UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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 of I.R.S. Employer Identification No.
incorporation or organization
Attention: Andre Anderson
3 World Financial Center, 29th Floor, New York, New York 10285
Address of principal executive offices zip code
Registrant's telephone number, including area code: (212) 526-3237
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
UNITS OF LIMITED PARTNERSHIP INTEREST
Title of Class
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
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained,
to the best of the Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. (X)
Documents Incorporated by Reference:
Portions of Prospectus of Registrant dated July 9, 1982 (included in
Amendment No. 1 to Registration Statement, No. 2-75519, of Registrant filed
July 9, 1982) are incorporated by reference into Part III of this report.
Portions of Parts I, II, III and IV are incorporated herein by reference to
the Partnership's Annual Report to Unitholders for the year ended December
31, 1996.
PART I
Item 1. Business
General Development of Business
Hutton/ConAm Realty Investors 2 (the "Registrant" or
the "Partnership") is a California limited partnership
in which RI 2 Real Estate Services Inc. ("RI 2
Services", formerly Hutton Real Estate Services V,
Inc.), a Delaware corporation, and ConAm Property
Services II, Ltd., a California limited partnership
("ConAm Services"), are the general partners (together,
the "General Partners").
Commencing July 9, 1982, the Registrant began offering
through E.F. Hutton & Company Inc., of the Registrant,
up to a maximum of 80,000 units of limited partnership
interest (the "Units") at $500 per Unit. Investors who
purchased the Units (the "Limited Partners") are not
required to make any additional capital contributions.
The Units were registered under the Securities Act of
1933, as amended (the "Act"), under Registration
Statement No. 2-75519, which Registration Statement was
declared effective on July 9, 1982. The offering of
Units was terminated on October 8, 1982. Upon
termination of the offering, the Registrant had
accepted subscriptions for 80,000 Units for an
aggregate of $40,000,000.
Narrative Description of Business
The Registrant is engaged in the business of acquiring,
operating and holding for investment multifamily
residential properties, which by virtue of their
location and design and the nature of the local real
estate market have the potential for capital
appreciation and generation of current income. All of
the proceeds available for investment in real estate
were originally invested in four joint ventures and one
limited partnership, each of which owned a specified
property. Funds held as a working capital reserve are
invested in unaffiliated money market funds or other
highly liquid short-term investments where there is
appropriate safety in principal in accordance with the
Registrant's investment objectives and policies.
The Registrant's principal investment objectives with
respect to its interests in real property are:
(1) capital appreciation;
(2) distributions of Net Cash From Operations
attributable to rental income; and
(3) preservation and protection of capital.
Distributions of Net Cash From Operations will be the
Registrant's objective during its operational phase,
while preservation and appreciation of capital
continues to be the Registrant's longer term
objectives. The attainment of the Registrant's
objectives will depend on many factors, including
future economic conditions in the United States as a
whole and, in particular, in the localities in which
the Registrant's properties are located, especially
with regard to achievement of capital appreciation.
From time to time the Registrant expects to sell its
real property investments taking into consideration
such factors as the amount of appreciation in value, if
any, to be realized and the possible risks of continued
ownership. In consideration of these factors and
improving market conditions, the General Partners sold
one property in 1995 and intend to sell the remaining
properties over the next few years. No property will
be sold, financed or refinanced by the Registrant
without the agreement of both General Partners.
Proceeds from any future sale, financing or refinancing
of the properties will not be reinvested and may be
distributed to the Limited Partners and General
Partners (sometimes referred to herein as the
"Partners"), so that the Registrant will, in effect, be
self-liquidating. If deemed necessary, the Registrant
may retain a portion of the proceeds from any sale,
financing or refinancing as capital reserves. As
partial payment for properties sold, the Registrant may
receive purchase money obligations secured by mortgages
or deeds of trust. In such cases, the amount of such
obligations will not be included in Net Proceeds From
Sale or Refinancing (distributable to the Partners)
until and only to the extent the obligations are
realized in cash, sold or otherwise liquidated.
Originally, the Registrant acquired five residential
apartment complexes (collectively, the "Properties")
through investments in joint ventures and one limited
partnership. One of these, Country Place Village I,
was sold on July 20, 1995. As of December 31, 1996,
the Registrant had interests in the Properties as
follows: (1) Creekside Oaks, a 120-unit apartment
complex located in Jacksonville, Florida; (2) Ponte
Vedra Beach Village I, a 122-unit apartment complex
located in Ponte Vedra Beach, Florida; (3) Rancho
Antigua, a 220-unit apartment complex located in the
McCormick Ranch area of Scottsdale, Arizona; and (4)
Village at the Foothills I, a 60-unit apartment complex
located in Tucson, Arizona. For a further description
of the Properties, see Item 2 of this report and Note 4
to the Consolidated Financial Statements, incorporated
herein by reference to the Partnership's Annual Report
to Unitholders for the year ended December 31, 1996,
which is filed as an exhibit under Item 14.
Competition
The Registrant's real property investments are subject
to competition from similar types of properties in the
vicinities in which they are located and such
competition has increased since the Registrant's
investment in the Properties due principally to the
addition of newly- constructed apartment complexes
offering increased residential and recreational
amenities. The Properties have also been subject to
competition from condominiums and single-family
properties, especially during periods of low mortgage
interest rates. The Registrant competes with other
real estate owners and developers in the rental and
leasing of its Properties by offering competitive
rental rates and, if necessary, leasing incentives.
Such competition may affect the occupancy levels and
revenues of the Properties. The occupancy levels at
all four Properties reflect some seasonality, which is
also reflected in the markets. In some cases, the
Registrant may compete with other partnerships
affiliated with either General Partner of the
Registrant.
For a discussion of current market conditions in each
of the areas where the Partnership's Properties are
located, see Item 2 below.
Employees
The Registrant has no employees. General services are
performed by RI 2 Services, ConAm Services, ConAm
Management Corporation ("ConAm Management"), an
affiliate of ConAm Services, as well as Service Data
Corporation and First Data Investor Services Group,
both unaffiliated companies. The Registrant has
entered into management agreements pursuant to which
ConAm Management provides management services with
respect to the Properties. First Data Investor
Services Group has been retained by the Registrant to
provide all accounting and investor communication
functions, while Service Data Corporation provides
transfer agent services. See Item 13 for a further
description of the service and management agreements
between the Registrant and affiliated entities.
Item 2. Properties
Below is a description of the Properties and a
discussion of current market conditions in each of the
areas where the Properties are located. For
information on the purchase of the Properties,
reference is made to Note 4 to the Consolidated
Financial Statements in the Partnership's Annual Report
to Unitholders for the year ended December 31, 1996,
which is filed as an exhibit under Item 14. Average
occupancy rates and appraised values of the
Partnership's Properties are incorporated by reference
to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1996, which is filed as an
exhibit under Item 14.
Creekside Oaks - Jacksonville, Florida
Creekside Oaks is a 120-unit apartment community
situated in the Baymeadows-Deerwood neighborhood of
southeast Jacksonville. The Southeast submarket, where
Creekside Oaks is located, has experienced notable
population growth and limited new construction in
recent years, resulting in strong occupancy for area
apartment complexes. A local survey of the Southeast
submarket reported an average apartment occupancy rate
of 95.4% as of the second quarter of 1996. The use of
rental concessions in the market is minimal. Given the
strong market conditions, several apartment projects
are in the planning or construction phase. During
1995, 953 new units were permitted for construction
with an additional 1,597 units permitted through the
second quarter of 1996. Despite the rise in new units
which could be added to the market, strong absorption
in the submarket due to the area's increasing
popularity is expected to ameliorate the adverse
effects the new construction could have on the market.
Ponte Vedra Beach Village I - Ponte Vedra Beach,Florida
This 122-unit property is located in an oceanside
residential area south of Jacksonville, Florida. The
Ponte Vedra Beach area has experienced notable
population growth and limited new construction in
recent years, resulting in strong occupancy for area
apartment complexes. A local survey of the Ponte Vedra
Beach area reported an average apartment occupancy rate
of 93.2% in the second quarter of 1996. The use of
rental concessions in the market is minimal. Given the
strong market conditions, several apartment projects
are in the planning or construction phase.
Additionally, three apartment complexes containing a
total of 631 units were recently completed which is
expected to intensify competition in the Ponte Vedra
area market.
