FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
(As last amended by 34-32231, eff. 6/3/93.)
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 2-85829
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(Exact name of small business issuer as specified in its charter)
New York 13-3202289
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
230 Park Avenue, Suite 2400
New York, New York 10169
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 697-2330
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(A Limited Partnership)
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1995
<S> <C> <C>
Cash and cash equivalents:
Unrestricted $ 704,540
Restricted-tenant security deposits 46,879
Accounts receivable (net of allowance for
doubtful accounts of $2,500) 92,582
Escrows and other deposits 252,775
Prepaid expenses 26,268
Note receivable 48,808
Deferred charges 251,263
Investment properties:
Land $ 3,188,684
Building and improvements 15,165,259
Furniture, fixtures and equipment 1,000,802
Less accumulated depreciation (9,861,520) 9,493,225
$10,916,340
Liabilities and Partners' Equity (Deficit)
Liabilities
Accounts payable $ 12,604
Accrued liabilities:
Interest $ 32,261
Property taxes 248,558
Professional fees 34,800
Other 8,964 324,583
Accountability to partnership
(Notes 1 and 4) 826,645
Deposits and other tenant liabilities 149,706
Mortgage and other indebtedness 8,568,424
Total liabilities 9,881,962
Partners' equity (deficit)
General partner (98,551)
Limited partners 1,132,929 1,034,378
$10,916,340
</TABLE>
[FN]
See Notes to Financial Statements
b) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Rental operations $684,592 $ 628,444 $2,099,216 $1,884,648
Interest income 8,580 6,466 25,486 15,305
Other income 11,704 43,322 30,609 144,623
Total revenues 704,876 678,232 2,155,311 2,044,576
Expenses:
Rental operations 287,452 293,476 832,619 877,523
Equity in loss of
joint venture (Note 4) -- 141,349 111,337 223,959
General and administrative 24,173 24,429 82,463 80,597
Management fees to related
parties (Note 3) 17,382 15,545 52,800 46,013
Interest expense 194,416 199,056 588,474 598,191
Depreciation and amortization 211,425 223,568 632,739 656,350
Total expenses 734,848 897,423 2,300,432 2,482,633
Net loss $(29,972) $(219,191) $ (145,121) $ (438,057)
Net loss per limited partnership
unit (based on 37,273 units
issued and outstanding) $ (.80) $ (5.82) $ (3.85) $ (11.64)
</TABLE>
[FN]
See Notes to Financial Statements
c) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Partners' equity (deficit)
at December 31, 1994 $(97,100) $1,276,599 $1,179,499
Net loss for the nine months
ended September 30, 1995 (1,451) (143,670) (145,121)
Partners' equity (deficit)
at September 30, 1995 $(98,551) $1,132,929 $1,034,378
</TABLE>
[FN]
See Notes to Financial Statements
d) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net loss $(145,121) $ (438,057)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 632,739 656,350
Equity in loss of joint venture 111,337 223,959
Change in accounts:
Restricted cash 1,408 (10,158)
Accounts receivable (48,433) 99,459
Escrow and other deposits (97,879) (130,271)
Prepaid expenses (6,644) (32,697)
Deferred charges (13,689) (104,015)
Accounts payable (16,500) (8,808)
Accrued liabilities 105,566 126,165
Deposits and other tenant liabilities (2,107) 444
Net cash provided by operating
activities 520,677 382,371
Cash flows from investing activities:
Note receivable from tenant (57,000) --
Payments received on note receivable 8,192 --
Additions to real and personal property (111,457) (146,486)
Net cash used by investing activities (160,265) (146,486)
Cash flows from financing activities:
Cash overdraft -- (31,236)
Principal payments on mortgage and other
indebtedness (184,097) (127,125)
Proceeds from mortgage refinancing -- 1,350,000
Repayment of mortgage payable -- (1,236,725)
Partners' distributions paid (279,548) --
Net cash used by financing activities (463,645) (45,086)
Net (decrease) increase in cash (103,233) 190,799
Cash at beginning of period 807,773 577,973
Cash at end of period $ 704,540 $ 768,772
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 589,060 $ 589,983
</TABLE>
[FN]
See Notes to Financial Statements
e) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the General Partner, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and nine month
periods ended September 30, 1995, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1995. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the fiscal year ended
December 31, 1994.
