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, 1997
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
CONAM REALTY INVESTORS 2 L.P.
formerly known as
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
incorporation or organization Identification No.
1764 San Diego Avenue
San Diego, CA 92110 Attn.: Robert J. Svatos 92110-1906
Address of principal executive offices Zip Code
Registrant's telephone number, including area code (619) 297-6771
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 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, 1997.
PART I
Item 1. Business
General Description of Business and Objectives
This Form 10-K contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in or contemplated by the forward-looking statements as a result of a
number of factors, including those identified herein.
ConAm Realty Investors 2 L.P., formerly known as Hutton/ConAm Realty Investors
2 (the "Partnership"), is a California limited partnership formed on October 8,
1992. ConAm Property Services II, Ltd. ("CPS II"), a California limited
partnership, and RI 2 Real Estate Services Inc. ("RI 2"), a Delaware
corporation, were the original co-general partners of the Partnership. On
January 27, 1998, CPS II acquired RI 2's co-general partner interest in the
Partnership, effective July 1, 1997, pursuant to a Purchase Agreement between
CPS II and RI 2 dated August 29, 1997. As a result, CPS II now serves as the
sole general partner (the "General Partner") of the Partnership. In
conjunction with this transaction, the name of the Partnership was changed from
Hutton/ConAm Realty Investors 2 to ConAm Realty Investors 2 L.P.
The Partnership was organized to engage in the business of acquiring, operating
and holding for investment multifamily residential properties. The Partnership
originally invested in four joint ventures and one limited partnership, each of
which was formed to own a specified residential apartment property. As
described below one property has been sold. Funds held as a working capital
reserve are invested in bank certificates of deposit, unaffiliated money market
funds or other highly liquid short-term investments where there is appropriate
safety of principal in accordance with the Partnership's investment objectives
and policies.
The Partnership'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.
Distribution of net cash from operations is the Partnership's objective during
its operational phase, while preservation and appreciation of capital are the
Partnership's long-term objectives. The attainment of the Partnership's
investment 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 Partnership's properties are located, especially with
regard to achievement of capital appreciation.
From time to time the Partnership expects to sell its real property interests
taking into consideration such factors as the amount of appreciation in value,
if any, to be realized and the possible risks of continued ownership. Proceeds
from any future sale, financing or refinancing of properties will not be
reinvested and may be distributed to the Limited Partners and General Partner
(sometimes referred to together herein as the "Partners"), so that the
Partnership will, in effect, be self-liquidating. If deemed necessary, the
Partnership may retain a portion of the proceeds from any sale, financing or
refinancing as capital reserves. As partial payment for properties sold, the
Partnership 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 Partnership utilized the net proceeds of its public offering to
acquire five residential apartment complexes (collectively, the "Properties")
through investments in four joint ventures and one limited partnership, 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;
(4) Village at the Foothills I, a 60-unit apartment complex located in Tucson,
Arizona, and; (5) Country Place Village I, an 88-unit apartment complex located
in Clearwater, Florida. On July 20, 1995, Country Place Village I, was sold to
an unaffiliated institutional buyer for $3,665,000.
The Partnership considers itself to be engaged in only one industry segment,
real estate investment.
Competition
The Partnership'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 Partnership'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 Partnership 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 typical in the markets in
which they are located. In some cases, Partnership properties may compete with
properties owned by other partnerships affiliated with the General Partner.
For a discussion of current market conditions in the areas where the
Partnership's Properties are located, reference is made to the Partnership's
Annual Report to Unitholders for the year ended December 31, 1997, which is
filed as an exhibit under Item 14.
Employees
The Partnership has no employees. Services are provided by CPS II, ConAm
Management Corporation ("ConAm Management"), an affiliate of CPS II, as well as
Service Data Corporation and First Data Investor Services Group, both
unaffiliated companies. The Partnership has entered into property management
agreements pursuant to which ConAm Management provides management services with
respect to the Properties. First Data Investor Services Group had been
retained by the Partnership to provide all accounting and investor
communication functions, while Service Data Corporation provides transfer agent
services. Effective January 1, 1998, the accounting functions of the
Partnership were transferred to the firm of Brock, Tibbetts, & Snell, an
unaffiliated company located in San Diego, California. See Item 13, "Certain
Relationships and Related Transactions", for a further description of the
service and management agreements between the Partnership and affiliated
entities.
Item 2. Properties
For a description of the Partnership's Properties, a discussion of current
market conditions in the areas where the Properties are located and appraised
values, reference is made to the Partnership's Annual Report to Unitholders for
the fiscal year ended December 31, 1997, which is filed as an exhibit under
Item 14. For information on the purchase of the Properties, reference is made
to Note 4 of the Consolidated Financial Statements, included herein by
reference to the Partnership's Annual Report to Unitholders. Average occupancy
rates at each property are incorporated by reference to Item 7.
Item 3. Legal Proceedings
The Partnership 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 fiscal year ended December 31, 1997, no matter
was submitted to a vote of Unitholders 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, 1997, the number of Unitholders of record was 3,967.
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 From Operations, when made, are paid on a quarterly
basis, with distributions generally occurring approximately 45 days after the
end of each fiscal quarter. Such distributions have been made primarily from
net operating income with respect to the Partnership'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 fiscal years is incorporated by reference to the
Partnership's Annual Report to Unitholders for the fiscal year ended
December 31, 1997, 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.
Item 6. Selected Financial Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1997, 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, 1997, the Partnership had cash and cash equivalents of
$1,109,506, that were invested in unaffiliated money market funds, an increase
from $962,290 at December 31, 1996. The increase is attributable to net cash
provided by operating activities exceeding cash used for distributions,
mortgage principal payments, and additions to investments in real estate. The
Partnership also maintains a restricted cash balance, which totaled $342,282 at
December 31, 1997, an increase from $317,268 at December 31, 1996, representing
escrows for insurance and real estate taxes required under the terms of the
current mortgage loans. The Partnership expects sufficient cash to be
generated from operations to meet its current operating expenses.
Accounts payable and accrued expenses totaled $197,443 at December 31, 1997, an
increase from $127,810 at December 31, 1996. The increase is primarily due to
differences in the timing of payments between the two periods.
Distribution payable decreased from $200,000 at December 31, 1996 to $0 at
December 31, 1997. The decrease reflects the suspension of quarterly
distributions commencing in the first quarter of 1997 in order to fund roof
replacements at Ponte Vedra Beach Village I. In future quarters, the General
Partner will assess the Partnership's ability to reinstate cash distributions
based on the Partnership's operating results and future cash needs.
