<PAGE>
United States Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1999
or
Transition Report Pursuant to Section 13 of 15(d) of the Securities
----- Exchange Act of 1934 For the transition period from ____ to ____
COMMISSION FILE NUMBER: 0-11085
CONAM REALTY INVESTORS 2 L.P.
----------------------------------------------------
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
California 13-3100545
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STATE OR OTHER JURISDICTION OF I.R.S. EMPLOYER IDENTIFICATION NO.
INCORPORATION OR ORGANIZATION
1764 San Diego Avenue
SAN DIEGO, CA 92110-1906
- --------------------- ----------
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES ZIP CODE
(619) 297-6771
--------------
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
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<PAGE>
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
PART 1 - FINANCIAL INFORMATION
ITEM 1. Financial Statements
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS AT MARCH 31, AT DECEMBER 31,
1999 1998
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<S> <C> <C>
ASSETS
Investments in real estate:
Land $ - $ 5,744,972
Buildings and improvements - 23,718,118
---------------------------------------------
- 29,463,090
Less accumulated depreciation - (13,640,819)
---------------------------------------------
- 15,822,271
Cash and cash equivalents 694,402 1,220,656
Restricted cash - 345,558
Other assets, net of accumulated amortization
of $0 in 1999 and $323,015 in 1998 29,862 326,486
-------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 724,264 $ 17,714,971
=============================================================================================================
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable $ - $ 11,322,919
Accounts payable and accrued expenses 99,545 287,482
Due to general partner and affiliates - 18,547
Security deposits - 92,096
---------------------------------------------
Total Liabilities 99,545 11,721,044
---------------------------------------------
Partners' Capital (Deficit):
General Partner (120,500) (617,296)
Limited Partners (80,000 Units outstanding) 745,219 6,611,223
---------------------------------------------
Total Partners' Capital 624,719 5,993,927
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TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 724,264 $ 17,714,971
=============================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
INCOME
Rental $ 327,728 $1,124,991
Interest and other 78,520 9,368
------------------------- -------------------
Total Income 406,248 1,134,359
------------------------------------------------------------------------------------------------------------
EXPENSES
Property operating 317,398 540,321
Depreciation and amortization 42,284 253,338
Interest 73,122 223,515
General and administrative 20,012 48,055
-------------------------------------------------
Total Expenses 452,816 1,065,229
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Income (loss) from operations (46,568) 69,130
Gain on sale of properties 13,306,236 -
------------------------------------------------------------------------------------------------------------
Income before extraordinary items 13,259,668 69,130
Extraordinary loss from debt extinguishment (700,223) -
============================================================================================================
NET INCOME $ 12,559,445 $ 69,130
============================================================================================================
NET INCOME ALLOCATED:
To the General Partner $ 585,449 $ 6,913
To the Limited Partners 11,973,996 62,217
============================================================================================================
NET INCOME $ 12,559,445 $ 69,130
============================================================================================================
PER LIMITED PARTNERSHIP UNIT
(80,000 UNITS OUTSTANDING)
Income (loss) from operations $ (0.58) $ 0.78
Gain on sale of properties 159.00 -
Extraordinary loss from debt extinguishment (8.75) -
============================================================================================================
NET INCOME $ 149.67 $ 0.78
============================================================================================================
</TABLE>
CONSOLIDATED STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31,1999
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
BALANCE (DEFICIT) AT DECEMBER 31, 1998 $ (617,296) $ 6,611,223 $ 5,993,927
Net income 585,449 11,973,996 12,559,445
Distributions ($223.00 per Unit) (88,653) (17,840,000) (17,928,653)
===================================================================================================================
BALANCE (DEFICIT) AT MARCH 31, 1999 $ (120,500) $ 745,219 $ 624,719
===================================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999 1998
------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 12,559,445 $ 69,130
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 42,284 253,338
Gain on sale of properties (13,306,236) -
Extraordinary loss from debt extinguishment 700,223 -
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Fundings to restricted cash - (82,107)
Release of restricted cash 345,558 52,924
Other assets 182,004 (17,328)
Accounts payable and accrued expenses (187,937) 13,850
Due to general partner and affiliates (18,547) 709
Security deposits (92,096) (1,680)
---------------------------------------------
Net cash provided by operating activities 224,698 288,836
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CASH FLOWS FROM INVESTING ACTIVITIES-
Net proceeds from sale of properties 28,500,620 -
------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (17,928,653) -
Mortgage principal payments (11,322,919) (56,334)
---------------------------------------------
Net cash used in financing activities (29,251,572) (56,334)
------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (526,254) 232,502
Cash and cash equivalents, beginning of period 1,220,656 1,109,506
------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 694,402 $ 1,342,008
============================================================================================================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION-
Cash paid during the period for interest $ 73,122 $ 223,515
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</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
The unaudited interim consolidated financial statements should be read in
conjunction with the Partnership's annual 1998 audited consolidated
financial statements within Form 10-K.
