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 September 30, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
- - --- EXCHANGE ACT OF 1934
Commission File Number 0-15726
SUMMIT TAX EXEMPT L.P. II
(Exact names of registrant as specified in its charter)
Delaware 13-3370413
- - ---------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
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 - FINANCIAL INFORMATION
Item 1. Financial Statements
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Participating first mortgage bonds-at fair value $ 150,294,293 $150,274,452
Temporary investments 4,200,000 2,800,000
Cash and cash equivalents 235,649 972,889
Interest receivable, net 737,312 899,299
Promissory notes receivable, net 308,099 70,513
Deferred bond selection fees, net 1,851,122 1,989,663
Other assets 37,112 12,498
------------- ------------
Total assets $157,663,587 $157,019,314
============= ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Deferred income $ 404,198 $ 455,636
Accrued expenses 173,552 132,653
Due to affiliates 386,064 64,061
------------- ------------
Total liabilities 963,814 652,350
------------- ------------
Contingencies
Partners' capital (deficit):
BUC$holders (9,151,620 BUC$
issued and outstanding) 163,268,161 164,412,008
General Partners (130,267) (106,923)
Net unrealized loss on participating
first mortgage bonds (6,438,121) (7,938,121)
------------- ------------
Total partners' capital 156, 699,773 156,366,964
------------- ------------
Total liabilities and partners' capital $157,663,587 $157,019,314
============= ============
</TABLE>
See accompanying notes to financial statements
-2-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1996 1995 1996 1995
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Interest income:
Participating first mortgage bonds $2,941,404 $3,015,288 $8,906,188 $8,878,728
Temporary investments 34,843 31,152 98,646 92,421
Promissory notes 6,376 5,782 15,333 19,742
---------- ---------- ---------- ----------
Total revenues 2,982,623 3,052,222 9,020,167 8,990,891
---------- ---------- ---------- ----------
Expenses:
Management fees 202,656 202,656 607,968 607,968
Loan servicing fees 101,882 102,162 303,431 303,152
General and administrative 142,852 101,268 353,476 288,876
Amortization of deferred
bond selection fees 46,181 46,180 138,541 138,540
Loss on impairment of assets 0 0 1,500,000 0
---------- ---------- ---------- ----------
Total expenses 493,571 452,266 2,903,416 1,338,536
---------- ---------- ---------- ----------
Net Income $2,489,052 $2,599,956 $6,116,751 $7,652,355
========== ========== ========== ==========
Allocation of Net Income:
BUC$holders $2,439,271 $2,547,957 $5,994,416 $7,499,308
========== ========== ========== ==========
General Partners $ 49,781 $ 51,999 $ 122,335 $ 153,047
========== ========== ========== ==========
Net Income per BUC $ .27 $ .28 $ .66 $ .82
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements
-3-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Net Unrealized
General Loss on Participating
Total BUC$holders Partners First Mortgage Bonds
------------ ------------- ----------- ---------------------
<S> <C> <C> <C> <C>
Partners' capital (deficit) -
January 1, 1996 $156,366,964 $ 164,412,008 $ (106,923) $ (7,938,121)
Net Income 6,116,751 5,994,416 122,335 0
Distributions (7,283,942) (7,138,263) (145,679) 0
Realization of loss on
impairment of assets 1,500,000 0 0 1,500,000
------------ ------------- ---------- ------------
Partners' capital (deficit) -
September 30, 1996 $156,699,773 $163,268,161 $ (130,267) $ (6,438,121)
============ ============ ========== ============
</TABLE>
See accompanying notes to financial statements
-4-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
------------------------------
1996 1995
------------ ----------
<S> <C> <C>
Cash flows from operating activities:
Interest received, net $ 9,132,495 $8,860,137
Fees and expenses paid (926,587) (836,025)
Cash held in escrow 0 98,390
------------ ----------
Net cash provided by operating activities 8,205,908 8,122,502
------------ ----------
Cash flows from investing activities:
Net purchase of temporary investments (1,400,000) (1,366,518)
Principal payments received from loans made to properties 40,794 23,264
Loans made to properties (300,000) 0
------------ ----------
Net cash used in investing activities (1,659,206) (1,343,254)
------------ ----------
Cash flows from financing activities:
Distributions paid (7,283,942) (7,283,943)
