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 June 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
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(A Limited Partnership)
BALANCE SHEET
(Unaudited)
June 30, 1995
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Cash and cash equivalents:
Unrestricted $ 645,683
Restricted-tenant security deposits 44,398
Accounts receivable 109,757
Escrow and other deposits 326,920
Prepaid expenses 8,490
Note receivable 51,127
Deferred charges 262,733
Investment properties:
Land $ 3,188,684
Building and improvements 15,126,037
Furniture, fixtures and equipment 983,709
Less accumulated depreciation (9,666,812) 9,631,618
$11,080,726
Liabilities and Partners' Equity (Deficit)
Liabilities
Accounts payable $ 11,147
Accrued liabilities:
Interest $ 32,460
Property taxes 297,069
Professional fees 23,200
Other 14,811 367,540
Accountability to partnership (Note 4) 826,645
Deposits and other tenant liabilities 188,402
Mortgage and other indebtedness 8,622,642
Total liabilities 10,016,376
Partners' equity (deficit)
General partner (98,251)
Limited partners 1,162,601 1,064,350
$11,080,726
</TABLE>
See Notes to Financial Statements
1
<PAGE>
b) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(A Limited Partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Rental operations $667,337 $601,216 $1,414,624 $1,256,204
Interest income 10,510 4,667 16,906 8,839
Other income 10,373 50,977 18,905 101,301
Total revenues 688,220 656,860 1,450,435 1,366,344
Expenses:
Rental operations 276,633 286,340 545,167 584,047
Equity in loss (income) of
joint venture (Note 4) -- (69,539) 111,337 82,610
General and administrative 32,152 33,148 58,290 56,168
Management fees to related
party (Note 3) 17,780 15,211 35,418 30,468
Interest expense 197,270 201,127 394,058 399,135
Depreciation and amortization 210,991 219,099 421,314 432,782
Total expenses 734,826 685,386 1,565,584 1,585,210
Net loss $(46,606) $(28,526) $ (115,149) $ (218,866)
Net loss per limited partnership
unit (based on 37,273 units
issued and outstanding) $(1.24) $ (.76) $ (3.06) $ (5.81)
</TABLE>
See Notes to Financial Statements
2
<PAGE>
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> <C>
Partners' (deficit) equity
at December 31, 1994 $(97,100) $1,276,599 $1,179,499
Net loss for the six
months ended June 30, 1995 (1,151) (113,998) (115,149)
Partners' (deficit) equity
at June 30, 1995 $(98,251) $1,162,601 $1,064,350
</TABLE>
See Notes to Financial Statements
3
<PAGE>
d) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
<S> <C> <C>
1995 1994
Cash flows from operating activities:
Net loss $(115,149) $ (218,866)
Adjustments to reconcile net loss to
net cash provided by operating activities:
Depreciation and amortization 421,314 432,782
Equity in loss of joint venture 111,337 82,610
Change in accounts:
Restricted cash 3,889 (8,256)
Accounts receivable (65,608) 23,667
Escrow and other deposits (172,025) (16,724)
Prepaid expenses 11,134 (12,619)
Deferred charges (8,443) (96,721)
Accounts payable (17,955) 7,486
Accrued liabilities 148,522 (11,043)
Deposits and other tenant liabilities 36,590 2,434
Net cash provided by
operating activities 353,606 184,750
Cash flows from investing activities:
Acquisition of note receivable (57,000) --
Payments received on note receivable 5,873 --
Additions to real and personal property (55,142) (77,686)
Net cash used by investing activities (106,269) (77,686)
</TABLE>
See Notes to Financial Statements
4
<PAGE>
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF CASH FLOWS (Continued)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
<S> <C> <C>
1995 1994
Cash flows from financing activities:
Cash overdraft $ -- $ (31,236)
Principal payments on mortgage and other
indebtedness (129,879) (86,760)
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 (409,427) (4,721)
Net (decrease) increase in cash (162,090) 102,343
Cash at beginning of period 807,773 577,973
Cash at end of period $ 645,683 $ 680,316
Supplemental disclosure of cash
flow information:
Cash paid for interest $ 394,445 $ 423,963
</TABLE>
See Notes to Financial Statements
5
<PAGE>
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 six month periods ended
June 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 for 123 Office Building Foreclosure
Proceedings.)
