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, 2000
[ ] 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 (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
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 Securities Exchange Act of 1934 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
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2000
<TABLE>
<CAPTION>
Assets
<S> <C>
Cash and cash equivalents $ 3,780
Receivables and deposits 82
Other assets 49
Investment property:
Land $ 1,287
Buildings and related personal property 6,791
8,078
Less accumulated depreciation (5,888) 2,190
$ 6,101
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 145
Tenant security deposit liabilities 61
Accrued property taxes 36
Other liabilities 38
Mortgage notes payable 3,090
Partners' Capital
General partner $ 34
Limited partners (37,273 units issued and
outstanding) 2,697 2,731
$ 6,101
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
b)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Revenues:
<S> <C> <C>
Rental income $ 360 $ 314
Other income 12 19
Total revenues 372 333
Expenses:
Operating 159 128
General and administrative 30 42
Depreciation 78 68
Interest 68 70
Property taxes 38 37
Total expenses 373 345
Loss before equity in net income of joint venture,
discontinued operations and gain on sale of
investment in joint venture (1) (12)
Equity in net income of joint venture 50 56
Income before gain on sale of investment in joint
venture and discontinued operations 49 44
Gain on sale of investment in joint venture 2,674 --
Income from continuing operations 2,723 44
Loss from discontinued operations -- (15)
Net income $2,723 $ 29
Net income allocated to general partner $ 27 $ --
Net income allocated to limited partners 2,696 29
$2,723 $ 29
Per limited partnership unit:
Income before gain on sale of investment in joint
venture and discontinued operations $ 1.31 $ 1.18
Gain on sale of investment in joint venture 71.02 --
Income from continuing operations 72.33 1.18
Loss from discontinued operations -- (0.40)
Net income $72.33 $ 0.78
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
c)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 37,273 $ 1 $18,637 $18,638
Partners' capital at
December 31, 1999 37,273 $ 7 $ 1 $ 8
Net income for the three months
ended March 31, 2000 -- 27 2,696 2,723
Partners' capital at
March 31, 2000 37,273 $ 34 $ 2,697 $ 2,731
</TABLE>
See Accompanying Notes to Financial Statements
<PAGE>
d)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
2000 1999
Cash flows from operating activities:
<S> <C> <C>
Net income $ 2,723 $ 29
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 78 114
Amortization of lease commissions and loan costs 5 14
Equity in net income of joint venture (50) (56)
Bad debt expense, net 6 39
Gain on sale of investment joint venture (2,674) --
Change in accounts:
Receivables and deposits 37 83
Other assets (23) 3
Accounts payable 68 5
Tenant security deposit liabilities (3) (4)
Accrued property taxes 36 (92)
Other liabilities (58) (6)
Net cash provided by operating activities 145 129
Cash flows from investing activities:
Distribution received from joint venture 117 275
Property improvements and replacements (141) (25)
Proceeds from sale of investment in joint venture 3,000 --
Net cash provided by investing activities 2,976 250
Cash flows used in financing activities:
Payments on mortgage notes payable (32) (40)
Net increase in cash and cash equivalents 3,089 339
Cash and cash equivalents at beginning of period 691 613
Cash and cash equivalents at end of period $ 3,780 $ 952
Supplemental disclosure of cash flow information:
Cash paid for interest $ 62 $ 88
</TABLE>
At December 31, 1999 and March 31, 2000, accounts payable and property
improvements and replacements were adjusted by approximately $33,000.
See Accompanying Notes to Financial Statements
<PAGE>
e)
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Drexel Burnham Lambert Real
Estate Associates II (the "Partnership" or "Registrant") 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, 2000, are not
necessarily indicative of the results that may be expected for the fiscal year
ending December 31, 2000. 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, 1999.
Certain reclassifications have been made to the 1999 balances to conform to the
2000 presentation.
Note B - 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 reimbursements of certain expenses incurred by affiliates on behalf
of the Partnership. The following transactions with affiliates of the General
Partner were incurred during the three months ended March 31, 2000 and 1999:
2000 1999
(in thousands)
Property management fees (included in
operating expense) $ 18 $ 17
Reimbursement for services of affiliates
(included in investment property and
general and administrative expense) 19 16
During the three months ended March 31, 2000 and 1999, affiliates of the General
Partner were entitled to receive 5% of gross receipts from the Partnership's
residential property for providing property management services. The Partnership
paid to such affiliates approximately $18,000 and $17,000 for the three month
periods ended March 31, 2000 and 1999, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $19,000 and $16,000 for the
three months ended March 31, 2000 and 1999, respectively.
<PAGE>
AIMCO and its affiliates currently own 6,900 limited partnership units in the
Partnership representing 18.512% of the outstanding units. A number of these
units were acquired pursuant to tender offers made by AIMCO or its affiliates.
