Exhibit 13
ConAm Realty Investors 2 L.P.
1997 ANNUAL REPORT
ConAm Realty Investors 2 L.P.
ConAm Realty Investors 2 L.P. is a California limited
partnership formed in 1982 to acquire, operate and hold
for investment multifamily residential properties. At
December 31, 1997, 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, 1997 and 1996.
Average Occupancy
Property Location 1997 1996
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Creekside Oaks Jacksonville, Florida 95% 94%
Ponte Vedra Beach Village I Ponte Vedra Beach, Florida 93% 95%
Rancho Antigua Scottsdale, Arizona 94% 94%
Village at the Foothills I Tucson, Arizona 92% 94%
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Contents
1 Message to Investors
2 Performance Summary
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated
Financial Statements
12 Independent Auditors' Report and
Report of Former Independent Accountants
14 Net Asset Valuation
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 800-223-3464
Message to Investors
Presented for your review is the 1997 Annual Report for ConAm Realty Investors
2 L.P. (the "Partnership"). In this report we discuss general market
conditions affecting the Partnership's four remaining properties (the
"Properties"). We have also included a performance summary which addresses
operations at each of the properties and financial highlights for the year.
This annual report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in or contemplated by the forward-looking statements as a result of a
number of factors, including those identified herein.
Cash Distributions
- ------------------
As previously reported, the Partnership suspended quarterly cash distributions
beginning in the first quarter of 1997 in order to fund roof replacements at
Ponte Vedra Beach Village I. The replacements were completed in September 1997
at a cost of approximately $400,000. Since inception, the Partnership has paid
distributions totaling $337.19 per original $500 Unit, including $220.00 in
return of capital payments. In future quarters, the General Partner will
assess the Partnership's ability to reinstate cash distributions based on the
Partnership's operating results and future cash needs.
Operations Overview
- -------------------
In 1997, operations at the Partnership's properties continued to be impacted to
varying degrees by strong competition for tenants in the markets where the
properties are located. Although population and job growth remained strong in
Arizona and Florida, the addition of newly constructed complexes, especially in
the Jacksonville market, limited rental rate increases and caused overall
vacancy rates to rise. In Tucson, where Village at the Foothills I is located,
many high-end renters opted to purchase homes due to low interest rates. In
Scottsdale, where Rancho Antigua is located, the market again experienced slow
growth during the year as a result of increased construction. Despite these
trends, strong economic growth in all three areas helped strengthen
multi-family housing, and the Properties sustained a collective average
occupancy of 93.5% in 1997 compared with 94.3% in 1996. In addition, the
appraised values of the Properties increased by 4.1% in total when compared to
the prior year.
The General Partner is continuing to evaluate the sale potential of the
remaining properties and other options with respect to the Partnership's
investments. One of these options includes refinancing certain loans secured
by the Properties in order to return capital to the limited partners on a
tax-free basis and lock in favorable fixed interest rates. This would also
potentially enhance the future marketability of the Properties, while enabling
the Partnership to take advantage of possible future property appreciation. The
Partnership's ability to sell the Properties is dependent upon a variety of
factors, many of which are not within the Partnership's control. There can be
no assurance that any specific property or all the properties can be sold, that
particular prices will be achieved, or that the Properties can be sold within a
specific time frame. We will keep you apprised of our sales efforts in future
correspondence.
Summary
- -------
We will continue to monitor market conditions at the Properties, and evaluate
the potential refinancing of the Partnership's mortgage obligations. In the
interim, we intend to maximize the performance of the Properties and further
improve their appearance and condition. We will keep you apprised of
significant developments affecting your investment in future reports.
Very truly yours,
/s/ Daniel J. Epstein
President
Continental American Development Inc.
and ConAm Development Corporation,
General Partners of ConAm Property
Services II, Ltd.