The Partnership continues to perform various improvements at the Properties,
which include roof replacements 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. The roof replacements were
substantially completed in September 1997 at a cost of approximately $400,000
which was funded from the Partnership's operating cash flow and cash reserves.
The Partnership will evaluate the need for additional improvement work at the
Properties on an ongoing basis.
The General Partner is continuing to evaluate the sale potential of the
remaining properties and other options with respect to the Partnership's
investments. One of these options includes refinancing certain loans secured
by the Properties in order to return capital to the limited partners on a
tax-free basis and lock in favorable fixed interest rates. This would also
potentially enhance the marketability of the Properties, while enabling the
Partnership to take advantage of possible future property appreciation. The
Partnership's ability to sell the properties is dependent upon a variety of
factors, many of which are not within the Partnership's control. There can be
no assurance that any specific property or all the Properties can be sold, that
particular prices will be achieved, or that the Properties can be sold within a
specific time frame.
Results of Operations
1997 versus 1996
Partnership operations for the year ended December 31, 1997 resulted in a net
loss of $202,655 compared with a net loss of $2,600 in 1996. The higher net
loss in 1997 is due primarily to an increase in property operating expenses and
the write-off of the remaining basis of the roofs replaced in 1997. Net cash
provided by operating activities decreased to $979,104 for the year ended
December 31, 1997, from $1,333,646 in 1996. The decrease is primarily due to
the higher net loss in 1997, as discussed above, and a reduction in the amount
of restricted cash released.
Rental income for the year ended December 31, 1997 was $4,327,499, up slightly
from $4,264,370 in 1996, primarily as a result of increases in rental rates at
Rancho Antigua and Creekside Oaks. Interest and other income totaled $56,229
for the year ended December 31, 1997, largely unchanged from $63,467 in 1996.
Property operating expenses increased to $2,329,300 for the year ended December
31, 1997, from $2,222,474 for 1996. The increase is primarily attributable to
higher repairs and maintenance expenses at Ponte Vedra Beach Village I and
Rancho Antigua, and higher landscaping costs at Rancho Antigua. The increase
is also due to higher rental administration costs at both properties.
General and administrative expenses increased from $181,896 for the year ended
December 31, 1996 to $213,441 in 1997. The increase is primarily due to an
increase in expenses for Partnership accounting, tax and other administrative
services. During the 1997 period, certain expenses incurred by RI 2, its
affiliates, and an unaffiliated third party service provider in servicing the
Partnership, which were voluntarily absorbed by affiliates of RI 2 in prior
periods, were reimbursable to RI 2 and its affiliates.
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.
The average occupancy levels at each of the properties owned for the full year
during the years ended December 31, 1997, 1996 and 1995 were as follows:
Twelve Months Ended December 31,
-----------------------------------------------------------
Property 1997 1996 1995
Creekside Oaks 95% 94% 93%
Ponte Vedra Beach Village I 93% 95% 96%
Rancho Antigua 94% 94% 92%
Village at the Foothills I 92% 94% 95%
-----------------------------------------------------------
New Accounting Pronouncements
The Financial Accounting Standards Board also issued SFAS No. 129, "Disclosure
of Information about Capital Structure," SFAS No. 130, "Reporting Comprehensive
Income," and SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information." These statements, which are effective for fiscal years
beginning after December 15, 1997, expand or modify disclosures and,
accordingly, will have no impact on the Partnership's reported financial
position, results of operations or cash flows.
Item 8. Financial Statements and Supplementary Data
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the fiscal year ended December 31, 1997, which is filed as an exhibit under
Item 14. Supplementary Data is incorporated by reference to F-1 of this
report.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Effective December 1, 1997, the Partnership advised Coopers & Lybrand L.L.P.
that it was changing accounting firms and engaged KPMG Peat Marwick LLP.
Coopers & Lybrand L.L.P.'s report on the financial statements for the years
ended December 31, 1996 and December 31, 1995 contained no adverse opinion or
disclaimer of opinion and was not qualified as to uncertainty, audit scope or
accounting principles. There have been no disagreements with Coopers & Lybrand
L.L.P. on any matters of accounting principles or practices, financial
statement disclosure, or auditing scope procedure.
The decision to change accountants was approved by CPS II and RI 2, the
General Partners of the Partnership at that time.
PART III
Item 10. Directors and Executive Officers of the Partnership
The Partnership has no officers or directors. CPS II, the General Partner of
the Partnership, manages and controls the affairs of the Partnership and has
general responsibility and authority in all matters affecting its business.
ConAm Property Services II, Ltd. ("CPS II") is a California limited partnership
organized on August 30, 1982. The general partners of CPS II are Continental
American Development, Inc. ("ConAm Development") and ConAm Development Corp.
("ConAm Corp."). The names and positions held by the directors and executive
officers of both ConAm Development and ConAm Corp. are set forth below. There
are no family relationships between any officers or directors.
Name Office
Daniel J. Epstein President and Director
E. Scott Dupree Vice President and Director
Robert J. Svatos Vice President and Director
Ralph W. Tilley Vice President
J. Bradley Forrester Vice President
Daniel J. Epstein, 58, has been the President and a Director of ConAm
Development and ConAm Corp. and a general partner of Continental American
Properties, Ltd. ("ConAm"), an affiliate of CPS II, since their inception. He
is also Chairman and Chief Executive Officer of ConAm Management. Prior to
organizing ConAm, 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, 47, 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, 39, is a Senior Vice President and is the Chief Financial
Officer of ConAm Management. His responsibilities include the accounting,
treasury and data processing functions of the organization. Prior to joining
ConAm Management in 1988, 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's of Science
degree in Accounting from the University of Illinois. He is a Certified Public
Accountant.
Ralph W. Tilley, 43, is a Senior Vice President and Treasurer of ConAm
Management. He is responsible for the financial aspects of syndications and
acquisitions, the company's asset management portfolio and risk management
activities. Prior to joining ConAm Management in 1980, he was a senior
accountant with KPMG Peat Marwick LLP, specializing in real estate. He holds a
Bachelor's of Science degree in Accounting from San Diego State University and
is a Certified Public Accountant.
J. Bradley Forrester, 40, is the President of ConAm Management. He is
currently responsible for overseeing all aspects of the operations of the firm.
His primary focus is on new business related activities including property
acquisitions, property development and rehabilitation, and the acquisition of
other property management companies. Prior to joining ConAm in 1994, 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 for three years. 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 LLP 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.