Rancho Antigua - Scottsdale, Arizona
This 220-unit apartment community is located eight
miles northeast of Phoenix in southwest Scottsdale.
The Scottsdale apartment market experienced continued
strong competition during 1996, reflecting high levels
of construction in the area and notable competition
from condominiums and single family houses as
affordable prices and low mortgage rates entice renters
to buy. City-wide, 5,229 apartment units were permitted
during the first six months of 1996, 1,938 of these in
the Scottsdale submarket and 1,042 of these had been
completed or were currently under construction.
Although vacancy rates in Phoenix and the Scottsdale
submarket remained low in 1996, declining to 4.4% and
3.5% as of the second quarter, respectively, vacancies
are expected to increase with the new construction.
While the area's strong population and job growth are
likely to absorb much of this new supply, competition
for tenants is expected to remain strong.
Village at the Foothills I - Tucson, Arizona
This 60-unit apartment community is situated in the
"foothills" section of Tucson in the Catalina Foothill
submarket. Village at the Foothills I competes with a
number of apartment complexes and condominium
developments within the Tucson area. While Tucson's
economy began to slow in 1995 and 1996, construction of
multifamily properties has increased significantly.
The addition of new properties is beginning to put
downward pressure on occupancy rates and limiting
rental rate increases. The increased competition has
also led to the reemergence of rental incentives. In
addition, the multifamily market has been unfavorably
impacted by relatively low interest rates which has
made home ownership a viable alternative for renters.
A local survey of metropolitan Tucson conducted in the
second quarter of 1996 showed an average occupancy rate
of 88.9% among multifamily properties, down from 91.1%
during the same period in 1995. In the Catalina
Foothills submarket, where Village at the Foothills I
is located, occupancy rates declined from 91% in the
second quarter of 1995 to 84.5% in the same period in
1996.
Three of the Partnership's four properties are
encumbered by mortgage loans. See Note 5 to the
Consolidated Financial Statements for a description of
such mortgage financing.
Item 3. Legal Proceedings
The Registrant is not subject to any material pending
legal proceedings.
Item 4. Submission of Matters to a Vote of Security
Holders
During the fourth quarter of the year ended December
31, 1996, no matter was submitted to a vote of security
holders through the solicitation of proxies or
otherwise.
PART II
Item 5. Market for the Registrant's Limited
Partnership Units and Related Security Holder Matters
As of December 31, 1996, the number of Unitholders of
record was 4,055.
No established public trading market exists for the
Units, and it is not anticipated that such a market
will develop in the future.
Distributions of Net Cash Flow From Operations, when
made, are paid on a quarterly basis, with distributions
generally occurring approximately 45 days after the end
of each quarter. Such distributions have been made
primarily from net operating income with respect to the
Registrant's investment in the Properties and from
interest on short-term investments, and partially from
excess cash reserves. Information on cash
distributions paid by the Partnership for the past two
years is incorporated by reference to the Partnership's
Annual Report to Unitholders for the year ended
December 31, 1996, which is filed as an exhibit under
Item 14. 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.
Reference is made to Item 7 for a discussion of the
General Partners' expectations for future cash
distributions.
Item 6. Selected Financial Data
Incorporated by reference to the Partnership's Annual
Report to Unitholders for the year ended December 31,
1996, which is filed as an exhibit under Item 14.
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations
Liquidity and Capital Resources
At December 31, 1996, the Partnership had cash and cash
equivalents of $962,290, 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 $317,268 at December 31, 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.
The General Partners continually perform various
improvements at the properties. During the fourth
quarter of 1996 these repairs included unit interior
repairs at each of the four properties, roof repairs at
Rancho Antigua, plumbing and asphalt work at Creekside
Oaks, and irrigation repairs at Ponte Vedra Beach
Village I. Other repair work was also performed to
prepare vacant units for reoccupancy. Existing
problems with the roofs at Ponte Vedra Beach Village I
were aggravated by severe tropical rain storms late in
1996. After evaluating the damages, the General
Partners received several competitive bids to repair
the roofs, and subsequently selected a contractor. The
roof repairs are currently underway and are scheduled
to be completed this year. The anticipated cost of
repairing the roofs is approximately $400,000.
The General Partners declared a cash distribution of
$2.25 per Unit for the quarter ended December 31, 1996
which was paid to investors on February 5, 1997. 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. In order to
fund the costs of the roof repairs at Ponte Vedra Beach
Village I, the General Partners are considering
reducing or temporarily suspending cash distributions.
Given the performance of the Partnership's properties,
and the improvement in the real estate capital markets
which has increased demand by potential buyers, the
General Partners have determined that it is in the best
interest of the Partnership to attempt to sell the
remaining four properties in an orderly manner over the
next few years. Assuming these efforts are successful,
the General Partners expect to distribute the sales
proceeds and subsequently dissolve the Partnership in
1998 or 1999. However, meeting this objective will be
dependent upon a variety of factors, many of which are
not within the Partnership's control. Consequently,
there can be no assurance that any specific property or
all the properties can be sold, that particular prices
will be achieved, or that all the properties can be
sold within this time frame.
On March 15, 1996, based upon, among other things, the
advice of legal counsel, Skadden, Arps, Slate, Meagher
& Flom, the General Partners adopted a resolution that
states, among other things, if a Change of Control (as
defined below) occurs, the General Partners may
distribute the Partnership's cash balances not required
for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase
more than 10% of the Units that is not approved in
advance by the General Partners. In determining the
amount of the distribution, the General Partners may
take into account all material factors. In addition,
the Partnership will not be obligated to make any
distribution to any partner and no partner will be
entitled to receive any distribution until the General
Partners have declared the distribution and established
a record date and distribution date for the
distribution.
Results of Operations
1996 versus 1995
Partnership operations for the year ended December 31,
1996 resulted in a net loss of $2,600, compared with a
net loss of $112,522 in 1995. As a result of the sale
of Country Place Village I in July 1995, the
Partnership realized a gain of $232,402. Excluding
this gain, the Partnership incurred a loss from
operations of $344,924 for the year ended
December 31, 1995. The decline in net loss is
primarily the result of a decline in property operating
expenses and other expense categories due to the sale
of Country Place Village I in July 1995.
Rental income totaled $4,264,370 for the year ended
December 31, 1996 compared with $4,448,549 in 1995.
The decrease is primarily due to the sale of Country
Place Village I in July 1995. This was partially
offset by increases in rental income at Creekside Oaks,
Rancho Antigua and Ponte Vedra Beach Village I,
primarily reflecting rental rate increases instituted
during the year.
Property operating expenses totaled $2,222,474 for the
year ended December 31, 1996, compared with $2,515,717
in 1995. The decrease is primarily due to the sale of
Country Place Village I, and lower repairs and
maintenance expenses at Creekside Oaks. This was
partially offset by an increase in repairs and
maintenance expenses at Ponte Vedra Beach Village I.
Interest expense and depreciation and amortization
expense both decreased from 1995, primarily due to the
sale of Country Place Village I. General and
administrative expense totaled $181,896 for the year
ended December 31, 1996 compared with $222,881 for the
year ended December 31, 1995. The decrease primarily
reflects a reduction in legal expenses and lower
Partnership administrative expenses in the 1996 period.
1995 versus 1994
Partnership operations for the year ended December 31,
1995 resulted in a net loss of $112,522, compared with
net income of $37,325 in 1994. As a result of the sale
of Country Place Village I in July 1995, the
Partnership realized a gain of $232,402. Excluding
this gain, the Partnership incurred a loss from
operations of $344,924 for the year ended December 31,
1995 compared with income from operations of $37,325 in
1994. The change from income to loss was primarily the
result of (i) reduced rental income following the sale
of Country Place Village I, (ii) increased property
operating expense and, (iii) an increase in general and
administrative expense.
Rental income totaled $4,448,549 for the year ended
December 31, 1995 compared with $4,669,676 in 1994.
The decrease was primarily due to the sale of Country
Place Village I in July 1995. This was partially
offset by increases in rental income at Rancho Antigua
and Village at the Foothills I, reflecting rate
increases instituted during the year.
Interest income totaled $67,819 for the year ended
December 31, 1995 compared with $48,289 for the year
ended December 31, 1994. The increase was primarily
due to higher rates earned on the Partnership's cash
balances.
