FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1995 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File Number: 0-16862
CAPITAL SOURCE II L.P.-A
(Exact name of registrant as specified in its charter)
Delaware 38-2684691
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification No.)
Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102
(Address of principal executive offices) (Zip Code)
(402) 444-1630
(Registrant's telephone number, including area code)
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
CAPITAL SOURCE II L.P.-A
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
Sept. 30, 1995
(Unaudited) Dec. 31, 1994
--------------- ---------------
<S> <C> <C>
Assets
Investment in real estate:
Land $ 2,800,750 $ 2,800,750
Buildings 22,960,171 22,960,171
Personal property 1,401,467 1,394,617
--------------- ---------------
27,162,388 27,155,538
Less accumulated depreciation (4,850,391) (4,285,544)
--------------- ---------------
Net investment in real estate 22,311,997 22,869,994
Cash and temporary cash investments, at cost
which approximates market value (Note 5) 879,317 3,588,037
Escrow deposits and property reserves 1,208,295 815,583
Investment in U.S. government securities (Note 5) 2,494,537 -
Investment in mortgage-backed securities (Note 5) 1,366,854 1,899,268
Interest and other receivables 86,633 31,962
Deferred mortgage issuance costs 1,839,483 1,923,094
Other assets 226,325 134,881
--------------- ---------------
$ 30,413,441 $ 31,262,819
=============== ===============
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable and accrued expenses $ 1,088,274 $ 733,089
Distribution payable (Note 3) 546,968 546,968
Due to general partners and their affiliates (Note 4) 1,117,125 1,194,915
--------------- ---------------
2,752,367 2,474,972
--------------- ---------------
Minority interest 206,788 209,288
--------------- ---------------
Partners' Capital (Deficit)
General Partners (291,915) (280,672)
Limited Partners ($6.92 per BAC in 1995 and $7.19 in 1994) 27,746,201 28,859,231
--------------- ---------------
27,454,286 28,578,559
--------------- ---------------
$ 30,413,441 $ 31,262,819
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
CAPITAL SOURCE II L.P.-A
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
For the For the For the Nine For the Nine
Quarter Ended Quarter Ended Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994 Sept. 30, 1995 Sept. 30, 1994
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Income
Rental income $ 1,164,241 $ 1,123,166 $ 3,375,607 $ 3,287,095
Interest income on temporary cash investments and
U.S. government securities 54,385 45,611 155,851 141,581
Mortgage-backed securities income 26,694 37,147 98,079 41,687
Other income 39,749 44,785 100,619 122,237
Gain on sale of mortgage-backed securities 15,670 - 15,670 -
-------------- -------------- -------------- --------------
1,300,739 1,250,709 3,745,826 3,592,600
-------------- -------------- -------------- --------------
Expenses
Real estate operating expenses 509,571 453,373 1,453,399 1,365,688
Depreciation 188,455 210,130 564,847 628,389
Property development and management fees (Note 4) 8,387 12,158 25,952 37,387
General and administrative expenses (Note 4)
Investor servicing 63,621 54,235 158,354 161,394
Professional fees 11,058 13,525 34,908 43,125
Other expenses 3,317 2,299 7,617 5,750
Asset management and partnership
administration fees (Note 4) 41,500 41,500 124,500 124,500
Amortization 32,998 27,097 95,572 83,388
-------------- -------------- -------------- --------------
858,907 814,317 2,465,149 2,449,621
-------------- -------------- -------------- --------------
Minority interest in losses of
operating partnerships 908 1,386 2,500 3,544
-------------- -------------- -------------- --------------
Net income $ 442,740 $ 437,778 $ 1,283,177 $ 1,146,523
============== ============== ============== ==============
Net income allocated to:
General Partners $ 4,428 $ 4,378 $ 12,832 $ 11,465
Limited Partners 438,312 433,400 1,270,345 1,135,058
-------------- -------------- -------------- --------------
$ 442,740 $ 437,778 $ 1,283,177 $ 1,146,523
============== ============== ============== ==============
Net income per BAC $ .1093 $ .1081 $ .3167 $ .2830
============== ============== ============== ==============
</TABLE>
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
(UNAUDITED)
<TABLE>
<CAPTION>
General Limited
Partners Partners Total
--------------- --------------- ---------------
<S> <C> <C> <C>
Partners' Capital (excluding net unrealized holding gain)
Balance at December 31, 1994 $ (280,672) $ 28,859,231 $ 28,578,559
Net income 12,832 1,270,345 1,283,177
Cash distributions paid or accrued (Note 3) (24,614) (2,436,743) (2,461,357)
--------------- --------------- ---------------
(292,454) 27,692,833 27,400,379
--------------- --------------- ---------------