Item 11. Executive Compensation
Neither the General Partner nor any of its directors or executive officers
received any compensation from the Partnership. See Item 13 of this report for
a description of certain costs of the General Partner and its affiliates
reimbursed by the Partnership.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 1, 1998, no person was known by the Partnership to be the
beneficial owner of more than five percent of the Units of the Partnership.
Neither the General Partner nor any of its executive officers or directors own
any Units.
Item 13. Certain Relationships and Related Transactions
Pursuant to the Certificate and Agreement of Limited Partnership of the
Partnership, for the year ended December 31, 1997, $2,027 of the Partnership's
net loss was allocated to CPS II and RI 2. For a description of the share of
Net Cash From Operations and the allocation of income and loss to which the
General Partner and former co-General Partner are entitled, reference is made
to Note 3 to the Consolidated Financial Statements, included in the
Partnership's Annual Report to Unitholders for the year ended December 31,
1997, which is filed as an exhibit under item 14. Effective July 1, 1997, all
General Partner allocations will be made solely to CPS II.
The Partnership 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 to monitor their performance. ConAm
Management's services also include the supervision of leasing, rent collection,
maintenance, budgeting, employment of personnel, payment of operating expenses,
strategic asset management and related services. For such services, ConAm
Management is entitled to receive a management fee equal to five percent of
gross revenues. A summary of property management fees earned by ConAm
Management during the past three fiscal years is incorporated by reference to
Note 7 to the Consolidated Financial Statements, included in the Partnership's
Annual Report to Unitholders for the fiscal year ended December 31, 1997, which
is filed as an exhibit under Item 14.
Pursuant to Section 12(g) of the Partnership's Certificate and Agreement of
Limited Partnership, the General Partner may be reimbursed by the Partnership
for certain of its costs. A summary of amounts paid to the General Partners or
their affiliates during the past three years is incorporated by reference to
Note 7, "Transactions with Related Parties," of Notes to the Consolidated
Financial Statements, included in the Partnership's Annual Report to
Unitholders for the fiscal year ended December 31, 1997, 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, 1997 and 1996 (1)
Consolidated Statements of Operations - For the years ended
December 31, 1997, 1996 and 1995 (1)
Consolidated Statements of Partners' Capital (Deficit) -
For the years ended December 31, 1997, 1996 and 1995 (1)
Consolidated Statements of Cash Flows - For the years ended
December 31, 1997, 1996 and 1995 (1)
Notes to the Consolidated Financial Statements (1)
Independent Auditors' Report (1)
Report of former Independent Accountants (1)
(a)(2) Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation (F-1)
Independent Auditors' Report (F-2)
Report of Former Independent Accountants (F-3)
(1) Incorporated by reference to the Partnership's Annual Report to
Unitholders for the year ended December 31, 1997 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, 1997.
(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:
On December 15, 1997, and as amended on December 17, 1997, the
Partnership filed a Form 8-K reporting the change in Partnership's
Certifying Accountants.
On February 3, 1998, the Partnership filed a Form 8-K disclosing the
sale of RI 2's co-General Partner interest in the Partnership to CPS
II.
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 25, 1998
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 capacities and on the dates indicated.
CONAM PROPERTY SERVICES II, LTD.
A General Partner
By: Continental American Development, Inc.
General Partner
Date: March 25, 1998
BY: /s/ Daniel J. Epstein
Daniel J. Epstein
Director, President and
Principal Executive Officer
Date: March 25, 1998
BY: /s/ E. Scott Dupree
E. Scott Dupree
Vice President and Director
Date: March 25, 1998
BY: /s/ Robert J. Svatos
Robert J. Svatos
Vice President and Director
Date: March 25, 1998
BY: /s/ Ralph W. Tilley
Ralph W. Tilley
Vice President
Date: March 25, 1998
BY: /s/ J. Bradley Forrester
J. Bradley Forrester
Vice President
Exhibit 13
ConAm Realty Investors 2 L.P.
1997 ANNUAL REPORT
ConAm Realty Investors 2 L.P.
ConAm Realty Investors 2 L.P. is a California limited
partnership formed in 1982 to acquire, operate and hold
for investment multifamily residential properties. At
December 31, 1997, the Partnership's portfolio consisted
of four apartment properties located in Arizona and Florida.
Provided below is a comparison of average occupancy levels
for the years ended December 31, 1997 and 1996.
Average Occupancy
Property Location 1997 1996
--------------------------------------------------------------------------
Creekside Oaks Jacksonville, Florida 95% 94%
Ponte Vedra Beach Village I Ponte Vedra Beach, Florida 93% 95%
Rancho Antigua Scottsdale, Arizona 94% 94%
Village at the Foothills I Tucson, Arizona 92% 94%
--------------------------------------------------------------------------
Contents
1 Message to Investors
2 Performance Summary
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated
Financial Statements
12 Independent Auditors' Report and
Report of Former Independent Accountants
14 Net Asset Valuation
Administrative Inquiries Performance Inquiries/Form 10-Ks
Address Changes/Transfers First Data Investor Services Group
Service Data Corporation P.O. Box 1527
2424 South 130th Circle Boston, Massachusetts
02104-1527
Omaha, Nebraska 68144-2596 Attn: Financial Communications
800-223-3464 800-223-3464
Message to Investors
Presented for your review is the 1997 Annual Report for ConAm Realty Investors
2 L.P. (the "Partnership"). In this report we discuss general market
conditions affecting the Partnership's four remaining properties (the
"Properties"). We have also included a performance summary which addresses
operations at each of the properties and financial highlights for the year.
This annual report contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Actual results could differ materially from those
projected in or contemplated by the forward-looking statements as a result of a
number of factors, including those identified herein.
Cash Distributions
- ------------------
As previously reported, the Partnership suspended quarterly cash distributions
beginning in the first quarter of 1997 in order to fund roof replacements at
Ponte Vedra Beach Village I. The replacements were completed in September 1997
at a cost of approximately $400,000. Since inception, the Partnership has paid
distributions totaling $337.19 per original $500 Unit, including $220.00 in
return of capital payments. In future quarters, the General Partner will
assess the Partnership's ability to reinstate cash distributions based on the
Partnership's operating results and future cash needs.
