EXHIBIT 13
CONAM REALTY INVESTORS 2 L.P.
1998 ANNUAL REPORT
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CONAM REALTY INVESTORS 2 L.P.
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ConAm Realty Investors 2 L.P. is a California limited partnership
formed in 1981 to acquire, operate and hold for investment multifamily
residential properties. At December 31, 1998, the Partnership's
portfolio consisted of four apartment properties, two of which were
located in Arizona and two in Florida. On January 29, 1999, with the
consent of the Unitholders, the four remaining properties were sold for
a price of $29,300,000 (before closing costs) and substantially all of
the cash, less a contingency amount, was distributed to the Unitholders
on February 26, 1999.
CONTENTS
1 Message to Investors
2 Performance Summary
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated Financial Statements
13 Independent Auditors' Report
14 Report of Former Independent Accountants
15 Net Asset Valuation
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ADMINISTRATIVE INQUIRIES PERFORMANCE INQUIRIES/FORM 10-Ks
ADDRESS CHANGES/TRANSFERS Brock, Tibbitts and Snell
MAVRICC Management Systems, Inc. 625 Broadway, Suite 911
1845 Maxwell, Suite 101 San Diego, California 92101
Troy, MI 48084-4510
Attn: Financial Communications
248-637-7897 619-232-0365
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CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
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MESSAGE TO INVESTORS
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Presented for your review is the 1998 Annual Report for ConAm Realty Investors 2
L.P. (the "Partnership"). In this report we have included a performance summary
which addresses operations at each of the properties (the "Properties") and the
financial highlights for the year.
We are pleased to announce that the proposed sale of the Partnership's four
remaining Properties to DOC Investors, L.L.C., a Delaware limited liability
company, was approved by a majority in interest of the Unitholders as of
January 15, 1999 and that the sale was completed on January 29, 1999.
Following the close of the sale of the Properties, a distribution of $223.00
per Unit, representing the majority of the net proceeds from the sale and
other cash from operations, was paid to Unitholders on February 26, 1999.
This distribution included the net proceeds from the sale of the
Partnership's Properties in January 1999 of $213.03 per Unit, and cash from
operations of $9.97 per Unit, both of which were distributed on February 26,
1999.
CASH DISTRIBUTIONS
The Partnership paid quarterly cash distributions of operating cashflow
totaling $6.75 per Unit for the year ended December 31, 1998. The General
Partner elected not to make a fourth quarter distribution pending the outcome
of the solicitation of the consent of the Unitholders to the sale of the
Partnership's Properties. Including the distribution of sale proceeds and
cash from operations made on February 26, 1999, since inception, the
Partnership has paid distributions totaling $566.94 per original $500 Unit.
OPERATIONS OVERVIEW
In 1998, operations at the Partnership's properties continued to be impacted
to varying degrees by strong competition for residents. Population and job
growth remained strong in Arizona and Florida, which has led to the addition
of newly constructed complexes in the submarkets where the Partnership's
properties are located. In Arizona, due to lower interest rates and the
affordability of homes, many renters opted to purchase homes. Despite these
trends, the Properties sustained a collective average occupancy of 94.5% in
1998 compared with 93.5% in 1997. Due to selective use of rent concessions
and consistently attractive property appearance, occupancy levels also
increased or remained stable at three of the Properties with rental income
for all Properties increasing over prior year. During 1998 property aggregate
operating expenses for the Partnership decreased somewhat, primarily due to
lower repair and maintenance expenses at Ponte Vedra Beach Village I and
Rancho Antigua, partially offset by an increase in repair and maintenance
expenses at Village at the Foothills I and Creekside Oaks.
SUMMARY
The sale of the Properties on January 29, 1999 and the initial distribution
of net sales proceeds and cash from operations on February 26, 1999 represents
a major step toward the liquidation of the Partnership that is expected to be
completed in August 1999. A final distribution of remaining Partnership cash,
if any, will be made shortly thereafter.
Very truly yours,
/s/ Daniel J. Epstein
Daniel J. Epstein, President
Continental American Development Inc.
General Partner of ConAm Property Services II, Ltd.
