Hutton/ConAm Realty Investors 2
1995 Annual Report
HUTTON/CONAM REALTY INVESTORS 2
Hutton/ConAm Realty Investors 2 is a California limited partnership formed in
1982 to acquire, operate and hold for investment multifamily housing
properties. At December 31, 1995, the Partnership's portfolio consisted of
four apartment properties located in Arizona and Florida. Provided below is a
comparison of average occupancy levels for the years ended December 31, 1995
and 1994
Average Occupancy
Property Location 1995 1994
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Creekside Oaks Jacksonville, Florida 93% 96%
Ponte Vedra Beach Village I Ponte Vedra Beach, Florida 96% 96%
Rancho Antigua Scottsdale, Arizona 92% 95%
Village at the Foothills I Tucson, Arizona 95% 96%
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Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts 02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 (select option 1) 800-223-3464 (select option 2)
Contents
1 Message to Investors
2 Performance Summary
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated Financial Statements
13 Report of Independent Accountants
14 Net Asset Valuation
MESSAGE TO INVESTORS
Presented for your review is the 1995 Annual Report for Hutton/ConAm Realty
Investors 2. In this report, we review Partnership operations and discuss
general market conditions affecting the Partnership's properties. We have also
included a performance summary which addresses operating results at each of the
properties and financial highlights for the year.
Country Place Village I Sale
The most significant event during 1995 was the sale of Country Place Village I
on July 20, 1995 to an unaffiliated institutional buyer. Country Place Village
I was sold for $3,665,000, which includes the assumption of the mortgage
payable on the property by the buyer in the amount of $2,051,078. The
Partnership received net sales proceeds of $1,522,242 and recorded a gain of
$232,402 on the sale.
Cash Distributions
The Partnership paid cash distributions totaling $29 per Unit for the year
ended December 31, 1995, including the fourth quarter distribution of $2.25 per
Unit, which was credited to your brokerage account or sent directly to you on
February 7, 1996. This amount also includes the special return of capital
distribution of $20 per Unit which was paid on August 17, 1995 and resulted
primarily from the sale of Country Place Village I. Since inception, the
Partnership has paid distributions totaling $328.19 per original $500 Unit,
including $220 per Unit in return of capital payments. The level of future
distributions will be evaluated on a quarterly basis and will depend on the
Partnership's operating results and future cash needs. It is anticipated that
cash from reserves may be required to fund a portion of the distributions
during 1996 as a result of the expenditures for improvements required at the
Partnership's properties which are discussed in this report.
Operations Overview
The solid recovery of multifamily housing in most regions of the country began
to level off during 1995. New construction intensified competition in many
areas with building permits for multifamily units up almost 22% in 1995
compared to 1994 levels. In addition, falling interest rates induced many
renters to purchase homes. Despite these trends, strong population and job
growth in the areas where the Partnership's properties are located helped
strengthen the demand for multifamily housing, and brought about stable
performance at the Partnership's properties. All four properties sustained
average occupancy rates for the year at or above 92%, and both Rancho Antigua
and Village at the Foothills I recorded higher rental income from the prior
year.
During the remainder of 1996, we intend to implement an extensive improvement
program, which includes roof repairs at three of the four properties and
improvements to unit interiors at all four properties. This program is
intended to maintain the properties' positions within their respective markets,
which are growing increasingly competitive with the addition of new apartment
properties. This is particularly true in the Jacksonville market where two of
the Partnership's four properties are located. It is also hoped that these
improvements will allow for greater increases in rental rates, thereby
improving each property's revenue and value, and making them better positioned
for eventual sale. Updates on the improvements at each property will be
included in future correspondence.
Summary
During 1996, we will continue to seek to maintain high occupancy levels,
implement rental rate increases as conditions permit, and make property
improvements necessary to keep the properties competitive in their respective
markets. We will keep you apprised of significant developments affecting your
investment in future reports.
Very truly yours,
/s/ Paul L. Abbott /s/ Daniel J. Epstein
President President
RI 2 Real Estate Services, Inc. Continental American Development Inc.
General Partner of ConAm Property
Services II, Ltd.
