UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
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: 0-11085
HUTTON/CONAM REALTY INVESTORS 2
(Exact name of registrant as specified in its charter)
California 13-3100545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3 World Financial Center, 29th Floor, New York, NY
ATTN: Andre Anderson 10285
(Address of principal executive offices) (Zip Code)
(212) 526-3237
(Registrant's telephone number, including area code)
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
Consolidated Balance Sheets
September 30, December 31,
Assets 1995 1994
Investments in real estate:
Land $ 5,744,972 $ 6,797,328
Buildings and improvements 23,442,403 27,258,895
29,187,375 34,056,223
Less accumulated depreciation (10,696,008) (11,699,378)
18,491,367 22,356,845
Cash and cash equivalents 750,373 1,183,787
Restricted cash 830,618 779,328
Other assets, net of accumulated amortization
of $119,829 in 1995 and $88,397 in 1994 327,988 452,164
Total Assets $ 20,400,346 $ 24,772,124
Liabilities and Partners' Capital
Liabilities:
Mortgages payable $ 12,015,851 $ 14,218,948
Accounts payable and accrued expenses 337,591 106,337
Due to general partners and affiliates 41,446 40,523
Security deposits 97,417 133,210
Distribution payable 200,000 244,445
Total Liabilities 12,692,305 14,743,463
Partners' Capital (Deficit):
General Partners (682,574) (618,500)
Limited Partners 8,390,615 10,647,161
Total Partners' Capital 7,708,041 10,028,661
Total Liabilities and Partners' Capital $ 20,400,346 $ 24,772,124
Consolidated Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1995
General Limited
Partners Partners Total
Balance at January 1, 1995 $ (618,500) $ 10,647,161 $ 10,028,661
Net income (loss) 11,482 (116,546) (105,064)
Distributions (75,556) (2,140,000) (2,215,556)
Balance at September 30, 1995 $ (682,574) $ 8,390,615 $ 7,708,041
Consolidated Statements of Operations
Three months ended Nine months ended
September 30, September 30,
Income 1995 1994 1995 1994
Rental $ 1,047,543 $ 1,166,373 $ 3,400,374 $ 3,487,639
Interest 29,900 14,486 52,276 32,570
Total Income 1,077,443 1,180,859 3,452,650 3,520,209
Expenses
Property operating 560,052 544,646 1,986,750 1,632,571
Depreciation and
amortization 330,544 290,591 918,138 872,600
Interest 241,685 277,137 790,976 834,278
General and administrative 84,927 29,526 164,178 112,385
Total Expenses 1,217,208 1,141,900 3,860,042 3,451,834
Income (loss) from
operations (139,765) 38,959 (407,392) 68,375
Gain on sale of property 302,328 0 302,328 0
Net Income (Loss) $ 162,563 $ 38,959 $ (105,064) $ 68,375
Net Income (Loss) Allocated:
To the General Partners $ 14,158 $ 3,895 $ 11,482 $ 6,837
To the Limited Partners 148,405 35,064 (116,546) 61,538
$ 162,563 $ 38,959 $ (105,064) $ 68,375
Per Limited Partnership unit
(80,000 outstanding) $ 1.85 $ .44 $ (1.46) $ .77
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1995 and 1994
Cash Flows from Operating Activities: 1995 1994
Net income (loss) $ (105,064) $ 68,375
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 918,138 872,600
Gain on sale of property (302,328) 0
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Fundings to restricted cash (281,096) (296,984)
Release of restricted cash 229,806 80,001
Other assets 0 6,310
Accounts payable and accrued expenses 231,254 173,989
Due to general partners and affiliates 923 (7,754)
Security deposits (35,793) (2,542)
Net cash provided by operating activities 655,840 893,995
Cash Flows from Investing Activities:
Net proceeds from sale of property 1,522,242 0
Additions to real estate (199,476) (2,092)
Net cash provided by (used for)
investing activities 1,322,766 (2,092)
Cash Flows from Financing Activities:
Distributions paid (2,260,001) 0
Mortgage principal payments (152,019) (148,027)
Mortgage fees 0 (38,803)
Receipt of deposit on mortgage refinancing 0 72,058
Net cash used for financing activities (2,412,020) (114,772)
Net increase (decrease) in cash
and cash equivalents (433,414) 777,131
Cash and cash equivalents at beginning
of period 1,183,787 558,731
Cash and cash equivalents at end of period $ 750,373 $ 1,335,862
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 790,976 $ 834,278
Supplemental Disclosure of Non-Cash Financing Activities:
In connection with the sale of Country Place Village I, the $2,051,078 mortgage
obligation on the property was assumed by the buyer, thereby releasing the
Partnership from its mortgage obligation.