Note 2 - Basis of Accounting
The financial statements include the Partnership's operating divisions,
Wendover Business Park - Phase II ("Wendover II") and Presidential House at Sky
Lake ("Presidential"), in addition to its 50% pro rata share of assets,
liabilities, equity, income and expenses of its joint venture in the Table Mesa
Shopping Center ("Table Mesa").
The Partnership had a 22.47% interest in the 123 Office Building (Tyson's
Corner) joint venture. On March 14, 1994, the building was lost in a
foreclosure proceeding, and on November 15, 1994, the joint venture was
liquidated. (See Note 6 - 123 Office Building Foreclosure Proceedings.)
The Partnership accounts for its general partnership interest in SP
Associates ("SPA") under the equity method of accounting (see Note 4). Losses
recognized in excess of its investment in the joint venture have been limited to
the Partnership's share of recourse liabilities.
Note 3 - Related Party Transactions
For the nine months ended September 30, 1995, management fees paid to related
parties are as follows:
Costs
Incurred
The Wynnewood Company, Inc. $35,700
W.W. Reynolds Company 17,100
$52,800
Note 4 - Investment in SP Associates
SP Associates (SPA) was formed on April 4, 1984, by the Partnership and
Coreal N.V., Inc. (Coreal) as a joint venture under the laws of the State of New
Jersey to acquire the Sheraton Poste Inn, a 220-room hotel located in Cherry
Hill, New Jersey.
The Hotel is leased to SPV Corp. (SPV) under the terms of an operating lease
agreement. One of the stockholders of SPV is also the sole stockholder of the
parent of the general partner and the other stockholder of SPV is a former
officer/employee of Drexel Burnham Lambert Realty, Inc.
On October 1, 1992, the joint venture agreement was amended to admit a new
joint venturer, Almanzil, Inc., upon the contribution of $1,250,000 all of which
had been contributed as of December 31, 1994. Almanzil, Inc. is a wholly owned
subsidiary of Coast Investment and Development Company (CIDCO). CIDCO is a
stockholder of the parent of Coreal. Almanzil replaced the Partnership's
exclusive authority to manage the operations and affairs of SPA and to make all
decisions regarding the business of SPA. In addition, cash from operations and
capital transactions, as defined, of SPA shall be allocated 50% to Almanzil,
33.3% to the Partnership and 16.7% to Coreal, after Almanzil receives an amount
equal to an annual 20% preferred cumulative return on its outstanding capital
and a return of its original investment. Losses from operations, as defined,
are allocated 66.7% to the Partnership and 33.3% to Coreal.
Note 5 - Refinancing of Wendover Mortgage
On January 13, 1994, the Partnership refinanced the then existing senior
mortgage for Wendover II with an insurance company and increased the outstanding
principal balance to $1,350,000. The old mortgage in the amount of $1,236,725
was repaid from the loan proceeds. The new mortgage matures on February 1,
2001, and requires monthly payments of $11,292 to be applied first to interest
at the rate of 7.75% per annum and the balance to reduction of principal.
Note 6 - 123 Office Building Foreclosure Proceedings
Tyson's Corner was formed on August 22, 1985, pursuant to the Uniform
Partnership Act of the Commonwealth of Virginia for the purpose of acquiring,
operating and leasing a 40,727 square foot office building known as the 123
Office Building located in Fairfax County, Virginia. The Partnership had a
22.47% interest in Tyson's Corner, while Drexel Burnham Lambert Real Estate
Associates III, an affiliated entity, held the remaining 77.53% interest.