Net unrealized holding gain
Balance at December 31, 1994 - - -
Net change 539 53,368 53,907
--------------- --------------- ---------------
539 53,368 53,907
--------------- --------------- ---------------
Balance at September 30, 1995 $ (291,915) $ 27,746,201 $ 27,454,286
=============== =============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
CAPITAL SOURCE II L.P.-A
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,283,177 $ 1,146,523
Adjustments to reconcile net income to net cash
from operating activities
Depreciation and amortization 660,419 711,777
Amortization of discount on government securities (16,659) (380)
Property development and management fees 25,952 37,387
Minority interest in losses of operating partnerships (2,500) (3,544)
Increase in interest and other receivables (54,671) (950)
Increase in escrow deposits and property reserves (392,712) (275,896)
Decrease (increase) in other assets (103,405) 72,503
Increase in accounts payable and accrued expenses 355,185 298,160
Decrease in due to operating partnerships'
general partners and their affiliates (103,742) (445,875)
--------------- ---------------
Net cash provided by operating activities 1,651,044 1,539,705
--------------- ---------------
Cash flows from investing activities
Acquisition of U.S. government securities (2,468,945) -
Acquisition of mortgage-backed securities - (1,959,280)
Sale of mortgage-backed securities 454,997 -
Principal payments on mortgage-backed securities 122,391 34,747
Acquisition of buildings and construction in progress - (8,312)
Acquisition of personal property (6,850) (44,241)
--------------- ---------------
Net cash used in investing activities (1,898,407) (1,977,086)
--------------- ---------------
Cash flow used in financing activity
Distributions (2,461,357) (2,461,355)
--------------- ---------------
Net decrease in cash and temporary cash investments (2,708,720) (2,898,736)
Cash and temporary cash investments at beginning of period 3,588,037 6,630,819
--------------- ---------------
Cash and temporary cash investments at end of period $ 879,317 $ 3,732,083
=============== ===============
The accompanying notes are an integral part of the consolidated financial statements.
</TABLE>
<PAGE>
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
1. ORGANIZATION
Capital Source II L.P.-A (the Partnership) was formed on August 22, 1986,
under the Delaware Uniform Limited Partnership Act. The General Partners of
the Partnership are Insured Mortgage Equities II L.P. and America First
Capital Source II, L.L.C. (the General Partners).
The Partnership provided virtually 100% of the debt and equity financing for
five multifamily rental housing properties. The Partnership's investment in
the properties consisted of: (i) approximately 85% in the form of permanent
mortgages and/or loans to fund construction, and (ii) the balance to purchase
up to a 99% limited partnership interest in the operating partnerships which
developed, own and operate the properties. Each loan is insured or
guaranteed, in an amount substantially equal to the face amount of the
mortgage, by the Federal Housing Administration (FHA) or the Government
National Mortgage Association (GNMA). CS Properties II, Inc. which is owned by
affiliates of the General Partners, serves as the Special Limited Partner for
the operating partnerships. The Special Limited Partner has the power, among
other things, to remove the general partners of the operating partnerships
under certain circumstances and to consent to the sale of the operating
partnerships' assets. The General Partners have negotiated agreements with
each operating partnership's general partner whereby the operating
partnership's general partner guarantees to fund certain operating deficits of
that operating partnership.
The Partnership will terminate subsequent to the sale of all properties but in
no event will the Partnership continue beyond December 31, 2035.
2. Summary of Significant Accounting Policies
A)Financial Statement Presentation
The consolidated financial statements include the accounts of the
Partnership and four subsidiary operating partnerships. The Partnership
is a limited partner with an ownership interest in three of the subsidiary
operating partnerships of up to 99%. The Partnership's ownership interest
in The Ponds at Georgetown L.P. is 68.70%. The remaining limited partner
interest of 30.29% is owned by Capital Source L.P., an affiliate of the
General Partners. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The consolidated financial statements are prepared without audit on the
accrual basis of accounting in accordance with generally accepted accounting
principles. In the opinion of management, all normal and recurring
adjustments necessary to present fairly the financial position at September 30,
1995, and results of operations for all periods presented have been made.
