<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1997 Commission File Number 0-17461
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
-----------------------------------------------------
(exact name of small business issuer as specified in its charter)
Virginia 54-2839837
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
Five Cambridge Center, Cambridge, MA 02142-1493
- --------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 234-3000
--------------
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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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
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September 30, December 31,
1997 1996
(Unaudited) (Audited)
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in rental property
Land $ 1,930,157 $ 2,664,225
Buildings, building improvements and personal property 16,508,645 21,518,510
------------------ -----------------
18,438,802 24,182,735
Less accumulated depreciation 6,409,855 8,426,051
------------------ -----------------
12,028,947 15,756,684
------------------ -----------------
Cash and cash equivalents 1,090,765 647,080
Tenant security deposits 85,339 162,055
Loan cost, net accumulated amortization of $161,048
and $200,346 51,577 88,389
Other assets 437,581 416,730
------------------ -----------------
1,665,262 1,314,254
------------------ -----------------
Total Assets $ 13,694,209 $ 17,070,938
================== =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities applicable to investment in rental property
Mortgages payable $ 3,965,280 $ 8,215,187
Other liabilities
Accounts payable 49,035 32,825
Accrued interest payable 32,400 63,955
Prepaid rent 17,257 17,923
Tenant security deposits 84,663 100,510
Other liabilities 88,415 64,684
------------------ -----------------
Total Liabilities 4,237,050 8,495,084
------------------ -----------------
Partners' Capital
Limited partners unit holders 50,000 units authorized, 35,801
outstanding September 30, 1997 and December
31, 1996 10,722,119 9,973,010
Special Limited Partner (1,264,760) (1,388,143)
General Partner's Capital (200) (9,013)
------------------ -----------------
Total Partners' Capital 9,457,159 8,575,854
================== =================
Total Liabilities and Partners' Capital $ 13,694,209 $ 17,070,938
================== =================
</TABLE>
See notes to financial statements
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
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For the nine and three months ended Three months ended Nine months ended
September 30, 1997 and 1996 September 30, (Unaudited) September 30, (Unaudited)
-------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
----------------- ---------------- ---------------- --------------
<S> <C> <C> <C> <C>
Income
Rental $ 832,166 $ 948,045 $ 2,685,243 $ 2,855,058
Interest income 14,169 4,141 18,845 18,120
Other 125,035 110,487 254,192 285,787
----------------- ---------------- ---------------- --------------
Total income 971,370 1,062,673 2,958,280 3,158,965
----------------- ---------------- ---------------- --------------
Expenses
Leasing 36,507 63,926 120,292 168,478
Payroll and Benefits 98,785 109,799 340,617 351,410
General & administrative 45,341 30,025 116,404 102,164
Management fees 50,557 71,666 168,654 191,339
Utilities 76,643 120,195 261,085 309,697
Repairs & maintenance 119,312 206,794 366,394 532,081
Insurance 42,767 31,810 89,802 72,282
Taxes 41,522 80,717 171,025 198,893
----------------- ---------------- ---------------- --------------
Total operating expenses 511,434 714,932 1,634,273 1,926,344
Other expenses
Partnership expenses 33,596 5,525 133,216 58,149
Interest expense 94,816 188,781 437,746 567,317
Depreciation and amortization 169,143 234,961 629,541 696,113
----------------- ---------------- ---------------- --------------
Total expenses 808,989 1,144,199 2,834,776 3,247,923
----------------- ---------------- ---------------- --------------
Net income (loss) before extraordinary item 162,381 (81,526) 123,504 (88,958)
Extraordinary gain on the extinguishment of
debt 757,801 - 757,801 -
----------------- ---------------- ---------------- --------------
Net income (loss) $ 920,182 $ (81,526) $ 881,305 $ (88,958)
================= ================ ================ ==============
Net income (loss) allocated to general partner $ 9,202 $ (815) $ 8,813 $ (890)
================= ================ ================ ==============
Net income (loss) allocated to limited partner
unit holders $ 782,155 $ (80,711) $ 749,109 $ (88,068)
================= ================ ================ ==============
Net income (loss) allocated to special limited
partner $ 128,825 $ - $ 123,383 $ -
================= ================ ================ ==============
Net income (loss) allocated to each unit before
extraordinary item $ 3.85 $ (2.25) $ 2.93 $ (2.46)
Extraordinary gain 17.99 - 17.99 -
----------------- ---------------- ---------------- --------------
Net income (loss) allocated to each unit $ 21.84 $ (2.25) $ 20.92 $ (2.46)
================= ================ ================ ==============
Weighted average number of units outstanding 35,801 35,801 35,801 35,801
================= ================ ================ ==============
</TABLE>
See notes to financial statements
- 3 -
<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
14% 85%
For the nine months ended 1% Special Partner Total
September 30, 1997 and 1996 General Partner Limited Unit Partners'
(unaudited) Partner Holders Capital
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance December 31, 1995 $ (6,930) $ (1,356,646) $ 10,420,822 $ 9,057,246
Distribution paid (27) (2,732) (273,161) (275,920)
Net loss (890) - (88,068) (88,958)
================== ================ ================= =================
Balance, September 30, 1996 $ (7,847) $ (1,359,378) $ 10,059,593 $ 8,692,368
================== ================ ================= =================
Balance December 31, 1996 $ (9,013) $ (1,388,143) $ 9,973,010 $ 8,575,854
Net income 8,813 123,383 749,109 881,305
================== ================ ================= =================
Balance, September 30, 1997 $ (200) $ (1,264,760) $ 10,722,119 $ 9,457,159
================== ================ ================= =================
</TABLE>
Note: Units of Limited Partnership Interest for both September 30, 1996 and
September 30, 1997 were 35,801.
