SECURITIES AND EXCHANGE COMMISSION
Washington, DC
-------------------------
FORM 10-Q
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended November 30, 2004
OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to __________
Commission file number 0-17793
Wilder Richman Historic Properties II, L.P.
(Exact name of Registrant as specified in its charter)
Delaware 13-3481443
- ------------------------------- -----------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
599 W. Putnam Avenue
Greenwich, Connecticut 06830
- ---------------------------------------- --------
(Address of principal executive offices) Zip Code
Registrant's telephone number, including area code: (203) 869-0900
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 filing requirements
for the past 90 days.
Yes |X| No |_|
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes |_| No |X|
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Part I - Financial Information
Table of Contents
Item 1. Financial Statements Page
----
Balance Sheets as of November 30, 2004 (Unaudited) and February 29, 2004 3
Statements of Operations for the three and nine month periods
ended November 30, 2004 and 2003 (Unaudited) 4
Statements of Cash Flows for the nine months ended
November 30, 2004 and 2003 (Unaudited) 5
Notes to Financial Statements as of November 30, 2004 (Unaudited) 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations9
Item 3. Quantitative and Qualitative Disclosure about Market Risk 11
Item 4. Controls and Procedures 11
2
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
BALANCE SHEETS
November 30, February 29,
2004 2004
----------- -----------
ASSETS (unaudited)
Cash and cash equivalents $ 844,646 $ 14,982
Investment in operating partnerships
951,425 1,649,646
Other assets 11,629 11,181
----------- -----------
$ 1,807,700 $ 1,675,809
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Other liabilities $ 21,355 $ 121,750
Accrued State of New Jersey filing fee 28,050 56,100
Due to related parties 263,314 245,239
----------- -----------
312,719 423,089
----------- -----------
Partners' equity (deficit)
General partner (141,721) (144,143)
Limited partner 1,636,701 1,396,863
----------- -----------
1,494,980 1,252,720
----------- -----------
$ 1,807,700 $ 1,675,809
=========== ===========
See notes to financial statements.
3
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Nine Months Three Months Nine Months
Ended Ended Ended Ended
November 30, 2004 November 30, 2004 November 30, 2003 November 30, 2003
----------------- ----------------- ----------------- -----------------
REVENUES
Interest $ 214 $ 423 $ 167 $ 853
--------- --------- --------- ---------
EXPENSES
Operating 31,365 75,791 9,415 42,738
State of New Jersey filing fee 28,050 84,150 28,050 84,150
--------- --------- --------- ---------
TOTAL EXPENSES 59,415 159,941 37,465 126,888
--------- --------- --------- ---------
Loss from operations (59,201) (159,518) (37,298) (126,035)
Equity in income of operating partnerships 238,436 401,779 83,839 322,502
--------- --------- --------- ---------
NET EARNINGS $ 179,235 $ 242,261 $ 46,541 $ 196,467
========= ========= ========= =========
NET EARNINGS PER UNIT OF LIMITED
PARTNERSHIP INTEREST $ 221.80 $ 299.80 $ 57.57 $ 243.10
========= ========= ========= =========
See notes to financial statements.
4
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED NOVEMBER 30, 2004 AND 2003
(Unaudited)
2004 2003
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 242,261 $ 196,467
Adjustment to reconcile net earnings to net cash used in operating
activities
Equity in income of operating partnership (401,779) (322,502)
Increase in other assets (449)
Decrease in accrued State of New Jersey filing fee (28,050) (84,150)
Increase (decrease) in other liabilities (100,394) 9,375
Increase in due to related parties 18,075 18,870
----------- -----------
Net cash used in operating activities (270,336) (181,940)
CASH FLOWS FROM INVESTING ACTIVITIES
Distributions from operating partnerships 1,100,000 1,239,180
----------- -----------
Net cash provided by investing activities 1,100,000 1,239,180
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distribution to limited partners (1,060,000)
Distribution to general partner (10,880)
-----------
Net cash used in financing activities (1,070,880)
-----------
Net increase/(decrease) in cash and cash equivalents 829,664 (13,640)
Cash and cash equivalents at beginning of period 14,982 85,169
----------- -----------
Cash and cash equivalents at end of period $ 844,646 $ 71,529
=========== ===========
See notes to financial statements.
