-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, TNt3DYtM3JnoDg4CNVXV9ce0K78a5M6cwhmF7/oJbxelTNDZkq6fcIjZB6uvuIDl dB8v+IOu4zo2Dm55PZrPZQ== 0001047469-99-012464.txt : 19990331 0001047469-99-012464.hdr.sgml : 19990331 ACCESSION NUMBER: 0001047469-99-012464 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CONAM REALTY INVESTORS 2 L P CENTRAL INDEX KEY: 0000357099 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 133100545 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-11085 FILM NUMBER: 99578889 BUSINESS ADDRESS: STREET 1: 1764 SAN DIEGO AVENUE CITY: SAN DIEGO STATE: CA ZIP: 92110 BUSINESS PHONE: 2125263237 MAIL ADDRESS: STREET 1: 3 WORLD FINANCIAL CENTER STREET 2: 29TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10285 FORMER COMPANY: FORMER CONFORMED NAME: HUTTON CONAM REALTY INVESTORS 2 DATE OF NAME CHANGE: 19920703 10-K405 1 FORM 10-K405 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE YEAR ENDED: DECEMBER 31, 1998 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _____ to _____ COMMISSION FILE NUMBER: 0-11085 CONAM REALTY INVESTORS 2 L.P. ----------------------------- EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER CALIFORNIA 13-3100545 ---------- ---------- STATE OR OTHER I.R.S. EMPLOYER JURISDICTION OF INCORPORATION IDENTIFICATION NO. 1764 San Diego Avenue San Diego, CA 92110 Attn.: Robert J. Svatos 92110-1906 - -------------------------------------------- ---------- ADDRESS OF PRINCIPAL EXECUTIVE OFFICES ZIP CODE Registrant's telephone number, including area code (619) 297-6771 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: UNITS OF LIMITED PARTNERSHIP INTEREST ------------------------------------- TITLE OF CLASS 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 12 months (or for 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 --- --- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. (X) Documents Incorporated by Reference: Portions of Parts I, II, III and IV are incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1998. PART I ITEM 1. BUSINESS (a) GENERAL DESCRIPTION OF BUSINESS AND OBJECTIVES ConAm Realty Investors 2 L.P., formerly known as Hutton/ConAm Realty Investors 2 (the "Partnership"), is a California limited partnership formed in December 17, 1981. ConAm Property Services II, Ltd. ("CPS II"), a California limited partnership, and RI-2 Real Estate Services Inc. ("RI-2"), a Delaware corporation, were the original co-general partners of the Partnership. On January 27, 1998, CPS II acquired RI-2's co-general partner interest in the Partnership, effective July 1, 1997, pursuant to a Purchase Agreement between CPS II and RI-2 dated August 29, 1997. As a result, CPS II now serves as the sole general partner (the "General Partner") of the Partnership. In conjunction with this transaction, the name of the Partnership was changed from Hutton/ConAm Realty Investors 2 to ConAm Realty Investors 2 L.P. The Partnership was organized to engage in the business of acquiring, operating and holding for investment multifamily residential properties. The Partnership originally invested in four joint ventures and one limited partnership, each of which was formed to own a specified property. As described below, prior to December 31, 1998, one of the properties was sold and cash distributions representing substantially all of the net proceeds from sale were distributed to the Unitholders. As of January 29, 1999, all of the Partnership's remaining investments in the properties were sold and in February 1999, cash distributions representing substantially all of the net proceeds from sale and cash from operations were distributed to the Unitholders. The General Partner anticipates that the final liquidation of the Partnership will be completed in mid-1999. The Partnership's principal investment objectives with respect to its interests in real property were: (1) capital appreciation; (2) distribution of net cash from operations attributable to rental income; and (3) preservation and protection of capital. Distribution of net cash from operations was the Partnership's objective during its operational phase, while preservation and appreciation of capital were the Partnership's long-term objectives. The attainment of the Partnership's investment objectives was dependent on many factors, including economic conditions in the United States as a whole and, in particular, in the localities in which the Partnership's properties were located, especially with regard to achievement of capital appreciation. The Partnership utilized the net proceeds of its public offering to acquire five