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 March 31, 1998
[ ] 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)
(in thousands, except unit data)
March 31, 1998
Assets
Cash and cash equivalents $ 614
Receivables and deposits 236
Other assets 134
Investment in joint venture 619
Investment properties
Land $ 1,578
Buildings and related personal property 10,175
11,753
Less accumulated depreciation (7,622) 4,131
$ 5,734
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 14
Tenant security deposit liabilities 103
Accrued property taxes 51
Other liabilities 64
Mortgage notes payable 4,543
Partners' Capital
General partner's $ 7
Limited partners' (37,273 units issued
and outstanding) 952 959
$ 5,734
See Accompanying Notes to Financial Statements
b)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended
March 31,
1998 1997
Revenues:
Rental income $ 481 $ 441
Other income 16 18
Gain on disposition of investment in joint venture -- 812
Total revenues 497 1,271
Expenses:
Operating 180 181
General and administrative 10 22
Depreciation 103 113
Interest 98 101
Property taxes 49 50
Total expenses 440 467
Income before equity in net income of joint venture 57 804
Equity in net income of joint venture 85 2
Net income $ 142 $ 806
Net income allocated to general partner (1%) $ 1 $ 8
Net income allocated to limited partners (99%) 141 798
$ 142 $ 806
Net income per limited partnership unit $ 3.78 $21.40
Distributions per limited partnership unit $ 3.81 $ --
See Accompanying Notes to Financial Statements
c)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 37,273 $ 1 $18,637 $18,638
Partners' capital at December 31, 1997 37,273 $ 6 $ 953 $ 959
Distributions to limited partners -- -- (142) (142)
Net income for the three months
ended March 31, 1998 -- 1 141 142
Partners' capital at March 31, 1998 37,273 $ 7 $ 952 $ 959
See Accompanying Notes to Financial Statements
d)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
1998 1997
Cash flows from operating activities:
Net income $ 142 $ 806
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 103 113
Amortization of loan costs and lease
commissions 11 11
Equity in net income of joint venture (85) (2)
Gain on disposition of investment in joint venture -- (812)
Change in accounts:
Receivables and deposits (51) (43)
Other assets (1) 5
Accounts payable (9) (1)
Tenant security deposit liabilities -- (1)
Accrued property taxes 51 51
Other liabilities (26) (5)
Net cash provided by operating activities 135 122
Cash flows from investing activities:
Distribution received from joint venture 100 --
Property improvements and replacements (20) (14)
Net cash provided by (used in) investing activities 80 (14)
Cash flows from financing activities:
Payments on mortgage notes payable (37) (34)
Distributions paid to limited partners (142) (280)
Net cash used in financing activities (179) (314)
Net increase (decrease) in cash and cash equivalents 36 (206)
Cash and cash equivalents at beginning of period 578 675
Cash and cash equivalents at end of period $ 614 $ 469
Supplemental disclosure of cash flow information:
Cash paid for interest $ 91 $ 93
See Accompanying 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 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 month period ended March 31, 1998, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1998. 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, 1997.
Certain reclassifications have been made to the 1997 balances to conform to the
1998 presentation.
NOTE 2 - 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 certain 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 wholly-owned subsidiary of Insignia and 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. 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 during
the three month period ended March 31, 1997, and with affiliates of Insignia
during the three month period ended March 31, 1998, were incurred (in
thousands):
1998 1997
Property management fees (included in operating
expense) $ 25 $ 18
Reimbursement for services of affiliates (included in
general and administrative expense) 14 --
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, 1997 to August 31, 1997, the Partnership insured
Presidential House under a master policy through an agency affiliated with the
General Partner with an 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 which received payments on
these obligations from the agent. The amount of the Partnership's insurance
premiums that accrued to the benefit of the affiliate of the General Partner by
virtue of the agent's obligations was not significant.
On March 17, 1998, Insignia entered into an agreement to merge its national
residential property management operations, and its controlling interest in
Insignia Properties Trust ("IPT"), an affiliate of Insignia, with Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust. The closing, which is anticipated to happen in the third
quarter of 1998, is subject to customary conditions, including government
approvals and the approval of Insignia's shareholders. If the closing occurs,
AIMCO will then control the General Partner of the Partnership.
NOTE 3 - INVESTMENTS 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 was Almanzil, Inc. ("Almanzil"), with a 50%
interest. The remaining interests were 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, were allocated 50% to Almanzil, 33.3% to the
Partnership and 16.7% to Coreal, after Almanzil received an amount equal to an
annual 20% preferred cumulative return on its outstanding capital and a return
of its original investment of approximately $1,954,000. Losses from operations
of SPA were 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 approximately $812,000. Losses of SPA were
limited to the Partnership's share of recourse liabilities of SPA and for the
period ended March 31, 1997, no additional losses were recorded.
