November 13, 1997
Securities and Exchange Commission
Filer Support, Edgar
Operation Center, Stop 0-7
6432 General Green Way
Alexandria, VA 22312
Re: Boston Financial Qualified Housing Tax Credits L.P. II
Report on Form 10-Q for Quarter Ended September 30, 1997
File No. 0-17777
Dear Sir/Madam:
Pursuant to the requirements of Section 15(d) of the Securities Exchange Act of
1934, there is filed herewith a copy of subject report.
Very truly yours,
/s/Patricia Olsen-Goldberg
Patricia Olsen-Goldberg
Controller
QH2-10Q2.DOC
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1997
------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
For Quarter Ended September 30, 1997 Commission file number 0-17777
-------------------- ---------------
Boston Financial Qualified Housing Tax Credits L.P. II
(Exact name of registrant as specified in its charter)
Delaware 04-3002607
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
101 Arch Street, Boston, Massachusetts 02110-1106
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617)439-3911
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 .
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION Page No.
- ------------------------------ --------
Item 1. Financial Statements
Combined Balance Sheets - September 30, 1997 (Unaudited)
and March 31, 1997 1
Combined Statements of Operations (Unaudited) - For the Three and Six
Months Ended September 30, 1997 and 1996 2
Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Six Months Ended September 30,
1997 3
Combined Statements of Cash Flows (Unaudited) -
For the Six Months Ended September 30, 1997 and 1996 4
Notes to Combined Financial Statements (Unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
PART II - OTHER INFORMATION
Items 1-6 14
SIGNATURE 15
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
COMBINED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, March 31,
1997 1997
<S> <C> <C>
(Unaudited)
Assets
Cash and cash equivalents $ 360,089 $ 318,451
Marketable securities, at fair value 1,067,583 1,319,499
Accounts receivable 223,599 100,572
Tenant security deposits 42,353 30,976
Investments in Local Limited Partnerships (Note 1) 7,336,272 8,506,576
Rental property at cost, net of accumulated depreciation
of $4,329,647 and $4,044,444, respectively 12,076,202 12,293,738
Mortgagee escrow deposits 193,850 139,547
Operating reserves 248,825 337,353
Replacement reserves 87,883 74,617
Deferred fees (net of accumulated amortization
of $160,071 and $147,413, respectively) 324,561 337,219
Other assets 114,610 94,462
------------- ------------
Total Assets $ 22,075,827 $ 23,553,010
============= ============
Liabilities and Partners' Equity
Mortgage notes payable $ 11,260,109 $ 11,271,738
Note payable 6,533 9,800
Accounts payable to affiliates 366,637 251,522
Accounts payable and accrued expenses 318,668 269,009
Accrued interest payable 51,971 38,128
Security deposits payable 54,165 51,413
------------- ------------
Total Liabilities 12,058,083 11,891,610
------------- ------------
Minority interests in Local Limited Partnerships (152,893) (149,588)
------------- ------------
Commitments
General, Initial and Investor Limited Partners' Equity 10,163,236 11,811,938
Net unrealized gains (losses) on marketable securities 7,401 (950)
------------- ------------
Total Partners' Equity 10,170,637 11,810,988
------------- ------------
Total Liabilities and Partners' Equity $ 22,075,827 $ 23,553,010
============= ============
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, September 30, September 30, September 30,
1997 1996 1997 1996
------------- --------------- --------------- ----------
<S> <C> <C> <C> <C>
Revenue:
Rental $ 470,533 $ 182,437 $ 915,252 $ 368,969
Investment 21,922 25,422 51,589 54,442
Other 16,133 (35,490) 20,195 17,887
----------- ------------ ------------ -------------
Total Revenue 508,588 172,369 987,036 441,298
----------- ------------ ------------ -------------
Expenses:
Asset management fees,
related party 69,901 67,668 139,802 135,336
General and administrative
(includes reimbursements
to an affiliate of $61,776
and $56,106) 41,490 55,368 106,427 114,226
Rental operations,
exclusive of depreciation 252,778 80,739 493,885 170,970
Property management fees,