residential apartment complexes through investments in four joint ventures and one limited partnership, as follows: (1) Creekside Oaks, a 120-unit apartment complex located in Jacksonville, Florida; (2) Ponte Vedra Beach Village I, a 122-unit apartment complex located in Ponte Vedra Beach, Florida; (3) Rancho Antigua, a 220-unit apartment complex located in the McCormick Ranch area of Scottsdale, Arizona; (4) Village at the Foothills I, a 60-unit apartment complex located in Tucson, Arizona, and; (5) Country Place Village I, an 88-unit apartment complex located in Clearwater, Florida. On July 20, 1995, Country Place Village I, was sold to an unaffiliated institutional buyer for $3,665,000. During its year ended December 31, 1998, following consideration of various alternatives available to the Partnership, the General Partner concluded that a sale of the Partnership's four remaining properties, Creekside Oaks, Ponte Vedra Beach Village I, Rancho Antigua and Village at the Foothills I (collectively the "Properties"), would be in the best interests of the Partnership and the Unitholders. Throughout much of 1998, the General Partner, on behalf of the Partnership, negotiated the terms of a sale of the Properties with Lend Lease Real Estate Investments, Inc. ("Lend Lease"), on behalf of two pension funds which are unaffiliated with the General Partner. Once the terms were negotiated, as required by the Partnership's Amended and Restated Certificate and Agreement of Limited Partnership ("Agreement of Limited Partnership"), the General Partner solicited the consent of a majority in interest of the Unitholders to the sale pursuant to a Consent Solicitation Statement dated December 16, 1998. The requisite consent was obtained on January 15, 1999, and on January 29, 1999, the Partnership consummated the sale of the Properties to DOC Investors, L.L.C., a Delaware limited liability company (the "Purchaser"), for a sales price of $29,300,000 (before selling costs and prorations). The members of the Purchaser are two pension funds advised by Lend Lease, which own an aggregate 91% interest in the Purchaser, and ConAm DOC Affiliates LLC, an affiliate of the General Partner ("ConAm DOC"), which owns a 9% interest in the Purchaser. ConAm DOC has the potential to receive up to an additional 18% of the profits of the Purchaser after certain priority returns to the members of the Purchaser. The Partnership received approximately $17,217,000 of cash proceeds from the sale, net of closing costs of approximately $93,000 and repayment of indebtedness and prepayment penalties of approximately $11,990,000. All net cash proceeds from the sale and previously undistributed cash from operations, less an amount the General Partner determined to set aside for contingencies, were distributed to the Limited Partners on February 26, 1999. The Partnership considers itself to have been engaged in only one industry segment, real estate investment. COMPETITION The Partnership's real property investments were subject to competition from similar types of properties in the vicinities in which they were located. Such former competition increased during the Partnership's period of ownership of the Properties due principally to the addition of newly constructed apartment complexes offering increased residential and recreational amenities. The Properties were also subject to competition from condominiums and single-family properties, especially as potential renters chose to buy homes during periods of low mortgage interest rates. The Partnership competed with other real estate owners and developers in the rental and leasing of its Properties by offering competitive rental rates and, if necessary, leasing incentives. Due to selective use of rent concessions, property maintenance and appearance, occupancy levels have increased or remained relatively stable at three of the Properties and rental income for all Properties has increased over prior year. In some cases, the Properties competed with properties owned by partnerships affiliated with the General Partner. For a discussion of market conditions in the areas where the Properties were located, reference is made to the Partnership's Annual Report to Unitholders for the year ended December 31, 1998, which is filed as an exhibit under Item 14. EMPLOYEES The Partnership has no employees. Services are provided by CPS II and ConAm Management Corporation ("ConAm Management"), an affiliate of CPS II. Pursuant to property management agreements with the Partnership, ConAm Management provided property management services with respect to the