FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter Ended: June 30, 1996 Commission file number: 33-28988
DBSI PACIFIC INCOME & GROWTH FUND - II, A Real Estate Limited Partnership
State of Organization: Idaho Employer ID #: 82-0428903
1070 N. Curtis Rd., Suite 270, Boise, Idaho 83706
Telephone number: (208) 322-5858
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)
Yes [X] No [ ]
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
FORM 10-Q
File Number: 33-28988
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Included herein on pages 4-9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Included herein on page 3
DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
General Partners' Discussion and Analysis
of Financial Condition and Results of Operations
June 30, 1996
Liquidity and Capital Resources
The Partnership has generated funds primarily from the operation of rental
properties and to a lesser extent from interest on savings and certificates of
deposit. Because of the favorable Portland market, the Partnership sold Dakota
Station on June 5, 1996 and anticipates selling the other Portland rental
property. As the Seattle real estate market improves the Partnership
anticipates selling the remaining properties. Funds are used for rental
property operating expenses, distributions to partners, debt service, fixed
asset replacements, capital improvements, management and professional fees.
The general partners believe that the Partnership has the liquidity and capital
resources to meet all of its known obligations and commitments.
The cash and cash equivalents position of the Partnership at June 30, 1996
represented approximately $1,086,000 including approximately $59,000 for tax,
insurance and replacements reserves and approximately $1,027,000 operating cash
primarily from the sale of Dakota Station. The Partnership has no external
sources of liquidity and no outstanding capital commitments. Cash deposits
earned interest of approximately 4.0%.
Cash Flow and Operations
For the six months ended June 30, 1996 and 1995, the Partnership generated
$201,481 and $132,581 of cash flow from operating activities. The following
adjustments should be made to the 1996 annualized cash flow for Weatherstone,
Talisman, and Sorrento View in order to compare the first year pro forma funds
from operations as found in the supplements to the offering prospectus. First,
mortgage interest payments of $39,802 for Sorrento View Apartments should be
added to cash flow since the pro forma statements anticipated no mortgage loan
on this property. Second, changes in operating assets and liabilities of
$122,822 should reduce cash flow to reflect the ongoing funds generated from
operations. Cash flow should also be reduced for principal payments of $23,745
and for normal fixed asset purchases of $88,018. Finally cash flow should be
increased $11,705 to eliminate Dakota Station and partnership activity. After
the above adjustments, the remaining properties combined annualized funds from
operations reached 7% of the pro forma amount.
Total revenue increased from $1,221,087 to $1,613,649 for second quarter 1995
compared to 1996. Real estate operating expense increased from $1,292,369 to
$1,345,502 for second quarter 1995 to second quarter 1996. The general partner
has contracted with HSC Real Estate, Incorporated for management of
Weatherstone and Talisman Apartments and J. B. McLoughlin & Company for
management of Sorrento View Apartments.
On June 5, 1996, the Partnership sold Dakota Station Apartments to unrelated
individual parties for $2,080,000. The Partnership netted $1,967,380 from the
sale after commissions to unrelated parties of $51,975, closing costs of
$4,962, a credit to buyer of $12,425 and a loan prepayment penalty of $43,258.
The Partnership purchased the property in November 1990 for $1,765,000 and at
the time of sale it had asset carrying costs of $1,542,371 ($1,855,486 cost
basis less accumulated depreciation of $313,115). The Partnership realized
a gain of $425,009 on the sale ($1,967,380 net proceeds less adjusted basis
of $1,542,371).
Had this sale occurred on January 1, 1996 the rental income of the partnership
would have decreased by approximately $95,000, net income would have increased
by approximately $2,000 for the six months ended June 30, 1996, and net income
from sales would have decreased by approximately $425,000.
The Partnership distributed $138,955 to the partners during the first six
months of 1996 from current operations. The Partnership net income after
depreciation for the six months ended June 30, 1996 was $268,147; therefore, on
a GAAP basis, all cash distributions are from net income.
Per $1,000 invested (on the basis of a $1,000 investment made at the inception
of the escrow and offering) distributions have been made in the following
amounts: escrow period - $58; November 1990 through May 1995 - $18 per quarter;
August 1995 through May 1996 - $7.50 per quarter, for total distributions of
approximately $431.
