February 13, 1998
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 December 31, 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/George Fondulis
George Fondulis
Assistant Controller
QH2-10Q3.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 December 31,1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)OFTHE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
For Quarter Ended December 31, 1997 Commission file number 0-17777
------------------------- ----------
Boston Financial Qualified Housing Tax Credits L.P.I
(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 - December 31, 1997 (Unaudited)
and March 31, 1997 1
Combined Statements of Operations (Unaudited) - For the Three and Nine
Months Ended December 31, 1997 and 1996 2
Statement of Changes in Partners' Equity (Deficiency)
(Unaudited) - For the Nine Months Ended December 31, 1997 3
Combined Statements of Cash Flows (Unaudited) -
For the Nine Months Ended December 31, 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)
<TABLE>
COMBINED BALANCE SHEETS
<CAPTION>
December 31, March 31,
1997 1997
(Unaudited)
Assets
<S> <C> <C>
Cash and cash equivalents $ 348,531 $ 318,451
Marketable securities, at fair value 1,043,131 1,319,499
Accounts receivable 64,059 100,572
Tenant security deposits 49,469 30,976
Investments in Local Limited Partnerships (Note 1) 6,855,787 8,506,576
Rental property at cost, net of accumulated depreciation
of $4,472,249 and $4,044,444, respectively 12,182,727 12,293,738
Mortgagee escrow deposits 252,250 139,547
Operating reserves 166,538 337,353
Replacement reserves 94,516 74,617
Deferred fees, net of accumulated amortization
of $166,399 and $147,413, respectively 318,233 337,219
Other assets 55,013 94,462
------------- ------------
Total Assets $ 21,430,254 $ 23,553,010
============= ============
Liabilities and Partners' Equity
Mortgage notes payable $ 11,254,097 $ 11,271,738
Note payable 6,533 9,800
Accounts payable to affiliates 436,083 251,522
Accounts payable and accrued expenses 458,983 269,009
Accrued interest payable 26,790 38,128
Security deposits payable 53,924 51,413
------------- ------------
Total Liabilities 12,236,410 11,891,610
------------- ------------
Minority interests in Local Limited Partnerships (154,898) (149,588)
------------- ------------
Commitments (Note 2)
General, Initial and Investor Limited Partners' Equity 9,341,978 11,811,938
Net unrealized gains (losses) on marketable securities 6,764 (950)
------------- ------------
Total Partners' Equity 9,348,742 11,810,988
------------- ------------
Total Liabilities and Partners' Equity $ 21,430,254 $ 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)
<TABLE>
COMBINED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
December 31, December 31, December 31, December 31,
1997 1996 1997 1996
------------- --------------- --------------- ----------
Revenue:
<S> <C> <C> <C> <C>
Rental $ 474,224 $ 187,113 $ 1,389,476 $ 556,082
Investment 23,425 23,909 75,014 78,351
Other 13,311 5,263 33,506 23,150
----------- ------------ ------------ -------------
Total Revenue 510,960 216,285 1,497,996 657,583
----------- ------------ ------------ -------------
Expenses:
Asset management fees,
related party 69,901 67,668 209,703 203,004
General and administrative
(includes reimbursements
to an affiliate of $85,852
and $73,307) 47,554 35,156 153,981 149,382
Bad debt expense 68,776 - 68,776 -
Rental operations,
exclusive of depreciation 278,722 94,434 772,607 284,605
Property management fees,
related party 19,132 8,557 58,576 28,285
Interest 240,723 114,565 673,555 344,020
Depreciation 142,602 72,649 427,805 217,952
Amortization 37,266 46,238 111,799 119,699
----------- ------------ ------------ -------------
Total Expenses 904,676 439,267 2,476,802 1,346,947
----------- ------------ ------------ -------------
Loss before equity in losses of
Local Limited Partnerships (393,716) (222,982) (978,806) (689,364)
Minority interests in losses of
Local Limited Partnerships 2,005 1,116 5,310 3,207
Equity in losses of Local
Limited Partnerships (429,547) (1,316,986) (1,496,464) (2,876,320)
----------- ------------ ------------ -------------
Net Loss $ (821,258) $ (1,538,852) $ (2,469,960) $ (3,562,477)
=========== ============ ============ =============
Net Loss allocated:
To General Partners $ (8,213) $ (15,389) $ (24,700) $ (35,625)