B)Investments in U.S. Government Securities and Mortgage-Backed Securities
On January 1, 1994, the Partnership adopted Statement of Financial Accounting
Standard No. 115 "Accounting for Certain Investments in Debt and Equity
Securities" (FAS 115). FAS 115 requires that investment securities be
classified as held-to-maturity, available-for-sale or trading. Under FAS 115,
investments classified as held-to-maturity are carried at amortized cost.
Investments classified as available-for-sale are reported at fair value with
any unrealized gains or losses excluded from earnings and reflected as a
separate component of partners' capital. Subsequent increases and decreases
in the net unrealized gain/loss on the available for sale securities will be
reflected as adjustments to the carrying value of the portfolio and
adjustments to the component of partners' capital. The Partnership does not
have investment securities classified as trading. FAS 115 had no impact to
partners' capital or earnings prior to June 30, 1995, since all investments
securities were classified as held-to-maturity. As described in Note 5, on
June 30, 1995, the Company reclassified investment securities from the
held-to-maturity category to the available-for-sale category.
<PAGE>
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
C)Depreciation and Amortization
Depreciation of real estate is based on the estimated useful life of the
properties using the straight-line method. Deferred mortgage issuance and
organization costs are being amortized over their respective periods of
benefit.
D)Revenue Recognition
The operating partnerships lease multifamily rental units under operating
leases with terms of one year or less. Rental revenue is recognized net of
any vacancy losses and rental concessions offered.
E)Income Taxes
No provision has been made for income taxes since BAC Holders are required
to report their share of the Partnership's income for federal and state
income tax purposes.
F)Temporary Cash Investments
Temporary cash investments are invested in short-term debt securities
purchased with original maturities of three months or less.
G)Net Income per Beneficial Assignment Certificate (BAC)
Net income per BAC was calculated based on the number of BACs outstanding
(4,011,101) for all periods presented.
3. Partnership Income, Expenses and Cash Distributions
Profits and losses from normal operations and cash available for distribution
will be allocated 99% to the investors and 1% to the General Partners.
Certain fees payable to the General Partners will not become due until
investors have received certain priority returns. Cash distributions included
in the consolidated financial statements represent the actual cash
distributions made during each period and the cash distributions accrued at
the end of each period.
The General Partners will receive 1% of the net proceeds from any sale of
Partnership assets. The General Partners will receive a termination fee equal
to 3% of all sales proceeds less actual costs incurred in connection with all
sales transactions, payable only after the investors have received a return of
their capital contributions and an 11.5% annual return on a cumulative basis.
The General Partners will also receive a fee equal to 9.1% of all cash
available for distribution and sales proceeds (after deducting from cash
available or sales proceeds any termination fee paid therefrom) after
investors have received a return of their capital contributions and an 11.5%
annual return on a cumulative basis.
4. Transactions with Related Parties
The General Partners, certain of their affiliates and the operating
partnerships' general partners have received or may receive fees,
compensation, income, distributions and payments from the Partnership in
connection with the offering and the investment, management and sale of the
Partnership's assets (other than disclosed elsewhere) as follows.
The operating partnerships' general partners provide various on-site property
development and management services. Property development and management fees
amounted to $25,952 in 1995 ($8,387 for the quarter ended September 30, 1995).
Unpaid fees which are non-interest bearing are included in amounts due to
operating partnerships' general partners and their affiliates on the
accompanying consolidated balance sheets and will be paid as the operating
partnerships reach specified performance standards, or upon sale of the
related property.
<PAGE>
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
The General Partners are entitled to receive an asset management and
partnership administrative fee equal to 0.5% of invested assets per annum, the
first $50,000 of which will be paid each year with the balance payable only
during such years that a 6.5% annual return has been paid to investors on a
noncumulative basis. An additional fee equal to 0.5% of invested assets per
annum will be payable only during those years that an 11.5% annual return has
been paid to investors on a noncumulative basis. Any unpaid amounts will
accrue and be payable only after an 11.5% annual return to investors has been
paid on a cumulative basis and the investors have received the return of their
capital contributions. Accrued asset management and partnership
administration fees totalled $124,500 during 1995 ($41,500 for the quarter
ended September 30, 1995).
