FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(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, 1998
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-17696
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AMERICAN AFFORDABLE HOUSING II LIMITED PARTNERSHIP
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(Exact name of registrant as specified in its charter)
Massachusetts
04-2992309
- --------------------------------
- -----------------------
(State or other jurisdiction of (I.R.S.
Employer
incorporation or organization)
Identification No.)
One Boston, Place, Suite 2100, Boston Massachusetts
02108-4406
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- ----------------
(Address of principal executive offices) (Zip
Code)
Registrant's telephone number, including area code (617)
624-8900
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(Former name, former address and former fiscal year, if changed
since last
report)
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
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AMERICAN AFFORDABLE HOUSING II LIMITED PARTNERSHIP
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QUARTERLY REPORT ON FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1998
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TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets
Statements of Operations
Statement of Changes in Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
Signatures
American Affordable Housing II Limited Partnership
BALANCE SHEETS
ASSETS
September 30,
March 31,
1998
1998
(Unaudited)
(Audited)
-----------
- ----------
INVESTMENTS IN OPERATING
PARTNERSHIPS (note D) $2,811,163
$2,962,644
OTHER ASSETS
Cash and cash equivalents 5,906
12,456
Notes receivable 40,000
40,000
Other assets 8,849
7,849
---------
- ---------
$2,865,918
$3,022,949
=========
=========
LIABILITIES
Accounts payable affiliates $4,256,081
$4,008,555
Accounts payable 3,793
3,500
---------
- ---------
4,259,874
4,012,055
---------
- ---------
PARTNERS' CAPITAL
Limited Partners
Units of limited partnership
interest, $1,000 stated value per
unit; issued and outstanding,
26,501 units (note A) (1,150,111)
(749,309)
General Partners (243,845)
(239,797)
---------
- ---------
(1,393,956)
(989,106)
---------
- ---------
$2,865,918
$3,022,949
=========
=========
The accompanying notes are an integral part of these
statements.
1
American Affordable Housing II Limited Partnership
STATEMENTS OF OPERATIONS
Three Months Ended September 30,
(Unaudited)
1998
1997
Income ----
- ----
Interest income $ 67 $
114
Other income 3,500
- -
-------
- -------
3,567
114
-------
- -------
Share of loss from Operating
Partnerships (note D) (55,414)
(179,650)
-------
- -------
Expenses
Professional fees 29,474
30,083
General and administrative expenses 5,077
4,229
Asset management fees (note C) 107,385
105,665
-------
- -------
141,936
139,977
-------
- -------
NET LOSS $(193,783)
$(319,513)
========
========
Net loss allocated to general partners $ (1,938) $
(3,195)
========
========
Net loss allocated to limited partners $(191,845)
$(316,318)
========
========
Net loss per unit of limited
partnership interest $ (7) $
(12)
========
========
The accompanying notes are an integral part of these
statements.
2
American Affordable Housing II Limited Partnership
STATEMENTS OF OPERATIONS
Six Months Ended September 30,
(Unaudited)
1998
1997
Income ----
- ----
Interest income $ 150 $
217
Other income 7,528
- -
-------
- -------
7,678
217
-------
- -------
Share of loss from Operating
Partnerships (note D) (151,480)
(344,992)
-------
- -------
Expenses
Professional fees 41,474
30,083
General and administrative expenses 10,272
11,437
Asset management fees (note C) 209,302
207,732
-------
- -------
261,048
249,252
-------
- -------
NET LOSS $(404,850)
$(594,027)
========
========
Net loss allocated to general partners $ (4,048) $
(5,940)
========
========
Net loss allocated to limited partners $(400,802)
$(588,087)
========
========
Net loss per unit of limited
partnership interest $ (15) $
(22)
========
========
The accompanying notes are an integral part of these
statements.
3
American Affordable Housing II Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
Six Months Ended September 30, 1998
(Unaudited)
Limited General
Partners Partners
Total
-------- --------
- -----
Partners' capital (deficit),
April 1, 1998 $ (749,309) $(239,797) $
(989,106)
Net loss (400,802) (4,048)
(404,850)
-------- -------- -----
- ---
Partners' capital (deficit),
September 30, 1998 $(1,150,111) $(243,845)
$(1,393,956)
========= ========
==========
The accompanying notes are an integral part of these
statements.
4
American Affordable Housing II Limited Partnership
STATEMENTS OF CASH FLOWS
Six Months Ended September 30,
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities:
Net loss $(404,850) $ (594,027)
Adjustments
Cash flow from Operating
Partnerships - 5,649
Share of loss of Operating
Partnerships 151,480 344,992
Changes in assets and liabilities
Increase in accounts payable
and accrued expenses 246,820 232,357
-------- ---------
Net cash provided by (used in)
operating activities (6,550) (11,029)
-------- ---------
INCREASE (DECREASE) IN CASH (6,550) (11,029)
Cash and cash equivalents, beginning 12,456 14,290
-------- ---------
Cash and cash equivalents, ending $ 5,906 $ 3,261
======== =========
The accompanying notes are an integral part of these
statements.