------------ ----------
Net decrease in cash and cash equivalents (737,240) (504,695)
Cash and cash equivalents at beginning of period 972,889 872,662
------------ ----------
Cash and cash equivalents at end of period $ 235,649 $ 367,967
============ ==========
Schedule reconciling net income to net cash
provided by operating activities:
Net income $ 6,116,751 $7,652,355
------------ ----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on impairment of assets 1,500,000 0
Amortization of deferred bond selection fees 138,541 138,540
Accretion of valuation allowance (19,841) (19,841)
Accretion of deferred income (29,818) (29,818)
Changes in:
Cash held in escrow 0 520,677
Interest receivable, net 161,987 (81,095)
Promissory notes receivable, net 21,620 59,523
Other assets (24,614) (9,192)
Accrued expenses 40,899 23,943
Deferred income (21,620) (59,523)
Due to affiliates 322,003 349,220
Reserve for disputed claim 0 (422,287)
------------ ----------
Total adjustments 2,089,157 470,147
------------ ----------
Net cash provided by operating activities $ 8,205,908 $8,122,502
============ ==========
</TABLE>
See accompanying notes to financial statements
-5-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 1 - General
These financial statements have been prepared without audit. In
the opinion of management, the financial statements contain all adjustments
which except for the loss on impairment of assets, (consisted of only normal
recurring adjustments) necessary to present fairly the financial position of
Summit Tax Exempt L.P. II (the "Partnership") as of September 30, 1996, the
results of its operations for the three and nine months ended September 30, 1996
and 1995 and its cash flows for the nine months ended September 30, 1996 and
1995. However, the operating results for the interim periods may not be
indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been omitted. It is suggested that these financial
statements be read in conjunction with the financial statements and notes
thereto included in the Partnership's Annual Report on Form 10-K/A-1 filed with
the Securities and Exchange Commission for the year ended December 31, 1995.
NOTE 2 - Participating First Mortgage Bonds ("FMBs")
The Partnership accounts for its investments in the FMBs as debt
securities under the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115").
The Partnership has a right to require redemption of the FMBs
approximately twelve years after their issuance. The Partnership anticipates
holding the FMBs for approximately 12 to 15 years from the date of issuance;
however, it can elect to hold until maturity. As such, SFAS 115 requires the
Partnership to classify these investments as "available for sale." Accordingly,
investments in FMBs are carried at their estimated fair values, with unrealized
gains and losses reported in a separate component of partners' capital.
Unrealized holding gains or losses do not affect the cash flow generated from
property operations, distributions to BUC$holders, the characterization of the
tax-exempt income stream or the financial obligations under the FMBs.
The Partnership periodically evaluates each FMB to determine
whether a decline in fair value below the FMB's cost basis is other than
temporary. Such a decline is considered to be other than temporary if, based on
current information and events, it is probable that the Partnership will be
unable to collect all amounts due according to the existing contractual terms of
the bonds. If the decline is judged to be other than temporary, the cost basis
of the bond is written down to its then estimated fair value, with the amount of
the write-down accounted for as realized loss.
Because the FMBs are not readily marketable, the Partnership
estimates fair value for each bond as the present value of its expected cash
flows using an interest rate for comparable tax-exempt investments. This process
is based upon projections of future economic events affecting the real estate
collateralizing the bonds, such as property occupancy rates, rental rates,
operating cost inflation and market capitalization rates, and upon determination
of an appropriate market rate of interest, all of which are based on good faith
estimates and assumptions developed by the Partnership's management. Changes in
market conditions and circumstances may occur which would cause these estimates
and assumptions to change, therefore, actual results may vary from the estimates
and the variance may be material.