related party 19,564 9,848 39,444 19,728
Interest 210,739 124,258 432,832 248,656
Depreciation 142,602 75,531 285,203 145,303
Amortization 37,267 36,387 74,533 73,461
----------- ------------ ------------ -------------
Total Expenses 774,341 449,799 1,572,126 907,680
----------- ------------ ------------ -------------
Loss before equity in losses of
Local Limited Partnerships (265,753) (277,430) (585,090) (466,382)
Minority interests in loss of
Local Limited Partnership 1,463 1,047 3,305 2,091
Equity in losses of Local
Limited Partnerships (468,042) (430,121) (1,066,917) (1,559,334)
----------- ------------ ------------ -------------
Net Loss $ (732,332) $ (706,504) $ (1,648,702) $ (2,023,625)
=========== ============ ============ =============
Net Loss allocated:
To General Partners $ (7,323) $ (7,065) $ (16,487) $ (20,236)
To Limited Partners (725,009) (699,439) (1,632,215) (2,003,389)
----------- ------------ ------------ -------------
$ (732,332) $ (706,504) $ (1,648,702) $ (2,023,625)
=========== ============ ============ =============
Net Loss per Limited
Partnership Unit
(60,000 Units) $ (12.08) $ (11.66) $ (27.20) $ (33.39)
=========== ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY)
(Unaudited)
For the Six Months Ended September 30, 1997
<TABLE>
<CAPTION>
Net
Initial Investor Unrealized
General Limited Limited Gains
Partners Partners Partners (Losses) Total
<S> <C> <C> <C> <C> <C>
Balance at March 31, 1997 $ (409,198) $ 5,000 $ 12,216,136 $ (950) $ 11,810,988
Net change in net unrealized
gains on marketable securities
available for sale - - - 8,351 8,351
Net Loss (16,487) - (1,632,215) - (1,648,702)
---------- -------- ------------ ---------- -------------
Balance at September 30, 1997 $ (425,685) $ 5,000 $ 10,583,921 $ 7,401 $ 10,170,637
========== ======== ============ ========== =============
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended September 30, 1997 and 1996
<TABLE>
<CAPTION>
1997 1996
-------------- --------
<S> <C> <C>
Net cash used for operating activities $ (20,256) $ (364,844)
------------ ------------
Cash flows from investing activities:
Repayment of notes receivable - 34,373
Purchases of marketable securities (399,066) (908,552)
Proceeds from sales and maturities of
marketable securities 658,282 1,160,143
Cash distributions received from Local
Limited Partnerships 41,512 350,029
Purchase of rental property and equipment (67,667) -
Advances to affiliates (151,604) (257,807)
Deposits to replacement reserves (13,266) (13,266)
------------ ------------
Net cash provided by investing activities 68,191 364,920
------------ ------------
Cash flows from financing activities:
Repayment of mortgage payable (11,629) (10,637)
Repayment of note payable (3,267) -
Mortgagee escrow deposits (54,303) 1,071
Advances from affiliate 62,902 50,885
------------ ------------
Net cash provided by (used for) financing activities (6,297) 41,319
------------ ------------
Net increase in cash and cash equivalents 41,638 41,395
Cash and cash equivalents, beginning of period 318,451 164,590
------------ ------------
Cash and cash equivalents, end of period $ 360,089 $ 205,985
============ ============
Supplemental Disclosure:
Cash paid for interest $ 418,989 $ 248,749
============ ============
</TABLE>
The accompanying notes are an integral part of these combined
financial statements.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
Notes to the Combined Financial Statements
(Unaudited)
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and do not include all of the
information and note disclosures required by generally accepted accounting
principles. These statements should be read in conjunction with the financial
statements and notes thereto included with the Partnership's 10-K for the year
ended March 31, 1997. In the opinion of management, these financial statements
include all adjustments, consisting only of normal recurring adjustments,
necessary to present fairly the Partnership's financial position and results of
operations. The results of operations for the periods may not be indicative of
the results to be expected for the year. Certain reclassifications have been
made to prior period financial statements to conform to current period
classifications.