5
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 30, 2004
(Unaudited)
1. The accompanying unaudited financial statements have been prepared in
accordance with accounting principles generally accepted in the United
States of America for interim financial information. They do not include
all information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial
statements. The results of operations are impacted significantly by the
results of operations of the Operating Partnerships, which are provided on
an unaudited basis during interim periods. Accordingly, the accompanying
financial statements are dependent on such unaudited information. In the
opinion of the General Partner, the financial statements include all
adjustments necessary to reflect fairly the results of the interim periods
presented. All adjustments are of a normal recurring nature. No
significant events have occurred subsequent to February 29, 2004 and no
material contingencies exist which would require additional disclosures in
the report under Regulation S-X, Rule 10-01 paragraph A-5.
The results of operations for the nine months ended November 30, 2004 are
not necessarily indicative of the results to be expected for the entire
year.
Certain prior period amounts in the combined statement of operations of
the Partnerships (see Note 2) have been reclassified to conform to the
current period presentation.
2. The investment in Operating Partnerships as of November 30, 2004 and
February 29, 2004 are as follows:
Amount paid to investee through February 29, 2004 $ 16,388,000
Accumulated cash distributions from Operating Partnerships
through February 29, 2004 (3,180,441)
Equity in accumulated loss of Operating Partnerships through
February 29, 2004 (11,557,913)
------------
Balance, February 29, 2004 1,649,646
Cash distribution from Operating Partnerships for the nine months
ended November 30, 2004 (1,100,000)
Equity in income of operating partnerships for the nine months
ended November 30, 2004 401,779
------------
Balance, November 30, 2004 $ 951,425
============
6
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
NOVEMBER 30, 2004
(Unaudited)
Note 2 - continued
The combined balance sheets of the Operating Partnerships as of September 30,
2004 and December 31, 2003 are as follows:
September 30, December 31,
2004 2003
----------- -----------
ASSETS
Land $ 1,150,473 $ 1,150,473
Buildings and equipment (net of accumulated depreciation
of $20,959,072 and $19,793,840) 35,135,463 35,641,694
Cash and cash equivalents 6,755,538 6,788,271
Deferred costs 764,764 787,039
Mortgage escrow deposits 2,987,165 2,456,607
Tenant security deposits 709,868 711,493
Other assets 117,814 35,234
----------- -----------
$47,621,085 $47,570,811
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities
Mortgages payable $28,600,000 $28,600,000
Accounts payable and accrued expenses
61,844 318,182
Accrued interest 48,184 13,754
Tenant security deposits payable 711,493 711,493
Due to general partner and affiliates 1,751,866 1,685,854
----------- -----------
31,173,387 31,329,283
----------- -----------
Partners' equity
General partner 14,596,273 14,591,882
Limited partner 1,851,425 1,649,646
----------- -----------
16,447,698 16,241,528
----------- -----------
$47,621,085 $47,570,811
=========== ===========
7
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS - continued
NOVEMBER 30, 2004
(Unaudited)
Note 2 - Continued
The combined unaudited statements of operations of the Operating Partnerships
for the nine months ended September 30, 2004 and 2003 are as follows:
2004 2003
---------- ----------
REVENUE
Rent $5,096,231 $5,204,564
---------- ----------
5,096,231 5,204,564
---------- ----------
EXPENSES
Administrative 561,011 614,878
Operating 2,248,938 2,461,463
Management fees 204,787 232,292
Financial 488,152 408,665
Depreciation and amortization 1,187,506 1,161,506
---------- ----------
4,690,394 4,878,804
---------- ----------
NET EARNINGS $ 405,837 $ 325,760
========== ==========
NET EARNINGS ALLOCATED TO
Wilder Richman Historic Properties II, L.P. $ 401,779 $ 322,502
General Partner 4,058 3,258
---------- ----------
$ 405,837 $ 325,760
========== ==========
3. Additional information, including the audited February 29, 2004 Financial
Statements and the Summary of Significant Accounting Policies, is included
in the Partnership's Annual Report on Form 10-K for the fiscal year ended
February 29, 2004 on file with the Securities and Exchange Commission.