5
American Affordable Housing II Limited
Partnership
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
(Unaudited)
NOTE A - ORGANIZATION
American Affordable Housing II Limited Partnership
("Partnership") was formed under the laws of The Commonwealth of
Massachusetts on May 13, 1987, for the purpose of acquiring,
holding, and
disposing of limited partnership interests in operating
partnerships
which were to acquire, develop, rehabilitate, operate and own
newly
constructed, existing or rehabilitated low-income apartment
complexes.
The general partners of the Partnership are Boston Capital
Associates
Limited Partnership and C&M Associates d/b/a Boston Capital
Associates.
Pursuant to the Securities Act of 1933, the Partnership
filed a
Form S-11 Registration Statement with the Securities and Exchange
Commission, effective September 21, 1987, which covered the
offering (the
"Public Offering") of the Partnership's units of limited partner
interest, as well as the units of limited partner interest
offered by
American Affordable Housing I, III, IV, and V Limited
Partnerships
(together with the Partnership, the "Partnerships"). The
Partnerships
registered 50,000 units of limited partner interest at $1,000
each unit
for sale to the public. The Partnership sold 26,501 units of
limited
partner interest, representing $26,501,000 of capital
contributions.
NOTE B - ACCOUNTING AND FINANCIAL REPORTING POLICIES
The condensed financial statements included herein as of
September 30,
1998 and for the six months then ended have been prepared by the
Registrant, without audit, pursuant to the rules and regulations
of the
Securities and Exchange Commission. The Registrant's accounting
and financial reporting policies are in conformity with generally
accepted accounting principles and include adjustments in interim
periods considered necessary for a fair presentation of the
results of operations. All such adjustments are of a normal
recurring nature. Certain information and footnote disclosures
normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. It is
suggested that these condensed financial statements be read in
conjunction with the financial statements and the notes thereto
included in the Registrant's Annual Report Statement on Form
10-K.
The accompanying financial statements reflect the
Partnership's
results of operations for an interim period and are not
necessarily
indicative of the results of operations for the fiscal year
ending
March 31, 1999.
6
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 30, 1998
(Unaudited)
NOTE C - RELATED PARTY TRANSACTIONS
An annual asset management fee based on 0.5 percent of the
aggregate
cost of all apartment complexes owned by the Operating
Partnerships, has been
accrued as payable to Boston Capital Asset Management Limited
Partnership
(formerly Boston Capital Communications Limited Partnership).
The annual asset management fee accrued for the quarters ended
September 30, 1998 and 1997 was $216,032 and $110,465.
Affiliates of the General Partner have advanced $153,884
to the
Partnership to pay certain operating expenses. This and any
additional
advances will be paid, without interest, from available cash flow
or the
proceeds of sales or refinancing of the Partnership's interests
in
Operating Partnerships.
On December 23, 1994 an affiliate of the General Partners
funded
$100,375, interest free, to the Partnership so that it could make
a $100,375
loan to the Operating Partnership Washington Mews. The loan
enabled the
Operating Partnership to refinance its mortgage at a more
favorable rate, and
will be repaid by the Operating Partnership with surplus cash
from operations
over the course of the three years. As repayments are received
from
Washington Mews, they will be used to repay the funding, free of
interest,
from the General Partners' affiliate. As of September 30, 1998
Washington
Mews has paid the Partnership $60,375. As of September 30, 1998
$60,375 has
been repaid to the affiliate leaving a balance of $40,000.
NOTE D - INVESTMENTS IN OPERATING PARTNERSHIPS
At September 30, 1998 and 1997, the Partnership had
limited partnership equity interests in fifty Operating
Partnerships, each of which owned an apartment complex.
Under the terms of the Partnership's investment in each
Operating
Partnership, the Partnership was required to make capital
contributions to
such Operating Partnerships. These contributions were payable in
installments upon each Operating Partnership achieving specified
levels of construction and/or operations. At September 30, 1998
and 1997, all such capital contributions had been paid to the
Operating Partnerships.
The Partnership's fiscal year ends March 31st of each
year, while all
the Operating Partnerships' fiscal years are the calendar year.
Pursuant to
the provisions of each Operating Partnership Agreement, financial
results for
each of the Operating Partnerships are provided to the
Partnership within 45
days after the close of each Operating Partnership's quarterly
period.
Accordingly, the current financial results available for the
Operating
Partnerships are for the six months ended June 30, 1998.