Property operating expenses totaled $2,515,717 for the
year ended December 31, 1995, compared with $2,262,915
in 1994. The increase primarily reflects higher repair
and maintenance expenses at Creekside Oaks and Rancho
Antigua due primarily to exterior painting work.
Interest expense and depreciation and amortization
expense both decreased from 1994, primarily due to the
sale of Country Place Village I. General and
administrative expense totaled $222,881 for the year
ended December 31, 1995 compared with $144,052 for the
year ended December 31, 1994. The increases primarily
reflect legal expenses due to the Partnership's
response to the offer for the limited partnership units
in the third quarter of 1995.
The average occupancy levels at each of the properties
for the years ended December 31, 1996, 1995 and 1994
were as follows:
Twelve Months Ended December 31,
Property 1996 1995 1994
Creekside Oaks 94% 93% 96%
Ponte Vedra Beach Village I 95% 96% 96%
Rancho Antigua 94% 92% 95%
Village at the Foothills I 94% 95% 96%
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference
to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1996, which is filed as an
exhibit under Item 14. Supplementary Data is
incorporated by reference to pages F-1 and F-2 of this
report.
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the
Registrant
The Registrant has no officers or directors. RI 2
Services and ConAm Services, the co-General Partners of
the Registrant, jointly manage and control the affairs
of the Registrant and have general responsibility and
authority in all matters affecting its business.
RI 2 Services
RI 2 Services (formerly Hutton Real Estate Services V,
Inc.) is a Delaware Corporation, formed on October 30,
1980, and is an affiliate of Lehman Brothers, Inc. See
the section captioned "Certain Matters Involving
Affiliates of RI 2 Services" for a description of the
Hutton Group's acquisition by Shearson Lehman Brothers,
Inc. ("Shearson") and the subsequent sale of certain of
Shearson's domestic retail brokerage and asset
management businesses to Smith Barney, Harris Upham &
Co. Incorporated ("Smith Barney"), which was followed
by a change in the general partner's name.
Certain officers and directors of RI 2 Services are now
serving (or in the past have served) as officers or
directors of entities which act as general partners of
a number of real estate limited partnerships which have
sought protection under the provisions of the Federal
Bankruptcy Code. The partnerships which have filed
bankruptcy petitions own real estate which has been
adversely affected by the economic conditions in the
markets in which the real estate is located and,
consequently, the partnerships sought the protection of
the bankruptcy laws to protect the partnerships' assets
from loss through foreclosure.
The names and positions held by the directors and
executive officers of RI 2 Services are set forth
below. There are no family relationships between any
executive officers or directors.
Name Office
Paul L. Abbott Director,President, Chief
Financial Officer and
Chief Executive Officer
Donald E. Petrow Vice President
David Sclafani Vice President
Paul L. Abbott, 51, is a Managing Director of Lehman
Brothers. Mr. Abbott joined Lehman Brothers in August
1988, and is responsible for investment management of
residential, commercial and retail real estate. Prior
to joining Lehman Brothers, Mr. Abbott was a real
estate consultant and a senior officer of a privately
held company specializing in the syndication of private
real estate limited partnerships. From 1974 through
1983, Mr. Abbott was an officer of two life insurance
companies and a director of an insurance agency
subsidiary. Mr. Abbott received his formal education
in the undergraduate and graduate schools of Washington
University in St. Louis.
Donald E. Petrow, 40, is a First Vice President of
Lehman Brothers Inc. Since March 1989, he has been
responsible for the investment management and
restructuring of various investment portfolios,
including but not limited to, federal insured
mortgages, tax exempt bonds, multifamily and commercial
real estate. From November 1981 to February 1989, Mr.
Petrow, as Vice President of Lehman, was involved in
investment banking activities relating to partnership
finance and acquisitions. Prior to joining Lehman, Mr.
Petrow was employed in accounting and equipment leasing
firms. Mr. Petrow holds a B.S. Degree in accounting
from Saint Peters College and an M.B.A in Finance from
Pace University.
David Sclafani, 24, is an Associate of Lehman Brothers
Inc. Mr. Sclafani joined Lehman Brothers in March 1996
and is responsible for the investment management and
restructuring of various limited partnerships holding
multi-family real estate. Prior to joining Lehman
Brothers, Mr. Sclafani worked in the real estate
finance department of a major foreign bank managing
performing and non-performing loans. Mr. Sclafani
holds a B.S. Degree in Finance from Siena College in
Loudonville, N.Y.
ConAm Services
ConAm Services is a California limited partnership
organized on August 30, 1982. The sole general partner
of ConAm Services is Continental American Development,
Inc. ("ConAm Development"). The names and positions
held by the directors and executive officers of ConAm
Development are set forth below. There are no family
relationships between any executive officers or
directors.
Name Office
Daniel J. Epstein President and Director
E. Scott Dupree Vice President/Director
Robert J. Svatos Vice President/Director
Ralph W. Tilley Vice President
J. Bradley Forrester Vice President
Daniel J. Epstein, 57, has been the President and a
Director of ConAm Development and ConAm Management (or
its predecessor firm) and a general partner of
Continental American Properties, Ltd. ("ConAm"), an
affiliate of ConAm Services, since their inception.
Prior to that time Mr. Epstein was Vice President and a
Director of American Housing Guild, which he joined in
1969. At American Housing Guild, he was responsible
for the formation of the Multi-Family Division and
directed its development and property management
activities. Mr. Epstein holds a Bachelor of Science
degree in Engineering from the University of Southern
California.
E. Scott Dupree, 46, is a Senior Vice President and
general counsel of ConAm Management responsible for
negotiation, documentation, review and closing of
acquisition, sale and financing proposals. Mr. Dupree
also acts as principal legal advisor on general legal
matters ranging from issues and contracts involving the
management company to supervision of litigation and
employment issues. Prior to joining ConAm Management
in 1985, he was corporate counsel to Trusthouse Forte,
Inc., a major international hotel and restaurant
corporation. Mr. Dupree holds a B.A. from United
States International University and a Juris Doctorate
degree from the University of San Diego.
Robert J. Svatos, 38, is a Senior Vice President and
Chief Financial Officer of ConAm Management, and has
been with the company since 1988. His responsibilities
include the accounting, treasury and data processing
functions of the organization. Mr. Svatos is part of
the firm's due diligence team, analyzing a broad range
of projects for ConAm Management's fee client base.
Prior to joining ConAm Management, he was the Chief
Financial Officer for AmeriStar Financial Corporation,
a nationwide mortgage banking firm. Mr. Svatos holds
an M.B.A. in Finance from the University of San Diego
and a Bachelor of Science degree in Accounting from the
University of Illinois. Mr. Svatos is a Certified
Public Accountant.
Ralph W. Tilley, 42, is a Senior Vice President and
Treasurer of ConAm Management. He is responsible for
the financial aspects of syndications and acquisitions,
ConAm Management's asset management portfolio and risk
management activities. Prior to joining ConAm
Management in 1980, he was a senior accountant with
KPMG Peat Marwick, specializing in real estate. He
holds a Bachelor of Science degree in Accounting from
San Diego State University and is a Certified Public
Accountant.
J. Bradley Forrester, 39, currently serves as an
Executive Vice President of ConAm Management
Corporation. He is responsible for property
acquisition and disposition on a nationwide basis.
Additionally, he is involved with the company's real
estate development activities. Prior to joining ConAm,
Mr. Forrester served as Senior Vice President -
Commercial Real Estate for First Nationwide Bank in San
Francisco, where he was responsible for a $2 billion
problem asset portfolio including bank-owned real
estate and non-performing commercial real estate loans.
His past experience includes significant involvement in
real estate development and finance, property
acquisitions and dispositions and owner's
representation matters. Prior to entering the real
estate profession, he worked for KPMG Peat Marwick in
Dallas, Texas. Mr. Forrester holds a Bachelor of
Science degree in Accounting from Louisiana State
University. He received his CPA certification in the
state of Texas.
Certain Matters Involving Affiliates of RI 2 Services
On July 31, 1993, Shearson sold certain of its domestic
retail brokerage and asset management businesses to
Smith Barney. Subsequent to the sale, Shearson changed
its name to "Lehman Brothers Inc." The transaction did
not affect the ownership of the Partnership's General
Partners. However, the assets acquired by Smith Barney
included the name "Hutton." Consequently, the Hutton
Real Estate Services general partner changed its name
to "RI 2 Real Estate Services Inc.," and the Hutton
Group changed its name to "LB I Group Inc." to delete
any reference to "Hutton."