8
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations
Material Changes in Financial Condition
As of November 30, 2004, Wilder Richman Historic Properties II, L.P. (the
"Partnership") experienced few changes in its financial condition as compared to
February 29, 2004, with the exception of the investment in the Operating
Partnerships resulting from the equity in income of operating partnerships for
the nine months ended September 30, 2004, net of distributions received in the
amount of $1,100,000.
Liquidity and Capital Resources
The Operating Partnerships refinanced their respective outstanding mortgage
liabilities as of April 28, 2001 (the "Refinancing"). Prior to the Refinancing,
the annual fixed interest rate of the mortgage was approximately 6.74%. The
total new indebtedness in the amount of $28,600,000 for a term of 30 years was
provided by (a) variable-rate tax-exempt bonds in the amount of $26,435,000, and
(b) variable-rate taxable bonds in the amount of $2,165,000. The initial
interest rates on the tax-exempt and taxable bonds were 5.1% and 6.15%,
respectively. The Operating Partnerships purchased an interest cap which would
limit the interest rates to 6.97% for five years on the tax-exempt portion, and
9.15% for five and one-half years on the taxable portion.
As a result of the reduction of the mortgage interest rate, the Operating
Partnerships have generated greater cash flow. However, the Partnership's
ability to make distributions is dependent upon the level of interest rates and
future operating results of the Complex, which is extremely dependent on
competition, market conditions and needed capital improvements and repairs.
Accordingly, there can be no assurance as to whether or not the Partnership may
be able to make distributions, nor the timing or amount of any potential
distributions to Limited Partners. The Operating General Partner and the General
Partner plan to periodically assess the feasibility of making cash flow
distributions, based on the results of operations, the physical condition of the
Property (see discussion below), the then current and anticipated interest
rates, and local market conditions, among other things. To the extent cash flow
is generated by the Operating Partnerships, such cash flow may be retained by
the Operating Partnerships or may be distributed at the discretion of
management, pursuant to the terms of the limited partnership agreements of the
Operating Partnerships.
Although the Property is reporting cash flow for the nine months ended September
30, 2004 (see Results of Operations, below), cash flow has decreased over recent
periods as a result of local market conditions and costs incurred in connection
with capital improvements to the Property. The Operating Partnerships' cash and
cash equivalents as of September 30, 2004 have decreased by approximately
$33,000 compared to December 31, 2003 primarily as a result of distributions to
Registrant of $200,000 through September 30, 2004 (and $1,100,000 through
November 30, 2004, the "2004 Distributions") and a decrease in accounts payable
and accrued expenses of approximately $256,000. The replacement reserve account,
which is controlled by the lender for the purpose of funding planned capital
improvements and needed repairs, is approximately $889,000 as of September 30,
2004. The principal reserve, which is controlled by the lender for purposes of
amortizing the debt, is approximately $1,613,000 as of September 30, 2004. The
pledged cap escrow balance, which is controlled by the lender for the purpose of
purchasing a cap in connection with the variable rate debt, is approximately
$141,000 as of September 30, 2004. Each of the foregoing reserves and escrows
are reflected in the Operating Partnerships' balance sheet under the caption
mortgage escrow deposits. Registrant is utilizing the 2004 Distributions to
cover its operating expenses and to make a distribution to Unit Holders in the
amount of approximately $600,000 (which distribution was made in December 2004
and is therefore not reflected in the accompanying financial statements).
Because the rehabilitation of the Property was completed more than ten years
ago, management has been addressing the need for extensive capital improvements.
