Real Estate Associates LTD Ii (REAL2) 10-Q 15 May 17 2018 Q1 Quarterly report Financial data

Document and Entity Information

Document and Entity Information	3 Months Ended
	Mar. 31, 2017shares
Details
Registrant Name	REAL ESTATE ASSOCIATES LTD II
Registrant CIK	314,237
SEC Form	10-Q
Period End date	Mar. 31, 2017
Fiscal Year End	--12-31
Trading Symbol	real2
Tax Identification Number (TIN)	953,547,609
Number of common stock shares outstanding	10,507
Filer Category	Smaller Reporting Company
Current with reporting	Yes
Voluntary filer	No
Well-known Seasoned Issuer	No
Amendment Flag	false
Document Fiscal Year Focus	2,017
Document Fiscal Period Focus	Q1
Contained File Information, File Number	000-09782
Entity Incorporation, State Country Name	California
Entity Address, Address Line One	PO Box 91274
Entity Address, City or Town	Los Angeles
Entity Address, State or Province	California
Entity Address, Postal Zip Code	90,009
City Area Code	720
Local Phone Number	387-8135

Balance Sheets (March 31, 2017

Balance Sheets (March 31, 2017 Unaudited) - USD ($) $ in Thousands	Mar. 31, 2017	Dec. 31, 2016
ASSETS
Cash and cash equivalents	$ 391	$ 417
Receivable - limited partners	103	103
Total assets	494	520
Liabilities:
Accounts payable and accrued expenses	18	20
Total Liabilities	18	20
Partners' capital (deficiency):
General partners	(137)	(137)
Limited partners	613	637
Total partners' capital (deficiency)	476	500
Total liabilities and partners' capital (deficiency)	$ 494	$ 520

Statement of Operations (Unaudi

Statement of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Operating Expenses:
Management fees - General Partner	$ 2	$ 2
Administrative	8	4
Legal and accounting	24	12
Total operating expenses	34	18
Loss from partnership operations	(34)	(18)
Distributions in excess of investment in Local Limited Partnership	10	0
Net loss	(24)	(18)
Net loss allocated to general partners (1%)	0	0
Net loss allocated to limited partners (99%)	$ (24)	$ (18)
Net loss per limited partnership interest	$ (2.28)	$ (1.71)
Distribution per limited partnership interest	$ 0	$ 0

Statement Of Changes in Partner

Statement Of Changes in Partners' Capital (Deficiency) (Unaudited) - 3 months ended Mar. 31, 2017 - USD ($) $ in Thousands	General Partner	Limited Partner	Total
Partners' capital (deficiency) at Dec. 31, 2016	$ (137)	$ 637	$ 500
Net Income (Loss)	0	(24)	(24)
Partners' capital (deficiency) at Mar. 31, 2017	$ (137)	$ 613	$ 476

Statement of Cash Flows (Unaudi

Statement of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Cash flows from operating activities:
Net Income (Loss)	$ (24)	$ (18)
Changes in accounts:
Distributions in excess of investment	(10)	0
Prepaid expenses	0	(29)
Accounts payable and accrued expenses	(2)	(11)
Net cash provided by (used in) operating activities	(36)	(58)
Cash flows from investing activities:
Distributions in excess of investments	10	0
Net cash provided by investing activities	10	0
Net decrease in cash and cash equivalents	(26)	(58)
Cash and cash equivalents, beginning of period	417	512
Cash and cash equivalents, end of period	$ 391	$ 454