To Limited Partners (813,045) (1,523,463) (2,445,260) (3,526,852)
----------- ------------ ------------ -------------
$ (821,258) $ (1,538,852) $ (2,469,960) $ (3,562,477)
=========== ============ ============ =============
Net Loss per Limited
Partnership Unit
(60,000 Units) $ (13.55) $ (25.39) $ (40.75) $ (58.78)
=========== ============ ============= =============
</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)
<TABLE>
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIENCY)
(Unaudited)
For the Nine Months Ended December 31, 1997
<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
losses on marketable securities
available for sale - - - 7,714 7,714
Net Loss (24,700) - (2,445,260) - (2,469,960)
---------- -------- ------------ ---------- -------------
Balance at December 31, 1997 $ (433,898) $ 5,000 $ 9,770,876 $ 6,764 $ 9,348,742
========== ======== ============ ========== =============
</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)
<TABLE>
COMBINED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended December 31, 1997 and 1996
<CAPTION>
1997 1996
-------------- --------
<S> <C> <C>
Net cash provided by (used for) operating activities $ 92,404 $ (520,460)
------------ ------------
Cash flows from investing activities:
Repayment of notes receivable - 34,373
Purchases of marketable securities (548,828) (908,552)
Proceeds from sales and maturities of
marketable securities 832,394 1,309,341
Cash distributions received from Local
Limited Partnerships 61,512 350,029
Purchase of rental property and equipment (316,794) (11,933)
Advances to affiliates - (44,532)
Deposits to replacement reserves (19,899) (10,657)
------------ ------------
Net cash provided by investing activities 8,385 718,069
------------ ------------
Cash flows from financing activities:
Repayment of mortgage payable (17,641) (16,136)
Repayment of note payable (3,267) -
Mortgagee escrow deposits (112,703) (23,334)
Advances from affiliate 62,902 (53,658)
------------ ------------
Net cash used for financing activities (70,709) (93,128)
------------ ------------
Net increase in cash and cash equivalents 30,080 104,481
Cash and cash equivalents, beginning of period 318,451 164,590
------------ ------------
Cash and cash equivalents, end of period $ 348,531 $ 269,071
============ ============
Supplemental Disclosure:
Cash paid for interest $ 684,893 $ 344,141
============ ============
</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 year financial statements to conform to current year
classifications.
The Managing General Partner has elected to report results of the Local Limited
Partnerships on a 90 day lag basis, because the Local Limited Partnerships
report their results on a calendar year basis. Accordingly, the financial
information about the Local Limited Partnerships that is included in the
accompanying combined financial statements is as of September 30, 1997 and 1996.
1. Investments in Local Limited Partnerships
The Partnership has acquired limited partner interests in thirty-six Local
Limited Partnerships (excluding the Combined Entities, Snapfinger Creste and
Grayton Pointe, which have 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, Snapfinger Creste and Grayton Pointe, at December 31, 1997 is as
follows:
<TABLE>
<CAPTION>
<S> <C>
Capital contributions paid to Local Limited Partnerships and purchase price
paid to withdrawing partners of Local Limited Partnerships $ 30,801,675
Cumulative equity in losses of Local Limited Partnerships (excluding cumulative
unrecognized losses of $1,947,487) (26,551,183)
Cumulative cash distributions received
from Local Limited Partnerships (906,781)
Investments in Local Limited Partnerships before adjustment 3,343,711
Excess of investment costs over the underlying net assets acquired:
Acquisition fees and expenses 4,771,921
Accumulated amortization of acquisition fees and expenses (1,259,845)
-------------
Investments in Local Limited Partnerships $ 6,855,787
=============
</TABLE>
The Partnership's share of the net losses of the Local Limited Partnerships for
the nine months ended December 31, 1997 is $1,974,262. For the nine months ended
December 31, 1997, the Partnership has not recognized $477,798 of equity in
losses relating to sixteen 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. Commitments
At December 31, 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 $338,000.