Item 11. Executive Compensation
Neither of the General Partners nor any of their
directors or executive officers received any
compensation from the Registrant. See Item 13 below
with respect to a description of certain costs of the
General Partners or their affiliates reimbursed by the
Registrant.
Item 12. Security Ownership of Certain Beneficial
Owners and Management
As of December 31, 1996, no person was known by the
Registrant to be the beneficial owner of more than five
percent of the Units of the Registrant. No directors
or executive officers of the General Partners own any
Units.
Item 13. Certain Relationships and Related
Transactions
RI 2 Services and ConAm Services each received $40,000
as its allocable share of Net Cash From Operations with
respect to the year ended December 31, 1996. Pursuant
to the Amended and Restated Certificate and Agreement
of Limited Partnership of the Registrant, for the year
ended December 31, 1996, $26 of Registrant's net loss
was allocated to the General Partners ($13 to RI 2
Services and $13 to ConAm Services). For a description
of the share of Net Cash From Operations and the
allocation of income and loss to which the General
Partners are entitled, reference is made to the
material contained on pages 78 through 80 of the
Prospectus of the Registrant dated July 9, 1982 ( the
"Prospectus"), contained in Amendment No. 1 to
Registrant's Registration Statement No. 2-75519, filed
July 9, 1982, under the section captioned "Profit and
Losses and Cash Distributions," which section is
incorporated herein by reference thereto.
The Registrant has entered into property management
agreements with ConAm Management pursuant to which
ConAm Management has assumed direct responsibility for
day-to-day management of the Properties. It is the
responsibility of ConAm Management to select resident
managers and monitor their performance. ConAm
Management's services also include the supervision of
leasing, rent collection, maintenance, budgeting,
employment of personnel, payment of operating expenses,
and related services. For such services, ConAm
Management is entitled to receive a management fee as
described on pages 33 and 34 of the Prospectus under
the caption "Investment Objectives and Policies -
Management of Properties," which description is herein
incorporated by reference. A summary of property
management fees earned by ConAm Management during the
past three fiscal years is incorporated by reference to
Note 6 to the Consolidated Financial Statements
included in the Partnership's Annual Report to
Unitholders for the year ended December 31, 1996, which
is filed as an exhibit under Item 14.
Pursuant to Section 12(g) of Registrant's Certificate
and Agreement of Limited Partnership, the General
Partners may be reimbursed by the Registrant for
certain of their costs as described on page 16 of the
Prospectus, which description is incorporated herein by
reference thereto. First Data Investor Services Group
provides partnership accounting and investor relations
services for the Registrant. Prior to May 1993, these
services were provided by an affiliate of a general
partner. The Registrant's transfer agent and certain
tax reporting services are provided by Service Data
Corporation. Both First Data Investor Services Group
and Service Data Corporation are unaffiliated
companies. A summary of amounts paid to the General
Partners or their affiliates during the past three
years is incorporated by reference to Note 6 to the
Consolidated Financial Statements, included in the
Partnership's Annual Report to Unitholders for the
fiscal year ended December 31, 1996, which is filed as
an exhibit under Item 14.
PART IV
Item 14. Exhibits, Financial Statement Schedule and
Reports on Form 8-K
(a)(1) Financial Statements:
Page
Consolidated Balance Sheets - December 31,
1996 and 1995 (1)
Consolidated Statements of Partners' Capital
(Deficit) - For the years ended December 31,
1996, 1995 and 1994 (1)
Consolidated Statements of Operations - For
the years ended December 31, 1996, 1995
and 1994 (1)
Consolidated Statements of Cash Flows - For
the years ended December 31, 1996, 1995
and 1994 (1)
Notes to the Consolidated Financial Statements (1)
Report of Independent Accountants (1)
(a)(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated
Depreciation F-1
Report of Independent Accountants on Schedule III F-2
(1) Incorporated by reference to the Partnership's
Annual Report to Unitholders for the year ended
December 31, 1996 filed as an exhibit under Item 14.
(a)(3) Exhibits:
(3) Amended and Restated Certificate and
Agreement of Limited Partnership
(included as, and incorporated herein by
reference to, Exhibit A to the Prospectus
of Registrant dated July 9, 1982 (the
"Prospectus"), contained in Amendment No.
1 to Registration Statement, No. 2-75519,
of Registrant filed July 9, 1982).
(4) Subscription Agreement and Signature
Page (included as, and incorporated
herein by reference to, Exhibit B to the
Prospectus).
(10)(A) Settlement Agreement by and
among the Managing Joint Venturers and
the Epoch Joint Venturers dated July 1,
1992 (included as, and incorporated
herein by reference to Exhibit 10.1 to
the Registrant's Quarterly Report on Form
10-Q (Commission File No. 0-11085)).
(B) Amended and Restated Agreement
of General Partnership of Country Place
Village I Joint Venture dated as of July
1, 1992 (included as, and incorporated
herein by reference to Exhibit 10.2 to
the Registrant's Quarterly Report on Form
10-Q (Commission File No. 0-11085)).
(C) Amended and Restated Agreement
of General Partnership of Creekside Oaks
Joint Venture dated as of July 1, 1992
(included as, and incorporated herein by
reference to Exhibit 10.3 to the
Registrant's Quarterly Report on Form 10-
Q (Commission File No. 0-11085)).
(D) Amended and Restated Agreement
of General Partnership of Ponte Vedra
Beach Village I dated July 1, 1992
(included as, and incorporated herein by
reference to Exhibit 10.4 of the
Registrant's Quarterly Report on Form 10-
Q (Commission File No. 0-11085)).
(E) Joint Venture Agreement of
Rancho Antigua (included as, and
incorporated herein by reference to
Exhibit 10(M) to the Registrant's 1991
Annual Report on Form 10-K for the year
ended December 31, 1991 (Commission File
No. 0-11085)).
(F) Amended and Restated Agreement
of General Partnership of Village at the
Foothills I Joint Venture Limited
Partnership dated July 1, 1992 (included
as, and incorporated herein by reference
to Exhibit 10.5 to the Registrant's
Quarterly Report on Form 10-Q
(Commission File No. 0-11085)).
(G) Property Management Agreement
between Creekside Oaks Joint Venture and
ConAm Management Corporation for the
Creekside Oaks property (included as, and
incorporated herein by reference to
Exhibit 10-G to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 0-
11085)).
(H) Property Management Agreement
between Ponte Vedra Beach Joint Venture
and ConAm Management Corporation for the
Ponte Vedra Beach Village I property
(included as, and incorporated herein by
reference to Exhibit 10-H to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993
(Commission File No. 0-11085)).
(I) Property Management Agreement
between Rancho Antigua Joint Venture and
ConAm Management Corporation for the
Rancho Antigua property (included as, and
incorporated herein by reference to
Exhibit 10-I to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 0-
11085)).
(J) Property Management Agreement
between Country Place Village I Joint
Venture and ConAm Management Corporation
for the Country Place Village I property
(included as, and incorporated herein by
reference to Exhibit 10-J to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993
(Commission File No. 0-11085)).
(K) Property Management Agreement
between Village at the Foothills I Joint
Venture and ConAm Management for the
Village at the Foothills I property
(included as, and incorporated herein by
reference to Exhibit 10-K to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993
(Commission File No. 0-11085)).
(L) Loan Documents: Mortgage and
Security Agreement, Promissory Note and
Assignment of Rents and Leases with
respect to the refinancing of Country
Place Village I, between Registrant and
The Penn Mutual Insurance Company
(included as, and incorporated herein by
reference to Exhibit 10-L to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993
(Commission File No. 0-11085)).
(M) Loan Documents: Mortgage and
Security Agreement, Promissory Note and
Assignment of Rents and Leases with
respect to the refinancing of Creekside
Oaks, between Registrant and The Penn
Mutual Insurance Company (included as,
and incorporated herein by reference to
Exhibit 10-M to the Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1993 (Commission File No. 0-
11085)).
(N) Loan Documents: Mortgage and
Security Agreement, Promissory Note and
Assignment of Rents and Leases with
respect to the refinancing of Ponte Vedra
Beach Village I, between Registrant and
The Penn Mutual Insurance Company
(included as, and incorporated herein by
reference to Exhibit 10-N to the
Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993
(Commission File No. 0-11085)).
