FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
For Quarter Ended: March 31, 1996 Commission file number: 33-28988
DBSI PACIFIC INCOME & GROWTH FUND - II, A Real Estate Limited Partnership
State of Organization: Idaho Employer ID #: 82-0428903
1070 N. Curtis Rd., Suite 270, Boise, Idaho 83706
Telephone number: (208) 322-5858
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 12 months (or for
such shorter period that the registrant was required to file such
reports)
Yes [X] No [ ]
(2) has been subject to such filing requirements for the past 90 days.
Yes [X] No [ ]
<PAGE>
FORM 10-Q
File Number: 33-28988
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Included herein on pages 4-9
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations
Included herein on page 3
<PAGE>
DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
General Partners' Discussion and Analysis
of Financial Condition and Results of Operations
March 31, 1996
Liquidity and Capital Resources
The Partnership has generated funds primarily from the operation of rental
properties and to a lesser extent from interest on savings and certificates of
deposit. Because of the favorable Portland market, the Partnership anticipates
generating funds from the sale of one or both Portland rental properties. As
the Seattle real estate market improves the Partnership anticipates selling the
remaining properties. Funds are used for rental property operating expenses,
distributions to partners, debt service, fixed asset replacements, capital
improvements, management and professional fees.
During 1995 the Partnership received an advance of $120,500 from an affiliate
of the General Partner to fund cash flow short term needs. The general
partners believe that the Partnership has the liquidity and capital resources
to meet all of its known obligations and commitments.
The cash and cash equivalents position of the Partnership at March 31, 1996
represented approximately $184,000 including approximately $144,000 available
for operations and approximately $40,000 for tax, insurance and replacements
reserves. The Partnership has no external sources of liquidity and no
outstanding capital commitments. Cash deposits earned interest of
approximately 4.0%.
Cash Flow and Operations
For the three months ended March 31, 1996 and 1995, the Partnership generated
$233,035 and $76,200 of cash flow from operating activities. The following
adjustments should be made to the 1996 annualized cash flow in order to compare
the first year pro forma funds from operations as found in the supplements to
the offering prospectus. First, mortgage interest payments of $19,972 for
Sorrento View Apartments and $16,136 for Dakota Station should be added to
cash flow since the pro forma statements anticipated no mortgage loan on these
properties. Second, changes in operating assets and liabilities of $148,498
should reduce cash flow to reflect the ongoing funds generated from operations.
Cash flow should also be reduced for principal payments of $11,727 and for
normal fixed asset purchases of $43,323. Finally cash flow should be increased
for $1,559 of partnership activity cash flow deficit. After the above
adjustments, the four properties combined annualized funds from operations
reached 39% of the pro forma amount.
Total revenue decreased 1% from $616,851 to $614,688 for first quarter 1995
compared to 1996. Real estate operating expense decreased 1% from $675,912 to
$673,535 for first quarter 1995 to first quarter 1996. Administrative costs
decreased 52% from the first three months of 1995. The largest increase (64%)
occurred in maintenance and repair expenses. The general partner has
contracted with HSC Real Estate, Incorporated for management of Weatherstone
and Talisman Apartments and J. B. McLoughlin & Company for management of
Sorrento and Dakota Apartments.
Because of the reduced cash flow, the Partnership borrowed $120,500 in 1995
from an affiliate of the General Partner to provide funds for short term
operating cash flow needs of the Seattle area projects. The Partnership has
reduced quarterly distributions until cash flow in the Seattle area returns to
prior levels. The Partnership distributed $69,478 to the partners during the
first three months of 1996 from current operations.
The Partnership net loss after depreciation for the three months ended
March 31, 1996 was $58,847. Therefore 1996 cash distributions to date have
been a return of capital on a GAAP basis. Current cash distributions have been
100% tax deferred.
Per $1,000 invested (on the basis of a $1,000 investment made at the inception
of the escrow and offering) distributions have been made in the following
amounts: escrow period - $58; November 1990 through November 1994 - $18 per
quarter; August 1995 through February 1996 - $7.50 per quarter.