Due to increases in its real estate taxes, in April, 1996, the
obligor of the Highland Ridge FMB entered into a forbearance agreement with the
Partnership effective retroactive to October, 1995. In accordance with the terms
and conditions of this agreement, the obligor will make minimum monthly debt
service payments beginning at
-6-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 2 - Participating First Mortgage Bonds ("FMBs")(continued)
a 7% annual rate and increasing in annual increments over a period of
four years back to the original stated rate. The difference between the actual
pay rate and the stated rate of the FMB is deferred and payable from future
available cash flow or sale or refinancing proceeds. In addition, delinquent
taxes will be paid in three installments by the developer over an 18 month
period. The developer has paid the first such installment of the delinquent
taxes due as of May 7, 1996. The obligations under the forbearance agreement are
further secured by a guarantee from the general partner of the obligor. Payments
under the forbearance agreement are current as of September 30, 1996.
A forbearance agreement with the owner of the Shannon Lake
property originally made in 1991, further modified as of June 1, 1993 was
extended as of May 1, 1996 to allow the property to make minimum monthly
interest payments at annual rate of 6%. The Partnership agreed to extend other
provisions and terms of the 1993 agreement effective for the period March 16,
1993 through December 15, 1997. In addition, as of June 1, 1996 an Extension and
Modification Agreement was executed regarding the extension and modification of
the $138,000 note due on April 30, 1996. The note was increased by $300,000 to
$438,000. The modified loan is self amortizing beginning August 1, 1996 at the
annual rate of 8%, payable in 48 equal monthly installments of $10,692.86, with
a final maturity of July 1, 2000. Payments due under the forbearance agreement
and the note are current as of September 30, 1996.
With respect to the FMBs which are subject to forbearance
agreements with the respective obligors, the difference between the stated
interest rates and the rates paid (whether deferred and payable out of available
future cash flow or, ultimately, from sale or refinancing proceeds) on FMBs is
not accrued for financial statement purposes. The accrual of interest at the
stated interest rate will resume once a property's ability to pay the stated
rate has been adequately demonstrated. Unrecorded contractual interest income
was approximately $455,000 and $496,000 for the nine months ended September 30,
1996 and 1995, respectively.
The cost basis of the FMBs at September 30, 1996 and December 31,
1995 was $156,732,414 and $158,212,573, respectively. The net unrealized loss on
FMBs consists of gross unrealized gains and losses of $2,113,430 and $8,551,551,
respectively, at September 30, 1996, and of $2,113,430 and $10,051,551,
respectively, at December 31, 1995.