March 25, 1998
Performance Summary
Creekside Oaks - Jacksonville, Florida
- --------------------------------------
Creekside Oaks is a 120-unit apartment community situated in the
Baymeadows-Deerwood neighborhood of southeast Jacksonville. The property
reported average occupancy of 95% in 1997, up slightly from 94% in 1996, and a
3% increase in rental income. In 1997, the Jacksonville market experienced a
significant increase in new construction and the issuance of new construction
permits, partially due to its 1996 ranking as one of the fastest growing labor
markets in the country. This new construction is expected to soften the market
by outpacing population and job growth and will continue to affect the region
for the next several months, as new units become available. While vacancy
rates remained low in 1997, the use of rental concessions in the marketplace
has recently increased to attract and retain tenants in anticipation of the new
competition.
Ponte Vedra Beach Village I - Ponte Vedra Beach, Florida
- --------------------------------------------------------
Ponte Vedra Beach Village I is a 122-unit luxury apartment complex located in
an oceanside residential area to the southeast of Jacksonville. The property
reported an average occupancy level of 93% in 1997, down slightly from 95% in
1996. Property improvements for the year included extensive roof replacements,
carpet replacement and other improvements to increase the appearance of the
property. Favorable market conditions in the Jacksonville area have led to an
increase in new multifamily construction, with new construction permits issued
for approximately 3,831 new apartment units throughout the year. Although
population and job growth in the Jacksonville area remains high, continuing
construction at this pace could lead to softness in the market in the future.
Rancho Antigua - Scottsdale, Arizona
- ------------------------------------
Rancho Antigua is a 220-unit apartment community located eight miles northeast
of Phoenix in southwest Scottsdale. The property reported average occupancy of
94% in 1997, unchanged from 94% in 1996, and an increase in rental income due
to an increase in rental rates. The Scottsdale apartment market experienced
continued strong competition during 1997, reflecting high levels of
construction and notable competition from condominiums and single family
houses, as affordable prices and low mortgage rates enticed renters to buy.
Although vacancy rates in Phoenix and the Scottsdale submarket remained low in
1997, occupancy levels are expected to decline due to the significant new
construction. The Scottsdale market is experiencing strong job and population
growth with over 70,000 new jobs created in the first six months of 1997 and
over 100,000 new residents added to the market during the year. This economic
growth should favorably impact the market, and ease competition until the pace
of new construction subsides.
Village at the Foothills I - Tucson, Arizona
- --------------------------------------------
Village at the Foothills I is a 60 unit apartment community located in the
northwest area of Tucson. The property maintained an average occupancy rate of
92% during 1997, compared to 94% in 1996. Apartment vacancy rates remain high
in this market, but significant population growth in Tucson over the last few
years is slowly reducing the number of available units. Low interest rates and
affordable home prices have also increased competition by luring many renters
to purchase homes. This competition has led to the reemergence of rental
incentives and other concessions in the marketplace to attract tenants. Strong
competition for tenants is likely to continue as the addition of new properties
puts further pressure on occupancies.
Financial Highlights
Selected Financial Data
For the periods ended December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------
Dollars in thousands, except for
per unit data
Total Income $4,384 $4,328 $4,516 $4,718 $4,479
Gain on Sale of Property _ _ 232 _ _
Net Income (Loss) (203) (3) (113) 37 (528)
Net Cash Provided by (Used for)
Operating Activities 979 1,334 864 1,150 (180)
Long-term Obligations 11,555 11,770 11,969 14,219 14,418
Total Assets at Year End 18,370 18,920 19,931 24,772 25,237
Net Income (Loss) per
Limited Partnership Unit* (2.51) (.03) (4.27) .42 (6.53)
Distributions per
Limited Partnership Unit* _ 9.00 9.00 5.50 _
Special Distributions per
Limited Partnership Unit* _ _ 20.00 _ _
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* 80,000 Units outstanding
Cash Distributions
Per Limited Partnership Unit
1997 1996
- -------------------------------------------------------------------------------
First Quarter _ 2.25
Second Quarter _ 2.25
Third Quarter _ 2.25
Fourth Quarter _ 2.25
------ ------
Total $ _ $ 9.00
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Quarterly cash distributions were suspended beginning in the first quarter of
1997 in order to fund roof replacements at Ponte Vedra Beach Village I.