7
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 30, 1998
(Unaudited)
COMBINED SUMMARIZED STATEMENTS OF OPERATIONS
NOTE D - INVESTMENTS IN OPERATING PARTNERSHIPS-Continued
The unaudited combined summarized statements of
operations of the
Operating Partnerships for the six months ended June 30, 1998 and
1997
are as follows:
1998 1997
Revenues ---- ----
Rental income $ 4,870,484 $ 4,807,312
Interest and other 239,386 193,031
---------- ----------
5,109,870 5,000,343
---------- ----------
Expenses
Interest expense 1,499,315 1,551,884
Depreciation and amortization 1,419,986 1,473,051
Operating expenses 3,238,990 3,156,614
---------- ----------
6,158,291 6,181,549
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NET LOSS $(1,048,421)
$(1,181,206)
========== ==========
Net loss allocated to American
Affordable Housing II Limited
Partnership $ (151,480) $
(344,992)
========== ==========
Net loss allocated to other partners $ (10,484) $
(11,812)
========== ==========
Net loss suspended $ (886,457) $
(824,402)
========== ==========
The Partnership accounts for its investments using the equity
method of
accounting. Under the equity method of accounting, the
partnership adjusts
its investment cost for its share of each Operating Partnership's
results of
operations and for any distributions received or accrued.
However, the
Partnership recognizes individual operating losses only to the
extent of
capital contributions. Excess losses are suspended for use in
future years to offset excess income.
8
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
September 30, 1998
(Unaudited)
NOTE E - TAXABLE LOSS
The Partnership's taxable loss for the fiscal year ended
March
31, 1999 is expected to differ from its loss for financial
reporting
purposes. This is primarily due to accounting differences in
depreciation
incurred by the Operating Partnerships and also differences
between the equity method of accounting and IRS accounting
methods. No provision or benefit for income taxes has been
included in these financial statements since taxable income or
loss passes through to, and is reportable by, the partners
individually.
9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity
- ---------
The Partnership's primary source of funds was the proceeds of
its
Public Offering. Other sources of liquidity have included (i)
interest
earned on working capital reserves, and (ii) cash distributions
from
operations of the Operating Partnerships in which the Partnership
has
invested. Both of these sources of liquidity are available to
meet the
obligations of the Partnership.
The Partnership is currently accruing the annual asset
management fee.
Asset management fees accrued during the quarter ended September
30, 1998 were $110,464 and total asset management fees accrued as
of September 30, 1998 were $4,053,760. Pursuant to the
Partnership Agreement, such liabilities will be deferred until
the Partnership receives sales or refinancing proceeds from
Operating Partnerships, which will be used to satisfy such
liabilities.
The Partnership has recognized other income as of September
30, 1998 in the amount of $7,528. The total represents
distributions from Operating Partnerships for which the
Partnership normally records as a decrease in the Investment in
Operating Partnerships. Due to the equity method of accounting,
the Partnership has recorded these distributions as other income.
Affiliates of the General Partners have advanced $153,884 to
the
Partnership to pay certain third party operating expenses. This
and
any additional advances will be paid, without interest, from
available
cash flow, reporting fees or the proceeds of sales or refinancing
of the
Partnership's interests in Operating Partnerships.
Cash flow and reporting fees will be added to the
Partnership's working capital and will be available to meet
future third party obligations of the Partnership. The
Partnership is currently pursuing, and will continue to
aggressively pursue, available cash flow and reporting fees and
anticipates that the amount collected will be sufficient to cover
future third party operating expenses.
Capital Resources
- -----------------
The Partnership received $26,501,000 in subscriptions for
Units (at
$1,000 per Unit) during the period February 2, 1988 to September
21, 1988
pursuant to the Public Offering, resulting in net proceeds
available for
investment in Operating Partnerships (after payment of
acquisition fees
and expenses and funding of a reserve) of $18,550,700. The
Partnership had committed to investments requiring cash payments
of $18,613,764, all of which
had been paid at September 30, 1998. At September 30, 1998 the
Partnership held working capital of $5,906.
10
Results of Operations
- ---------------------
As of September 30, 1998 and 1997 the Partnership held
limited partnership interests in 50 Operating Partnerships. In
each instance the Apartment Complex owned by the applicable
Operating Partnership is eligible for the Federal Housing Tax
Credit. Occupancy of a unit in each Apartment
Complex which initially complied with the Minimum Set-Aside Test
(i.e.,
occupancy by tenants with incomes equal to no more than a certain
percentage
of area median income) and the Rent Restriction Test (i.e., gross
rent
charged tenants does not exceed 30% of the applicable income
standards) is referred to hereinafter as "Qualified Occupancy."
