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 June 30, 1999
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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 June 30, 1999
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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
June 30,
March 31,
1999 1999
(Unaudited)
(Audited)
-----------
- ----------
INVESTMENTS IN OPERATING
PARTNERSHIPS (note D) $2,480,702
$2,544,050
OTHER ASSETS
Cash and cash equivalents 18,229
9,857
Notes receivable 40,000
40,000
Other assets 8,849
8,849
--------- --
- -------
$2,547,780
$2,602,756
=========
========= .
LIABILITIES
Accounts payable affiliates $4,591,236
$4,482,468
Accounts payable 3,500
3,500
--------- -
- --------
4,594,736
4,485,968
--------- -
- --------
PARTNERS' CAPITAL
Limited Partners
Units of limited partnership
interest, $1,000 stated value per
unit; issued and outstanding,
26,501 units (note A) (1,796,581)
(1,634,474)
General Partners (250,375)
(248,738)
--------- --
- --------
(2,046,956)
(1,883,212)
--------- --
- --------
$2,547,780
$2,602,756
=========
=========
The accompanying notes are an integral part of these
statements.
1
American Affordable Housing II Limited Partnership
STATEMENTS OF OPERATIONS
Three Months Ended June 30,
(Unaudited)
1999
1998
Income ----
- ----
Interest income $ 51 $
83
Other income 3,846
7,528
------
- ------
3,897
7,611
------
- ------
Share of loss from Operating
Partnerships (note D) (62,067)
(96,066)
------
- ------
Expenses
Professional fees -
- -
General and administrative expenses 7,396
17,194
Asset management fees (note C) 98,178
101,918
-------
- -------
105,574
119,112
-------
- -------
NET LOSS $(163,744)
$(207,567)
========
========
Net loss allocated to general partners $ (1,637) $
(2,076)
========
========
Net loss allocated to limited partners $(162,107)
$(205,491)
========
========
Net loss per unit of limited
partnership interest $ (6) $
(8)
========
========
The accompanying notes are an integral part of these
statements.
2
American Affordable Housing II Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
Three Months Ended June 30, 1999
(Unaudited)
Limited General
Partners Partners
Total
-------- --------
- -----
Partners' capital (deficit),
April 1, 1999 $(1,634,474) $(248,738)
$(1,883,212)
Net loss (162,107) (1,637)
(163,744)
--------- -------- -------
- ---
Partners' capital (deficit),
June 30, 1999 $(1,796,581) $(250,375)
$(2,046,956)
========= ========
==========
The accompanying notes are an integral part of these
statements.
3
American Affordable Housing II Limited Partnership
STATEMENTS OF CASH FLOWS
Three Months Ended June 30,
(Unaudited)
1999 1998
---- ----
Cash flows from operating activities:
Net loss $(163,744) $ (207,567)
Adjustments
Cash flow from Operating
Partnerships 1,280 -
Share of loss of Operating
Partnerships 62,067 96,066
Changes in assets and liabilities
Decrease (Increase) in other
assets
Increase in accounts payable
and accrued expenses 108,769 106,539
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Net cash provided by (used in)
operating activities 8,372 (4,962)
------- -------
INCREASE (DECREASE) IN CASH 8,372 (4,962)
Cash and cash equivalents, beginning 9,857 12,456
------- -------
Cash and cash equivalents, ending $ 18,229 $ 7,494
====== =======
The accompanying notes are an integral part of these
statements.
4
American Affordable Housing II Limited
Partnership
NOTES TO FINANCIAL STATEMENTS
June 30, 1999
(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
June 30, 1999 and for the three 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, 2000.
5
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1999
(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. The annual asset management fee accrued for the
quarters ended June 30, 1999 and 1998 was $105,568 and $109,239,
respectively.
Affiliates of the General Partner have advanced $197,784
to the
Partnership to pay certain operating expenses of the Partnership,
and make advances and/or loans to Operating Partnerships. 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.
NOTE D - INVESTMENTS IN OPERATING PARTNERSHIPS
At June 30, 1999 and 1998, the Partnership had limited
partnership equity interests in fifty and fifty-one Operating
Partnerships, respectively, each of which owned an apartment
complex. During the first quarter of 1999 the Partnership
initiated the process to dispose of the Operating Partnership
Fairbanks Flats Limited Partnership (Fairbanks Flats Apt). The
disposition is reflected in the financial statements presented,
although it is not expected to be complete until the third
quarter of 1999. For further information regarding the
disposition refer to the Results of Operations.
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 June 30, 1999 and
1998, 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 three months ended March 31, 1999.
6
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1999
(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 three months ended March 31, 1999
and 1998
are as follows:
1999 1998
Revenues ---- ----
Rental income $ 2,462,301 $ 2,431,770
Interest and other 69,923 140,692
---------- ----------
2,532,224 2,572,462
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Expenses
Interest expense 730,172 757,344
Depreciation and amortization 705,929 710,097
Operating expenses 1,612,969 1,694,356
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3,049,070 3,161,797
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NET LOSS $ (516,846) $
(589,335)
========== ==========
Net loss allocated to American
Affordable Housing II Limited
Partnership $ (62,067) $
(96,066)
========== ==========
Net loss allocated to other partners $ (5,168) $
(5,893)
========== ==========
Net loss suspended $ (449,609) $
(487,376)
========== ==========
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.
