<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, 1998 Commission File Number 0-17461
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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
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(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>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
<TABLE>
<CAPTION>
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June 30, December 31,
1998 1997
(Unaudited) (Audited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investment in rental property
Land $ 1,930,156 $ 1,930,156
Buildings and building improvements 14,200,144 14,200,144
Personal property 2,559,275 2,381,325
----------------- -----------------
18,689,575 18,511,625
Less accumulated depreciation 6,917,023 6,606,923
----------------- -----------------
11,772,552 11,904,702
Cash and cash equivalents 1,113,852 1,160,850
Tenant security deposits 81,922 79,220
Loan cost, net accumulated amortization of $170,132
and $157,032 42,493 55,593
Other assets 548,761 436,258
----------------- -----------------
Total Assets $ 13,559,580 $ 13,636,623
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities applicable to investment in rental property
Mortgages payable $ 3,936,692 $ 3,955,975
Other liabilities
Accounts payable 3,714 6,011
Rents received in advance 15,352 11,724
Tenant security deposits 82,211 80,418
Other liabilities 143,007 52,598
----------------- -----------------
Total Liabilities 4,180,976 4,106,726
----------------- -----------------
Partners' Capital
Limited partners unit holders 50,000 units authorized,
35,801 outstanding June 30, 1998 and December 31, 1997 10,599,658 10,783,947
Special Limited Partner (1,224,006) (1,254,577)
General Partner's Capital 2,952 527
----------------- -----------------
Total Partners' Capital 9,378,604 9,529,897
================= =================
Total Liabilities and Partners' Capital $ 13,559,580 $ 13,636,623
================= =================
</TABLE>
See notes to financial statements
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<PAGE>
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, 1998 and 1997 June 30, (Unaudited) June 30, (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------
1998 1997 1998 1997
----------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Income
Rental $ 749,016 $ 954,206 $ 1,479,885 $ 1,853,077
Interest income 5,133 2,313 17,846 4,676
Other 46,316 65,696 94,891 129,157
----------------- ---------------- ---------------- ----------------
Total income 800,465 1,022,215 1,592,622 1,986,910
----------------- ---------------- ---------------- ----------------
Expenses
Leasing 31,374 53,391 70,619 83,785
General & administrative 53,310 93,598 110,339 169,997
Management fees 45,305 61,695 89,849 118,097
Utilities 52,587 81,110 110,448 184,442
Repairs & maintenance 99,840 188,865 247,181 346,322
Insurance 27,530 37,768 53,256 70,951
Taxes 50,261 70,227 98,765 149,245
----------------- ---------------- ---------------- ----------------
Total operating expenses 360,207 586,654 780,457 1,122,839
Other expenses
Partnership expenses 13,578 21,912 54,544 99,322
Interest expense 93,848 156,001 187,925 343,228
Depreciation and amortization 151,400 230,199 323,200 460,398
----------------- ---------------- ---------------- ----------------
Total expenses 619,033 994,766 1,346,126 2,025,787
----------------- ---------------- ---------------- ----------------
Net income (loss) $ 181,432 $ 27,449 $ 246,496 $ (38,877)
================= ================ ================ ================
Net income (loss) allocated to general partner $ 1,814 $ 274 $ 2,465 $ (389)
================= ================ ================ ================
Net income (loss) allocated to limited partner
unit holders $ 154,218 $ 23,332 $ 209,522 $ (33,045)
================= ================ ================ ================
Net income (loss) allocated to special limited
partner $ 25,400 $ 3,843 $ 34,509 $ (5,443)
================= ================ ================ ================
Net income (loss) allocated to each unit $ 4.31 $ .65 $ 5.85 $ (.92)
================= ================ ================ ================
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 three months ended 1% Special Partner Total
June 30, 1998 and 1997 General Partner Limited Unit Partners'
(unaudited) Partner Holders Capital
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
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
================== ================ ================= =================
Balance, December 31, 1997 $ 527 $ (1,254,577) $ 10,783,947 $ 9,529,897
Net income 2,465 34,509 209,522 246,496
Distributions (40) (3,938) (393,811) (397,789)
------------------ ---------------- ----------------- -----------------
Balance, June 30, 1998 $ 2,952 $ (1,224,006) $ 10,599,658 $ 9,378,604
================== ================ ================= =================
</TABLE>
Note: Units of Limited Partnership Interest for both June 30, 1997 and
June 30, 1998 were 35,801.