March 30, 1999
1
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PERFORMANCE SUMMARY
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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 1998 and 1997. In recent years, the
Jacksonville market experienced a significant increase in new construction
and the issuance of new construction permits. This new construction softened
the market by outpacing population and job growth and will continue to affect
the region as new units become available. Vacancy rates remained low, due to
increased use of rental concessions in the marketplace to attract and retain
residents.
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. Population
and job growth in the Jacksonville area remained high, but construction of
new apartments lead to softness in the market. As a result, the property
reported an average occupancy level of 92% in 1998, down slightly from 93% in
1997. Rental income, however, increased due to an increase in rental rates.
Property improvements in 1998 included roof replacements, carpet replacement
and other improvements to maintain the appearance of the property.
RANCHO ANTIGUA SCOTTSDALE, ARIZONA
Rancho Antigua is a 220-unit apartment community located in Scottsdale, eight
miles northeast of Phoenix. The property reported average occupancy of 95% in
1998, up slightly from 94% in 1997, and an increase in rental income due to
an increase in occupancy and rental rates. The Scottsdale apartment market
experienced continued strong competition, 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.
The Scottsdale market is experiencing strong job and population growth.
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
96% during 1998, up significantly from 92% in 1997, and an increase in rental
income due to an increase in occupancy and rental rates. 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 residents.
2
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FINANCIAL HIGHLIGHTS
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SELECTED FINANCIAL DATA
For the years ended December 31, 1998 1997 1996 1995 1994
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DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA
Total Income $ 4,483 $ 4,384 $ 4,328 $ 4,516 $ 4,718
Gain on Sale of Property -- -- -- 232 --
Net Income (Loss) 99 (203) (3) (113) 37
Net Cash Provided by
Operating Activities 980 979 1,334 864 1,150
Long-term Obligations at Year End 11,323 11,555 11,770 11,969 14,219
Total Assets at Year End 17,715 18,370 18,920 19,931 24,772
Net Income (Loss) per
Limited Partnership Unit* 1.11 (2.51) (0.03) (4.27) .42
Distributions per Limited Partnership
Unit* 6.75 -- 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 1998 1997
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First Quarter $ 2.25 $--
Second Quarter 2.25 --
Third Quarter 2.25 --
Fourth Quarter -- --
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TOTAL $ 6.75 $--
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Cash distributions were reduced in 1998 due to a suspension of distributions in
the fourth quarter pending the outcome of the solicitation of the consent of the
Unitholders to the sale of the Properties.
3
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
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CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, AT DECEMBER 31,
1998 1997
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ASSETS
Investments in real estate:
Land $ 5,744,972 $ 5,744,972
Buildings and improvements 23,718,118 23,681,664
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29,463,090 29,426,636
Less accumulated depreciation (13,640,819) (12,689,727)
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15,822,271 16,736,909
Cash and cash equivalents 1,220,656 1,109,506
Restricted cash 345,558 342,282
Other assets, net of accumulated amortization
of $323,015 in 1998 and $260,496 in 1997 326,486 181,421
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TOTAL ASSETS $ 17,714,971 $ 18,370,118
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LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable $ 11,322,919 $ 11,554,935
Accounts payable and accrued expenses 287,482 197,443
Due to general partner and affiliates 18,547 18,504
Security deposits 92,096 103,908
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Total Liabilities 11,721,044 11,874,790
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Partners' Capital (Deficit):
General Partner (617,296) (567,156)
Limited Partners (80,000 Units outstanding) 6,611,223 7,062,484
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Total Partners' Capital 5,993,927 6,495,328
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TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 17,714,971 $ 18,370,118
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SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
4
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
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CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
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INCOME
Rental $ 4,434,497 $ 4,327,499 $ 4,264,370
Interest and other 48,321 56,229 63,467
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Total Income 4,482,818 4,383,728 4,327,837
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EXPENSES
Property operating 2,297,544 2,329,300 2,222,474
Depreciation and amortization 1,013,611 1,017,912 1,005,471
Interest 887,381 904,630 920,596
General and administrative 185,683 213,441 181,896
Write-off of assets -- 121,100 --