Properties. In addition, the Partnership retains Brock, Tibbitts & Snell, an accountancy corporation, an unaffiliated company located in San Diego, California, to provide accounting and investor communication functions. During 1998, Service Data Corporation, an unaffiliated company, provided transfer agent services for the Partnership. In February 1999, pursuant to the terms of a sale of its contracts, Service Data Corporation assigned the transfer agent functions of the company to MAVRICC Management Systems, Inc., an unaffiliated company located in Troy, Michigan. See Item 13, "Certain Relationships and Related Transactions" for a further description of the service and management agreements between the Partnership and affiliated entities. ITEM 2. PROPERTIES For a description of the Properties owned and operated by the Partnership during 1998 and discussion of market conditions in the areas where the Properties were located, reference is made to the Partnership's Annual Report to Unitholders for the year ended December 31, 1998, which is filed as an exhibit under Item 14. For information on the Partnership's purchase of the Properties, reference is made to Note 4 of the Consolidated Financial Statements, included herein by reference to the Partnership's Annual Report to Unitholders. For information on the sale of the Properties by the Partnership in January 1999, reference is made to Item 1 and Note 10 of the Consolidated Financial Statements, included herein by reference to the Partnership's Annual Report to Unitholders. Average occupancy rates at each property are incorporated by reference to Item 7. ITEM 3. LEGAL PROCEEDINGS The Partnership is not subject to any material pending legal proceedings. Page 3 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On December 16, 1998, pursuant to a Consent Solicitation Statement, the Unitholders were asked to approve a sale of the Partnership's remaining Properties and a related amendment to the Agreement of Limited Partnership. A majority in interest of the Unitholders approved the sale and the amendment and the sale was completed on January 29,1999. During the fourth quarter of the year ended December 31, 1998, no other matters were submitted to a vote of Unitholders through the solicitation of proxies or otherwise. PART II ITEM 5. MARKET FOR THE PARTNERSHIP'S LIMITED PARTNERSHIP INTERESTS AND RELATED SECURITY HOLDER MATTERS As of December 31, 1998, the number of Unitholders of record was 3,870. No established public trading market exists for the Units, and it is not anticipated that such a market will develop in the future. Distributions of net cash from operations, when made, are determined by the General Partner on a quarterly basis, with distributions generally occurring approximately 45 days after the end of each quarter. Such distributions to the Unitholders have been made from net operating income with respect to the Partnership's investment in the Properties and from interest on short-term investments. Information on cash distributions paid by the Partnership for the past two years is incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1998, which is filed as an exhibit under Item 14. No distribution was made for the fourth quarter of the year ended December 31, 1998 because the General Partner decided to suspend distributions pending the outcome of the solicitation of the consent of the Unitholders to the sale of the Properties. Because of the sale of the Partnership's remaining Properties, no further quarterly distributions of Net Cash From Operations will be made. The Partnership distributed $17,840,000 to the Unitholders ($223.00 per Unit) and $88,653 to the General Partner on February 26, 1999, which amounts are equal to substantially all of the net proceeds from the sale of the Properties, together with other available cash of the Partnership, less an amount for costs associated with the sale of the Properties and liquidation of the Partnership and other contingencies of approximately $861,950 of the Partnership. The final liquidation of the Partnership is expected to occur in mid-1999, and the remaining funds, if any, will be distributed to the Unitholders at that time. ITEM 6. SELECTED FINANCIAL DATA Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1998, which is filed as an exhibit under Item 14. