<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended September 30, 1999 Commission File Number 0-17810
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Massachusetts 04-2961376
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
225 Franklin Street, 25th Fl.
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(617) 261-9000
Former name, former address and former fiscal year if changed since last report
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve (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>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1999
PART I
FINANCIAL INFORMATION
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
(Unaudited) (Audited)
------------------ ------------------
<S> <C> <C>
Assets
Real estate investments:
Property, net $ - $ 6,225,018
Cash and cash equivalents 490,602 518,094
Other Assets 8,705 -
--------- -----------
$ 499,307 $ 6,743,112
========= ===========
Liabilities and Partners' Capital
Accounts payable $ 52,892 $ 41,594
Accrued management fee - 12,799
--------- -----------
Total liabilities 52,892 54,393
--------- -----------
Partners' capital (deficit):
Limited partners ($582.04 and
$781.00 per unit, respectively;
100,000 units authorized, 32,767
units issued and outstanding) 594,963 6,840,037
General partners (148,548) (151,318)
--------- -----------
Total partners' capital 446,415 6,688,719
--------- -----------
$ 499,307 $ 6,743,112
========= ===========
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999 September 30, 1998 September 30, 1998
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Investment Activity
Property rentals $ 191 $126,764 $202,712 $ 608,300
Depreciation and amortization - - (98,998) (296,992)
Property operating expenses 9,731 (37,682) (38,261) (95,211)
------- -------- -------- ---------
9,922 89,082 65,453 216,097
Gain on sale of property - 590,563 - -
------- -------- -------- ---------
Total real estate activity 9,922 679,645 65,453 216,097
Interest on cash equivalents
and short-term investments 5,732 69,949 20,033 59,675
------- -------- -------- ---------
Total investment activity 15,654 749,594 85,486 275,772
------- -------- -------- ---------
Portfolio Expenses
General and administrative 15,892 54,374 20,445 70,167
Management fee - 25,991 104,062 129,660
------- -------- -------- ---------
15,892 80,365 124,507 199,827
------- -------- -------- ---------
Net Income (Loss) $ (238) $669,229 $(39,021) $ 75,945
======= ======== ======== =========
</TABLE>
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
<TABLE>
<S> <C> <C> <C> <C>
Net income (loss) per
limited partnership unit $ (0.01) $ 20.22 $ (1.18) $ 2.29
======= ======= ======= =======
Cash distributions per
limited partnership unit $ - $210.81 $ 3.91 $ 16.62
======= ======= ======= =======
Number of limited partnership
units outstanding during
the period 32,767 32,767 32,767 32,767
======= ======= ======= =======
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Three Months Ended Nine Months Ended
September 30, 1999 September 30, 1999 September 30, 1998 September 30, 1998
--------------------- ------------------------ ----------------------- -----------------------
General Limited General Limited General Limited General Limited
Partners Partners Partners Partners Partners Partners Partners Partners
--------- -------- --------- ----------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at beginning
of period $(148,546) $595,199 $(151,318) $ 6,840,037 $(142,320) $7,730,837 $(139,263) $8,033,516
Cash distributions - - (3,922) (6,907,611) (1,294) (128,119) (5,501) (544,614)
Net income (loss) (2) (236) 6,692 662,537 (391) (38,630) 759 75,186
--------- -------- --------- ----------- --------- ---------- --------- ----------
Balance at end of
period $(148,548) $594,963 $(148,548) $ 594,963 $(144,005) $7,564,088 $(144,005) $7,564,088
========= ======== ========= =========== ========= ========== ========= ==========
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net cash from (used by) operating activities $ (54,427) $ 434,260
----------- ----------
Cash flows from investing activities:
Net proceeds from sale of property 6,938,468 -
Decrease in short-term
investments, net - 586,822
----------- ----------
Net cash provided by investing activities 6,938,468 586,822
----------- ----------
Cash flows from financing activities:
Distributions to partners (6,911,533) (550,115)
----------- ----------
Net cash used in financing activities (6,911,533) (550,115)
----------- ----------
Net increase (decrease) in cash and cash
equivalents (27,492) 470,967
Cash and cash equivalents:
Beginning of period 518,094 1,083,887
----------- ----------
End of period $ 490,602 $1,554,854
=========== ==========
</TABLE>
(See accompanying notes to unaudited financial statements)
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments necessary to present fairly the Partnership's
financial position as of September 30, 1999 and December 31, 1998 and the
results of its operations, its cash flows and partners' capital (deficit) for
the three and nine month periods ended September 30, 1999 and 1998. These
adjustments are of a normal recurring nature.
