March 30, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: Drexel Burnham Lambert Real Estates Associates II
Form 10-KSB
File No. 2-85829
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
FORM 10-KSB-ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(d)
FORM 10-KSB
(Mark One)
[X] Annual Report Under Section 13 or 15(d) of the Securities Exchange Act of
1934 [No Fee Required]
For the fiscal year ended December 31, 1999
[ ] Transition Report Under Section 13 or 15(d) of the Securities Exchange Act
of 1934 [No Fee Required]
For the transition period from_______to_______
Commission file number 2-85829
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
(Name of small business issuer 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)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Units
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the 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 ___
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [X]
State issuer's revenues for its most recent fiscal year $1,518,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
PART I
Item 1. Description of Business
Drexel Burnham Lambert Real Estate Associates II (the "Partnership" or
"Registrant") was organized on November 2, 1983 as a New York limited
partnership pursuant to the Limited Partnership Laws of the State of New York.
The general partner of the Partnership is DBL Properties Corporation ("DBL" or
the "General Partner"), an affiliate of Apartment Investment and Management
Company ("AIMCO") (see "Change in Control" below). The Partnership Agreement
provides that the Partnership is to terminate on December 31, 2032, unless
terminated prior to such date.
The Partnership's primary business is to operate and hold existing real estate
properties for investment. The Partnership acquired interests in five properties
during 1984 and 1985. The Partnership continues to own and operate one
residential property, Presidential House, and it continues to hold a 50% joint
venture interest in Table Mesa, which was sold subsequent to December 31, 1999.
Commencing in February 1984 pursuant to the Prospectus, the Partnership offered
20,000 in Limited Partnership Units (the "Units"). A total of 37,273 Units were
sold to the public at $500 per Unit aggregating to approximately $18,637,000. In
addition, the General Partner contributed $1,000 for its 1% interest in the
Partnership. The offering closed on October 10, 1984. No Limited Partner has
made any additional capital contribution after that date. The Limited Partners
of the Partnership share in the benefits of ownership of the Partnership's real
estate property investments according to the number of Units held.
The Registrant has no employees. Management and administrative services are
provided by the General Partner and by agents retained by the General Partner.
An affiliate of the General Partner has been providing such property management
services.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Partnership's properties. The number and quality of competitive properties,
including those which may be managed by an affiliate of the General Partner, in
such market area could have a material effect on the rental market for the
apartments at the Registrant's properties and the rents that may be charged for
such apartments. While the General Partner and its affiliates own and/or control
a significant number of apartment units in the United States, such units
represent an insignificant percentage of total apartment units in the United
States and competition for the apartments is local.
Both the income and expenses of operating the property owned by the Partnership
are subject to factors outside of the Partnership's control, such as changes in
the supply and demand for similar properties resulting from various market
conditions, increases/decreases in unemployment or population shifts, changes in
the availability of permanent mortgage financing, changes in zoning laws, or
changes in patterns or needs of users. In addition, there are risks inherent in
owning and operating residential properties because such properties are
susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
There have been, and it is possible there may be other, Federal, state, and
local legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its property for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed, which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
<PAGE>
A further description of the Partnership's business is included in "Item 6.
Management's Discussion and Analysis or Plan of Operation".
Transfer of Control
On October 1, 1998, Insignia Financial Group, Inc., the sole shareholder of IFGP
Corporation, completed its merger with and into Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust,
with AIMCO being the surviving corporation (the "Insignia Merger"). As a result
of the Insignia Merger, AIMCO acquired control of IFGP Corporation and, as a
result thereof, the General Partner. The General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Item 2. Description of Property
The following table sets forth the Partnership's investment in property:
Date of
Property Purchase Type of Ownership Use
Presidential House Apartments 10/22/84 Fee ownership subject Apartments
North Miami Beach, FL to first mortgage 203 units
Schedule of Properties
Set forth below for the Registrant's property is the gross carrying value,
accumulated depreciation, depreciable life, method of depreciation and Federal
tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Presidential House $7,970 $5,810 5-31.5 yrs SL $2,146
</TABLE>
See "Note A" to the financial statements included in "Item 7. Financial
Statements" for a description of the Partnership's depreciation policy and "Note
M - Change in Accounting Principle".
Schedule of Property Indebtedness
The following table sets forth certain information relating to the loan
encumbering the Registrant's property.
<TABLE>
<CAPTION>
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Properties 1999 Rate Amortized Date Maturity (1)
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Presidential House $3,122 8.00% 20 yrs 08/01/00 $3,047
</TABLE>
(1) See "Item 7. Financial Statement - Note F" for Partnership's ability to
prepay this loan and other specific details about the loan.
Rental Rates and Occupancy
Average annual rental rate and occupancy for 1999 and 1998 for the property was:
Average Annual Average Annual
Rental Rates Occupancy
(per unit)
Properties 1999 1998 1999 1998
Presidential House $7,571 $7,210 94% 93%
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. The Partnership's property is subject to competition from
other properties in the area. The General Partner believes that the property is
adequately insured. The multi-family residential property's lease terms are for
one year or less. No residential tenant leases 10% or more of the available
rental space. The property is in good physical condition, subject to normal
depreciation and deterioration as is typical for assets of this type and age.
Real Estate Taxes and Rates
Real estate tax and rate in 1999 for the property was:
1999 1999
Billing Rate
(in thousands)
Presidential House $142 2.25%
Capital Improvements
Presidential House
The Partnership completed approximately $393,000 in capital expenditures at
Presidential House Apartments as of December 31, 1999, consisting primarily of
structural improvements, roof replacements, exterior painting, floor covering
replacements, plumbing upgrades, and light fixture upgrades. These improvements
were funded primarily from operating cash flow. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or $60,900.