(O) Loan Documents: Deed of Trust
and Assignment of Rents with Security
Agreement and Financing Statement with
respect to the refinancing of Rancho
Antigua, between Registrant and The Penn
Mutual Insurance Company (included as,
and incorporated herein by reference to
Exhibit 10-O to the Registrant's Annual
Report on Form 10-K for the year ended
December 31 1993 (Commission File No. 0-
11085)).
(13) Annual Report to Unitholders for the year
ended December 31, 1996.
(21) List of Subsidiaries - Joint
Ventures (included as, and incorporated
herein by reference to Exhibit 22 to the
Registrant's Annual Report for the year
ended December 31, 1995, on Form 10-K
(Commission File No. 0-11085)).
(27) Financial Data Schedule
(99) Portions of Prospectus of Registrant
dated July 9, 1983 (included as, and
incorporated herein by reference to
Exhibit 28 of the Registrant's 1988
Annual Report filed on Form 10-K for the
fiscal year ended December 31, 1988
(Commission File No. 0-11085)).
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the
fourth quarter of 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Dated: March 27, 1997
HUTTON/CONAM REALTY INVESTORS 2
BY: RI 2 Real Estate Services Inc.
General Partner
BY: /S/ Paul L. Abbott
Name: Paul L. Abbott
Title: Director, President, Chief
Executive Officer and Chief Financial
Officer
BY: ConAm Property Services II, Ltd.
General Partner
BY: Continental American Development, Inc.
General Partner
BY: /S/ Daniel J. Epstein
Name: Daniel J. Epstein
Title: President, Director and
Principal Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant in the
capabilities and on the dates indicated.
RI 2 REAL ESTATE SERVICES INC.
A General Partner
Date: March 27, 1997 BY: /S/ Paul L. Abbott
Paul L. Abbott
Director, President,Chief Executive
Officer and Chief Financial Officer
Date: March 27, 1997 BY: /S/ Donald Petrow
Donald Petrow
Vice President
Date: March 27, 1997 BY: /S/ David Sclafani
David Sclafani
Vice President
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed below by the
following persons on behalf of the Registrant in the
capacities and on the dates indicated.
CONAM PROPERTY SERVICES II, LTD.
A General Partner
By: Continental American Development, Inc.
General Partner
Date: March 27, 1997 BY: /S/ Daniel J. Epstein
Daniel J. Epstein
Director and President
Date: March 27, 1997 BY: /S/ E. Scott Dupree
E. Scott Dupree
Vice President/Director
Date: March 27, 1997 BY: /S/ Robert J. Svatos
Robert J. Svatos
Vice President/Director
Date: March 27, 1997 BY: /S/ Ralph W. Tilley
Ralph W. Tilley
Vice President
Date: March 27, 1997 BY: /S/ J. Bradley Forrester
J. Bradley Forrester
Vice President
Hutton/ConAm Realty Investors 2
1996 Annual Report
Exhibit 13
Hutton/ConAm Realty Investors 2
Hutton/ConAm Realty Investors 2 is a California limited
partnership formed in 1982 to acquire, operate and hold
for investment multifamily housing properties. At
December 31, 1996, 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, 1996 and 1995.
Average Occupancy
Property Location 1996 1995
Creekside Oaks Jacksonville, Florida 94% 93%
Ponte Vedra Beach
Village I Ponte Vedra Beach, Florida 95% 96%
Rancho Antigua Scottsdale, Arizona 94% 92%
Village at the
Foothills I Tucson, Arizona 94% 95%
Contents
1 Message to Investors
3 Performance Summary
4 Financial Highlights
5 Consolidated Financial Statements
8 Notes to the Consolidated
Financial Statements
13 Report of 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 1996 Annual Report for
Hutton/ConAm Realty Investors 2. In this report, we review
Partnership operations and discuss general market conditions
affecting the Partnership's properties. We have also included a
performance summary which addresses operating results at each of
the properties and financial highlights for the year.
Cash Distributions
The Partnership paid cash distributions totaling $9.00 per Unit
for the year ended December 31, 1996, including the fourth
quarter distribution of $2.25 per Unit, which was credited to
your brokerage account or sent directly to you on February 5,
1997. Since inception, the Partnership has paid distributions
totaling $337.19 per original $500 Unit, including $220 per Unit
in return of capital payments. 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.
As reported in the Partnership's third quarter report, existing
problems with the roofs at Ponte Vedra Beach Village I were
aggravated by severe tropical rain storms late in 1996. After
evaluating the damages, the General Partners received several
competitive bids to repair the roofs, and subsequently selected a
contractor. The roof repairs are currently underway and are
scheduled to be completed this year. The anticipated cost of
repairing the roofs is approximately $400,000. In order to pay
for the costs of the repairs, the General Partners are
considering reducing or temporarily suspending cash
distributions. We will update you on the status of cash
distributions in future correspondence.
Operations Overview
Multi-family real estate continued to perform well during 1996,
with property values and apartment rents increasing in many areas
of the country. In particular, Jacksonville was among the
strongest multifamily housing markets in the country in 1996.
The improving conditions prompted a rise in new construction in
the markets where the Partnership owns properties, causing a
slowdown in leasing activity towards the end of the year. In
Tucson, market conditions were also impacted by the decision of
many renters to purchase homes. This increased the use of rent
specials to attract new tenants at many apartment properties,
including Village at the Foothills I. The Scottsdale market also
experienced slow growth during the year as a result of increased
construction, even though Metro Phoenix was ranked as the
nation's strongest labor market in 1996. Nonetheless, all of the
Partnership's properties maintained average occupancy levels for
the year of at least 94%, and the Partnership's rental income for
the four remaining properties increased by 5.5% from the previous
year. It is expected that the competitive conditions will
persist in 1997, but continued economic improvement and a
slowdown in construction should prevent these areas from becoming
significantly overbuilt.
General Information
As you are probably aware, several third parties have commenced
partial tender offers to purchase Units of the Partnership at
grossly inadequate prices which are substantially below the
Partnership's Net Asset Value. In response, we recommended that
limited partners reject these offers because they do not reflect
the underlying value of the Partnership's assets. To date,
holders of over 96% of the outstanding Units agreed that these
offers were inadequate, rejected the offer and did not tender
their Units. Please be assured that if any additional tender
offers are made for your Units, we will make every effort to
provide you with our position regarding such offer on a timely
basis.
Summary
During 1997, we intend to explore opportunities to sell the
Partnership's remaining properties within the next few years.
Assuming these efforts are successful, we would expect to
distribute the sales proceeds and subsequently dissolve the
Partnership in 1998 or 1999. However, meeting this objective
will be dependent upon a variety of factors, many of which are
not within the Partnership's control. Consequently, there can be
no assurance that any specific property or all the properties can
be sold, or that certain prices will be achieved, within this
time frame. In the interim, we will seek to maximize the
performance of the properties and further improve their
marketability and appeal. We will keep you apprised of
significant developments affecting your investment in future
reports.
Very truly yours,
/s/ Paul L. Abbott /s/ Daniel J. Epstein
Paul L. Abbott Daniel J. Epstein
President President
RI2 Real Estate Services Inc. Continental American Development, Inc.
General Partner of ConAm Property
Services II, Ltd.
March 27, 1997
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 an average occupancy level of 94% in 1996 and a
4.9% increase in rental income from the previous year. The
Southeast submarket, where Creekside Oaks is located, has
experienced notable population growth and limited new
construction in recent years, resulting in strong occupancy for
area apartment complexes. A local survey of the Southeast
submarket reported an average apartment occupancy rate of 95.4%
as of the second quarter of 1996. The use of rental concessions
in the market is minimal. Given the strong market conditions,
several apartment projects are in the planning or construction
phase. During 1995, 953 new units were permitted for
construction with an additional 1,597 units permitted through the
second quarter of 1996. Strong absorption in the submarket due
to the area's increasing popularity is expected to ameliorate the
adverse effects the new construction could have on the market.
