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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 YEAR ENDED: DECEMBER 31, 1998
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.
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EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
CALIFORNIA 13-3100545
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STATE OR OTHER I.R.S. EMPLOYER
JURISDICTION OF INCORPORATION IDENTIFICATION NO.
1764 San Diego Avenue
San Diego, CA 92110 Attn.: Robert J. Svatos 92110-1906
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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
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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 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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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 by reference to the
Partnership's Annual Report to Unitholders for the year ended December 31, 1998.
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PART I
ITEM 1. BUSINESS
(a) GENERAL DESCRIPTION OF BUSINESS AND OBJECTIVES
ConAm Realty Investors 2 L.P., formerly known as Hutton/ConAm Realty
Investors 2 (the "Partnership"), is a California limited partnership formed
in December 17, 1981. 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 property. As
described below, prior to December 31, 1998, one of the properties was sold
and cash distributions representing substantially all of the net proceeds
from sale were distributed to the Unitholders. As of January 29, 1999, all of
the Partnership's remaining investments in the properties were sold and in
February 1999, cash distributions representing substantially all of the net
proceeds from sale and cash from operations were distributed to the
Unitholders. The General Partner anticipates that the final liquidation of
the Partnership will be completed in mid-1999.
The Partnership's principal investment objectives with respect to its
interests in real property were:
(1) capital appreciation;
(2) distribution of net cash from operations attributable to rental income;
and
(3) preservation and protection of capital.
Distribution of net cash from operations was the Partnership's objective
during its operational phase, while preservation and appreciation of capital
were the Partnership's long-term objectives. The attainment of the
Partnership's investment objectives was dependent on many factors, including
economic conditions in the United States as a whole and, in particular, in
the localities in which the Partnership's properties were located, especially
with regard to achievement of capital appreciation.
The Partnership utilized the net proceeds of its public offering to acquire
five residential apartment complexes 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.
During its year ended December 31, 1998, following consideration of various
alternatives available to the Partnership, the General Partner concluded that
a sale of the Partnership's four remaining properties, Creekside Oaks, Ponte
Vedra Beach Village I, Rancho Antigua and Village at the Foothills I
(collectively the "Properties"), would be in the best interests of the
Partnership and the Unitholders. Throughout much of 1998, the General
Partner, on behalf of the Partnership, negotiated the terms of a sale of the
Properties with Lend Lease Real Estate Investments, Inc. ("Lend Lease"), on
behalf of two pension funds which are unaffiliated with the General Partner.
Once the terms were negotiated, as required by the Partnership's Amended and
Restated Certificate and Agreement of Limited Partnership ("Agreement of
Limited Partnership"), the General Partner solicited the consent of a
majority in interest of the Unitholders to the sale pursuant to a Consent
Solicitation Statement dated December 16, 1998. The requisite consent was
obtained on January 15, 1999, and on January 29, 1999, the Partnership
consummated the sale of the Properties to DOC Investors, L.L.C., a Delaware
limited liability company (the "Purchaser"), for a sales price of $29,300,000
(before selling costs and prorations). The members of the Purchaser are two
pension funds advised by Lend Lease, which own an aggregate 91% interest in
the Purchaser, and ConAm DOC Affiliates LLC, an affiliate of the General
Partner ("ConAm DOC"), which owns a 9% interest in the Purchaser. ConAm DOC
has the potential to receive up to an additional 18% of the profits of the
Purchaser after certain priority returns to the members of the Purchaser.
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The Partnership received approximately $17,217,000 of cash proceeds from the
sale, net of closing costs of approximately $93,000 and repayment of
indebtedness and prepayment penalties of approximately $11,990,000. All net
cash proceeds from the sale and previously undistributed cash from
operations, less an amount the General Partner determined to set aside for
contingencies, were distributed to the Limited Partners on February 26, 1999.
The Partnership considers itself to have been engaged in only one industry
segment, real estate investment.
COMPETITION
The Partnership's real property investments were subject to competition from
similar types of properties in the vicinities in which they were located.
Such former competition increased during the Partnership's period of
ownership of the Properties due principally to the addition of newly
constructed apartment complexes offering increased residential and
recreational amenities. The Properties were also subject to competition from
condominiums and single-family properties, especially as potential renters
chose to buy homes during periods of low mortgage interest rates. The
Partnership competed 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. Due to selective use of rent
concessions, property maintenance and appearance, occupancy levels have
increased or remained relatively stable at three of the Properties and rental
income for all Properties has increased over prior year. In some cases, the
Properties competed with properties owned by partnerships affiliated with the
General Partner.
For a discussion of market conditions in the areas where the Properties were
located, reference is made to the Partnership's Annual Report to Unitholders
for the year ended December 31, 1998, which is filed as an exhibit under Item
14.
EMPLOYEES
The Partnership has no employees. Services are provided by CPS II and ConAm
Management Corporation ("ConAm Management"), an affiliate of CPS II. Pursuant
to property management agreements with the Partnership, ConAm Management
provided property management services with respect to the Properties. In
addition, the Partnership retains Brock, Tibbitts & Snell, an accountancy
corporation, an unaffiliated company located in San Diego, California, to
provide accounting and investor communication functions. During 1998, Service
Data Corporation, an unaffiliated company, provided transfer agent services
for the Partnership. In February 1999, pursuant to the terms of a sale of its
contracts, Service Data Corporation assigned the transfer agent functions of
the company to MAVRICC Management Systems, Inc., an unaffiliated company
located in Troy, Michigan. 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 Properties owned and operated by the Partnership
during 1998 and discussion of market conditions in the areas where the
Properties were located, reference is made to the Partnership's Annual Report
to Unitholders for the year ended December 31, 1998, which is filed as an
exhibit under Item 14. For information on the Partnership's 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. For information on the sale of the Properties by the
Partnership in January 1999, reference is made to Item 1 and Note 10 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.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On December 16, 1998, pursuant to a Consent Solicitation Statement, the
Unitholders were asked to approve a sale of the Partnership's remaining
Properties and a related amendment to the Agreement of Limited Partnership. A
majority in interest of the Unitholders approved the sale and the amendment and
the sale was completed on January 29,1999. During the fourth quarter of the year
ended December 31, 1998, no other matters were submitted to a vote of
Unitholders through the solicitation of proxies or otherwise.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED
SECURITY HOLDER MATTERS
As of December 31, 1998, the number of Unitholders of record was 3,870.
