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, 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
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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, 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
December 31, March 31,
1999 1999
(Unaudited) (Audited)
----------- ----------
INVESTMENTS IN OPERATING
PARTNERSHIPS (note D) $2,396,424 $2,544,050
OTHER ASSETS
Cash and cash equivalents 7,943 9,857
Notes receivable 40,000 40,000
Other assets 8,849 8,849
--------- ---------
$2,453,216 $2,602,756
========= ========= .
LIABILITIES
Accounts payable affiliates $4,837,894 $4,482,468
Accounts payable 3,500 3,500
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4,841,394 4,485,968
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PARTNERS' CAPITAL
Limited Partners
Units of limited partnership
interest, $1,000 stated value per
unit; issued and outstanding,
26,501 units (note A) (2,134,390) (1,634,474)
General Partners (253,788) (248,738)
--------- ---------
(2,388,178) (1,883,212)
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$2,453,216 $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 December 31,
(Unaudited)
1999 1998
Income ---- ----
Interest income $ 57 $ 38
Other income 1,636 -
------ ------
1,693 38
------ ------
Share of loss from Operating
Partnerships (note D) (37,893) (69,698)
------ ------
Expenses
Professional fees 1,642 1,529
General and administrative expenses 8,517 2,851
Asset management fees (note C) 108,465 108,346
------- -------
118,624 112,725
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NET LOSS $(154,824) $(182,386)
======== ========
Net loss allocated to general partners $ (1,548) $ (1,824)
======== ========
Net loss allocated to limited partners $(153,276) $(180,562)
======== ========
Net loss per unit of limited
partnership interest $ (6) $ (7)
======== ========
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)
1999 1998
Income ---- ----
Interest income $ 186 $ 187
Other income 5,482 7,528
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5,668 7,715
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Share of loss from Operating
Partnerships (note D) (146,345) (221,178)
-------- --------
Expenses
Professional fees 28,642 43,001
General and administrative expenses 18,540 12,830
Asset management fees (note C) 317,107 317,648
-------- --------
364,289 373,479
-------- --------
NET LOSS $(504,966) $(586,942)
======== ========
Net loss allocated to general partners $ (5,050) $ (5,869)
======== ========
Net loss allocated to limited partners $(499,916) $(581,073)
======== ========
Net loss per unit of limited
partnership interest $ (19) $ (22)
======== ========
The accompanying notes are an integral part of these statements.
American Affordable Housing II Limited Partnership
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
Nine Months Ended December 31, 1999
(Unaudited)
Limited General
Partners Partners Total
-------- -------- -----
Partners' capital (deficit),
April 1, 1999 $(1,634,474) $(248,738) $(1,883,212)
Net loss (499,916) (5,050) (504,966)
--------- -------- ----------
Partners' capital (deficit),
December 31, 1999 $(2,134,390) $(253,788) $(2,388,178)
========= ======= =========
The accompanying notes are an integral part of these statements.
American Affordable Housing II Limited Partnership
STATEMENTS OF CASH FLOWS
Nine Months Ended December 31,
(Unaudited)
1999 1998
---- ----
Cash flows from operating activities:
Net loss $(504,966) $(586,942)
Adjustments
Cash flow from Operating
Partnerships 1,281 141
Share of loss of Operating
Partnerships 146,345 221,178
Changes in assets and liabilities
Decrease (Increase) in other
assets - (1,000)
Increase in accounts payable
and accrued expenses 355,426 359,962
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Net cash provided by (used in)
operating activities (1,914) (6,661)
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INCREASE (DECREASE) IN CASH (1,914) (6,661)
Cash and cash equivalents, beginning 9,857 12,456
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Cash and cash equivalents, ending $ 7,943 $ 5,795
====== =======
The accompanying notes are an integral part of these statements.
5
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS
December 31, 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 December 31,
1999 and for the three and 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, 2000.
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 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 December 31,
1999 and 1998 was $110,465 for both years.
Affiliates of the General Partner have advanced $222,784 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.
The Partnership has also accrued certain affiliate administrative
expenses, including but not limited to travel, printing, salaries, postage,
and overhead allocations, totaling $13,924.
NOTE D - INVESTMENTS IN OPERATING PARTNERSHIPS
At December 31, 1999 and 1998, the Partnership had limited partnership
equity interests in fifty 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, As the property was foreclosed in the
third quarter. 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 December 31, 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 nine months ended September 30, 1999.