See notes to financial statements
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
For the six months ended 1998 1997
June 30, 1998 and 1997 (Unaudited) (Unaudited)
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 246,496 $ (38,877)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 323,200 460,398
Changes in operating assets and liabilities
Tenant security deposits (net) (909) 62,275
Other assets (112,503) (107,876)
Accounts payable (2,297) 54,141
Prepaid rent 3,628 1,042
Other liabilities 90,409 50,405
----------------- -----------------
Net cash provided by operating activities 548,024 481,508
----------------- -----------------
Cash flows from investing activities:
Investment in rental property (177,950) (196,843)
----------------- -----------------
Net cash used in investing activities (177,950) (196,843)
----------------- -----------------
Cash flows from financing activities:
Principal payments on mortgage note (19,283) (49,084)
Increase in deferred fees - (329)
Cash distributions paid to partners (397,789) -
----------------- -----------------
Net cash used in financing activities (417,072) (49,413)
----------------- -----------------
Net (decrease) increase in cash and cash equivalents (46,998) 235,252
Cash and cash equivalents, beginning 1,160,850 647,080
----------------- -----------------
Cash and cash equivalents, ending $ 1,113,852 $ 882,332
================= =================
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 93,848 $ 279,273
================= =================
</TABLE>
See notes to financial statements
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
(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 for the year ended December 31, 1997.
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, 1998.
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 Winthrop
Management, an affiliate of the General Partner, totaled $11,143 and $19,402
during the three months ended June 30, 1998 and 1997, respectively.
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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
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) The discussion of the
Partnership's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects
of any changes to the Partnership's business and results of operations.
Accordingly, actual results could differ materially from those projected in
the forward-looking statements as a result of a number of factors, including
those identified herein.
The Partnership receives rental income from its properties and is responsible
for operating expenses, administrative expenses, capital improvements and debt
service payments. The Partnership's properties are leased to tenants who are
subject to leases of up to one year.
The Partnership had $1,113,852 of cash and cash equivalents at June 30, 1998.
The decrease of $46,998 in cash and cash equivalents at June 30, 1998 as
compared to December 31, 1997 was due to $548,024 of cash provided by
operating activities, which was offset by $177,950 of cash used for capital
improvements (investing activities) and $417,072 of principal payments on the
mortgage notes and distributions to partners (financing activities). The
increase in operating activities was due primarily to improved property
operations as discussed below.
It is expected that future rental revenue and other income from the
Partnership's properties will continue to be sufficient to cover all
administrative expenses of the Partnership and all operating expenses and debt
service of the properties, as well as necessary capital expenditures. As a
result of the continued capital improvements, it is expected that cash
available for distribution will remain limited. Future distribution levels
will be reviewed on a quarterly basis. In April 1998, the Partnership paid a
distribution of approximately $398,000, or $11.00 per limited partner unit.
The ability of the Partnership's properties to improve operations may affect
the liquidity of the Partnership. Inflation and changing economic conditions
in the future could affect vacancy levels, rental payment defaults and
operating expenses of the Partnership's properties, and thus, could affect the
Partnership's revenue, net income and liquidity.