-7-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 2 - Participating First Mortgage Bonds (continued)
Descriptions of the FMBs owned by the Partnership at September 30,
1996 are as follows:
<TABLE>
<CAPTION>
Annualized
Interest Rate
Paid for the
nine months Minimum
ended Pay Rate at Stated
September 30, September Interest
Property Location 1996* 30, 1996* Rate*
- - -------- -------- ------------- ---------- ------
<S> <C> <C> <C> <C>
Bay Club Mt. Pleasant, SC 8.29% (D) 7.50% 8.25%
Loveridge Contra Costa, CA 4.74 (B) 8.00
The Lakes Kansas City, MO 5.14 (F) 4.87 4.87
Crowne Pointe Olympia, WA 8.00 8.00 8.00
Orchard Hills Tacoma, WA 8.00 8.00 8.00
Highland Ridge St. Paul, MN 7.00 7.00 8.00
Newport Village Tacoma, WA 7.94 (C) 8.00 8.00
Sunset Downs Lancaster, CA 4.33 (B) 8.00
Willow Creek Ames, IA 8.00 8.00 8.00
Cedar Pointe Nashville, TN 8.00 8.00 8.00
Shannon Lake Atlanta, GA 6.00 6.00 8.00
Bristol Village Bloomington, MN 9.38 (C) 7.75 8.00
Suntree Ft. Myers, FL 7.50 7.50 8.00
River Run Miami, FL 10.26 (E) 8.00 8.00
Pelican Cove St. Louis, MO 7.50 (B) 8.00
Players Club (A) Ft. Myers, FL 7.19 7.00 8.00
</TABLE>
<TABLE>
<CAPTION>
Carrying
Amount at
Maturity September
Property Call Date Date Face Amount 30, 1996 (G)
- - -------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C>
Bay Club Sept. 2000 Sept. 2006 $ 6,400,000 $ 6,158,491
Loveridge Nov. 1998 Nov. 2006 8,550,000 7,629,796
The Lakes Dec. 2006 Dec. 2006 13,650,000 10,368,077
Crowne Pointe Dec. 1998 Dec. 2006 5,075,000 5,290,714
Orchard Hills Dec. 1998 Dec. 2006 5,650,000 5,803,112
Highland Ridge Feb. 1999 Feb. 2007 15,000,000 12,685,842
Newport Village Jan. 1999 Jan. 2007 13,000,000 13,731,947
Sunset Downs May 1999 May 2007 15,000,000 11,396,727
Willow Creek Oct. 1999 Oct. 2006 6,100,000 5,563,709
Cedar Pointe Apr. 1999 Apr. 2007 9,500,000 9,778,309
Shannon Lake Jun. 1999 Jun. 2007 12,000,000 10,519,904
Bristol Village Jun. 1999 Jun. 2005 17,000,000 16,631,716
Suntree Jul. 1999 Jul. 2007 7,500,000 7,876,831
River Run Aug. 1999 Aug. 2007 7,200,000 7,463,220
Pelican Cove Feb. 1999 Feb. 2007 18,000,000 16,801,601
Players Club (A) Aug. 1999 Aug. 2007 2,500,000 2,594,297
----------- -----------
$162,125,000 $150,294,293
============ ============
</TABLE>
*The rate paid represents the interest recorded by the Partnership while the
stated rate represents the coupon rate of the FMB and the minimum pay rate
represents the minimum rate payable pursuant to the applicable forbearance
agreements, if any.
(A) Summit Tax Exempt L.P. III, of which the general partners are either the
same or affiliates of the General Partners of the Partnership, acquired
the other $7,200,000 of the Players Club FMB.
(B) Pay rate is based on net cash flow generated by operations of the
underlying property.
(C) Includes receipt of deferred base interest related to prior periods.
(D) The actual annual pay rate is adjusted annually as of the property's fiscal
year end based on cash flow pursuant to audited financial statements to no
less than the minimum pay rate.
(E) Includes primary contingent interest related to prior periods.
(F) Includes primary and supplemental contingent interest related to prior
periods.
(G) The FMBs are carried at their estimated fair value at September 30, 1996.
-8-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 3 - Related Parties
Prudential-Bache Properties, Inc. ("PBP") and the Related General
Partner (collectively, the "General Partners") and their affiliates perform
services for the Partnership which include, but are not limited to: accounting
and financial management; registrar, transfer and assignment functions; asset
management; investor communications; printing and other administrative services.