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 determined by the
General Partner on a quarterly basis, with distributions generally occurring
approximately 45 days after the end of each quarter. Such distributions to the
Unitholders have been made from net operating income with respect to the
Partnership's investment in the Properties and from interest on short-term
investments. Information on cash distributions paid by the Partnership for the
past two years is incorporated by reference to the Partnership's Annual Report
to Unitholders for the year ended December 31, 1998, which is filed as an
exhibit under Item 14. No distribution was made for the fourth quarter of the
year ended December 31, 1998 because the General Partner decided to suspend
distributions pending the outcome of the solicitation of the consent of the
Unitholders to the sale of the Properties.
Because of the sale of the Partnership's remaining Properties, no further
quarterly distributions of Net Cash From Operations will be made. The
Partnership distributed $17,840,000 to the Unitholders ($223.00 per Unit) and
$88,653 to the General Partner on February 26, 1999, which amounts are equal to
substantially all of the net proceeds from the sale of the Properties, together
with other available cash of the Partnership, less an amount for costs
associated with the sale of the Properties and liquidation of the Partnership
and other contingencies of approximately $861,950 of the Partnership. The final
liquidation of the Partnership is expected to occur in mid-1999, and the
remaining funds, if any, will be distributed to the Unitholders at that time.
ITEM 6. SELECTED FINANCIAL DATA
Incorporated by reference to the Partnership's Annual Report to Unitholders for
the year ended December 31, 1998, 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, 1998, the Partnership had cash and cash equivalents of
$1,220,656 which were invested in unaffiliated money market funds, compared
with $1,109,506 at December 31, 1997. The increase in cash and cash
equivalents reflects the cash provided from operations exceeding mortgage
principal payments and cash distributions to partners during the year ended
December 31, 1998. The Partnership also maintains a restricted cash balance
that totaled $345,558 at December 31, 1998, largely unchanged from $342,282
at December 31, 1997. The increase in other assets in 1998 is primarily
attributed to an increase in costs related to the sale of the Properties.
Commencing in the first quarter of 1997, quarterly distributions were
suspended in order to fund roof replacements at Ponte Vedra Beach Village I.
The roof repairs were completed in September 1997 and distributions remained
suspended throughout the year to replenish cash reserves. Distributions began
in the first quarter of 1998.
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Accounts payable and accrued expenses totaled $287,482 at December 31, 1998,
compared to $197,443 at December 31, 1997. The increase is primarily due to
the accrued and unpaid costs associated with the sale of the Properties.
Security deposits decreased to $92,096 at December 31, 1998, compared to
$103,908 at December 31, 1997. This decrease occurred while average occupancy
increased during that same period. This decrease in security deposits
occurred primarily because strong competition has reduced the ability of
property owners to collect refundable security deposits from their tenants.
As a result of the Partnership's sale of the Properties on January 29, 1999,
all of the Partnership's assets have been converted to cash and cash
equivalents. Pending distribution to the Unitholders as described in Item 5
above, the Partnership's funds have been invested in the Pacific Horizon
Money Market Funds, Prime Fund. The General Partner retained from the initial
distribution an amount it believes is sufficient to provide for
contingencies, and to cover the expenses of operating the Partnership until
final liquidation of the Partnership, including legal and accounting fees.
RESULTS OF OPERATIONS
1998 VERSUS 1997
Partnership operations for the year ended December 31, 1998 resulted in net
income of $98,599 compared with a net loss of $202,655 in 1997. The improved
net income in 1998 is due primarily to higher rental income and decreased
property operating expenses and the write-off of the remaining basis of the
roofs replaced in 1997.
Rental income for the year ended December 31, 1998 was $4,434,497, up from
$4,327,499, in 1997, primarily as a result of increases in occupancy at
Village at the Foothills I and Rancho Antigua and increased rental rates at
all of the properties. Interest and other income decreased to $48,321 for the
year ended December 31, 1998, from $56,229 in 1997. The decrease is primarily
due to higher average cash balances held in the restricted cash account in
1997.
Property operating expenses decreased to $2,297,544 for the year ended
December 31, 1998, from $2,329,300 for 1997. The decrease is primarily
attributable to lower repairs and maintenance costs at Ponte Vedra Beach
Village I and Rancho Antigua, partially offset by higher repairs and
maintenance expenses at Creekside Oaks and Village at the Foothills I.
General and administrative expenses decreased to $185,683 for the year ended
December 31, 1998 from $213,441 in 1997. The decrease is primarily due to a
decrease in expenses for Partnership accounting, tax and other administrative
services.
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
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servicing the Partnership, which were voluntarily absorbed by affiliates of
RI-2 in prior periods, were reimbursable to RI-2 and its affiliates.
The average occupancy levels at each of the Properties owned during the years
ended December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
TWELVE MONTHS ENDED DECEMBER 31,
PROPERTY 1998 1997 1996
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<S> <C> <C> <C>
Creekside Oaks 95% 95% 94%
Ponte Vedra Beach Village I 92% 93% 95%
Rancho Antigua 95% 94% 94%
Village at the Foothills I 96% 92% 94%
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</TABLE>
YEAR 2000
Due to the consummation of the sale of the Properties in January 1999, the
Partnership is no longer engaged in the operation of real properties or any
other business. As a result of the foregoing, and in view of the General
Partner's plan to complete the full liquidation of the Partnership prior to
January 1, 2000, the Partnership has no exposure to Year 2000 issues.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Since the Partnership sold its remaining Properties on January 29, 1999 and
its mortgage indebtedness was repaid, the Partnership has no exposure to
interest rate risk. In addition, the Partnership is expected to be liquidated
during 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the Partnership's Annual Report to Unitholders
for the year ended December 31, 1998, 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.