Notes to the Consolidated Financial Statements
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's annual 1994 audited consolidated financial
statements within Form 10-K.
The unaudited consolidated financial statements include all adjustments which
are, in the opinion of management, necessary to present a fair statement of
financial position as of September 30, 1995, and the results of operations and
cash flows for the nine months ended September 30, 1995 and 1994 and the
statement of changes in partners' capital (deficit) for the nine months ended
September 30, 1995. Results of operations for the periods are not necessarily
indicative of the results to be expected for the full year.
The following significant events have occurred subsequent to fiscal year 1994
which require disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
Sale of Property
On July 20, 1995, the Partnership closed on the sale of Country Place Village I
to an institutional buyer (the "Buyer"), which is unaffiliated with the
Partnership. The selling price was determined by arm's length negotiations
between the Partnership and the Buyer. Country Place Village I was sold for
$3,665,000, which includes the assumption of the mortgage payable on Country
Place Village I by the Buyer in the amount of $2,051,078. The Partnership
received net proceeds of $1,522,242. The transaction resulted in a gain on
sale of $302,328 which is reflected in the Partnership's statement of
operations for the period ending September 30, 1995.
On August 17, 1995, the Partnership paid a special distribution of $1,600,000
to the partners. The special distribution was comprised of net proceeds from
the sale of Country Place Village I and $77,758 from the Partnership's cash
reserves.
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At September 30, 1995, the Partnership had cash and cash equivalents of
$750,373 which was invested in unaffiliated money market funds, compared with
$1,183,787 at December 31, 1994. The decrease is primarily attributable to
cash used for distributions, mortgage payments and additions to real estate,
which exceeded net cash provided by operating activities and proceeds from the
sale of Country Place Village I.
The Partnership maintained a restricted cash balance of $830,618 at September
30, 1995, compared with $779,328 at December 31, 1994. The restricted cash
balance represents escrows for insurance, real estate taxes, and property
replacements and repairs, required under the terms of the current mortgage
loans. The General Partners expect sufficient cash flow to be generated from
operations to meet its current operating expenses and debt service
requirements. Pursuant to the refinancing of the Creekside Oaks loan, the
lender required funds escrowed for various repairs including roofing work and
exterior painting. Following completion of all work, which is expected to
occur sometime in the fourth quarter, the balance of the repair escrow
amounting to $395,338 will be returned to the Partnership.
Accounts payable and accrued expenses were $337,591 at September 30, 1995
compared to $106,337 at December 31, 1994. The increase reflects the accrual
of real estate taxes for the two Florida properties for the first nine months
of 1995.
The sale of Country Place Village I was completed on July 20, 1995. The
property was sold for a gross price of $3,665,000, which included the
assumption by the buyer of the property's mortgage payable in the amount of
$2,051,078. The sale resulted in the Partnership receiving net proceeds of
approximately $1,522,000. The Partnership recognized a gain on sale of
$302,328 in the third quarter and on August 17,1995 paid a special
distribution of $1,600,000 to the partners. The special distribution was
comprised of net proceeds from the sale of Country Place Village I and
$77,758 from the Partnership's cash reserves.
The Partnership's 1995 third quarter regular cash distribution, in the amount
of $2.25 per Unit, will be paid on or about November 15, 1995. Cash
distributions will be determined on a quarterly basis and will be based on cash
flow generated by the Partnership.