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
BALANCE SHEETS
ASSETS June 30, 1996 December 31, 1995
______________ _________________
Rental property:
Land $1,347,400 $1,527,400
Buildings and improvements 10,923,658 12,461,311
Furniture and fixtures 977,822 1,007,792
_________ _________
13,248,880 14,996,503
Less accumulated depreciation (2,298,532) (2,372,813)
__________ __________
10,950,348 12,623,690
Cash and cash equivalents 1,027,319 41,572
Accounts receivable 19,028 7,229
Prepaid expenses 10,284 12,166
Reserves 58,564 41,010
Tenant security deposits 48,635 84,015
Intangible costs (net) (Note 4) 87,156 118,736
__________ __________
Total assets $12,201,334 $12,928,418
LIABILITIES AND CAPITAL
Accounts payable $111,995 $43,624
Interest payable 61,898 75,466
Taxes payable 36,000 10,052
Security deposits payable 48,958 50,550
Note payable affiliate (Note 3) 120,500
Mortgages payable (Note 2) 7,620,946 8,435,881
_________ _________
Total liabilities 7,879,797 8,736,073
_________ _________
Partners' capital 4,321,537 4,192,345
__________ __________
Total liabilities and capital $12,201,334 $12,928,418
<FN>
The Accompanying Notes are an Integral Part of these Financial Statements
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
STATEMENTS OF OPERATIONS
Six Months Ended Six Months Ended
REVENUES March 31, 1996 June 30, 1995
__________________ __________________
Tenant rent $1,131,401 $1,184,977
Interest income 11,535 921
Other income 45,704 35,189
Gain on sale of rental
property (Note 5) 425,009
_________ _________
1,613,649 1,221,087
EXPENSES
Interest 405,509 407,208
Depreciation 238,834 239,340
Property tax and insurance 111,707 119,295
Maintenance and repairs 215,066 132,941
Utilities 151,857 126,000
Administrative 94,656 122,010
Management fees 46,812 50,808
On-site manager 66,173 80,126
Amortization 14,888 14,641
_________ _________
1,345,502 1,292,369
_________ _________
Net loss $268,147 ($71,282)
STATEMENTS OF PARTNERS' CAPITAL
Six months ended Six months ended
June 30, 1996 June 30, 1995
__________________ __________________
Beginning capital $4,192,345 $4,887,928
Distributions (138,955) (341,480)
Net loss 268,147 (71,282)
__________ __________
Ending capital $4,321,537 $4,475,166
<FN>
The Accompanying Notes are an Integral Part of these Financial Statements
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
STATEMENTS OF CASH FLOWS
CASH FLOWS FROM Six Months Ended Six Months Ended
OPERATING ACTIVITIES June 30, 1996 June 30, 1995
__________________ __________________
Net income (loss) $268,147 ($71,282)
Adjustments to reconcile net
income to cash flows from
operating activities
Depreciation and amortization 253,722 239,340
Gain on sale of rental property (425,009)
Changes in operating assets
and liabilities
Accounts receivable (11,800) 7,543
Prepaid expenses 1,882 4,827
Tenant security deposits 35,380
Accounts payable 68,371 (43,128)
Interest payable (13,568) 1,564
Taxes payable 25,948 2,475
Tenant security deposits payable (1,592) (8,758)
________ ________
Net cash provided by operating
activities 201,481 132,581
CASH FLOWS FROM
INVESTING ACTIVITIES
Proceeds from sale of rental property 1,967,380
Rental property purchases (91,170) (87,459)
Decrease (increase) in reserves (17,554) (26,003)
__________ _________
Net used in investing activities 1,858,656 (113,462)
CASH FLOWS FROM
FINANCING ACTIVITIES
Decrease in intangible costs 24,471
Proceeds from (payments on)
note payable to affiliate (120,500) 82,000
Principal payments on loans (814,935) (34,129)
Distributions to partners (138,955) (341,480)
_________ _________
Net cash used in financing activities (1,074,390) (269,138)
Net increase (decrease) in cash
and cash equivalents 985,747 (250,019)
Cash and cash equivalents at
beginning of period 41,572 294,265
_______ _______
Cash and cash equivalents at
end of period $1,027,319 $44,246
<FN>
The Accompanying Notes are an Integral Part of these Financial Statements
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the Six months ended June 30, 1996 and 1995
1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Partnership Organization. DBSI Pacific Income & Growth Fund - II A Real Estate
Limited Partnership, was formed on May 17, 1989 with general partners DBSI
Housing Inc., an Idaho corporation, and DBSI Realty Partners, an Idaho general
partnership. The Partnership was in the development stage through January 9,
1990 and in the offering stage through December 31, 1991. The business purpose
of the Partnership is to acquire and operate leveraged multi-family housing
projects in the Western United States and sell them when market prices are
advantageous. The partnership agreement provides that the Partnership will be
dissolved no later than December 31, 2039, unless sooner terminated as provided
in the agreement.