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.
Wendover II
The Partnership completed approximately $6,000 in capital expenditures at
Wendover II prior to the sale date of September 9, 1999, consisting primarily of
HVAC replacements.
Item 3. Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
During the quarter ended December 31, 1999, no matter was submitted to a vote of
unit holders through the solicitation of proxies or otherwise.
PART II
Item 5. Market for the Partnership's Common Equity and Related Security Partner
Matters
The Partnership, a publicly-held limited partnership, offered and sold 37,273
Individual Investor Units during its offering period through October 1984. The
Partnership currently has 1,440 holders of record owning an aggregate of 37,273
Units. An affiliate of the Managing General Partner owns 6,900 Units or 18.512%.
no public trading market has developed for the Units, and it is not anticipated
that such a market will develop in the future.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998 and 1999 (see "Item 6. Management's Discussion and
Analysis or Plan of Operation" for further details):
Distributions
Per Limited
Aggregate Partnership Unit
(in thousands)
01/01/98 - 12/31/98 $ 282 (1) $ 7.57
01/01/99 - 12/31/99 2,594 (2) 69.59
(1) Distribution was made from cash from operations.
(2) Consists of approximately $235,000 of cash from operations and
approximately $2,359,000 of sales proceeds from the sale of Wendover II in
September 1999.
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. The Partnership's distribution
policy is reviewed on a semi-annual basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations after
required capital expenditures to permit any distributions to its partners in the
year 2000 or subsequent periods.
As of December 31, 1999, the remaining unpaid preferred return arrearage totaled
approximately $13,100,000 or approximately $453 per Unit.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the year ended December 31, 1999. As a result of these
tender offers, AIMCO and its affiliates currently own 6,900 limited partnership
units in the Partnership representing 18.512% of the outstanding units. 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.
Item 6. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-KSB 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-KSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant'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 Registrant's business and results of
operation. 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.
This item should be read in conjunction with the financial statements and other
items contained elsewhere in this report.
Results of Operations
The Partnership realized net income of approximately $1,803,000 and $122,000 for
the years ended December 31, 1999 and 1998, respectively. The increase in net
income is primarily attributable to the gain on sale of discontinued operation
in September 1999 partially offset by the extraordinary loss on the early
extinguishment of the debt and a decrease in income from discontinued operations
related to the sale. The Partnership realized income before discontinued
operations of approximately $74,000 and $8,000 for the years ended December 31,
1999 and 1998, and extraordinary item, respectively. The increase in income
before discontinued operations and extraordinary item for the year ended
December 31, 1999, is due to an increase in total revenues and an increase in
the equity in the net income of the joint venture partially offset by an
increase in total expenses. The increase in total revenues is due to an increase
in rental income and other income. The increase in rental income is primarily
due to the increase in the average annual rental rate at Presidential House. The
increase in other income is primarily due to the increase in interest income as
the result of higher average cash balances in interest bearing accounts. The
increase in the net income of the joint venture is primarily due to Table Mesa's
increase in rental income and decrease in interest expense. The increase in
total expenses is primarily due to an increase in bad debt expense and general
and administrative expense. The increase in bad debt expense is attributable to
delinquencies at Presidential House. The increase in general and administrative
expenses is due to increased professional fees in 1999. This was partially
offset by a decrease in property tax expense. Property tax expense decreased due
to the receipt of a refund in 1999 for the 1998 taxes.
Included in general and administrative expenses at both December 31, 1999 and
1998, 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 September 9, 1999, the Partnership sold Wendover Business Park II ("Wendover
II") to an unaffiliated third party for net proceeds of approximately $2,383,000
after payoff of the first mortgage and closing costs. The Partnership realized a
gain of approximately $1,804,000 on the sale during the third quarter of 1999.
The Partnership also realized a loss on the early extinguishment of the debt
encumbering the property of approximately $45,000 during the third quarter of
1999 due to the write off of unamortized loan costs and a prepayment penalty.
The discontinued operation of Wendover II incurred a loss of approximately
$30,000 through September 9, 1999, the date of sale, as compared to income of
approximately $114,000 for the year ended December 31, 1998. The increase in
this loss is primarily due to an increase in bad debt expense for the property.
The Partnership also owned a 50% joint venture interest in Table Mesa Shopping
Center ("Table Mesa") located in Boulder, Colorado. The Partnership sold its
interest in Table Mesa on March 17, 2000 to an unrelated party for $3,000,000,
the General Partner estimates a gain of approximately $2,673,000 will be
recognized in the first quarter of 2000.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the General Partner. The effect of the change in 1999 was to
increase net income by approximately $52,000 ($1.38 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the General Partner
and affiliates.
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 December 31, 1999, the Partnership had cash and cash equivalents of
approximately $691,000 as compared to approximately $613,000 at December 31,
1998. For the year ended December 31, 1999, cash and cash equivalents increased
approximately $78,000 from the Partnership's year ended December 31, 1998. The
increase in cash and cash equivalents is due to approximately $3,418,000 of cash
provided by investing activities and approximately $593,000 of cash provided by
operating activities which was partially offset by approximately $3,933,000 of
cash used in financing activities. Cash provided by investing activities
consists of proceeds from the sale of discontinued operations and a distribution
from the Table Mesa joint venture partially offset by property improvements and
replacements. Cash used in financing activities consists primarily of
distributions to the partners, and to a lesser extent, repayment of a mortgage
note, a prepayment penalty, and 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 assets
and other operating needs of the Registrant and to comply with Federal, state,
and local legal and regulatory requirements. The Partnership is currently
evaluating the capital improvement needs of the property for the upcoming year.