7
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
June 30, 1999
(Unaudited)
NOTE E - TAXABLE LOSS
The Partnership's taxable loss for the year ended December
31,
1999 is expected to differ from its loss for financial reporting
purposes for the year ended March 31, 2000. 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.
8
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 June 30,
1999 were $105,568 and total asset management fees accrued as of
June 30, 1999 were $4,380,257. 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 June 30,
1999 in the amount of $3,846. 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.
The Partnership has recorded $4,591,236 as payable to
affiliates. This represents advances to pay certain third party
operating expenses of the Partnership, make advances and/or loans
to Operating Partnerships, and accrued overhead allocations.
These and any future advances or accruals will be paid, without
interest, from available cash flow, reporting fees, or the
proceeds of sales or refinancing of the Partnership's interest 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 June 30, 1999. At June 30, 1999 the Partnership
held working capital of $18,229.
9
Results of Operations
- ---------------------
As of June 30, 1999 and 1998 the Partnership held limited
partnership interests in 50 and 51 Operating Partnerships,
respectively. 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 June 30, 1999 and 1998 the Qualified Occupancy of the
Operating Partnership's was 99.88% and 99.5%, respectively.
The Partnership had invested in a total of 50 and 51
Operating Partnerships as of June 30, 1999 and 1998,
respectively. During the quarters ended June 30, 1999 and 1998,
the Partnership received cash flow distributions from the
Operating Limited Partnerships of $5,126 and $4,028,
respectively. Reporting fees received as of the quarters ended
June 30, 1999 and 1998 were $7,390 and $3,650, 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 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 June 30, 1999
and 1998 was $98,178 and $101,918 respectively.
During the quarter ended June 30, 1999, the Partnership
incurred the cost of the 1998 audit and tax return for Rouse
Stokes Rowe Housing Associates, L.P. (Stokes Rowe), and is
reflected in General and administrative expenses. Historically,
the financial of Stokes Rowe have been 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
the Operating General Partners).
10
Despite high occupancy, the property suffers from cash flow
deficits related to excessive operating expenses. The Investment
General Partner continues to explore different options to cure
the cash flow deficits. A site visit to the property completed
in October, 1998 confirmed that the property was in good physical
condition and that the leasing/management staff was performing
well. During that inspection, concerns about the property's
Section 42 documentation were noted. These concerns will be
discussed with the Operating General Partner.
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 was 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. The property experienced a downturn in occupancy
during the past two quarters as the local economy and tenant
population was adversely impacted by the decline of local oil
production. The management company has indicated that these
economic conditions have improved and that occupancy is
improving. Although the replacement reserve account is under
funded, the property remains in compliance with a workout plan to
cure the deficit. At this time, the Operating General Partner is
evaluating options to finance the completion of deferred
maintenance issues.
As a result of continued poor occupancy at the property, the
Operating Partnership, Fairbanks Flats Limited Partnership
(Fairbanks Flats Apartments) continues to incur operational cash
flow deficits. The continued deficits have raised a substantial
doubt about the property continuing as a going concern. In an
effort to address the deficits the Investment General Partner has
attempted to work with the first mortgage holder to get more
favorable terms, but to no avail. As a result of ongoing
operating deficits and the first mortgage holder's unwillingness
to work with the Investment General Partner, the Investment
General Partner has determined that a deed in lieu of foreclosure
transfer is the most likely resolution. Assuming the bank does
not change its position, a transfer of ownership of the apartment
complex from the Operating Partnership to the first mortgage
holder is likely to occur during the third quarter of 1999. As a
result, in 1999 the partnership will face recapture of a portion
of the credits previously taken. The Investment General Partner
estimates for the tax year 1999 there will be a recapture of
credits previously taken and a loss of 1999 credits resulting in
a decrease in overall credit yield for 1999 of between .5% - 1%.
There is no estimated change for the overall credit yield for the
tax year 2000. Actual results will not be determined until all
1999 tax returns are completed.
11
Year 2000 Compliance
- --------------------
As Previously stated in the Partnership's 10-K, Boston
Capital and its management have reviewed the potential computer
problems that may arise from the century date change known as the
"Year 2000" or "Y2K" problem. We are currently in the process of
taking the necessary precautions to minimize any disruptions.
The majority of Boston Capital's systems are "Y2K" Compliant. For
all remaining systems we are working the vendors to make the
necessary upgrades and replacements. Boston Capital has no
reason to believe that any of its systems will not be fully
compliant before the year 2000 and is committed to ensuring that
the "Y2K" issue will have no impact on our investors.
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 10, 1999 By: /s/ John P. Manning
---------------------------
John P. Manning, Partner
14
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<CIK> 0000815024
<NAME> AMERICAN AFFORDABLE HOUSING II LIMITED PARTNERSHIP
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-2000
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<TOTAL-ASSETS> 2,547,780
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 2,547,780
<TOTAL-REVENUES> 3,897
<INCOME-TAX> 0
<INCOME-CONTINUING> (167,641)
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