The Partnership acquired three properties during 1990: Weatherstone Apartments,
an existing 138-unit project located in Silverdale, (Kitsap County) Washington;
Sorrento View Apartments, an existing 80-unit project, and Dakota Station
Apartments, an existing 40-unit project, both located in the Beaverton/Tigard
(Portland), Oregon metropolitan area. In October 1991 the Partnership
purchased a fourth property, Talisman Apartments, an existing 96-unit project
located in Olympia, Washington. The Partnership sold Dakota Station on June 5,
1996.
Operating profits and losses exclusive of losses from the sale or disposition
of Partnership properties, and cash distributions, are allocated 98% to limited
partners and 2% to general partners. After the limited partners have received
distributions equal to a 7% annual return on their capital contributions the
general partners receive additional distributions equal to 5% of total
distributions. Proceeds from sale or refinancing are to be distributed,
generally, 100% to the limited partners until they have received cumulative
distributions equal to their capital contributions, then 85% to the limited
partners and 15% to the general partners. However, the limited partners must
receive cumulative distributions from operations and sale or refinancing
proceeds equal to their capital contributions plus a 10% per annum return
thereon before the general partners receive any sale or refinancing proceeds.
Significant Accounting Policies. The balance sheets include only those assets,
liabilities, and partners' capital which relate to the business of the
Partnership and do not include any assets, liabilities, revenues or expenses
attributable to the partners' activities. No partners receive salaries from
the Partnership for services. No provision has been made for federal and state
income taxes since these taxes are the personal responsibility of the partners.
Rental property is recorded at cost. Depreciation is computed for all assets
over their estimated useful lives as follows: buildings and structural
improvements, 15 to 32 years; furniture and fixtures, 5 to 12 years.
Expenditures for maintenance and repairs are charged to operating expenses as
incurred. The cost and accumulated depreciation of assets sold or otherwise
retired are removed from the accounts and gain or loss on disposition is
included in the results of operations. Mortgage loan fees are amortized over
the estimated life of the mortgage notes.
Cash and cash equivalents include cash in banks (except for security deposits
and reserve bank accounts). Reserves consist of bank deposits for repairs and
replacements, property taxes, insurance, and Partnership reserves.
The estimated fair value of cash and cash equivalents, accounts payable and
long-term debt approximates their carrying amounts.
The preparation of the Partnership's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, requires management to review long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. This statement is
effective for the Partnership's fiscal year end December 31, 1996. The
Partnership's existing accounting policies are such that this pronouncement is
not expected to have a material effect on the Company's financial position or
results of operations.
2. MORTGAGES PAYABLE
A mortgage payable of $3,875,000 to Pacific First Federal Savings Bank was used
in the purchase of Weatherstone Apartments in March, 1990. The balance of
$3,768,183 as of June 30, 1996 and $3,790,213 as of June 30, 1995 bears
interest at 9.875% and requires monthly payments of $32,942 through April 1,
2000 when the remaining balance of approximately $3,660,621 is due.
In October, 1991, the Partnership purchased Talisman Apartments by executing a
mortgage loan in the amount of $3,000,000. The mortgage note in the current
amount of $2,905,678 and a balance of $2,930,026 as of June 30, 1995 is held by
the State of Washington, State Investment Board, and requires payments of
$26,050 monthly with interest charged at 9.875%. The entire balance of the
loan is due in ten years (November, 2001) when the approximate balance will be
$2,722,795. The loan may not be prepaid during the first five years of the
loan period. During the second five years of the loan period it may be prepaid
subject to the greater of a yield maintenance prepayment penalty or a minimum
2% prepayment penalty.