<PAGE>
<TABLE>
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
BALANCE SHEETS
<CAPTION>
ASSETS March 31, 1996 December 31, 1995
______________ _________________
<S> <C> <C>
Rental property:
Land $1,527,400 $1,527,400
Buildings and improvements 12,472,009 12,461,311
Furniture and fixtures 1,040,417 1,007,792
_________ _________
15,039,826 14,996,503
Less accumulated depreciation (2,493,263) (2,372,813)
__________ __________
12,546,563 12,623,690
Cash and cash equivalents 144,532 41,572
Accounts receivable 1,328 7,229
Prepaid expenses 24,629 12,166
Reserves 39,755 41,010
Tenant security deposits 60,912 84,015
Intangible costs (net) (Note 4) 111,292 118,736
__________ __________
Total assets $12,929,011 $12,928,418
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND CAPITAL
<S> <C> <C>
Accounts payable $155,894 $43,624
Interest payable 79,071 75,466
Taxes payable 35,416 10,052
Security deposits payable 56,758 50,550
Note payable affiliate (Note 3) 120,500 120,500
Mortgages payable (Note 2) 8,417,352 8,435,881
_________ _________
Total liabilities 8,864,991 8,736,073
_________ _________
Partners' capital 4,064,020 4,192,345
__________ __________
Total liabilities and capital $12,929,011 $12,928,418
<FN>
The Accompanying Notes are an Integral Part of these Financial
Statements
</TABLE>
<PAGE>
<TABLE>
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
STATEMENTS OF OPERATIONS
<CAPTION>
Three Months Ended Three Months Ended
REVENUES March 31, 1996 March 31, 1995
__________________ __________________
<S> <C> <C>
Tenant rent $590,981 $598,286
Interest income 1,439 109
Other income 22,268 18,456
_______ _______
614,688 616,851
EXPENSES
Interest 204,964 203,368
Depreciation 120,450 119,670
Property tax and insurance 49,513 57,709
Maintenance and repairs 99,875 64,251
Utilities 79,793 71,734
Administrative 54,194 82,486
Management fees 25,261 25,404
On-site manager 32,041 44,093
Amortization 7,444 7,197
_______ _______
673,535 675,912
_______ _______
Net loss ($58,847) ($59,061)
</TABLE>
<TABLE>
STATEMENTS OF PARTNERS' CAPITAL
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1996 March 31, 1995
__________________ __________________
<S> <C> <C>
Beginning capital $4,192,345 $4,887,928
Distributions (69,478) (170,740)
Net loss (58,847) (59,061)
__________ __________
Ending capital $4,064,020 $4,658,127
<FN>
The Accompanying Notes are an Integral Part of these Financial
Statements
</TABLE>
<PAGE>
<TABLE>
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
STATEMENTS OF CASH FLOWS
<CAPTION>
CASH FLOWS FROM Three Months Ended Three Months Ended
OPERATING ACTIVITIES March 31, 1996 March 31, 1995
__________________ __________________
<S> <C> <C>
Net loss ($58,847) ($59,061)
Adjustments to reconcile net
income to cash flows from
operating activities
Depreciation and amortization 127,894 119,670
Changes in operating assets
and liabilities
Accounts receivable 5,901 7,543
Prepaid expenses (12,463) (3,694)
Tenant security deposits 23,103
Accounts payable 112,270 (10,392)
Interest payable 3,605
Taxes payable 25,364 25,830
Tenant security deposits payable 6,208 (3,696)
______ _______
Net cash provided by operating
activities 233,035 76,200
CASH FLOWS FROM
INVESTING ACTIVITIES
Rental property purchases (43,323) (78,875)
Decrease (increase) in reserves 1,255 (35,716)
________ _______
Net used in investing activities (42,068) (114,591)
CASH FLOWS FROM
FINANCING ACTIVITIES
Decrease in intangible costs 17,027
Principal payments on loans (18,529) (16,768)
Distributions to partners (69,478) (170,740)
_________ _________
Net cash used in financing activities (88,007) (170,481)
Net increase (decrease) in cash
and cash equivalents 102,960 (208,872)
Cash and cash equivalents at
beginning of period 41,572 294,265
_______ _______
Cash and cash equivalents at
end of period $144,532 $85,393
<FN>
The Accompanying Notes are an Integral Part of these Financial
Statements
</TABLE>
<PAGE>
DBSI PACIFIC INCOME & GROWTH FUND - II
A REAL ESTATE LIMITED PARTNERSHIP
(an Idaho limited partnership)
NOTES TO UNAUDITED FINANCIAL STATEMENTS
For the Three Months Ended March 31, 1996 and 1995
1. SUMMARY OF PARTNERSHIP ORGANIZATION AND SIGNIFICANT ACCOUNTING
POLICIES
Partnership Organization. DBSI Pacific Income & Growth Fund - II A Real Estate
Limited Partnership, was formed on May 17, 1989 with general partners DBSI
Housing Inc., an Idaho corporation, and DBSI Realty Partners, an Idaho general
partnership. The Partnership was in the development stage through January 9,
1990 and in the offering stage through December 31, 1991. The business purpose
of the Partnership is to acquire and operate leveraged multi-family housing
projects in the Western United States. The partnership agreement provides that
the Partnership will be dissolved no later than December 31, 2039, unless
sooner terminated as provided in the agreement.