Substantially all of the Partnership's general and administrative expenses are
paid by a General Partner or an affiliate and reimbursed by the Partnership.
The amount of such expenses reimbursed to the General Partner during 1995 was
$206,978 ($63,240 for the quarter ended September 30, 1995). The reimbursed
expenses are presented on a cash basis and do not reflect accruals made at
quarter end.
5. PARTNERSHIP RESERVE ACCOUNT
The Partnership maintains a reserve account which consisted of the following
at September 30, 1995.
<TABLE>
<S> <C>
Cash and temporary cash investments $ 288,921
Intercompany payable (66,318)
U.S. government securities 2,494,537
GNMA Certificates 1,366,854
--------------
Balance at September 30, 1995 $ 4,083,994
==============
</TABLE>
The reserve account was established to maintain working capital for the
Partnership and is available to supplement distributions to investors or for
other contingencies related to the ownership of investments and the operation
of the Partnership. The U.S. government securities mature in 1996 and the
GNMA Certificates mature between 2008 and 2009. On June 30, 1995, the
Partnership transferred all securities held in the reserve account from the
held-to-maturity classification to the available-for-sale classification. At
September 30, 1995, the total amortized cost, gross unrealized holding gains
and aggregate fair value of available-for-sale securities were $3,807,484,
$53,907 and $3,861,391, respectively.
6. Parent Company Only Financial Information
Generally accepted accounting principles require that the Partnership`s
financial statements consolidate the operating partnerships since the
Partnership holds a majority ownership interest and, through CS Properties II,
Inc. can exercise control over the general partners. In the consolidated
financial statements, the Partnership`s investment in FHA Loans and GNMA
Certificates is eliminated against the related mortgage payable recorded by
the operating partnership. If a mortgage loan goes into default and is
foreclosed upon by FHA or GNMA, the respective agency may, at their
discretion, repay the FHA Loan or the GNMA Certificate. If this occurs, the
Partnership`s investment in the operating partnership would be eliminated,
resulting in the recognition of a gain on the Partnership`s financial
statements. This arises because consolidation accounting does not allow the
Partnership to stop recording losses from the operating partnerships when the
net investment is reduced to zero.
<PAGE>
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
The parent company only financial information below represents the condensed
financial information of the Partnership using the equity method of accounting
for the investment in operating partnerships, rather than the consolidation of
those partnerships. Under the equity method of accounting, the Partnership`s
capital contributions are adjusted to reflect its share of operating
partnership profits or losses and distributions. The investment in operating
partnerships represents the Partnership`s limited partnership interest in the
accumulated deficits of those operating partnerships. The parent company only
information is provided to more clearly present the Partnership`s investment
in the operating partnerships. Since the Partnership is not a general
partner, it is not obligated to fund the negative balances. If the
investments in all operating partnerships were eliminated at September 30,
1995, Partnership capital would increase by $4,561,605 ($1.13 per BAC).
The FHA Loans and the GNMA Certificates are collateralized by first mortgage
loans on the properties owned by the operating partnerships and are guaranteed
or insured as to principal and interest by FHA or GNMA. The FHA insured
mortgage loans are subject to a 1% assignment fee. The obligations of FHA and
GNMA are backed by the full faith and credit of the United States government.
