<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 June 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 JUNE 30, 1999
PART I
FINANCIAL INFORMATION
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
(Unaudited) (Audited)
------------------ ------------------
<S> <C> <C>
Assets
Real estate investments:
Property, net $ - $ 6,225,018
Cash and cash equivalents 585,839 518,094
Other assets 8,705 -
--------------- ------------------
$ 594,544 $ 6,743,112
=============== ==================
Liabilities and Partners' Capital
Lease commission payable $ 103,547 $ -
Accounts payable 44,344 41,594
Accrued management fee - 12,799
--------------- ------------------
Total liabilities 147,891 54,393
=============== ==================
Partners' capital (deficit):
Limited partners ($582.04 per unit;
100,000 units authorized, 32,767
units issued and outstanding) 595,198 6,840,037
General partners (148,545) (151,318)
--------------- ------------------
Total partners' capital 446,653 6,688,719
=============== ==================
$ 594,544 $ 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 Six Months Ended Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999 June 30, 1998 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
INVESTMENT ACTIVITY
Property rentals $ 134 $ 126,573 $ 202,988 $ 405,588
Depreciation and amortization - - (98,995) (197,994)
Property operating expenses (16,913) (47,413) (27,972) (56,950)
------------- ------------- ------------- -------------
(16,779) 79,160 76,021 150,644
Gain (loss) on sale of investment (9,092) 590,563 - -
------------- ------------- ------------- -------------
Total real estate operations (25,871) 669,723 76,021 150,644
Interest on cash equivalents
and short term investments 33,352 64,217 19,329 39,642
------------- ------------- ------------- -------------
Total investment activity 7,481 733,940 95,350 190,286
------------- ------------- ------------- -------------
PORTFOLIO EXPENSES
General and administrative 13,912 38,482 23,713 49,722
Management fee - 25,991 12,799 25,598
------------- ------------- ------------- -------------
13,912 64,473 36,512 75,320
------------- ------------- ------------- -------------
Net Income (Loss) $ (6,431) $ 669,467 $ 58,838 $ 114,966
============= ============= ============= =============
</TABLE>
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
<TABLE>
<S> <C> <C> <C> <C>
Net income (loss) per
limited partnership unit $ (0.19) $ 20.23 $ 1.78 $ 3.47
============= ============= ============= =============
Cash distributions per
limited partnership unit $ 206.90 $ 210.81 $ 3.91 $ 12.71
============= ============= ============= =============
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
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Three Months Ended Six Months Ended
June 30, 1999 June 30, 1999 June 30, 1999 June 30, 1999
------------------------- -------------------------- ------------------------- ---------------------------
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 $ (145,853) $ 7,381,057 $ (151,318) $ 6,840,037 $ (141,615) $ 7,800,707 $ (139,263) $ 8,033,516
Cash
distributions (2,628) (6,779,492) (3,922) (6,907,611) (1,294) (128,119) (4,207) (416,495)
Net income (loss) (64) (6,367) 6,695 662,772 589 58,249 1,150 113,816
----------- ----------- ----------- ----------- ---------- ----------- ----------- ------------
Balance at
end of period $ (148,545) $ 595,198 $ (148,545) $ 595,198 $ (142,320) $ 7,730,837 $ (142,320) $ 7,730,837
=========== =========== =========== ============ =========== =========== =========== ============
</TABLE>
(See accompanying notes to unaudited financial statements)
6
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
SUMMARIZED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
Net cash provided by operating
activities $ 40,810 $ 287,206
----------- -----------
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 activity:
Distributions to partners (6,911,533) (420,702)
----------- -----------
Net increase in cash and cash
equivalents 67,745 453,326
Cash and cash equivalents:
Beginning of period 518,094 1,083,887
----------- ----------
End of period $ 585,839 $1,537,213
=========== ==========
</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 June 30, 1999 and December 31, 1998 and the results of its
operations, its cash flows and partners' capital (deficit) for the three and six
month periods ended June 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 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>
June 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 June 30, 1999, the Partnership had $585,839 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. There was no
distribution from operations in the second quarter of 1999 due to the sale of
the Partnership's remaining investment in February 1999. Cash distributions
from operations related to the first two 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 maintains a fund for the purpose of repurchasing limited
partnership units. Two percent of cash flow, as defined, is designated for this
fund which had a balance of $78,985 and $73,208 at June 30, 1999 and December
31, 1998, respectively. Through June 30, 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.
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.
Consequently, the Partnership does not have any material provider of data other
than AEW Capital Management.
The Partnership is developing a contingency plan in the event of a
particular provider or system not being Year 2000 compliant. The inability of
one of these providers to complete its Year 2000 resolution process could
materially impact the Partnership. In addition, the Partnership is also 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 and the property managers.
<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. Since January 1, 1995, the property has been 100% occupied under a long-
term lease. Real estate operating results for the three and six month periods
ended June 30, 1999 were $(16,779) and $79,160, respectively, compared to
$76,021 and $150,644 for the comparable periods of 1998. The decreases of
$92,800 and $71,484 between the three and six month periods, respectively, are
attributable to the sale of La Mirada on February 26, 1999. During the three
month period ended June 30, 1999, the La Mirada property recognized operating
expenses incurred prior to the February, 1999 sale, as well as interest income
on cash held at this property, which will be distributed to the Partnership once
all outstanding liabilities have been settled.
During the three month period ended June 30, 1999, the Partnership
incurred additional expenses of $9,092 related to the February 1999 sale of La
Mirada, which subsequently reduced the overall gain to $590,563 for the six
months ended June 30, 1999.
For the three and six month periods, interest on cash and cash
equivalents increased by $14,023 and $24,575 between the comparable three and
six month periods ended June 30, 1999 and 1998. The increase is primarily due to
an increase in average investment balances stemming from the sale proceeds of La
Mirada which were subsequently distributed in April 1999.
Cash flow from operations decreased by approximately $246,000 between the
respective six month periods. The decrease is primarily due to the sale of the
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 six month periods ended June 30, 1999, these expenses decreased $9,801 and
$11,240, 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 had
no significant change between the respective six month periods of 1999 and 1998.
No management fees were incurred during the three month period of 1999 due to
the suspension of operational cash distributions as a result of the La Mirada
sale in February 1999.
<PAGE>
COPLEY REALTY INCOME PARTNERS 2;
A LIMITED PARTNERSHIP
FORM 10-Q
FOR QUARTER ENDED JUNE 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 June 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)
August 6, 1999
/s/ Alison Husid Cutler
-------------------------------
Alison Husid Cutler
President, Chief Executive Officer and Director
of Managing General Partner,
Second Income Corp.
August 6, 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 585,839
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 585,839
<PP&E> 8,705
<DEPRECIATION> 0
<TOTAL-ASSETS> 594,544
<CURRENT-LIABILITIES> 147,891
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 446,653
<TOTAL-LIABILITY-AND-EQUITY> 594,544
<SALES> 126,573
<TOTAL-REVENUES> 781,353
<CGS> 47,413
<TOTAL-COSTS> 47,413
<OTHER-EXPENSES> 64,473
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 669,467
<INCOME-TAX> 0
<INCOME-CONTINUING> 669,467
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 669,467
<EPS-BASIC> 20.23
<EPS-DILUTED> 20.23
</TABLE>