See notes to financial statements included in the Partnership's 1998 Annual
Report on Form 10-K for additional information relating to the Partnership's
financial statements.
NOTE 1 - ORGANIZATION AND BUSINESS
- ----------------------------------
Copley Realty Income Partners 2; A Limited Partnership (the "Partnership")
is a Massachusetts limited partnership organized for the purpose of investing
primarily in newly-constructed and existing income-producing real properties.
The Partnership commenced operations in October 1987, and acquired four real
estate investments prior to the end of 1987. The Partnership intended to dispose
of its investments within six to nine years of their acquisition, and then
liquidate; however, the managing general partner extended the holding period,
having determined it to be in the best interest of the limited partners. The
Partnership sold its last remaining investment in February 1999 and therefore
intends to liquidate and dissolve in 2000.
NOTE 2 - PROPERTY
- -----------------
On February 26, 1999, the La Mirada buildings were sold for a gross sale
price of $7,150,000. The partnership received net proceeds of $6,938,468 after
closing costs, and recognized a gain of $590,563 ($17.84 per limited partnership
unit) on the sale. On April 29, 1999 the Partnership made a capital
distribution of $6,519,322 ($198.96 per limited partnership unit) from the
proceeds of the sale.
<TABLE>
<CAPTION>
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
Land $ - $ 4,711,859
Buildings and improvements - 7,855,152
Accumulated depreciation - (2,757,345)
Investment valuation allowance - (4,200,000)
----- -----------
- 5,609,666
Other net assets - 615,352
----- -----------
$ - $ 6,225,018
===== ===========
</TABLE>
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
Management's Discussion and Analysis of Financial Condition and
- ---------------------------------------------------------------
Results of Operations
- ---------------------
Liquidity and Capital Resources
- -------------------------------
The Partnership completed its offering of units of limited partnership
interest in April 1988, and a total of 32,997 units were sold. The Partnership
received proceeds of $29,379,522, net of selling commissions and other offering
costs, which have been invested in real estate, used to pay related acquisition
costs or retained as working capital reserves.
In connection with two sales in May and December of 1997, respectively,
and the sale in February of 1999, capital of $13,701,415 ($417.96 per limited
partnership unit) has been returned to the limited partners, reducing the
adjusted capital contribution to $582.04 per unit.
At September 30, 1999, the Partnership had $490,602 in cash and cash
equivalents which is being retained primarily as a reserve in the event of any
claims for breach of representations or warranties in connection with the sale
of the La Mirada property on February 26, 1999, and as an additional reserve in
connection with the liquidation of the Partnership. Distributions of cash from
operations related to the first quarter of 1999 were made at an annualized rate
of 1.75% on the adjusted capital contribution of $781 per unit. At the time of
the first quarter distribution, a special distribution of $4.52 per limited
partnership unit was made from operating reserves. There were no distributions
from operations in the second or third quarters of 1999 due to the sale of the
Partnership's remaining investment in February 1999. Cash distributions from
operations related to the first three quarters of 1998 were made at an
annualized rate of 2.0% on the adjusted capital contribution of $781 per unit.
The distribution rate was lower in 1999 primarily due to the sale of the
remaining investment in 1999 and the consequent reduction in cash flow.
The Partnership maintained a fund for the purpose of repurchasing limited
partnership units. Two percent of cash flow, as defined, was designated for
this fund which had a balance of $78,985 and $73,208 at April 1, 1999 and
December 31, 1998, respectively. In accordance with the terms of the
Partnership Agreement, any amounts in this fund after April 1, 1999 were placed
in Partnership reserves. Through April 1, 1999, the Partnership had repurchased
and retired 230 limited partnership units for an aggregate cost of $177,945.
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
Year 2000 Readiness Disclosure
- ------------------------------
The Year 2000 Issue is a result of computer programs being written using
two digits rather than four to define the applicable year. Computer programs
that have date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business operations.
The Partnership relies on AEW Capital Management L.P. ("AEW Capital
Management"), the parent of AEW Real Estate Advisors, Inc., to generate
financial information and to provide other services which are dependent on the
use of computers. The Partnership has obtained assurances from AEW Capital
Management that:
. AEW Capital Management has developed a Year 2000 Plan (the "Plan")
consisting of five phases: inventory, assessment, testing,
remediation/repair and certification.
. As of September 30, 1998, AEW Capital Management had completed the
inventory and assessment phases of this Plan and had commenced the
testing and remediation/repair of internal systems.
