FORM 10-QSB.--QUARTERLY OR TRANSITIONAL 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 September 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)
September 30, 1997
Assets
Cash and cash equivalents:
Unrestricted $ 505,462
Restricted--tenant security deposits 90,411
Accounts receivable 32,332
Escrow and other deposits 184,083
Prepaid expenses 24,860
Deferred charges 120,426
Deferred rent receivable 9,116
Investment in joint venture 675,853
Investment properties:
Land $ 1,578,313
Buildings and improvements 10,139,268
11,717,581
Less accumulated depreciation (7,409,901) 4,307,680
$ 5,950,223
Liabilities and Partners' Equity
Liabilities
Accounts payable $ 2,730
Accrued liabilities:
Interest $ 30,909
Property taxes 151,978
Professional fees 34,800
Other 12,582 230,269
Deposits payable 99,540
Mortgage notes payable 4,615,720
Total liabilities 4,948,259
Partners' Equity
General partner's 6,656
Limited partners' (37,273 units issued
and outstanding) 995,308 1,001,964
$ 5,950,223
See Notes to Financial Statements
b) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Revenues:
Rental operations $ 455,252 $ 446,906 $1,360,042 $1,342,610
Other income 19,080 14,456 56,504 43,561
Gain on disposition of
investment in joint venture
(Note 4) -- -- 812,291 --
Total revenues 474,332 461,362 2,228,837 1,386,171
Expenses:
Rental operations 246,723 217,530 717,957 668,426
General and administrative 19,315 23,019 77,943 75,082
Interest expense 90,904 94,699 276,949 286,002
Depreciation and amortization 129,334 123,876 379,555 367,974
Total expenses 486,276 459,124 1,452,404 1,397,484
Equity in net (loss) income of
joint venture (Note 4) (8,927) (35,342) (9,898) 15,599
Net (loss) income $ (20,871) $ (33,104) $ 766,535 $ 4,286
Net (loss) income allocated to
general partner $ (209) $ (331) $ 107,536 $ 43
Net (loss) income allocated to
limited partners (20,662) (32,773) 658,999 4,243
$ (20,871) $ (33,104) $ 766,535 $ 4,286
Net (loss) income per limited
partnership interest (based
on 37,273 units outstanding) $ (.55) $ (.88) $ 17.68 $ .11
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
c) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner's Partners' Total
<S> <C> <C> <C> <C>
Original capital contributions $ 37,273 $ 1,000 $18,636,500 $18,637,500
Partners' (deficit) equity
at December 31, 1996 37,273 $(100,880) $ 339,846 $ 238,966
Distributions to limited partners -- -- (3,537) (3,537)
Net income for the nine months
ended September 30, 1997 -- 107,536 658,999 766,535
Partners' equity at
September 30, 1997 37,273 $ 6,656 $ 995,308 $ 1,001,964
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
d) DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net income $ 766,535 $ 4,286
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 379,555 367,974
Equity in net loss (income) of joint venture 9,898 (15,599)
Gain on disposition of investment in joint venture (812,291) --
Change in accounts:
Restricted cash (24,488) (14,645)
Accounts receivable 17,878 9,011
Escrow and other deposits (126,897) (130,616)
Prepaid expenses (10,248) (11,263)
Deferred charges (15,274) (1,948)
Deferred rent receivable (1,916) 1,262
Accounts payable (13,284) 5,883
Accrued interest (1,148) --
Accrued property taxes 151,978 155,799
Accrued professional fees (9,700) (9,700)
Accrued other (6,485) (2,602)
Deposits payable (2,041) (118)
Net cash provided by operating
activities 302,072 357,724
Cash flows from investing activities:
Property improvements and replacements (84,516) (56,426)
Net cash used in investing activities (84,516) (56,426)
Cash flows from financing activities:
Payments of mortgage notes payable (103,951) (96,046)
Distributions paid to limited partners (283,085) (282,909)
Net cash used in financing activities (387,036) (378,955)
Net decrease in unrestricted cash and cash
equivalents (169,480) (77,657)
Unrestricted cash and cash equivalents at beginning
of period 674,942 706,288
Unrestricted cash and cash equivalents at end of period $ 505,462 $ 628,631
Supplemental disclosure of cash flow information:
Cash paid for interest $ 278,097 $ 286,002
<FN>
See Notes to Financial Statements
</FN>
</TABLE>
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 the 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 nine month periods ended September 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
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 nine months
ended September 30, 1996, and cash flows as of September 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 nine months ended September 30, 1996, however, the balance of
cash and cash equivalents at September 30, 1996, was reduced by $209,110 and
cash paid for interest for the nine months ended September 30, 1996, was reduced
by $286,027 as the result of this restatement.