1. Investments in Local Limited Partnerships
The Partnership has acquired limited partner interests in thirty-seven Local
Limited Partnerships (excluding the Combined Entities and Snapfinger Creste,
which has been written off) which own and operate multi-family housing
complexes, most of which are government-assisted. The Partnership, as Investor
Limited Partner pursuant to the various Local Limited Partnership Agreements,
has acquired a 99% interest in the profits, losses, tax credits and cash flows
from operations of each of the Local Limited Partnerships. Upon dissolution,
proceeds will be distributed according to each respective partnership agreement.
A summary of investments in Local Limited Partnerships, excluding the Combined
Entities and Snapfinger Creste, at September 30, 1997 is as follows:
<TABLE>
<S> <C>
Capital contributions paid to Local Limited Partnerships and purchase price
paid to withdrawing partners of Local Limited Partnerships $ 33,326,675
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $2,440,810) (28,873,825)
Cumulative cash distributions received
from Local Limited Partnerships (911,156)
Investments in Local Limited Partnerships before adjustment 3,541,694
Excess of investment costs over the underlying net assets acquired:
Acquisition fees and expenses 5,084,529
Accumulated amortization of acquisition fees and expenses (1,289,951)
-------------
Investments in Local Limited Partnerships $ 7,336,272
=============
</TABLE>
The Partnership's share of the net losses of the Local Limited Partnerships for
the six months ended September 30, 1997 is $1,559,171. For the six months ended
September 30, 1997, the Partnership has not recognized $492,254 of equity in
losses relating to seventeen Local Limited Partnerships where cumulative equity
in losses exceeds its total investment.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
Notes to the Combined Financial Statements (continued)
(Unaudited)
2. Disposition of Investment in Local Limited Partnership
Snapfinger Creste and Grayton Pointe, located in Georgia, were affected by a
weak rental market and deferred maintenance issues. The Local General Partner
was obligated to fund deficits and had made advances and deferred management
fees. Although the initial foreclosure deadline was extended, in recent months,
continuing negotiations did not provide for a satisfactory agreement between the
parties. The Partnership transferred its interest in Snapfinger Creste through a
foreclosure on August 5, 1997. The transfer will result in recapture in 1997 for
investors of one third of the tax credit benefits taken, the allocation of
taxable income to the Partnership and loss of future benefits associated with
this property. The Partnership's investment in Snapfinger Creste has been
written off as of March 31, 1997.
Despite extensive negotiations, the lender exercised its option to foreclose on
Grayton Pointe on October 7, 1997. This will result in recapture for investors
of one third of the tax credit benefits taken, the allocation of taxable income
to the Partnership on the 1997 tax return and loss of future benefits associated
with this property. The carrying value of this investment for financial
reporting purposes is zero and will be written off as of October 7, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
Notes to the Combined Financial Statements (continued)
(Unaudited)
2. Supplemental Combining Schedules
Balance Sheets
<TABLE>
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
<S> <C> <C> <C> <C>
Assets
Cash and cash equivalents $ 319,652 $ 40,437 $ - $ 360,089
Marketable securities, at fair value 1,067,583 - - 1,067,583
Accounts receivable 1,189,770 59,173 (1,025,344) 223,599
Tenant security deposits - 42,353 - 42,353
Investments in Local Limited
Partnerships 7,948,752 - (612,480) 7,336,272
Rental property at cost, net of
accumulated depreciation - 12,076,202 - 12,076,202
Mortgagee escrow deposits - 193,850 - 193,850
Operating reserves - 248,825 - 248,825
Replacement reserves - 87,883 - 87,883
Deferred fees, net - 324,561 - 324,561
Other assets 15,078 99,532 - 114,610
------------- ------------ ------------ -------------
Total Assets $ 10,540,835 $ 13,172,816 $ (1,637,824) $ 22,075,827
============= ============ ============ =============