Note 1 - Organization and Summa

Note 1 - Organization and Summary of Significant Accounting Policies	3 Months Ended
	Mar. 31, 2017
Notes
Note 1 - Organization and Summary of Significant Accounting Policies	Note 1 - Organization and Summary of Significant Accounting Policies General The information contained in the following notes to the unaudited financial statements is condensed from that which would appear in the annual audited financial statements; accordingly, the financial statements included herein should be reviewed in conjunction with the financial statements and related notes thereto contained in the annual report for the fiscal year ended December 31, 2016 prepared by Real Estate Associates Limited II (the "Partnership"). Accounting measurements at interim dates inherently involve greater reliance on estimates than at year end. The results of operations for the interim period presented are not necessarily indicative of the results for the entire year. In the opinion of the Partnership's management, the accompanying unaudited financial statements contain all adjustments (consisting primarily of normal recurring items) considered necessary for a fair presentation. The balance sheet at December 31, 2016 has been derived from the audited financial statements at that date but does not include all of the information and disclosures required by generally accepted accounting principles for complete financial statements. The general partners share a one percent interest in profits and losses of the Partnership. The limited partners share the remaining 99 percent interest which is allocated in proportion to their respective individual investments. The general partners of the Partnership are National Partnership Investments Associates, a California limited partnership, and National Partnership Investments, LLC, a California limited liability company ("NAPICO" or the "General Partner"). The General Partner is a subsidiary of Bethesda Holdings II, LLC, a privately held real estate asset management company ("Bethesda"). At March 31, 2017 and December 31, 2016, there were 10,507 limited partnership interests outstanding. Basis of Presentation The accompanying unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States. Method of Accounting for Investments in Local Limited Partnerships The investment in a local limited partnership (the "Local Limited Partnership") is accounted for using the equity method. Net Income (Loss) Per Limited Partnership Interest Net income (loss) per limited partnership interest was computed by dividing the limited partners' share of net income (loss) by the number of limited partnership interests outstanding at the beginning of the year. The number of limited partnership interests used was 10,507 for the three months ended March 31, 2017 and 2016, respectively. Variable Interest Entities The Partnership consolidates any variable interest entities in which the Partnership holds a variable interest and is the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of equity investment at risk lack (i) the ability to make decisions about an entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of the VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether it is the primary beneficiary of the VIE, the Partnership considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE's economic performance and which party controls such activities; the amount and characteristics of the Partnership's investment; the obligation or likelihood for the Partnership or other investors to provide financial support; and the similarity with and significance to the business activities of the Partnership and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions. At March 31, 2017 and December 31, 2016, the Partnership held variable interests in one VIE for which the Partnership was not the primary beneficiary. The Partnership has concluded, based on its qualitative consideration of the partnership agreement of the Local Limited Partnership, the partnership structure and the role of the general partner in the Local Limited Partnership, that the general partner of the Local Limited Partnership is the primary beneficiary of the respective Local Limited Partnership. In making this determination, the Partnership considered the following factors:  the general partner conducts and manages the business of the Local Limited Partnership;  the general partner has the responsibility for and sole discretion over selecting a property management agent for the Local Limited Partnership's underlying real estate properties;  the general partner is responsible for approving operating and capital budgets for the properties owned by the Local Limited Partnership;  the general partner is obligated to fund any recourse obligations of the Local Limited Partnership;  the general partner is authorized to borrow funds on behalf of the Local Limited Partnership; and  the Partnership, as a limited partner in the Local Limited Partnership, does not have the ability to direct or otherwise significantly influence the activities of the Local Limited Partnership that most significantly impact such entity's economic performance. The VIE at March 31, 2017 consisted of a Local Limited Partnership that is directly engaged in the ownership and management of one apartment property with a total of 48 units. The Partnership is involved with the VIE as a non-controlling limited partner equity holder. The Partnership's maximum exposure to loss as a result of its involvement with the unconsolidated VIE is limited to the Partnership's recorded investments in and receivables from this VIE, which was zero at both March 31, 2017 and December 31, 2016. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.