Consolidated Balance Sheets At December 31, At December 31,
1997 1996
- -------------------------------------------------------------------------------
Assets
Investments in real estate:
Land $5,744,972 $5,744,972
Buildings and improvements 23,681,664 23,525,644
------------------------------
29,426,636 29,270,616
Less accumulated depreciation (12,689,727) (11,874,334)
------------------------------
16,736,909 17,396,282
Cash and cash equivalents 1,109,506 962,290
Restricted cash 342,282 317,268
Other assets, net of accumulated amortization
of $260,496 in 1997 and $197,977 in 1996 181,421 243,940
- -------------------------------------------------------------------------------
Total Assets $18,370,118 $18,919,780
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Liabilities and Partners' Capital (Deficit)
Liabilities:
Mortgages payable 11,554,935 $11,769,703
Accounts payable and accrued expenses 197,443 127,810
Due to affiliates 18,504 17,931
Security deposits 103,908 106,353
Distribution payable _ 200,000
-------------------------------
Total Liabilities 11,874,790 12,221,797
-------------------------------
Partners' Capital (Deficit):
General Partners (567,156) (565,129)
Limited Partners (80,000 Units outstanding) 7,062,484 7,263,112
-------------------------------
Total Partners' Capital 6,495,328 6,697,983
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Total Liabilities and Partners' Capital $18,370,118 $18,919,780
- -------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Operations
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Income
Rental $4,327,499 $4,264,370 $4,448,549
Interest and other 56,229 63,467 67,819
----------------------------------
Total Income 4,383,728 4,327,837 4,516,368
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Expenses
Property operating 2,329,300 2,222,474 2,515,717
Depreciation and amortization 1,017,912 1,005,471 1,099,215
Interest 904,630 920,596 1,023,479
General and administrative 213,441 181,896 222,881
Write-off of assets 121,100 _ _
----------------------------------
Total Expenses 4,586,383 4,330,437 4,861,292
- -------------------------------------------------------------------------------
Loss from operations (202,655) (2,600) (344,924)
Gain on sale of property _ _ 232,402
- -------------------------------------------------------------------------------
Net Loss $ (202,655) $ (2,600) $ (112,522)
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Net Income (Loss) Allocated:
To the General Partners $ (2,027) $ (26) $ 228,953
To the Limited Partners (200,628) (2,574) (341,475)
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$ (202,655) $ (2,600) $ (112,522)
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Per limited partnership Unit
(80,000 Units outstanding)
Loss from operations $(2.51) $(.03) $(4.27)
- -------------------------------------------------------------------------------
Net Loss $(2.51) $(.03) $(4.27)
- -------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Partners' Capital (Deficit)
For the years ended December 31, 1997, 1996 and 1995
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------
Balance at December 31, 1994 $(618,500) $10,647,161 $10,028,661
Net Loss 228,953 (341,475) (112,522)
Distributions ($29.00 per Unit) (95,556) (2,320,000) (2,415,556)
- -------------------------------------------------------------------------------
Balance at December 31, 1995 (485,103) 7,985,686 7,500,583
Net Loss (26) (2,574) (2,600)
Distributions ($9.00 per Unit) (80,000) (720,000) (800,000)
- -------------------------------------------------------------------------------
Balance at December 31, 1996 (565,129) 7,263,112 6,697,983
Net Loss (2,027) (200,628) (202,655)
Balance at December 31, 1997 $(567,156) $ 7,062,484 $ 6,495,328
- -------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net loss $ (202,655) $ (2,600)$ (112,522)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,017,912 1,005,471 1,099,215
Write-off of assets 121,100 _ _
Gain on sale of property _ _ (232,402)
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Fundings to restricted cash (325,093) (327,279) (361,130)
Release of restricted cash 300,079 661,672 488,797
Other assets _ 5,900 _
Accounts payable and accrued expenses 69,633 (10,135) 10,996
Due to affiliates 573 482 (2,462)
Security deposits (2,445) 135 (26,992)
--------------------------------
Net cash provided by operating activities 979,104 1,333,646 863,500
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Net proceeds from sale of property _ _ 1,522,242
Additions to real estate (417,120) (83,241) (199,476)
--------------------------------
Net cash provided by (used for)
investing activities (417,120) (83,241) 1,322,766
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Distributions (200,000) (800,000)(2,460,001)
Mortgage principal payments (214,768) (198,801) (199,366)
Net cash used for financing activities (414,768) (998,801)(2,659,367)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 147,216 251,604 (473,101)
Cash and cash equivalents, beginning of year 962,290 710,686 1,183,787
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of year $1,109,506 $ 962,290 $ 710,686
- -------------------------------------------------------------------------------
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period for interest $ 940,630 $ 920,596 $1,023,479
- -------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Investing Activities:
Write-off of buildings & improvements $ (261,100) $ _ $ _
Write-off of accumulated depreciation 140,000 _ _
- -------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Financing Activities:
In connection with the sale of Country Place Village I in 1995, the $ 2,051,078
mortgage obligation on the property was assumed by the buyer, thereby releasing
the Partnership from its mortgage obligation.