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Total Expenses 4,384,219 4,586,383 4,330,437
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NET INCOME (LOSS) $ 98,599 $ (202,655) $ (2,600)
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NET INCOME (LOSS) ALLOCATED:
To the General Partner $ 9,860 $ (2,027) $ (26)
To the Limited Partners 88,739 (200,628) (2,574)
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NET INCOME (LOSS) $ 98,599 $ (202,655) $ (2,600)
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PER LIMITED PARTNERSHIP UNIT
(80,000 UNITS OUTSTANDING):
NET INCOME (LOSS) $ 1.11 $ (2.51) $ (0.03)
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CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 GENERAL LIMITED
PARTNER PARTNERS TOTAL
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BALANCE (DEFICIT) 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)
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BALANCE (DEFICIT) AT DECEMBER 31, 1996 $ (565,129) $ 7,263,112 $ 6,697,983
Net Loss (2,027) (200,628) (202,655)
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BALANCE (DEFICIT) AT DECEMBER 31, 1997 $ (567,156) $ 7,062,484 $ 6,495,328
Net Income 9,860 88,739 98,599
Distributions ($6.75 per Unit) (60,000) (540,000) (600,000)
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BALANCE (DEFICIT) AT DECEMBER 31, 1998 $ (617,296) $ 6,611,223 $ 5,993,927
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SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
5
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
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CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 98,599 $ (202,655) $ (2,600)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,013,611 1,017,912 1,005,471
Write-off of assets -- 121,100 --
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Fundings to restricted cash (306,551) (325,093) (327,279)
Release of restricted cash 303,275 300,079 661,672
Other assets (207,584) -- 5,900
Accounts payable and accrued expenses 90,039 69,633 (10,135)
Due to general partner and affiliates 43 573 482
Security deposits (11,812) (2,445) 135
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Net cash provided by operating activities 979,620 979,104 1,333,646
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CASH FLOWS FROM INVESTING ACTIVITIES--
ADDITIONS TO REAL ESTATE (36,454) (417,120) (83,241)
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CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (600,000) (200,000) (800,000)
Mortgage principal payments (232,016) (214,768) (198,801)
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Net cash used in financing activities (832,016) (414,768) (998,801)
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Net increase in cash and cash equivalents 111,150 147,216 251,604
Cash and cash equivalents, beginning of period 1,109,506 962,290 710,686
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CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,220,656 $ 1,109,506 $ 962,290
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SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 887,381 $ 904,630 $ 920,596
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SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Write-off of buildings and improvements $ -- $ (261,100) $ --
Write-off of accumulated depreciation $ -- $ 140,000 $ --
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SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
6
Notes to the Consolidated Financial Statements
DECEMBER 31, 1998, 1997 AND 1996
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 dated December 17, 1981 as amended and restated October 8, 1982 (the
"Partnership Agreement"). The Partnership was formed for the purpose of
acquiring and operating multi-family 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 (the "General Partner") of the
Partnership. In conjunction with this transaction, the name of the Partnership
was changed from Hutton/ConAm Realty Investors 2 to ConAm Realty Investors 2
L.P. On January 15, 1999, a majority in interest of Unitholders agreed to the
sell the Partnership's remaining properties and liquidate the Partnership. The
Partnership sold its properties on January 29,1999 (Note 10) and expects to
liquidate during 1999.
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 for the period.
IMPAIRMENT OF LONG-LIVED ASSETS The Partnership assesses 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
as the amount by which the carrying amount of the real estate exceeds the fair
value of the real estate. At December 31, 1998, the Partnership's properties
were assets to be held and used as the Partnership did not have the ability to
sell the properties without the approval of a majority of the Unitholders.
7
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 loan 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 or treasury based money market funds.
RESTRICTED CASH Restricted cash consists of escrow deposits for real estate
taxes and casualty 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
Partner.
Net loss for any fiscal year is to be allocated 99% to the limited partners and
1% to General Partner. Net income for any fiscal year will generally be in
accordance with the distributions 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 Partner until each limited partner has
received an amount equal to its 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 Partner.
Gain from sales resulting from mortgage debt in excess of basis 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.