Operations Overview
- -------------------
In 1997, operations at the Partnership's properties continued to be impacted to
varying degrees by strong competition for tenants in the markets where the
properties are located. Although population and job growth remained strong in
Arizona and Florida, the addition of newly constructed complexes, especially in
the Jacksonville market, limited rental rate increases and caused overall
vacancy rates to rise. In Tucson, where Village at the Foothills I is located,
many high-end renters opted to purchase homes due to low interest rates. In
Scottsdale, where Rancho Antigua is located, the market again experienced slow
growth during the year as a result of increased construction. Despite these
trends, strong economic growth in all three areas helped strengthen
multi-family housing, and the Properties sustained a collective average
occupancy of 93.5% in 1997 compared with 94.3% in 1996. In addition, the
appraised values of the Properties increased by 4.1% in total when compared to
the prior year.
The General Partner is continuing to evaluate the sale potential of the
remaining properties and other options with respect to the Partnership's
investments. One of these options includes refinancing certain loans secured
by the Properties in order to return capital to the limited partners on a
tax-free basis and lock in favorable fixed interest rates. This would also
potentially enhance the future marketability of the Properties, while enabling
the Partnership to take advantage of possible future property appreciation. The
Partnership's ability to sell the Properties is dependent upon a variety of
factors, many of which are not within the Partnership's control. There can be
no assurance that any specific property or all the properties can be sold, that
particular prices will be achieved, or that the Properties can be sold within a
specific time frame. We will keep you apprised of our sales efforts in future
correspondence.
Summary
- -------
We will continue to monitor market conditions at the Properties, and evaluate
the potential refinancing of the Partnership's mortgage obligations. In the
interim, we intend to maximize the performance of the Properties and further
improve their appearance and condition. We will keep you apprised of
significant developments affecting your investment in future reports.
Very truly yours,
/s/ Daniel J. Epstein
President
Continental American Development Inc.
and ConAm Development Corporation,
General Partners of ConAm Property
Services II, Ltd.
March 25, 1998
Performance Summary
Creekside Oaks - Jacksonville, Florida
- --------------------------------------
Creekside Oaks is a 120-unit apartment community situated in the
Baymeadows-Deerwood neighborhood of southeast Jacksonville. The property
reported average occupancy of 95% in 1997, up slightly from 94% in 1996, and a
3% increase in rental income. In 1997, the Jacksonville market experienced a
significant increase in new construction and the issuance of new construction
permits, partially due to its 1996 ranking as one of the fastest growing labor
markets in the country. This new construction is expected to soften the market
by outpacing population and job growth and will continue to affect the region
for the next several months, as new units become available. While vacancy
rates remained low in 1997, the use of rental concessions in the marketplace
has recently increased to attract and retain tenants in anticipation of the new
competition.
Ponte Vedra Beach Village I - Ponte Vedra Beach, Florida
- --------------------------------------------------------
Ponte Vedra Beach Village I is a 122-unit luxury apartment complex located in
an oceanside residential area to the southeast of Jacksonville. The property
reported an average occupancy level of 93% in 1997, down slightly from 95% in
1996. Property improvements for the year included extensive roof replacements,
carpet replacement and other improvements to increase the appearance of the
property. Favorable market conditions in the Jacksonville area have led to an
increase in new multifamily construction, with new construction permits issued
for approximately 3,831 new apartment units throughout the year. Although
population and job growth in the Jacksonville area remains high, continuing
construction at this pace could lead to softness in the market in the future.
Rancho Antigua - Scottsdale, Arizona
- ------------------------------------
Rancho Antigua is a 220-unit apartment community located eight miles northeast
of Phoenix in southwest Scottsdale. The property reported average occupancy of
94% in 1997, unchanged from 94% in 1996, and an increase in rental income due
to an increase in rental rates. The Scottsdale apartment market experienced
continued strong competition during 1997, reflecting high levels of
construction and notable competition from condominiums and single family
houses, as affordable prices and low mortgage rates enticed renters to buy.
Although vacancy rates in Phoenix and the Scottsdale submarket remained low in
1997, occupancy levels are expected to decline due to the significant new
construction. The Scottsdale market is experiencing strong job and population
growth with over 70,000 new jobs created in the first six months of 1997 and
over 100,000 new residents added to the market during the year. This economic
growth should favorably impact the market, and ease competition until the pace
of new construction subsides.
Village at the Foothills I - Tucson, Arizona
- --------------------------------------------
Village at the Foothills I is a 60 unit apartment community located in the
northwest area of Tucson. The property maintained an average occupancy rate of
92% during 1997, compared to 94% in 1996. Apartment vacancy rates remain high
in this market, but significant population growth in Tucson over the last few
years is slowly reducing the number of available units. Low interest rates and
affordable home prices have also increased competition by luring many renters
to purchase homes. This competition has led to the reemergence of rental
incentives and other concessions in the marketplace to attract tenants. Strong
competition for tenants is likely to continue as the addition of new properties
puts further pressure on occupancies.
Financial Highlights
Selected Financial Data
For the periods ended December 31, 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------
Dollars in thousands, except for
per unit data
Total Income $4,384 $4,328 $4,516 $4,718 $4,479
Gain on Sale of Property _ _ 232 _ _
Net Income (Loss) (203) (3) (113) 37 (528)
Net Cash Provided by (Used for)
Operating Activities 979 1,334 864 1,150 (180)
Long-term Obligations 11,555 11,770 11,969 14,219 14,418
Total Assets at Year End 18,370 18,920 19,931 24,772 25,237
Net Income (Loss) per
Limited Partnership Unit* (2.51) (.03) (4.27) .42 (6.53)
Distributions per
Limited Partnership Unit* _ 9.00 9.00 5.50 _
Special Distributions per
Limited Partnership Unit* _ _ 20.00 _ _
- ------------------------------------------------------------------------------
* 80,000 Units outstanding
Cash Distributions
Per Limited Partnership Unit
1997 1996
- -------------------------------------------------------------------------------
First Quarter _ 2.25
Second Quarter _ 2.25
Third Quarter _ 2.25
Fourth Quarter _ 2.25
------ ------
Total $ _ $ 9.00
- -------------------------------------------------------------------------------
Quarterly cash distributions were suspended beginning in the first quarter of
1997 in order to fund roof replacements at Ponte Vedra Beach Village I.
