<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 June 30, 1997 Commission File Number 0-17461
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SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
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(Exact name of small business issuer as specified in its charter)
Virginia 54-2839837
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One International Place, Boston, MA 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 330-8600
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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
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
<TABLE>
<CAPTION>
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June 30, December 31,
1997 1996
(Unaudited) (Audited)
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in rental property
Land $ 2,664,225 $ 2,664,225
Buildings, building improvements and personal property 21,715,353 21,518,510
------------ ------------
24,379,578 24,182,735
Less accumulated depreciation 8,866,561 8,426,051
------------ ------------
15,513,017 15,756,684
------------ ------------
Cash and cash equivalents 882,332 647,080
Tenant security deposits 109,591 162,055
Loan cost, net accumulated amortization of $220,233
and $200,346 68,831 88,389
Other assets 524,606 416,730
------------ ------------
Total Assets $ 17,098,377 $ 17,070,938
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities applicable to investment in rental property
Mortgages payable $ 8,166,103 $ 8,215,187
Other liabilities
Accounts payable 86,966 32,825
Accrued interest payable 63,955 63,955
Rents received in advance 18,965 17,923
Tenant security deposits 110,322 100,510
Other liabilities 115,089 64,684
------------ ------------
Total Liabilities 8,561,400 8,495,084
------------ ------------
Partners' Capital
Limited partners unit holders 50,000 units authorized,
35,801 outstanding March 31, 1997 December 31, 1996 9,939,965 9,973,010
Special Limited Partner (1,393,586) (1,388,143)
General Partner's Capital (9,402) (9,013)
------------ ------------
Total Partners' Capital 8,536,977 8,575,854
------------ ------------
Total Liabilities and Partners' Capital $ 17,098,377 $ 17,070,938
============ ============
</TABLE>
See notes to financial statements
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
PART 1 - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
For the six and three months ended Three months ended Six months ended
June 30, 1997 and 1996 June 30, (Unaudited) June 30, (Unaudited)
- --------------------------------------------------------------------------------------------------------------------------
1997 1996 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Income
Rental $ 954,206 $ 951,308 $ 1,853,077 $ 1,907,013
Interest income 2,313 6,752 4,676 13,979
Other 65,696 108,078 129,157 175,300
----------- ----------- ----------- -----------
Total income 1,022,215 1,066,138 1,986,910 2,096,292
----------- ----------- ----------- -----------
Expenses
Leasing 53,391 51,418 83,785 104,552
Payroll and Benefits 138,343 116,210 241,832 241,608
General & administrative 36,218 53,475 71,063 72,140
Management fees 61,695 59,642 118,097 119,673
Utilities 81,110 103,960 184,442 189,502
Repairs & maintenance 132,145 225,315 247,082 279,380
Insurance 24,033 15,823 47,035 66,876
Taxes 59,719 62,604 129,503 137,681
----------- ----------- ----------- -----------
Total operating expenses 586,654 688,447 1,122,839 1,211,412
Other expenses
Partnership expenses 21,912 33,489 99,322 52,733
Interest expense 156,001 188,951 343,228 378,427
Depreciation and amortization 230,199 241,825 460,398 461,152
----------- ----------- ----------- -----------
Total expenses 994,766 1,152,712 2,025,787 2,103,724
----------- ----------- ----------- -----------
Net income (loss) $ 27,449 $ (86,574) $ (38,877) $ (7,432)
=========== =========== =========== ===========
Net income (loss) allocated to general partner $ 274 $ (866) $ (389) $ (74)
=========== =========== =========== ===========
Net income (loss) allocated to limited partner
unit holders $ 23,332 $ (85,708) $ (33,045) $ (7,358)
=========== =========== =========== ===========
Net income (loss) allocated to special limited
partner $ 3,843 $ -- $ (5,443) $ --
=========== =========== =========== ===========
Net income (loss) allocated to each unit $ 0.77 $ (2.39) $ (1.09) $ (0.21)
=========== =========== =========== ===========
Weighted average number of units outstanding 35,801 35,801 35,801 35,801
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
14% 85%
For the six months ended 1% Special Partner Total
June 30, 1997 and 1996 General Limited Unit Partners'
(unaudited) Partner 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 income (74) -- (7,358) (7,432)
------------ ------------ ------------ ------------
Balance, June 30, 1996 $ (7,031) $ (1,359,378) $ 10,140,303 $ 8,773,894
============ ============ ============ ============
Balance December 31, 1996 $ (9,013) $ (1,388,143) $ 9,973,010 $ 8,575,854
Net loss (389) (5,443) (33,045) (38,877)
------------ ------------ ------------ ------------
Balance, June 30, 1997 $ (9,402) $ (1,393,586) $ 9,939,965 $ 8,536,977
============ ============ ============ ============
</TABLE>
Note: Units of Limited Partnership Interest for both June 30, 1996 and June 30,
1997 were 35,801.