Parent Company Only
Condensed Balance Sheets
<TABLE>
<CAPTION>
Sept. 30, 1995 Dec. 31, 1994
--------------- ---------------
<S> <C> <C>
Assets
Cash and temporary cash investments $ 879,317 $ 3,588,037
Investment in U.S. government securities 2,494,537 -
Investment in FHA Loan 6,601,649 6,619,989
Investment in GNMA Certificates 22,204,824 22,799,369
Investment in operating partnerships (4,561,605) (4,229,575)
Interest receivable 279,530 231,156
Other assets 305,768 350,770
--------------- ---------------
$ 28,204,020 $ 29,359,746
=============== ===============
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 202,766 $ 234,219
Distribution payable 546,968 546,968
--------------- ---------------
749,734 781,187
--------------- ---------------
Partners' Capital 27,454,286 28,578,559
--------------- ---------------
$ 28,204,020 $ 29,359,746
=============== ===============
</TABLE>
<PAGE>
CAPITAL SOURCE II L.P.-A
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
(UNAUDITED)
Parent Company Only
Condensed Statements of Income
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994
--------------- ---------------
<S> <C> <C>
Income
Mortgage and mortgage-backed securities income $ 1,928,143 $ 1,878,607
Interest income on temporary cash investments
and U.S. government securities 149,805 136,997
Equity in losses of operating partnerships (441,930) (489,528)
Other income 3,650 2,000
Gain on sale of mortgage-backed securities 15,670 -
--------------- ---------------
1,655,338 1,528,076
Expenses
Operating and administrative 372,161 381,553
--------------- ---------------
Net income $ 1,283,177 $ 1,146,523
=============== ===============
</TABLE>
Parent Company Only
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities
Net income $ 1,283,177 $ 1,146,523
Adjustments to reconcile net income to net cash
from operating activities
Equity in losses of operating partnerships 441,930 489,528
Amortization 46,782 46,781
Other non-cash adjustments (98,266) (59,376)
--------------- ---------------
Net cash provided by operating activities 1,673,623 1,623,456
--------------- ---------------
Cash flows from investing activities
FHA Loan and GNMA Certificate principal payments 202,862 108,249
Acquisition of U.S. government securities (2,468,945) -
Acquisition of mortgage-backed securities - (1,959,280)
Sale of mortgage-backed securities 454,997 -
Investment in operating partnerships (109,900) (209,806)
--------------- ---------------
Net cash used in investing activities (1,920,986) (2,060,837)
--------------- ---------------
Cash flow used in financing activity
Distributions (2,461,357) (2,461,355)
--------------- ---------------
Net decrease in cash and temporary cash investments (2,708,720) (2,898,736)
Cash and temporary cash investments at beginning of period 3,588,037 6,630,819
--------------- ---------------
Cash and temporary cash investments at end of period $ 879,317 $ 3,732,083
=============== ===============
</TABLE>
<PAGE>
Item 2.
CAPITAL SOURCE II L.P.-A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Liquidity and Capital Resources
The Partnership originally acquired: (i) four mortgage-backed securities
guaranteed as to principal and interest by the Government National Mortgage
Association (GNMA) collateralized by first mortgage loans on multifamily
housing properties located in three states; (ii) a first mortgage loan insured
as to principal and interest by the Federal Housing Administration (FHA) on a
multifamily housing property; and (iii) Partnership Equity Investments in five
limited partnerships which own the multifamily properties financed by the GNMA
Certificates and the FHA Loan. During 1992, the deed to one of the properties
was turned over to GNMA in lieu of foreclosure, thus eliminating the
Partnership's equity interest. In March 1993, the remaining 85% investment in
the GNMA Certificate related to this property was paid in full. Collectively,
the remaining GNMA Certificates, the FHA Loan, and the Partnership Equity
Investments are referred to as the Permanent Investments. The obligations of
GNMA and FHA are backed by the full faith and credit of the United States
government.
The FHA Loan, GNMA Certificates, U.S. government securities and Partnership
Equity Investments in operating partnerships represent the Partnership's
principal assets as shown in the Parent Company Only Financial Information in
Note 6 to the financial statements. The parent company information is
presented using the equity method of accounting for the investment in
operating partnerships. Generally accepted accounting principles, however,
require that the Partnership's financial statements consolidate the operating
partnerships, since (i) the Partnership holds a majority ownership interest,
and (ii) through CS Properties II, Inc., it can influence decisions of the
general partners in certain circumstances.
The following FHA Loan, GNMA Certificates and U.S. government securities were
owned by the Partnership at September 30, 1995. Interest income from the FHA
Loan, GNMA Certificates and U.S. government securities is the primary source
of cash available for distribution to investors.
<TABLE>
<CAPTION>
Guaranteed Interest Maturity Carrying
Property Name or Insured by Rate Date Value
- ----------------------------------- --------------- --------- ------------ -----------
<S> <C> <C> <C> <C>
Crane's Landing GNMA 8.75% 12-15-2030 $ 10,331,555
Delta Crossing FHA 9.10% 10-01-2030 6,601,649
Monticello Apartments GNMA 8.75% 11-15-2029 5,387,455
The Ponds at Georgetown GNMA 9.00% 12-15-2029 5,118,960
Pools of single-family properties GNMA 7.58% (1) 2008 to 2009 1,366,854
U.S. government securities U.S. government 6.41% (1) 03-31-1996 2,494,537
-----------
$ 31,301,010
===========
(1)Represents yield to the Partnership.