In October 1993, the lease for the principal tenant of 123 Office Building
expired and the tenant, who was occupying approximately 85% of the building,
vacated the premises. In November 1993, debt service payments to the 123 Office
Building mortgagee were discontinued. The decision to discontinue making such
payments was due to the anticipated vacancy of the principal tenant and the
General Partner's expectation that it would not be able to lease the premises
within a reasonable period of time without having to make substantial
renovations. The mortgagee exercised its option to call the loan in 1994, and
on March 14, 1994, concluded its foreclosure proceedings on the property. On
November 15, 1994, the Tyson's Corner joint venture was liquidated with the
remaining assets distributed to the joint venturers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
For the nine months ended September 30, 1995, the Partnership realized a net
loss of $145,121 compared to a net loss of $438,057 for the corresponding period
of 1994. For the three months ended September 30, 1995, the Partnership
realized a net loss of $29,972 compared to a net loss of $219,191 for the
corresponding period of 1994. The decrease in net loss is partially due to
increased rental revenues. Presidential House Apartments realized higher rental
revenues due to rental rate increases implemented at the property. Wendover II
also had an increase in rental revenues due to average occupancy increasing from
78% in the first nine months of 1994 to 89% in the first nine months of 1995.
Table Mesa experienced an increase in average occupancy from 92% in the first
nine months of 1994 compared to 95% in the corresponding period of 1995. In
addition, new 1995 leases achieved higher base rents. Also contributing to the
revenue increase was an increase in interest income resulting from higher
interest rates earned on investments in short-term certificates of deposit and
from interest earned on a tenant note receivable at Wendover II. This note
receivable resulted from a tenant exercising a construction reimbursement option
whereby the Partnership financed $57,000 in construction costs to be repaid with
interest over the term of the lease. Offsetting the revenue increases was a
decrease in other income partially due to a non-recurring $37,000 property tax
refund received in the first quarter of 1994. Other income also decreased due
to a lease termination settlement of approximately $36,000 received in 1994 from
a former tenant at Table Mesa.
Contributing to the decrease in net loss was a decrease in total expenses,
$112,622 of which was due to a decrease in the Partnership's share of equity in
the loss of the joint venture. The Partnership has limited losses recognized to
the extent of the Partnership's share of recourse liabilities. The foreclosure
of 123 Office Building in 1994 and non-recurring roof repairs at Table Mesa in
1994 caused the decrease in operating expenses.
Liquidity and Capital Resources
At September 30, 1995, the Partnership had unrestricted cash on hand
(including shares of money market funds and a certificate of deposit) of
$704,540. The present cash reserves of the Partnership are believed to be
adequate to meet the foreseeable needs of the Partnership.
Occupancy remains favorable at all of the Partnership's properties other than
normal tenant rollover. The Table Mesa shopping center is almost fully occupied
and the Wendover Business Park Phase II is currently 87% occupied. Presidential
Apartments continues to have occupancy levels averaging 97%. The Sheraton Inn,
which has been recently renovated, continues to evidence improvement although
slower than originally anticipated.
Other than normal tenant leasing and capital improvement programs, the
Partnership has not entered into any material commitments for capital
expenditures at any of its properties as of September 30, 1995. In December
1994, the Partnership approved a distribution of $7.50 per partnership interest,
totalling $279,548 which was paid from existing cash reserves in February 1995.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1995.
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934,
the Registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(Registrant)
By: DBL Properties Corporation
(General Partner)
By: /s/William D. Clements
William D. Clements
President
Date: November 9, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Drexel
Burnham Lambert Real Estate Associates II 1995 Third Quarter 10-QSB and is
qualified in its entirety by reference to such 10-QSB.
</LEGEND>
<CIK> 0000725646
<NAME> DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 704,540
<SECURITIES> 0
<RECEIVABLES> 95,082
<ALLOWANCES> 2,500
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 19,354,745
<DEPRECIATION> 9,861,520
<TOTAL-ASSETS> 10,916,340
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,568,424
<COMMON> 0
0
0
<OTHER-SE> 1,034,378
<TOTAL-LIABILITY-AND-EQUITY> 10,916,340
<SALES> 0
<TOTAL-REVENUES> 2,155,311
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,300,432
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 588,474
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (145,121)
<EPS-PRIMARY> (3.85)
<EPS-DILUTED> 0
<FN>
<F1>
The Registrant has an unclassified balance sheet.
</FN>
</TABLE>