Consolidated Balance Sheets At December 31, At December 31,
1997 1996
- -------------------------------------------------------------------------------
Assets
Investments in real estate:
Land $5,744,972 $5,744,972
Buildings and improvements 23,681,664 23,525,644
------------------------------
29,426,636 29,270,616
Less accumulated depreciation (12,689,727) (11,874,334)
------------------------------
16,736,909 17,396,282
Cash and cash equivalents 1,109,506 962,290
Restricted cash 342,282 317,268
Other assets, net of accumulated amortization
of $260,496 in 1997 and $197,977 in 1996 181,421 243,940
- -------------------------------------------------------------------------------
Total Assets $18,370,118 $18,919,780
- -------------------------------------------------------------------------------
Liabilities and Partners' Capital (Deficit)
Liabilities:
Mortgages payable 11,554,935 $11,769,703
Accounts payable and accrued expenses 197,443 127,810
Due to affiliates 18,504 17,931
Security deposits 103,908 106,353
Distribution payable _ 200,000
-------------------------------
Total Liabilities 11,874,790 12,221,797
-------------------------------
Partners' Capital (Deficit):
General Partners (567,156) (565,129)
Limited Partners (80,000 Units outstanding) 7,062,484 7,263,112
-------------------------------
Total Partners' Capital 6,495,328 6,697,983
- -------------------------------------------------------------------------------
Total Liabilities and Partners' Capital $18,370,118 $18,919,780
- -------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Operations
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Income
Rental $4,327,499 $4,264,370 $4,448,549
Interest and other 56,229 63,467 67,819
----------------------------------
Total Income 4,383,728 4,327,837 4,516,368
- -------------------------------------------------------------------------------
Expenses
Property operating 2,329,300 2,222,474 2,515,717
Depreciation and amortization 1,017,912 1,005,471 1,099,215
Interest 904,630 920,596 1,023,479
General and administrative 213,441 181,896 222,881
Write-off of assets 121,100 _ _
----------------------------------
Total Expenses 4,586,383 4,330,437 4,861,292
- -------------------------------------------------------------------------------
Loss from operations (202,655) (2,600) (344,924)
Gain on sale of property _ _ 232,402
- -------------------------------------------------------------------------------
Net Loss $ (202,655) $ (2,600) $ (112,522)
- -------------------------------------------------------------------------------
Net Income (Loss) Allocated:
To the General Partners $ (2,027) $ (26) $ 228,953
To the Limited Partners (200,628) (2,574) (341,475)
- -------------------------------------------------------------------------------
$ (202,655) $ (2,600) $ (112,522)
- -------------------------------------------------------------------------------
Per limited partnership Unit
(80,000 Units outstanding)
Loss from operations $(2.51) $(.03) $(4.27)
- -------------------------------------------------------------------------------
Net Loss $(2.51) $(.03) $(4.27)
- -------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statement of Partners' Capital (Deficit)
For the years ended December 31, 1997, 1996 and 1995
General Limited
Partners Partners Total
- -------------------------------------------------------------------------------
Balance at December 31, 1994 $(618,500) $10,647,161 $10,028,661
Net Loss 228,953 (341,475) (112,522)
Distributions ($29.00 per Unit) (95,556) (2,320,000) (2,415,556)
- -------------------------------------------------------------------------------
Balance at December 31, 1995 (485,103) 7,985,686 7,500,583
Net Loss (26) (2,574) (2,600)
Distributions ($9.00 per Unit) (80,000) (720,000) (800,000)
- -------------------------------------------------------------------------------
Balance at December 31, 1996 (565,129) 7,263,112 6,697,983
Net Loss (2,027) (200,628) (202,655)
Balance at December 31, 1997 $(567,156) $ 7,062,484 $ 6,495,328
- -------------------------------------------------------------------------------
See accompanying notes to the consolidated financial statements.
Consolidated Statements of Cash Flows
For the years ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------
Cash Flows From Operating Activities:
Net loss $ (202,655) $ (2,600)$ (112,522)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation and amortization 1,017,912 1,005,471 1,099,215
Write-off of assets 121,100 _ _
Gain on sale of property _ _ (232,402)
Increase (decrease) in cash arising from
changes in operating assets and liabilities:
Fundings to restricted cash (325,093) (327,279) (361,130)
Release of restricted cash 300,079 661,672 488,797
Other assets _ 5,900 _
Accounts payable and accrued expenses 69,633 (10,135) 10,996
Due to affiliates 573 482 (2,462)
Security deposits (2,445) 135 (26,992)
--------------------------------
Net cash provided by operating activities 979,104 1,333,646 863,500
- -------------------------------------------------------------------------------
Cash Flows From Investing Activities:
Net proceeds from sale of property _ _ 1,522,242
Additions to real estate (417,120) (83,241) (199,476)
--------------------------------
Net cash provided by (used for)
investing activities (417,120) (83,241) 1,322,766
- -------------------------------------------------------------------------------
Cash Flows From Financing Activities:
Distributions (200,000) (800,000)(2,460,001)
Mortgage principal payments (214,768) (198,801) (199,366)
Net cash used for financing activities (414,768) (998,801)(2,659,367)
- -------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents 147,216 251,604 (473,101)
Cash and cash equivalents, beginning of year 962,290 710,686 1,183,787
- -------------------------------------------------------------------------------
Cash and cash equivalents, end of year $1,109,506 $ 962,290 $ 710,686
- -------------------------------------------------------------------------------
Supplemental Disclosure of Cash
Flow Information:
Cash paid during the period for interest $ 940,630 $ 920,596 $1,023,479
- -------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Investing Activities:
Write-off of buildings & improvements $ (261,100) $ _ $ _
Write-off of accumulated depreciation 140,000 _ _
- -------------------------------------------------------------------------------
Supplemental Disclosure of Non-Cash Financing Activities:
In connection with the sale of Country Place Village I in 1995, the $ 2,051,078
mortgage obligation on the property was assumed by the buyer, thereby releasing
the Partnership from its mortgage obligation.
See accompanying notes to the consolidated financial statements.
Notes to the Consolidated Financial Statements
December 31, 1997, 1996 and 1995
1. Organization
ConAm Realty Investors 2 L.P. (formerly Hutton/ConAm Realty Investors 2) (the
"Partnership") was organized as a limited partnership under the laws of the
State of California pursuant to a Certificate and Agreement of Limited
Partnership (the "Partnership Agreement") dated December 17, 1981, as amended
and restated October 8, 1982. The Partnership was formed for the purpose of
acquiring and operating certain types of residential real estate. The original
co-General Partners of the Partnership were RI 2 Real Estate Services Inc.
("RI-2"), an affiliate of Lehman Brothers Inc., and ConAm Property Services II,
Ltd. ("CPS II"), an affiliate of Continental American Properties, Ltd. (the
"General Partners"). On January 27, 1998, CPS II acquired RI-2's co-general
partner interest in the Partnership effective July 1, 1997, pursuant to a
purchase agreement between CPS II and RI-2 dated August 29, 1997. As a result,
CPS II now serves as the sole general partner of the Partnership. The
Partnership will continue until December 31, 2010 unless sooner terminated
pursuant to the terms of the Partnership Agreement.