Each partner shall look solely to the assets of the Partnership for all
distributions with respect to the Partnership and their capital contribution
thereto, and shall have no recourse therefore (upon dissolution or otherwise)
against any General Partner or any limited partner; provided, however, that
upon dissolution and termination of the Partnership the General Partner shall
contribute to the capital of the Partnership an amount, not to exceed 1% of
the aggregate capital contributions of all of the partners to the Partnership
less that amount of all prior capital contributions of the General Partner,
equal to any negative balance in their respective capital account. In
addition, if upon distribution and termination of the Partnership the sum of
the limited partners' capital contributions and an amount equal to the
greater of a 7% cumulative annual return with respect to each limited
partner's adjusted capital value, calculated commencing with the first
anniversary date of the last additional closing date, as defined, and reduced
by any net cash from operations distributed to such limited partner, or a 6%
cumulative annual return with respect to each
8
limited partner's adjusted capital value, as defined, calculated from the
date of his admission to the Partnership and reduced by any net cash from
operations distributed to such limited partner, exceeds the aggregate
distributions to the limited partners of net proceeds from sale or
refinancing, the General Partner shall contribute to the Partnership for
distribution to the limited partners an amount equal to the lesser of such
excess or the aggregate distributions of net proceeds from sale or
refinancing to the General Partner.
Effective July 1, 1997, all general partner allocations are to be made solely to
CPS II.
4. INVESTMENTS IN REAL ESTATE
The Partnership's four remaining properties at December 31, 1998 were as
follows:
APARTMENT
PROPERTY NAME UNITS LOCATION DATE ACQUIRED PURCHASE 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
- ------------------------------------ -------------- ---------------------------- ------------------ -----------------
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.
d. Upon dissolution or termination of the joint venture agreement, each
venturer is obligated to contribute to the joint venture in cash an amount
equal to any negative balance in its capital account, if any, as defined,
after allocation of all net income, net loss, gain from sale and loss from
sale.
The joint venture agreements and limited partnership agreements of 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 Partner.
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 Partner. 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 Partner.
9
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 Partner. 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
Partner.
d. Upon dissolution or termination of the joint venture agreement of the
Village at the Foothills I, any proceeds from a liquidating transaction,
as defined, will be distributed to the partners with positive capital
account balances (after capital accounts have been adjusted to reflect the
allocation of gain or loss attributable to the transaction giving rise to
such proceeds, whether or not such gains or loss has been recognized for
federal income tax purposes), as defined, in proportion to such positive
capital account balances.
e. Upon dissolution or termination of the joint venture agreement of the
Village of the Foothills I, the General Partner will be required to
contribute to partnership capital an amount equal to the lesser of (i) the
excess of 1.01% of the capital account of the Partnership as of the date
hereof over any deficit balance, if any, in their capital accounts on the
date of dissolution or termination.
5. MORTGAGE PAYABLE
On October 28, 1993, the Partnership obtained replacement financing on its
Creekside Oaks, Ponte Vedra Beach I, and Rancho Antigua 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, 1998, consist of the following first mortgage
loans:
PROPERTY PRINCIPAL
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Creekside Oaks $ 2,429,614
Ponte Vedra Beach Village I 3,667,342
Rancho Antigua 5,225,963
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Total $11,322,919
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These mortgages contain provisions for prepayment penalties if the mortgages are
repaid prior to their maturity date of November 30, 2000. The loans were repaid
in full in conjunction with the sale of the respective Property on January 29,
1999 (note 10).
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, accounts payable and accrued expenses, due to
general partner and 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 mortgage 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.
10
7. TRANSACTIONS WITH RELATED PARTIES
The following is a summary of fees earned and reimbursable expenses to the
General Partner and affiliates for the years ended December 31, 1998, 1997 and
1996, and the unpaid portion at December 31, 1998:
EARNED AND
UNPAID AT EARNED
DECEMBER 31, ----------------------------------------------------
1998 1998 1997 1996
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RI-2 Real Estate Services Inc. and
affiliates:
Out-of-pocket expenses $ -- $ -- $ 402 $ 807
ConAm and affiliates:
Property operating salaries -- 350,329 321,517 323,312
Property management fees 18,547 223,029 216,432 213,281
Admin. expenses -- -- 18,425 --
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TOTAL $ 18,547 $ 573,358 $556,776 $537,400
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8. 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, 1998, 1997 and 1996:
1998 1997 1996
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Net income (loss) per financial statements $ 98,599 $ (202,655) $ (2,600)
Tax basis joint venture net income (loss)
in excess of GAAP basis joint
venture net income (unaudited) (130,682) (201,705) (193,019)
Loss on write-off of assets per
financial statements not
recognized for tax purposes (unaudited) -- 121,100 --
Other (unaudited) (16,000) 11,000 1,397
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TAXABLE NET INCOME (LOSS)(UNAUDITED) $ (48,083) $ (272,260) $ (194,222)
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The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of December 31,
1998, 1997 and 1996:
1998 1997 1996
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Partners' capital per financial statements $ 5,993,927 $ 6,495,328 $ 6,697,983
Adjustment for cumulative difference between
tax basis net income and net income
per financial statements (unaudited) (5,201,262) (5,054,580) (4,984,975)
- -------------------------------------------------------------------------------------------------------------------
PARTNERS' CAPITAL PER INCOME TAX RETURN (UNAUDITED) $ 792,665 $ 1,440,748 $ 1,713,008
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
At December 31, 1998, the tax basis of the Partnership's assets was $945,161 and
the tax basis of the Partnership's liabilities was $152,496. The Partnership
does not consolidate its investment in joint ventures for income tax purposes.