(now a part of PricewaterhouseCoopers LLP) that it was changing accounting
firms and engaged KPMG LLP.
Coopers & Lybrand L.L.P.'s report on the consolidated financial statements for
the year ended December 31, 1996 contained no adverse opinion or disclaimer of
opinion and was not qualified as to uncertainty, audit scope or accounting
principles. There had 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, as 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.
CPS II is a California limited partnership organized on August 30, 1982. The
general partner of CPS II is Continental American Development, Inc. ("ConAm
Development"). The names and positions held by the directors and executive
officers of ConAm Development are set forth below. There are no family
relationships between any officers or directors.
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<TABLE>
<CAPTION>
NAME OFFICE
<S> <C>
Daniel J. Epstein President, Director and Principal Executive Officer
E. Scott Dupree Vice President and Director
Robert J. Svatos Vice President and Director
Ralph W. Tilley Vice President
J. Bradley Forrester Vice President
</TABLE>
DANIEL J. EPSTEIN, 59, has been the President and a Director of ConAm
Development 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, 48, 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, 40, 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 of
Science degree in Accounting from the University of Illinois. He is a
Certified Public Accountant.
RALPH W. TILLEY, 44, 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 LLP, specializing in real estate. He holds a Bachelor
of Science degree in Accounting from San Diego State University and is a
Certified Public Accountant.
J. BRADLEY FORRESTER, 41, 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,
Mr. Forrester served as Senior Vice President - Commercial Real Estate for
First Nationwide Bank in San Francisco, where he was responsible for a $2
billion problem asset portfolio including bank-owned real estate and
non-performing commercial real estate loans. His past experience includes
significant involvement in real estate development and finance, property
acquisitions and dispositions and owner's representation matters. Prior to
entering the real estate profession, he worked for KPMG 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, 1999, 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.
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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CPS II received $60,000 as the General Partner's allocable share of Net Cash
From Operations with respect to year ended December 31, 1998. Pursuant to the
Agreement of Limited Partnership of the Partnership, for the year ended December
31, 1998, $9,860 of the Partnership's net income was allocated to CPS II. For a
description of the share of Net Cash From Operations and the allocation of
income and loss to which the General Partner is 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, 1998, which is
filed as an exhibit under Item 14. Effective July 1, 1997, all General Partner
allocations were made solely to CPS II.
The Partnership entered into property management agreements with ConAm
Management pursuant to which ConAm Management assumed direct responsibility for
day-to-day management of the Properties. It was the responsibility of ConAm
Management to select resident managers, where appropriate, and monitor their
performance. ConAm Management's services also included 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 was entitled to receive a management fee
equal to 5% of gross revenues. A summary of property management fees earned by
ConAm Management during the past three years is incorporated by reference to
Note 7 to the consolidated financial statements, included in the Partnership's
Annual Report to Unitholders for the year ended December 31, 1998, which is
filed as an exhibit under Item 14.
Pursuant to Section 12(g) of the Partnership's 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 to the
consolidated financial statements, included in the Partnership's Annual Report
to Unitholders for the year ended December 31, 1998, which is filed as an
exhibit under Item 14.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Consolidated Balance Sheets - December 31, 1998 and 1997 ................ (1)
Consolidated Statements of Operations - For the years ended
December 31, 1998, 1997 and 1996.......................................... (1)
Consolidated Statements of Partners' Capital - For the years ended
December 31, 1998, 1997 and 1996.......................................... (1)
Consolidated Statements of Cash Flows - For the years ended
December 31, 1998, 1997 and 1996 ......................................... (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)
</TABLE>
(1) INCORPORATED BY REFERENCE TO THE PARTNERSHIP'S ANNUAL REPORT TO
UNITHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1998, 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).
(4.1) Amendment, dated January 18, 1999 to the Partnership's Amended and
Restated Certificate of Limited Partnership Agreement (included
as, and incorporated herein by reference to, Exhibit 4.1 to the
Partnerships Report on Form 8-K filed on February 16, 1999).
(10)(A) Financing Documents relating to Las Colinas I and II (Promissory
Note, Deed of Trust, Assignment of Rents and Leases) (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, 1992 (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)).
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(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)).
Page 10
<PAGE>
(P) 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 Creekside Oaks (included
as, and incorporated herein by reference to, Exhibit 10.1 to the
Partnerships Report on Form 8-K filed on February 16, 1999).
(Q) 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 Ponte Vedra Beach
Village I Apartments (included as, and incorporated herein by
reference to, Exhibit 10.2 to the Partnerships Report on Form 8-K
filed on February 16, 1999).
(R) 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 Rancho Antigua (included
as, and incorporated herein by reference to, Exhibit 10.3 to the
Partnerships Report on Form 8-K filed on February 16, 1999).
(S) 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 Village at Foothills I Apartments (included as, and
incorporated herein by reference to, Exhibit 10.3 to the
Partnerships Report on Form 8-K filed on February 16, 1999).
(13) Annual Report to Unitholders for the year ended December 31, 1998.
(21) List of Subsidiaries - Joint Ventures (included as, and
incorporated herein by reference to, Exhibit (22) to the
Registrant's 1991 Annual Report on Form 10-K filed for the year
ended December 31, 1991).
(27) Financial Data Schedule
(99) Portions of the Prospectus of the Registrant, dated June 24,
1981(included as, and incorporated herein by reference to, Exhibit
28 to the Registrant's 1988 Annual Report on Form 10-K filed for
the year ended December 31, 1988).
