<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 March 31, 1998 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)
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
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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
<TABLE>
<CAPTION>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS
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March 31, December 31,
1998 1997
(Unaudited) (Audited)
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<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 2,443,705 2,381,325
----------------- -----------------
18,574,005 18,511,625
Less accumulated depreciation 6,772,173 6,606,923
----------------- -----------------
11,801,832 11,904,702
Cash and cash equivalents 1,316,242 1,160,850
Tenant security deposits 79,186 79,220
Loan cost, net accumulated amortization of $163,582
and $157,032 49,043 55,593
Other assets 490,962 436,258
----------------- -----------------
Total Assets $ 13,737,265 $ 13,636,623
================= =================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities applicable to investment in rental property
Mortgages payable $ 3,946,448 $ 3,955,975
Other liabilities
Accounts payable 4,851 6,011
Rents received in advance 9,129 11,724
Tenant security deposits 79,813 80,418
Other liabilities 102,063 52,598
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Total Liabilities 4,142,304 4,106,726
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Partners' Capital
Limited partners unit holders 50,000 units authorized,
35,801 outstanding March 31, 1998 December 31, 1997 10,839,252 10,783,947
Special Limited Partner (1,245,468) (1,254,577)
General Partner's Capital 1,177 527
----------------- -----------------
Total Partners' Capital 9,594,961 9,529,897
----------------- -----------------
Total Liabilities and Partners' Capital $ 13,737,265 $ 13,636,623
================= =================
</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
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For the three months ended March 31, 1998 and 1997
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<TABLE>
<CAPTION>
1998 1997
(Unaudited) (Unaudited)
---------------- ----------------
<S> <C> <C>
Income
Rental $ 730,869 $ 898,871
Interest income 12,713 2,363
Other 48,575 63,461
---------------- ----------------
Total income 792,157 964,695
---------------- ----------------
Expenses
Leasing 39,245 30,394
General and administrative 57,029 76,399
Management fees 44,544 56,402
Utilities 57,861 103,332
Repairs and maintenance 147,341 157,457
Insurance 25,726 33,183
Taxes 48,504 79,018
---------------- ----------------
Total operating expenses 420,250 536,185
Other expenses
Partnership expenses 40,966 77,410
Interest expense 94,077 187,227
Depreciation and amortization 171,800 230,199
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Total expenses 727,093 1,031,021
---------------- ----------------
Net income (loss) $ 65,064 $ (66,326)
================ ===============
Net income (loss) allocated to general partner $ 650 $ (663)
================ ===============
Net income (loss) allocated to limited partner unit holders $ 55,305 $ (56,377)
================ ===============
Net income (loss) allocated to special limited partner $ 9,109 $ (9,286)
================ ===============
Net income (loss) allocated to each unit $ 1.54 $ (1.57)
================ ===============
Weighted average number of units outstanding 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
March 31, 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 (663) (9,286) (56,377) (66,326)
================== ================ ================= =================
Balance, March 31, 1997 $ (9,676) $ (1,397,429) $ 9,916,633 $ 8,509,528
================== ================ ================= =================
Balance December 31, 1997 $ 527 $ (1,254,577) $ 10,783,947 $ 9,529,897
Net income 650 9,109 55,305 65,064
================== ================ ================= =================
Balance, March 31, 1998 $ 1,177 $ (1,245,468) $ 10,839,252 $ 9,594,961
================== ================ ================= =================
</TABLE>
Note: Units of Limited Partnership Interest for both March 31, 1997 and March
31, 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>
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For the three months ended 1998 1997
March 31, 1998 and 1997 (Unaudited) (Unaudited)
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<S> <C> <C>
Cash flow from operating activities:
Net income (loss) $ 65,064 $ (66,326)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 171,800 230,199
Changes in operating assets and liabilities
Tenant security deposits (net) (571) 60,296
Other assets (54,704) (48,860)
Accounts payable (1,160) 110,619
Prepaid rent (2,595) (16,882)
Other liabilities 49,465 (40,463)
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Net cash provided by operating activities 227,299 228,583
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Cash flows from investing activities:
Investment in rental property (62,380) (69,897)
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Net cash used in investing activities (62,380) (69,897)
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Cash flows from financing activities:
Principal payments on mortgage note (9,527) (27,455)
Increase in deferred fees - (330)
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Net cash used in financing activities (9,527) (27,785)
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Net increase in cash and cash equivalents 155,392 130,901
Cash and cash equivalents, beginning 1,160,850 647,080
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Cash and cash equivalents, ending $ 1,316,242 $ 777,981
============== ==============
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 94,077 $ 187,227
============== ==============
</TABLE>
See notes to financial statements
-5-
<PAGE>
SOUTHEASTERN INCOME PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
March 31, 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 $5,572 and $8,285
during the three months ended March 31, 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 $1,316,242 of cash and cash equivalents at March 31, 1998.
The increase of $155,392 in cash and cash equivalents at March 31, 1998 as
compared to December 31, 1997 was due to $227,299 of cash provided by
operating activities, which was partially offset by $62,380 of cash used for
capital improvements (investing activities) and $9,527 of principal payments
on the mortgage notes (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 declared
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, such amounts
in money market instruments until required for Partnership purposes. As of
March 31, 1998, the Partnership had $374,445 in reserves held by the mortgage
lender, the use of which is restricted for capital improvements to Hunters
Creek Apartmenets. Therefore, as of March 31, 1998, the Partnership has total
reserves of $1,690,687, 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 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 quarter ended March 31, 1998, was
$65,064, as compared to a net loss of $66,326 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 $792,157 for the quarter ended March 31, 1998 as
compared to $964,695 for the quarter ended March 31, 1997. Rental
income decreased from $898,871 for the three months ended March 31, 1997 to
$730,869 for the three months ended March 31, 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 $24,777 for 1998
as compared to 1997 due to increased rental rates and stable occupancy.
Average occupancy at the remaining properties was 88% for the comparable
quarters. Similarly, other income decreased by $14,886 as a result of the loss
of St. Michaels. Other income increased by $6,739 at the Partnership's
remaining properties. Interest income increased as a result of higher average
cash balance available for investment.
Operating expenses declined from $536,185 for the quarter ended March 31, 1997
to $420,250 for the quarter ended March 31, 1998. The St. Michaels foreclosure
accounted for $139,971 of the decline with the remaining properties' operating
expenses increasing by $24,035. The increase in operating expenses at the
remaining properties was primarily attributable to higher leasing expense.
Interest expense and depreciation expense declined as a result of the St.
Michaels foreclosure.
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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 March 31, 1998.
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<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
By: /s/ Edward V. Williams
----------------------
Edward V. Williams
Chief Financial Officer
Date: May 13, 1998 By: /s/ Michael L. Ashner
---------------------
Michael L. Ashner
Chief Operating Officer
-10-
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from unaudited
financial statements for the three month period ending March 31, 1998 and is
qualified in its entirety by reference to such financial statements
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 1,316,242
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 18,574,005
<DEPRECIATION> (6,772,173)
<TOTAL-ASSETS> 13,737,265
<CURRENT-LIABILITIES> 0
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 9,594,961
<TOTAL-LIABILITY-AND-EQUITY> 13,737,265
<SALES> 0
<TOTAL-REVENUES> 779,444
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 575,987
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 94,077
<INCOME-PRETAX> 65,064
<INCOME-TAX> 0
<INCOME-CONTINUING> 65,064
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 65,064
<EPS-PRIMARY> 1.54
<EPS-DILUTED> 1.54
</TABLE>