. AEW Capital Management concluded the internal testing,
remediation/repair and certifications of its Plan in June 1999.
. AEW Capital Management successfully participated in industry-wide
testing in August 1999.
. AEW Capital Management believes it is ready for Year 2000. AEW Capital
Management has advised the Partnership that being ready means that AEW
Capital Management has tested its internal mission critical systems and
software applications, and based upon testing conducted, AEW Capital
Management believes that such systems and applications are prepared to
process dates correctly through the Year 2000.
Based upon these assurances, the Partnership has determined that it is not
necessary for it to develop a Year 2000 contingency plan.
Because the Partnership has sold all of its real property investments, the
Partnership no longer relies on joint venture partners and/or property managers
to supply financial and other data with respect to its real properties with the
exception of year-end audited statements. Consequently, the Partnership does
not have any material provider of data other than AEW Capital Management.
The Partnership is subject to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failures and related service interruptions. Given the nature of its
operations, the Partnership will not incur any costs associated with Year 2000
compliance. All such costs are borne by AEW Capital Management.
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
Results of Operations
- ---------------------
Investment Results
The La Mirada investment had been vacant from August 1990 through January
1994. Beginning January 1, 1995, the property was 100% occupied under a long-
term lease. Real estate operating results for the three and nine month periods
ended September 30, 1999 were $9,922 and $89,082, respectively, compared to
$65,453 and $216,097 for the comparable periods of 1998. The decreases of
$55,531 and $127,015 between the three and nine month periods, respectively, are
attributable to the sale of La Mirada on February 26, 1999. Subsequent to this
sale, the Partnership has recognized operating expenses incurred prior to the
sale, as well as interest income on cash held at this property, which will be
distributed to the Partners once all outstanding liabilities have been settled.
During the three month period ended September 30, 1999, these subsequent
operating expenses were offset by a refund of previously paid property taxes of
$9,731.
During the nine month period ended September 30, 1999, the Partnership
incurred additional expenses of $9,092 related to the February 1999 sale of La
Mirada, which subsequently reduced the gain to $590,563.
For the three and nine month periods ended September 30, 1999, interest
on cash and cash equivalents changed by $(14,301) and $10,274, respectively,
compared to the comparable periods of 1998. The overall nine month increase is
primarily due to an increase in average investment balances as a result of the
receipt of sale proceeds from La Mirada. These sale proceeds were subsequently
distributed in April 1999, resulting in the three month decrease.
Cash flow from operations decreased by approximately $489,000 between the
respective nine month periods. The decrease is primarily due to the sale of the
last remaining property discussed above.
Portfolio Expenses
General and administrative expenses primarily consist of real estate
appraisal, legal, accounting, printing and servicing agent fees. For the three
and nine month periods ended September 30, 1999, these expenses decreased $4,553
and $15,793, respectively, compared with the same periods in 1998. These
decreases are primarily due to lower overall expenses as a result of the sale of
the Partnership's remaining asset in February 1999.
The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the managing general partner. The Partnership management fee
decreased between the respective three and nine month periods of 1999 and 1998
due to the suspension of operational cash distributions after the first quarter
of 1999 as a result of the La Mirada sale in February.
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1999
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits: (27) Financial Data Schedule
b. Reports on Form 8-K: No current reports on Form 8-K were filed
during the quarter ended September 30, 1999.
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COPLEY REALTY INCOME PARTNERS 2; A LIMITED
PARTNERSHIP
(Registrant)
November 9, 1999
/s/ Alison Husid Cutler
-------------------------------
Alison Husid Cutler
President, Chief Executive Officer and Director
of Managing General Partner,
Second Income Corp.
November 9, 1999
/s/ Karin J. Lagerlund
--------------------------------
Karin J. Lagerlund
Treasurer and Principal Financial and Accounting
Officer of Managing General Partner, Second
Income Corp.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 490,602
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 490,602
<PP&E> 8,705
<DEPRECIATION> 0
<TOTAL-ASSETS> 499,307
<CURRENT-LIABILITIES> 52,892
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 446,415
<TOTAL-LIABILITY-AND-EQUITY> 499,307
<SALES> 126,764
<TOTAL-REVENUES> 787,276
<CGS> 37,682
<TOTAL-COSTS> 37,682
<OTHER-EXPENSES> 80,365
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 669,229
<INCOME-TAX> 0
<INCOME-CONTINUING> 669,229
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 669,229
<EPS-BASIC> 20.22
<EPS-DILUTED> 20.22
</TABLE>