March 27, 1996
PERFORMANCE SUMMARY
Creekside Oaks, Jacksonville, Florida
Creekside Oaks, a 120-unit apartment community, is situated in the
Baymeadows-Deerwood neighborhood of southeast Jacksonville. The average
occupancy level at Creekside Oaks was 93% in 1995 compared with 96% during
1994. The decline in occupancy was offset by rental rate increases instituted
during the year, and rental income remained in line with 1994. Market
conditions in the Baymeadows-Deerwood area remain competitive, with a number of
newer apartment properties offering greater amenities and commanding higher
rents. Additionally, two new properties are scheduled to open in the area
during 1996. Although the use of rental concessions diminished considerably in
the last two years, asking rental rates in this submarket increased only 2% in
1995. Average occupancy increased from 93% in the second quarter of 1994 to
94% in the second quarter of 1995. Improvements at the property during 1995
included exterior painting and carpet replacement in selected units.
Ponte Vedra Beach Village I, Ponte Vedra Beach, Florida
Located in an oceanside residential area south of Jacksonville, this 122-unit
property reported stable occupancy of 96% during 1995. The property's average
occupancy rate has remained consistent at 96% for the past three years. While
modest rental rate increases were instituted in renewal units during the year,
rental income remained largely unchanged from 1994, reflecting a seasonal dip
in occupancy during the second quarter. Property improvements during 1995
primarily consisted of roof repairs and the replacement of carpet and tile. A
local survey of the Ponte Vedra Beach area reported an average apartment
occupancy rate of 95% in the third quarter of 1995. The use of rental
concessions in the market is virtually non-existent. Given the strong market
conditions, several apartment projects are in the planning or construction
phase. This construction is expected to intensify competition in the Ponte
Vedra area market.
Rancho Antigua, Scottsdale, Arizona
This 220-unit complex, located approximately eight miles northeast of Phoenix,
achieved average occupancy of 92% in 1995, compared with 95% in 1994. Despite
the decrease in average occupancy, the property was able to achieve a small
increase in rental income as a result of rate increases instituted during the
year. The lower average occupancy reflects a number of tenants not renewing
leases to purchase condominiums and single family homes. Affordable home
prices in the area and low mortgage rates have induced a large number of
renters to purchase homes and increased competition for tenants. While
population and job growth remain strong in the Phoenix area, construction of
new apartment projects has picked up in recent years and a number of new units
are planned or under construction in the Scottsdale/Paradise Valley submarket.
The addition of new apartment units resulted in a decrease in the market's
average occupancy to 94% at the end of the second quarter of 1995. Given
increased ed construction and continued strong competition from condominiums and
single family housing, competition for tenants is likely to increase in the
coming year. Property improvements during 1995 included the painting of the
property's exterior and carpet and appliance replacement in renewal units.
Village at the Foothills I, Tucson, Arizona
Village at the Foothills I is a 60-unit apartment and townhouse community,
located in the Catalina Foothills, overlooking Tucson. Occupancy at this
property averaged 95% in 1995 compared with 96% in 1994. Rental income
increased 6% from 1994, reflecting rental rate increases on renewals and
turnover during the year. Property improvements during 1995 were minimal and
consisted primarily of carpet replacement in selected units. The property
continued to perform well despite intensifying competition in the metro Tucson
area brought on by new construction. Competition for tenants is also
increasing as renters take advantage of low interest rates on mortgages and opt
to purchase homes. Evidence of the intensifying competition can be seen in the
area's vacancy rate, which has reached 8%, its highest level since 1990.
FINANCIAL HIGHLIGHTS
Selected Financial Data
For the Periods Ended December 31,
(dollars in thousands, except per Unit data)
1995 1994 1993 1992 1991
Total Revenue $ 4,516 $ 4,718 $ 4,479 $ 4,316 $ 4,263
Gain on Sale of Property 232 ----- ----- ----- -----
Net Income (Loss) (113) 37 (528) (409) (513)
Net Cash Provided by (used for)
Operating Activities 864 1,150 (180) 680 380
Long-term Obligations 11,969 14,219 14,418 15,636 15,750
Total Assets at Year End 19,931 24,772 25,237 26,946 27,579
Net Income (Loss) per
Limited Partnership Unit* (4.27) .42 (6.53) (5.06) (6.34)
Distributions per
Limited Partnership Unit* 9.00 5.50 ----- ----- 5.20
Special Distributions per
Limited Partnership Unit* 20.00 ----- ----- ----- -----
* 80,000 units outstanding
* Total revenue decreased 4% from 1994, reflecting the sale of Country
Place Village I on July 20, 1995. This was partially offset by
increased rental income at Rancho Antigua and Village at the Foothills
I and higher interest income.