Note 2 - Investments in and Adv

Note 2 - Investments in and Advances To Local Limited Partnerships	3 Months Ended
	Mar. 31, 2017
Notes
Note 2 - Investments in and Advances To Local Limited Partnerships	Note 2 - Investments in and Advances to Local Limited Partnership As of March 31, 2017 and December 31, 2016, the Partnership held limited partnership interests in one Local Limited Partnership. As of March 31, 2017 and December 31, 2016, the Local Limited Partnership owned a residential low income rental project consisting of 48 apartment units. The mortgage loans of this project are payable to or insured by the United States Department of Housing and Urban Development ("HUD"). The Partnership, as a limited partner, does not have a contractual relationship with the Local Limited Partnership or exercise control over the activities and operations, including refinancing or selling decisions, of the Local Limited Partnership that would require or allow for consolidation. Accordingly, the Partnership accounts for its investment in the Local Limited Partnership using the equity method. The Partnership is allocated profits and losses of the Local Limited Partnership based upon its respective ownership percentage (99%). Distributions of surplus cash from operations from the Local Limited Partnership are restricted by the Local Limited Partnership's Regulatory Agreements with HUD and/or are restricted by the terms of the mortgages encumbering the projects. These restrictions limit the distribution to a portion, generally less than 10%, of the initial invested capital. The Partnership is allocated profits and losses and receives distributions from refinancings and sales in accordance with the Local Limited Partnership's partnership agreement. This agreement limits the Partnership's distributions to an amount substantially less than its ownership percentage in the Local Limited Partnership. The investment is carried at cost plus the Partnership's share of the Local Limited Partnership's profits less the Partnership's share of the Local Limited Partnership's losses, distributions and impairment charges. The Partnership is not legally liable for the obligations of the Local Limited Partnership and is not otherwise committed to provide additional support to it. Therefore, it does not recognize losses once its investment in the Local Limited Partnership reaches zero. Distributions from the Local Limited Partnership are accounted for as a reduction of the investment balance until the investment balance is reduced to zero. When the investment balance has been reduced to zero, subsequent distributions received are recognized as income in the accompanying unaudited statements of operations. There were no operating distributions from the Local Limited Partnership in which the Partnership's investment in the Local Limited Partnership has been reduced to zero for the three months ended March 31, 2017 and 2016, respectively. At times, advances are made to the Local Limited Partnership. Advances made by the Partnership to the Local Limited Partnership are considered part of the Partnership's investment in the limited partnership. Advances made to the Local Limited Partnership for which the investment has been reduced to zero are generally charged to expense. There were no advances made during the three months ended March 31, 2017 and 2016. For those investments where the Partnership has determined that the carrying value of its investments approximates the estimated fair value of those investments, the Partnership's policy is to recognize equity in income of the Local Limited Partnership only to the extent of distributions received and amortization of acquisition costs from the Local Limited Partnership. Therefore, the Partnership limits its recognition of equity earnings to the amount it expects to ultimately realize. The Partnership had no carrying value in the investment in the Local Limited Partnership as of March 31, 2017 or December 31, 2016. The following are unaudited condensed combined estimated statements of operations for the three months ended March 31, 2017 and 2016 for the Local Limited Partnership in which the Partnership has invested: Three Months Ended March 31, 2017 Three Months Ended March 31, 2016 Revenues Rental and other $ 116 $ 114 Expenses Depreciation 6 7 Interest 14 14 Operating 88 78 Total Expenses 108 99 Income (loss) from continuing operations $ (8) $ 15

Note 3 - Transactions With Affi

Note 3 - Transactions With Affiliated Parties	3 Months Ended
	Mar. 31, 2017
Notes
Note 3 - Transactions With Affiliated Parties	Note 3 - Transactions with Affiliated Parties Under the terms of the Restated Certificate and Agreement of Limited Partnership, the Partnership is liable to NAPICO for an annual management fee equal to 0.4 percent of the Partnership's original remaining invested assets of the Local Limited Partnership and is calculated at the beginning of each year. Invested assets are defined as the costs of acquiring project interests, including the proportionate amount of the mortgage loans related to the Partnership's interests in the capital accounts of the respective Local Limited Partnerships. The management fee was approximately $2,000 for the three months ended March 31, 2017 and 2016. Additionally, the Partnership reimburses NAPICO for administrative expenses incurred by NAPICO on behalf of the Partnership but paid by NAPICO for convenience. These reimbursed expenses were approximately $0 and $4,000 for the three months ended March 31, 2017 and 2016, respectively.