The General Partners and their affiliates receive reimbursements for costs
incurred in connection with these services, the amount of which is limited by
the provisions of the Agreement of Limited Partnership (the "Partnership
Agreement"). The costs and expenses were:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- --------------------------
<S> <C> <C> <C> <C>
1996 1995 1996 1995
-------- -------- -------- -----------
PBP and affiliates:
Management fee $101,328 $101,328 $303,984 $ 303,984
General and administrative 17,848 29,416 51,526 97,648
-------- -------- -------- -----------
119,176 130,744 355,510 401,632
-------- -------- -------- -----------
Related General Partner
and affiliates:
Management fee 101,328 101,328 303,984 303,984
Loan servicing fees 101,882 102,162 303,431 303,152
General and administrative 1,942 10,227 30,112 20,308
-------- -------- -------- -----------
205,152 213,717 637,527 627,444
-------- -------- -------- -----------
$324,328 $ 344,461 $993,037 $1,029,076
======== ========= ======== ==========
</TABLE>
An affiliate of the Related General Partner receives loan
servicing fees (see above) in an amount of .25% per annum of the principal
amount outstanding on FMBs serviced by the affiliate.
The General Partners are paid, in the aggregate, an annual
management fee equal to .5% of the original amount invested in FMBs.
A division of Prudential Securities Incorporated ("PSI"), an
affiliate of PBP, was responsible for the purchase, sale and safekeeping of the
Partnership's temporary investments in 1995. This account was maintained in
accordance with the Partnership Agreement.
PSI owns 62,015 BUC$ at September 30, 1996.
The Players Club property (securing a $2,500,000 FMB in this
Partnership) also secures an FMB for $7,200,000 owned by Summit Tax Exempt L.P.
III, of which the general partners are either the same or affiliates of the
General Partners of this Partnership.
The original obligors of the Suntree, Players Club and River Run
FMBs are affiliates of the Related General Partner.
-9-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(Unaudited)
NOTE 4 - Contingencies
On or about October 18, 1993, a putative class action, captioned
Kinnes et al v. Prudential Securities Group, Inc. et al. (93 Civ. 654), was
filed in the United States District Court for the District of Arizona,
purportedly on behalf of investors in the Partnership against the Partnership,
PBP, PSI and a number of other defendants. On November 16, 1993, a putative
class action captioned Connelly et al v. Prudential-Bache Securities Inc. et al.
(93 Civ. 713) , was filed in the United States District Court for the District
of Arizona , purportedly on behalf of investors in the Partnership against the
Partnership, PBP, PSI and a number of other defendants. On January 3, 1992, a
putative class action, captioned Levine v. Prudential-Bache Properties Inc. et
al. (92 Civ. 52), was filed in the United States District Court for the Northern
District of Illinois purportedly on behalf of investors in the Partnership
against the General Partners, PSI and a number of other defendants. Subsequently
the Related General Partner was dismissed from the Levine litigation.
By order dated April 14, 1994, the Judicial Panel on
Multidistrict Litigation transferred the Kinnes case, by order dated May 4,
1994, the Connelly case and by order dated July 13, 1994, the Levine case, to a
single judge of the United States District Court for the Southern District of
New York and consolidated them for pretrial proceedings under the caption In re
Prudential Securities Incorporated Limited Partnerships Litigation (MDL Docket
No. 1005). On June 8, 1994 plaintiffs in the transferred cases filed a complaint
that consolidated the previously filed complaints and named as defendants, among
others, PSI, certain of its present and former employees and the General
Partners. The Partnership was not named a defendant in the consolidated
complaint, but the name of the Partnership was listed as being among the limited
partnerships at issue in the case.
On August 9, 1995 PBP, PSI and other Prudential defendants entered
into a Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI. The Levine and Connelly
cases were dismissed with prejudice as to the Prudential defendants by court
order dated October 25, 1996. The consolidated action remains pending against
the Related General Partner and certain of its affiliates.
The Related General Partner has been engaged in settlement
negotiations with counsel for the plaintiffs. In the event a settlement can not
be reached, the Related General Partner believes it has meritorious defenses to
the consolidated complaint and intends to vigorously defend this action.
NOTE 5 - Subsequent Event
In November 1996, distributions of approximately $2,379,000 and
$49,000 were paid to the BUC$holders and General Partners, respectively, for the
quarter ended September 30, 1996.