See accompanying notes to the consolidated financial statements.
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Organization
ConAm Realty Investors 2 L.P. (formerly 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 original
co-General Partners of the Partnership were RI 2 Real Estate Services Inc.
("RI-2"), an affiliate of Lehman Brothers Inc., and ConAm Property Services II,
Ltd. ("CPS II"), an affiliate of Continental American Properties, Ltd. (the
"General Partners"). On January 27, 1998, CPS II acquired RI-2's co-general
partner interest in the Partnership effective July 1, 1997, pursuant to a
purchase agreement between CPS II and RI-2 dated August 29, 1997. As a result,
CPS II now serves as the sole general partner of the Partnership. The
Partnership will continue until December 31, 2010 unless sooner terminated
pursuant to the terms of the Partnership Agreement.
2. Significant Accounting Policies and Practices
Financial Statements The consolidated financial statements are prepared on the
accrual basis of accounting and include the accounts of the Partnership and its
affiliated ventures when the Partnership has a controlling interest in the
ventures. The effect of transactions between the Partnership and its ventures
have been eliminated in consolidation.
Investments in Real Estate Investments in real estate are recorded at cost
less accumulated depreciation and include the initial purchase price of the
property, legal fees, acquisition and closing costs.
Revenue is recognized when earned and expenses (including depreciation) are
recognized when incurred in accordance with generally accepted accounting
principles. 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 (25 years). Maintenance and repairs
are charged to operations as incurred. Costs incurred for 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 net income (loss) for the period.
Impairment of Long-Lived Assets 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"), requires the Partnership to assess its
real estate investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of the real estate may not be
recoverable. Recoverability of real estate to be held and used is measured by
a comparison of the carrying amount of the real estate to future net cash flows
(undiscounted and without interest) expected to be generated by the real
estate. If the real estate is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the real
estate exceeds the fair value of the real estate.
Other Assets Included in other assets are costs incurred in connection with
obtaining financing for the Partnership's properties. Such costs are amortized
over the initial term of the mortgages payable on a method which approximates
the effective-interest method.
Income Taxes No provision for income taxes has been made in the financial
statements as the liability for such taxes is that of the partners rather than
the Partnership.
Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid
short-term investments with original maturities of three months or less.
Concentration of Credit Risk Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents and restricted cash in excess of the financial
institution's federally insured limits. The Partnership invests its cash and
cash equivalents and restricted cash with high credit quality federally insured
financial institutions.
Restricted Cash Restricted cash consists of escrows for real estate taxes and
insurance as required by the first mortgage lender.
Use of Estimates Management of the Partnership has made a number of estimates
and assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations, as defined,
is to be distributed quarterly, 90% to the limited partners and 10% to the
General Partners.
Net loss is to be allocated 99% to the limited partners and 1% to the General
Partners. Net income is to be generally allocated in accordance with the
distribution of net cash from operations.