The minimum amount to be budgeted is expected to be $300 per unit or $60,900.
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 capital expenditures will be incurred only
if cash is available from operations or from Partnership reserves. To the extent
that such budgeted capital improvements are completed, the Registrant's
distributable cash flow, if any, may be adversely affected at least in the short
term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. At December 31,
1999, the mortgage indebtedness of approximately $3,122,000 requires monthly
principal and interest payments and a balloon payment on August 1, 2000 at which
time the property will either be refinanced or sold. The General Partner is in
the process of securing financing for the Partnership's remaining property.
Distributions paid to the limited partners during the year ended December 31,
1999 consisted of approximately $235,000 ($6.30 per limited partnership unit) of
cash from operations and approximately $2,359,000 ($63.29 per limited
partnership unit) of sales proceeds from the sale of Wendover II in September
1999. During 1998, the Partnership declared and paid cash distributions to the
limited partners in the amount of approximately $282,000 ($7.57 per limited
partnership unit) including approximately $2,000 for withholding taxes on behalf
of the limited partners. Future cash distributions will depend on the levels of
net cash generated from operations, and the timing of the debt maturity,
refinancing, and/or property sale and the availability of cash reserves. The
Partnership's distribution policy is reviewed on a semi-annual basis. There can
be no assurance, however, that the Partnership will generate sufficient funds
from operations after required capital expenditures to permit any distributions
to its partners in the year 2000 or subsequent periods.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the year ended December 31, 1999. As a result of these
tender offers, AIMCO and its affiliates currently own 6,900 limited partnership
units in the Partnership representing 18.512% of the outstanding units. 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.
Subsequent Event
Sale of Investment in Joint Venture
On March 11, 2000, the Partnership sold its investment in joint venture, Table
Mesa Shopping Center ("Table Mesa"). The Partnership realized a gain of
approximately $2,673,000 on the sale during the first quarter of 2000.
Year 2000 Compliance
General Description
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership is
dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any of the Managing Agent's computer
programs or hardware that had date-sensitive software or embedded chips might
have recognized a date using "00" as the year 1900 rather than the year 2000.
This could have resulted in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. No material failure or erroneous results have occurred in the
Managing Agent's computer applications related to the failure to reference the
Year 2000 to date.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
business, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities resulting from the Year 2000 issue.
Item 7. Financial Statements
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
LIST OF FINANCIAL STATEMENTS
Independent Auditors' Report
Balance Sheet - December 31, 1999
Statements of Operations - Years ended December 31, 1999 and 1998
Statements of Changes in Partners' Capital - Years ended December 31,
1999 and 1998
Statements of Cash Flows - Years ended December 31, 1999 and 1998
Notes to Financial Statements
Independent Auditors' Report
The Partners
Drexel Burnham Lambert Real Estate Associates II
We have audited the accompanying balance sheet of the Drexel Burnham Lambert
Real Estate Associates II (the "Partnership") as of December 31, 1999, and the
related statements of operations, changes in partners' capital and cash flows
for each of the years in the two-year period then ended. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, financial statements referred to above present fairly, in all
material respects, the financial position of the Partnership as of December 31,
1999, and the results of its operations and its cash flows for each of the years
in the two-year period then ended in conformity with generally accepted
accounting principles.
As discussed in Note M to the financial statements, the Partnership changed its
method of accounting to capitalize the cost of exterior painting and major
landscaping effective January 1, 1999.
/s/KPMG LLP
Greenville, South Carolina
March 10, 2000
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Assets
Cash and cash equivalents $ 691
Receivables and deposits 125
Other assets 31
Investment in joint venture (Note D) 393
Investment property (Notes F and I):
Land $ 1,287
Buildings and related personal property 6,683
7,970
Less accumulated depreciation (5,810) 2,160
$ 3,400
Liabilities and Partners' Capital
Liabilities
Accounts payable $ 110
Tenant security deposit liabilities 64
Other liabilities 96
Mortgage note payable (Note F) 3,122
Partners' Capital
General partner $ 7
Limited partners (37,273 units issued
and outstanding) 1 8
$ 3,400
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended
December 31,
<S> <C> <C>
1999 1998
Revenues:
Rental income $ 1,434 $ 1,347
Other income 84 57
Total revenues 1,518 1,404
Expenses:
Operating 641 639
General and administrative 145 85
Depreciation 294 278
Interest 276 286
Property taxes 123 141
Bad debt 56 11
Total expenses 1,534 1,440
Loss before equity in net income of joint venture,
discontinued operation, and extraordinary item (16) (36)
Equity in net income of joint venture 91 44
Income before discontinued operation and extraordinary
item 74 8
(Loss) income from discontinued operation (30) 114
Gain on sale of discontinued operation (Note E) 1,804 --
Extraordinary loss on early extinguishment of debt of
discontinued operation (45) --
Net income $ 1,803 $ 122
Net income allocated to general partner $ -- $ 1
Net income allocated to limited partners 1,803 121
$ 1,803 $ 122
Per limited partnership unit:
Income before discontinued operation and extraordinary
item $ 1.96 $ .21
(Loss) income from discontinued operation (.80) 3.03
Gain on sale of discontinued operation 48.40 --
Extraordinary loss on early extinguishment of debt of
discontinued operation (1.21) --
Net income $ 48.37 $ 3.25
Distributions per limited partnership unit $ 69.59 $ 7.57
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
(in thousands, except unit data)
<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' (deficit) capital at