* The change from net income in 1994 to a net loss in 1995 and the
reduction in cash provided by operating activities is primarily
attributable to the decrease in rental income following the sale of
Country Place Village I, as well as an increase in property operating
expenses and general and administrative expenses. Property operating
expenses increased due primarily to painting and repair costs at
Creekside Oaks and Rancho Antigua. General and administrative expenses
increased largely due to higher legal costs in the 1995 period.
Cash Distributions
Per Limited Partnership Unit
1995 1994
Special Distributions* $ 20.00 $ -----
First Quarter 2.25 -----
Second Quarter 2.25 -----
Third Quarter 2.25 2.75
Fourth Quarter 2.25 2.75
Total $ 29.00 $ 5.50
* On August 17, 1995, the Partnership paid a special cash distribution
totaling $20 per Unit, reflecting a return of capital from the net
proceeds of the sale of Country Place Village I and Partnership cash
reserves.
Consolidated Balance Sheets December 31, 1995 and 1994
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 (10,931,382) (11,699,378)
18,255,993 22,356,845
Cash and cash equivalents 710,686 1,183,787
Restricted cash 651,661 779,328
Other assets, net of accumulated
amortization of $135,458 in 1995
and $88,397 in 1994 312,359 452,164
Total Assets $ 19,930,699 $ 24,772,124
Liabilities and Partners' Capital
Liabilities:
Mortgages payable $ 11,968,504 $ 14,218,948
Accounts payable and accrued
expenses 121,445 106,337
Due to general partners and affiliates 33,949 40,523
Security deposits 106,218 133,210
Distribution payable 200,000 244,445
Total Liabilities 12,430,116 14,743,463
Partners' Capital (Deficit):
General Partners (485,103) (618,500)
Limited Partners 7,985,686 10,647,161
Total Partners' Capital 7,500,583 10,028,661
Total Liabilities and
Partners' Capital $ 19,930,699 $ 24,772,124
Consolidated Statements of Partners' Capital (Deficit)
For the years ended December 31, 1995, 1994 and 1993
General Limited
Partners Partners Total
Balance at January 1, 1993 $ (568,068) $ 11,575,832 $ 11,007,764
Net loss (5,275) (522,264) (527,539)
Balance at December 31, 1993 (573,343) 11,053,568 10,480,225
Net income 3,732 33,593 37,325
Distributions (48,889) (440,000) (488,889)
Balance at December 31, 1994 (618,500) 10,647,161 10,028,661
Net income (loss) 228,953 (341,475) (112,522)
Distributions (95,556) (2,320,000) (2,415,556)
Balance at December 31, 1995 $ (485,103) $ 7,985,686 $ 7,500,583
Consolidated Statements of Operations
For the years ended December 31, 1995, 1994 and 1993
Income 1995 1994 1993
Rental $ 4,448,549 $ 4,669,676 $ 4,429,975
Interest 67,819 48,289 48,981
Total Income 4,516,368 4,717,965 4,478,956
Expenses
Property operating 2,515,717 2,262,915 2,069,986
Depreciation and amortization 1,099,215 1,163,239 1,096,871
Interest 1,023,479 1,110,434 1,686,402
General and administrative 222,881 144,052 153,236
Total Expenses 4,861,292 4,680,640 5,006,495
Income (loss) from operations (344,924) 37,325 (527,539)
Gain on sale of property 232,402 ----- -----
Net Income (Loss) $ (112,522) $ 37,325 $ (527,539)
Net Income (Loss) Allocated:
To the General Partners $ 228,953 $ 3,732 $ (5,275)
To the Limited Partners (341,475) 33,593 (522,264)
Net Income (Loss) $ (112,522) $ 37,325 $ (527,539)
Per Limited Partnership Unit
(80,000 outstanding)
Income (loss) from operations $ (4.27) $ .42 $ (6.53)
Gain on sale of property --- --- ---
Net Income (Loss) $ (4.27) $ .42 $ (6.53)
Consolidated Statements of Cash Flows
For the years ended December 31, 1995, 1994 and 1993
Cash Flows from Operating Activities: 1995 1994 1993
Net income (loss) $ (112,522) $ 37,325 $ (527,539)
Adjustments to reconcile net income
(loss) to net cash provided by (used for)
operating activities:
Depreciation and amortization 1,099,215 1,163,239 1,096,871
Gain on sale of property (232,402) ----- -----
Increase (decrease) in cash
arising from changes
in operating assets and liabilities:
Fundings to restricted cash (361,130) (407,336) (1,057,502)
Release of restricted cash 488,797 409,471 276,039