Net proceeds from sales or refinancing are to 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,
non-compounded cumulative 7% return thereon. The balance, if any, is to be
distributed 85% to the limited partners and 15% to the General Partners. Gain
from sales is to be allocated to each partner having a negative capital account
balance, pro-rata, to the extent of such negative balance. Thereafter, such
gain is to be allocated in accordance with the distribution of net proceeds
from sale or refinancing, with the balance allocated to the limited partners.
4. Investments in Real Estate
The Partnership owns four residential apartment complexes that were acquired
either directly or through investments in joint ventures as follows:
Apartment Date Purchase
Property Name Units Location Acquired Price
- ------------------------------------------------------------------------------
Creekside Oaks 120 Jacksonville, FL 11/18/83 $6,254,953
Ponte Vedra Beach
Village I 122 Ponte Vedra Beach, FL 2/10/84 7,196,318
Rancho Antigua 220 Scottsdale, AZ 3/8/84 11,465,844
Village at the
Foothills I 60 Tucson, AZ 2/27/85 3,804,103
- ------------------------------------------------------------------------------
On July 20, 1995, the Partnership sold Country Place Village I to an
institutional buyer (the "Buyer"), which was 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. The gain was allocated in accordance with the Partnership Agreement.
The joint venture agreement of Rancho Antigua substantially provides that:
a. Net cash from operations is to be distributed 100% to the
Partnership until it has received an annual, noncumulative
12% return on its adjusted capital contribution. Any
remaining balance is to be distributed 60% to the Partnership
and 40% to the co-venturer.
b. Net income of the joint venture and gain from sale is to be
allocated basically in accordance with the distribution of
net cash from operations, as defined, and net proceeds from
sales, respectively. All net losses are to be allocated 98%
to 100% to the Partnership depending on the joint venture
agreement.
c. Net proceeds from a sale or refinancing is to 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 is to receive approximately 50%
to 75% of the balance depending on the joint venture
agreement.
The 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 is to be distributed 100% to
the Partnership until it has received an annual, non-
cumulative preferred return, as defined. Any remaining
balance is to be distributed 99% to the Partnership and 1% to
the General Partners.
b. Net income is to 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 General Partners. All
losses are to 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 General Partners.
c. Income from a sale is to 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 General Partners. Net proceeds from a sale or
refinancing are to be distributed first to the partners with
a positive capital account balance, as defined; thereafter,
99% to the Partnership and 1% to the General Partners.
5. Mortgages Payable
On October 28, 1993, the Partnership obtained replacement financing on its
Creekside Oaks, Ponte Vedra Beach I, Rancho Antigua and Country Place Village I
properties totaling $14,450,000. The loans are secured by the respective
properties and an assignment of rents and leases and bear interest at an annual
rate of 7.75%. Each of the loans is a non-recourse loan with monthly payments
of principal and interest of $93,283 based on a twenty-five year amortization
schedule and a seven year term with the balance of the principal due on
November 1, 2000. 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, 1997, consist of the following first mortgage
loans:
Property Principal
---------------------------------------------------
Creekside Oaks $ 2,479,399
Ponte Vedra Beach Village I 3,742,489
Rancho Antigua 5,333,047
---------------------------------------------------
Annual maturities of mortgage principal at December 31, 1997 are as follows:
Year Amount
---------------------------------
1998 $232,016
1999 250,650
2000 11,072,269
---------------------------------
Total $11,554,935
---------------------------------
6. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires that the fair values be disclosed for
the Partnership's financial instruments. The carrying amount of cash and cash
equivalents, restricted cash, distribution payable, accounts payable and
accrued expenses, due to affiliates and security deposits are reasonable
estimates of their fair values due to the short-term nature of those
instruments.
The carrying amount of the mortgages payable is a reasonable estimate of fair
value based on management's belief that the interest rates and terms of the
debt are comparable to those commercially available to the Partnership in the
marketplace for similar instruments.