The Partnership acquired three properties during 1990: Weatherstone
Apartments, an existing 138-unit project located in Silverdale, (Kitsap County)
Washington; Sorrento View Apartments, an existing 80-unit project, and Dakota
Station Apartments, an existing 40-unit project, both located in the
Beaverton/Tigard (Portland), Oregon metropolitan area. In October 1991 the
Partnership purchased a fourth property, Talisman Apartments, an existing
96-unit project located in Olympia, Washington.
Operating profits and losses exclusive of losses from the sale or disposition
of Partnership properties, and cash distributions, are allocated 98% to limited
partners and 2% to general partners. After the limited partners have received
distributions equal to a 7% annual return on their capital contributions the
general partners receive additional distributions equal to 5% of total
distributions. Proceeds from sale or refinancing are to be distributed,
generally, 100% to the limited partners until they have received cumulative
distributions equal to their capital contributions, then 85% to the limited
partners and 15% to the general partners. However, the limited partners must
receive cumulative distributions from operations and sale or refinancing
proceeds equal to their capital contributions plus a 10% per annum return
thereon before the general partners receive any sale or refinancing proceeds.
Significant Accounting Policies. The balance sheets include only those assets,
liabilities, and partners' capital which relate to the business of the
Partnership and do not include any assets, liabilities, revenues or expenses
attributable to the partners' activities. No partners receive salaries from
the Partnership for services. No provision has been made for federal and state
income taxes since these taxes are the personal responsibility of the partners.
Rental property is recorded at cost. Depreciation is computed for all assets
over their estimated useful lives as follows: buildings and structural
improvements, 15 to 32 years; furniture and fixtures, 5 to 12 years.
Expenditures for maintenance and repairs are charged to operating expenses as
incurred. Mortgage loan fees are amortized over the estimated life of the
mortgage notes.
Cash and cash equivalents include cash in banks (except for security deposits
and reserve bank accounts). Reserves consist of bank deposits for repairs and
replacements, property taxes, insurance, and Partnership reserves.
<PAGE>
The estimated fair value of cash and cash equivalents, accounts payable and
long-term debt approximates their carrying amounts.
The preparation of the Partnership's financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The Financial Accounting Standards Board's Statement of Financial Accounting
Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of, requires management to review long-lived
assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable. This statement is
effective for the Partnership's fiscal year end December 31, 1996. The
Partnership's existing accounting policies are such that this pronouncement is
not expected to have a material effect on the Company's financial position or
results of operations.
2. MORTGAGES PAYABLE
A mortgage payable of $3,875,000 to Pacific First Federal Savings Bank was used
in the purchase of Weatherstone Apartments in March, 1990. The balance of
$3,773,888 as of March 31, 1996 and $3,795,370 as of March 31, 1995 bears
interest at 9.875% and requires monthly payments of $32,942 through April 1,
2000 when the remaining balance of approximately $3,660,621 is due.
In October, 1991, the Partnership purchased Talisman Apartments by executing a
mortgage loan in the amount of $3,000,000. The mortgage note in the current
amount of $2,911,991 and a balance of $2,935,748 as of March 31, 1995 is held
by the State of Washington, State Investment Board, and requires payments of
$26,050 monthly with interest charged at 9.875%. The entire balance of the
loan is due in ten years (November, 2001) when the approximate balance will be
$2,722,795. The loan may not be prepaid during the first five years of the
loan period. During the second five years of the loan period it may be prepaid
subject to the greater of a yield maintenance prepayment penalty or a minimum
2% prepayment penalty.