See notes to financial statements
- 4 -
<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
------------------------------------------------------------------------------------------------------------------
For the nine months ended 1997 1996
September 30, 1997 and 1996 (Unaudited) (Unaudited)
------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 881,305 $ (88,958)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 629,541 692,781
Decrease in tenant security deposits (net) 60,869 102,553
Increase in other assets (20,851) (257,456)
Increase (decrease) in accounts payable 16,210 (44,268)
Increase (decrease) in other liabilities (8,490) 98,744
----------------- -----------------
Net cash provided by operating activities 1,558,584 503,396
----------------- -----------------
Cash flows from investing activities:
Investment in rental property (298,597) (187,022)
Rental property lost to foreclosure 3,433,936 -
----------------- -----------------
Net cash provided by (used in) investing activities 3,135,339 (187,022)
----------------- -----------------
Cash flows from financing activities:
Principal payments on mortgage note (58,170) (77,110)
Satisfaction of mortgage payable (4,191,737) -
Increase in deferred costs (331) (275,920)
----------------- -----------------
Net cash used in financing activities (4,250,238) (353,030)
----------------- -----------------
Net increase (decrease) in cash and cash equivalents 443,685 (36,656)
Cash and cash equivalents, beginning 647,080 627,142
----------------- -----------------
Cash and cash equivalents, ending $ 1,090,765 $ 590,486
================= =================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 437,746 $ 566,817
================= =================
</TABLE>
See notes to financial statements
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
September 30, 1997
(Unaudited)
1. ACCOUNTING AND FINANCIAL REPORTING POLICIES
The condensed consolidated financial statements included herein have been
prepared by Southeastern Income Properties II Limited Partnership (the
"Partnership"), without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. The Partnership's accounting and financial
reporting policies conform with generally accepted accounting principles and
include adjustments in interim periods considered necessary for a fair
presentation of the results of operations. Certain information and footnote
disclosures normally included in consolidated 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
consolidated financial statements be read in conjunction with the consolidated
financial statements and notes thereto included in the Partnership's Annual
Report on Form 10-KSB.
The accompanying consolidated 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 year ending December 31, 1997.
2. TAXABLE INCOME
The Partnership's results of operations on a tax basis are expected to differ
from net income for financial reporting purposes primarily due to the accounting
differences in the recognition of depreciation and amortization.
3. RELATED PARTY TRANSACTIONS
Asset management fees paid or accrued by the Partnership to an affiliate of the
General Partner, totaled $25,461 and $76,410 during the nine months ended
September 30, 1997 and 1996, respectively. On March 15, 1996 the Partnership
terminated Winthrop Management as the managing agent at its properties effective
March 18, 1996 and appointed an unaffiliated third party to assume management of
the properties.
4. RECLASSIFICATION
Certain items in the 1996 statement of operations have been reclassified to
conform with the current year presentation.
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
5. PROPERTY FORECLOSURE
The lender holding the mortgage encumbering St. Michaels Apartments commenced a
foreclosure proceeding against the property. Due to the fact that the existing
mortgage debt was in excess of the property's value, the property was lost
through foreclosure as of August 1, 1997. The Partnership recorded a
extraordinary gain of $757,801 for accounting purposes in the third quarter of
1997.
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Liquidity and Capital Resources
All of the Partnership's real estate properties are residential properties with
apartments leased to tenants pursuant to lease with original terms ranging from
three to fourteen months. The Partnership receives rental income from its
apartments and is responsible for operating expenses, administrative expenses,
capital improvements and debt service payments. The Partnership uses working
capital reserves provided from any undistributed cash flow from operations and
proceeds from mortgage refinancings as its primary source of liquidity. For the
long term, cash from operations is expected to remain the Partnership's primary
source of liquidity, (i.e., until additional debt is refinanced or properties
are sold).