7. Transactions With Related Parties
The following is a summary of fees earned and reimbursable expenses to the
General Partners and their affiliate for the years ended December 31, 1997,
1996, and 1995, and the unpaid portion at December 31, 1997:
Earned and
Unpaid at
December 31, Earned
1997 1997 1996 1995
- ----------------------------------------------------------------------------
RI 2 Real Estate Services Inc.:
Out-of-pocket expenses $ _ $ 402 $ 807 $2,577
ConAm and affiliates:
Property operating salaries _ 321,517 323,312 336,760
Property management fees 18,504 216,432 213,281 223,677
Administrative expenses _ 18,425 _ _
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Total $18,504 $556,776 $537,400 $563,014
- ----------------------------------------------------------------------------
8. Reconciliation of Financial Statement and Tax Information
The following is a reconciliation of the net loss for financial statement
purposes to net income (loss) for federal income tax purposes for the years
ended December 31, 1997, 1996 and 1995:
1997 1996 1995
- -------------------------------------------------------------------------------
Net loss per financial statements $(202,655) $ (2,600) $ (112,522)
Tax basis joint venture net
loss in excess of GAAP basis
joint venture loss (unaudited) (201,705) (193,019) (233,232)
Gain on sale of property for tax
purposes in excess of gain per
financial statements (unaudited) _ _ 1,536,333
Loss on write-off of assets per
financial statements not
recognized for tax purposes (unaudited) 121,100 _ _
Other (unaudited) 11,000 1,397 (5,457)
- -------------------------------------------------------------------------------
Taxable net income (loss)(unaudited) $(272,260) $(194,222) $1,185,122
- -------------------------------------------------------------------------------
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of December
31, 1997, 1996 and 1995:
1997 1996 1995
- -------------------------------------------------------------------------------
Partners' capital per financial statements $6,495,328 $6,697,983 $7,500,583
Adjustment for cumulative difference
between tax basis loss and loss
per financial statements (unaudited) (5,054,580) (4,984,975) (4,793,353)
Partners' capital per income
tax return (unaudited) $1,440,748 $1,713,008 $2,707,230
- -------------------------------------------------------------------------------
At December 31, 1997, the tax basis of the Partnership's assets was $13,281,545
and the tax basis of the Partnership's liabilities was $11,840,797.
9. Distributions Paid
Cash distributions, per the consolidated statements of partners' capital
(deficit) 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 amounts as presented on the
consolidated financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31,
- ------------------------------------------------------------------------------
1997 $ 200,000 $ _ $ 200,000 $ _
1996 200,000 800,000 800,000 200,000
1995 244,445 2,415,556 2,460,001 200,000
- ------------------------------------------------------------------------------
Independent Auditors' Report
The General Partner
ConAm Realty Investors 2 L.P.:
We have audited the accompanying consolidated balance sheet of ConAm Realty
Investors 2 L.P. (a California limited partnership) (formerly Hutton/ConAm
Realty Investors 2) and consolidated ventures (the "Partnership"), as of
December 31, 1997, and the related consolidated statements of operations,
partners' capital (deficit), and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ConAm
Realty Investors 2 L.P. and consolidated ventures as of December 31, 1997, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
March 3, 1998
Report of Former Independent Accountants
To the Partners of
ConAm Realty Investors 2 L.P.:
We have audited the consolidated balance sheet of ConAm Realty Investors 2 L.P.
(formerly Hutton/ConAm Realty Investors 2), a California limited partnership,
and Consolidated Ventures as of December 31, 1996 and the related consolidated
statements of operations, partners' capital (deficit) and cash flows for each
of the two years in the period ended December 31, 1996. 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 ConAm
Realty Investors 2 L.P., a California limited partnership, and Consolidated
Ventures as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and
of Net Asset Value Per Unit at December 31, 1997 (Unaudited)
Acquisition Cost
(Purchase Price
Plus General
Partners' December 31,
Date of Acquisition 1997 Appraised
Property Acquisition Fees) Value (1)
- -------------------------------------------------------------------------------
Creekside Oaks 11-18-83 $ 6,238,445 $5,500,000
Ponte Vedra Beach Village I 02-10-84 7,123,950 8,000,000
Rancho Antigua 03-08-84 11,446,176 12,600,000
Village at the Foothills I 02-27-85 3,756,741 2,400,000
----------- -----------
$28,565,312 $28,500,000
Cash and cash equivalents 1,451,788
Other assets 4,283
-----------
$29,956,071
Less:
Total liabilities 11,874,790
-----------
Partnership Net Asset Value (2) $18,081,281
-----------
Net Asset Value Allocated:
Limited Partners $17,818,248
General Partner 263,033
-----------
$18,081,281
-----------
Net Asset Value Per Unit
(80,000 Units outstanding) $222.73
- -------------------------------------------------------------------------------
(1) This represents the December 31, 1997 Appraised Values which were
determined by an independent property appraisal firm.