Liabilities and Partners' Equity
Mortgage notes payable $ - $ 11,260,109 $ - $ 11,260,109
Note payable - 6,533 - 6,533
Accounts payable to affiliates 353,098 13,539 - 366,637
Accounts payable and accrued
expenses 17,100 301,568 - 318,668
Advances from Limited Partner - 1,025,344 (1,025,344) -
Accrued interest payable - 51,971 - 51,971
Security deposits payable - 54,165 - 54,165
------------- ------------ ------------ -------------
Total Liabilities 370,198 12,713,229 (1,025,344) 12,058,083
------------- ------------ ------------ -------------
Minority interests in Local Limited
Partnerships - - (152,893) (152,893)
------------- ------------ ------------ -------------
General, Initial and Investor
Limited Partners' Equity 10,163,236 459,587 (459,587) 10,163,236
Net unrealized gains on
marketable securities 7,401 - - 7,401
------------- ------------ ------------ -------------
Total Partners' Equity 10,170,637 459,587 (459,587) 10,170,637
------------- ------------ ------------ -------------
Total Liabilities and Partners' Equity $ 10,540,835 $ 13,172,816 $ (1,637,824) $ 22,075,827
============= ============ ============ =============
</TABLE>
(A) September 30, 1997.
(B) June 30, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
Notes to the Combined Financial Statements (continued)
(Unaudited)
2. Supplemental Combining Schedules (continued)
Statements of Operations
For the Three Months Ended September 30, 1997
<TABLE>
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
<S> <C> <C> <C> <C>
Revenue:
Rental $ - $ 470,533 $ - $ 470,533
Investment 20,975 947 - 21,922
Other 1,975 14,158 - 16,133
-------------- ------------ ----------- ------------
Total Revenue 22,950 485,638 - 508,588
-------------- ------------ ----------- ------------
Expenses:
Asset management fees, related party 69,901 - - 69,901
General and administrative 41,490 - - 41,490
Rental operations, exclusive
of depreciation - 252,778 - 252,778
Property management fees,
related party - 19,564 - 19,564
Interest - 210,739 - 210,739
Depreciation - 142,602 - 142,602
Amortization 30,937 6,330 - 37,267
-------------- ------------ ----------- ------------
Total Expenses 142,328 632,013 - 774,341
-------------- ------------ ----------- ------------
Loss before equity in losses of
Local Limited Partnerships (119,378) (146,375) - (265,753)
Minority interests in loss of
Local Limited Partnerships - - 1,463 1,463
Equity in losses of Local
Limited Partnerships (612,954) - 144,912 (468,042)
-------------- ------------ ----------- ------------
Net Loss $ (732,332) $ (146,375) $ 146,375 $ (732,332)
============== ============ =========== ============
</TABLE>
(A) For the three months ended September 30, 1997.
(B) For the three months ended June 30, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
Notes to the Combined Financial Statements (continued)
(Unaudited)
2. Supplemental Combining Schedules (continued)
Statements of Operations
For the Six Months Ended September 30, 1997
<TABLE>
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
<S> <C> <C> <C> <C>
Revenue:
Rental $ - $ 915,252 $ - $ 915,252
Investment 49,699 1,890 - 51,589
Other 3,825 16,370 - 20,195
-------------- ------------ ----------- ------------
Total Revenue 53,524 933,512 - 987,036
-------------- ------------ ----------- ------------
Expenses:
Asset management fees, related party 139,802 - - 139,802
General and administrative 106,427 - - 106,427
Rental operations, exclusive
of depreciation - 493,885 - 493,885
Property management fees,
related party - 39,444 - 39,444
Interest - 432,832 - 432,832
Depreciation - 285,203 - 285,203
Amortization 61,875 12,658 - 74,533
-------------- ------------ ----------- ------------
Total Expenses 308,104 1,264,022 - 1,572,126
-------------- ------------ ----------- ------------
Loss before equity in losses of
Local Limited Partnerships (254,580) (330,510) - (585,090)
Minority interests in loss of
Local Limited Partnerships - - 3,305 3,305
Equity in losses of Local
Limited Partnerships (1,394,122) - 327,205 (1,066,917)
-------------- ------------ ----------- ------------
Net Loss $ (1,648,702) $ (330,510) $ 330,510 $ (1,648,702)
============== ============ =========== ============
</TABLE>
(A) For the six months ended September 30, 1997.