December 31, 1997 37,273 $ 6 $ 953 $ 959
Distribution to limited partners -- -- (282) (282)
Net income for the year
ended December 31,1998 -- 1 121 122
Partners' capital at
December 31, 1998 37,273 7 792 799
Distributions to limited partners -- -- (2,594) (2,594)
Net income for the year
ended December 31, 1999 -- -- 1,803 1,803
Partners' capital at
December 31, 1999 37,273 $ 7 $ 1 $ 8
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,803 $ 122
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 413 463
Amortization of loan costs and lease commissions 39 46
Equity in net income of joint venture (90) (44)
Bad debt expense 56 11
Gain on sale of discontinued operation (1,804) --
Extraordinary loss on early extinguishment of debt
of discontinued operation 45 --
Change in accounts:
Receivables and deposits 180 (176)
Other assets 5 (26)
Accounts payable 63 (9)
Tenant security deposit payable (35) (4)
Accrued property taxes (142) 142
Other liabilities 27 (21)
Net cash provided by operating activities 560 504
Cash flows from investing activities:
Proceeds from sale of discontinued operation 3,542 --
Property improvements and replacements (366) (136)
Distributions received from joint venture 275 100
Net cash provided by (used in) investing
activities 3,451 (36)
Cash flows from financing activities:
Payments of mortgage notes payable (148) (151)
Prepayment penalty (32) --
Repayment of mortgage note payable (1,159) --
Distributions to partners (2,594) (282)
Net cash used in financing activities (3,933) (433)
Net increase in cash and cash equivalents 78 35
Cash and cash equivalents at beginning of year 613 578
Cash and cash equivalents at end of year $ 691 $ 613
Supplemental disclosure of cash flow information:
Cash paid for interest $ 327 $ 358
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts
payable $ 33 $ --
See Accompanying Notes to Financial Statements
</TABLE>
<PAGE>
DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
Notes to Financial Statements
December 31, 1999
Note A - Organization and Significant Accounting Policies
Organization:
Drexel Burnham Lambert Real Estate Associates II (the "Partnership" or
"Registrant") was organized as a limited partnership under the laws of the State
of New York pursuant to a Certificate of Limited Partnership dated November 2,
1983. The Partnership Agreement provides that the Partnership is to terminate on
December 31, 2032, unless terminated prior to such date. The general partner of
the Partnership is DBL Properties Corporation ("DBL" or the "General Partner").
As of December 31, 1999, the Partnership owns and operates Presidential House at
Sky Lake ("Presidential") a residential apartment complex located in North Miami
Beach, Florida. The Partnership also owned a 50% joint venture interest in Table
Mesa Shopping Center ("Table Mesa") located in Boulder, Colorado. The
Partnership sold its interest in Table Mesa on March 17, 2000 (see "Note N" for
further discussion).
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Fair Value of Financial Instruments:
Statement of Financial Accounting Standards ("SFAS") No. 107, "Disclosures about
Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures
about Derivative Financial Instruments and Fair Value of Financial Instruments",
requires disclosure of fair value information about financial instruments,
whether or not recognized in the balance sheet, for which it is practicable to
estimate fair value. Fair value is defined in the SFAS as the amount at which
the instruments could be exchanged in a current transaction between willing
parties, other than in a forced or liquidation sale. The Partnership believes
that the carrying amount of its financial instruments (except for long term
debt) approximates their fair value due to the short term maturity of these
instruments. The fair value of the Partnership's long term debt, after
discounting the scheduled loan payments to maturity at a current market rate,
approximates its carrying balance.
Cash and Cash Equivalents:
Cash and cash equivalents include cash on hand and in banks and money market
accounts. At certain times, the amount of cash deposited at a bank may exceed
the limit on insured deposits.
Tenant Security Deposits:
The Partnership requires security deposits from lessees for the duration of the
lease, and such deposits are included in receivables and deposits. Deposits are
refunded when the tenant vacates, provided the tenant has not damaged the space
and is current on rental payments.
Investment Property:
The Partnership's investment property consists of one apartment complex stated
at cost. Acquisition fees are capitalized as a cost of real estate. In
accordance with SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of", the Partnership records
impairment losses on long-lived assets used in operations when events and
circumstances indicate that the assets might be impaired and the undiscounted
cash flows estimated to be generated by those assets are less than the carrying
amounts of those assets. Costs of apartment properties that have been
permanently impaired have been written down to appraised value. No adjustments
for impairment of value were recorded in the years ended December 31, 1999 or
1998.
Depreciation:
Depreciation is calculated by the straight-line method over the estimated lives
of the investment properties and related personal property ranging from 15 to
31.5 years for buildings and improvements and from three to seven years for
furnishings. For Federal income tax purposes, the accelerated cost recovery
method is used (1) for real property over 15 years for additions prior to March
16, 1984, 18 years for additions after March 15, 1984 and before May 9, 1985,
and 19 years for additions after May 8, 1985, and before January 1, 1987, and
(2) for personal property over 5 years for additions prior to January 1, 1987.
As a result of the Tax Reform Act of 1986, for additions after December 31,
1986, the modified accelerated cost recovery method is used for depreciation of
(1) real property over 27 1/2 years and (2) personal property additions over 5
years.
Effective January 1, 1999 the Partnership changed its method of accounting to
capitalize the costs of exterior painting and major landscaping (see "Note M").
Loan Costs:
Loan costs of approximately $153,000, less accumulated amortization of
approximately $139,000 at December 31, 1999, are included in other assets and
are being amortized on a straight-line basis over the lives of the respective
loans.
Leases:
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on these leases.
The Partnership leased commercial space to tenants under various lease terms.