(b) REPORTS ON FORM 8-K:
No reports on Form 8-K were filed by the Partnership during the
fourth quarter of the year ended December 31, 1998.
(c) EXHIBITS
See Item 14(a)(3) above.
Page 11
<PAGE>
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 30, 1999
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
Page 12
<PAGE>
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 30, 1999
BY: /s/ Daniel J. Epstein
-------------------------------
Daniel J. Epstein
Director, President and
Principal Executive Officer
Date: March 30, 1999 BY: /s/ E. Scott Dupree
-------------------------------
E. Scott Dupree
Vice President and Director
Date: March 30, 1999
BY: /s/ Robert J. Svatos
-------------------------------
Robert J. Svatos
Vice President and Director
Date: March 30, 1999
BY: /s/ Ralph W. Tilley
-------------------------------
Ralph W. Tilley
Vice President
Date: March 30, 1999
BY: /s/ J. Bradley Forrester
-------------------------------
J. Bradley Forrester
Vice President
Page 13
<PAGE>
EXHIBIT 13
CONAM REALTY INVESTORS 2 L.P.
1998 ANNUAL REPORT
<PAGE>
- --------------------------------------------------------------------------------
CONAM REALTY INVESTORS 2 L.P.
- --------------------------------------------------------------------------------
ConAm Realty Investors 2 L.P. is a California limited partnership
formed in 1981 to acquire, operate and hold for investment multifamily
residential properties. At December 31, 1998, the Partnership's
portfolio consisted of four apartment properties, two of which were
located in Arizona and two in Florida. On January 29, 1999, with the
consent of the Unitholders, the four remaining properties were sold for
a price of $29,300,000 (before closing costs) and substantially all of
the cash, less a contingency amount, was distributed to the Unitholders
on February 26, 1999.
CONTENTS
1 Message to Investors
2 Performance Summary
3 Financial Highlights
4 Consolidated Financial Statements
7 Notes to the Consolidated Financial Statements
13 Independent Auditors' Report
14 Report of Former Independent Accountants
15 Net Asset Valuation
- --------------------------------------------------------------------------------
ADMINISTRATIVE INQUIRIES PERFORMANCE INQUIRIES/FORM 10-Ks
ADDRESS CHANGES/TRANSFERS Brock, Tibbitts and Snell
MAVRICC Management Systems, Inc. 625 Broadway, Suite 911
1845 Maxwell, Suite 101 San Diego, California 92101
Troy, MI 48084-4510
Attn: Financial Communications
248-637-7897 619-232-0365
- --------------------------------------------------------------------------------
<PAGE>
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
- --------------------------------------------------------------------------------
MESSAGE TO INVESTORS
- --------------------------------------------------------------------------------
Presented for your review is the 1998 Annual Report for ConAm Realty Investors 2
L.P. (the "Partnership"). In this report we have included a performance summary
which addresses operations at each of the properties (the "Properties") and the
financial highlights for the year.
We are pleased to announce that the proposed sale of the Partnership's four
remaining Properties to DOC Investors, L.L.C., a Delaware limited liability
company, was approved by a majority in interest of the Unitholders as of
January 15, 1999 and that the sale was completed on January 29, 1999.
Following the close of the sale of the Properties, a distribution of $223.00
per Unit, representing the majority of the net proceeds from the sale and
other cash from operations, was paid to Unitholders on February 26, 1999.
This distribution included the net proceeds from the sale of the
Partnership's Properties in January 1999 of $213.03 per Unit, and cash from
operations of $9.97 per Unit, both of which were distributed on February 26,
1999.
CASH DISTRIBUTIONS
The Partnership paid quarterly cash distributions of operating cashflow
totaling $6.75 per Unit for the year ended December 31, 1998. The General
Partner elected not to make a fourth quarter distribution pending the outcome
of the solicitation of the consent of the Unitholders to the sale of the
Partnership's Properties. Including the distribution of sale proceeds and
cash from operations made on February 26, 1999, since inception, the
Partnership has paid distributions totaling $566.94 per original $500 Unit.
OPERATIONS OVERVIEW
In 1998, operations at the Partnership's properties continued to be impacted
to varying degrees by strong competition for residents. Population and job
growth remained strong in Arizona and Florida, which has led to the addition
of newly constructed complexes in the submarkets where the Partnership's
properties are located. In Arizona, due to lower interest rates and the
affordability of homes, many renters opted to purchase homes. Despite these
trends, the Properties sustained a collective average occupancy of 94.5% in
1998 compared with 93.5% in 1997. Due to selective use of rent concessions
and consistently attractive property appearance, occupancy levels also
increased or remained stable at three of the Properties with rental income
for all Properties increasing over prior year. During 1998 property aggregate
operating expenses for the Partnership decreased somewhat, primarily due to
lower repair and maintenance expenses at Ponte Vedra Beach Village I and
Rancho Antigua, partially offset by an increase in repair and maintenance
expenses at Village at the Foothills I and Creekside Oaks.
SUMMARY
The sale of the Properties on January 29, 1999 and the initial distribution
of net sales proceeds and cash from operations on February 26, 1999 represents
a major step toward the liquidation of the Partnership that is expected to be
completed in August 1999. A final distribution of remaining Partnership cash,
if any, will be made shortly thereafter.
Very truly yours,
/s/ Daniel J. Epstein
Daniel J. Epstein, President
Continental American Development Inc.
General Partner of ConAm Property Services II, Ltd.
March 30, 1999
1
<PAGE>
- --------------------------------------------------------------------------------
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 1998 and 1997. In recent years, the
Jacksonville market experienced a significant increase in new construction
and the issuance of new construction permits. This new construction softened
the market by outpacing population and job growth and will continue to affect
the region as new units become available. Vacancy rates remained low, due to
increased use of rental concessions in the marketplace to attract and retain
residents.