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 assumed all outstanding payables, as defined, with respect to
the Hotel. The proceeds from the sale of the Hotel were used first to satisfy
the mortgage payable of approximately $3,964,000 on the Hotel and the balance
was paid to Almanzil in accordance with the terms of the joint venture
agreement. As a result of the sale, the Partnership recognized a gain on
disposition of investment in joint venture of approximately $812,000 in its
statement of operations for the three months ended March 31, 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 income of approximately $85,000 and
$2,000 for the three months ended March 31, 1998 and 1997, 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 March 31, 1998, is as follows
(in thousands):
Assets:
Real and personal property net
of accumulated depreciation $ 5,810
Other assets 1,241
Total assets $7,051
Liabilities:
Mortgage payable $ 6,798
Other liabilities 443
Total liabilities 7,241
Partners' deficit (190)
Total liabilities and partners' deficit $7,051
Summarized results of operations for Table Mesa for each of the three month
periods ended March 31, 1998 and 1997, are as follows (in thousands):
1998 1997
Total revenues $600 $569
Total expenses 379 514
Net income $221 $ 55
NOTE 4 - DISTRIBUTIONS TO LIMITED PARTNERS
In February 1998, the Partnership declared and paid a cash distribution to the
limited partners in the amount of approximately $142,000 ($3.81 per limited
partnership unit), including approximately $2,000 for withholding taxes on
behalf of the limited partners.
In December 1996, the Partnership declared a cash distribution to the limited
partners in the amount of approximately $280,000 ($7.50 per limited partnership
unit). The distribution was accrued at December 1996 and paid in March 1997.
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
three months ended March 31, 1998 and 1997:
Average
Occupancy
Property 1998 1997
Wendover Business Park Phase II 100% 95%
Presidential House 95% 93%
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 had
three existing tenants expand their leased space.
Results of Operations
The Partnership realized net income of approximately $142,000 and $806,000 for
the three month periods ended March 31, 1998 and 1997, respectively. The
decrease in net income is primarily attributable to the gain recognized, in
1997, 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. As a
result of the sale, the Partnership recognized a gain on disposition of
investment in joint venture of approximately $812,000 during the three months
ended March 31, 1997, due to the satisfaction of the Partnership's share of
recourse liabilities of the joint venture. The Partnership realized net income
from operations, excluding the gain on disposition of joint venture, of $142,000
for the three months ended March 31, 1998, compared to a net loss of
approximately $6,000 for the comparable period in 1997. The increase in net
income from operations is the result of increased rental revenues, decreased
administrative expenses, and an increase in equity in net income of the Table
Mesa joint venture. The increase in rental revenues is the result of improved
occupancy at both of the Partnership's properties, as discussed above. The
decline in administrative expense is the result of a decrease in the actual 1997
audit fees. The fees were lower than the original cost estimate, and the proper
adjustment was made in 1998. The amount for major repairs and maintenance
included in operating expense for the three months ended March 31, 1998 and
1997, was not significant.
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.
Liquidity and Capital Resources
At March 31, 1998, the Partnership held cash and cash equivalents of
approximately $614,000 compared to approximately $469,000 at March 31, 1997.
The net increase in cash and cash equivalents for the three month period ended
March 31, 1998, was approximately $36,000, compared to a net decrease of
approximately $206,000, for the comparable period in 1997. Net cash provided by
operations increased due to the increase in net income from operations, as
discussed above. Net cash provided by investing activities increased due to a
distribution received from the Table Mesa joint venture during the first quarter
of 1998. Net cash used in financing activities decreased due to a smaller
distribution made by the Partnership in the current year.
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 approximately $4,543,000 requires monthly
principal and interest payments and requires balloon payments in August 2000 and
February 2001, at which time the properties will either be refinanced or sold.
Future cash distributions will depend on levels of cash generated from
operations, property sales, and the availability of cash reserves. Distributions
of approximately $142,000 ($3.81 per limited partner unit) were made to the
limited partners during the three months ended March 31, 1998. Distributions of
approximately $280,000 ($7.50 per limited partner unit) were accrued at December
31, 1996, and paid to the limited partners during the three months ended March
31, 1997.
Year 2000
The Partnership is dependent upon the General Partner and Insignia for
management and administrative services. Insignia has completed an assessment
and will have to modify or replace portions of its software so that its computer
systems will function properly with respect to dates in the year 2000 and
thereafter (the "Year 2000 Issue"). The project is estimated to be completed
not later than December 31, 1998, which is prior to any anticipated impact on
its operating systems. The General Partner believes that with modifications to
existing software and conversions to new software, the Year 2000 Issue will not
pose significant operational problems for its computer systems. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the
Partnership.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
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 March 31,
1998.
SIGNATURE
In accordance with the requirements of the Exchange Act, the registrant 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: May 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Drexel Burnham Lambert Real Estate Associates II 1998 First 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> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 614
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 11,753
<DEPRECIATION> 7,622
<TOTAL-ASSETS> 5,734
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 4,543
0
0
<COMMON> 0
<OTHER-SE> 959
<TOTAL-LIABILITY-AND-EQUITY> 5,734
<SALES> 0
<TOTAL-REVENUES> 582
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 342
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 98
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 142
<EPS-PRIMARY> 3.78<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