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 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 nine months ended September 30, 1999 and 1998
are as follows:
1999 1998
Revenues ---- ----
Rental income $ 7,306,032 $ 7,328,123
Interest and other 242,748 345,999
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7,548,780 7,674,122
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Expenses
Interest expense 2,149,780 2,274,116
Depreciation and amortization 2,173,154 2,139,060
Operating expenses 4,644,792 4,770,697
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8,967,726 9,183,873
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NET LOSS $(1,418,946) $(1,509,751)
========== ==========
Net loss allocated to American
Affordable Housing II Limited
Partnership $ (146,345) $ (221,178)
========== ==========
Net loss allocated to other partners $ (14,189) $ (15,098)
========== ==========
Net loss suspended $(1,258,412) $(1,273,475)
========== ==========
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.
American Affordable Housing II Limited Partnership
NOTES TO FINANCIAL STATEMENTS - CONTINUED
December 31, 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.
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, 1999 were
$110,465 and total asset management fees accrued as of December 31, 1999 were
$4,601,186. 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, 1999 in
the amount of $5,482. The total represents distributions from Operating
Partnerships which the Partnership normally would record 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 $4,837,894 as payable to affiliates. This
represents advances to pay certain third party operating expenses of the
Partnership, advances and/or loans to Operating Partnerships, accrued
partnership management fees, 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 December 31, 1999. At December 31, 1999 the Partnership held
working capital of $7,943.
1
Results of Operations
- ---------------------
As of December 31, 1999 and 1998 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, 1999 and 1998 the Qualified Occupancy of the
Operating Partnership's was 99.8% and 99.5%, respectively. The Partnership
had a total of 50 properties at December 31, 1999 of which 47 were at 100%
Qualified Occupancy.
The Partnership had invested in a total of 50 Operating Partnerships as
of December 31, 1999 and 1998. During the quarters ended December 31, 1999 the
Partnership received $2,000 in reporting fees from the Operating Partnerships,
but did not receive any cash flow. During the quarter ended December 31, 1998
the Partnership received $2,119 and $141, respectively in reporting fees and
cash flow from the Operating Partnerships.
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 December 31, 1999 and 1998
was $108,465 and $107,385, respectively.
Historically, the audited financial statements of Rouse Stokes Rowe
Housing Associates, L.P. have been prepared assuming that the Operating
Partnership will continue as a going concern. Despite high occupancy, the
property suffers from cash flow deficits related to excessive operating
expenses. As a result, 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
11
the stockholder of Southwark Realty, an affiliate of the Operating General
Partners).
In addition, the Investment General Partner has hired a third party consultant
to review the current status of the property's files and develop an action
plan to cure any deficiencies. This inspection is anticipated to occur in
March , 2000.
Occupancy at Lovington Housing Associates, L.P. (Southview Place
Apartments) has experienced a downturn in during the past three quarters.
The local economy and tenant population were adversely impacted by the decline
of local oil production. The management company has indicated that these
economic conditions should improve in the near future. Western States Housing
was unsuccessful in obtaining financing for deferred maintenance items which
primarily consist of interior and exterior painting. As such, the completion
of these items will be funded through the replacement reserve account.
However, as the replacement reserve account is under funded, completion of
these items has been delayed. (Although the replacement reserve account is
under funded, the property remains in compliance with a workout plan to cure
the deficit.) A site visit performed by a third party consultant in November,
1999 confirmed the existence of these deferred maintenance items.
The financial statements of Fairbanks Flats Limited Partnership
(Fairbanks Flats Apartments) raised substantial doubts about the property
continuing as a going concern. The Investment General Partner attempted to
work with the first mortgage holder of Fairbanks Flats LP to obtain more
favorable terms, but they were unsuccessful. As a result of ongoing operating
deficits and the first mortgage holder's unwillingness to work with the
Investment General Partner, the property was foreclosed on during the third
quarter of 1999. In 1999 the partnership will face recapture of a portion of
the credits previously taken. The Investment General Partner estimates that
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.
In May 1999, the General Partner of the Investment Limited Partnership
received a copy of a Notice of Acceleration and Demand for Payment, filed by
the United States Department of Agriculture (USDA) for East Ridge Associates
Limited Partnership (East Ridge Estates).
12
The General Partner of the Operating Partnership filed an appeal with
the National Appeals in November 1999, but has not received an appeal decision
to date. The partnership currently suffers from ongoing operating deficits, a
delinquent mortgage, under funded reserves, and low occupancy. The General
Partner of the Operating Partnership is currently working with Maine Rural
Development to develop a strategy to address the current problematic areas.
East Ridge projected average occupancy for 1999 was 78%. Low occupancy
at the project has resulted from the expiration of a rental assistance
contract with Maine State Housing Authority. A recent management agent change
was approved by Maine Rural Development which should address the low occupancy
at the property.
1
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
happy to announce that we did not experience any computer-related problems as
a result of this date change and therefore, there was no impact on our
investors.
1
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.
1
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 18, 2000 By:
---------------------------
John P. Manning, Partner
16
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<PERIOD-START> APR-01-1999
<PERIOD-END> DEC-31-1999
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