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. Population
and job growth in the Jacksonville area remained high, but construction of
new apartments lead to softness in the market. As a result, the property
reported an average occupancy level of 92% in 1998, down slightly from 93% in
1997. Rental income, however, increased due to an increase in rental rates.
Property improvements in 1998 included roof replacements, carpet replacement
and other improvements to maintain the appearance of the property.
RANCHO ANTIGUA SCOTTSDALE, ARIZONA
Rancho Antigua is a 220-unit apartment community located in Scottsdale, eight
miles northeast of Phoenix. The property reported average occupancy of 95% in
1998, up slightly from 94% in 1997, and an increase in rental income due to
an increase in occupancy and rental rates. The Scottsdale apartment market
experienced continued strong competition, 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.
The Scottsdale market is experiencing strong job and population growth.
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
96% during 1998, up significantly from 92% in 1997, and an increase in rental
income due to an increase in occupancy and rental rates. 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 residents.
2
<PAGE>
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
- --------------------------------------------------------------------------------
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
For the years ended December 31, 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------------
DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA
<S> <C> <C> <C> <C> <C>
Total Income $ 4,483 $ 4,384 $ 4,328 $ 4,516 $ 4,718
Gain on Sale of Property -- -- -- 232 --
Net Income (Loss) 99 (203) (3) (113) 37
Net Cash Provided by
Operating Activities 980 979 1,334 864 1,150
Long-term Obligations at Year End 11,323 11,555 11,770 11,969 14,219
Total Assets at Year End 17,715 18,370 18,920 19,931 24,772
Net Income (Loss) per
Limited Partnership Unit* 1.11 (2.51) (0.03) (4.27) .42
Distributions per Limited Partnership
Unit* 6.75 -- 9.00 9.00 5.50
Special Distributions per Limited
Partnership Unit* -- -- -- 20.00 --
- ------------------------------------------------------------------------------------------------------
* 80,000 UNITS OUTSTANDING
</TABLE>
<TABLE>
<CAPTION>
CASH DISTRIBUTIONS
PER LIMITED PARTNERSHIP UNIT 1998 1997
- ------------------------------------ -------------- ------------
<S> <C> <C>
First Quarter $ 2.25 $--
Second Quarter 2.25 --
Third Quarter 2.25 --
Fourth Quarter -- --
-------------- -----------
TOTAL $ 6.75 $--
- ------------------------------------ -------------- -----------
</TABLE>
Cash distributions were reduced in 1998 due to a suspension of distributions in
the fourth quarter pending the outcome of the solicitation of the consent of the
Unitholders to the sale of the Properties.
3
<PAGE>
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, AT DECEMBER 31,
1998 1997
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Investments in real estate:
Land $ 5,744,972 $ 5,744,972
Buildings and improvements 23,718,118 23,681,664
--------------------------------------------
29,463,090 29,426,636
Less accumulated depreciation (13,640,819) (12,689,727)
---------------------------------------------
15,822,271 16,736,909
Cash and cash equivalents 1,220,656 1,109,506
Restricted cash 345,558 342,282
Other assets, net of accumulated amortization
of $323,015 in 1998 and $260,496 in 1997 326,486 181,421
- -------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 17,714,971 $ 18,370,118
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Mortgages payable $ 11,322,919 $ 11,554,935
Accounts payable and accrued expenses 287,482 197,443
Due to general partner and affiliates 18,547 18,504
Security deposits 92,096 103,908
------------------------------------------
Total Liabilities 11,721,044 11,874,790
------------------------------------------
Partners' Capital (Deficit):
General Partner (617,296) (567,156)
Limited Partners (80,000 Units outstanding) 6,611,223 7,062,484
------------------------------------------
Total Partners' Capital 5,993,927 6,495,328
- -------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 17,714,971 $ 18,370,118
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Rental $ 4,434,497 $ 4,327,499 $ 4,264,370
Interest and other 48,321 56,229 63,467
---------------------------------------------------
Total Income 4,482,818 4,383,728 4,327,837
---------------------------------------------------
EXPENSES
Property operating 2,297,544 2,329,300 2,222,474
Depreciation and amortization 1,013,611 1,017,912 1,005,471
Interest 887,381 904,630 920,596
General and administrative 185,683 213,441 181,896
Write-off of assets -- 121,100 --
---------------------------------------------------
Total Expenses 4,384,219 4,586,383 4,330,437
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 98,599 $ (202,655) $ (2,600)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) ALLOCATED:
To the General Partner $ 9,860 $ (2,027) $ (26)
To the Limited Partners 88,739 (200,628) (2,574)
- -------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 98,599 $ (202,655) $ (2,600)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
PER LIMITED PARTNERSHIP UNIT
(80,000 UNITS OUTSTANDING):
NET INCOME (LOSS) $ 1.11 $ (2.51) $ (0.03)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 GENERAL LIMITED
PARTNER PARTNERS TOTAL
- -------------------------------------------------------------------------------------------------------------------
BALANCE (DEFICIT) 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 (DEFICIT) AT DECEMBER 31, 1996 $ (565,129) $ 7,263,112 $ 6,697,983
Net Loss (2,027) (200,628) (202,655)
- --------------------------------------------------------------------------------------------------------------------
BALANCE (DEFICIT) AT DECEMBER 31, 1997 $ (567,156) $ 7,062,484 $ 6,495,328
Net Income 9,860 88,739 98,599
Distributions ($6.75 per Unit) (60,000) (540,000) (600,000)
- -------------------------------------------------------------------------------------------------------------------
BALANCE (DEFICIT) AT DECEMBER 31, 1998 $ (617,296) $ 6,611,223 $ 5,993,927
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
CONAM REALTY INVESTORS 2 L.P.