2. Significant Accounting Policies and Practices
Financial Statements The consolidated financial statements are prepared on the
accrual basis of accounting and include the accounts of the Partnership and its
affiliated ventures when the Partnership has a controlling interest in the
ventures. The effect of transactions between the Partnership and its ventures
have been eliminated in consolidation.
Investments in Real Estate Investments in real estate are recorded at cost
less accumulated depreciation and include the initial purchase price of the
property, legal fees, acquisition and closing costs.
Revenue is recognized when earned and expenses (including depreciation) are
recognized when incurred in accordance with generally accepted accounting
principles. Leases are generally for terms of one year or less.
Depreciation is computed using the straight-line method based upon the
estimated useful lives of the properties (25 years). Maintenance and repairs
are charged to operations as incurred. Costs incurred for significant
betterments and improvements are capitalized and depreciated over their
estimated useful lives.
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss is
reflected in net income (loss) for the period.
Impairment of Long-Lived Assets Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of" ("FAS 121"), requires the Partnership to assess its
real estate investments for impairment whenever events or changes in
circumstances indicate that the carrying amount of the real estate may not be
recoverable. Recoverability of real estate to be held and used is measured by
a comparison of the carrying amount of the real estate to future net cash flows
(undiscounted and without interest) expected to be generated by the real
estate. If the real estate is considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of the real
estate exceeds the fair value of the real estate.
Other Assets Included in other assets are costs incurred in connection with
obtaining financing for the Partnership's properties. Such costs are amortized
over the initial term of the mortgages payable on a method which approximates
the effective-interest method.
Income Taxes No provision for income taxes has been made in the financial
statements as the liability for such taxes is that of the partners rather than
the Partnership.
Cash and Cash Equivalents Cash and cash equivalents consist of highly liquid
short-term investments with original maturities of three months or less.
Concentration of Credit Risk Financial instruments which potentially subject
the Partnership to a concentration of credit risk principally consist of cash
and cash equivalents and restricted cash in excess of the financial
institution's federally insured limits. The Partnership invests its cash and
cash equivalents and restricted cash with high credit quality federally insured
financial institutions.
Restricted Cash Restricted cash consists of escrows for real estate taxes and
insurance as required by the first mortgage lender.
Use of Estimates Management of the Partnership has made a number of estimates
and assumptions relating to the reporting of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the
reporting period to prepare these financial statements in conformity with
generally accepted accounting principles. Actual results could differ from
those estimates.
3. The Partnership Agreement
The Partnership Agreement provides that net cash from operations, as defined,
is to be distributed quarterly, 90% to the limited partners and 10% to the
General Partners.
Net loss is to be allocated 99% to the limited partners and 1% to the General
Partners. Net income is to be generally allocated in accordance with the
distribution of net cash from operations.
Net proceeds from sales or refinancing are to be distributed 99% to the limited
partners and 1% to the General Partners until each limited partner has received
an amount equal to his adjusted capital value (as defined) and an annual,
non-compounded cumulative 7% return thereon. The balance, if any, is to be
distributed 85% to the limited partners and 15% to the General Partners. Gain
from sales is to be allocated to each partner having a negative capital account
balance, pro-rata, to the extent of such negative balance. Thereafter, such
gain is to be allocated in accordance with the distribution of net proceeds
from sale or refinancing, with the balance allocated to the limited partners.
4. Investments in Real Estate
The Partnership owns four residential apartment complexes that were acquired
either directly or through investments in joint ventures as follows:
Apartment Date Purchase
Property Name Units Location Acquired Price
- ------------------------------------------------------------------------------
Creekside Oaks 120 Jacksonville, FL 11/18/83 $6,254,953
Ponte Vedra Beach
Village I 122 Ponte Vedra Beach, FL 2/10/84 7,196,318
Rancho Antigua 220 Scottsdale, AZ 3/8/84 11,465,844
Village at the
Foothills I 60 Tucson, AZ 2/27/85 3,804,103
- ------------------------------------------------------------------------------
On July 20, 1995, the Partnership sold Country Place Village I to an
institutional buyer (the "Buyer"), which was unaffiliated with the Partnership.
The selling price was determined by arm's length negotiations between the
Partnership and the Buyer. Country Place Village I was sold for $3,665,000,
which includes the assumption of the mortgage payable on Country Place Village
I by the Buyer in the amount of $2,051,078. The Partnership received net
proceeds of $1,522,242. On August 17, 1995, the Partnership paid a special
distribution of $1,600,000 to the partners. The special distribution was
comprised of net proceeds from the sale of Country Place Village I and
Partnership cash reserves. The transaction resulted in a gain on sale of
$232,402. The gain was allocated in accordance with the Partnership Agreement.
The joint venture agreement of Rancho Antigua substantially provides that:
a. Net cash from operations is to be distributed 100% to the
Partnership until it has received an annual, noncumulative
12% return on its adjusted capital contribution. Any
remaining balance is to be distributed 60% to the Partnership
and 40% to the co-venturer.
b. Net income of the joint venture and gain from sale is to be
allocated basically in accordance with the distribution of
net cash from operations, as defined, and net proceeds from
sales, respectively. All net losses are to be allocated 98%
to 100% to the Partnership depending on the joint venture
agreement.
c. Net proceeds from a sale or refinancing is to be distributed
100% to the Partnership until it has received an amount equal
to 120% of its adjusted capital contribution and an annual,
cumulative 12% return on its adjusted capital contribution.
Thereafter, the Partnership is to receive approximately 50%
to 75% of the balance depending on the joint venture
agreement.
The joint venture agreements and limited partnership agreements of Country
Place Village I, Creekside Oaks, Ponte Vedra Beach Village I and Village at
the Foothills I substantially provide that:
a. Available cash from operations is to be distributed 100% to
the Partnership until it has received an annual, non-
cumulative preferred return, as defined. Any remaining
balance is to be distributed 99% to the Partnership and 1% to
the General Partners.
b. Net income is to be allocated first, proportionately to
partners with negative capital accounts, as defined, until
such capital accounts, as defined, have been increased to
zero then, to the Partnership up to the amount of any
payments made on account of its preferred return; thereafter,
99% to the Partnership and 1% to the General Partners. All
losses are to be allocated first, to the partners with
positive capital accounts, as defined, until such accounts
have been reduced to zero then 99% to the Partnership and 1%
to the General Partners.
c. Income from a sale is to be allocated first, to the
Partnership until the Partnership's capital accounts, as
defined, are equal to the fair market value of the ventures'
assets at the date of the amendments then, any remaining
balance will be allocated 99% to the Partnership and 1% to
the General Partners. Net proceeds from a sale or
refinancing are to be distributed first to the partners with
a positive capital account balance, as defined; thereafter,
99% to the Partnership and 1% to the General Partners.