It is possible that AIMCO or its affiliates will make one or more additional
offers to acquire additional limited partnership interests in the Partnership
for cash or in exchange for units in the operating partnership of AIMCO. Under
the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters. When voting on
matters, AIMCO would in all likelihood vote the Units it acquired in a manner
favorable to the interest of the General Partner because of their affiliation
with the General Partner.
Note C - Investment in Joint Venture and Sale of Investment in Joint Venture
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 $50,000 and
$56,000 for the three months ended March 31, 2000 and 1999, respectively. On
March 17, 2000, the Partnership sold its investment in joint venture, Table Mesa
Shopping Center ("Table Mesa") for approximately $3,000,000. The Partnership
realized a gain of approximately $2,674,000 on the sale during the first quarter
of 2000.
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. During the
three months ended March 31, 2000 and 1999, the Partnership received
distributions from the Table Mesa joint venture of approximately $117,000 and
$275,000, respectively.
Summarized results of operations for Table Mesa for each of the three month
periods ended March 31, 2000 and 1999, are as follows (in thousands):
2000 1999
Total revenues $ 451 $ 627
Total expenses (346) (460)
Net income $ 105 $ 167
Note D - Discontinued Operation
On September 9, 1999, the Partnership sold Wendover Business Park II ("Wendover
II") to an unaffiliated third party. Wendover II was the only commercial
property owned by the Partnership and represented one segment of the
Partnership's operations. Due to the sale of this property, the results of the
commercial segment have been shown as loss from discontinued operation. The
revenues of this property were approximately $90,000 and the loss from
operations was approximately $15,000 for the three months ended March 31, 1999.
Note E - Segment Reporting
Description of the types of products and services from which each reportable
segment derives its revenues:
The Partnership had two reportable segments: residential property and commercial
property. The Partnership's residential property segment consists of an
apartment complex in North Miami Beach, Florida. The Partnership rents apartment
units to tenants for terms that are typically twelve months or less. On
September 9, 1999, the commercial property was sold to an unrelated party.
Therefore, the commercial segment is reflected as discontinued operations (see
"Note E" for further discussion).
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segments are the same as
those of the Partnership as described in the Partnership's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1999.
Factors management used to identify the enterprise's reportable segments:
The Partnership's reportable segments are investment properties that offer
different products and services. The reportable segments are managed separately
because they provide distinct services with different types of products and
customers.
Segment information for the three months ended March 31, 2000 and 1999, is shown
in the tables below (in thousands). The "Other" column includes Partnership
administration related items and income and expense not allocated to the
reportable segment.
2000 Residential Other Totals
Rental income $ 360 $ -- $ 360
Other income 9 3 12
Interest expense 68 -- 68
Depreciation 78 -- 78
General and administrative
expense -- 30 30
Equity in income of joint venture -- 50 50
Gain on sale of investment in
joint venture -- 2,674 2,674
Segment profit 26 2,697 2,723
Total assets 2,376 3,725 6,101
Capital expenditures for
investment property 108 -- 108
<PAGE>
<TABLE>
<CAPTION>
1999 Residential Commercial Other Totals
(discontinued)
<S> <C> <C> <C> <C>
Rental income $ 314 $ -- $ -- $ 314
Other income 15 -- 4 19
Interest expense 70 -- -- 70
Depreciation 68 -- -- 68
General and administrative -- -- 42 42
expense
Equity in income of joint venture -- -- 56 56
Segment profit (loss) 26 (15) 18 29
Total assets 2,352 1,950 1,142 5,444
Capital expenditures for
investment properties 19 6 -- 25
</TABLE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and other filings with the Securities
and Exchange Commission made by the Partnership from time to time. The
discussion of the Partnership's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Partnership's business and results of
operations. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership owns and operates one investment property: Presidential House at
Sky Lake ("Presidential"), a residential apartment complex located in North
Miami Beach, Florida. The average occupancy for Presidential was 96% and 91% for
the three months ended March 31, 2000 and 1999, respectively. The Partnership
attributes the increase in occupancy to improved marketing efforts.
Results of Operations
The Partnership realized net income of approximately $2,723,000 and $29,000 for
the three months ended March 31, 2000 and 1999, respectively. The increase in
net income is primarily attributable to the gain on the sale of the investment
in joint venture on March 17, 2000. The Partnership realized income before
discontinued operations and gain on the sale of investment in joint venture of
approximately $49,000 and $44,000 for the three month periods ended March 31,
2000 and 1999, respectively. The increase in income before discontinued
operations and gain on the sale of investment in joint venture for the three
months ended March 31, 2000 is primarily due to an increase in total revenues
offset by an increase in total expenses and a decrease in the equity in net
income of the joint venture. The increase in total revenues for the three months
ended March 31, 2000, is primarily due to an increase in rental income offset by
a decrease in other income. Rental income increased as a result of increased
occupancy at Presidential House as noted above. The decrease in other income is
primarily due to decreased tenant charges for the period ended March 31, 2000
compared to the same period in 1999. Total expenses increased as a result of
increased operating expenses and depreciation expense offset by a decrease in
general and administrative expense. The increase in operating expenses is
primarily attributed to increased maintenance expense and advertising expense at
Presidential House. Maintenance expense increased as a result of repairs due to
damages from hurricane Irene in October 1999, increased garbage collection
expenses, and building maintenance materials. Advertising expense increased as a
result of increased marketing efforts. Depreciation expense increased due to the
depreciation of fixed asset additions during the past twelve months.