11
9. 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 year. The consolidated statements of cash flows recognize
actual cash distributions paid during the 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 End of Year
- -------------------------------------------------------------------------------------------------------------------
1998 $ -- $ 600,000 $ 600,000 $ --
1997 200,000 -- 200,000 --
1996 200,000 800,000 800,000 200,000
- -------------------------------------------------------------------------------------------------------------------
10. SALE OF PROPERTIES
On January 29, 1999, the Partnership consummated the sale of the four remaining
Properties to DOC Investors, L.L.C., a Delaware limited liability company, for a
sales price of $29,300,000 (before selling costs and prorations). As required by
the Partnership's partnership agreement, the General Partner solicited the
consent of a majority in interest of the Unitholders to the sale pursuant to a
Consent Solicitation Statement dated December 16, 1998. The requisite consent
was obtained on January 15, 1999. The Partnership received approximately
$17,217,000 of cash proceeds from the sale, net of closing costs of
approximately $93,000 and repayment of indebtedness and prepayment penalties of
approximately $11,990,000.
On February 26, 1999, the Partnership distributed $17,840,000 ($223.00 per Unit)
to the Unitholders and $88,653 to the General Partner.
12
- ------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- ------------------------------------------------------------------------------
The General Partner
ConAm Realty Investors 2 L.P.:
We have audited the accompanying consolidated balance sheets of ConAm Realty
Investors 2 L.P. (a California limited partnership) and consolidated ventures
(the Partnership), as of December 31, 1998 and 1997, and the related
consolidated statements of operations, partners' capital, and cash flows for the
years 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 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.
As further discussed in Note 10 to the consolidated financial statements, the
Partnership sold substantially all of its assets on January 29, 1999.
In our opinion, the 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, 1998 and 1997, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
KPMG LLP
San Diego, California
March 11, 1999
13
- ------------------------------------------------------------------------------
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 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 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 the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
14
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUATION
- -----------------------------------------------------------------------------------------------------------------------
COMPARISON OF ACQUISITION COSTS TO DECEMBER 31, 1998 PROPERTY VALUES AND
DETERMINATION OF NET ASSET VALUE PER UNIT AT DECEMBER 31, 1998 (UNAUDITED)
ACQUISITION COST
(PURCHASE PRICE
PLUS GENERAL PARTNERSHIP'S NET ASSET
PARTNER'S SHARE OF PROPERTY VALUE
PROPERTY DATE OF ACQUISITION ACQUISITION FEES) VALUE (1) DETERMINATION
- -----------------------------------------------------------------------------------------------------------------------
Creekside Oaks 11-18-83 $6,238,445 $ 5,500,000
Ponte Vedra Beach 02-10-84 7,123,950 7,700,000
Rancho Antigua 03-08-84 11,446,176 13,700,000
Village at the Foothills I 02-27-85 3,756,741 2,400,000
--------------------
29,300,000
Less closing costs (93,114)
------------------
29,206,886
Cash and cash equivalents (including previously restricted cash) 1,566,214
Other assets 326,486
------------------
Total assets 31,099,586
------------------
Less:
Secured debt 11,322,919
Prepayment penalties 587,939
Other liabilities 398,125
Contingency amounts (2) 861,950
------------------
Total liabilities 13,170,933
------------------
Partnership Net Asset Value (3) 17,928,653
------------------
Net Asset Value Allocated:
Limited Partners 17,840,000
General Partner 88,653
------------------
17,928,653
------------------
NET ASSET VALUE PER UNIT
(80,000 UNITS OUTSTANDING) $ 223.00
- -----------------------------------------------------------------------------------------------------------------------
(1) Represents the Partnership's share of the fair market value of the
properties as reflected in the purchase and sale agreements pursuant to
which the properties were sold on January 29, 1999. The purchase prices
contained in such agreements were negotiated and agreed to in
December 1998.