3. 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, the Partnership
transferred its interest in Snapfinger Creste through a foreclosure on August 5,
1997. In recent months, continuing negotiations did not provide for a
satisfactory agreement between the parties. The transfer will result in
recapture for investors of one third of the tax credit benefits in 1997, the
allocation of taxable income to the Partnership and loss of future benefits
associated with this property. For financial reporting purposes, the
Partnership's investment in Snapfinger Creste was 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, the allocation of taxable income to the
Partnership on the 1997 tax return and loss of future benefits associated with
this property. For financial reporting purposes, the investment in Grayton
Pointe was 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)
4. Supplemental Combining Schedules
<TABLE>
Balance Sheets
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities
L.P. II (A) (B) Eliminations Combined
Assets
<S> <C> <C> <C> <C>
Cash and cash equivalents $ 285,249 $ 63,282 $ - $ 348,531
Marketable securities, at fair value 1,043,131 - - 1,043,131
Accounts receivable 1,176,948 64,059 (1,176,948) 64,059
Tenant security deposits - 49,469 - 49,469
Investments in Local Limited
Partnerships 7,269,714 - (413,927) 6,855,787
Rental property at cost, net of
accumulated depreciation - 12,182,727 - 12,182,727
Mortgagee escrow deposits - 252,250 - 252,250
Operating reserves - 166,538 - 166,538
Replacement reserves - 94,516 - 94,516
Deferred fees, net of accumulated
amortization - 318,233 - 318,233
Other assets 16,579 38,434 - 55,013
------------- ------------ ------------ -------------
Total Assets $ 9,791,621 $ 13,229,508 $ (1,590,875) $ 21,430,254
============= ============ ============ =============
Liabilities and Partners' Equity
Mortgage notes payable $ - $ 11,254,097 $ - $ 11,254,097
Note payable - 6,533 - 6,533
Accounts payable to affiliates 423,374 12,709 - 436,083
Accounts payable and accrued
expenses 19,505 439,478 - 458,983
Advances from Limited Partner - 1,176,948 (1,176,948) -
Accrued interest payable - 26,790 - 26,790
Security deposits payable - 53,924 - 53,924
------------- ------------ ------------ -------------
Total Liabilities 442,879 12,970,479 (1,176,948) 12,236,410
------------- ------------ ------------ -------------
Minority interests in Local Limited
Partnerships - - (154,898) (154,898)
------------- ------------ ------------ -------------
General, Initial and Investor
Limited Partners' Equity 9,341,978 259,029 (259,029) 9,341,978
Net unrealized gains on
marketable securities 6,764 - - 6,764
------------- ------------ ------------ -------------
Total Partners' Equity 9,348,742 259,029 (259,029) 9,348,742
------------- ------------ ------------ -------------
Total Liabilities and Partners' Equity $ 9,791,621 $ 13,229,508 $ (1,590,875) $ 21,430,254
============= ============ ============ =============
</TABLE>
(A) December 31, 1997. (B) September 30, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
Notes to the Combined Financial Statements (continued)
(Unaudited)
4. Supplemental Combining Schedules (continued)
<TABLE>
Statements of Operations
For the Three Months Ended December 31, 1997
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities
L.P. II (A) (B) Eliminations Combined
Revenue:
<S> <C> <C> <C> <C>
Rental $ - $ 474,224 $ - $ 474,224
Investment 22,361 1,064 - 23,425
Other 1,650 11,661 - 13,311
-------------- ------------ ----------- ------------
Total Revenue 24,011 486,949 - 510,960
-------------- ------------ ----------- ------------
Expenses:
Asset management fees, related party 69,901 - - 69,901
General and administrative 47,554 - - 47,554
Bad debt expense 68,776 - - 68,776
Rental operations, exclusive
of depreciation - 278,722 - 278,722
Property management fees,
related party - 19,132 - 19,132
Interest - 240,723 - 240,723
Depreciation - 142,602 - 142,602
Amortization 30,938 6,328 - 37,266
-------------- ------------ ----------- ------------
Total Expenses 217,169 687,507 - 904,676
-------------- ------------ ----------- ------------
Loss before equity in losses of
Local Limited Partnerships (193,158) (200,558) - (393,716)
Minority interests in losses of
Local Limited Partnerships - - 2,005 2,005
Equity in losses of Local
Limited Partnerships (628,100) - 198,553 (429,547)
-------------- ------------ ----------- ------------