The Partnership has invested, and expects to continue to invest, its
unrestricted cash in money market instruments until required for Partnership
purposes. As of June 30, 1998, the Partnership had $389,629 in reserves held
by the mortgage lender, the use of which is restricted for capital
improvements to Hunters Creek Apartments. Therefore, as of June 30, 1998, the
Partnership has total reserves of $1,503,481, which is expected to be
sufficient to satisfy working capital requirements of the Partnership. The
Partnership, as required by its partnership agreement, must retain as working
capital reserves an amount equal to at least 1% of capital contributions of
the unit holders.
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<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION (Continued)
Liquidity and Capital Resources (Continued)
The Partnership is in the process of reviewing the status of all the
properties with a view towards disposing of all its properties, depending on
property operations and market conditions. The mortgage loan on St. Michaels
matured June 1, 1997. As a result of the principal balance on the mortgage
loan being in excess of the property's value, the Partnership was unable to
refinance such loan or sell the property at a value sufficient to satisfy the
loan. As a result, the mortgage lender foreclosed on the property as of August
1, 1997. The Partnership recognized an extraordinary gain on such foreclosure
of $757,801.
The Partnership recently entered into a contract to sell its Coppercroft
property to an unaffiliated third party for a purchase price of $3,050,000.
The sale of the Coppercroft property is expected to close during the third
quarter.
The Partnership is dependent upon the Managing General Partner for management
and administrative services. The Managing General Partner has completed an
assessment and believes that its computer systems will function properly with
respect to dates in the year 2000 and thereafter (the "Year 2000 Issue").
Accordingly, it is not expected that the Partnership will incur any material
costs associated with, or be materially affected by, the Year 2000 Issue.
Results of Operations
The Partnership's net income for the six months ended June 30, 1998 was
$246,496, as compared to a net loss of $38,877 for the quarter ended March 31,
1997. The increase in net income was due to improved operating results at the
Partnership's three remaining properties.
Total income decreased to $1,592,622 for the six months ended June 30, 1998 as
compared to $1,986,910 for the six months ended June 30, 1997. Rental
income.decreased from $1,853,077 for the six months ended June 30, 1997 to
$1,479,885 for the six months ended June 30, 1998 as a result of the loss
through foreclosure of the St. Michaels property in August 1997. Rental
revenue for the remaining properties, however, increased by $31,898 for the
first six months of 1998 as compared to the first six months of 1997, due to
increased rental rates and stable occupancy. Average occupancy at the
remaining properties was 89% for the comparable quarters. Similarly, other
income decreased by $34,266 as a result of the loss of St. Michaels. Other
income increased by $3,388 at the Partnership's remaining properties. Interest
income increased as a result of higher average cash balance available for
investment.
Operating expenses declined from $1,122,839 for the six months ended June 30,
1997 to $780,457 for the six months ended June 30, 1998. The St. Michaels
foreclosure accounted for $335,689 of the decline with the remaining
properties' operating expenses remaining stable at $6,371. Interest expense
and depreciation expense declined as a result of the St. Michaels foreclosure.
- 8 -
<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on form 8-K
(a) Exhibits
27. Financial Data Schedule, is filed as an Exhibit to this report
(b) Reports on Form 8-K:
No report on Form 8-K was filed during the six months
ended June 30, 1998.
- 9 -
<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
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, 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: August 12, 1998 By: /s/ Michael L. Ashner
---------------------
Michael L. Ashner
Chief Executive Officer
Date: August 12, 1998 By: /s/ Edward V. Williams
----------------------
Edward V. Williams
Chief Financial 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, 1998 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-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 1,113,852
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 18,689,575
<DEPRECIATION> (6,917,023)
<TOTAL-ASSETS> 13,559,580
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,378,604
<TOTAL-LIABILITY-AND-EQUITY> 13,559,580
<SALES> 0
<TOTAL-REVENUES> 1,592,622
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 724,662
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 187,925
<INCOME-PRETAX> 246,496
<INCOME-TAX> 0
<INCOME-CONTINUING> 246,496
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 246,496
<EPS-PRIMARY> 5.85
<EPS-DILUTED> 5.85
</TABLE>