(2) The Partnership Net Asset Value assumes a hypothetical sale at
December 31, 1997 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 assets and 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.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1997
Residential Property:
Ponte Vedra Village
Creekside Beach Rancho at the
Oaks Village 1 Antigua Foothills Total
- -------------------------------------------------------------------------------
Location Jacksonville, Ponte Vedra Scottsdale, Tucson, na
FL Beach, FL AZ AZ
Construction date 1982 1983 1984 1984 na
Acquisition date 11-18-83 02-10-84 03-08-84 02-27-85 na
Life on which
depreciation in
latest income
statements is
computed (3) (3) (3) (3) na
Encumbrances $2,479,399 $3,742,489 $5,333,047 $ _ $11,554,935
Initial cost to
Partnership:
Land 400,317 1,015,028 3,490,498 798,823 5,704,666
Buildings and
improvements 5,854,636 6,181,290 7,975,346 3,005,280 23,016,552
Costs capitalized
subsequent to
acquisition:
Land, buildings
and improvements 281,499 554,569 118,634 11,816 966,518
Write-off of buildings
and improvements _ (261,100) _ _ (261,100)
Gross amount at which
carried at close
of period: (1)
Land $403,193 $1,045,472 $3,497,484 $798,823 $5,744,972
Buildings and
improvements 6,133,259 6,444,315 8,086,994 3,017,096 23,681,664
- -------------------------------------------------------------------------------
$6,536,452 $7,489,787 $11,584,478 $3,815,919 $29,426,636
- -------------------------------------------------------------------------------
Accumulated
depreciation (2) (3,366,254) (3,327,647) (4,449,485)(1,546,341)(12,689,727)
- -------------------------------------------------------------------------------
(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
$21,910,933.
(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, 1997, 1996, and 1995 follows:
1997 1996 1995
- -------------------------------------------------------------------------------
Investments in real estate:
Beginning of period $29,270,616 $29,187,375 $34,056,223
Additions 417,120 83,241 199,476
Dispositions and disposals (261,100) _ (5,068,324)
- -------------------------------------------------------------------------------
End of period $29,426,636 $29,270,616 $29,187,375
- -------------------------------------------------------------------------------
Accumulated depreciation:
Beginning of period $11,874,334 $10,931,382 $11,699,378
Depreciation expense 955,393 942,952 1,029,336
Dispositions and disposals (140,000) _ (1,797,332)
- -------------------------------------------------------------------------------
End of period $12,689,727 $11,874,334 $10,931,382
- -------------------------------------------------------------------------------
See accompanying independent auditors' report.
Independent Auditors' Report
The General Partner
ConAm Realty Investors 2 L.P.:
Under date of March 3, 1998, we reported on the consolidated balance sheet
of ConAm Realty Investors 2 L.P. (a California limited partnership) (formerly
Hutton/ConAm Realty Investors 2) and consolidated ventures (the
"Partnership") as of December 31, 1997, and the related consolidated
statements of operations, partners' capital (deficit), and cash flows for
the year then ended, as contained in the 1997 annual report to Unitholders.
These consolidated financial statements and our report thereon are
incorporated by reference in the 1997 annual report on Form 10-K. In
connection with our audit of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial
statement schedule. This consolidated financial statement schedule is the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on this consolidated financial statement schedule based on
our audit.
In our opinion, the consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
San Diego, California
March 3, 1998
Report of Former Independent Accountants
Our report on the consolidated financial statements of ConAm Realty Investors 2
L.P. (formerly 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 ConAm Realty Investors
2 for the year ended December 31, 1996. 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 14, 1997