Hutton/ConAm Realty Investors 2 And Consolidated Ventures 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, 1997 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 Identification No. Incorporation or Organization 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, 1997 1996 Assets Investments in real estate: Land $ 5,744,972 $ 5,744,972 Buildings and improvements 23,632,402 23,525,644 ------------------------------- 29,377,374 29,270,616 Less accumulated depreciation (12,111,509) (11,874,334) ------------------------------- 17,265,865 17,396,282 Cash and cash equivalents 943,844 962,290 Restricted cash 400,439 317,268 Other assets, net of accumulated amortization of $213,607 in 1997 and $197,977 in 1996 228,310 243,940 ------------------------------- Total Assets $18,838,458 $18,919,780 =============================== Liabilities and Partners' Capital (Deficit) Liabilities: Mortgages payable $11,717,556 $11,769,703 Accounts payable and accrued expenses 255,033 127,810 Due to general partners and affiliates 17,953 17,931 Security deposits 103,040 106,353 Distribution payable _ 200,000 ------------------------------- Total Liabilities 12,093,582 12,221,797 Partners' Capital (Deficit): General Partners (560,440) (565,129) Limited Partners (80,000 units outstanding) 7,305,316 7,263,112 ------------------------------- Total Partners' Capital 6,744,876 6,697,983 Total Liabilities and Partners' Capital $18,838,458 $18,919,780 =============================== Consolidated Statement of Partners' Capital (Deficit) For the three months ended March 31, 1997 Limited General Partners Partners Total Balance at December 31, 1996 $ 7,263,112 $ (565,129) $ 6,697,983 Net income 42,204 4,689 46,893 -------------------------------------- Balance at March 31, 1997 $ 7,305,316 $ (560,440) $ 6,744,876 ====================================== Consolidated Statements of Operations For the three months ended March 31, 1997 1996 Income Rental $ 1,072,556 $ 1,064,538 Interest and other 12,505 10,859 -------------------------- Total Income 1,085,061 1,075,397 Expenses Property operating 509,063 526,204 Depreciation and amortization 252,805 250,946 Interest 227,703 231,579 General and administrative 48,597 47,749 -------------------------- Total Expenses 1,038,168 1,056,478 Net Income $ 46,893 $ 18,919 ========================== Net Income Allocated: To the General Partners $ 4,689 $ 1,892 To the Limited Partners 42,204 17,027 -------------------------- $ 46,893 $ 18,919 ========================== Per limited partnership unit (80,000 outstanding) $.53 $.21 Consolidated Statements of Cash Flows For the three months ended March 31, 1997 1996 Cash Flows From Operating Activities: Net income $ 46,893 $ 18,919 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 252,805 250,946 Increase (decrease) in cash arising from changes in operating assets and liabilities: Fundings to restricted cash (83,171) (75,622) Release of restricted cash _ 51,285 Other assets _ 5,900 Accounts payable and accrued expenses 127,223 9,197 Due to general partners and affiliates 22 1,509 Security deposits (3,313) (4,526) ------------------------- Net cash provided by operating activities 340,459 257,608 Cash Flows From Investing Activities: Additions to real estate (106,758) _ ------------------------- Net cash used for investing activities (106,758) _ Cash Flows From Financing Activities: Distributions (200,000) (200,000) Mortgage principal payments (52,147) (48,270) ------------------------- Net cash used for financing activities (252,147) (248,270) Net increase (decrease) in cash and cash equivalents (18,446) 9,338 Cash and cash equivalents, beginning of period 962,290 710,686 ------------------------- Cash and cash equivalents, end of period $ 943,844 $ 720,024 ========================= Supplemental Disclosure of Cash Flow Information: Cash paid during the period for interest $ 227,703 $ 231,579 Notes to the Consolidated Financial Statements The unaudited consolidated financial statements should be read in conjunction with the Partnership's annual 1996 audited consolidated financial statements within Form 10-K. The unaudited consolidated financial statements include all normal and reoccurring adjustments which are, in the opinion of management, necessary to present a fair statement of financial position as of March 31, 1997 and the results of operations and cash flows for the three months ended March 31, 1997 and 1996 and the statement of partner's capital (deficit) for the three months ended March 31, 1997. Results of operations for the periods are not necessarily indicative of the results to be expected for the full year. Certain prior year amounts have been reclassified to conform to the current year's presentation. No significant events have occurred subsequent to fiscal year 1996, 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, 1997, the Partnership had cash and cash equivalents of $943,844, which were invested in unaffiliated money market funds, relatively unchanged from the balance at December 31, 1996. The Partnership also maintains a restricted cash balance, which totaled $400,439 at March 31, 1997, representing escrows for insurance and real estate taxes required under the terms of the current mortgage loans. The Partnership expects sufficient cash to be generated from operations to meet its current operating expenses and debt service requirements. Repairs are currently underway at Ponte Vedra Beach Village I to address existing roof problems that were aggravated by severe tropical rain storms late in 1996 The repairs are expected to cost approximately $400,000 and are scheduled to be completed by the end of the second quarter. In order to pay for the repairs, the General Partners are temporarily suspending quarterly cash distributions beginning with the first quarter distribution which would have been paid on or about May 15, 1997. It is anticipated that cash distributions will remain suspended until the end of the year at which point the General Partners will assess the Partnership's ability to pay cash distributions based on the Partnership's operating results and future cash needs. Accounts payable and accrued expenses totaled $255,033 at March 31, 1997 compared with $127,810 at December 31, 1996. The increase is primarily due to differences in the timing of payments and accruals of real estate taxes between the two periods. Results of Operations Partnership operations for the three months ended March 31, 1997 resulted in net income of $46,893 compared with net income of $18,919 in the first quarter of 1996. The increase is due primarily to a slight increase in rental income and reduction in property operating expenses. Net cash provided by operating activities was $340,459 for the three months ended March 31, 1997, an increase from $257,608 for the same period in 1996. The increase is due primarily to differences in the timing of payments and accruals of real estate taxes between the two periods. Rental income for the three months ended March 31, 1997 was $1,072,556 compared with $1,064,538 in the first quarter of 1996. The slight increase reflects increases at Creekside Oaks and Rancho Antigua due to higher average occupancy levels. These were largely offset by decreases in average occupancy and rental income at Ponte Vedra Beach Village I and Village at the Foothills I. Property operating expenses totaled $509,063 for the three months ended March 31, 1997 compared with $526,204 for the corresponding period in 1996. The decrease is primarily due to a reduction in repairs and maintenance expense at Creekside Oaks and Rancho Antigua. General and administrative expense totaled $48,597 for the three months ended March 31, 1997 compared with $47,749 for the corresponding period in 1996. During the 1997 period, certain expenses incurred by an unaffiliated third party service provider in servicing the Partnership, which were voluntarily absorbed by affiliates of RI 2 Real Estate Services, Inc. in prior periods, were reimbursed to RI 2 Real Estate Services, Inc. and its affiliates. During the first three months of 1997 and 1996, average occupancy levels at each of the properties were as follows: Property 1997 1996 Creekside Oaks 95% 94% Ponte Vedra Beach Village I92% 95% Rancho Antigua 96% 94% Village at the Foothills I 93% 94% 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 - No reports on Form 8-K were filed during the quarter ended March 31, 1997. 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 20, 1997 BY: /s/ Paul L. Abbott Director, President, Chief Executive Officer and Chief Financial Officer