The Partnership accounts for its general partnership interest in SP
Associates ("SPA") (see Note 4) under the equity method of accounting.
Losses recognized in excess of its investment account balance have been
limited to the Partnership's share of recourse liabilities.
Note 3 - Related Party Transactions
For the six months ended June 30, 1995, management fees paid to
related parties are as follows:
Costs
Incurred
The Wynnewood Company, Inc. $24,018
W.W. Reynolds Company 11,400
$35,418
6
<PAGE>
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
7
<PAGE>
Note 6 - 123 Office Building Foreclosure Proceedings - continued
Tyson's Corner joint venture was liquidated with the remaining assets
distributed to the joint venturers.
At December 31, 1993, the Partnership had provided for potential real
estate valuation loss in the amount of $484,389 in relation to the
foreclosure.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Results of Operations
For the six months ended June 30, 1995, the Partnership recognized a
net loss of $115,149 compared to a net loss of $218,866 for the
corresponding period in 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
98% occupied property. Wendover II also had an increase in rental
revenues due to occupancy increasing from 76% in the first six months of
1994 to 84% in the corresponding period of 1995. While occupancy at
Table Mesa dropped slightly from 96% in the first six months of 1994
compared to 94% in the corresponding period of 1995, rental revenues
increased due to new leases in the second quarter of 1995 which resulted
in the collection of higher base rents. Also contributing to the
increase in revenues was an increase in interest income resulting from
higher interest rates earned as a result of an investment in a short-
term certificate of deposit and from interest earned on a tenant note
receivable at Wendover II resulting from a tenant exercising a
construction reimbursement option. Under this option, the property
financed $57,000 in construction costs to be repaid by the tenant with
interest over the term of the lease. Offsetting the revenue increases
was a decrease in other income primarily due to a non-recurring $37,000
property tax refund received in the first quarter of 1994. Other income
also decreased as a result of a settlement of approximately $36,000 in
1994 from a former tenant at Table Mesa who had vacated the property
during its lease term.
Also contributing to the decrease in net loss was a decrease in total
expenses primarily due to the foreclosure of the 123 Office Building in
1994. Presidential's operating expenses were higher in 1994 due to a
property tax service fee of $9,810 paid in conjunction with the tax
refund the property received. Table Mesa also had higher operating
expenses in 1994 because of extensive roof repairs required in 1994.
Offsetting these decreases in expenses was an increase in the equity in
loss of the SPA joint venture in the first six months of 1995 compared
to the corresponding period of 1994. While occupancy and revenues
increased at the Sheraton Inn, expenses associated with the increased
occupancy increased at a higher rate. Also, food expenses increased as
a direct result of the joint venture opening a new restaurant in April
1995.
Liquidity and Capital Resources
At June 30, 1995, the Partnership had unrestricted cash on hand
(including shares of money market funds and a certificate of deposit) of
$645,683. The present cash reserves of the Partnership are believed to
be adequate for 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
currently 99% occupied and the Wendover Business Park Phase II is 87%
occupied. Presidential Apartments continues to have occupancy levels in
excess of 97%. The capital improvement program at the Sheraton Inn,
which has been funded by the new partner admitted to that joint venture,
is complete and the new restaurant opened in April 1995. Initial
results have been favorable.
9
<PAGE>
The Partnership has not entered into any material commitments for
capital expenditures at any of its properties as of June 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.
10
<PAGE>
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 June 30, 1995.
11
<PAGE>
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: August 10, 1995
12
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Drexel Burnham Lambert Real Estate Associates II's 1995 Second Quarter
10-QSB and is qualified in its entirety by reference to such 10-QSB
filing.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 645,683
<SECURITIES> 0
<RECEIVABLES> 109,757
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,135,248
<PP&E> 19,298,430
<DEPRECIATION> 9,666,812
<TOTAL-ASSETS> 11,080,726
<CURRENT-LIABILITIES> 567,089
<BONDS> 8,622,642
<COMMON> 0
0
0
<OTHER-SE> 1,064,350
<TOTAL-LIABILITY-AND-EQUITY> 11,080,726
<SALES> 0
<TOTAL-REVENUES> 1,450,435
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,565,584
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 394,058
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (115,149)
<EPS-PRIMARY> (3.06)
<EPS-DILUTED> 0
</TABLE>