5. Mortgages Payable
On October 28, 1993, the Partnership obtained replacement financing on its
Creekside Oaks, Ponte Vedra Beach I, Rancho Antigua and Country Place Village I
properties totaling $14,450,000. The loans are secured by the respective
properties and an assignment of rents and leases and bear interest at an annual
rate of 7.75%. Each of the loans is a non-recourse loan with monthly payments
of principal and interest of $93,283 based on a twenty-five year amortization
schedule and a seven year term with the balance of the principal due on
November 1, 2000. On July 20, 1995, County Place Village I was sold and the
underlying mortgage, in the amount of $2,051,078, was assumed by the Buyer.
Mortgages payable at December 31, 1997, consist of the following first mortgage
loans:
Property Principal
---------------------------------------------------
Creekside Oaks $ 2,479,399
Ponte Vedra Beach Village I 3,742,489
Rancho Antigua 5,333,047
---------------------------------------------------
Annual maturities of mortgage principal at December 31, 1997 are as follows:
Year Amount
---------------------------------
1998 $232,016
1999 250,650
2000 11,072,269
---------------------------------
Total $11,554,935
---------------------------------
6. Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments," requires that the fair values be disclosed for
the Partnership's financial instruments. The carrying amount of cash and cash
equivalents, restricted cash, distribution payable, accounts payable and
accrued expenses, due to affiliates and security deposits are reasonable
estimates of their fair values due to the short-term nature of those
instruments.
The carrying amount of the mortgages payable is a reasonable estimate of fair
value based on management's belief that the interest rates and terms of the
debt are comparable to those commercially available to the Partnership in the
marketplace for similar instruments.
7. Transactions With Related Parties
The following is a summary of fees earned and reimbursable expenses to the
General Partners and their affiliate for the years ended December 31, 1997,
1996, and 1995, and the unpaid portion at December 31, 1997:
Earned and
Unpaid at
December 31, Earned
1997 1997 1996 1995
- ----------------------------------------------------------------------------
RI 2 Real Estate Services Inc.:
Out-of-pocket expenses $ _ $ 402 $ 807 $2,577
ConAm and affiliates:
Property operating salaries _ 321,517 323,312 336,760
Property management fees 18,504 216,432 213,281 223,677
Administrative expenses _ 18,425 _ _
- ----------------------------------------------------------------------------
Total $18,504 $556,776 $537,400 $563,014
- ----------------------------------------------------------------------------
8. Reconciliation of Financial Statement and Tax Information
The following is a reconciliation of the net loss for financial statement
purposes to net income (loss) for federal income tax purposes for the years
ended December 31, 1997, 1996 and 1995:
1997 1996 1995
- -------------------------------------------------------------------------------
Net loss per financial statements $(202,655) $ (2,600) $ (112,522)
Tax basis joint venture net
loss in excess of GAAP basis
joint venture loss (unaudited) (201,705) (193,019) (233,232)
Gain on sale of property for tax
purposes in excess of gain per
financial statements (unaudited) _ _ 1,536,333
Loss on write-off of assets per
financial statements not
recognized for tax purposes (unaudited) 121,100 _ _
Other (unaudited) 11,000 1,397 (5,457)
- -------------------------------------------------------------------------------
Taxable net income (loss)(unaudited) $(272,260) $(194,222) $1,185,122
- -------------------------------------------------------------------------------
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of December
31, 1997, 1996 and 1995:
1997 1996 1995
- -------------------------------------------------------------------------------
Partners' capital per financial statements $6,495,328 $6,697,983 $7,500,583
Adjustment for cumulative difference
between tax basis loss and loss
per financial statements (unaudited) (5,054,580) (4,984,975) (4,793,353)
Partners' capital per income
tax return (unaudited) $1,440,748 $1,713,008 $2,707,230
- -------------------------------------------------------------------------------
At December 31, 1997, the tax basis of the Partnership's assets was $13,281,545
and the tax basis of the Partnership's liabilities was $11,840,797.
9. Distributions Paid
Cash distributions, per the consolidated statements of partners' capital
(deficit) are recorded on the accrual basis, which recognizes specific record
dates for payments within each calendar year. The consolidated statements of
cash flows recognize actual cash distributions paid during the calendar year.
The following table discloses the annual amounts as presented on the
consolidated financial statements:
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid December 31,
- ------------------------------------------------------------------------------
1997 $ 200,000 $ _ $ 200,000 $ _
1996 200,000 800,000 800,000 200,000
1995 244,445 2,415,556 2,460,001 200,000
- ------------------------------------------------------------------------------
Independent Auditors' Report
The General Partner
ConAm Realty Investors 2 L.P.:
We have audited the accompanying consolidated balance sheet of ConAm Realty
Investors 2 L.P. (a California limited partnership) (formerly Hutton/ConAm
Realty Investors 2) and consolidated ventures (the "Partnership"), as of
December 31, 1997, and the related consolidated statements of operations,
partners' capital (deficit), and cash flows for the year then ended. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the 1997 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of ConAm
Realty Investors 2 L.P. and consolidated ventures as of December 31, 1997, and
the results of their operations and their cash flows for the year then ended in
conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
San Diego, California
March 3, 1998
Report of Former Independent Accountants
To the Partners of
ConAm Realty Investors 2 L.P.:
We have audited the consolidated balance sheet of ConAm Realty Investors 2 L.P.