For leases containing fixed rental increases during their term, rents were
recognized on a straight-line basis over the terms of the leases. For all other
commercial leases, rents were recognized over the terms of the leases as earned.
In addition, the General Partner's policy is to offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Concessions are charged against rental income as
incurred.
Advertising Costs:
Advertising costs of approximately $32,000 in 1999 and $18,000 in 1998 were
charged to expense as incurred and are included in operating expenses.
Segment Reporting:
SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information
established standards for the way that public business enterprises report
information about operating segments in annual financial statements and requires
that those enterprises report selected information about operating segments in
interim financial reports. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers. See "Note K"
for required disclosure.
Reclassifications:
Certain reclassifications have been made to the 1998 balances to conform to the
1999 presentation.
Note B - Transfers of Control
On October 1, 1998, Insignia Financial Group, Inc., the sole shareholder of IFGP
Corporation, completed its merger with and into Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust,
with AIMCO being the surviving corporation (the "Insignia Merger"). As a result
of the Insignia Merger, AIMCO acquired control of IFGP Corporation and, as a
result thereof, the General Partner. The General Partner does not believe that
this transaction has had or will have a material effect on the affairs and
operations of the Partnership.
Note C - Transactions with Affiliated Parties
The Registrant 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 reimbursement of certain expenses incurred by affiliates on behalf
of the Partnership.
The following payments were made to the General Partner and affiliates during
the years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in operating
expenses and income from discontinued operation) $73 $90
Reimbursement for services of affiliates (included in
general and administrative expenses) 46 61
During the years ended December 31, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from the Registrant's
residential property for providing property management services. The Registrant
paid to such affiliates approximately $73,000 and $69,000 for the years ended
December 31, 1999 and 1998, respectively. For the nine months ended September
30, 1998 affiliates of the General Partner were entitled to receive varying
percentages of gross receipts from the Registrant's commercial property for
providing property management services. The Registrant paid to such affiliates
approximately $21,000 for the nine months ended September 30, 1998. Effective
October 1, 1998 (the effective date of the Insignia Merger) these services for
the commercial property were provided by an unrelated party.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $46,000 and $61,000 for the
years ended December 31, 1999 and 1998, respectively.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the year ended December 31, 1999. As a result of these
tender offers, AIMCO and its affiliates currently own 6,900 limited partnership
units in the Partnership representing 18.512% of the outstanding units. 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 D - Investment in Joint Venture
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 accounts for its 50%
investment in Table Mesa on the equity method. In accordance with the equity
method of accounting, the Partnership's original investment in Table Mesa is
increased by advances to Table Mesa and by the Partnership's share of the
earnings of Table Mesa. The investment is decreased by distributions from Table
Mesa and by the Partnership's share of losses of Table Mesa. 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 income of
approximately $90,000 and $44,000 for the years ended December 31, 1999 and
1998, 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. This annual preference is not cumulative. The
Partnership received a distribution from the Table Mesa joint venture of
approximately $275,000 and $100,000 for the years ended December 31, 1999 and
1998, respectively.
Summarized financial information for Table Mesa at December 31, 1999, is as
follows (in thousands):
Assets:
Real and personal property, net of
accumulated depreciation $ 5,191
Other assets 1,210
Total assets $ 6,401
Liabilities:
Mortgage payable $ 6,150
Other liabilities 517
Total liabilities $ 6,667
Partners' deficit $ (266)
Total liabilities and partners' deficit $ 6,401
Summarized results of operations for Table Mesa for years ended December 31,
1999 and 1998, are as follows (in thousands):
1999 1998
Total revenues $ 2,342 $ 2,257
Total expenses 1,945 1,958
Net income $ 397 $ 299
Note E - Sale of Discontinued Operation
On September 9, 1999, the Partnership sold Wendover Business Park II ("Wendover
II") to an unaffiliated third party for net proceeds of approximately $2,383,000
after payoff of the first mortgage and closing costs. The Partnership realized a
gain of approximately $1,804,000 on the sale during the third quarter of 1999.
The Partnership also realized a loss on the early extinguishment of the debt
encumbering the property of approximately $45,000 during the third quarter of
1999 due to the write off of unamortized loan costs and a prepayment penalty.
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 income from
discontinued operation and gain on sale of discontinued operation. The revenues
of this property were approximately $263,000 and $571,000 for 1999 and 1998,
respectively. The loss from operations was approximately $30,000 for 1999 and
the income from operations was approximately $114,000 for 1998.
Note F - Mortgage Note Payable
The principal terms of the mortgage note payable are as follows:
Principal Monthly Principal
Balance At Payment Balance
December 31, Including Interest Maturity Due At
Property 1999 Interest Rate Date Maturity
(in thousands) (in thousands)
Presidential House $ 3,122 $ 31 8.00% 08/01/00 $ 3,047
The mortgage note payable is nonrecourse and is secured by pledge of the
Partnership's property and by pledge of revenues from the respective rental
property. The mortgage note includes a prepayment penalty if repaid prior to
maturity. Further the property may not be sold subject to existing indebtedness.
The General Partner is in the process of securing financing for the
Partnership's remaining property.
The General Partner is attempting to refinance the existing debt and is working
with a lender to refinance such debt. However, there can be assurance that such
refinancing will be obtained.
Note G - Partners' Capital
Pursuant to a public offering, 37,273 units were sold at $500 per unit. The
calculation of net income (loss) per limited partner unit is based on 37,273
units outstanding.
For income tax purposes the limited partners share 99% and the General Partner
1% (subordinated as defined in the partnership agreement) in all profits or
losses from operations until the limited partners have received an 8% cumulative
preferred return on their invested capital. Thereafter, the limited partners
share 90% and the General Partner shares 10% in the profits or losses from
operations.