(2) Includes an amount for estimated future costs related to the sale and
liquidation of the Partnership and an amount the General Partner
determined to set aside for contingencies, net of expected cash provided
by operations through the date of sale.
(3) The Partnership Net Asset Value assumes a sale at December 31, 1998 of all
the Partnership's properties at prices equal to the sales prices set forth
in the purchase and sale agreements described in Note (1) above, payment of
all Partnership liabilities, and the distribution of the net proceeds of
such sale and other Partnership cash to the Partners.
Since the Partnership sold all of its real property assets in January 1999, is
in dissolution, and is in the process of winding up and liquidating, the
foregoing Partnership Net Asset Value is intended to approximate the liquidation
value of the Partnership and the Net Asset Value Per Unit is intended to
approximate the per Unit amount which is expected to be distributed to the
Limited Partners in connection with the Partnership's liquidation. The Net Asset
Valuation does not take into account the illiquid nature of an investment in the
Units or the fact that at December 31, 1998 a holder of Units would likely not
have been able to sell its Units for the Net Asset Value Per Unit set forth
above. Fiduciaries of Limited Partners which are subject to ERISA or other
provisions of law requiring valuation 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.
15
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
CREEKSIDE PONTE VEDRE RANCHO VILLAGE AT
RESIDENTIAL PROPERTY: OAKS BEACH VILLAGE I ANTIGUA THE FOOTHILLS I TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
Location Jacksonville, Fl. P.V. Beach, FL. Scottsdale, AZ Tucson, AZ na
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 (2) (2) (2) (2)
Encumbrances $ 2,429,614 $ 3,667,342 $ 5,225,963 $ -- $ 11,322,919
Initial cost to Partnership:
Land 400,317 1,115,028 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 281,499 554,569 141,634 25,270 1,002,972
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 8,109,994 3,030,550 23,718,118
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 6,536,452 $ 7,489,787 $11,607,478 $ 3,829,373 $ 29,463,090
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation $ (3,611,614) $ (3,585,642) $(4,776,310) $ (1,667,253) $ (13,640,819)
- ----------------------------------------------------------------------------------------------------------------------------
(1) The aggregate costs for Land, Buildings and Improvements for federal tax
purposes are $23,971,019.
(2) Building 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, 1998, 1997 and 1996 follows:
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
INVESTMENTS IN REAL ESTATE:
Beginning of period $ 29,426,636 $ 29,270,616 $ 29,187,375
Additions 36,454 417,120 83,241
Dispositions and disposals -- (261,100) --
- ----------------------------------------------------------------------------------------------------------------------------
End of period $ 29,463,090 $ 29,426,636 $ 29,270,616
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION:
Beginning of period $ 12,689,727 $ 11,874,334 $ 10,931,382
Depreciation expense 951,092 955,393 942,952
Dispositions and disposals -- (140,000) --
- ----------------------------------------------------------------------------------------------------------------------------
End of period $ 13,640,819 $ 12,689,727 $ 11,874,334
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-1
- ------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- ------------------------------------------------------------------------------
The General Partner
ConAm Realty Investors 2 L.P.:
Under date of March 11, 1999, we reported on the consolidated balance sheets
of ConAm Realty Investors 2 L.P. (a California limited partnership) and
consolidated ventures (the Partnership) as of December 31, 1998 and 1997, and
the related consolidated statements of operations, partners' capital, and
cash flows for the years then ended, as contained in the 1998 annual report
to Unitholders. These consolidated financial statements and our report
thereon are incorporated by reference in the 1998 annual report on Form 10-K.
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedule III. 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 audits.
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 LLP
San Diego, California
March 11, 1999
F-2
- ------------------------------------------------------------------------------
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
L.P. for the year ended December 31, 1996. In connection with our audit 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
F-3