AND CONSOLIDATED VENTURES
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 98,599 $ (202,655) $ (2,600)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,013,611 1,017,912 1,005,471
Write-off of assets -- 121,100 --
Increase (decrease) in cash arising from changes
in operating assets and liabilities:
Fundings to restricted cash (306,551) (325,093) (327,279)
Release of restricted cash 303,275 300,079 661,672
Other assets (207,584) -- 5,900
Accounts payable and accrued expenses 90,039 69,633 (10,135)
Due to general partner and affiliates 43 573 482
Security deposits (11,812) (2,445) 135
-------------------------------------------------
Net cash provided by operating activities 979,620 979,104 1,333,646
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES--
ADDITIONS TO REAL ESTATE (36,454) (417,120) (83,241)
- --------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions (600,000) (200,000) (800,000)
Mortgage principal payments (232,016) (214,768) (198,801)
---------------------------------------------------
Net cash used in financing activities (832,016) (414,768) (998,801)
- --------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 111,150 147,216 251,604
Cash and cash equivalents, beginning of period 1,109,506 962,290 710,686
- --------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,220,656 $ 1,109,506 $ 962,290
- --------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 887,381 $ 904,630 $ 920,596
- -------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING ACTIVITIES:
Write-off of buildings and improvements $ -- $ (261,100) $ --
Write-off of accumulated depreciation $ -- $ 140,000 $ --
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS.
6
<PAGE>
Notes to the Consolidated Financial Statements
DECEMBER 31, 1998, 1997 AND 1996
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 dated December 17, 1981 as amended and restated October 8, 1982 (the
"Partnership Agreement"). The Partnership was formed for the purpose of
acquiring and operating multi-family 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 (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. On January 15, 1999, a majority in interest of Unitholders agreed to the
sell the Partnership's remaining properties and liquidate the Partnership. The
Partnership sold its properties on January 29,1999 (Note 10) and expects to
liquidate during 1999.
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 for the period.
IMPAIRMENT OF LONG-LIVED ASSETS The Partnership assesses 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
as the amount by which the carrying amount of the real estate exceeds the fair
value of the real estate. At December 31, 1998, the Partnership's properties
were assets to be held and used as the Partnership did not have the ability to
sell the properties without the approval of a majority of the Unitholders.
7
<PAGE>
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 loan 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 or treasury based money market funds.
RESTRICTED CASH Restricted cash consists of escrow deposits for real estate
taxes and casualty 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
Partner.
Net loss for any fiscal year is to be allocated 99% to the limited partners and
1% to General Partner. Net income for any fiscal year will generally be in
accordance with the distributions 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 Partner until each limited partner has
received an amount equal to its 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 Partner.
Gain from sales resulting from mortgage debt in excess of basis 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.
Each partner shall look solely to the assets of the Partnership for all
distributions with respect to the Partnership and their capital contribution
thereto, and shall have no recourse therefore (upon dissolution or otherwise)
against any General Partner or any limited partner; provided, however, that
upon dissolution and termination of the Partnership the General Partner shall
contribute to the capital of the Partnership an amount, not to exceed 1% of
the aggregate capital contributions of all of the partners to the Partnership
less that amount of all prior capital contributions of the General Partner,
equal to any negative balance in their respective capital account. In
addition, if upon distribution and termination of the Partnership the sum of
the limited partners' capital contributions and an amount equal to the
greater of a 7% cumulative annual return with respect to each limited
partner's adjusted capital value, calculated commencing with the first
anniversary date of the last additional closing date, as defined, and reduced
by any net cash from operations distributed to such limited partner, or a 6%
cumulative annual return with respect to each
8
<PAGE>
limited partner's adjusted capital value, as defined, calculated from the
date of his admission to the Partnership and reduced by any net cash from
operations distributed to such limited partner, exceeds the aggregate
distributions to the limited partners of net proceeds from sale or
refinancing, the General Partner shall contribute to the Partnership for
distribution to the limited partners an amount equal to the lesser of such
excess or the aggregate distributions of net proceeds from sale or
refinancing to the General Partner.
Effective July 1, 1997, all general partner allocations are to be made solely to
CPS II.
4. INVESTMENTS IN REAL ESTATE
The Partnership's four remaining properties at December 31, 1998 were as
follows:
<TABLE>
<CAPTION>
APARTMENT
PROPERTY NAME UNITS LOCATION DATE ACQUIRED PURCHASE PRICE
- ------------------------------------ -------------- ---------------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
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
- ------------------------------------ -------------- ---------------------------- ------------------ -----------------
</TABLE>
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.
d. Upon dissolution or termination of the joint venture agreement, each
venturer is obligated to contribute to the joint venture in cash an amount
equal to any negative balance in its capital account, if any, as defined,
after allocation of all net income, net loss, gain from sale and loss from
sale.
The joint venture agreements and limited partnership agreements of 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 Partner.
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 Partner. 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 Partner.
9
<PAGE>
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 Partner. 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
Partner.
d. Upon dissolution or termination of the joint venture agreement of the
Village at the Foothills I, any proceeds from a liquidating transaction,
as defined, will be distributed to the partners with positive capital
account balances (after capital accounts have been adjusted to reflect the
allocation of gain or loss attributable to the transaction giving rise to
such proceeds, whether or not such gains or loss has been recognized for
federal income tax purposes), as defined, in proportion to such positive
capital account balances.
e. Upon dissolution or termination of the joint venture agreement of the
Village of the Foothills I, the General Partner will be required to
contribute to partnership capital an amount equal to the lesser of (i) the
excess of 1.01% of the capital account of the Partnership as of the date
hereof over any deficit balance, if any, in their capital accounts on the
date of dissolution or termination.
5. MORTGAGE PAYABLE
On October 28, 1993, the Partnership obtained replacement financing on its
Creekside Oaks, Ponte Vedra Beach I, and Rancho Antigua 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, 1998, consist of the following first mortgage
loans:
<TABLE>
<CAPTION>
PROPERTY PRINCIPAL
-----------------------------------------------------------------
<S> <C>
Creekside Oaks $ 2,429,614
Ponte Vedra Beach Village I 3,667,342
Rancho Antigua 5,225,963
-----------------------------------------------------------------
Total $11,322,919
-----------------------------------------------------------------
-----------------------------------------------------------------
</TABLE>
These mortgages contain provisions for prepayment penalties if the mortgages are
repaid prior to their maturity date of November 30, 2000. The loans were repaid
in full in conjunction with the sale of the respective Property on January 29,
1999 (note 10).