Note 4 - Fair Value of Financia

Note 4 - Fair Value of Financial Instruments	3 Months Ended
	Mar. 31, 2017
Notes
Note 4 - Fair Value of Financial Instruments	Note 4 - Fair Value of Financial Instruments Financial Accounting Standards Board Accounting Standards Codification Topic 825, "Financial Instruments", requires disclosure of fair value information about financing instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amounts of other assets and liabilities reported on the balance sheet at March 31, 2017 that require such disclosure approximated their fair value due to the short-term maturity of these instruments.

Note 5 - Contingencies

Note 5 - Contingencies	3 Months Ended
	Mar. 31, 2017
Notes
Note 5 - Contingencies	Note 5 - Contingencies The General Partner is involved in various lawsuits arising from transactions in the ordinary course of business. In the opinion of management and the General Partner, the claims will not result in any material liability to the Partnership.

Note 6 - Subsequent Event

Note 6 - Subsequent Event	3 Months Ended
	Mar. 31, 2017
Notes
Note 6 - Subsequent Event	Note 6 - Subsequent Event The Partnership's management evaluated subsequent events through the time this Quarterly Report on Form 10-Q was filed. REAL II holds a 99% limited partnership interest in a Local Limited Partnership (Lakeside Apartments). On March 31, 2017, REAL II entered into an Assignment and Assumption Agreement (the "Agreement") assigning 100% of its interests in the Partnership to the General Partner of the Local Limited Partnership in exchange for a payment of $200,000. The buyer provided a $10,000 non-refundable deposit to the Partnership that will reduce the amount received at closing. The deposit is currently presented as a distribution in excess of investment. Following the payment of the remaining balance, the Registrant will no longer hold any interest in the Partnership and have no rights, obligations or liabilities related thereto. The transaction is expect to close no later than June 2, 2017. The Registrant's investment balance in Lakeside was zero at December 31, 2016.

Note 1 - Organization and Sum12

Note 1 - Organization and Summary of Significant Accounting Policies: Basis of Presentation (Policies)	3 Months Ended
	Mar. 31, 2017
Policies
Basis of Presentation	Basis of Presentation The accompanying unaudited financial statements have been prepared in conformity with accounting principles generally accepted in the United States.

Note 1 - Organization and Sum13

Note 1 - Organization and Summary of Significant Accounting Policies: Method of Accounting For Investments in Local Limited Partnerships (Policies)	3 Months Ended
	Mar. 31, 2017
Policies
Method of Accounting For Investments in Local Limited Partnerships	Method of Accounting for Investments in Local Limited Partnerships The investment in a local limited partnership (the "Local Limited Partnership") is accounted for using the equity method.

Note 1 - Organization and Sum14

Note 1 - Organization and Summary of Significant Accounting Policies: Net Income (Loss) and Distribution Per Limited Partnership Interest (Policies)	3 Months Ended
	Mar. 31, 2017
Policies
Net Income (Loss) and Distribution Per Limited Partnership Interest	Net Income (Loss) Per Limited Partnership Interest Net income (loss) per limited partnership interest was computed by dividing the limited partners' share of net income (loss) by the number of limited partnership interests outstanding at the beginning of the year. The number of limited partnership interests used was 10,507 for the three months ended March 31, 2017 and 2016, respectively.