Cash distributions from sales or refinancing, if any, shall be made to the
partners to the extent available and, as more fully described in the partnership
agreement, as follows: first, to each partner in an amount equivalent to the
positive amount of such partner's capital account on the date of distribution
after adjustment; second, to the limited partners, until the limited partners
have received an amount equal to their original invested capital; third, 99% to
the limited partners equal to any unpaid preferred return arrearage; and fourth,
as to any excess, 85% to the limited partners and 15% to the General Partner.
Distributions in liquidation to the partners shall be made pro rata in
accordance with the partners' capital accounts.
In accordance with the Agreement of Limited Partnership, limited partners are
entitled to receive an 8% cumulative preferred return on their unrecovered
invested capital. No distributions have been made or accrued to the General
Partner, since the limited partners must receive their original invested capital
plus any preferred return arrearage before payment to the General Partner. As of
December 31, 1999, the unpaid preferred return arrearage totaled approximately
$13,100,000.
Note H - Income Taxes
The Partnership has received a ruling from the Internal Revenue Service that it
will be classified as a partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the consolidated financial
statements of the Partnership. Taxable income or loss of the Partnership is
reported in the income tax returns of its partners.
A reconciliation of the net income per the financial statements to the net
taxable income to partners is as follows (in thousands, except unit data):
Years Ended December 31,
1999 1998
Net income as reported $ 1,803 $ 122
Depreciation and amortization differences 1,313 20
Amount of tax loss under book loss of
equity investees 151 143
Allowance for bad debt 22 --
Prepaid rent (1) (10)
Federal taxable net income $ 3,288 $ 275
Federal taxable income per limited
partnership unit $ 88.21 $ 7.31
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities(in thousands):
1999
Net assets as reported $ 8
Fixed assets (205)
Accumulated depreciation 189
Investment in joint venture 295
Syndication costs 2,050
Other assets & liabilities 20
Net assets - tax basis $ 2,357
Note I - Real Estate and Accumulated Depreciation
Initial Cost
To Partnership
(in thousands)
<TABLE>
<CAPTION>
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrance Land Properties Acquisition
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Presidential House $ 3,122 $ 1,510 $ 6,037 $ 423
</TABLE>
Gross Amount At Which
Carried
At December 31, 1999
(in thousands)
<TABLE>
<CAPTION>
Buildings
And Related
Personal Accumulated Year of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Presidential
House $ 1,287 $ 6,683 $ 7,970 $ 5,810 1967-1974 10/84 5-31.5 yrs
</TABLE>
Reconciliation of Real Estate and Accumulated Depreciation:
December 31,
1999 1998
(in thousands)
Investment Properties
Balance at beginning of year $11,869 $11,733
Property improvements 399 136
Disposition of discontinued
operation (4,298) --
Balance at end of year $ 7,970 $11,869
Accumulated Depreciation
Balance at beginning of year $ 7,982 $ 7,519
Additions charged to expense 413 463
Disposition of discontinued
operation (2,585) --
Balance at end of year $ 5,810 $ 7,982
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $7,766,000 and $11,111,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $5,620,000 and $8,549,000,
respectively.
Note J- Distributions
Distributions paid to the limited partners during the year ended December 31,
1999 consisted of approximately $235,000 ($6.30 per limited partnership unit) of
cash from operations and approximately $2,359,000 ($63.29 per limited
partnership unit) of sales proceeds from the sale of Wendover II in September
1999. During 1998, the Partnership declared and paid cash distributions to the
limited partners in the amount of approximately $282,000 ($7.57 per limited
partnership unit) including approximately $2,000 for withholding taxes on behalf
of the limited partners.
Note K - 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 regarding the sale).
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 described in the summary of significant accounting policies.
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 service with different types of products and
customers.
Segment information for the years 1999 and 1998 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.
<TABLE>
<CAPTION>
1999 Residential Commercial Other Totals
(Discontinued)
<S> <C> <C> <C> <C>
Rental income $ 1,434 $ -- $ -- $ 1,434
Other income 56 -- 28 84
Interest expense 276 -- -- 276
Depreciation 294 -- -- 294
General and administrative
expense -- -- 145 145
Equity in net income of joint
venture -- -- 91 91
Gain on sale of discontinued
operations -- 1,804 -- 1,804
Extraordinary loss on early
extinguishment of debt of
discontinued operation -- (45) -- (45)
Loss from discontinued
operation -- (30) -- (30)
Segment profit (loss) 100 1,729 (26) 1,803
Total assets 2,338 -- 1,062 3,400
Capital expenditures for
investment properties 393 6 -- 399
</TABLE>
<TABLE>
<CAPTION>
1998 Residential Commercial Other Totals
(Discontinued)
<S> <C> <C> <C> <C>
Rental income $ 1,347 $ -- $ -- $ 1,347
Other income 40 -- 17 57
Interest expense 286 -- -- 286
Depreciation 278 -- -- 278
General and administrative
expense -- -- 85 85
Equity in net income of joint
venture -- -- 44 44
Income from discontinued
operations -- 114 -- 114
Segment profit (loss) 32 114 (24) 122
Total assets 2,454 2,022 1,076 5,552
Capital expenditures for
investment properties 112 24 -- 136
</TABLE>
Note L - Legal Proceedings
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature arising in the ordinary course of business.
Note M - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the General Partner. The effect of the change in 1999 was to
increase net income by approximately $52,000 ($1.38 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the General Partner
and affiliates.
