United States Securities and Exchange Commission Washington, D.C. 20549 FORM 10-Q (MARK ONE) X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities - ----- Exchange Act of 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999 or Transition Report Pursuant to Section 13 of 15(d) of the Securities - ----- Exchange Act of 1934 For the transition period from ____ to ____ COMMISSION FILE NUMBER: 0-11085 CONAM REALTY INVESTORS 2 L.P. ----------------------------- EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER California 13-3100545 ---------- --------- STATE OR OTHER JURISDICTION I.R.S. EMPLOYER IDENTIFICATION NO. OF INCORPORATION OR ORGANIZATION 1764 San Diego Avenue San Diego, CA 92110-1906 - ------------- ---------- ADDRESS OF PRINCIPAL EXECUTIVE OFFICES ZIP CODE (619) 297-6771 -------------- REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No ----- ----- CONAM REALTY INVESTORS 2 L.P. AND CONSOLIDATED VENTURES PART 1 - FINANCIAL INFORMATION ITEM 1. Financial Statements - -------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS AT JUNE 30, AT DECEMBER 31, 1999 1998 - -------------------------------------------------------------------------------------------- ASSETS Investments in real estate: Land $ - $ 5,744,972 Buildings and improvements - 23,718,118 ------------------------------------ - 29,463,090 Less accumulated depreciation - (13,640,819) ------------------------------------ - 15,822,271 Cash and cash equivalents 609,332 1,220,656 Restricted cash - 345,558 Other assets, net of accumulated amortization of $0 in 1999 and $323,015 in 1998 15,700 326,486 - -------------------------------------------------------------------------------------------- TOTAL ASSETS $ 625,032 $ 17,714,971 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- LIABILITIES AND PARTNERS' CAPITAL Liabilities: Mortgages payable $ - $ 11,322,919 Accounts payable and accrued expenses 53,601 287,482 Due to general partner and affiliates - 18,547 Security deposits - 92,096 ------------------------------------ Total Liabilities 53,601 11,721,044 ------------------------------------ Partners' Capital (Deficit): General Partner (121,033) (617,296) Limited Partners (80,000 Units outstanding) 692,464 6,611,223 ------------------------------------ Total Partners' Capital 571,431 5,993,927 - -------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 625,032 $ 17,714,971 - -------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. CONAM REALTY INVESTORS 2 L.P. AND CONSOLIDATED VENTURES - ---------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS THREE MONTHS ENDED SIX MONTHS ENDED JUNE 30, JUNE 30, 1999 1998 1999 1998 - ---------------------------------------------------------------------------------------------------------------------------- INCOME Rental $ - $ 1,116,516 $ 327,728 $ 2,241,507 Interest and other 9,087 10,803 87,607 20,171 ----------------------------------------------------------------------- Total Income 9,087 1,127,319 415,335 2,261,678 - ---------------------------------------------------------------------------------------------------------------------------- EXPENSES Property operating - 547,139 317,398 1,087,460 Depreciation and amortization - 253,338 42,284 506,676 Interest - 222,416 73,122 445,931 General and administrative 62,375 40,518 82,387 88,573 ----------------------------------------------------------------------- Total Expenses 62,375 1,063,411 515,191 2,128,640 - ---------------------------------------------------------------------------------------------------------------------------- Income (Loss) from operations (53,288) 63,908 (99,856) 133,038 Gain on sale of properties - - 13,306,236 - - ---------------------------------------------------------------------------------------------------------------------------- Income before extraordinary items (53,288) 63,908 13,206,380 133,038 Extraordinary loss from debt extinguishment - - (700,223) - - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ (53,288) $ 63,908 $ 12,506,157 $ 133,038 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) ALLOCATED: To the General Partner $ (533) $ 6,391 $ 584,916 $ 13,304 To the Limited Partners (52,755) 57,517 11,921,241 119,734 - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ (53,288) $ 63,908 $ 12,506,157 $ 133,038 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- PER LIMITED PARTNERSHIP UNIT (80,000 LIMITED PARTNER UNITS OUTSTANDING) Income (Loss) from operations $ (0.66) $ 0.72 $ (1.24) $ 1.50 Gain on sale of properties - - 159.00 - Extraordinary loss from debt extinguishment - - (8.75) - - ---------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ (0.66) $ 0.72 $ 149.01 $ 1.50 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL FOR THE SIX MONTHS ENDED JUNE 30, 1999 GENERAL LIMITED PARTNER PARTNERS TOTAL - ----------------------------------------------------------------------------------------------------------------------------- BALANCE (DEFICIT) AT DECEMBER 31, 1998 $ (617,296) $ 6,611,223 $ 5,993,927 Net income 584,916 11,921,241 12,506,157 Distributions ($223.00 per Limited Partner Unit) (88,653) (17,840,000) (17,928,653) - ----------------------------------------------------------------------------------------------------------------------------- BALANCE (DEFICIT) AT JUNE 30, 1999 $ (121,033) $ 692,464 $ 571,431 - ----------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. CONAM REALTY