FORM 10-QSB.--QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
QUARTERLY OR TRANSITIONAL REPORT
U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] 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 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.)
One Insignia Financial Plaza
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
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
BALANCE SHEET
(Unaudited)
June 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 505,581
Restricted--tenant security deposits 80,317
Accounts receivable 37,618
Escrow and other deposits 124,418
Prepaid expenses 36,679
Deferred charges 131,508
Deferred rent receivable 5,149
Investment in joint venture 684,781
Investment properties:
Land $ 1,578,313
Buildings and improvements 10,100,747
11,679,060
Less accumulated depreciation (7,291,648) 4,387,412
$5,993,463
Liabilities and Partners' Equity (Deficit)
Liabilities
Accounts payable $ 50,742
Accrued liabilities:
Interest $ 32,057
Property taxes 101,319
Professional fees 23,200
Other 10,507 167,083
Deposits payable 101,786
Mortgage notes payable 4,651,017
Total liabilities 4,970,628
Partners' Equity
General partner $ 6,865
Limited partners' (37,273 units issued
and outstanding) 1,015,970 1,022,835
$5,993,463
See Notes to Financial Statements
b) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
Revenues:
Rental operations $462,946 $440,804 $ 904,790 $895,704
Other income 19,107 14,378 37,424 29,105
Gain on sale of joint venture
property (Note 4) -- -- 812,291 --
Total revenues 482,053 455,182 1,754,505 924,809
Expenses:
Rental operations 241,993 218,023 471,234 450,896
General and administrative 36,271 27,766 58,628 52,063
Interest expense 92,606 95,338 186,045 191,303
Depreciation and amortization 125,913 119,463 250,221 244,098
Total expenses 496,783 460,590 966,128 938,360
Equity in net (loss) income of
joint venture (Note 4) (3,436) (11,261) (971) 50,941
Net (loss) income $(18,166) $(16,669) $ 787,406 $ 37,390
Net (loss) income allocated to
general partner $ (182) $ (167) $ 107,745 $ 374
Net (loss) income allocated to
limited partners (17,984) (16,502) 679,661 37,016
$(18,166) $(16,669) $ 787,406 $ 37,390
Net (loss) income per limited
partnership interest (based
on 37,273 units outstanding) $ (.48) $ (.44) $ 18.23 $ .99
Distributions per limited
partnership interest $ .09 $ .09 $ 7.59 $ 7.59
See Notes to Financial Statements
c) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENT OF CHANGES IN PARTNERS' EQUITY
(Unaudited)
General Limited
Partner's Partners' Total
Partners' (deficit) equity at
December 31, 1996 $(100,880) $ 339,846 $ 238,966
Distribution to limited partners -- (3,537) (3,537)
Net income for the six months
ended June 30, 1997 107,745 679,661 787,406
Partners' equity at
June 30, 1997 $ 6,865 $1,015,970 $1,022,835
See Notes to Financial Statements
d) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
June 30,
1997 1996
Cash flows from operating activities:
Net income $ 787,406 $ 37,390
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 250,221 244,098
Equity in net loss (income) of joint venture 971 (50,941)
Gain on sale of joint venture property (812,291) --
Change in accounts:
Restricted cash (14,394) (7,695)
Accounts receivable 12,592 14,010
Escrow and other deposits (67,232) (109,691)
Prepaid expenses (22,071) 8,656
Deferred charges (15,274) (1,321)
Deferred rent receivable 2,051 --
Accounts payable 34,728 4,195
Accrued property taxes 101,319 104,322
Accrued professional fees (21,300) (21,300)
Accrued other (8,558) 9,670
Deposits payable 205 (2,088)
Net cash provided by operating activities 228,373 229,305
Cash flows from investing activities:
Property improvements and replacements (45,995) (29,192)
Net cash used in investing activities (45,995) (29,192)
Cash flows from investing activities:
Payments of mortgage notes payable (68,654) (63,396)
Distributions paid to partners (283,085) (282,909)
Net cash used in financing activities (351,739) (346,305)
Net decrease in unrestricted cash and cash equivalents (169,361) (146,192)
Unrestricted cash and cash equivalents at beginning
of period 674,942 706,288
Unrestricted cash and cash equivalents at end of period $ 505,581 $ 560,096
Supplemental disclosure of cash flow information:
Cash paid for interest $ 186,045 $ 191,303
See Notes to Financial Statements
e) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Drexel Burnham Lambert Real
Estate Associates II (the "Partnership") 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 DBL Properties Corporation ("DBL" or 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, 1997, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1997. 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, 1996.
NOTE 2 - BASIS OF ACCOUNTING
The financial statements of the Partnership include the operations of Wendover
Business Park - Phase II ("Wendover II") and Presidential House at Sky Lake
("Presidential").
Effective December 31, 1996, the Partnership began accounting for its 50%
investment in Table Mesa on the equity method. The Partnership had previously
accounted for its 50% share in the assets, liabilities, revenues and expenses on
a pro rata basis. The statements of operations for the three and six months
ended June 30, 1996, and cash flows as of June 30, 1996, have been restated to
present the Partnership's 50% investment in Table Mesa on the equity method.