(B) For the six months ended June 30, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
Notes to the Combined Financial Statements (continued)
(Unaudited)
2. Supplemental Combining Schedules (continued)
Statements of Cash Flows
<TABLE>
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities Combined
L.P. II (A) (B) Eliminations (A)
<S> <C> <C> <C> <C>
Net cash provided by
(used for) operating activities $ (81,155) $ 60,899 $ - $ (20,256)
-------------- ------------ ----------- -------------
Cash flows from investing activities:
Purchases of marketable securities (399,066) - - (399,066)
Proceeds from sales and maturities
of marketable securities 658,282 - - 658,282
Cash distributions received from
Local Limited Partnerships 41,512 - - 41,512
Advances to affiliate (199,712) - 48,108 (151,604)
Purchase of rental property
and equipment - (67,667) - (67,667)
Deposits to replacement reserves - (13,266) - (13,266)
-------------- ------------ ----------- -------------
Net cash provided by (used for) investing
activities 101,016 (80,933) 48,108 68,191
-------------- ------------ ----------- -------------
Cash flows from financing activities:
Repayment of mortgage payable - (11,629) - (11,629)
Repayment of note payable - (3,267) - (3,267)
Mortgagee escrow deposits - (54,303) - (54,303)
Advances from affiliate - 111,010 (48,108) 62,902
-------------- ------------ ------------ -----------
Net cash provided by (used for)
financing activities - 41,811 (48,108) (6,297)
-------------- ------------ ------------ -----------
Net increase in cash
and cash equivalents 19,861 21,777 - 41,638
Cash and cash equivalents, beginning 299,791 18,660 - 318,451
-------------- ------------ ------------ -----------
Cash and cash equivalents, ending $ 319,652 $ 40,437 $ - $ 360,089
============== ============ ============ ===========
</TABLE>
(A) For the six months ended September 30, 1997.
(B) For the six months ended June 30, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
At September 30, 1997, the Partnership had cash and cash equivalents of $360,089
as compared to $318,451 at March 31, 1997. The increase is primarily
attributable to proceeds from the sales and maturities of marketable securities
in excess of purchases of marketable securities and cash distributions received
from Local Limited Partnerships. These increases are offset by cash used for
operations, repayment of mortgage principal, purchase of rental property and
equipment and mortgage escrow deposits.
The Managing General Partner initially designated 3% of the Gross Proceeds to
Reserves. The Reserves were established to be used for working capital of the
Partnership and contingencies related to the ownership of Local Limited
Partnership interests. The Managing General Partner may increase or decrease
such Reserves from time to time, as it deems appropriate. During the year ended
March 31, 1993, the Managing General Partner decided to increase the reserve
level to 4%, and it transferred the additional funds to the Reserve account. To
date, approximately $149,000 has been withdrawn from the Reserve account to pay
legal and other costs related to the Mod Rehab issue. Additionally, legal fees
relating to various property issues totaling approximately $31,000 have been
paid from Reserves. The Partnership also advanced approximately $1,190,000 to
four Local Limited Partnerships.
Management believes that the investment income earned on the Reserves, along
with cash distributions received from Local Limited Partnerships, to the extent
available, will be sufficient to fund the Partnership's ongoing operations.
Reserves may be used to fund Partnership operating deficits, if the Managing
General Partner deems funding appropriate. At September 30, 1997, approximately
$1,025,000 of marketable securities has been designated as Reserves.
At September 30, 1997, the Partnership has committed to make future capital
contributions and to pay future purchase price installments on its investments
in Local Limited Partnerships. These future payments are contingent upon the
achievement of certain criteria as set forth in the Local Limited Partnership
Agreements and total approximately $337,500.