INVESTORS 2 L.P. AND CONSOLIDATED VENTURES - ------------------------------------------------------------------------------------------------------------------ CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE SIX MONTHS ENDED JUNE 30, 1999 1998 - ------------------------------------------------------------------------------------------------------------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 12,506,157 $ 133,038 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 42,284 506,676 Gain on sale of properties (13,306,236) - Extraordinary loss from debt extinguishment 700,223 - Increase (decrease) in cash arising from changes in operating assets and liabilities: Fundings to restricted cash - (158,221) Release of restricted cash 345,558 52,924 Other assets 196,166 (83,225) Accounts payable and accrued expenses (233,881) 72,343 Due to general partner and affiliates (18,547) 148 Security deposits (92,096) (5,485) --------------------------------- Net cash provided by operating activities 139,628 518,198 - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES- net proceeds from sale of properties 28,500,620 - - ------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions (17,928,653) (200,000) Mortgage principal payments (11,322,919) (113,768) --------------------------------- Net cash used in financing activities (29,251,572) (313,768) - ------------------------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (611,324) 204,430 Cash and cash equivalents, beginning of period 1,220,656 1,109,506 - ------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 609,332 $ 1,313,936 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION- Cash paid during the period for interest $ 73,122 $ 445,931 - ------------------------------------------------------------------------------------------------------------------- SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. CONAM REALTY INVESTORS 2 L.P. AND CONSOLIDATED VENTURES - ------------------------------------------------------------------------------ NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS The unaudited interim consolidated financial statements should be read in conjunction with the Partnership's annual 1998 audited consolidated financial statements within Form 10-K. The unaudited interim consolidated financial statements include all normal and recurring adjustments which are, in the opinion of management, necessary to present a fair statement of financial position as of June 30, 1999 and the results of operations for the three and six months ended June 30, 1999 and 1998, cash flow for the six months ended June 30, 1999 and 1998, and the consolidated statement of partners' capital for the six months ended June 30, 1999. Results for the six months ended June 30, 1999 are not necessarily indicative of the results to be expected for the full year. The Partnership has sold its remaining investments in real estate. The sale and liquidation plan was approved by the Unitholders through a consent solicitation statement as of January 15, 1999 and the sale of the properties was completed on January 29, 1999. 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. Within 30 days of the completion of the sale of the properties, the Partnership declared a cash distribution representing substantially all of the net proceeds from sale and substantially all of the remaining cash from operations of the Partnership less an amount for costs and contingencies associated with the sale and liquidation of the Partnership. No other significant events have occurred subsequent to fiscal year 1998, and no material contingencies exist, which would require disclosure in this interim report per Regulation S-X, Rule 10-01, Paragraph (a) (5). CONAM REALTY INVESTORS 2 L.P. AND CONSOLIDATED VENTURES ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations LIQUIDITY AND CAPITAL RESOURCES On February 26, 1999, the Partnership declared cash distributions in the amounts of $17,840,000 to the Limited Partner Unitholders ($223.00 per Unit) and $88,653 to the General Partner, which amounts represent substantially all of the net proceeds from the sale (the "Sale" ) of the Partnership's remaining investments in real estate ("Properties") together with other available cash from operations of the Partnership less an amount for costs associated with the liquidation of the Partnership and other contingencies. As a result of the Sale and distribution, cash and cash equivalents and other assets comprise all of the remaining assets of the Partnership. The General Partner believes that the Partnership has sufficient cash to meet the needs of the Partnership for any contingencies or costs associated with the Sale and final liquidation of the Partnership. As a result of the Sale of the remaining Properties, the only source of revenue prior to final liquidation will be the interest generated on the remaining cash balances. The remaining cash is invested in an unaffiliated highly liquid money market fund. At June 30, 1999, the Partnership had cash and cash equivalents of $609,332 compared with $1,220,656 at December 31, 1998. The decrease in cash and cash equivalents is due to the Sale of the Properties and the subsequent distribution of substantially all of the net proceeds thereof and other Partnership cash. As required by the Partnership agreement, upon final liquidation of the Partnership, the general partner