As a result of the Refinancing, significant capital improvements have been
completed. The improvements that were contemplated as part of the Refinancing
include roof replacement, replacement of the fire/smoke alarm system, elevator
repairs, new entry doors and other repairs throughout the Complex. In addition,
the Operating General Partner has identified other potential significant capital
improvements and repairs throughout the Complex, which it intends to address
currently and over the next few years. Such capital improvements and repairs
would significantly reduce the Operating Partnerships' cash flow available for
distribution. The Operating Partnerships incurred costs of approximately
$1,000,000 in 2004 for capital improvements (slightly less than $700,000 for the
nine month period ended September 30, 2004), including structural work on the
pump house building, roof and balcony repairs and steel restoration; the
Operating General Partner is in the process of finalizing a capital improvements
budget for 2005 which is expected to range between $2 million to $3 million. The
Operating General Partner believes that other improvements, whose timing may be
discretionary but which may be important to remain competitive in the rental
market, should be made over time and include kitchen and bath renovations, new
appliances,
9
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations (continued)
replacements of doors and windows, structural work on the pump house building
and roof. Management has implemented rental reductions and concessions over the
past two years in order to maintain its position in the market, which has
adversely affected cash flow; such impact has been partially offset by favorable
changes in the low floater mortgage interest rates, but would be exacerbated by
an increase in the low floater interest rates. Depending on market conditions,
rents may need to be further adjusted.
During 2002, the Partnership agreed with the Operating General Partner to hire a
national brokerage and marketing firm to privately solicit offers from major
apartment owners to purchase the Property (on a confidential basis) in order to
determine the current market value of the Property. Two of those solicitations
resulted in initial non-binding offers to purchase the Property.
Under the terms of the Partnership Agreement of the Partnership, a sale of the
Property would require the consent of a majority in interest of the Unit
Holders. Accordingly, on July 1, 2003, the Partnership presented proxy materials
by which Unit Holders were asked to vote as to whether or not they wanted to
pursue a sale of the Property. Unit Holders holding 48% of the outstanding Units
voted in favor of the proposed sale. Subsequent to initiating the proxy, at
least two tender offers to purchase the Units provided Unit Holders an
opportunity to sell Units at prices equal to or above the net sales proceeds
estimated in the proxy materials. The General Partner remarketed the Property
and two offers were received. The new offers were made by the previous bidders
for the property, and their bids were identical to their previous offers.
According to the broker, although the net operating income had declined since
the prior marketing, the offering prices remained at the same level because of a
substantial decline in the capitalization rate in the last two years, thereby
offsetting the effect of the decline in net operating income. It is estimated
that the amount that would be available for distribution to the Limited Partners
from a sale at the offering prices, updated to reflect recent Balance Sheet
information, would be approximately $9,600 to $10,800 per Unit.
Since the offers received were no higher than the offers produced by the
previous marketing, and since a significant number of Unit holders who wished to
liquidate their holdings have sold their Units in one of the recent tender
offers (which offered prices up to $13,500 per Unit), the General Partner does
not intend to pursue another vote among the Limited Partners as to whether to
sell the Property at this time. The General Partner intends to continue to
observe market conditions and may consider possible opportunities to market the
Property again in the future.
The Operating General Partner's objective has been to build up reserves to a
level sufficient to reasonably offset the potential adverse impact of future
increases in the low floater interest rates in addition to other contingencies,
including capital improvements and potential significant increases in real
estate taxes. The Operating General Partner intends to take into account, among
other factors, a similar analysis when considering making future annual
distributions.
The Partnership's operating results are dependent upon the operating results of
the Operating Partnerships and are significantly impacted by the Operating
Partnerships' policies. The Partnership accounts for its investment in the
Operating Partnerships in accordance with the equity method of accounting, under
which the investment is carried at cost and is adjusted for the Partnership's
share of the Operating Partnerships' results of operations and by any cash
distributions received.
Results of Operations
For the nine months ended November 30, 2004, the statement of operations of the
Partnership reflects net earnings of $242,261, which includes equity in income
of operating partnerships of $401,779. The Operating Partnerships reported net
income during the nine months ended September 30, 2004 of $405,837, inclusive of
depreciation and amortization expense of $1,187,506. The Operating Partnerships
generated cash flow after required debt service payments and required
replacement reserve deposits during the nine months ended September 30, 2004 of
approximately $438,000, which includes required deposits to the principal
reserve under the mortgages (approximately $325,000), deposits to required
escrows (approximately $58,000), deposits to a voluntary replacement reserve
account held by the Operating Partnerships (approximately $270,000) and planned
capital improvements (approximately $690,000, of which approximately $659,000
was capitalized). The Operating Partnerships utilized replacement reserves of
approximately $208,000 in connection with the capital improvements. The
Operating Partnerships' interest expense for the nine months ended September 30,
2004 was comparable to the nine months ended September 30, 2003. The average
interest rates on the low floater bonds for the nine months ended September 30,
2004 were approximately 1.08% for the tax exempt bonds and approximately 1.23%
for the taxable bonds. Despite the continued favorable interest rates in 2004,
the Operating Partnerships' cash flow declined compared to the nine months ended
September 30, 2003, as a result of a reduction in rents and planned capital
expenditures. The average occupancy for the nine months ended September 30, 2004
was approximately 95.8%.
