Note 2 - Investments in and Advances To Local Limited Partnerships

3 Months Ended

Mar. 31, 2017

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

REAL ESTATE ASSOCIATES LTD II 10-Q