Each of the Operating Partnerships and each of the respective
Apartment Complexes are described more fully in the Prospectus or
applicable report on Form 8-K. The General Partner believes that
there is adequate casualty insurance on the properties.
As of September 30, 1998 and 1997 the Qualified Occupancy of
the Operating Partnership's was 99.5%, for both years.
The Partnership had invested in a total of 50 Operating
Partnerships as of September 30, 1998 and 1997. During the
quarters ended September 30, 1998 and 1997, the Partnership
received cash flow distributions from the Operating Partnerships
of $523 for 1997. Reporting fees received as of the quarters
ended September 30, 1998 and 1997 were $3,080 and $4,800,
respectively. No significant distributions of cash flow or
reporting fees from the Operating Partnerships are anticipated
due to the restrictions on rents which apply to low-income
apartment complexes such as those invested in by the Partnership.
The Partnership incurred an annual asset management fee
to Boston
Capital Asset Management Limited Partnership (formerly Boston
Capital
Communications Limited Partnership) in an amount equal to 0.5% of
the
aggregate cost of the apartment complexes owned by the Operating
Partnerships, less the amount of certain partnership management
and reporting fees paid by the Operating Partnerships. The
annual asset management fee incurred, net of reporting fees
received, during the quarters ended September 30, 1998 and 1997
was $101,917 and $105,665 respectively.
During the quarter ended September 30, 1998, the Partnership
incurred the cost of the 1996 & 1997 audits and tax returns for
Rouse Stokes Rowe Housing Associates, L.P. (Stokes Rowe), and is
reflected in General and administrative expenses. The 1997
financial statements of Stokes Rowe were prepared assuming that
the Operating Partnership will continue as a going concern. Both
of the Operating Partnership's mortgages are in technical default
for non-payment and as such the entire balance has been
classified as a current liability. (The first permanent loan is
payable to the stockholder of Southwark Realty, an affiliate of
one of the Operating General Partners). Despite improving
occupancy, the property suffers from cash flow deficits related
to excessive operating expenses. Average occupancy through the
second quarter of 1998 remained high at 100%. A site visit to
the property
11
has been scheduled for early November, at which time the
property's operations and physical condition will be reviewed.
The Investment General Partner is currently exploring different
options to cure the cash flow deficits.
Lovington Housing Associates, L.P. (Southview Place
Apartments) was suffering operational difficulties. A review by
the Investment General Partner revealed that the Operating
General Partner was not properly managing the property. As a
result the Operating General Partner has been replaced by Western
States Housing. Operations at the property have improved
significantly since Western States Housing, an affiliate of the
property's management company, became the general partner of the
property. Under the direction of Western States/Medlock
Southwest Management, occupancy remains at 94% through the end of
the second quarter, expenses have decreased, and the property is
in compliance with a workout plan to cure underfunded reserves.
The Operating Partnership, Fairbanks Flats Limited
Partnership
(Fairbanks Flats Apts), received a going concern opinion on their
1997 audit.
As a result of the property incurring continued operational cash
flow losses a substantial doubt about the property continuing as
a going concern has been raised. The cash flow losses have been
the result of poor occupancy at the property, which as of June
30, 1998 averaged 25% for the year. The Operating General
Partner has funded operating deficits in the past, but has failed
to do so in 1998. Due to the Operating General Partner's
inability to continue funding operating deficits, the Investment
General Partner has initiated conversations with the first
mortgage holder. At this time the first mortgage holder is
unwilling to work with the Investment General Partner and is
considering foreclosure proceedings.
12
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(2) None
(4)(a) Form of Amended and Restated Certificate and
Agreement
of Limited Partnership and form of Subscription
Agreement for the Partnership
(4)(b)(i) Certificate and Agreement of Limited Partnership
of
the Partnership
(4)(b)(ii) Amended Certificate and Agreement of Limited
Partnership of the Partnership
(4)(c) Form of Certificate of Limited Partnership
Interest in
the Partnership
(11) None
(15) None
(18) None
(19) None
(20) None
(23) None
(24) None
(25) None
(28) None
(b) Reports on Form 8-K
-------------------
There were no reports on Form 8-K filed during
the period
covered by this report.
13
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 hereunto duly authorized.
American Affordable Housing II
Limited Partnership
By: Boston Capital Associates Limited
Partnership
By: C&M Associates, d/b/a
Boston Capital Associates,
Date: August 19, 1998 By: /s/JOHN P. MANNING
---------------------------
John P. Manning, Partner
14
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<NAME> AMERICAN AFFORDABLE HOUSING II LIMITED PARTNERSHIP
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> SEP-30-1998
<TOTAL-ASSETS> 2,865,918
0
0
<COMMON> 0
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<TOTAL-LIABILITY-AND-EQUITY> 2,865918
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