</TABLE>
<PAGE>
CAPITAL SOURCE II L.P.-A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
DISTRIBUTIONS
Cash distributions paid or accrued per BAC were as follows:
<TABLE>
<CAPTION>
For the Nine For the Nine
Months Ended Months Ended
Sept. 30, 1995 Sept. 30, 1994
-------------- --------------
<S> <C> <C>
Regular monthly distributions
Income $ .3167 $ .2830
Return of capital .2908 .3245
-------------- --------------
$ .6075 $ .6075
============== ==============
Distributions
Paid out of cash flow $ .4874 $ .4421
Paid out of reserves .1201 .1654
-------------- --------------
$ .6075 $ .6075
============== ==============
</TABLE>
Regular monthly distributions to BAC Holders consist primarily of interest
received on the FHA Loan, GNMA Certificates and U.S. government securities.
Additional cash for distributions is received from other investments. The
Partnership may draw on reserves to pay operating expenses or to supplement
cash distributions to investors. The Partnership is permitted to replenish
reserves with cash flows in excess of distributions paid. For the nine months
ended September 30, 1995, $486,606 was withdrawn from reserves to supplement
regular monthly cash distributions ($57,365 for the quarter ended September
30, 1995). The total amount held in reserves at September 30, 1995, was
$4,083,994 of which $3,861,391 was invested in GNMA Certificates and U.S.
government securities.
The Partnership believes that cash provided by operating activities and, if
necessary, withdrawals from the Partnership's reserves will be adequate to
meet its short-term and long-term liquidity requirements, including the
payments of distributions to BAC Holders. The Company has no other internal
or external sources of liquidity. Under the terms of the Partnership
agreement, the Partnership is not authorized to enter into short or long-term
debt financing arrangements or issue additional BACs to meet short-term and
long-term liquidity requirements.
<PAGE>
Asset Quality
The FHA Loan and GNMA Certificates owned by the Partnership are guaranteed as
to principal and interest by FHA and GNMA, respectively. The obligations of
FHA, GNMA and the government securities are backed by the full faith and
credit of the United States government. The Partnership Equity Investments,
however, are not insured or guaranteed. The value of these investments is a
function of the value of the real estate owned by the limited partnerships
which own the properties financed by the FHA Loan and GNMA Certificates.
The overall status of the Partnership's investments has remained relatively
constant since June 30, 1995.
The following table shows the occupancy levels of the properties financed by
the Partnership as of September 30, 1995:
<TABLE>
<CAPTION>
Number Percentage
Number of Units of Units
Property Name Location of Units Occupied Occupied
- ------------------------------------- ------------------ --------- ---------- -----------
<S> <C> <C> <C> <C>
Crane's Landing Winter Park, FL 252 242 96%
Delta Crossing Charlotte, NC 178 167 94%
Monticello Apartments Southfield, MI 106 106 100%
The Ponds at Georgetown Ann Arbor, MI 134 132 99%
--------- ---------- -----------
670 647 97%
========= ========== ===========
</TABLE>
<PAGE>
CAPITAL SOURCE II L.P.-A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The table below compares the results of operations for each period shown.