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, accounts payable and accrued expenses, due to
general partner and 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 mortgage 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.
10
<PAGE>
7. TRANSACTIONS WITH RELATED PARTIES
The following is a summary of fees earned and reimbursable expenses to the
General Partner and affiliates for the years ended December 31, 1998, 1997 and
1996, and the unpaid portion at December 31, 1998:
<TABLE>
<CAPTION>
EARNED AND
UNPAID AT EARNED
DECEMBER 31, ----------------------------------------------------
1998 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
RI-2 Real Estate Services Inc. and
affiliates:
Out-of-pocket expenses $ -- $ -- $ 402 $ 807
ConAm and affiliates:
Property operating salaries -- 350,329 321,517 323,312
Property management fees 18,547 223,029 216,432 213,281
Admin. expenses -- -- 18,425 --
- ------------------------------------------------------------------------------------------------------------------
TOTAL $ 18,547 $ 573,358 $556,776 $537,400
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
8. RECONCILIATION OF FINANCIAL STATEMENT AND TAX INFORMATION
The following is a reconciliation of the net income (loss) for financial
statement purposes to net income (loss) for federal income tax purposes for the
years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income (loss) per financial statements $ 98,599 $ (202,655) $ (2,600)
Tax basis joint venture net income (loss)
in excess of GAAP basis joint
venture net income (unaudited) (130,682) (201,705) (193,019)
Loss on write-off of assets per
financial statements not
recognized for tax purposes (unaudited) -- 121,100 --
Other (unaudited) (16,000) 11,000 1,397
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
TAXABLE NET INCOME (LOSS)(UNAUDITED) $ (48,083) $ (272,260) $ (194,222)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation of partners' capital for financial statement
purposes to partners' capital for federal income tax purposes as of December 31,
1998, 1997 and 1996:
<TABLE>
<CAPTION>
1998 1997 1996
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' capital per financial statements $ 5,993,927 $ 6,495,328 $ 6,697,983
Adjustment for cumulative difference between
tax basis net income and net income
per financial statements (unaudited) (5,201,262) (5,054,580) (4,984,975)
- -------------------------------------------------------------------------------------------------------------------
PARTNERS' CAPITAL PER INCOME TAX RETURN (UNAUDITED) $ 792,665 $ 1,440,748 $ 1,713,008
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
At December 31, 1998, the tax basis of the Partnership's assets was $945,161 and
the tax basis of the Partnership's liabilities was $152,496. The Partnership
does not consolidate its investment in joint ventures for income tax purposes.
11
<PAGE>
9. DISTRIBUTIONS PAID
Cash distributions, per the consolidated statements of partners' capital, are
recorded on the accrual basis, which recognizes specific record dates for
payments within each year. The consolidated statements of cash flows recognize
actual cash distributions paid during the year. The following table discloses
the annual amounts as presented on the consolidated financial statements:
<TABLE>
<CAPTION>
Distributions Distributions
Payable Distributions Distributions Payable
Beginning of Year Declared Paid End of Year
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1998 $ -- $ 600,000 $ 600,000 $ --
1997 200,000 -- 200,000 --
1996 200,000 800,000 800,000 200,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
10. SALE OF PROPERTIES
On January 29, 1999, the Partnership consummated the sale of the four remaining
Properties to DOC Investors, L.L.C., a Delaware limited liability company, for a
sales price of $29,300,000 (before selling costs and prorations). As required by
the Partnership's partnership agreement, the General Partner solicited the
consent of a majority in interest of the Unitholders to the sale pursuant to a
Consent Solicitation Statement dated December 16, 1998. The requisite consent
was obtained on January 15, 1999. The Partnership received approximately
$17,217,000 of cash proceeds from the sale, net of closing costs of
approximately $93,000 and repayment of indebtedness and prepayment penalties of
approximately $11,990,000.
On February 26, 1999, the Partnership distributed $17,840,000 ($223.00 per Unit)
to the Unitholders and $88,653 to the General Partner.
12
<PAGE>
- ------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- ------------------------------------------------------------------------------
The General Partner
ConAm Realty Investors 2 L.P.:
We have audited the accompanying consolidated balance sheets of ConAm Realty
Investors 2 L.P. (a California limited partnership) and consolidated ventures
(the Partnership), as of December 31, 1998 and 1997, and the related
consolidated statements of operations, partners' capital, and cash flows for the
years 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 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.
As further discussed in Note 10 to the consolidated financial statements, the
Partnership sold substantially all of its assets on January 29, 1999.
In our opinion, the 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, 1998 and 1997, and
the results of their operations and their cash flows for the years then ended,
in conformity with generally accepted accounting principles.
