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 December 31, 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
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- -----------------------
(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 DECEMBER 31, 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
December 31,
March 31,
1998
1998
(Unaudited)
(Audited)
-----------
- ----------
INVESTMENTS IN OPERATING
PARTNERSHIPS (note D) $2,744,325
$2,962,644
OTHER ASSETS
Cash and cash equivalents 5,795
12,456
Notes receivable 40,000
40,000
Other assets 8,849
7,849
---------
- ---------
$2,795,969
$3,022,949
=========
=========
LIABILITIES
Accounts payable affiliates $4,366,909
$4,008,555
Accounts payable 5,108
3,500
---------
- ---------
4,372,017
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) (1,330,382)
(749,309)
General Partners (245,666)
(239,797)
---------
- ---------
(1,576,048)
(989,106)
---------
- ---------
$2,795,969
$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 December 31,
(Unaudited)
1998
1997
Income ----
- ----
Interest income $ 38 $
43
Other income -
- -
-------
- -------
38
43
-------
- -------
Share of loss from Operating
Partnerships (note D) (69,698)
(129,844)
-------
- -------
Expenses
Professional fees 1,529
750
General and administrative expenses 2,851
4,970
Asset management fees (note C) 108,346
110,465
-------
- -------
112,725
116,185
-------
- -------
NET LOSS $(182,386)
$(245,986)
========
========
Net loss allocated to general partners $ (1,824) $
(2,460)
========
========
Net loss allocated to limited partners $(180,562)
$(243,526)
========
========
Net loss per unit of limited
partnership interest $ (7) $
(9)
========
========
The accompanying notes are an integral part of these
statements.
2
American Affordable Housing II Limited Partnership
STATEMENTS OF OPERATIONS
Nine Months Ended December 31,
(Unaudited)
1998
1997
Income ----
- ----
Interest income $ 187 $
262
Other income 7,528
- -
-------
- -------
7,715
262
-------
- -------
Share of loss from Operating
Partnerships (note D) (221,178)
(474,836)
-------
- -------
Expenses
Professional fees 43,001
30,833
General and administrative expenses 12,830
16,408
Asset management fees (note C) 317,648
318,197
-------
- -------
373,479
365,438
-------
- -------
NET LOSS $(586,942)
$(840,012)
========
========
Net loss allocated to general partners $ (5,869) $
(8,400)
========
========
Net loss allocated to limited partners $(581,073)
$(831,612)
========
========
Net loss per unit of limited
partnership interest $ (22) $
(31)
========
========
The accompanying notes are an integral part of these
statements.
3
American Affordable Housing II Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
Nine Months Ended December 31, 1998
(Unaudited)
Limited General
Partners Partners
Total
-------- --------
- -----
Partners' capital (deficit),
April 1, 1998 $ (749,309) $(239,797) $
(989,106)
Net loss (581,073) (5,869)
(586,942)
-------- -------- -----
- ---
Partners' capital (deficit),
December 31, 1998 $(1,330,382) $(245,666)
$(1,576,048)
========= ========
==========
The accompanying notes are an integral part of these
statements.
4
American Affordable Housing II Limited Partnership
STATEMENTS OF CASH FLOWS
Nine Months Ended December 31,
(Unaudited)
1998 1997
---- ----
Cash flows from operating activities:
Net loss $(586,942) $ (840,012)
Adjustments
Cash flow from Operating
Partnerships 141 5,649
Share of loss of Operating
Partnerships 221,178 474,836
Changes in assets and liabilities
Decrease (Increase) in other
assets (1,000) -
Increase in accounts payable
and accrued expenses 359,962 358,346
-------- ---------
Net cash provided by (used in)
operating activities (6,661) (1,181)
-------- ---------
INCREASE (DECREASE) IN CASH (6,661) (1,181)
Cash and cash equivalents, beginning 12,456 14,290
-------- ---------
Cash and cash equivalents, ending $ 5,795 $ 13,109
======== =========
The accompanying notes are an integral part of these
statements.
5
American Affordable Housing II Limited
Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 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
December 31,
1998 and for the nine 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
December 31, 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
December 31, 1998 and 1997 was $110,465 for both years.
Affiliates of the General Partner have advanced $160,692
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 December 31, 1998
Washington
Mews has paid the Partnership $60,375. As of December 31, 1998
$60,375 has
been repaid to the affiliate leaving a balance of $40,000.
NOTE D - INVESTMENTS IN OPERATING PARTNERSHIPS
At December 31, 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 December 31, 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 nine months ended September 30, 1998.
7
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 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 nine months ended September 30,
1998 and 1997
are as follows:
1998 1997
Revenues ---- ----
Rental income $ 7,328,123 $ 7,211,140
Interest and other 345,999 306,407
---------- ----------
7,674,121 7,517,547
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Expenses
Interest expense 2,274,116 2,245,008
Depreciation and amortization 2,139,060 2,217,374
Operating expenses 4,770,697 4,680,186
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9,183,873 9,142,568
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NET LOSS $(1,509,752)
$(1,625,021)
========== ==========
Net loss allocated to American
Affordable Housing II Limited
Partnership $ (221,178) $
(474,836)
========== ==========
Net loss allocated to other partners $ (15,098) $
(16,250)
========== ==========
Net loss suspended $(1,273,477)
$(1,133,934)
========== ==========
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
December 31, 1998
(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, 1999. 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 December
31, 1998 were $110,465 and total asset management fees accrued as
of December 31, 1998 were $4,164,225. 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 December
31, 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 $160,692 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 December 31, 1998. At December 31, 1998 the
Partnership held working capital of $5,795.
10
Results of Operations
- ---------------------
As of December 31, 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 December 31, 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 December 31, 1998 and 1997. During the
quarters ended December 31, 1998 and 1997, the Partnership
received cash flow distributions from the Operating Partnerships
of $141 for 1998. Reporting fees received as of the quarters
ended December 31, 1998 and 1997 were $2,119 and $0,
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 December 31, 1998 and 1997
was $108,346 and $110,465 respectively.
During the quarter ended December 31, 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).
11
Despite improving 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
addressed 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. Under the direction of Western States/Medlock
Southwest Management, average occupancy for 1998 was 90% and
operating expenses have been maintained at a reasonable level.
Although the replacement reserve account is under funded, the
property remains in compliance with a workout plan to cure the
deficit.
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 deficits a substantial doubt about the property continuing
as a going concern has been raised. The cash flow deficits have
been the result of poor occupancy at the property. The Operating
General Partner has funded 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 to get more favorable terms potentially
generating positive cash flow. 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 foreclosure or 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 first quarter of
1999. As a result, in 1999 the partnership will face recapture
of a portion of the credits previously taken.
12
Year 2000
- ---------
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 have contacted the vendors to provide us
with the necessary upgrades and replacements. Boston Capital is
committed to ensuring that the "Y2K" issue will have no impact on
our investors.
13
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.
14
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: February 19, 1999 By: /s/ John P. Manning
---------------------------
John P. Manning, Partner
15
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<NAME> AMERICAN AFFORDABLE HOUSING II LIMITED PARTNERSHIP
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<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> MAR-31-1999
<PERIOD-START> APR-01-1998
<PERIOD-END> DEC-31-1998
<TOTAL-ASSETS> 2,795,969
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<COMMON> 0
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