is to contribute $177,778 ("GP Contribution") to the Partnership, which represents distributions of net proceeds from Sale or refinancing previously received by the general partner. Remaining cash available, if any, after the contribution by the General Partner and the satisfaction of all Partnership obligations will be distributed pursuant to the Partnership agreement. RESULTS OF OPERATIONS Partnership net income (loss) for the three and six months ended June 30, 1999 was ($53,288) and $12,506,157, respectively, compared to net income of $63,908 and $133,038 for the corresponding periods in fiscal 1998. The decreased income for the three months ended June 30, 1999 is primarily attributable to the Sale of the Properties. The increase in income for the six month period is primarily attributable to the gain on the Sale. The Partnership generated operating losses for the three and six months ended June 30, 1999 of $53,288 and $99,856, respectively, compared to operating income of $63,908 and $133,038, respectively, for the corresponding periods in fiscal 1998. Total income for the three and six months ended June 30, 1999 totaled $9,087 and $415,335, respectively, compared with $1,127,319 and $2,261,678, respectively, for the corresponding period in fiscal 1998. The decreased total income and operating loss for the three and six months ended June 30, 1999, is primarily attributable to the decrease in rental income attributable to the Sale on January 29, 1999, partially offset by interest income earned on the proceeds from the Sale prior to distributions to the Unitholders and reduced operating expenses. Total expenses for the three and six months ended June 30, 1999 were $62,375 and $515,191, respectively, compared to $1,063,411 and $2,128,640, respectively, for the corresponding periods in fiscal 1998. The decrease in total expenses is primarily attributable to the Sale. General and administrative expenses for the three and six months ended June 30, 1999 were $62,375 and $82,387, respectively, compared to $40,518 and $88,573, respectively, for the corresponding periods in fiscal 998. The decrease in general and administrative expenses for the six months ended June 30, 1999 is primarily attributable to a reduction in printing, mailing and investor relations exepnses. The increase for the three months ended June 30, 1999 is primarily due to the payment for costs related to the liquidation of the Partnership. YEAR 2000 Due to the consummation of the Sale, the Partnership is no longer engaged in the operation of real properties or any other business. As a result of the foregoing, and in view of the General Partner's plan to complete the full liquidation of the Partnership prior to January 1, 2000, the Partnership has no exposure to Year 2000 issues. ITEM 3. Quantitative and Qualitative Disclosures About Market Risks Due to the consummation of the Sale and the repayment of its mortgage indebtedness, the Partnership has no exposure to interest rate risk. In addition, the Partnership is expected to be liquidated during 1999. PART II - OTHER INFORMATION ITEMS 1-5. Not applicable ITEM 6. Exhibits & Reports on Form 8-K (a) Exhibits 3.1 Amendment, dated January 18, 1999 to Partnership's Amended and Restated Certificate of Limited Partnership Agreement (included as, and incorporated herein by reference to, Exhibit 4.1 to the Partnership's Report on Form 8-K filed on February 16, 1999). 10.1 Agreement for Purchase and Sale and Joint Escrow Instructions between Creekside Oaks Joint Venture and DOC Investors, L.L.C. dated January 26, 1999 with respect to the Sale of Creekside Oaks (included as, and incorporated herein by reference to, Exhibit 10.1 to the Partnership's Report on Form 8-K filed on February 16, 1999). 10.2 Agreement for Purchase and Sale and Joint Escrow Instructions between Ponte Vedra Beach Village Joint Venture and DOC Investors, L.L.C. dated January 26, 1999 with respect to the Sale of Ponte Vedra Beach Village I Apartments (included as, and incorporated herein by reference to, Exhibit 10.2 to the Partnership's Report on Form 8-K filed on February 16, 1999). 10.3 Agreement for Purchase and Sale and Joint Escrow Instructions between Rancho Antigua Joint Venture and DOC Investors, L.L.C. dated January 26, 1999 with respect to the Sale of Rancho Antigua (included as, and incorporated herein by reference to, Exhibit 10.3 to the Partnership's Report on Form 8-K filed on February 16, 1999). 10.4 Agreement for Purchase and Sale and Joint Escrow Instructions between Village at the Foothills (Phase I) Joint Venture Limited Partnership and Doc Investors, L.L.C. dated January 26, 1999 with respect to the Sale of Village at Foothills I Apartments (included as, and incorporated herein by reference to, Exhibit 10.4 to the Partnership's Report on Form 8-K filed on February 16, 1999). (b) Reports on Form 8-K No reports on Form 8-K were filed during the quarter ended June 30, 1999. (27) Financial Data Schedule SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CONAM PROPERTY SERVICES II, LTD. General Partner of ConAm Realty Investors 2 L.P. BY: CONTINENTAL AMERICAN DEVELOPMENT, INC. GENERAL PARTNER Date: August 10, 1999 BY:/s/ DANIEL J. EPSTEIN ------------------------ Daniel J. Epstein Director, President, and Principal Executive Officer Date: August 10, 1999 BY:/s/ ROBERT J. SVATOS ------------------------ Robert J. Svatos Vice President and Director