The unaudited interim consolidated financial statements include all normal
and recurring adjustments which are, in the opinion of management,
necessary to present a fair statement of financial position as of March 31,
1999 and the results of operations and cash flows for the three months
ended March 31, 1999 and 1998 and the consolidated statement of partners'
capital for the three months ended March 31, 1999. Results of operations
are not necessarily indicative of the results to be expected for the full
year.
The Partnership sold its remaining investments in real estate. The sale and
liquidation plan was approved by the Unitholders through a consent
solicitation statement as of January 15, 1999 and the sale of the
properties was completed on January 29, 1999.
For assets sold or otherwise disposed of, the cost and related accumulated
depreciation are removed from the accounts, and any resulting gain or loss
is reflected in net income for the period.
Within 30 days of the completion of the sale of the properties, the
Partnership declared a cash distribution representing substantially all of
the net proceeds from sale and substantially all of the remaining cash from
operations of the Partnership less an amount for costs and contingencies
associated with the sale and liquidation of the Partnership.
No other significant events have occurred subsequent to the year ended
December 31, 1998, and no material contingencies exist, which would require
disclosure in this interim report per Regulation S-X, Rule 10-01, Paragraph
(a) (5).
<PAGE>
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
On February 26, 1999, the Partnership declared cash distributions in the amounts
of $17,840,000 to the Limited Partner Unitholders ($223.00 per Unit) and $88,653
to the General Partner, which amounts represent substantially all of the net
proceeds from the sale (the "Sale" ) of the Partnership's remaining investments
in real estate ("Properties") together with other available cash from operations
of the Partnership less an amount for costs associated with the liquidation of
the Partnership and other contingencies.
As a result of the Sale of the remaining Properties, the only source of revenue
prior to final liquidation will be the interest generated on the remaining cash
balances. The remaining cash is invested in an unaffiliated highly liquid money
market fund.
At March 31, 1999, the Partnership had cash and cash equivalents of $694,402
compared with $1,220,656 at December 31, 1998. The decrease in cash and cash
equivalents is due to the distribution of the proceeds from the Sale and cash
from operations. The General Partner believes that the Partnership has
sufficient cash to meet the needs of the Partnership for any contingencies or
costs associated with Sale and the final liquidation of the Partnership. As
required by the Partnership agreement, upon the final liquidation of the
Partnership, the general partner will contribute $177,778 to the Partnership,
which represents distributions of net proceeds from sale or refinancing
previously received by the general partner. Remaining cash available, if any,
after the contribution of the general partner and the satisfaction of all
Partnership obligations, will be distributed pursuant to the Partnership
agreement.
Results of Operations
Partnership net income for the three months ended March 31, 1999 was $12,559,445
compared to $69,130 for the corresponding period in1998. The increase for the
three months ended March 31, 1999 is primarily attributable to the gain on the
Sale.
For the three months ended March 31, 1999, the Partnership generated operating
losses of $46,568 compared to operating income of $69,130 for the corresponding
period in 1998. Rental income totaled $327,728 for the three months ended March
31, 1999 compared with $1,124,991 for the corresponding period in 1998.
Partnership expenses for the three months ended March 31, 1999 totaled $452,816
compared with $1,065,229 for the corresponding period in 1998. For the three
months ended March 31, 1999, the decreased income from operations, rental income
and partnership expenses are primarily attributable to the Sale on January 29,
1999.
Year 2000
Due to the consummation of the Sale, the Partnership is no longer engaged in the
operation of real properties or any other business. As a result of the
foregoing, and in view of the General Partner's plan to complete the full
liquidation of the Partnership prior to January 1, 2000, the Partnership has no
exposure to Year 2000 issues.
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures About Market Risks
Since the Partnership sold its remaining Properties on January 29, 1999 and has
no interest-bearing indebtedness, the Partnership has no exposure to interest
rate risk. In addition, the Partnership is expected to be liquidated during
1999.
PART II -- OTHER INFORMATION
ITEMS 1-3. Not applicable
ITEM 4. Submission of Matters to a Vote of Security Holders.