Certain reclassifications have been made to the 1996 balances to conform to the
1997 presentation.
NOTE 3 - TRANSACTIONS WITH RELATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement provides for payments to affiliates for services and
as reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
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.
The following transactions with The Wynnewood Company and its affiliates prior
to June 24, 1997, and with affiliates of Insignia subsequent to June 24, 1997,
were incurred during the nine month periods ended September 30, 1997 and 1996.
For the Nine Months Ended
September 30,
1997 1996
Property management fees (included in operating
expense) $59,109 $53,576
Reimbursement for services of affiliates (included in
general and administrative expense) 9,501 --
Prior to Insignia's affiliation on June 24, 1997, affiliates of Insignia
provided property management and partnership administrative services for the
Partnership.
For the period from January 1, 1996 to August 31, 1997, the Partnership insured
Presidential House under a master policy through an agency and insurer
unaffiliated with the General Partner. An affiliate of the General Partner,
acquired, in the acquisition of a business, certain financial obligations from
an insurance agency which was later acquired by the agent who placed the master
policy. The agent assumed the financial obligations to the affiliate of the
General Partner, who received payments on theses obligations from the agent.
The amount of the Partnership's insurance premiums accruing to the benefit of
the affiliate of the General Partner by virtue of the agent's obligations is not
significant.
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 September 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 recognized a gain on disposition of investment in joint
venture of $812,291 in its statement of operations for the nine months ended
September 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 net losses of $8,927 and $9,898 for the three
and nine months ended September 30, 1997, respectively, compared to a net loss
of $35,342 and net income of $15,599 for the three and nine months ended
September 30, 1996, respectively.
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 September 30, 1997, is as
follows:
Assets:
Real and personal property net
of accumulated depreciation $ 5,814,469
Other assets 1,054,881
Total assets $6,869,350
Liabilities:
Mortgage payable $ 6,868,523
Other liabilities 277,346
Total liabilities $7,145,869
Gross revenue $1,661,828
Net income $ 131,939
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 nine
months ended September 30, 1997 and 1996:
Average
Occupancy
Property 1997 1996
Wendover Business Park Phase II 98% 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 nine months ended September 30, 1997, the Partnership realized net
income of $766,535 compared to net income of $4,286 for the nine months ended
September 30, 1996. For the three months ended September 30, 1997, the
Partnership realized a net loss of $20,871, compared to a net loss of $33,104
for the three months ended September 30, 1996. The increase in net income for
the nine 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
recognized a gain on disposition of investment in joint venture of $812,291
during the first nine months of 1997. The decrease in net loss for the three
months ended September 30, 1997, compared to the corresponding period in 1996,
was primarily attributable to the decrease in the Partnership's share of equity
in loss of joint venture, primarily due to a decrease in rental income at Table
Mesa. These changes were partially offset by increases in operating expenses
for both the three and nine months ended September 30, 1997, primarily due to
increased maintenance expenses at Wendover along with an increase in property
expenses at Presidential. The increase in maintenance expenses at Wendover is
primarily attributable to parking lot repairs. The increase in property
expenses at Presidential is primarily attributable to increases in salary
expense for property personnel and an increase in costs related to credit
collections and evictions.
The General Partner has authorized a roof and parking lot repair program at
Wendover to be performed during the current fiscal year at an estimated cost of
$37,000. During the nine months ended September 30, 1997, approximately $21,000
was spent on this project. There were no other major repair and maintenance
expenditures during the nine month periods ended September 30, 1997, or 1996.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment 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 September 30, 1997, the Partnership had unrestricted cash and cash
equivalents of $505,462 versus $628,631 at September 30, 1996. Net cash
provided by operating activities decreased due to an increase in lease
commissions and the change in accounts payable related to the timing of
payments. Net cash used in investing activities increased due to an increase in
spending for property improvements and replacements. Net cash used in financing
activities 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 properties 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
remaining mortgage indebtedness of $4,615,720 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
nine months ended September 30, 1997. Distributions of $282,909 or $7.59 per
limited partner unit were made to the limited partners during the nine months
ended September 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: None filed during the quarter ended
September 30, 1997.
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: November 12, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Drexel
Burnham Lambert Real Estate Associates II 1997 Third 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 505,462
<SECURITIES> 0
<RECEIVABLES> 32,332
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,717,581
<DEPRECIATION> (7,409,901)
<TOTAL-ASSETS> 5,950,223
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 4,615,720
0
0
<COMMON> 0
<OTHER-SE> 1,001,964
<TOTAL-LIABILITY-AND-EQUITY> 5,950,223
<SALES> 0
<TOTAL-REVENUES> 2,228,837
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,452,404
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 276,949
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 766,535
<EPS-PRIMARY> 17.68
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
</FN>
</TABLE>