Since the Partnership invests as a limited partner, the Partnership has no
contractual duty to provide additional funds to Local Limited Partnerships
beyond its specified investment. Thus, as of September 30, 1997, the Partnership
had no contractual or other obligation to any Local Limited Partnership which
had not been paid or provided for, except as disclosed above.
In the event a Local Limited Partnership encounters operating difficulties
requiring additional funds, the Partnership's management might deem it in its
best interest to provide such funds, voluntarily, in order to protect its
investment.
Cash Distributions
No cash distributions were made during the six months ended September 30, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The Partnership's results of operations for the three and six months ended
September 30, 1997 resulted in net losses of $732,332 and $1,648,702 as compared
to $706,504 and $2,032,625 for the same period in 1996. The decrease in net loss
is primarily due to a decrease in equity in losses of Local Limited Partnerships
and an increase in rental revenue and is offset by increases in rental
operations, interest and depreciation expense items. The decrease in equity in
losses is primarily attributable to fewer losses being recognized in 1997
because more Local Limited Partnerships have cumulative equity in losses in
excess of their total investments as compared to the previous year.
Additionally, during the year ended March 31, 1997, the Partnership wrote off
its investment in one Local Limited Partnership (Snapfinger Creste) because
there was evidence of a non-temporary decline in the recoverable amount of the
investment (see section entitled "Property Discussions" for additional
information). The increases in rental revenue, rental operations, interest and
depreciation (as well as the decrease in losses of Local Limited Partnerships)
are due to the combination of Shannon Creste, effective September 1, 1996.
Equity in losses will continue to decrease as more Local Limited Partnerships
have cumulative equity in losses in excess of their total investments.
Property Discussions
Limited Partnership interests have been acquired in forty Local Limited
Partnerships which own and operate forty rental properties located in fifteen
states, Washington, D.C. and Puerto Rico. Thirty of the properties with 2,325
apartments were newly constructed, and eight properties with 733 apartments were
rehabilitated. All of the properties have completed construction or
rehabilitation and initial rent-up. Most of the forty properties have stable
operations and are operating at break-even or generating operating cash flow.
A few properties are experiencing operating difficulties and cash flow deficits
due to a variety of reasons. The Local General Partners of those properties have
funded operating deficits through project expense loans, subordinated loans or
payments from operating escrows. In instances where the Local General Partners
have stopped funding deficits because their obligation to do so has expired or
otherwise, the Managing General Partner is working with the Local General
Partners to increase operating income, reduce expenses or refinance the debt at
lower interest rates in order to improve cash flow.
As previously reported, despite high occupancy and a debt restructuring,
Atlantic Terrace, located in Washington, D.C., continues to experience unstable
operations due primarily to costs associated with unit turnover and increased
maintenance and utility expenses. Deteriorating market conditions are also
impacting the property. The managing agent is addressing these issues through
enhanced tenant screening, social programs and more careful expense monitoring.
Garden Cove, located in Huntsville, Alabama, continues to generate operating
deficits which are being funded from Fund Reserves. The Managing General Partner
continues to work with the management agent to find further ways to curtail the
operating shortfalls. Inasmuch as the property remains unable to fully cover
debt service from operating income due to depressed rents and collection
problems, the Managing General Partner has entered into workout negotiations
which include exploring opportunities to restructure the first mortgage. This
restructure may result in converting a portion of the first mortgage into a cash
flow second mortgage and increasing the replacement reserve monthly deposits. It
is likely that without a modification, the lender will exercise its right to
foreclose on the property. A foreclosure would result in recapture for
investors. Garden Cove is also involved in litigation. The property's general
contractor claims that there are amounts due it under the construction contract.
