried at the lower of depreciated cost or estimated
amounts recoverable through future operations and ultimate disposition of the
property. Cost includes the purchase price, acquisition fees and expenses, and
any other costs incurred in acquiring the properties. As required by SFAS 121, a
provision for loss on impairment of assets is recorded when estimated amounts
recoverable through future operations and sale of the property on an
undiscounted basis are below depreciated cost. However, depreciated cost,
adjusted for such reductions in value, if any, may be greater than the fair
value. Property investments themselves are reduced to estimated fair value
(generally using discounted cash flows) when the property is considered to be
impaired and the depreciated cost exceeds estimate fair value. Through December
25, 1996, the Partnership has recorded approximately $1,116,000 as an allowance
for loss on impairment of assets.
The results of operations of the Partnership, as well as the Local Partnerships,
excluding gain on sale of property, forgiveness of indebtedness income and
administrative and management-related parties, remained fairly consistent during
the three and nine months ended December 25, 1996 and 1995. The majority of
Local Partnership income continues to be in the form of rental income with the
corresponding expenses being divided among operations, depreciation and mortgage
interest.
Rental income decreased approximately 6% and 3%, respectively, during the three
and nine months ended December 25, 1996 as compared to the corresponding periods
in 1995. Excluding McAdam, which sold its property on May 31, 1996, rental
income increased less than 1% during both the three and nine months ended
December 25, 1996, as compared to the corresponding periods in 1995, primarily
due to rental rate increases amounting to approximately 1% which were partially
offset by decreases in occupancy at Players Club and Sheridan Square.
Other income decreased approximately $73,000 during the three
19
<PAGE>
months ended December 25, 1996 as compared to the corresponding period in 1995.
Excluding McAdam, such income decreased approximately $58,000 primarily due to a
decrease in income from the funding of the Breakeven Guarantee by the Local
General Partner of Suncreek.
Administrative and management-related parties increased approximately $535,000
and $514,000 for the three and nine months ended December 25, 1996 as compared
to the corresponding periods in 1995 primarily due to an increase in partnership
management fees payable to the General Partners.
Operating expenses decreased approximately $4,000 during the three months ended
December 25, 1996 as compared to the corresponding period in 1995. Excluding
McAdam, such expenses increased approximately $35,000, primarily due to small
increases in utilities at Galveston, Triangle/Oaks and Woodridge.
Repairs and maintenance expenses increased approximately $33,000 and $488,000,
respectively, during the three and nine months ended December 25, 1996 as
compared to the corresponding periods in 1995. The increase for the three months
was primarily due to the refurbishing and redecorating of the model at Harbours
as well as small increases at Brookwood, Galveston and Suncreek, which were only
partially offset by a decrease due to the sale of McAdam. The increase for the
nine months was primarily due to major repairs and physical improvements made at
McAdam, including roof repairs, doors, gates, apartment interiors, and ground
improvements in an attempt to stabilize the property for better marketability
and painting of the building and trims at Triangle/Oaks.
Taxes and insurance expenses increased approximately $80,000 and $61,000,
respectively, during the three and nine months ended December 25, 1996 as
compared to the corresponding periods in 1995. Excluding McAdam, such expenses
increased approximately $122,000 and $178,000, respectively, primarily due to an
overstatement of prepaid insurance at September 30, 1995 at Apple Creek,
Galveston, Sheridan and Woodridge which was correcteed in the fourth quarter of
1995.
Interest expense decreased approximately $391,000 and $860,000, respectively,
during the three and nine months ended December 25, 1996 as compared to the
corresponding periods in 1995. Excluding McAdam, such expense decreased
approximately $172,000 and $653,000, respectively, primarily due to the
refinancing of four and the modification of two mortgage notes during the year
20
<PAGE>
ended March 25, 1996.
Administrative and management expenses and depreciation expense decreased
approximately $122,000 and $169,000, respectively, for the three months ended
December 25, 1996 as compared to the corresponding period in 1995 primarily due
to the sale of property owned by McAdam. Excluding McAdam, such expenses
remained fairly consistent with decreases of less than 1% and approximately 2%,
respectively, for the three months ended December 25, 1996 as compared to the
corresponding period in 1995.
21
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Galveston-Stewart's Landing, Ltd. ("Galveston") has sustained continued
operating deficits and has a net partners' deficiency of approximately
$5,827,000 at December 25, 1996. Galveston's mortgage note was originally due to
HUD. During 1995, HUD assigned and transferred the mortgage note to Beal Bank.
On December 14, 1995, Galveston was notified that the mortgage note was in
default and Galveston was in arrears on required principal and interest in the
amount of approximately $427,000 and $2,359,000, respectively. Beal Bank has
commenced foreclosure proceedings. In order to stay such proceedings, Galveston
filed a voluntary petition under Chapter 11 of the United States Bankruptcy Code
in August 1996.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter.
22
<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.
CAMBRIDGE ADVANTAGED
PROPERTIES II LIMITED PARTNERSHIP
(Registrant)
By: RELATED ADVANTAGED RESIDENTIAL
ASSOCIATES, INC., a General Partner
Date: February 7, 1997
By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes,
Vice President
(principal financial officer)
Date: February 7, 1997
By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo,
Treasurer
(principal accounting officer)
By: ADVANTAGED HOUSING ASSOCIATES,
INC., a General Partner
Date: February 7, 1997
By: /s/ Paul L. Abbott
------------------
Paul L. Abbott,
President
23
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for Cambridge Advantaged Properties II
L.P. and is qualified in its entirety by
reference to such financial statements
</LEGEND>
<CIK> 0000771996
<NAME> Cambridge Advantaged Properties II L.P.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-25-1997
<PERIOD-START> MAR-26-1996
<PERIOD-END> DEC-25-1996
<CASH> 1,339,826
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,805,305
<PP&E> 118,798,514
<DEPRECIATION> 42,265,995
<TOTAL-ASSETS> 83,677,650
<CURRENT-LIABILITIES> 14,094,410
<BONDS> 98,540,229
0
0
<COMMON> 0
<OTHER-SE> (28,956,989)
<TOTAL-LIABILITY-AND-EQUITY> 83,677,650
<SALES> 0
<TOTAL-REVENUES> 19,301,234
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,905,966
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,193,254
<INCOME-PRETAX> 1,202,014
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 5,161,583
<CHANGES> 0
<NET-INCOME> 6,363,597
<EPS-PRIMARY> 788
<EPS-DILUTED> 0
</TABLE>
