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 September 30, 1996
or
Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition period from ______ to ______
Commission File Number: 0-11085
HUTTON/CONAM REALTY INVESTORS 2
Exact Name of Registrant as Specified in its Charter
California 13-3100545
State or Other Jurisdiction I.R.S. Employer
of Incorporation or Organization Identification No.
3 World Financial Center, 29th Floor,
New York, NY Attn.: Andre Anderson 10285
Address of Principal Executive Offices Zip Code
(212) 526-3237
Registrant's Telephone Number, Including Area Code
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ____
Consolidated Balance Sheets At September 30, At December 31,
1996 1995
Assets
Investments in real estate:
Land $ 5,744,972 $ 5,744,972
Buildings and improvements 23,525,643 23,442,403
29,270,615 29,187,375
Less accumulated depreciation (11,638,185) (10,931,382)
17,632,430 18,255,993
Cash and cash equivalents 1,085,893 710,686
Restricted cash 483,241 651,661
Other assets, net of accumulated amortization
of $182,348 in 1996 and $135,458 in 1995 259,569 312,359
Total Assets $19,461,133 $19,930,699
Liabilities and Partners' Capital
Liabilities:
Mortgages payable $11,820,852 $11,968,504
Accounts payable and accrued expenses 319,211 121,445
Due to general partners and affiliates 41,690 33,949
Security deposits 106,957 106,218
Distribution payable 200,000 200,000
Total Liabilities 12,488,710 12,430,116
Partners' Capital (Deficit):
General Partners (537,919) (485,103)
Limited Partners 7,510,342 7,985,686
Total Partners' Capital 6,972,423 7,500,583
Total Liabilities and Partners' Capital $19,461,133 $19,930,699
Consolidated Statement of Partners' Capital (Deficit)
For the nine months ended September 30, 1996
Limited General
Partners Partners Total
Balance at December 31, 1995 $7,985,686 $(485,103) $7,500,583
Net income 64,656 7,184 71,840
Distributions (540,000) (60,000) (600,000)
Balance at September 30, 1996 $7,510,342 $(537,919) $6,972,423
Consolidated Statements of Operations
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
Income
Rental $1,057,859 $1,047,543 $3,200,850 $3,400,374
Interest 12,668 29,900 48,300 52,276
Other --- --- 3,244 ---
Total Income 1,070,527 1,077,443 3,252,394 3,452,650
Expenses
Property operating 533,273 560,052 1,588,392 1,986,750
Depreciation and amortization 251,581 330,544 753,693 918,138
Interest 229,679 241,685 691,896 790,976
General and administrative 44,126 84,927 146,573 164,178
Total Expenses 1,058,659 1,217,208 3,180,554 3,860,042
Income (loss) from operations 11,868 (139,765) 71,840 (407,392)
Gain on sale of property --- 302,328 --- 302,328
Net Income (Loss) $ 11,868 $ 162,563 $ 71,840 $ (105,064)
Net Income (Loss) Allocated:
To the General Partners $ 1,187 $ 300,930 $ 7,184 $ 298,254
To the Limited Partners 10,681 (138,367) 64,656 (403,318)
$ 11,868 $ 162,563 $ 71,840 $ (105,064)
Per limited partnership unit
(80,000 outstanding)
Income (loss) from operations $.13 $(1.73) $.81 $(5.04)
Gain on sale of property --- --- --- ---
Net Income (Loss) $.13 $(1.73) $.81 $(5.04)
Consolidated Statements of Cash Flows
For the nine months ended September 30, 1996 1995
Cash Flows From Operating Activities:
Net income (loss) $ 71,840 $ (105,064)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 753,693 918,138
Gain on sale of property --- (302,328)
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Fundings to restricted cash (243,508) (281,096)
Release of restricted cash 411,928 229,806
Other assets 5,900 ---
Accounts payable and accrued expenses 197,766 231,254
Due to general partners and affiliates 7,741 923
Security deposits 739 (35,793)
Net cash provided by operating activities 1,206,099 655,840
Cash Flows From Investing Activities:
Net proceeds from sale of property --- 1,522,242
Additions to real estate (83,240) (199,476)
Net cash provided by (used for) investing activities (83,240) 1,322,766
Cash Flows From Financing Activities:
Distributions (600,000) (2,260,001)
Mortgage principal payments (147,652) (152,019)
Net cash used for financing activities (747,652) (2,412,020)
Net increase (decrease) in cash and cash equivalents 375,207 (433,414)
Cash and cash equivalents, beginning of period 710,686 1,183,787
Cash and cash equivalents, end of period $1,085,893 $ 750,373
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 691,896 $ 790,976
Notes to the Consolidated Financial Statements
The unaudited consolidated financial statements should be read in conjunction
with the Partnership's annual 1995 audited consolidated financial statements
within Form 10-K.
The unaudited consolidated financial statements include all adjustments which
are, in the opinion of management, necessary to present a fair statement of
financial position as of September 30, 1996 and the results of operations and
cash flows for the nine months ended September 30, 1996 and 1995 and the
statement of partner's capital (deficit) for the nine months ended September
30, 1996. Results of operations for the periods are not necessarily indicative
of the results to be expected for the full year.
Certain prior year amounts have been reclassified in order to conform to the
current year's presentation.
No significant events have occurred subsequent to fiscal year 1995 and no
material contingencies exist, which would require disclosure in this interim
report per Regulation S-X, Rule 10-01, Paragraph (a)(5).