10
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Item 2. Management's Discussion and Analysis of Financial Conditions and Results
of Operations (continued)
For the nine months ended November 30, 2003, the statement of operations of the
Partnership reflects net earnings of $196,467, which includes equity in income
of operating partnerships of $322,502. The Operating Partnerships reported net
earnings during the nine months ended September 30, 2003 of $325,760, inclusive
of depreciation and amortization expense of $1,161,506. The Operating
Partnerships generated cash flow after required debt service payments and
required replacement reserve deposits during the nine months ended September 30,
2003 of approximately $828,000, which includes required deposits to the
principal reserve under the mortgages (approximately $298,000) and deposits to
required escrows (approximately $58,000). The Operating Partnerships' results of
operations for the nine months ended September 30, 2003 reflect a significant
reduction in interest expense compared to the nine months ended September 30,
2002 due to a decline in the average low floater interest rates. Despite the
lower interest expense in 2003, the Operating Partnerships' net income declined
as a result of a reduction in rents and certain planned expenditures. The
average interest rates on the low floater bonds for the nine months ended
September 30, 2003 were 1.03% for the tax exempt bonds and 1.28% for the taxable
bonds. The average occupancy for the nine months ended September 30, 2003 was
approximately 94.5%.
Critical Accounting Policies and Estimates
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America, which requires the
Partnership to make certain estimates and assumptions. The following section is
a summary of certain aspects of those accounting policies that may require
subjective or complex judgments and are most important to the portrayal of the
Partnership's financial condition and results of operations. The Partnership
believes that there is a low probability that the use of different estimates or
assumptions in making these judgments would result in materially different
amounts being reported in the financial statements.
o The Partnership accounts for its investment in operating
partnerships in accordance with the equity method of accounting
since the Partnership does not control the operations of an
Operating Partnership.
o If the book value of the Partnership's investment in an Operating
Partnership exceeds the estimated value derived by management, the
Partnership reduces its investment in any such Operating Partnership
and includes such reduction in equity in income (loss) of investment
in operating partnerships.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Partnership has market risk sensitivity with regard to financial instruments
concerning potential interest rate fluctuations in connection with the low
floater rates associated with the Operating Partnerships' mortgages. Although an
interest rate cap has been purchased, a change in the low-floater interest rates
of .25% would have an annualized impact of approximately $70,000 on the
Operating Partnerships' results of operations.
Item 4. Controls and Procedures
As of November 30, 2004, under the direction of the Chief Executive Officer and
Chief Financial Officer, Registrant evaluated the effectiveness of its
disclosure controls and procedures and internal controls over financial
reporting and concluded that (i) Registrant's disclosure controls and procedures
were effective as of November 30, 2004 and (ii) no changes occurred during the
quarter ended November 30, 2004 that materially affected, or are reasonably
likely to materially affect, such internal controls.
11
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Part II - Other Information
Item 1. Legal Proceedings
Registrant is not aware of any material legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit 31.1 Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
Exhibit 31.2 Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
Exhibit 32.1 Section 1350 Certification of Chief Executive Officer
Exhibit 32.2 Section 1350 Certification of Chief Financial Officer
b. Reports on Form 8-K
None
12
Wilder Richman Historic Properties II, L.P.
Form 10-Q
November 30, 2004
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.
WILDER RICHMAN HISTORIC
PROPERTIES II, L.P.
By: Wilder Richman Historic Corporation
General Partner
Dated: January 14, 2005 /s/ Richard Paul Richman
----------------------------------------
Richard Paul Richman
Chief Executive Officer
Dated: January 14, 2005 /s/ Neal Ludeke
----------------------------------------
Neal Ludeke
Chief Financial Officer
13