Other assets ----- 6,310 (5,317)
Accounts payable and accrued
expenses 15,108 (59,566) 40,477
Due to general partners
and affiliates (6,574) 3,616 (11,199)
Security deposits (26,992) (2,961) 7,848
Net cash provided by (used for)
operating activities 863,500 1,150,098 (180,322)
Cash Flows from Investing Activities:
Net proceeds from sale of property 1,522,242
Additions to real estate (199,476) (114,067) (34,711)
Net cash provided by (used for)
investing activities 1,322,766 (114,067) (34,711)
Cash Flows from Financing Activities:
Distributions (2,460,001) (244,444) -----
Mortgage principal payments (199,366) (199,306) (15,667,949)
Receipt (payment) of deposit on
mortgage refinancing ------- 72,058 (74,631)
Mortgage fees ------- (39,283) (491,095)
Mortgage proceeds ------- ------- 14,450,000
Net cash used for financing activities (2,659,367) (410,975) (1,783,675)
Net increase (decrease) in cash and
cash equivalents (473,101) 625,056 (1,998,708)
Cash and cash equivalents at beginning
of year 1,183,787 558,731 2,557,439
Cash and cash equivalents at
end of year $ 710,686 $ 1,183,787 $ 558,731
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year
for interest $1,023,479 $ 1,110,434 $ 1,686,402
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 For the years ended December 31, 1995, 1994 and 1993
1. Organization
Hutton/ConAm Realty Investors 2 (the "Partnership") was organized as a limited
partnership under the laws of the State of California pursuant to a Certificate
and Agreement of Limited Partnership (the "Partnership Agreement") dated
December 17, 1981, as amended and restated October 8, 1982. The Partnership
was formed for the purpose of acquiring and operating certain types of
residential real estate. The General Partners of the Partnership are RI 2 Real
Estate Services Inc., an affiliate of Lehman Brothers Inc. (see below), and
ConAm Property Services II, Ltd. ("ConAm"), an affiliate of Continental
American Properties, Ltd (the "General Partners"). The Partnership will
continue until December 31, 2010 unless sooner terminated pursuant to the terms
of the Partnership Agreement.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its domestic
retail brokerage and asset management businesses to Smith Barney, Harris Upham
& Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson Lehman
Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman Brothers").
The transaction did not affect the ownership of the General Partners. However,
the assets acquired by Smith Barney included the name "Hutton." Consequently,
effective January 13, 1994, the Hutton Real Estate Services V, Inc. general
partner changed its name to "RI 2 Real Estate Services, Inc."
On March 15, 1996, based upon, among other things, the advice of Partnership
counsel, Skadden, Arps, Slate, Meagher & Flom, the General Partners adopted a
resolution that states, among other things, if a Change of Control (as defined
below) occurs, the General Partners may distribute the Partnership's cash
balances not required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10% of the Units
that is not approved in advance by the General Partners. In determining the
amount of the distribution, the General Partners may take into account all
material factors. In addition, the Partnership will not be obligated to make
any distribution to any partner and no partner will be entitled to receive any
distribution until the General Partners have declared the distribution and
established a record date and distribution date for the distribution. The
Partnership filed a Form 8-K disclosing this resolution on March 21, 1996.
2. Significant Accounting Policies
Financial Statements
The consolidated financial statements include the accounts of the Partnership
and its affiliated ventures. The effect of transactions between the
Partnership and its ventures have been eliminated in consolidation.
Real Estate Investments
Real estate investments are recorded at cost less accumulated depreciation
which includes the initial purchase price of the property, legal fees,
acquisition and closing costs.
Leases are accounted for under the operating method. Under this method,
revenue is recognized as rentals are earned and expenses (including
depreciation) are charged to operations when incurred. Leases are generally
for terms of one year or less.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the properties. Maintenance and repairs are charged
to operations as incurred. Significant betterments and improvements are
capitalized and depreciated over their estimated useful lives.
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in income for the period.
Accounting for Impairment
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" ("FAS 121"),
which requires impairment losses to be recorded on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flow estimated to be generated by those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long-lived assets
that are expected to be disposed of. The Partnership has adopted FAS 121 in
the fourth quarter of 1995. Based on current circumstances, the adoption of
FAS 121 had no impact on the financial statements.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("FAS 107"), requires that the Partnership
disclose the estimated fair values of its financial instruments. Fair values
generally represent estimates of amounts at which a financial instrument could
be exchanged between willing parties in a current transaction other than in
forced liquidation.
Fair value estimates are subjective and are dependent on a number of
significant assumptions based on management's judgment regarding future
expected loss experience, current economic conditions, risk characteristics of
various financial instruments, and other factors. In addition, FAS 107 allows
a wide range of valuation techniques, therefore, comparisons between entities,
however similar, may be difficult.
Other Assets
Included in other assets are deferred mortgage costs incurred in connection
with obtaining financing on four of the Partnership's properties. Such costs
are amortized over the term of the loans.
Offering Costs
Costs relating to the sale of limited partnership units were deferred during
the offering period and charged to the limited partners' capital accounts upon
the consummation of the public offering.
Income Taxes
No provision for income taxes has been made in the financial statements since
income, losses and tax credits are passed through to the individual partners.
Cash and Cash Equivalents
Cash equivalents consists of short-term highly liquid investments which have
maturities of three months or less from the date of issuance. The carrying
amount approximates fair value because of the short maturity of these
instruments. Cash and cash equivalents include security deposits of $79,936
and $106,213 at December 31, 1995 and 1994, respectively, restricted under
certain state statutes.
Restricted Cash
Restricted cash consists of escrows for real estate taxes, casualty insurance,
and replacement reserves as required by the first mortgage lender in the amount
of $651,661 and $779,328 at December 31, 1995 and 1994, respectively.
Concentration of Credit Risk
Financial instruments which potentially subject the Partnership to a
concentration of credit risk principally consist of cash and cash equivalents
in excess of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial institutions.
Use of Estimates
The preparation of 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.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations, as defined,
will be distributed quarterly, 90% to the limited partners and 10% to the
General Partners.
Net loss and all depreciation will be allocated 99% to the limited partners and
1% to the General Partners. Net income will generally be allocated in
accordance with the distribution of net cash from operations.
Net proceeds from sales or refinancing will be distributed 99% to the limited
partners and 1% to the General Partners until each limited partner has received
an amount equal to his adjusted capital value (as defined) and an annual,
cumulative 7% return thereon. The balance, if any, will be distributed 85% to
the limited partners and 15% to the General Partners. Gain from sales will be
allocated to each partner having a negative capital account balance, pro-rata,
to the extent of such negative balance. Thereafter, such gain will be
allocated in accordance with the distribution of net proceeds from sale or
refinancing, with the balance allocated to the limited partners.
4. Real Estate Investments
Real estate investments consist of four residential apartment complexes
acquired through investments in joint ventures as follows:
Apartment Date Purchase
Property Name Units Location Acquired Price
Creekside Oaks 120 Jacksonville, FL 11/18/83 $ 5,960,045
Ponte Vedra Beach
Village I 122 Ponte Vedra Beach, FL 2/10/84 6,804,000
Rancho Antigua 220 Scottsdale, AZ 3/8/84 10,873,757
Village at the 60 Tucson, AZ 2/27/85 3,623,741
Foothills I
To each venture, the Partnership contributed the apartment projects as its
initial capital contribution.
On July 20, 1995, the Partnership sold 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.
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 Partnership cash reserves. The
transaction resulted in a gain on sale of $232,402 which included a $69,926
write off of unamortized mortgage fees. The gain was allocated in accordance
with the Partnership Agreement.