Part I, Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
At September 30, 1996, the Partnership had cash and cash equivalents of
$1,085,893, which were invested in unaffiliated money market funds, an increase
from $710,686 at December 31, 1995. The increase is attributable to cash
provided by operating activities exceeding cash used for distributions,
mortgage principal payments, and additions to real estate. The Partnership
also maintains a restricted cash balance, which totaled $483,241 at September
30, 1996, representing escrows for insurance, and real estate taxes required
under the terms of the current mortgage loans. Pursuant to the refinancing of
the Creekside Oaks loan, the lender required funds escrowed for various repairs
including roofing work and exterior painting. Following an inspection of the
completed work by the lender, the balance of the repair escrow totaling
$354,675 was returned to the Partnership. The Partnership expects sufficient
cash to be generated from operations to meet its current operating expenses and
debt service requirements.
During the third quarter, unit interior repairs at each of the four properties
were performed as needed as a result of tenant turnover. Existing problems
with the roofs at Ponte Vedra Beach Village I have been aggravated by severe
tropical rain storms in August and September of this year and the General
Partners are currently assessing the damage and potential remedies. At this
time, the costs of repairing the roofs has not yet been determined and is
pending the outcome of the assessment.
The General Partners declared a cash distribution of $2.25 per Unit for the
nine months ended September 30, 1996 which will be paid to investors on or
about November 15, 1996. The level of future distributions will be evaluated
on a quarterly basis and will depend on the Partnership's operating results and
future cash needs. While the General Partners have not determined how much the
Partnership will be required to expend to repair or replace the roofs at Ponte
Vedra Beach Village I, it is possible that cash distributions will be reduced
in the future in order to cover the cost of the repairs.
Accounts payable and accrued expenses were $319,211 at September 30, 1996
compared to $121,445 at December 31, 1995. The increase is due to the timing
of payments and accruals for real estate taxes for all four properties.
Results of Operations
Partnership operations for the three and nine months ended September 30, 1996,
resulted in net income of $11,868 and $71,840, respectively, compared with net
income of $162,563 and a net loss of $105,064, respectively, for the
corresponding periods in 1995. The decrease in net income for the three-month
period is due primarily to the gain recognized on the sale of Country Place
Village I in July of 1995. The change from a net loss to net income for the
nine-month period is primarily due to reductions in property operating expense,
depreciation and amortization, and interest expense resulting from the sale of
Country Place Village I. Included in the net loss for the 1995 period is the
$302,328 gain recognized from the sale of the property. Excluding the gain,
the Partnership generated a loss from operations of $407,392 for the nine
months ended September 30, 1995. Net cash provided by operating activities was
$1,206,099 for the nine months ended September 30, 1996, an increase from
$655,840 for the same period in 1995. The increase is primarily attributable
to the change to net income, as discussed above, and the release of the
remaining funds from Creekside Oaks' replacement reserve upon completion of
certain improvements required by the mortgagee.
Rental income for the three and nine months ended September 30, 1996 was
$1,057,859 and $3,200,850, respectively, compared with $1,047,543 and
$3,400,374 respectively, for the corresponding periods in 1995. The slight
increase in rental income for the three-month period reflects higher occupancy
and increased rental rates at three of the four properties. The decrease in
rental income for the nine-month period is attributable to the sale of Country
Place Village I, partially offset by the increases in rental income at three of
the four remaining properties as a result of increased occupancy and rental
rates.
Property operating expenses for the three and nine months ended September 30,
1996 were $533,273 and $1,588,392, respectively, compared with $560,052 and
$1,986,750, respectively, for the same periods in 1995. The decreases are
primarily due to the July 1995 sale of Country Place Village I and a decrease
in repairs and maintenance expense at Creekside Oaks and Rancho Antigua.
Depreciation and amortization decreased to $251,851 and $753,693, respectively,
for the three and nine months ended September 30, 1996 from $330,544 and
$918,138, respectively, for the corresponding periods in 1995 due to the sale
of Country Place Village I. Interest expense also declined to $229,679 and
$691,896, respectively, for the three and nine months ended September 30, 1996
from $241,685 and $790,976, respectively, for the same periods in 1995. The
decline is primarily due to the assumption of the Country Place Village I
mortgage by the buyer at the time the sale closed. For the three and nine
months ended September 30, 1996, general and administrative expenses decreased
to $44,126 and $146,573, respectively, from $84,927 and $164,178, respectively,
for the corresponding periods ending September 30, 1995, primarily as a result
of decreased legal fees. During the first nine months of 1996 and 1995,
average occupancy levels at each of the properties were as follows:
Property 1996 1995
Creekside Oaks 94% 93%
Ponte Vedra Beach Village I 96% 95%
Rancho Antigua 94% 91%
Village at the Foothills I 94% 94%
Part II Other Information
Items 1-5 Not applicable.
Item 6 Exhibits and reports on Form 8-K.
(a) Exhibits -
(27) Financial Data Schedule
(b) Reports on Form 8-K - No reports on Form 8-K were filed
during the quarter ended September 30, 1996.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
HUTTON/CONAM REALTY INVESTORS 2
BY: RI2 REAL ESTATE SERVICES INC.
General Partner
Date: November 14, 1996 BY: /s/ Paul L. Abbott
Director, President, Chief
Executive Officer and
Chief Financial Officer
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<ARTICLE> 5
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<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 1,569,134
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 29,270,615
<DEPRECIATION> 11,638,185
<TOTAL-ASSETS> 19,461,133
<CURRENT-LIABILITIES> 667,858
<BONDS> 11,820,852
<COMMON> 0
0
0
<OTHER-SE> 6,972,423
<TOTAL-LIABILITY-AND-EQUITY> 19,461,133
<SALES> 0
<TOTAL-REVENUES> 3,252,394
<CGS> 0
<TOTAL-COSTS> 1,588,392
<OTHER-EXPENSES> 900,266
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 691,896
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 71,840
<EPS-PRIMARY> .81
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