-10-
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Liquidity and Capital Resources
- - -------------------------------
Summit Tax Exempt L.P. II (the "Partnership") has invested in
sixteen tax-exempt participating first mortgage bonds ("FMBs") issued by various
state or local governments or their agencies or authorities. The FMBs are
secured by participating first mortgage loans on multi-family residential
apartment projects.
At the beginning of the year, the Partnership had cash and
temporary investments of $3,773,000. After payment of distributions and receipt
of the net cash flow from operations, the Partnership had approximately
$4,436,000 in cash and temporary investments at September 30, 1996. The third
quarter distribution of $2,379,000 ($.26 per BUC) was paid to BUC$holders in
November 1996 from cash flow from operations.
Due to increases in its real estate taxes, in April, 1996, the
obligor of the Highland Ridge FMB entered into a forbearance agreement with the
Partnership effective retroactive to October, 1995. In accordance with the terms
and conditions of this agreement, the obligor will make minimum monthly debt
service payments beginning at a 7% annual rate and increasing in annual
increments over a period of four years back to the original stated rate. The
difference between the actual pay rate and the stated rate of the FMB is
deferred and payable from future available cash flow or sale or refinancing
proceeds. In addition, delinquent taxes will be paid in three installments by
the developer over an 18 month period. The developer has paid the first such
installment of the delinquent taxes due as of May 7, 1996. The obligations under
the forbearance agreement are further secured by a guarantee from the general
partner of the obligor. Payments under the forbearance agreement are current as
of September 30, 1996.
A forbearance agreement with the owner of the Shannon Lake
property originally made in 1991, further modified as of June 1, 1993 was
extended as of May 1, 1996 to allow the property to make minimum monthly
interest payments at annual rate of 6%. The Partnership agreed to extend other
provisions and terms of the 1993 agreement effective for the period March 16,
1993 through December 15, 1997. In addition, as of June 1, 1996 an Extension and
Modification Agreement was executed regarding the extension and modification of
the $138,000 note due on April 30, 1996. The note was increased by $300,000 to
$438,000. The modified loan is self amortizing beginning August 1, 1996 at the
annual rate of 8%, payable in 48 equal monthly installments of $10,692.86, with
a final maturity of July 1, 2000. Payments due under the forbearance agreement
and the note are current as of September 30, 1996.
These forbearance agreements may negatively impact liquidity in
future quarters however interest payments from FMBs are anticipated to provide
sufficient liquidity to meet the operating expenditures of the Partnership in
future years and to fund distributions.
Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed that will or are likely
to impact liquidity in a material way. The Partnership's investments in FMBs are
secured by a Partnership interest in properties which are diversified by
location so that if one area of the country is experiencing downturns in the
economy, the remaining properties may be experiencing upswings. However, the
geographic diversification of the portfolio may not protect against a general
downturn in the national economy.
Results of Operations
- - ---------------------
The Partnership accounts for its investments in the FMBs as debt
securities under the provisions of Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115").
The Partnership has a right to require redemption of the FMBs
approximately twelve years after their issuance. The Partnership anticipates
holding the FMBs for approximately 12 to 15 years from the date of issuance;
however, it can elect to hold until maturity. As such, SFAS 115 requires the
Partnership to classify these investments as "available for sale." Accordingly,
investments in FMBs are carried at their estimated fair values,
-11-
<PAGE>
with unrealized gains and losses reported in a separate component of
partners' capital. Unrealized holding gains or losses do not affect the cash
flow generated from property operations, distributions to BUC$holders, the
characterization of the tax-exempt income stream or the financial obligations
under the FMBs.
The Partnership periodically evaluates each FMB to determine
whether a decline in fair value below the FMB's cost basis is other than
temporary. Such a decline is considered to be other than temporary if, based on
current information and events, it is probable that the Partnership will be
unable to collect all amounts due according to the existing contractual terms of
the bonds. If the decline is judged to be other than temporary, the cost basis
of the bond is written down to its then estimated fair value, with the amount of
the write-down accounted for as realized loss.