A first deed of trust loan of approximately $998,000 to Canada Life Assurance
Company was renegotiated for Sorrento Apartments after a reduction of $886,000
to the principal was made from operating capital on May 11, 1993. The loan
requires monthly payments of $7,996 with interest charged at 8.375%, current
amount due as of June 30, 1996 is $947,085 with a balance of $962,984 as of
June 30, 1995. The loan is due on June 1, 1998 and it is anticipated that the
remaining balance will be refinanced. A prepayment penalty is required if the
note is paid more than 30 days before its due date.
An 8.25% $800,000 loan from Canada Life Assurance Co. secured by the Dakota
Station Apartments was obtained on April 28, 1994 to finance six to eighteen
additional units at Weatherstone Apartments. The loan was for five years with
a 25 year amortization. The loan required monthly payments of $6,308 and the
balance as of June 5, 1996 was $779,341. The mortgage was paid in full with a
$43,248 prepayment penalty when Dakota Station was sold.
3. LOAN PAYABLE
The Partnership borrowed $120,500 in 1995 from an affiliate of the General
Partner. This loan bears interest at the General Partner's bank borrowing rate
of prime plus 1.5% (9.75% as of June 30, 1996). The loan proceeds provided
funds for short term operating cash flow needs of the Seattle area projects and
to enable the Partnership to maintain the first quarter 1995 distribution rate
following the lower operating cash flow from these properties. The loan was
repaid on June 28, 1996 from the proceeds of the sale of Dakota Station.
4. INTANGIBLE COSTS
Intangible assets and cumulative amortization at June 30, 1996 amount to
$210,954 of loan costs and $123,798 of accumulated amortization related to
these fees. The net value of intangible costs is $87,156.
5. SALE OF RENTAL PROPERTY
On June 5, 1996, the Partnership sold Dakota Station Apartments to unrelated
individual parties for $2,080,000. The Partnership netted $1,967,380 from the
sale after commissions to unrelated parties of $51,975, closing costs of
$4,962, a credit to buyer of $12,425 and a loan prepayment penalty of $43,258.
The Partnership purchased the property in November 1990 for $1,765,000 and at
the time of sale it had asset carrying costs of $1,542,371 ($1,855,486 cost
basis less accumulated depreciation of $313,115). The Partnership realized a
gain of $425,009 on the sale ($1,967,380 net proceeds less adjusted basis of
$1,542,371).
6. NET INCOME (LOSS) FROM RENTAL PROPERTIES
The following schedule details separate rental property activity for the
six months ended June 30, 1996:
________________________________________________________________________
Weatherstone Talisman Sorrento Dakota
Apts Apts View Apts Station Apts Partnership Total
________________________________________________________________________
REVENUES
Tenant rent $431,999 $321,905 $286,650 $90,847 $1,131,401
Interest income 296 221 684 276 $10,058 11,535
Other income 19,076 5,841 16,504 42,834 45,704
Income from sale of
rental property 425,009 425,009
______________________________________________________________________
451,371 327,967 303,838 95,406 435,067 1,613,649
EXPENSES
Interest 186,381 143,830 39,802 27,284 8,212 405,509
Depreciation 90,000 65,160 57,540 26,134 238,834
Tax and insurance 36,091 35,681 26,456 13,479 111,707
Maintenance 109,033 62,752 33,282 9,999 215,066
Utilities 66,187 43,893 32,053 9,724 151,857
Administration 38,005 21,977 12,016 3,545 19,113 94,656
Management fees 16,718 11,471 13,942 4,681 46,812
On-site manager 24,950 22,147 16,145 2,931 66,173
Amortization 14,888 14,888
______________________________________________________________________
567,365 406,911 231,236 97,777 42,213 1,345,502
______________________________________________________________________
Net income (loss) ($115,994) ($78,944) $72,602 ($2,371) $392,854 $268,147
______________________________________________________________________
______________________________________________________________________
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.
DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
by _________________________ Date ____________________
Douglas L. Swenson, President of
DBSI Housing Inc., general partner of
DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
by _________________________ Date ____________________
Charles E. Hassard, Secretary-Treasurer
and principal financial officer of
DBSI Housing Inc., the Idaho corporation
that is a general partner and principal
financial officer of
DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership