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 March 31, 1996
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
Incorporation or Organization I.R.S. Employer 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 At March 31, At December 31,
1996 1995
Assets
Investments in real estate:
Land $5,744,972 $5,744,972
Buildings and improvements 23,442,403 23,442,403
29,187,375 29,187,375
Less accumulated depreciation (11,166,698) (10,931,382)
18,020,677 18,255,993
Cash and cash equivalents 720,024 710,686
Restricted cash 675,998 651,661
Other assets, net of accumulated amortization
of $151,088 in 1996 and $135,458 in 1995 290,829 312,359
Total Assets $19,707,528 $19,930,699
Liabilities and Partners' Capital
Liabilities:
Mortgages payable $11,920,234 $11,968,504
Accounts payable and accrued expenses 133,242 121,445
Due to general partners and affiliates 32,858 33,949
Security deposits 101,692 106,218
Distribution payable 200,000 200,000
Total Liabilities 12,388,026 12,430,116
Partners' Capital (Deficit):
General Partners (503,211) (485,103)
Limited Partners 7,822,713 7,985,686
Total Partners' Capital 7,319,502 7,500,583
Total Liabilities and Partners' Capital $19,707,528 $19,930,699
Consolidated Statement of Partners' Capital (Deficit)
For the three months ended March 31, 1996
Limited General
Partners Partners Total
Balance at December 31, 1995 $7,985,686 $(485,103) $7,500,583
Net income 17,027 1,892 18,919
Distributions (180,000) (20,000) (200,000)
Balance at March 31, 1996 $7,822,713 $(503,211) $7,319,502
Consolidated Statements of Operations
For the three months ended March 31, 1996 1995
Income
Rental $1,064,538 $1,198,104
Interest 10,859 14,692
Total Income 1,075,397 1,212,796
Expenses
Property operating 526,204 675,712
Depreciation and amortization 250,946 292,952
Interest 231,579 275,156
General and administrative 47,749 37,716
Total Expenses 1,056,478 1,281,536
Net Income (Loss) $ 18,919 $ (68,740)
Net Income (Loss) Allocated:
To the General Partners $ 1,892 $ (687)
To the Limited Partners 17,027 (68,053)
$ 18,919 $ (68,740)
Per limited partnership unit
(80,000 outstanding) $.21 $(.85)
Consolidated Statements of Cash Flows
For the three months ended March 31, 1996 1995
Cash Flows From Operating Activities
Net income (loss) $ 18,919 $(68,740)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 250,946 292,952
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Fundings to restricted cash (75,622) (102,417)
Release of restricted cash 51,285 10,300
Other assets 5,900 ------
Accounts payable and accrued expenses 11,797 90,888
Due to general partners and affiliates (1,091) (10,889)
Security deposits (4,526) 603
Net cash provided by operating activities 257,608 212,697
Cash Flows From Investing Activities
Additions to real estate ------ (185,354)
Cash Flows From Financing Activities
Distributions (200,000) (244,445)
Mortgage principal payments (48,270) (52,280)
Net cash used for financing activities (248,270) (296,725)
Net increase (decrease) in cash and cash equivalents 9,338 (269,382)
Cash and cash equivalents, beginning of period 710,686 1,183,787
Cash and cash equivalents, end of period $720,024 $914,405
Supplemental Disclosure of Cash Flow Information
Cash paid during the period for interest $231,579 $275,156
Notes to the Consolidated Financial Statements
The unaudited consolidated financial statements should be read in
conjunction with the Partnership's annual 1995 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 March 31,
1996 and the results of operations and cash flows for the three
months ended March 31, 1996 and 1995 and the statement of
partner's capital (deficit) for the three months ended March 31,
1996. Results of operations for the periods are not necessarily
indicative of the results to be expected for the full year.
No significant events have occurred subsequent to fiscal year
1995 and no material contingencies exist, which would require
disclosure in this interim report per Regulation S-X, Rule 10-01,
Paragraph (a)(5).
Part I, Item 2 . Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
At March 31, 1996, the Partnership had cash and cash equivalents
of $720,024, which were invested in unaffiliated money market
funds, relatively unchanged from the balance at December 31,
1995. The Partnership also maintains a restricted cash balance,
which totaled $675,998 at March 31, 1996, representing escrows
for insurance, real estate taxes, and property replacements and
repairs, required under the terms of the current mortgage loans.
Pursuant to the refinancing of the Creekside Oaks loan, the
lender required funds escrowed for various repairs including
roofing work and exterior painting. Following an inspection of
the completed work by the lender, the balance of the repair
escrow, which totaled $357,719 at March 31, 1996, will be
returned to the Partnership. The Partnership expects sufficient
cash to be generated from operations to meet its current
operating expenses and debt service requirements.
During 1996, the General Partners are implementing an extensive
improvement program to upgrade the properties. This program,
which includes roof repairs at three of the four properties and
improvements to unit interiors at all four properties, is
intended to protect the properties' positions within their
respective markets, which are growing increasingly competitive
with the addition of new apartment properties and position the
properties for increases in revenue and market value. These
improvements will be funded from the Partnership's cash reserves.
The General Partners declared a cash distribution of $2.25 per
Unit for the quarter ended March 31, 1996 which will be paid to
investors on or about May 15, 1996. 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 property improvements required.
Results of Operations
Partnership operations for the three months ended March 31, 1996,
resulted in net income of $18,919 compared with a net loss of
$68,740 in the first quarter of 1995. The change from net loss
to net income is due primarily to reductions in property
operating expense, depreciation and amortization, and interest
expense resulting from the sale of Country Place Village I in
July 1995. Partially offsetting the reductions in expenses was a
decrease in rental income. Net cash provided by operating
activities was $257,608 for the three months ended March 31,
1996, an increase from $212,697 for the same period in 1995.
Rental income for the three months ended March 31, 1996 was
$1,064,538 compared with $1,198,104 in the first quarter of 1995.
The decrease reflects the sale of Country Place Village I,
partially offset by increases in rental income at the four
remaining properties primarily as a result of increased rental
rates and, in the case of Creekside Oaks, higher occupancy.
Property operating expenses and depreciation and amortization
were lower in the first quarter of 1996 compared to the same
period in 1995 due to the July 1995 sale of Country Place Village
I. Interest expense also declined due to the assumption of the
Country Place Village I mortgage by the buyer at the time the
sale closed. During the first three months of 1996 and 1995,
average occupancy levels at each of the properties were as
follows:
Property 1996 1995
Creekside Oaks 94% 90%
Ponte Vedra Beach Village I 96% 97%
Rancho Antigua 96% 95%
Village at the Foothills I 94% 95%
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - On 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.
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: May 13, 1996 BY: /s/ Paul L. Abbott
Director, President, Chief
Executive Officer and
Chief Financial Officer