Net Loss $ (821,258) $ (200,558) $ 200,558 $ (821,258)
============== ============ =========== ============
</TABLE>
(A) For the three months ended December 31, 1997. (B) For the three months ended
September 30, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
Notes to the Combined Financial Statements (continued)
(Unaudited)
4. Supplemental Combining Schedules (continued)
<TABLE>
Statements of Operations
For the Nine Months Ended December 31, 1997
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities
L.P. II (A) (B) Eliminations Combined
Revenue:
<S> <C> <C> <C> <C>
Rental $ - $ 1,389,476 $ - $ 1,389,476
Investment 72,060 2,954 - 75,014
Other 5,475 28,031 - 33,506
-------------- ------------ ----------- ------------
Total Revenue 77,535 1,420,461 - 1,497,996
-------------- ------------ ----------- ------------
Expenses:
Asset management fees, related party 209,703 - - 209,703
General and administrative 153,981 - - 153,981
Bad debt expense 68,776 - - 68,776
Rental operations, exclusive
of depreciation - 772,607 - 772,607
Property management fees,
related party - 58,576 - 58,576
Interest - 673,555 - 673,555
Depreciation - 427,805 - 427,805
Amortization 92,813 18,986 - 111,799
-------------- ------------ ----------- ------------
Total Expenses 525,273 1,951,529 - 2,476,802
-------------- ------------ ----------- ------------
Loss before equity in losses of
Local Limited Partnerships (447,738) (531,068) - (978,806)
Minority interests in losses of
Local Limited Partnerships - - 5,310 5,310
Equity in losses of Local
Limited Partnerships (2,022,222) - 525,758 (1,496,464)
-------------- ------------ ----------- ------------
Net Loss $ (2,469,960) $ (531,068) $ 531,068 $ (2,469,960)
============== ============ =========== ============
</TABLE>
(A) For the nine months ended December 31, 1997. (B) For the nine months ended
September 30, 1997.
<PAGE>
BOSTON FINANCIAL QUALIFIED HOUSING TAX CREDITS L.P. II
(A Limited Partnership)
Notes to the Combined Financial Statements (continued)
(Unaudited)
4. Supplemental Combining Schedules (continued)
<TABLE>
Statements of Cash Flows
<CAPTION>
Boston Financial
Qualified Housing Combined
Tax Credits Entities
L.P. II (A) (B) Eliminations Combined
Net cash provided by
<S> <C> <C> <C> <C>
(used for) operating activities $ (159,908) $ 252,312 $ - $ 92,404
-------------- ------------ ----------- -------------
Cash flows from investing activities:
Purchases of marketable securities (548,828) - - (548,828)
Proceeds from sales and maturities
of marketable securities 832,394 - - 832,394
Cash distributions received from
Local Limited Partnerships 61,512 - - 61,512
Advances to affiliate (199,712) - 199,712 -
Purchase of rental property
and equipment - (316,794) - (316,794)
Deposits to replacement reserves - (19,899) - (19,899)
-------------- ------------ ----------- -------------
Net cash provided by (used for) investing
activities 145,366 (336,693) 199,712 8,385
-------------- ------------ ----------- -------------
Cash flows from financing activities:
Repayment of mortgage payable - (17,641) - (17,641)
Repayment of note payable - (3,267) - (3,267)
Mortgagee escrow deposits - (112,703) - (112,703)
Advances from affiliate - 262,614 (199,712) 62,902
-------------- ------------ ------------ -----------
Net cash provided by (used for)
financing activities - 129,003 (199,712) (70,709)
-------------- ------------ ------------ -----------
Net increase (decrease) in cash
and cash equivalents (14,542) 44,622 - 30,080
Cash and cash equivalents, beginning 299,791 18,660 - 318,451
-------------- ------------ ------------ -----------
Cash and cash equivalents, ending $ 285,249 $ 63,282 $ - $ 348,531
============== ============ ============ ===========
</TABLE>
(A) For the nine months ended December 31, 1997. (B) For the nine 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
Liquidity and Capital Resources
At December 31, 1997, the Partnership had cash and cash equivalents of $348,531
as compared to $318,451 at March 31, 1997. The increase is primarily
attributable to cash provided by operations, proceeds from 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 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 $35,000 have been
paid from Reserves. The Partnership also advanced approximately $1,231,000 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 December 31, 1997, approximately
$963,000 of marketable securities has been designated as Reserves.