There was no change in the Partnership's net income and partners' equity for the
six months ended June 30, 1996, however, the balance of cash and cash
equivalents at June 30, 1996, was reduced by $192,707 and cash paid for interest
for the six months ended June 30, 1996, was reduced by $191,744 as the result of
this restatement.
Certain reclassifications have been made to the 1996 balances to conform to the
1997 presentation.
NOTE 3 - RELATED PARTY TRANSACTIONS
On June 24, 1997, Insignia Financial Group, Inc., a Delaware corporation
("Insignia"), and IFGP Corporation, a Delaware corporation ("IFGP")
(collectively, the "Buyer"), entered into a Stock Purchase Agreement (the
"Agreement") with The Wynnewood Company, Inc., a New York corporation
("Seller"), DBL, a New York corporation, and William Clements, an individual and
the owner of 100% of the capital stock of Seller ("Clements"). The closing of
the transactions contemplated by the Agreement occurred on June 24, 1997 (the
"Closing"). At the Closing, pursuant to the terms and conditions of the
Agreement, the Buyer acquired all of the issued and outstanding stock of DBL.
Upon the Closing, the officers and directors of DBL resigned and Insignia caused
new officers and directors of this entity to be elected.
For the six months ended June 30, 1997 and 1996, the Partnership incurred the
following charges which were paid to The Wynnewood Company and W.W. Reynolds
Company, both affiliates of the General Partner through June 24, 1997 (see
discussion above):
1997 1996
The Wynnewood Company, Inc.
Management Fees $24,372 $24,439
W.W. Reynolds Company
Management Fees 11,400 11,400
The following transactions with affiliates of Insignia were incurred during the
six months ended June 30, 1997 and 1996: property management fees (included in
operating expenses) of $28,647 and $28,896, respectively; partnership
administration fees (included in general and administrative expenses) of $19,002
and $19,002, respectively; and registrar and transfer services fees (included in
general and administrative expenses) of $4,470 and $4,470, respectively.
Insignia became an affiliate as of June 24, 1997 (see discussion above).
NOTE 4 - INVESTMENT IN JOINT VENTURES
SP ASSOCIATES (SPA)
SPA was formed in 1984 as a joint venture to acquire the Sheraton Poste Inn
("Hotel"), a 220-room hotel located in Cherry Hill, New Jersey. The managing
partner of the SPA joint venture is Almanzil, Inc. ("Almanzil"), with a 50%
interest. The remaining interests are owned by the Partnership and Coreal N.V.,
Inc. ("Coreal"), owning 33.3% and 16.7%, respectively. Coreal is an affiliate
of Almanzil.
Under the terms of SPA's joint venture agreement, cash from operations and
capital transactions, as defined, are 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 of $1,953,970. Losses from operations of SPA are
allocated 66.7% to the Partnership and 33.3% to Coreal. At December 31, 1996,
the Partnership's accountability to the SPA joint venture, representing
management's estimate of the Partnership's share of recourse liabilities of SPA,
amounted to $812,291. Losses of SPA have been limited to the Partnership's
share of recourse liabilities of SPA. As a result, no losses were recognized
for the periods ended June 30, 1997 and 1996.
On March 19, 1997, SPA sold the Hotel for $6,300,000 to CapStar Management
Company, L.P. ("CapStar"), the Hotel's management company. In addition, under
the sale agreement CapStar was entitled to collect and retain all accrued
receivables and shall assume all outstanding payables, as defined, with respect
to the Hotel as of December 31, 1996.
The proceeds from the sale of the Hotel were used first to satisfy the
$3,963,777 mortgage payable on the Hotel and the balance was paid to Almanzil in
accordance with the terms of the joint venture agreement. As the result of the
sale, the Partnership was relieved of its share of the recourse liabilities of
SPA. Accordingly, the Partnership recognized a gain on sale of joint venture
property of $812,291 in its statement of operations for the six months ended
June 30, 1997.
Table Mesa
Table Mesa Shopping Center Partnership was formed in 1985, as a joint venture to
own and operate a shopping center in Boulder, Colorado. The Partnership owns a
50% interest in this joint venture. The Partnership's equity in the operations
of Table Mesa, after an adjustment for allocation of depreciation based on its
basis in the property, amounted to a net loss of $3,436 and $971 for the three
and six months ended June 30, 1997, respectively, compared to a net loss of
$11,261 for the three months ended June 30, 1996 and net income of $50,941 for
the six months ended June 30, 1996.
The Table Mesa joint venture agreement provides among other things, that the
Partnership shall be entitled to receive a cash flow preference, as defined, of
$252,000 per year, which is equivalent to a 9% return on the Partnership's
initial cash investment. The annual preference is not cumulative.