The decrease in general and administrative expenses is due to decreased
professional fees in 2000. Included in general and administrative expenses at
both March 31, 2000 and 1999, are management reimbursements to the General
Partner allowed under the Partnership Agreement. In addition, costs associated
with the quarterly and annual communications with investors and regulatory
agencies and the annual audit required by the Partnership Agreement are
included.
On March 17, 2000, the Partnership sold its investment in joint venture, Table
Mesa Shopping Center ("Table Mesa") for approximately $3,000,000. The
Partnership realized a gain of approximately $2,674,000 on the sale during the
first quarter of 2000.
<PAGE>
On September 9, 1999, the Partnership sold Wendover Business Park II ("Wendover
II") to an unaffiliated third party. Wendover II was the only commercial
property owned by the Partnership and represented one segment of the
Partnership's operations. Due to the sale of this property, the results of the
commercial segment have been shown as loss from discontinued operation. The
revenues of this property were approximately $90,000 and the loss from
operations was approximately $15,000 for the three months ended March 31, 1999.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of the investment property 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.
Capital Resources and Liquidity
At March 31, 2000, the Partnership had cash and cash equivalents of
approximately $3,780,000 as compared to approximately $952,000 at March 31,
1999. For the three months ended March 31, 2000, cash and cash equivalents
increased approximately $3,089,000 from the Partnership's year ended December
31, 1999. The increase in cash and cash equivalents is due to approximately
$2,976,000 of cash provided by investing activities and approximately $145,000
of cash provided by operating activities partially offset by approximately
$32,000 of cash used in financing activities. Cash provided by investing
activities consists of proceeds from the sale of the investment in joint venture
and a distribution from the Table Mesa joint venture partially offset by
property improvements and replacements. Cash used in financing activities
consists of payments on the mortgage encumbering the Partnership's remaining
investment property. The Partnership invests its working capital reserves in a
money market account.
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 asset
and other operating needs of the Partnership and to comply with Federal, state,
and local legal and regulatory requirements. Capital improvements planned for
the Partnership's remaining investment property are detailed below.
Presidential House
Approximately $149,000 has been budgeted for 2000 for capital improvements at
Presidential House consisting primarily of floor covering replacements,
appliance replacements, structural improvements, plumbing improvements, and
swimming pool enhancements. During the three months ended March 31, 2000, the
Partnership completed approximately $108,000 of capital improvements consisting
primarily of exterior painting, floor covering replacements, and major
landscaping. Additional improvements may be considered and will depend on the
physical condition of the property as well as operating cash flow and
anticipated cash flow generated by the property.
The Partnership's current assets are thought to be sufficient for any near term
needs (exclusive of capital improvements) of the Partnership. The remaining
mortgage indebtedness of approximately $3,090,000 requires monthly principal and
interest payments and requires a balloon payment in August 2000 at which time
the property will be refinanced or sold. The General Partner is in the process
of securing replacement financing for the investment property. No distributions
were made during the three month periods ended March 31, 2000 or 1999. The
Partnership's distribution policy is reviewed on an annual basis. Future cash
distributions will depend on the levels of net cash generated from operations,
the availability of cash reserves, and the timing of the debt maturity,
refinancing, and/or property sale. There can be no assurance, however, that the
Partnership will generate sufficient funds from operations after required
capital improvements to permit further distributions to its partners in the
remainder of 2000 or subsequent periods.
<PAGE>
PART II - OTHER INFORMATION
ITEM 6 EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
Exhibit 27, Financial Data Schedule, is filed as an exhibit to
this report.
b) Reports on Form 8-K:
None filed during the three months ended March 31, 2000.
<PAGE>
SIGNATURES
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/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Drexel
Burnham Lambert Real Estate Associates II 2000 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-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 3,780
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 8,078
<DEPRECIATION> 5,888
<TOTAL-ASSETS> 6,101
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 3,090
0
0
<COMMON> 0
<OTHER-SE> 2,731
<TOTAL-LIABILITY-AND-EQUITY> 6,101
<SALES> 0
<TOTAL-REVENUES> 372
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 373
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 68
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,723
<EPS-BASIC> 72.33 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