Note 1 - Organization and Sum15

Note 1 - Organization and Summary of Significant Accounting Policies: Variable Interest Entities (Policies)	3 Months Ended
	Mar. 31, 2017
Policies
Variable Interest Entities	Variable Interest Entities The Partnership consolidates any variable interest entities in which the Partnership holds a variable interest and is the primary beneficiary. Generally, a variable interest entity, or VIE, is an entity with one or more of the following characteristics: (a) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (b) as a group the holders of equity investment at risk lack (i) the ability to make decisions about an entity's activities through voting or similar rights, (ii) the obligation to absorb the expected losses of the entity, or (iii) the right to receive the expected residual returns of the entity; or (c) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor that has disproportionately few voting rights. The primary beneficiary of the VIE is generally the entity that has (a) the power to direct the activities of the VIE that most significantly impact the VIE's economic performance, and (b) the obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE. In determining whether it is the primary beneficiary of the VIE, the Partnership considers qualitative and quantitative factors, including, but not limited to: which activities most significantly impact the VIE's economic performance and which party controls such activities; the amount and characteristics of the Partnership's investment; the obligation or likelihood for the Partnership or other investors to provide financial support; and the similarity with and significance to the business activities of the Partnership and the other investors. Significant judgments related to these determinations include estimates about the current and future fair values and performance of real estate held by these VIEs and general market conditions. At March 31, 2017 and December 31, 2016, the Partnership held variable interests in one VIE for which the Partnership was not the primary beneficiary. The Partnership has concluded, based on its qualitative consideration of the partnership agreement of the Local Limited Partnership, the partnership structure and the role of the general partner in the Local Limited Partnership, that the general partner of the Local Limited Partnership is the primary beneficiary of the respective Local Limited Partnership. In making this determination, the Partnership considered the following factors:  the general partner conducts and manages the business of the Local Limited Partnership;  the general partner has the responsibility for and sole discretion over selecting a property management agent for the Local Limited Partnership's underlying real estate properties;  the general partner is responsible for approving operating and capital budgets for the properties owned by the Local Limited Partnership;  the general partner is obligated to fund any recourse obligations of the Local Limited Partnership;  the general partner is authorized to borrow funds on behalf of the Local Limited Partnership; and  the Partnership, as a limited partner in the Local Limited Partnership, does not have the ability to direct or otherwise significantly influence the activities of the Local Limited Partnership that most significantly impact such entity's economic performance. The VIE at March 31, 2017 consisted of a Local Limited Partnership that is directly engaged in the ownership and management of one apartment property with a total of 48 units. The Partnership is involved with the VIE as a non-controlling limited partner equity holder. The Partnership's maximum exposure to loss as a result of its involvement with the unconsolidated VIE is limited to the Partnership's recorded investments in and receivables from this VIE, which was zero at both March 31, 2017 and December 31, 2016. The Partnership may be subject to additional losses to the extent of any financial support that the Partnership voluntarily provides in the future.

Note 2 - Investments in and A16

Note 2 - Investments in and Advances To Local Limited Partnerships: Estimated condensed combined statements of operations for Local Partnerships (Tables)	3 Months Ended
	Mar. 31, 2017
Tables/Schedules
Estimated condensed combined statements of operations for Local Partnerships	Three Months Ended March 31, 2017 Three Months Ended March 31, 2016 Revenues Rental and other $ 116 $ 114 Expenses Depreciation 6 7 Interest 14 14 Operating 88 78 Total Expenses 108 99 Income (loss) from continuing operations $ (8) $ 15

Note 2 - Investments in and A17

Note 2 - Investments in and Advances To Local Limited Partnerships: Estimated condensed combined statements of operations for Local Partnerships (Details) - Partnership Interest - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2017	Mar. 31, 2016
Revenues
Rental Income, Nonoperating	$ 116	$ 114
Expenses
Depreciation	6	7
Interest	14	14
Operating	88	78
Total Expenses	108	99
Income (Loss) from Continuing Operations, Net of Tax, Including Portion Attributable to Noncontrolling Interest	$ (8)	$ 15

Note 6 - Subsequent Event (Deta

Note 6 - Subsequent Event (Details)	3 Months Ended
	Mar. 31, 2017
Details
Subsequent Event, Date	Mar. 31, 2017
Subsequent Event, Description	REAL II entered into an Assignment and Assumption Agreement (the "Agreement") assigning 100% of its interests in the Partnership to the General Partner of the Local Limited Partnership in exchange for a payment of $200,000.