A first deed of trust loan of approximately $998,000 to Canada Life Assurance
Company was renegotiated for Sorrento Apartments after a reduction of $886,000
to the principal was made from operating capital on May 11, 1993. The loan
requires monthly payments of $7,996 with interest charged at 8.375%, current
amount due as of March 31, 1996 is $951,185 with a balance of $966,854 as of
March 31, 1995. The loan is due on June 1, 1998 and it is anticipated that the
remaining balance will be refinanced. A prepayment penalty is required if the
note is paid more than 30 days before its due date.
An 8.25% $800,000 loan from Canada Life Assurance Co. secured by the Dakota
Station Apartments was obtained on April 28, 1994 to finance six to eighteen
additional units at Weatherstone Apartments. The loan is for five years with a
25 year amortization. The loan requires monthly payments of $6,308 and has a
current amount due of $780,288 as of March 31, 1996 and a balance of $791,669
as of March 31, 1995.
3. LOAN PAYABLE
The Partnership borrowed $120,500 in 1995 from an affiliate of the General
Partner. This loan bears interest at the General Partner's bank borrowing rate
of prime plus 1.5% (9.75% as of March 31, 1996). The loan proceeds provided
funds for short term operating cash flow needs of the Seattle area projects and
to enable the Partnership to maintain the first quarter 1995 distribution rate
following the lower operating cash flow from these properties. The General
Partner anticipates the loan will be repaid over approximately a twelve month
period.
4. INTANGIBLE COSTS
Intangible assets and cumulative amortization at March 31, 1996 amount to
$248,301 of loan costs and $137,009 of accumulated amortization related to
these fees. The net value of intangible costs is $111,292.
<PAGE>
<TABLE>
5. NET INCOME (LOSS) FROM RENTAL PROPERTIES
The following schedule details separate rental property activity for the
three months ended March 31, 1996:
<CAPTION>
______________________________________________________________________
Weatherstone Talisman Sorrento Dakota
Apts Apts View Apts Station Apts Partnership Total
______________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
REVENUES
Tenant rent $207,015 $166,532 $146,789 $70,645 $590,981
Interest income 240 166 517 148 $368 1,439
Other income 12,287 3,595 4,212 2,174 22,268
______________________________________________________________________
219,542 170,293 151,518 72,967 $368 614,688
EXPENSES
Interest 93,260 71,991 19,972 16,136 3,605 204,964
Depreciation 45,000 32,580 28,770 14,100 120,450
Tax and insurance 14,400 15,294 13,185 6,634 49,513
Maintenance 49,656 26,390 16,431 7,398 99,875
Utilities 35,072 24,691 11,989 8,041 79,793
Administration 18,211 11,452 8,267 2,452 13,812 54,194
Management fees 8,391 5,922 7,318 3,630 25,261
On-site manager 11,632 10,809 7,632 1,968 32,041
Amortization 7,444 7,444
_______________________________________________________________________
275,622 199,129 113,564 60,359 24,861 673,535
_______________________________________________________________________
Net income(loss) ($56,080) ($28,836) $37,954 $12,608 ($24,493) ($58,847)
_______________________________________________________________________
_______________________________________________________________________
</TABLE>
<PAGE>
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.
DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
by _________________________ Date ____________________
Douglas L. Swenson, President of
DBSI Housing Inc., general partner of
DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
by _________________________ Date ____________________
Charles E. Hassard, Secretary-Treasurer
and principal financial officer of
DBSI Housing Inc., the Idaho corporation
that is a general partner and principal
financial officer of
DBSI PACIFIC INCOME & GROWTH FUND - II
A Real Estate Limited Partnership
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 184287
<SECURITIES> 0
<RECEIVABLES> 1328
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 382448
<PP&E> 15039826
<DEPRECIATION> 2493263
<TOTAL-ASSETS> 12929011
<CURRENT-LIABILITIES> 447639
<BONDS> 8417352
0
0
<COMMON> 0
<OTHER-SE> 4064020
<TOTAL-LIABILITY-AND-EQUITY> 12929011
<SALES> 0
<TOTAL-REVENUES> 614688
<CGS> 0
<TOTAL-COSTS> 468571
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204964
<INCOME-PRETAX> (58847)
<INCOME-TAX> 0
<INCOME-CONTINUING> (58847)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (58847)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