At December 31, 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 $338,000.
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 December 31, 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 nine months ended December 31, 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 nine months ended
December 31, 1997 resulted in net losses of $821,258 and $2,469,960 as compared
to net losses of $1,538,852 and $3,562,477 for the same periods 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, the Partnership wrote off its investment in two
Local Limited Partnerships. Snapfinger Creste was written off at March 31, 1997
because there was evidence of a non-temporary decline in the recoverable amount
of the investment (see section entitled "Property Discussions" for additional
information). Grayton Pointe was foreclosed on by the lender on October 7, 1997
and written off as of that date. The increases in rental revenue, rental
operations, interest and depreciation (as well as the decrease in equity 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, remains unable to fully cover debt
service from operating income due to depressed rents and collection problems.
These deficits are being funded from Partnership Reserves. The Managing General
Partner continues to work with the management agent to find further ways to
decrease the operating deficits while implementing capital improvement
strategies that will improve property marketability. Further, 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 of one third of the tax
credit benefits.
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.
<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)
As previously reported, Snapfinger Creste and Grayton Pointe, both of which are
located in Georgia and share the same Local General Partner, were affected by a
weak rental market and deferred maintenance issues. Although the initial
foreclosure deadline was extended, the Partnership transferred its interests in
Snapfinger Creste through a foreclosure on August 5, 1997. In recent months,
continuing negotiations did not provide for a satisfactory agreement between the
parties. The transfer will result in recapture for investors of one third of the
tax credit benefits in 1997, the allocation of taxable income to the Partnership
and loss of future benefits associated with this property. For financial
reporting purposes, the Partnership's investment in Snapfinger Creste was
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, the allocation of taxable
income to the Partnership on the 1997 tax return and loss of future benefits
associated with this properties. For financial reporting purposes, the
Partnership's investment in Grayton Pointe was written off as of October 7,
1997.
As previously reported, 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. Capital improvements completed to date
include exterior painting, exterior wood trim replacement, landscaping, laundry
room improvements, pool repairs, gutter installation, interior unit rehab,
carpet, vinyl floor and appliance replacements. Occupancy is currently at 87%.
Property management is currently preparing the 1998 budget and capital
improvement plan.
<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 December 31, 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: February 13, 1998 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> 9-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 348,531
<SECURITIES> 1,043,131
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 12,182,727
<DEPRECIATION> 000
<TOTAL-ASSETS> 21,430,254<F1>
<CURRENT-LIABILITIES> 000
<BONDS> 000
000
000
<COMMON> 000
<OTHER-SE> 9,348,742
<TOTAL-LIABILITY-AND-EQUITY> 21,430,254<F2>
<SALES> 000
<TOTAL-REVENUES> 1,497,996<F3>
<CGS> 000
<TOTAL-COSTS> 000
<OTHER-EXPENSES> 1,803,247<F4>
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 673,555
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (2,469,960)<F5>
<EPS-PRIMARY> (40.75)
<EPS-DILUTED> 000
<FN>
<F1>Included in Total Assets: Accounts receivable of $64,059, tenant security
deposits of $49,469, Investments in Local Limited Partnerships of $6,855,787,
Mortgagee escrow deposits of $252,250, Operating reserves of $166,538,
Replacement reserves of $94,516, Deferred fees, net of $318,233 and Other assets
of $55,013. <F2>Included in Total Liabilities and Equity: Mortgage notes payable
of $11,254,097, Note payable of $6,533, Accounts payable to affiliates of
$436,083, Accounts payable and accrued expenses of $458,983, Accrued interest
payable of $26,790, Security deposits payable of $53,924 and Minority interest
in Local Limited Partnerships of $154,898. <F3>Total Revenue includes: Rental of
$1,389,476, Investment of $75,014 and Other of $33,506. <F4>Included in Other
Expenses: Asset Management fees of $209,703, General and Administrative of
$153,981, Bad debt expense of $68,776, Rental Operations, exclusive of
depreciation of $772,607, Property Management fees of $58,576, Depreciation of
$427,805 and Amortization of $111,799. <F5>Net loss reflects: Equity in losses
of Local Limited Partnerships of $1,496,464 and Minority interests in losses of
Local Limited Partnerships of $5,310.
</FN>
</TABLE>