Note N - Subsequent Event
Sale of Investment in Joint Venture
On March 11, 2000, the Partnership sold its investment in joint venture, Table
Mesa Shopping Center ("Table Mesa"). The Partnership realized a gain of
approximately $2,673,000 on the sale during the first quarter of 2000.
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
Drexel Burnham Lambert Real Estate Associates II (the "Partnership") does not
have any officers or directors. Management and administrative services are
performed by DBL Properties Corporation ("DBL" or the "General Partner") and its
affiliates. The General Partner has general responsibility and authority in all
matters affecting the business of the Partnership.
The names of the directors and executive officers of DBL as of December 31,
1999, their ages and nature of all positions presently held by them are set
forth below. There are no family relationships between or among any officers and
directors:
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the General
Partner since October 1, 1998. Mr. Foye has served as Executive Vice President
of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a partner in the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to 1998 and was
Managing Partner of the firm's Brussels, Budapest and Moscow offices from 1992
through 1994. Mr. Foye is also Deputy Chairman of the Long Island Power
Authority and serves as a member of the New York State Privatization Council. He
received a B.A. from Fordham College and a J.D. from Fordham University Law
School.
Martha L. Long has been Senior Vice President and Controller of the General
Partner and AIMCO since October 1998, as a result of the acquisition of Insignia
Financial Group, Inc. From June 1994 until January 1997, she was the Controller
for Insignia, and was promoted to Senior Vice President - Finance and Controller
in January 1997, retaining that title until October 1998. From 1988 to June
1994, Ms. Long was Senior Vice President and Controller for The First Savings
Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Form 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by Section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years.
Item 10. Executive Compensation
Neither the director nor officers received any remuneration from the General
Partner during the year ended December 31, 1999.
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 1999.
Number
Entity of Units Percentage
Insignia Properties LP 10 .027%
(an affiliate of AIMCO)
AIMCO Properties LP 6,890 18.485%
(an affiliate of AIMCO)
Insignia Properties LP is indirectly ultimately owned by AIMCO. Its business
address is 55 Beattie Place, Greenville, South Carolina 29602.
AIMCO Properties LP is indirectly ultimately controlled by AIMCO. Its business
address is 2000 South Colorado Boulevard, Denver, Colorado 80222.
No director or officer of the General Partner owns any Units.
Item 12. Certain Relationships and Related Transactions
The Registrant 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.
The following payments were made to the General Partner and affiliates during
the years ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees $73 $90
Reimbursement for services of affiliates 46 61
During the years ended December 31, 1999 and 1998, affiliates of the General
Partner were entitled to receive 5% of gross receipts from the Registrant's
residential property for providing property management services. The Registrant
paid to such affiliates approximately $73,000 and $69,000 for the years ended
December 31, 1999 and 1998, respectively. For the nine months ended September
30, 1998, affiliates of the General Partner were entitled to receive varying
percentages of gross receipts from the Registrant's commercial property for
providing property management services. The Registrant paid to such affiliates
approximately $21,000 for the nine months ended September 30, 1998. Effective
October 1, 1998 (the effective date of the Insignia Merger) these services for
the commercial property were provided by an unrelated party.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $46,000 and $61,000 for the
years ended December 31, 1999 and 1998, respectively.
Several tender offers were made by various parties, including affiliates of the
General Partner, during the year ended December 31, 1999. As a result of these
tender offers, AIMCO and its affiliates currently own 6,900 limited partnership
units in the Partnership representing 18.512% of the outstanding units. 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.
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 18, Independent Accountants' Preferability Letter for Change
in Accounting Principle, is filed as an exhibit to this report.
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
(b) Reports on Form 8-K filed during the fourth quarter of calendar year
1999:
None.
SIGNATURES
In accordance with Section 13 or 15(d) 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: March 29, 2000
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Registrant and in the capacities and on the
date indicated.
/s/Patrick J. Foye Executive Vice President Date: March 29, 2000
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President Date: March 29, 2000
Martha L. Long and Controller
<PAGE>
EXHIBIT INDEX
Exhibit No.
2.1 Agreement and Plan of Merger, dated as of October 1, 1998, by and
between AIMCO and IPT in Registrant's Current Report on Form 8-K
dated October 1, 1998.
3.1 Prospectus of the Partnership filed pursuant to rule 424(b), dated
December 30, 1983 is hereby incorporated herein by reference.
3.2 Supplement dated October 10, 1984 to Prospectus dated December 30,
1983 is hereby incorporated herein by reference.
3.3 Form of Agreement of Limited Partnership of the Partnership
reference is made to Exhibit A to the Prospectus.
3.4 Certificate of Limited Partnership of the Partnership, which
appears as Exhibit 3.2 to the Registration Statement is hereby
incorporated herein by the reference.
10.1 Agreement related to purchase by the Partnership of Wendover
Business Park Phase II in Greensboro, North Carolina, which
appears as Exhibit 2.1 to the Registration Statement of the
Partnership is hereby incorporated herein by reference.
10.2 Agreement related to purchase by the Partnership of an interest in
the Sheraton Poste Inn in Cherry Hill, New Jersey, which appears
as Exhibit 2.2 to the Registration Statement of the Partnership is
hereby incorporated herein by reference.
10.3 Agreement relating to purchase by the Partnership of Presidential
House at Sky Lake in North Miami Beach, Florida, for which a
Report on Form 8-K was filed with the Commission on November 5,
1984, is hereby incorporated herein by reference.
10.4 Agreement relating to purchase by the Partnership of an interest
in Table Mesa Shopping Center in Boulder, Colorado, for which a
Report on Form 8-K was filed with the Commission on May 21, 1985,
is hereby incorporated herein by reference.