Ponte Vedra Beach Village I - Ponte Vedra Beach, Florida
Located in an oceanside residential area southeast of
Jacksonville, this 124-unit luxury apartment property reported an
average occupancy level of 95% in 1996 and an increase in rental
income of 5.0% from the prior year. Property improvements for
the year included roof and asphalt repairs and carpet
replacement. Favorable market conditions in the Jacksonville
area have led to an increase in new multifamily construction.
Three new apartment complexes were recently completed in the
Ponte Vedra Beach submarket near Ponte Vedra Beach Village I
containing approximately 631 units. Despite the new units
becoming available for rent, it is expected that the market will
remain stable in 1997 as Jacksonville remains one of the fastest
growing labor markets in the country.
Rancho Antigua - Scottsdale, Arizona
This 220-unit apartment community is located eight miles
northeast of Phoenix in southwest Scottsdale. Rancho Antigua
reported average occupancy of 94% during 1996, up from 92% in
1995. The higher occupancy, combined with rental rate increases
implemented on renewal units during the year, resulted in a 7.3%
increase in rental income from 1995 to 1996. The Scottsdale
apartment market experienced continued strong competition during
1996, reflecting high levels of construction in the area and
notable competition from condominiums and single family houses as
affordable prices and low mortgage rates entice renters to buy.
City-wide, 5,229 apartment units were permitted during the first
six months of 1996, 1,938 of these in the Scottsdale submarket,
and 1,042 of these had been completed or were currently under
construction. Although vacancy rates in Phoenix and the
Scottsdale submarket remained low in 1996, declining to 4.4% and
3.5% as of the second quarter, respectively, vacancies are
expected to increase with the new construction. While the area's
strong population and job growth are likely to absorb much of
this new supply, competition for tenants is expected to remain
strong.
Village at the Foothills I - Tucson, Arizona
Village at the Foothills I contains 168 units and is located in
the northwest area of Tucson. The property maintained an average
occupancy rate of 94% during 1996 compared to 95% for 1995.
While Tucson's economy began to slow in 1995 and 1996,
construction of multifamily properties has increased
significantly. The addition of new properties is beginning to
put downward pressure on occupancy rates and is limiting rental
rate increases. The increased competition has also led to the
reemergence of rental incentives. In addition, the multifamily
market has been unfavorably impacted by relatively low interest
rates which has made home ownership a viable alternative for
renters. A local survey of metropolitan Tucson conducted in the
second quarter of 1996 showed an average occupancy rate of 88.9%
among multifamily properties, down from 91.1% at the same period
in 1995. In the Catalina Foothills submarket, where Village at
the Foothills I is located, occupancy rates declined from 91% in
the second quarter of 1995 to 84.5% in the same period in 1996.
Strong competition for tenants is likely to continue in 1997 as
the addition of new properties puts further pressure on
occupancies.
Financial Highlights
Selected Financial Data
For the periods ended
December 31, 1996 1995 1994 1993 1992
Dollars in thousands,
except for per unit data
Total Income $ 4,328 $ 4,516 $ 4,718 $ 4,479 $ 4,316
Gain on Sale of Property _ 232 _ _ _
Net Income (Loss) (3) (113) 37 (528) (409)
Net Cash Provided by (Used for)
Operating Activities 1,334 864 1,150 (180) 680
Long-term Obligations 11,770 11,969 14,219 14,418 15,636
Total Assets at Year End 18,920 19,931 24,772 25,237 26,946
Net Income (Loss) per
Limited Partnership Unit* (.03) (4.27) .42 (6.53) (5.06)
Distributions per
Limited Partnership Unit* 9.00 9.00 5.50 _ _
Special Distributions per
Limited Partnership Unit* _ 20.00 _ _ _
* 80,000 units outstanding
- Total income declined in 1996, reflecting the sale of
Country Place Village I on July 20, 1995. This was partially
offset by increased rental income at Rancho Antigua, Creekside
Oaks and Ponte Vedra Beach Village I.
- The decline in net loss in 1996, is primarily attributable
to the reduction in property operating expenses and other expense
categories resulting from the sale of Country Place Village I.
Excluding a $232,402 gain on the sale of the property, the
Partnership generated a loss from operations of $344,924 for the
year ended December 31, 1995.
- Net cash provided by operating activities increased in 1996
due to the decline in net loss, as discussed above, and the
release of the remaining funds from Creekside Oaks' replacement
reserve account. Pursuant to the refinancing of the Creekside
Oaks mortgage loan, the lender required that the Partnership
place funds in an escrow account for various repairs. Upon
completion of the repairs and an inspection by the lender the
balance of the account, totaling $354,675, was returned to the
Partnership.
Cash Distributions
Per Limited Partnership Unit
1996 1995
Special Distributions* $ _ $ 20.00
First Quarter 2.25 2.25
Second Quarter 2.25 2.25
Third Quarter 2.25 2.25
Fourth Quarter 2.25 2.25
Total $ 9.00 $ 29.00
* On August 17, 1995, the Partnership paid a special cash
distribution totaling $20 per Unit, reflecting a return of
capital from the net proceeds of the sale of Country Place
Village I and Partnership cash reserves.
Consolidated Balance Sheets
At December 31,At December 31, 1996 1995
Assets
Investments in real estate:
Land $ 5,744,972 $ 5,744,972
Buildings and improvements 23,525,644 23,442,403
29,270,616 29,187,375
Less accumulated depreciation (11,874,334) (10,931,382)
17,396,282 18,255,993
Cash and cash equivalents 962,290 710,686
Restricted cash 317,268 651,661
Other assets, net of accumulated
amortization of $197,977 in 1996 and
$135,458 in 1995 243,940 312,359
Total Assets $18,919,780 $19,930,699
Liabilities and Partners' Capital (Deficit)
Liabilities:
Mortgages payable $11,769,703 $11,968,504
Accounts payable and accrued expenses 127,810 137,945
Due to general partners and affiliates 17,931 17,449
Security deposits 106,353 106,218
Distribution payable 200,000 200,000
Total Liabilities 12,221,797 12,430,116
Partners' Capital (Deficit):
General Partners (565,129) (485,103)
Limited Partners (80,000 units outstanding) 7,263,112 7,985,686
Total Partners' Capital 6,697,983 7,500,583
Total Liabilities and Partners' Capital $18,919,780 $19,930,699
Consolidated Statement of Partners' Capital (Deficit)
For the years ended December 31, 1996, 1995 and 1994
General Limited
Partners Partners Total
Balance at December 31, 1993 $ (573,343) $ 11,053,568 $ 10,480,225
Net Income 3,732 33,593 37,325
Distributions (48,889) (440,000) (488,889)
Balance at December 31, 1994 (618,500) 10,647,161 10,028,661
Net Income (Loss) 228,953 (341,475) (112,522)
Distributions (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 (80,000) (720,000) (800,000)
Balance at December 31, 1996 $ (565,129) $ 7,263,112 $ 6,697,983
Consolidated Statements of Operations
For the years ended December 31, 1996 1995 1994
Income
Rental $ 4,264,370 $ 4,448,549 $ 4,669,676
Interest and other 63,467 67,819 48,289
Total Income 4,327,837 4,516,368 4,717,965
Expenses
Property operating 2,222,474 2,515,717 2,262,915
Depreciation and amortization 1,005,471 1,099,215 1,163,239
Interest 920,596 1,023,479 1,110,434
General and administrative 181,896 222,881 144,052
Total Expenses 4,330,437 4,861,292 4,680,640
Income (loss) from operations (2,600) (344,924) 37,325
Gain on sale of property _ 232,402 _
Net Income (Loss) $ (2,600) $ (112,522) $ 37,325
Net Income (Loss) Allocated:
To the General Partners $ (26) $ 228,953 $ 3,732
To the Limited Partners (2,574) (341,475) 33,593
$ (2,600) $ (112,522) $ 37,325
Per limited partnership unit
(80,000 outstanding)
Income (loss) from operations $(.03) $(4.27) $.42
Gain on sale of property _ _ _
Net Income (Loss) $(.03) $(4.27) $.42
Consolidated Statements of Cash Flows
For the years ended December 31, 1996 1995 1994
Cash Flows From Operating Activities:
Net Income (loss) $ (2,600) $ (112,522) $ 37,325
Adjustments to reconcile net income (loss)
to net cash provided by operating
activities:
Depreciation and amortization 1,005,471 1,099,215 1,163,239
Gain on sale of property _ (232,402) _
Increase (decrease) in cash arising
from changes in operating assets and
liabilities:
Fundings to restricted cash (327,279) (361,130) (407,336)
Release of restricted cash 661,672 488,797 409,471
Other assets 5,900 _ 6,310
Accounts payable and accrued expenses (10,135) 10,996 (56,862)
Due to general partners and affiliates 482 (2,462) 912
Security deposits 135 (26,992) (2,961)
Net cash provided by operating activities 1,333,646 863,500 1,150,098
Cash Flows From Investing Activities:
Net proceeds from sale of property _ 1,522,242 _
Additions to real estate (83,241) (199,476) (114,067)
Net cash provided by (used for) investing
activities (83,241) 1,322,766 (114,067)
Cash Flows From Financing Activities:
Distributions (800,000) (2,460,001) (244,444)
Mortgage principal payments (198,801) (199,366) (199,306)
Receipt of deposit on mortgage refinancing _ _ 72,058
Mortgage fees _ _ (39,283)
Net cash used for financing activities (998,801) (2,659,367) (410,975)
Net increase (decrease) in cash and cash
equivalents 251,604 (473,101) 625,056
Cash and cash equivalents, beginning
of year 710,686 1,183,787 558,731
Cash and cash equivalents, end of year $ 962,290 $ 710,686 $1,183,787
Supplemental Disclosure of Cash Flow Information:
Cash paid during the period for interest $ 920,596 $ 1,023,479 $1,110,434
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.