KPMG LLP
San Diego, California
March 11, 1999
13
<PAGE>
- ------------------------------------------------------------------------------
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 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 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 the consolidated results of their
operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Hartford, Connecticut
February 14, 1997
14
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------
NET ASSET VALUATION
- -----------------------------------------------------------------------------------------------------------------------
COMPARISON OF ACQUISITION COSTS TO DECEMBER 31, 1998 PROPERTY VALUES AND
DETERMINATION OF NET ASSET VALUE PER UNIT AT DECEMBER 31, 1998 (UNAUDITED)
ACQUISITION COST
(PURCHASE PRICE
PLUS GENERAL PARTNERSHIP'S NET ASSET
PARTNER'S SHARE OF PROPERTY VALUE
PROPERTY DATE OF ACQUISITION ACQUISITION FEES) VALUE (1) DETERMINATION
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Creekside Oaks 11-18-83 $6,238,445 $ 5,500,000
Ponte Vedra Beach 02-10-84 7,123,950 7,700,000
Rancho Antigua 03-08-84 11,446,176 13,700,000
Village at the Foothills I 02-27-85 3,756,741 2,400,000
--------------------
29,300,000
Less closing costs (93,114)
------------------
29,206,886
Cash and cash equivalents (including previously restricted cash) 1,566,214
Other assets 326,486
------------------
Total assets 31,099,586
------------------
Less:
Secured debt 11,322,919
Prepayment penalties 587,939
Other liabilities 398,125
Contingency amounts (2) 861,950
------------------
Total liabilities 13,170,933
------------------
Partnership Net Asset Value (3) 17,928,653
------------------
Net Asset Value Allocated:
Limited Partners 17,840,000
General Partner 88,653
------------------
17,928,653
------------------
NET ASSET VALUE PER UNIT
(80,000 UNITS OUTSTANDING) $ 223.00
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents the Partnership's share of the fair market value of the
properties as reflected in the purchase and sale agreements pursuant to
which the properties were sold on January 29, 1999. The purchase prices
contained in such agreements were negotiated and agreed to in
December 1998.
(2) Includes an amount for estimated future costs related to the sale and
liquidation of the Partnership and an amount the General Partner
determined to set aside for contingencies, net of expected cash provided
by operations through the date of sale.
(3) The Partnership Net Asset Value assumes a sale at December 31, 1998 of all
the Partnership's properties at prices equal to the sales prices set forth
in the purchase and sale agreements described in Note (1) above, payment of
all Partnership liabilities, and the distribution of the net proceeds of
such sale and other Partnership cash to the Partners.
Since the Partnership sold all of its real property assets in January 1999, is
in dissolution, and is in the process of winding up and liquidating, the
foregoing Partnership Net Asset Value is intended to approximate the liquidation
value of the Partnership and the Net Asset Value Per Unit is intended to
approximate the per Unit amount which is expected to be distributed to the
Limited Partners in connection with the Partnership's liquidation. The Net Asset
Valuation does not take into account the illiquid nature of an investment in the
Units or the fact that at December 31, 1998 a holder of Units would likely not
have been able to sell its Units for the Net Asset Value Per Unit set forth
above. Fiduciaries of Limited Partners which are subject to ERISA or other
provisions of law requiring valuation 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.
15
<PAGE>
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CREEKSIDE PONTE VEDRE RANCHO VILLAGE AT
RESIDENTIAL PROPERTY: OAKS BEACH VILLAGE I ANTIGUA THE FOOTHILLS I TOTAL
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Location Jacksonville, Fl. P.V. Beach, FL. Scottsdale, AZ Tucson, AZ na
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 (2) (2) (2) (2)
Encumbrances $ 2,429,614 $ 3,667,342 $ 5,225,963 $ -- $ 11,322,919
Initial cost to Partnership:
Land 400,317 1,115,028 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 281,499 554,569 141,634 25,270 1,002,972
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 8,109,994 3,030,550 23,718,118
- ----------------------------------------------------------------------------------------------------------------------------
Total $ 6,536,452 $ 7,489,787 $11,607,478 $ 3,829,373 $ 29,463,090
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
Accumulated depreciation $ (3,611,614) $ (3,585,642) $(4,776,310) $ (1,667,253) $ (13,640,819)
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The aggregate costs for Land, Buildings and Improvements for federal tax
purposes are $23,971,019.
(2) Building 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, 1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INVESTMENTS IN REAL ESTATE:
Beginning of period $ 29,426,636 $ 29,270,616 $ 29,187,375
Additions 36,454 417,120 83,241
Dispositions and disposals -- (261,100) --
- ----------------------------------------------------------------------------------------------------------------------------
End of period $ 29,463,090 $ 29,426,636 $ 29,270,616
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
ACCUMULATED DEPRECIATION:
Beginning of period $ 12,689,727 $ 11,874,334 $ 10,931,382
Depreciation expense 951,092 955,393 942,952
Dispositions and disposals -- (140,000) --
- ----------------------------------------------------------------------------------------------------------------------------
End of period $ 13,640,819 $ 12,689,727 $ 11,874,334
- ----------------------------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT.
F-1
<PAGE>
- ------------------------------------------------------------------------------
INDEPENDENT AUDITORS' REPORT
- ------------------------------------------------------------------------------
The General Partner
ConAm Realty Investors 2 L.P.:
Under date of March 11, 1999, we reported on the consolidated balance sheets
of ConAm Realty Investors 2 L.P. (a California limited partnership) and
consolidated ventures (the Partnership) as of December 31, 1998 and 1997, and
the related consolidated statements of operations, partners' capital, and
cash flows for the years then ended, as contained in the 1998 annual report
to Unitholders. These consolidated financial statements and our report
thereon are incorporated by reference in the 1998 annual report on Form 10-K.
In connection with our audits of the aforementioned consolidated financial
statements, we also have audited the related consolidated financial statement
schedule III. 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 audits.
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 LLP
San Diego, California
March 11, 1999
F-2
<PAGE>
- ------------------------------------------------------------------------------
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
L.P. for the year ended December 31, 1996. In connection with our audit 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
F-3
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 1,566,214
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 29,463,090
<DEPRECIATION> (13,640,819)
<TOTAL-ASSETS> 17,714,971
<CURRENT-LIABILITIES> 398,125
<BONDS> 11,322,919
0
0
<COMMON> 0
<OTHER-SE> 5,993,927
<TOTAL-LIABILITY-AND-EQUITY> 17,714,971
<SALES> 4,434,497
<TOTAL-REVENUES> 4,482,818
<CGS> 0
<TOTAL-COSTS> 2,297,544
<OTHER-EXPENSES> 1,199,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 887,381
<INCOME-PRETAX> 98,599
<INCOME-TAX> 0
<INCOME-CONTINUING> 98,599
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 98,599
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
</TABLE>