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------
For the six months ended 1997 1996
June 30, 1997 and 1996 (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net loss $ (38,877) $ (7,432)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 460,398 461,152
Decrease (increase) in tenant security deposits (net) 62,275 (25,730)
Increase in other assets (107,876) (167,591)
Increase (decrease) in accounts payable 54,141 (30,663)
Increase (decrease) in prepaid rent 1,042 (8,996)
Increase in other liabilities 50,405 88,522
--------- ---------
Net cash provided by operating activities 481,508 309,262
--------- ---------
Cash flows from investing activities:
Investment in rental property (196,843) (130,792)
--------- ---------
Net cash used in investing activities (196,843) (130,792)
--------- ---------
Cash flows from financing activities:
Principal payments on mortgage note (49,084) (50,858)
Increase in deferred fees (329) (275,920)
--------- ---------
Net cash used in financing activities (49,413) (326,778)
--------- ---------
Net increase (decrease) in cash and cash equivalents 235,252 (148,308)
Cash and cash equivalents, beginning 647,080 627,142
--------- ---------
Cash and cash equivalents, ending $ 882,332 $ 478,834
========= =========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 279,273 $ 378,427
========= =========
</TABLE>
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 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 10KSB.
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 $19,402 during the six months ended June 30, 1997. On
March 15, 1996 the Partnership terminated Winthrop Management as the managing
agent 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.
5. SUBSEQUENT EVENT
The mortgage loan encumbering St. Michael's Apartments matured on June 1, 1997.
The loan balance exceeded the value of the property at maturity. The Partnership
was unable to extend, restructure, or refinance the mortgage debt. Consequently,
the property was lost through foreclosure as of August 1, 1997. The Partnership
expects to record a gain of approximately $625,000 for accounting purposes.
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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
sold).
The level of liquidity based on cash and cash equivalents experienced a
$235,252 increase at June 30, 1997, as compared to December 31, 1996. The
increase was due to $481,508 of net cash provided by operating activities which
was partially offset by $49,413 of cash used in financing activities and
$196,843 of net cash used in investing activities. Financing activities
consisted primarily of $49,084 of mortgage principal payments. 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 $196,843 the
Partnership spent on capital improvements during the six months ended June 30,
1997 was funded from operating cash and replacement reserves held by mortgage
lenders. The Partnership anticipates it will spend approximately $129,000 for
capital improvements during the balance of 1997. The Partnership expects to
spend approximately $16,000 for interior replacements (kitchen cabinets and
counter tops) at Copper Croft, approximately $15,000 for structural
improvements at Greenbryre, and approximately $30,000 for appliances at Hunters
Creek. The balance of this amount will be spent on ongoing capital improvement
projects.
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.
The mortgage loan encumbering St. Michael's Apartments matured on June 1, 1997.
The loan balance exceeded the value of the property at maturity. The Partnership
was unable to extend, restructure, or refinance the mortgage debt. Consequently,
the property was lost through foreclosure as of August 1, 1997. The Partnership
expects to record a gain of approximately $625,000 for accounting purposes.
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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 June 30, 1997 consisted of four
apartment complexes (see Subsequent Event). The following table sets forth the
average occupancy of the properties for the six months ended June 30, 1997 and
1996:
Average Occupancy
-------------------------
Property 1997 1996
- ------------------------------------- ------------ -----------
Coppercroft Apartments 95% 96%
Greenbryre Apartments 94% 92%
Hunters Creek 84% 84%
St. Michaels Apartments 64% 79%
The Partnership's net loss for the six months ended June 30, 1997, was $38,877,
as compared to a net loss of $7,432 for the six months ended June 30, 1996. Net
income for the three months ended June 30, 1997, was $27,449 as compared to a
net loss of $86,574 for the three months ended June 30, 1996.
Revenues for the six months ended June 30, 1997 decreased by $109,382 as
compared to the 1996 comparable period, due to a decrease in rental revenue of
$53,936, a decrease in interest income of $9,303 and a decrease of $46,143 in
other income. Rental revenue decreased primarily because of the decrease in
occupancy at St. Michaels while average rental rates remained relatively stable
at all the properties except St. Michaels. The occupancy decreased at St.
Michael's Apartments due to the cancellation of a rental contract with the U.S.
Navy.
Total Expenses decreased by $77,937 for the six months ended June 30, 1997, as
compared to 1996, primarily due to decreases in leasing expenses of $20,767,
and repairs and maintenance of $32,298. General and administrative expenses
decreased primarily due to decreases in administrative and professional costs.
Repairs and maintenance decreased primarily due to an overall increase in
capital improvements being done on the properties.
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<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
June 30, 1997.
- 9 -
<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.,
It's General Partner
Date: August 14, 1997 By: /s/ Edward V. Williams
----------------------
Edward V. Williams
Chief Financial Officer
Date: August 14, 1997 By: /s/ Richard J. McCready
-----------------------
Richard J. McCready
Chief Executive Officer
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
financial statements for the six month period ending June 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 882,332
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 24,379,578
<DEPRECIATION> (8,886,561)
<TOTAL-ASSETS> 17,098,377
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 8,536,977
<TOTAL-LIABILITY-AND-EQUITY> 17,098,377
<SALES> 0
<TOTAL-REVENUES> 1,982,234
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,051,776
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343,228
<INCOME-PRETAX> (38,877)
<INCOME-TAX> 0
<INCOME-CONTINUING> (38,877)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (38,877)
<EPS-PRIMARY> (1.09)
<EPS-DILUTED> (1.09)
</TABLE>