Notes to the Consolidated Financial Statements
December 31, 1996, 1995 and 1994
1. Organization
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 General Partners
of the Partnership are RI 2 Real Estate Services Inc., an
affiliate of Lehman Brothers Inc. (see below), and ConAm Property
Services II, Ltd. ("ConAm"), an affiliate of Continental American
Properties, Ltd (the "General Partners"). The Partnership will
continue until December 31, 2010 unless sooner terminated
pursuant to the terms of the Partnership Agreement.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of
its domestic retail brokerage and asset management businesses to
Smith Barney, Harris Upham & Co. Incorporated ("Smith Barney").
Subsequent to the sale, Shearson Lehman Brothers Inc. changed its
name to Lehman Brothers Inc. ("Lehman Brothers"). The
transaction did not affect the ownership of the General Partners.
However, the assets acquired by Smith Barney included the name
"Hutton." Consequently, effective January 13, 1994, the Hutton
Real Estate Services V, Inc. general partner changed its name to
"RI 2 Real Estate Services, Inc."
On March 15, 1996, based upon, among other things, the advice of
legal counsel, Skadden, Arps, Slate, Meagher & Flom, the General
Partners adopted a resolution that states, among other things, if
a Change of Control (as defined below) occurs, the General
Partners may distribute the Partnership's cash balances not
required for its ordinary course day-to-day operations. "Change
of Control" means any purchase or offer to purchase more than 10%
of the Units that is not approved in advance by the General
Partners. In determining the amount of the distribution, the
General Partners may take into account all material factors. In
addition, the Partnership will not be obligated to make any
distribution to any partner and no partner will be entitled to
receive any distribution until the General Partners have declared
the distribution and established a record date and distribution
date for the distribution.
2. Significant Accounting Policies
Financial Statements The consolidated financial statements
include the accounts of the Partnership and its affiliated
ventures. The effect of transactions between the Partnership and
its ventures have been eliminated in consolidation.
Real Estate Investments Real estate investments are recorded at
cost less accumulated depreciation which includes the initial
purchase price of the property, legal fees, acquisition and
closing costs.
Leases are accounted for under the operating method. Under this
method, revenue is recognized as rentals are earned and expenses
(including depreciation) are charged to operations when incurred.
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. Maintenance
and repairs are charged to operations as incurred. 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 income for the period.
Accounting for Impairment In March 1995, the Financial
Accounting Standards Board issued 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"), which requires impairment losses to be recorded on
long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flow estimated
to be generated by those assets are less than the assets'
carrying amount. FAS 121 also addresses the accounting for long-
lived assets that are expected to be disposed of. Assets held for
disposition are recorded at the lessor of carrying value or fair
market value less costs to sell. The Partnership adopted FAS 121
in the fourth quarter of 1995.
Fair Value of Financial Instruments Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" ("FAS 107"), requires that the Partnership
disclose the estimated fair values of its financial instruments.
Fair values generally represent estimates of amounts at which a
financial instrument could be exchanged between willing parties
in a current transaction other than in forced liquidation.
Fair value estimates are subjective and are dependent on a number
of significant assumptions based on management's judgment
regarding future expected loss experience, current economic
conditions, risk characteristics of various financial
instruments, and other factors. In addition, FAS 107 allows a
wide range of valuation techniques, therefore, comparisons
between entities, however similar, may be difficult.
Other Assets - Included in other assets are deferred mortgage costs
incurred in connection with obtaining financing on four of the
Partnership's properties. Such costs are amortized over the term
of the loans.
Offering Costs - Costs relating to the sale of limited partnership
units were deferred during the offering period and charged to the
limited partners' capital accounts upon the consummation of the
public offering.
Income Taxes - No provision for income taxes has been made in the
financial statements since income, losses and tax credits are
passed through to the individual partners.
Cash and Cash Equivalents - Cash equivalents consists of short-
term highly liquid investments which have maturities of three
months or less from the date of issuance. The carrying amount
approximates fair value because of the short maturity of these
instruments. Cash and cash equivalents include security deposits
of $71,545 and $79,936 at December 31, 1996 and 1995,
respectively, restricted under certain state statutes.
Restricted Cash - Restricted cash consists of escrows for real
estate taxes, casualty insurance, and replacement reserves as
required by the first mortgage lender in the amount of $317,268
and $651,661 at December 31, 1996 and 1995, respectively.
Concentration of Credit Risk - Financial instruments which
potentially subject the Partnership to a concentration of credit
risk principally consist of cash and cash equivalents in excess
of the financial institutions' insurance limits. The Partnership
invests available cash with high credit quality financial
institutions.
Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
Reclassifications - Certain prior year amounts have been
reclassified to conform to the current year's presentation.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations,
as defined, will be distributed quarterly, 90% to the limited
partners and 10% to the General Partners.
Net loss and all depreciation will be allocated 99% to the
limited partners and 1% to the General Partners. Net income will
generally be allocated in accordance with the distribution of net
cash from operations.
Net proceeds from sales or refinancing will 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, cumulative 7% return
thereon. The balance, if any, will be distributed 85% to the
limited partners and 15% to the General Partners. Gain from
sales will be allocated to each partner having a negative capital
account balance, pro-rata, to the extent of such negative
balance. Thereafter, such gain will be allocated in accordance
with the distribution of net proceeds from sale or refinancing,
with the balance allocated to the limited partners.
4. Real Estate Investments
Real estate investments consist of four residential apartment
complexes acquired through investments in joint ventures as
follows:
Apartment Date Purchase
Property Name Units Location Acquired Price
Creekside Oaks 120 Jacksonville, FL 11/18/83 $5,960,045
Ponte Vedra Beach
Village I 122 Ponte Vedra Beach, FL 2/10/84 6,804,000
Rancho Antigua 220 Scottsdale, AZ 3/8/84 10,873,757
Village at the
Foothills I 60 Tucson, AZ 2/27/85 3,623,741
To each venture, the Partnership contributed the apartment
projects as its initial capital contribution.
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 which included a $69,926 write off of
unamortized mortgage fees. 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 will be distributed 100% to the
Partnership until it has received an annual, noncumulative
12% return on its adjusted capital contribution. Any
remaining balance will be distributed 60% to the Partnership
and 40% to the co-venturer.
b.Net income of the joint venture and gain from sale will be
allocated basically in accordance with the distribution of
net cash from operations, as defined, and net proceeds from
sales, respectively. All net losses will be allocated 98% to
100% to the Partnership depending on the joint venture
agreement.
c.Net proceeds from a sale or refinancing will 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 will 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 will be distributed 100% to
the Partnership until it has received an annual, non-
cumulative preferred return, as defined. Any remaining
balance will be distributed 99% to the Partnership and 1% to
the corporate General Partners.
b.Net income will 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 corporate General
Partners. All losses will 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 corporate General Partners.
c.Income from a sale will 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 corporate General Partners. Net proceeds from a sale or
refinancing will be distributed first to the partners with a
positive capital account balance, as defined; thereafter, 99%
to the Partnership and 1% to the corporate General Partners.