10.5 Amendment No. 1, dated October 1, 1992, among the Partnership, Coreal
N.V., Inc. and Almanzil, Inc., to the Joint Venture Agreements, dated
April 4, 1984, between the Partnership and Coreal relating to the
Sheraton Poste Inn is incorporated by reference to the Registrant's
Annual Report on Form 10-KSB for the fiscal year ended December 31,
1992.
10.6 Contracts related to refinancing of the debt of Wendover Business
Park Phase II were filed as Exhibit 10.6 to the report on Form
10-KSB for the fiscal year ended December 31, 1993, and are hereby
incorporated herein by reference:
(a) Mortgage note dated January 13, 1994 between Drexel Burnham
Lambert Real Estate Associates II, a New York limited
partnership, and United Family Life Insurance Company, a
Georgia corporation.
(b) Deed of Trust and Security Agreement dated January 13, 1994
between Drexel Burnham Lambert Real Estate Associates II, a
New York limited partnership, and Stewart Title Guaranty
Company for the benefit of United Family Life Insurance
Company, a Georgia corporation.
(c) Assignment of Leases, Rents, Contracts, and Agreements dated
January 13, 1994 from Drexel Burnham Lambert Real Estate
Associates II, a New York limited partnership, to United
Family Life Insurance Company, a Georgia corporation.
(d) Hazardous Material Indemnification Agreement dated January
13, 1994 between Drexel Burnham Lambert Real Estate
Associates II, a New York limited partnership, and United
Family Life Insurance Company, a Georgia corporation.
(e) Escrow Agreement dated January 13, 1994 by and between United
Family Life Insurance Company, a Georgia corporation, Drexel
Burnham Lambert Real Estate Associates II, a New York limited
partnership, and Dickinson, Logan, Todd and Barber, Inc. (the
"Escrow Agent").
10.7 Purchase and Sale Contract between Registrant and SB Orchard, LLC,
a Colorado limited liability company, dated May 20, 1999.
10.8 Amendment to Purchase and Sale Contract between Registrant and SB
Orchard, LLC, a Colorado limited liability company, dated August
2, 1999.
10.9 Second Amendment to Purchase and Sale Contract between Registrant
and SB Orchard, LLC, a Colorado limited liability company, dated
August 23, 1999.
16 Letter dated September 23, 1998, from the Registrant's former
independent accountant regarding its concurrence with the
statements made by the Registrant in its Current Report on Form
8-K dated September 23, 1998.
16.1 Letter dated October 21, 1998, from the Registrant's former
independent accountant regarding its concurrence with the
statements made by the Registrant in its Current Report on Form
8-K dated September 23, 1998.
18 Independent Accountants' Preferability Letter for Change in
Accounting Principle.
27 Financial Data Schedule.
99.1 Special Report/Acquisition Bulletin dated May 9, 1985 regarding
the Purchase by the Partnership of interests in Table Mesa
Shopping Center in Boulder, Colorado, and the 123 Office Building
in Tyson's Corner, Virginia is hereby incorporated herein by
reference.
99.2 Report on Form 8-K filed November 4, 1984 regarding the purchase
of Presidential House at Sky Lake in North Miami Beach, Florida is
hereby incorporated herein by reference.
99.3 Report on Form 8-K filed May 21, 1985 regarding the acquisition of
a 50% interest in Table Mesa Shopping Center in Boulder, Colorado
is hereby incorporated herein by reference.
99.4 On May 17, 1988, a report on Form 8-K was filed regarding the
refinancing of the four loans underlying the Presidential wrap
mortgage is hereby incorporated herein by reference.
99.5 On June 12, 1989, a report on Form 8-K was filed regarding the
modification of Table Mesa Promissory Note is hereby incorporated
herein by reference.
99.7 On October 11, 1989, a report on Form 8-K was filed regarding the
change in control of the parent company of the General Partner is
hereby incorporated herein by reference.
99.8 Second Note and Deed of Trust Revision Agreement dated December 3,
1990 regarding Table Mesa Shopping Center in Boulder, Colorado.
99.9 Report on Form 8-K filed February 3, 1993 regarding the sale of
the outstanding stock of the General Partner is hereby
incorporated herein by reference.
99.10 Report on Form 8-K filed July 9, 1997, regarding the change in
control of the Partnership.
<PAGE>
Exhibit 18
March 10, 2000
Mr. Patrick J. Foye
Executive Vice President
DBL Properties Corporation
General Partner of Drexel Burnham Lambert Real Estate Associates II
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note M of Notes to the Financial Statements of Drexel Burnham Lambert Real
Estate Associates II included in its Form 10-KSB for the year ended December 31,
1999 describes a change in the method of accounting to capitalize exterior
painting and major landscaping, which would have been expensed under the old
policy. You have advised us that you believe that the change is to a preferable
method in your circumstances because it provides a better matching of expenses
with the related benefit of the expenditures and is consistent with policies
currently being used by your industry and conforms to the policies of the
General Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/KPMG LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from DREXEL
BURNHAM LAMBERT REAL ESTATE ASSOCIATES II 1999 Fourth Quarter 10-KSB and is
qualified in its entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000725646
<NAME> DREXEL BURNHAM LAMBERT REAL ESTATE ASSOCIATES II
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 691
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 7,970
<DEPRECIATION> 5,810
<TOTAL-ASSETS> 3,400
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 3,122
0
0
<COMMON> 0
<OTHER-SE> 8
<TOTAL-LIABILITY-AND-EQUITY> 3,400
<SALES> 0
<TOTAL-REVENUES> 1,518
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,534
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 276
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> (45)
<CHANGES> 0
<NET-INCOME> 1,803
<EPS-BASIC> 48.37 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