(formerly Hutton/ConAm Realty Investors 2), a California limited partnership,
and Consolidated Ventures as of December 31, 1996 and the related consolidated
statements of operations, partners' capital (deficit) and cash flows for each
of the two years in the period ended December 31, 1996. These consolidated
financial statements are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of ConAm
Realty Investors 2 L.P., a California limited partnership, and Consolidated
Ventures as of December 31, 1996 and 1995, and the consolidated results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1996, in conformity with generally accepted accounting
principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
Net Asset Valuation
Comparison of Acquisition Costs to Appraised Value and
of Net Asset Value Per Unit at December 31, 1997 (Unaudited)
Acquisition Cost
(Purchase Price
Plus General
Partners' December 31,
Date of Acquisition 1997 Appraised
Property Acquisition Fees) Value (1)
- -------------------------------------------------------------------------------
Creekside Oaks 11-18-83 $ 6,238,445 $5,500,000
Ponte Vedra Beach Village I 02-10-84 7,123,950 8,000,000
Rancho Antigua 03-08-84 11,446,176 12,600,000
Village at the Foothills I 02-27-85 3,756,741 2,400,000
----------- -----------
$28,565,312 $28,500,000
Cash and cash equivalents 1,451,788
Other assets 4,283
-----------
$29,956,071
Less:
Total liabilities 11,874,790
-----------
Partnership Net Asset Value (2) $18,081,281
-----------
Net Asset Value Allocated:
Limited Partners $17,818,248
General Partner 263,033
-----------
$18,081,281
-----------
Net Asset Value Per Unit
(80,000 Units outstanding) $222.73
- -------------------------------------------------------------------------------
(1) This represents the December 31, 1997 Appraised Values which were
determined by an independent property appraisal firm.
(2) The Partnership Net Asset Value assumes a hypothetical sale at
December 31, 1997 of all the Partnership's properties at a price based
upon their value as a rental property as determined by an independent
property appraisal firm, and the distribution of the proceeds of such
sale, combined with the Partnership's cash after liquidation of the
Partnership's assets and liabilities, to the partners.
Limited Partners should note that appraisals are only estimates of current
value and actual values realizable upon sale may be significantly different. A
significant factor in establishing an appraised value is the actual selling
price for properties which the appraiser believes are comparable. In addition,
the appraised value does not reflect the actual costs which would be incurred
in selling the properties. As a result of these factors and the illiquid
nature of an investment in Units of the Partnership, the variation between the
appraised value of the Partnership's properties and the price at which Units of
the Partnership could be sold may be significant. Fiduciaries of Limited
Partners which are subject to ERISA or other provisions of law requiring
valuations of Units should consider all relevant factors, including, but not
limited to Net Asset Value per Unit, in determining the fair market value of
the investment in the Partnership for such purposes.
Schedule III - Real Estate and Accumulated Depreciation
December 31, 1997
Residential Property:
Ponte Vedra Village
Creekside Beach Rancho at the
Oaks Village 1 Antigua Foothills Total
- -------------------------------------------------------------------------------
Location Jacksonville, Ponte Vedra Scottsdale, Tucson, na
FL Beach, FL AZ AZ
Construction date 1982 1983 1984 1984 na
Acquisition date 11-18-83 02-10-84 03-08-84 02-27-85 na
Life on which
depreciation in
latest income
statements is
computed (3) (3) (3) (3) na
Encumbrances $2,479,399 $3,742,489 $5,333,047 $ _ $11,554,935
Initial cost to
Partnership:
Land 400,317 1,015,028 3,490,498 798,823 5,704,666
Buildings and
improvements 5,854,636 6,181,290 7,975,346 3,005,280 23,016,552
Costs capitalized
subsequent to
acquisition:
Land, buildings
and improvements 281,499 554,569 118,634 11,816 966,518
Write-off of buildings
and improvements _ (261,100) _ _ (261,100)
Gross amount at which
carried at close
of period: (1)
Land $403,193 $1,045,472 $3,497,484 $798,823 $5,744,972
Buildings and
improvements 6,133,259 6,444,315 8,086,994 3,017,096 23,681,664
- -------------------------------------------------------------------------------
$6,536,452 $7,489,787 $11,584,478 $3,815,919 $29,426,636
- -------------------------------------------------------------------------------
Accumulated
depreciation (2) (3,366,254) (3,327,647) (4,449,485)(1,546,341)(12,689,727)
- -------------------------------------------------------------------------------
(1) Represents aggregate cost for both financial reporting and Federal income
tax purposes.
(2) The amount of accumulated depreciation for Federal income tax purposes is
$21,910,933.
(3) Buildings and improvements - 25 years; personal property - 10 years
A reconciliation of the carrying amount of real estate and accumulated
depreciation for the years ended December 31, 1997, 1996, and 1995 follows:
1997 1996 1995
- -------------------------------------------------------------------------------
Investments in real estate:
Beginning of period $29,270,616 $29,187,375 $34,056,223
Additions 417,120 83,241 199,476
Dispositions and disposals (261,100) _ (5,068,324)
- -------------------------------------------------------------------------------
End of period $29,426,636 $29,270,616 $29,187,375
- -------------------------------------------------------------------------------
Accumulated depreciation:
Beginning of period $11,874,334 $10,931,382 $11,699,378
Depreciation expense 955,393 942,952 1,029,336
Dispositions and disposals (140,000) _ (1,797,332)
- -------------------------------------------------------------------------------
End of period $12,689,727 $11,874,334 $10,931,382
- -------------------------------------------------------------------------------
See accompanying independent auditors' report.
Independent Auditors' Report
The General Partner
ConAm Realty Investors 2 L.P.:
Under date of March 3, 1998, we reported on the consolidated balance sheet
of ConAm Realty Investors 2 L.P. (a California limited partnership) (formerly
Hutton/ConAm Realty Investors 2) and consolidated ventures (the
"Partnership") as of December 31, 1997, and the related consolidated
statements of operations, partners' capital (deficit), and cash flows for
the year then ended, as contained in the 1997 annual report to Unitholders.
These consolidated financial statements and our report thereon are
incorporated by reference in the 1997 annual report on Form 10-K. In
connection with our audit of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial
statement schedule. This consolidated financial statement schedule is the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on this consolidated financial statement schedule based on
our audit.
In our opinion, the consolidated financial statement schedule, when considered
in relation to the basic consolidated financial statements taken as a
whole, presents fairly, in all material respects, the information set forth
therein.
KPMG Peat Marwick LLP
San Diego, California
March 3, 1998
Report of Former Independent Accountants
Our report on the consolidated financial statements of ConAm Realty Investors 2
L.P. (formerly Hutton/ConAm Realty Investors 2), a California Limited
Partnership, and Consolidated Ventures has been incorporated by reference in
this Form 10-K from the Annual Report to Unitholders of ConAm Realty Investors
2 for the year ended December 31, 1996. In connection with our audits of such
financial statements, we have also audited the related financial statement
schedule listed in the index of this Form 10- K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
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<ARTICLE> 5
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<PERIOD-TYPE> 12-mos
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Dec-31-1997
<CASH> 1,388,845
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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