The initial joint venture agreements of Country Place Village I, Creekside
Oaks, Ponte Vedra Beach Village I, Village at the Foothills I and Rancho
Antigua substantially provide that:
a. Net cash from operations will be distributed 100% to the
Partnership until it has received an annual, noncumulative 12%
return on its adjusted capital contribution. Any remaining
balance will be distributed 60% to the Partnership and 40% to
the co-venturer.
b. Net income of the joint venture and gain from sale will be
allocated basically in accordance with the distribution of net
cash from operations, as defined, and net proceeds from sales,
respectively. All net losses will be allocated 98% to 100% to
the Partnership depending on the joint venture agreement.
c. Net proceeds from a sale or refinancing will be distributed
100% to the Partnership until it has received an amount equal
to 120% of its adjusted capital contribution and an annual,
cumulative 12% return on its adjusted capital contribution.
Thereafter, the Partnership will receive approximately 50% to
75% of the balance depending on the joint venture agreement.
The amended joint venture agreements and limited partnership agreements of
Country Place Village I, Creekside Oaks, Ponte Vedra Beach Village I and
Village at the Foothills I substantially provide that:
a. Available cash from operations will be distributed 100% to the
Partnership until it has received an annual, non-cumulative
preferred return, as defined. Any remaining balance will be
distributed 99% to the Partnership and 1% to the corporate
General Partners.
b. Net income will be allocated first, proportionately to partners
with negative capital accounts, as defined, until such capital
accounts, as defined, have been increased to zero. Then, to
the Partnership up to the amount of any payments made on
account of its preferred return; thereafter, 99% to the
Partnership and 1% to the corporate General Partners. All
losses will be allocated first, to the partners with positive
capital accounts, as defined, until such accounts have been
reduced to zero. Then 99% to the Partnership and 1% to the
corporate General Partners.
c. Income from a sale will be allocated first, to the Partnership
until the Partnership's capital accounts, as defined, are equal
to the fair market value of the ventures' assets at the date of
the amendments. Then, any remaining balance will be allocated
99% to the Partnership and 1% to the corporate General
Partners. Net proceeds from a sale or refinancing will be
distributed first to the partners with a positive capital
account balance, as defined; thereafter, 99% to the Partnership
and 1% to the corporate General Partners.
5. Mortgages Payable
On October 28, 1993, the extended maturity date, the Partnership obtained
replacement financing on its Creekside Oaks, Ponte Vedra Beach I, Rancho
Antigua and Country Place Village I properties from The Penn Mutual Life
Insurance Company and a subsidiary, both unaffiliated parties. Total proceeds
of $14,450,000 were received and collateralized by Mortgages and Security
Agreements and Assignments of Rents and Leases Agreements encumbering the
respective properties. Each of the loans is a non-recourse loan with periodic
payments of principal and interest based on a twenty-five year amortization
schedule with the balance of the principal due at maturity. On July 20, 1995,
County Place Village I was sold and the underlying mortgage, in the amount of
$2,051,078, was assumed by the Buyer. Mortgages payable at December 31, 1995,
consist of the following first mortgage loans:
Interest Maturity
Property Principal Rate Date
Creekside Oaks $ 2,568,141 7.75% 11/01/2000
Ponte Vedra Beach Village I $ 3,876,438 7.75% 11/01/2000
Rancho Antigua $ 5,523,925 7.75% 11/01/2000
The proceeds of this financing along with Partnership cash reserves were used
to repay the outstanding amounts due Aetna Life Insurance Company on the
Partnership's four prior mortgages.
Interest Original
Property Principal Rate Maturity
Date
Creekside Oaks $ 2,921,071 10.50% 05/01/93
Ponte Vedra Beach Village I $ 3,115,809 10.50% 05/01/93
Rancho Antigua $ 7,024,911 10.27% 05/20/93
Country Place Village I $ 2,531,595 10.50% 05/01/93
Partnership cash reserves were also used to pay refinancing expenses of
$491,095 and fund escrows of $995,372. The escrowed funds are applied to the
payment of taxes, insurance and repairs and improvements.
Annual maturities of mortgage notes principal over the next five years are as
follows:
Year Amount
1996 $ 198,801
1997 214,768
1998 232,016
1999 250,650
2000 11,072,269
$ 11,968,504
Based on the borrowing rates currently available to the Partnership for
mortgage loans with similar terms and average maturities, the fair value of
long-term debt approximates carrying value.