The Partnership was aware of this potential claim when it settled a previous
dispute with the former Managing General Partners and did not release them from
liability with respect to it. The Partnership is currently evaluating what
liability exposure the Garden Cove Partnership may have in connection with this
litigation.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Property Discussions (continued)
Shadow Wood Housing, located in Chickasha, Oklahoma, continues to generate
operating deficits resulting from high security costs, low Section 8 contract
rates and high debt service payments. The Local General Partners are working to
improve operating results through contract rent increases and debt service
relief. Given the severity of the operating deficits, it is possible that the
Partnership will not be able to retain its interest in the property through
1998. A foreclosure would result in recapture for investors of one third of the
tax credit benefits, the allocation of taxable income to the Partnership and
loss of future benefits associated with this property.
As previously reported, Snapfinger Creste and Grayton Pointe, located in Georgia
and which share the same Local General Partner, were affected by a weak rental
market and deferred maintenance issues. Although the initial foreclosure
deadline was extended, in recent months, continuing negotiations did not provide
for a satisfactory agreement between the parties. On August 5, 1997, the
Partnership transferred its interests in Snapfinger Creste through a
foreclosure. The transfer will result in recapture for investors in 1997 of one
third of the tax credit benefits taken, the allocation of taxable income to the
Partnership and loss of future benefits associated with this property. The
Partnership's investment in Snapfinger Creste has been written off as of March
31, 1997.
Despite extensive negotiations, the lender exercised its option to foreclose on
Grayton Pointe on October 7, 1997. This will result in the recapture for
investors of one third of the tax credit benefits taken, the allocation of
taxable income to the Partnership on the 1997 tax return and loss of future
benefits associated with this property. The carrying value of this investment
for financial reporting purposes is zero.
The mortgage on Shannon Creste was successfully modified in January 1997. An
affiliate of the Managing General Partner assumed the local general partner
interest and management of the property. Property management finalized its
capital needs assessment and initiated an extensive capital improvement plan
during the summer, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
PART II OTHER INFORMATION
Items 1-5 Not applicable
Item 6 Exhibits and reports on Form 8-K
(a)Exhibits - None
(b)Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended September 30, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A 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.
DATED: November 13, 1997 BOSTON FINANCIAL QUALIFIED HOUSING
TAX CREDITS L.P. II
By: Arch Street, Inc.,
its Managing General Partner
/s/William E. Haynsworth
William E. Haynsworth
Managing Director, Vice President
and Chief Operating Officer
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> SEP-30-1997
<CASH> 360,089
<SECURITIES> 1,067,583
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 12,076,202
<DEPRECIATION> 000
<TOTAL-ASSETS> 22,075,827<F1>
<CURRENT-LIABILITIES> 000
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 10,170,637
<TOTAL-LIABILITY-AND-EQUITY> 22,075,827<F2>
<SALES> 000
<TOTAL-REVENUES> 987,036<F3>
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 1,139,294<F4>
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 432,832
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (1,648,702)<F5>
<EPS-PRIMARY> (27.20)
<EPS-DILUTED> 000
<FN>
<F1>Included in Total Assets: Accounts receivable of $223,599, tenant security
deposits of $42,353, Investments in Local Limited Partnerships of $7,336,272,
Mortgagee escrow deposits of $193,850, Operating reserves of $248,825,
Replacement reserves of $87,883, Deferred fees, net of $324,561 and Other assets
of $114,610.
<F2>Included in Total Liabilities and Equity: Mortgage notes payable of
$11,260,109, Note payable of $6,533, Accounts Payable to Affiliates of $366,637,
Accounts Payable and accrued expenses of $318,668, Accrued interest payable of
$51,971, Security deposits payable of $54,165 and Minority interest in Local
Limited Partnerships of $(152,893).
<F3>Total Revenue includes: Rental of $915,252, Investment of $51,589 and Other
of $20,195.
<F4>Included in Other Expenses: Asset Management fees of $139,802, General
and Administrative of $106,427, Rental Operations, exclusive of depreciation of
$493,885, Property Management fees of $39,444, Depreciation of $285,203 and
Amortization of $74,533.
<F5>Net loss reflects: Equity in losses of Local Limited Partnerships of
$1,066,917 and minority interests in loss of Local Limited Partnerships of
$3,305.
</FN>
</TABLE>