Results of Operations
Partnership operations for the three and nine months ended September 30, 1995
resulted in net income (loss) of $162,563 and $(105,064), respectively,
compared with net income of $38,959 and $68,375 for the corresponding periods
in 1994. The increase for the three-month period reflects the gain on the sale
of Country Place Village I, offset by a decrease in rental income and increased
depreciation and amortization and general and administrative expenses. The
change from net income to net loss for the nine-month period is due primarily
to the increase in property operating costs associated with repair and
maintenance work at three of the properties, partially offset by the gain on
the sale of Country Place Village I. After adding back the depreciation and
amortization, both non-cash expenses, and subtracting mortgage amortization,
additions to real estate and gain on the sale of Country Place Village I,
operations generated cash flow of $144,339 and $159,251 for the three and nine
mon ths ended September 30, 1995, compared with cash flow of $279,252 and
$790,856 for the same periods in 1994. The decrease in cash flow for both
periods is primarily attributable to increased property operating expenses.
Rental income for the three and nine months ended September 30, 1995 was
$1,047,543 and $3,400,374, respectively, compared with $1,166,373 and
$3,487,639 for the corresponding periods in 1994. The decrease in 1995
reflects a decline in rental income resulting from the sale of Country Place
Village I, partially offset by increased rental rates at Rancho Antigua and
Village at the Foothills I.
Property operating expenses for the three and nine months ended September 30,
1995 were $560,052 and $1,986,750, respectively, compared with $544,646 and
$1,632,571 for the corresponding periods in 1994. The increase primarily
reflects higher repair and maintenance expenses at Creekside Oaks and Rancho
Antigua due primarily to exterior painting work. Interest expense for the
three- and nine-month periods ended September 30, 1995 was $241,685 and
$790,976, respectively, compared with $277,137 and $834,278 for the
corresponding periods in 1994. The decrease is primarily due to the sale of
Country Place Village I as well as the amortization of the mortgage loans.
General and administrative expenses for the three and nine months ended
September 30, 1995 were $84,927 and $164,178, respectively, compared with
$29,526 and $112,385 for the corresponding periods in 1994. The increases
primarily reflect legal expenses due to work related to the tender offer of the
limited partnership shares in the third quarter of 1995. (See Part II, Item 1
"Legal Proceedings").
For the three and nine months ended September 30, 1995 and 1994, average
occupancy levels at each of the properties were as follows:
Three Months Ended Nine Months Ended
September 30, September 30,
Property 1995 1994 1995 1994
Creekside Oaks 93% 97% 93% 96%
Ponte Vedra Beach Village I 95% 95% 95% 96%
Rancho Antigua 91% 94% 91% 95%
Village at the Foothills I 94% 97% 94% 96%
PART II OTHER INFORMATION
Item 1 Legal Proceedings
An offer dated August 3, 1995, was sent by Everest Investors, LLC and
W. Robert Kohorst (collectively, "Everest") to limited partners of the
Partnership to purchase up to 4.9% of their limited partnership
interests for $70 per unit less any distributions paid prior to the
expiration of the offer on September 8, 1995.
On August 16, 1995, the General Partners of the Partnership sent a
letter to limited partners recommending against the offer because the
price was inadequate especially in view of the Net Asset Value of the
units and the capital return that was to be made from the July 20, 1995
sale of one of its properties.
On August 29, 1995, the Partnership filed a complaint with the United
States District Court, Central District of California (the "Court")
that Everest's solicitation letter constituted a tender offer which
violated Section 14(e) of the Securities Exchange Act of 1934, which
prohibits false or misleading statements of material fact in connection
with any tender offer.
Additionally, the Partnership requested a Temporary Restraining Order
against Everest until Everest issues a disclosure that complies with
Section 14(e) of the Securities Exchange Act of 1934 and offers
rescission to any limited partners that have tendered their limited
partnership interests.
On August 31, 1995, the Court dismissed the Partnership's request for a
Temporary Restraining Order.
Items 2-5 Not applicable
Item 6 Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule
(b) Reports on Form 8-K
On August 4, 1995, a Current Report on Form 8-K was filed reporting the
consummation of the sale of Country Place Village I for
$3,665,000. Such information was provided in response to Item 2 of
Form 8-K.
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.
HUTTON/CONAM REALTY INVESTORS 2
BY: RI2 REAL ESTATE SERVICES INC.
General Partner
Date: November 14, 1995
BY: /s/ Paul L. Abbott
Name: Paul L. Abbott
Title: Director, President, Chief
Executive Officer and
Chief Financial Officer