6. Transactions With Related
Parties The following is a summary of fees earned and reimbursable expenses for
the years ended December 31, 1995, 1994, and 1993, and the unpaid portion at
December 31, 1995:
Unpaid at
December 31, Earned
1995 1995 1994 1993
Reimbursement of:
Out-of-pocket expenses $ ----- $ 2,577 $ 1,390 $ 82
Administrative salaries
and expenses 16,500 62,150 46,124 38,103
Property operating salaries ----- 336,760 345,626 340,913
Property management fees 17,449 223,677 233,152 221,231
$ 33,949 $ 625,164 $ 626,292 $ 600,329
The above amounts have been paid and/or accrued to the General Partners and
affiliates as follows:
Unpaid at
December 31, Earned
1995 1995 1994 1993
RI 2 Real Estate Services Inc. $ 16,500 $ 64,727 $ 47,514 $ 38,185
ConAm and affiliates 17,449 560,437 578,778 562,144
$ 33,949 $ 625,164 $ 626,292 $ 600,329
7. Reconciliation of Financial Statement and Tax Information
The following is a reconciliation of the net income (loss) for financial
statement purposes to net income (loss) for federal income tax purposes for the
years ended December 31, 1995, 1994 and 1993:
1995 1994 1993
Net income (loss) per financial statements $ (112,522) $ 37,325 $ (527,539)
Tax basis joint venture net
loss in excess of GAAP basis
joint venture net income (loss) (233,232) (270,609) (339,161)
Gain on sale of property for tax
purposes in excess of gain per
financial statements 1,536,333 ----- -----
Other (5,457) (1,438) (5,603)
Taxable net income (loss) $1,185,122 $(234,722) $ (872,303)
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of December
31, 1995, 1994 and 1993:
1995 1994 1993
Partners' capital per
financial statements $ 7,500,583 $ 10,028,661 $ 10,480,225
Adjustment for cumulative
difference between tax basis
loss and income (loss) per
financial statements (4,793,353) (6,090,997) (5,818,950)
Partners' capital per tax return $ 2,707,230 $ 3,937,664 $ 4,661,275
8. Distributions Paid
Cash distributions, per the consolidated statements of partners' capital are
recorded on the accrual basis, which recognizes specific record dates for
payments within each calendar year. The consolidated statements of cash flows
recognize actual cash distributions paid during the calendar year. The
following table discloses the annual differences as presented on the
consolidated financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31
1995 $244,445 $2,415,556 $2,460,001 $200,000
1994 ------- 488,889 244,444 244,445
1993 ------- ------- ------- -------
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Hutton/ConAm Realty Investors 2:
We have audited the consolidated balance sheets of Hutton/ConAm Realty
Investors 2, a California limited partnership, and Consolidated Ventures as of
December 31, 1995 and 1994, and the related consolidated statements of
operations, partners' capital (deficit) and cash flows for each of the three
years in the period ended December 31, 1995. These consolidated financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Hutton/ConAm Realty Investors 2, a California limited partnership, and
Consolidated Ventures as of December 31, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 1, 1996
Comparison of Acquisition Costs to Appraised Value and Determination of Net
Asset Value Per $280 Unit at December 31, 1995 (Unaudited)
Acquisition Cost
(Purchase Price Partnership's
Plus General Share of
Partners' December 31,
Acquisition 1995 Appraised
Property Date of Acquisition Fees) Value (1)
Creekside Oaks 11-18-83 $ 6,238,445 $ 5,450,000
Ponte Vedra Beach
Village I 02-10-84 7,123,950 7,650,000
Rancho Antigua 03-08-84 11,446,176 11,700,000
Village at the
Foothills I 02-27-85 3,756,741 2,300,000
$ 28,565,312 $ 27,100,000
Cash and cash equivalents 1,362,347
Other assets 10,183
28,472,530
Less:
Total liabilities (12,430,116)
Partnership Net Asset Value (2) $ 16,042,414
Net Asset Value Allocated:
Limited Partners $ 15,800,007
General Partners 242,407
$ 16,042,414
Net Asset Value Per Unit
(80,000 units outstanding) $ 197.50
(1) This represents the Partnership's share of the December 31, 1995
Appraised Values which were determined by an independent property
appraisal firm.