5. Mortgages Payable
On October 28, 1993, the extended maturity date, the Partnership
obtained replacement financing on its Creekside Oaks, Ponte Vedra
Beach I, Rancho Antigua and Country Place Village I properties
from The Penn Mutual Life Insurance Company ("Penn Mutual") and a
subsidiary, both unaffiliated parties. Total proceeds of
$14,450,000 were received and collateralized by Mortgages and
Security Agreements and Assignments of Rents and Leases
Agreements encumbering the respective properties. Each of the
loans is a non-recourse loan with periodic payments of principal
and interest based on a twenty-five year amortization schedule
with the balance of the principal due at maturity. 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.
During 1996, Penn Mutual transferred the first mortgage loans of
Creekside Oaks and Ponte Vedra Beach I to Midland Loan Services
under the existing terms, and Rancho Antigua to GE Capital Asset
Management Corp. under the existing terms. Mortgages payable at
December 31, 1996, consist of the following first mortgage loans:
Interest Maturity
Property Principal Rate Date
Creekside Oaks $ 2,525,483 7.75% 11/01/2000
Ponte Vedra Beach Village I $ 3,812,050 7.75% 11/01/2000
Rancho Antigua $ 5,432,170 7.75% 11/01/2000
Partnership cash reserves were also used to pay refinancing
expenses of $491,095 and fund escrows of $995,372. The escrowed
funds are applied to the payment of taxes, insurance and repairs
and improvements.
Annual maturities of mortgage notes principal over the next four
years are as follows:
Year Amount
1997 $ 214,768
1998 232,016
1999 250,650
2000 11,072,269
Total $ 11,769,703
Based on the borrowing rates currently available to the
Partnership for mortgage loans with similar terms and average
maturities, the fair value of long-term debt approximates
carrying value.
6. Transactions With Related Parties
The following is a summary of fees earned and reimbursable
expenses for the years ended December 31, 1996, 1995, and 1994,
and the unpaid portion at December 31, 1996:
Unpaid at
December 31, Earned
1996 1996 1995 1994
RI 2 Real Estate Services Inc.:
Out-of-pocket expenses $ _ $ 807 $ 2,577 $ 1,390
ConAm and affiliates:
Property operating salaries _ 323,312 336,760 345,626
Property management fees 17,931 213,281 223,677 233,152
Total $ 17,931 $ 537,400 $563,014 $ 580,168
7. 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, 1996, 1995
and 1994:
1996 1995 1994
Net income (loss) per financial
statements $ (2,600) $ (112,522) $ 37,325
Tax basis joint venture net
loss in excess of GAAP basis
joint venture net income (loss) (193,019) (233,232) (270,609)
Gain on sale of property for tax
purposes in excess of gain per
financial statements _ 1,536,333 _
Other 1,397 (5,457) (1,438)
Taxable net income (loss) $ (194,222) $ 1,185,122 $ (234,722)
The following is a reconciliation of partners' capital for
financial statement purposes to partners' capital for federal
income tax purposes as of December 31, 1996, 1995 and 1994:
1996 1995 1994
Partners' capital per financial
statements $ 6,697,983 $ 7,500,583 $ 10,028,661
Adjustment for cumulative
difference between tax basis
loss and income (loss) per
financial statements (4,984,975) (4,793,353) (6,090,997)
Partners' capital per tax return $ 1,713,008 $ 2,707,230 $ 3,937,664
8. 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 calendar year.
The consolidated statements of cash flows recognize actual cash
distributions paid during the calendar year. The following table
discloses the annual differences as presented on the consolidated
financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31
199 6 $ 200,000 $ 800,000 $ 800,000 $ 200,000
1995 244,445 2,415,556 2,460,001 200,000
1994 _ 488,889 244,444 244,445
Report of Independent Accountants
To the Partners of
Hutton/ConAm Realty Investors 2:
We have audited the consolidated balance sheets of Hutton/ConAm
Realty Investors 2, a California limited partnership, and
Consolidated Ventures as of December 31, 1996 and 1995, and the
related consolidated statements of operations, partners' capital
(deficit) and cash flows for each of the three 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 Hutton/ConAm Realty Investors 2, 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 three 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
Determination of Net Asset Value Per $280 Unit at December 31,
1996 (Unaudited)
Acquisition Cost
(Purchase Price Partnership's
Plus General Share of
Partners' December 31,
Date of Acquisition 1996 Appraised
Property Acquisition Fees) Value (1)
Creekside Oaks 11-18-83 $ 6,238,445 $ 5,200,000
Ponte Vedra Beach Village I 02-10-84 7,123,950 7,800,000
Rancho Antigua 03-08-84 11,446,176 12,100,000
Village at the Foothills I 02-27-85 3,756,741 2,300,000
$ 28,565,312 $ 27,400,000
Cash and cash equivalents 1,279,558
Other assets 4,283
$ 28,683,841
Less:
Total liabilities (12,221,797)
Partnership Net Asset Value (2) $ 16,462,044
Net Asset Value Allocated:
Limited Partners $ 16,222,566
General Partners 239,478
$ 16,462,044
Net Asset Value Per Unit
(80,000 units outstanding) $202.78
(1) This represents the Partnership's share of the December 31,
1996 Appraised Values which were determined by an independent
property appraisal firm.
(2) The Net Asset Value assumes a hypothetical sale at December
31, 1996 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 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, 1996
<TABLE>
<S> <C> <C> <C> <C>
Residential Property: Ponte Vedra Village at the
Consolidated Ventures: Creekside Oaks Beach Village 1 Rancho Antigua Foothills Total
Location Jacksonville, FL Ponte Vedra Scottsdale,AZ Tucson, AZ na
Beach, FL
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 $2,525,483 $3,812,050 $ 5,432,170 $ _ $11,769,703
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 281,499 155,430 100,653 11,816 549,398
Gross amount at which
carried at close of
period:
Land $ 403,193 $ 1,045,472 $ 3,497,484 $ 798,823 $ 5,744,972
Buildings and
improvements 6,133,259 6,306,276 8,069,013 3,017,096 23,525,644
$6,536,452 $7,351,748 $11,566,497 $ 3,815,919 $29,270,616
Accumulated depreciation $3,120,894 $3,204,928 $ 4,123,039 $ 1,425,473 $11,874,334
(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 $20,769,311.
(3) Buildings and improvements - 25 years; personal property - 10
years.
</TABLE>
A reconciliation of the carrying amount of real estate and
accumulated depreciation for the years ended
December 31, 1996, 1995, and 1994 follows:
1996 1995 1994
Real estate investments:
Beginning of year $29,187,375 $34,056,223 $33,942,156
Additions 83,241 199,476 114,067
Dispositions _ (5,068,324) _
End of year $29,270,616 $29,187,375 $34,056,223
Accumulated depreciation:
Beginning of year $10,931,382 $11,699,378 $10,612,843
Depreciation expense 942,952 1,029,336 1,086,535
Dispositions _ (1,797,332) _
End of year $11,874,334 $10,931,382 $11,699,378
Report of Independent Accountants
Our report on the consolidated financial statements of
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 Hutton/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
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,279,558
<SECURITIES> 000
<RECEIVABLES> 000
<ALLOWANCES> 000
<INVENTORY> 000
<CURRENT-ASSETS> 000
<PP&E> 29,270,616
<DEPRECIATION> (11,874,334)
<TOTAL-ASSETS> 18,919,780
<CURRENT-LIABILITIES> 000
<BONDS> 11,769,703
<COMMON> 000
000
000
<OTHER-SE> 6,697,983
<TOTAL-LIABILITY-AND-EQUITY> 18,919,780
<SALES> 000
<TOTAL-REVENUES> 4,327,837
<CGS> 000
<TOTAL-COSTS> 2,222,474
<OTHER-EXPENSES> 1,187,367
<LOSS-PROVISION> 000
<INTEREST-EXPENSE> 920,596
<INCOME-PRETAX> 000
<INCOME-TAX> 000
<INCOME-CONTINUING> 000
<DISCONTINUED> 000
<EXTRAORDINARY> 000
<CHANGES> 000
<NET-INCOME> (2,600)
<EPS-PRIMARY> (.03)
<EPS-DILUTED> (.03)
</TABLE>