Because the FMBs are not readily marketable, the Partnership
estimates fair value for each bond as the present value of its expected cash
flows using an interest rate for comparable tax-exempt investments. This process
is based upon projections of future economic events affecting the real estate
collateralizing the bonds, such as property occupancy rates, rental rates,
operating cost inflation and market capitalization rates, and upon determination
of an appropriate market rate of interest, all of which are based on good faith
estimates and assumptions developed by the Partnership's management. Changes in
market conditions and circumstances may occur which would cause these estimates
and assumptions to change, therefore, actual results may vary from the estimates
and the variance may be material.
Net income decreased approximately $111,000 and $1,536,000 for the
three and nine months ended September 30, 1996 as compared to 1995 primarily due
to a loss on impairment of assets and for the reasons discussed below.
Interest income from temporary investments increased approximately
$4,000 for the three months ended September 30, 1996 as compared to 1995
primarily due to higher cash balances.
Interest income from promissory notes increased approximately
$1,000 and decreased approximately $4,000 for the three and nine months ended
September 30, 1996, as compared to 1995. The increase during the three months
was primarily due to a $300,000 increase in the Shannon Lake loan in July 1996.
The decrease during the nine months was primarily due to the maturity of the Bay
Club loan in January 1996 which was only partially offset by the increase during
the three months.
General and administrative expenses increased approximately
$42,000 and $65,000 for the three and nine months ended September 30, 1996,
respectively, as compared to 1995, primarily due to increases in non-recurring
legal expenses and an increase in accounting expenses in connection with the
filing of an amended March 31, 1996 Form 10-Q and a December 31, 1995 Form 10-K
which was required due to a change in the Partnership's accounting for its
investments in FMBs.
A $1,500,000 loss on impairment of assets was recorded during the
second quarter of 1996 to recognize other-than-temporary impairment of one FMB
based upon continuing operating difficulties being experienced at the property
securing the FMB.
-12-
<PAGE>
Property Information
- - --------------------
The following table lists the FMBs the Partnership owns together
with occupancy rates of the underlying properties as of September 30, 1996:
<TABLE>
<CAPTION>
Annualized
Interest
Rate Paid
for the nine Minimum
Stated months ended Pay Rate at
Face Amount Interest September September
Property Location of FMB Occupancy Rate* 30, 1996* 30, 1996*
- - -------- -------- ----------- --------- ------ ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
Bay Club Mt. Pleasant, SC $ 6,400,000 100% 8.25% 8.29% (D) 7.50%
Loveridge Contra Costa, CA 8,550,000 93.2 8.00 4.74 (B)
The Lakes Kansas City, MO 13,650,000 98.0 4.87 5.14 (F) 4.87
Crowne Pointe Olympia, WA 5,075,000 96.2 8.00 8.00 8.00
Orchard Hills Tacoma, WA 5,650,000 92.0 8.00 8.00 8.00
Highland Ridge St. Paul, MN 15,000,000 92.5 8.00 7.00 7.00
Newport Village Tacoma, WA 13,000,000 89.2 8.00 7.94 (C) 8.00
Sunset Downs Lancaster, CA 15,000,000 90.0 8.00 4.33 (B)
Willow Creek Ames, IA 6,100,000 100.0 8.00 8.00 8.00
Cedar Pointe Nashville, TN 9,500,000 90.4 8.00 8.00 8.00
Shannon Lake Atlanta, GA 12,000,000 96.2 8.00 6.00 6.00
Bristol Village Bloomington, MN 17,000,000 94.7 8.00 9.38 (C) 7.75
Suntree Ft. Myers, FL 7,500,000 93.6 8.00 7.50 7.50
River Run Miami, FL 7,200,000 92.5 8.00 10.26 (E) 8.00
Pelican Cove St. Louis, MO 18,000,000 94.9 8.00 7.50 (B)
Players Club (A) Ft. Myers, FL 2,500,000 78.4 8.00 7.19 7.00
------------
$162,125,000
============
</TABLE>
*The rate paid represents the interest recorded by the Partnership while the
stated rate represents the coupon rate of the FMB and the minimum pay rate
represents the minimum rate payable pursuant to the applicable forbearance
agreements, if any.