(2) The Net Asset Value assumes a hypothetical sale at December 31, 1995 of
all the Partnership's properties at a price based upon their value as a
rental property as determined by an independent property appraisal
firm, and the distribution of the proceeds of such sale, combined with
the Partnership's cash after liquidation of the Partnership's
liabilities, to the Partners.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different. A
significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. In addition,
the appraised value does not reflect the actual costs which would be incurred
in selling the properties. As a result of these factors and the illiquid
nature of an investment in Units of the Partnership, the variation between the
appraised value of the Partnership's properties and the price at which Units of
the Partnership could be sold may be significant. Fiduciaries of Limited
Partners which are subject to ERISA or other provisions of law requiring
valuations of Units should consider all relevant factors, including, but not
limited to Net Asset Value per Unit, in determining the fair market value of
the investment in the Partnership for such purposes.
HUTTON/CONAM REALTY INVESTORS 2 and Consolidated Ventures
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1995
Costs Capitalized
Subsequent
Initial Cost to Partnership To Acquisition
Land,
Buildings and Buildings and
Description Encumbrances Land Improvements Improvements
Residential Property:
Consolidated Ventures:
Creekside Oaks
Jacksonville, FL $ 2,568,141 $ 400,317 $ 5,854,636 $ 248,258
Ponte Vedra Beach
Village I
Ponte Vedra Beach, FL 3,876,438 1,015,028 6,181,290 105,430
Rancho Antigua
Scottsdale, AZ 5,523,925 3,490,498 7,975,346 100,653
Village at the Foothills I
Tucson, AZ ------- 798,823 3,005,280 11,816
$ 11,968,504 $ 5,704,666 $ 23,016,552 $ 466,157
Gross Amount at Which Carried at
Close of Period
Buildings and Accumulated
Description Land Improvements Total Depreciation
Residential Property:
Consolidated Ventures:
Creekside Oaks
Jacksonville, FL $ 403,193 $ 6,100,018 $ 6,503,211 $ 2,876,365
Ponte Vedra Beach
Village I
Ponte Vedra Beach, FL 1,045,472 6,256,276 7,301,748 2,953,265
Rancho Antigua
Scottsdale, AZ 3,497,484 8,069,013 11,566,497 3,797,147
Village at the Foothills I
Tucson, AZ 798,823 3,017,096 3,815,919 1,304,605
$ 5,744,972 $ 23,442,403 $ 29,187,375 $ 10,931,382
(1) (2)
Life on which
Depreciation
in Latest
Date of Date Income Statements
Description Construction Acquired is Computed
Residential Property:
Consolidated Ventures:
Creekside Oaks
Jacksonville, FL 1982 11/18/83 (3)
Ponte Vedra Beach
Village I
Ponte Vedra Beach, FL 1983 02/10/84 (3)
Rancho Antigua
Scottsdale, AZ 1984 03/08/84 (3)
Village at the Foothills
Tucson, AZ 1984 02/27/85 (3)
(1) Represents aggregate cost for both financial reporting and Federal income
tax purposes.
(2) The amount of accumulated depreciation for Federal income tax purposes is
$19,633,341
(3) Buildings and improvements - 25 years; personal property - 10 years.
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1995, 1994 and 1993 follows:
Real Estate Investments: 1995 1994 1993
Beginning of year $ 34,056,223 $ 33,942,156 $ 33,907,445
Additions 199,476 114,067 34,711
Dispositions (5,068,324)
End of year $ 29,187,375 $ 34,056,223 $ 33,942,156
Accumulated Depreciation:
Beginning of year $ 11,699,378 $ 10,612,843 $ 9,527,665
Depreciation expense 1,029,336 1,086,535 1,085,178
Dispositions (1,797,332) -------- --------
End of year $ 10,931,382 $ 11,699,378 $ 10,612,843
Report of Independent Accountants
Our report on the consolidated financial statements of Hutton/ConAm Realty
Investors 2, a California limited partnership, and Consolidated Ventures has
been incorporated by reference in this Form 10-K from the Annual Report to
unitholders of Hutton/ConAm Realty Investors 2 for the year ended December 31,
1995. In connection with our audits of such financial statements, we have also
audited the related financial statement schedule listed in the index of this
Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 1, 1996