Summarized financial information for Table Mesa at June 30, 1997, is as follows:
Assets:
Real and personal property net
of accumulated depreciation $ 5,939,264
Other assets 874,532
Total assets $6,813,796
Liabilities:
Mortgage payable $ 6,919,983
Other liabilities 203,237
Total liabilities 7,123,220
Gross revenue $1,115,733
Net income $ 99,035
NOTE 5 - DISTRIBUTIONS TO LIMITED PARTNERS
In December 1996, the Partnership declared a cash distribution to the limited
partners in the amount of $279,548 ($7.50 per limited partnership interest).
The distribution was accrued at December 1996 and paid in March 1997. In April
1997, the Partnership paid $3,537 for withholding taxes on behalf of the limited
partners.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership owns and operates two investment properties: Wendover Business
Park - Phase II ("Wendover"), a 80,410 square foot office and warehouse complex
located in Greensboro, North Carolina, and Presidential House at Sky Lake
("Presidential"), a residential apartment complex located in North Miami Beach,
Florida. The Partnership also owns a joint venture interest in Table Mesa
Shopping Center ("Table Mesa") located in Boulder, Colorado. The following
table sets forth the average occupancy of the investment properties for the six
months ended June 30, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Wendover Business Park Phase II 97% 90%
Presidential House 95% 97%
The General Partner attributes the increase in occupancy at Wendover to the
growing local economy, as the property was able to add a new tenant and an
existing tenant expanded its leased space.
For the six months ended June 30, 1997, the Partnership realized net income of
$787,406 compared to net income of $37,390 for the corresponding period of 1996.
For the three months ended June 30, 1997 and 1996, the Partnership realized net
losses of $18,166 and $16,669, respectively. The increase in net income for the
six month period is primarily due to the gain recognized on the sale of the
Sheraton Poste Inn Hotel in Cherry Hill, New Jersey, in which the Partnership
had a subordinated interest. The Partnership did not receive any proceeds due
to the senior position of one of the partners. However, the Partnership was
relieved of certain recourse liabilities, and recognized a gain of $812,291
during the first six months of 1997. Partially offsetting the gain on the sale
of Sheraton Poste during the six months ended June 30, 1997, was a decrease in
equity in income of joint venture resulting from unbilled 1995 tenant taxes
being billed and recorded as income in 1996 for Table Mesa.
The General Partner has authorized a roof and parking lot repair program at the
Wendover II property to be performed during the current fiscal year at an
estimated cost of $37,000. During the six months ended June 30, 1997,
approximately $10,000 in costs was spent on this project. There were no other
major repair and maintenance expenditures during the six month periods ended
June 30, 1997, or 1996.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environments of the investment properties to assess
the feasibility of increasing rents, maintaining or increasing occupancy levels
and protecting the Partnership from increases in expense. As part of this plan,
the General Partner attempts to protect the Partnership from the burden of
inflation-related increases in expenses by increasing rents and maintaining a
high overall occupancy level. However, due to changing market conditions, which
can result in the use of rental concessions and rental reductions to offset
softening market conditions, there is no guarantee that the General Partner will
be able to sustain such a plan.
At June 30, 1997, the Partnership had unrestricted cash and cash equivalents of
$505,581 versus $560,096 at June 30, 1996. Net cash used in investing
activities increased due to an increase in spending for property improvements
and replacements. Net cash provided by operating activities and used in
financing activities at June 30, 1997 and 1996, remained relatively stable.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical assets
and other operating needs of the Partnership. Such assets are currently thought
to be sufficient for any near-term needs of the Partnership. The mortgage
indebtedness of both investment properties amounts to $4,651,017 and requires
monthly principal and interest payments and requires balloon payments on or
before February 1, 2001, at which time the properties will either be refinanced
or sold. Currently, the Table Mesa Joint Venture is discussing the refinancing,
or extension of maturity, of its existing first mortgage which matures in early
1998. Future cash distributions will depend on levels of cash generated from
operations, property sales, and the availability of cash reserves.
Distributions of $283,085 or $7.59 per limited partner unit were made to the
limited partners during the six months ended June 30, 1997. Distributions of
$282,909 or $7.59 per limited partner unit were made to the limited partners
during the six months ended June 30, 1996.
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: A Form 8-K dated June 24, 1997, was filed
reporting the change in control of the Registrant.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
By: DBL Properties Corporation
Its General Partner
By: /s/ William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
Date: August 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Drexel
Burnham Lambert Real Estate Associates II 1997 Second Quarter 10-QSB and is
qualified in its entirety by reference to such 10-QSB filing.
</LEGEND>
<CIK> 0000725646
<NAME> DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 505,581
<SECURITIES> 0
<RECEIVABLES> 37,618
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,679,060
<DEPRECIATION> 7,291,648
<TOTAL-ASSETS> 5,993,463
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 4,651,017
0
0
<COMMON> 0
<OTHER-SE> 1,022,835
<TOTAL-LIABILITY-AND-EQUITY> 5,993,463
<SALES> 0
<TOTAL-REVENUES> 1,754,505
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 966,128
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 186,045
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
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<NET-INCOME> 787,406
<EPS-PRIMARY> 18.23
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<FN>
<F1>Registrant has an unclassified balance sheet.
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