(A) Summit Tax Exempt L.P. III, of which the general partners are either the
same or affiliates of the General Partners of the Partnership, acquired the
other $7,200,000 of the Players Club FMB.
(B) Pay rate is based on the net cash flow generated by operations of the
underlying property.
(C) Includes receipt of deferred base interest related to prior periods.
(D) The actual annual pay rate is adjusted annually as of the property's fiscal
year end based on cash flow pursuant to audited financial statements to no
less than the minimum pay rate.
(E) Includes primary contingent interest related to prior periods.
(F) Includes primary and supplemental contingent interest related to prior
periods.
General
- - -------
The determination as to whether it is the best interest of the
Partnership to enter into forbearance agreements on the FMBs or, alternatively,
to pursue its remedies under the loan documents, including foreclosure, is based
upon several factors including, but not limited to, property performance, owner
cooperation and projected legal costs.
Certain property owners have, at times, supplemented the cash flow
generated by the properties to meet the required FMB interest payments. There
can be no assurance that in the future any property owner will
-13-
<PAGE>
elect to supplement property cash flow to satisfy bond interest
requirements, if necessary. The owner of the Highland Ridge property
supplemented cash flow generated by the property to meet its interest payments
during the three months ended March 31, 1995. The owner of the Sunset Downs and
Loveridge properties supplemented the cash flow generated by the respective
properties to meet their interest payments during the first two months of 1995.
No property owner made supplementary payments during the nine months ended
September 30, 1996.
-14-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - Incorporated by reference to Note 4 to the
financial statements filed herewith in Item 1 of Part 1 of the
Registrant's Quarterly Report.
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:
4(a) Partnership Agreement, incorporated by reference to
Exhibit A to the Prospectus of Registrant, dated July
7, 1986, filed pursuant to Rule 424(b) under the
Securities Act of 1933, File No. 33-5213.
4(b) Certificate of Limited Partnership, incorporated by
reference to Exhibit 4 to the Amendment No. 1 to
Registration Statement on Form S-11, File No. 33-5213.
27 Financial Data Schedule (filed herewith).
(b) Reports on Form 8-K - No reports on Form 8-K were filed during
the quarter.
-15-
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
SUMMIT TAX EXEMPT L.P. II
By: Related Tax Exempt Associates II, Inc.
A Delaware corporation, General Partner
Date: November 13, 1996 By: /s/ Alan P. Hirmes
------------------
Alan P. Hirmes
Vice President
(Principal Financial Officer)
Date: November 13, 1996 By: /s/ Richard A. Palermo
----------------------
Richard A. Palermo
Treasurer
(Principal Accounting Officer)
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
Date: November 13, 1996 By: /s/ Eugene D. Burak
-------------------
Eugene D. Burak
Vice President
-16-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information
extracted from the financial statements for Summit
Tax Exempt L.P. II and is qualified in its entirety
by reference to such financial statements
</LEGEND>
<CIK> 0000792924
<NAME> Summit Tax Exempt L.P. II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 235,649
<SECURITIES> 154,494,293
<RECEIVABLES> 2,933,645
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 157,663,587
<CURRENT-LIABILITIES> 963,814
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 156,699,773
<TOTAL-LIABILITY-AND-EQUITY> 157,663,587
<SALES> 0
<TOTAL-REVENUES> 9,020,167
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,403,416
<LOSS-PROVISION> 1,500,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 6,116,751
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,116,751
<EPS-PRIMARY> .66
<EPS-DILUTED> 0
</TABLE>