Pursuant to a Consent Solicitation Statement dated December
16, 1998, the Unitholders were asked to approve two
proposals as follows: (i) the sale of all of the
Partnership's remaining real estate investments to DOC
Investors, L.L.C. (the "Sale"); and (ii) an amendment to
the Partnership's partnership agreement to permit sales of
Partnership properties to affiliates of the General Partner
if the terms of the sale are approved by the Unitholders
(the "Amendment"). By its terms, the consent solicitation
was to terminate on January 15, 1999, unless such date was
extended by the General Partner for an aggregate of up to
an additional 40 days. Since both the Sale and the
Amendment were approved by the requisite
majority-in-interest of the Unitholders (i.e., at least
40,001 Units) as of January 15, 1999, the consent
solicitation terminated on such date. Upon termination of
the consent solicitation, the results of the consent
solicitation were as follows: (i) With respect to the Sale
- 48,437 Units "FOR;" 1,214 Units "AGAINST;" and 525 Units
"ABSTAIN;" and (ii) with respect to the Amendment - 47,679
Units "FOR;" 1,882 Units "AGAINST;" and 615 Units
"ABSTAIN." The foregoing results do not include any votes
received after the termination of the consent solicitation.
ITEM 5. Not applicable
ITEM 6. Exhibits & Reports on Form 8-K
(a) Exhibits
3.1 Amendment, dated January 18, 1999 to Partnership's Amended
and Restated Certificate of Limited Partnership Agreement
(included as, and incorporated herein by reference to,
Exhibit 4.1 to the Partnership's Report on Form 8-K filed
on February 16, 1999).
10.1 Agreement for Purchase and Sale and Joint Escrow
Instructions between Creekside Oaks Joint Venture and Doc
Investors, L.L.C. dated January 26, 1999 with respect to
the Sale of Creekside Oaks (included as, and incorporated
herein by reference to, Exhibit 10.1 to the Partnership's
Report on Form 8-K filed on February 16, 1999).
10.2 Agreement for Purchase and Sale and Joint Escrow
Instructions between Ponte Vedra Beach Village Joint
Venture and Doc Investors, L.L.C. dated January 26, 1999
with respect to the Sale of Ponte Vedra Beach Village I
Apartments (included as, and incorporated herein by
reference to, Exhibit 10.2 to the Partnership's Report on
Form 8-K filed on February 16, 1999).
<PAGE>
10.3 Agreement for Purchase and Sale and Joint Escrow
Instructions between Rancho Antigua Joint Venture and Doc
Investors, L.L.C. dated January 26, 1999 with respect to
the Sale of Rancho Antigua (included as, and incorporated
herein by reference to, Exhibit 10.3 to the Partnership's
Report on Form 8-K filed on February 16, 1999).
10.4 Agreement for Purchase and Sale and Joint Escrow
Instructions between Village at the Foothills (Phase I)
Joint Venture Limited Partnership and Doc Investors, L.L.C.
dated January 26, 1999 with respect to the Sale of Village
at Foothills I Apartments (included as, and incorporated
herein by reference to, Exhibit 10.4 to the Partnership's
Report on Form 8-K filed on February 16, 1999).
(b) Reports on Form 8-K
On February 16, 1999, the Partnership filed a Form 8-K for
the purpose of disclosing the consummation of the sale of
all of its real property investments on January 29, 1999 to
DOC Investors, L.L.C. No other reports on Form 8-K were
filed during the quarter ended March 31, 1999.
(27) Financial Data Schedule
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CONAM PROPERTY SERVICES II, LTD.
General Partner of ConAm Realty Investors 2 L.P.
BY: CONTINENTAL AMERICAN DEVELOPMENT, INC.
GENERAL PARTNER
Date: May 14, 1999 BY: /s/ DANIEL J. EPSTEIN
-------------------------
Daniel J. Epstein
Director, President, and
Principal Executive Officer
Date: May 14, 1999 BY: /s/ ROBERT J. SVATOS
------------------------
Robert J. Svatos
Vice President and Director
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 694,402
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 724,264
<CURRENT-LIABILITIES> 99,545
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 624,719
<TOTAL-LIABILITY-AND-EQUITY> 724,264
<SALES> 327,728
<TOTAL-REVENUES> 406,248
<CGS> 0
<TOTAL-COSTS> 317,398
<OTHER-EXPENSES> 62,296
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 73,122
<INCOME-PRETAX> 13,259,668
<INCOME-TAX> 0
<INCOME-CONTINUING> 13,259,668
<DISCONTINUED> 0
<EXTRAORDINARY> (700,223)
<CHANGES> 0
<NET-INCOME> 12,559,445
<EPS-PRIMARY> 149.67
<EPS-DILUTED> 149.67
</TABLE>