<TABLE>
<CAPTION>
For the For the Increase
Quarter Ended Quarter Ended (Decrease)
Sept. 30, 1995 Sept. 30, 1994 From 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Rental income $ 1,164,241 $ 1,123,166 $ 41,075
Interest income on temporary cash investments
and U.S. government securities 54,385 45,611 8,774
Mortgage-backed securities income 26,694 37,147 (10,453)
Other income 39,749 44,785 (5,036)
Gain on sale of mortgage-backed securities 15,670 - 15,670
--------------- --------------- ---------------
1,300,739 1,250,709 50,030
--------------- --------------- ---------------
Real estate operating expenses 509,571 453,373 56,198
Depreciation 188,455 210,130 (21,675)
Property development and management fees 8,387 12,158 (3,771)
Investor servicing 63,621 54,235 9,386
Professional fees 11,058 13,525 (2,467)
Other expenses 3,317 2,299 1,018
Asset management and partnership administration fees 41,500 41,500 -
Amortization 32,998 27,097 5,901
--------------- --------------- ---------------
858,907 814,317 44,590
--------------- --------------- ---------------
Minority interest in losses of operating partnerships 908 1,386 (478)
--------------- --------------- ---------------
Net income $ 442,740 $ 437,778 $ 4,962
=============== =============== ===============
<CAPTION>
For the Nine For the Nine Increase
Months Ended Months Ended (Decrease)
Sept. 30, 1995 Sept. 30, 1994 From 1994
--------------- --------------- ---------------
<S> <C> <C> <C>
Rental income $ 3,375,607 $ 3,287,095 $ 88,512
Interest income on temporary cash investments
and U.S. government securities 155,851 141,581 14,270
Mortgage-backed securities income 98,079 41,687 56,392
Other income 100,619 122,237 (21,618)
Gain on sale of mortgage-backed securities 15,670 - 15,670
--------------- --------------- ---------------
3,745,826 3,592,600 153,226
--------------- --------------- ---------------
Real estate operating expenses 1,453,399 1,365,688 87,711
Depreciation 564,847 628,389 (63,542)
Property development and management fees 25,952 37,387 (11,435)
Investor servicing 158,354 161,394 (3,040)
Professional fees 34,908 43,125 (8,217)
Other expenses 7,617 5,750 1,867
Asset management and partnership administration fees 124,500 124,500 -
Amortization 95,572 83,388 12,184
--------------- --------------- ---------------
2,465,149 2,449,621 15,528
--------------- --------------- ---------------
Minority interest in losses of operating partnerships 2,500 3,544 (1,044)
--------------- --------------- ---------------
Net income $ 1,283,177 $ 1,146,523 $ 136,654
=============== =============== ===============
</TABLE>
<PAGE>
CAPITAL SOURCE II L.P.-A
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Rental income, net of real estate operating expenses, depreciation and
amortization increased $651 and $52,159 for the quarter and nine months
ended September 30, 1995, respectively, compared to the same periods in 1994.
The increases were due to higher rental income primarily due to an increase in
rental rates in certain markets and a decrease in depreciation due to certain
personal property becoming fully depreciated. The increase in rental income
and decrease in depreciation expense during these periods were partially
offset by higher overall real estate operating expenses.
Interest income on temporary cash investments and U.S. government securities
increased approximately $80,000 for the nine months ended September 30, 1995
(approximately $40,000 for the quarter ended September 30, 1995), due to the
acquisition of U.S. government securities in March, 1995. However, these
increases were partially offset by a decrease in interest earned on other
temporary cash investments due to a decrease in cash reserves resulting from
the acquisition of the U.S. government securities and withdrawals from
reserves to supplement cash distributions to investors.
Mortgage-backed securities income decreased for the quarter ended September
30, 1995, compared to the same periods in 1994, due to the sale of
mortgage-backed securities in July 1995 and to the continued amortization of
the principal balances of the GNMA Certificates. The increase for the nine
months ended September 30, 1995, compared to the same periods in 1994, is due
to the acquisition of mortgage-backed securities during the second quarter of
1994.
Other income consists of income such as garage rentals, washer/dryer and
vending income earned by the properties. Other income decreased for the
quarter and nine months ended September 30, 1995, compared to the same periods
in 1994.
Property development and management fees, investor servicing expenses and
professional fees increased by $4,166 for the quarter ended September 30,
1995, compared to the same period in 1994, due to an increase in investor
servicing expenses due to the timing of the recording of expenses associated
with maintaining and providing investors with Partnership information. The
decrease of $20,825 for the nine months ended September 30, 1995, compared to
the same period in 1994, is due to overall expense decreases.
<PAGE>
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None.
(b) Form 8-K
The registrant did not file a report on Form 8-K during the
quarter for which this report is filed.
<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.
Dated: November 13, 1995 CAPITAL SOURCE II L.P.-A
By America First Capital
Source II, L.L.C., General
Partner
By /s/ Michael Thesing
Michael Thesing
Vice President, Secretary and
Treasurer (Principal Financial
Officer)
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
CONSOLIDATED STATEMENTS
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 879,317
<SECURITIES> 3,861,391
<RECEIVABLES> 86,633
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 4,668,782
<PP&E> 27,162,388
<DEPRECIATION> (4,850,391)
<TOTAL-ASSETS> 30,413,441
<CURRENT-LIABILITIES> 1,635,242
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 27,454,286
<TOTAL-LIABILITY-AND-EQUITY> 30,413,441
<SALES> 0
<TOTAL-REVENUES> 3,745,826
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,465,149
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,283,177
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,283,177
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,283,177
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