The level of liquidity based on cash and cash equivalents experienced a $443,685
increase at September 30, 1997, as compared to December 31, 1996. The increase
was due to $1,558,584 of net cash provided by operating activities and
$3,135,339 of net cash provided by investing activities which was partially
offset by $4,250,238 of net cash used in financing activities. Financing
activities consisted primarily of $58,170 of mortgage principal payments, and
$4,191,737 of mortgage payable satisfied through the foreclosure proceeding
against St. Michael's. The lender holding the mortgage encumbering St. Michaels
Apartments commenced a foreclosure proceeding against the property. Due to the
fact that the existing mortgage debt was well in excess of the property's value,
the property was lost through foreclosure as of August 1, 1997. The Partnership
recorded a extraordinary gain of $757,801 for accounting purposes in the third
quarter of 1997. Investing activities consisted of improvements to real estate.
All other increases (decreases) in certain assets and liabilities are the result
of the timing of receipt and payment of various operating activities.
The Partnership continues to make capital improvements to the properties to
enhance their competitiveness within their markets. The $298,597 the Partnership
spent on capital improvements during the nine months ended September 30, 1997
was funded from operating cash and replacement reserves held by mortgage
lenders. Capital improvements included interior replacements, appliances and
structural improvements. The Partnership anticipates it will spend approximately
$65,845 for capital improvements during the balance of 1997.
The Partnership invests its working capital reserves in a money market account.
The Managing General Partner believes that, if market conditions remain
relatively stable, cash flow from operations, when combined with working capital
reserves, will be sufficient to fund required capital improvements and regular
debt service payments for the forseeable future.
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION (Continued)
Results of Operations
The Partnership's investment properties at September 30, 1997 consisted of three
apartment complexes. The following table sets forth the average occupancy of the
properties for the nine months ended September 30, 1997 and 1996:
Average Occupancy
-------------------------
Property 1997 1996
- --------------------------------------- ------------ -----------
Coppercroft Apartments 95% 95%
Greenbryre Apartments 94% 92%
Hunters Creek 85% 81%
The Partnership's net income before extraordinary items for the nine months
ended September 30, 1997, was $123,504, as compared to a net loss of $88,958 for
the nine months ended September 30, 1996. Net income before extraordinary items
for the three months ended September 30, 1997, was $162,381 as compared to a net
loss of $81,526 for the three months ended September 30, 1996. These increases
in net income are attributable to a decrease in expenses, which were partially
offset by a decrease in income.
Income for the nine months ended September 30, 1997 decreased by $200,685 as
compared to the 1996 comparable period, due to an decrease in other income of
$31,595 and a decrease in rental revenue of $169,815 partially offset by an
increase in interest income of $725. Rental revenue decreased primarily due to
the loss of St. Michaels through foreclosure, on August 1, 1997. In addition,
occupancy at St. Michaels had decreased significantly due to the cancellation of
a rental contract with the U.S. Navy. The cancellation of this contract, in
1997, led to the foreclosure of the property. Revenues at the Partnership's
three remaining properties increased, as a result of increased occupancy due to
positive market conditions in the areas where the properties are located.
Total Expenses decreased by $413,147 for the nine months ended September 30,
1997, as compared to 1996, primarily due to decreases in virtually all operating
expense categories and interest expense, as a result of the loss of the St.
Michael's property through a foreclosure proceeding. Total operating expenses of
the remaining properties have remained relatively stable.
-9-
<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
ITEM 6 -EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27. Financial Data Schedule
(b) Reports on Form 8-K
No report on Form 8-K was filed during the three months ended September 30,
1997.
-10-
<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on form 8-K
(a) Exhibit 27
Financial Data Schedule
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the three months ended
September 30, 1997.
-11-
<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SOUTHEASTERN INCOME PROPERTIES II
LIMITED PARTNERSHIP
By: Winthrop Southeastern Limited Partnership
Its General Partner
By: Eight Winthrop Properties, Inc.,
Its General Partner
Date: November 14, 1997 By: /s/ Edward V. Williams
----------------- ------------------------------
Edward V. Williams
Chief Financial Officer
Date: November 14, 1997 By: /s/ Richard J. McCready
----------------- ------------------------------
Richard J. McCready
Chief Executive Officer
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
financial statements for the six month period ending September 30, 1997 and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<CIK> 0000822983
<NAME> SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 1,090,765
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 18,438,802
<DEPRECIATION> (6,409,855)
<TOTAL-ASSETS> 13,694,209
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 9,457,159
<TOTAL-LIABILITY-AND-EQUITY> 13,694,209
<SALES> 0
<TOTAL-REVENUES> 2,958,280
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,634,273
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 437,746
<INCOME-PRETAX> 123,504
<INCOME-TAX> 0
<INCOME-CONTINUING> 123,504
<DISCONTINUED> 0
<EXTRAORDINARY> 757,801
<CHANGES> 0
<NET-INCOME> 881,305
<EPS-PRIMARY> 20.92
<EPS-DILUTED> 20.92
</TABLE>