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS LIQUIDITY AND CAPITAL RESOURCES At December 31, 1998, the Partnership had cash and cash equivalents of $1,220,656 which were invested in unaffiliated money market funds, compared with $1,109,506 at December 31, 1997. The increase in cash and cash equivalents reflects the cash provided from operations exceeding mortgage principal payments and cash distributions to partners during the year ended December 31, 1998. The Partnership also maintains a restricted cash balance that totaled $345,558 at December 31, 1998, largely unchanged from $342,282 at December 31, 1997. The increase in other assets in 1998 is primarily attributed to an increase in costs related to the sale of the Properties. Commencing in the first quarter of 1997, quarterly distributions were suspended in order to fund roof replacements at Ponte Vedra Beach Village I. The roof repairs were completed in September 1997 and distributions remained suspended throughout the year to replenish cash reserves. Distributions began in the first quarter of 1998. Page 4 Accounts payable and accrued expenses totaled $287,482 at December 31, 1998, compared to $197,443 at December 31, 1997. The increase is primarily due to the accrued and unpaid costs associated with the sale of the Properties. Security deposits decreased to $92,096 at December 31, 1998, compared to $103,908 at December 31, 1997. This decrease occurred while average occupancy increased during that same period. This decrease in security deposits occurred primarily because strong competition has reduced the ability of property owners to collect refundable security deposits from their tenants. As a result of the Partnership's sale of the Properties on January 29, 1999, all of the Partnership's assets have been converted to cash and cash equivalents. Pending distribution to the Unitholders as described in Item 5 above, the Partnership's funds have been invested in the Pacific Horizon Money Market Funds, Prime Fund. The General Partner retained from the initial distribution an amount it believes is sufficient to provide for contingencies, and to cover the expenses of operating the Partnership until final liquidation of the Partnership, including legal and accounting fees. RESULTS OF OPERATIONS 1998 VERSUS 1997 Partnership operations for the year ended December 31, 1998 resulted in net income of $98,599 compared with a net loss of $202,655 in 1997. The improved net income in 1998 is due primarily to higher rental income and decreased property operating expenses and the write-off of the remaining basis of the roofs replaced in 1997. Rental income for the year ended December 31, 1998 was $4,434,497, up from $4,327,499, in 1997, primarily as a result of increases in occupancy at Village at the Foothills I and Rancho Antigua and increased rental rates at all of the properties. Interest and other income decreased to $48,321 for the year ended December 31, 1998, from $56,229 in 1997. The decrease is primarily due to higher average cash balances held in the restricted cash account in 1997. Property operating expenses decreased to $2,297,544 for the year ended December 31, 1998, from $2,329,300 for 1997. The decrease is primarily attributable to lower repairs and maintenance costs at Ponte Vedra Beach Village I and Rancho Antigua, partially offset by higher repairs and maintenance expenses at Creekside Oaks and Village at the Foothills I. General and administrative expenses decreased to $185,683 for the year ended December 31, 1998 from $213,441 in 1997. The decrease is primarily due to a decrease in expenses for Partnership accounting, tax and other administrative services. 1997 VERSUS 1996 Partnership operations for the year ended December 31, 1997 resulted in a net loss of $202,655 compared with a net loss of $2,600 in 1996. The higher net loss in 1997 is due primarily to an increase in property operating expenses and the write-off of the remaining basis of the roofs replaced in 1997. Net cash provided by operating activities decreased to $979,104 for the year ended December 31, 1997, from $1,333,646 in 1996. The decrease is primarily due to the higher net loss in 1997, as discussed above, and a reduction in the amount of restricted cash released. Rental income for the year ended December 31, 1997 was $4,327,499, up slightly from $4,264,370 in 1996, primarily as a result of increases in rental rates at Rancho Antigua and Creekside Oaks. Interest and other income totaled $56,229 for the year ended December 31, 1997, largely unchanged from $63,467 in 1996. Property operating expenses increased to $2,329,300 for the year ended December 31, 1997, from $2,222,474 for 1996. The increase is primarily attributable to higher repairs and maintenance expenses at Ponte Vedra Beach Village I and Rancho Antigua, and higher landscaping costs at Rancho Antigua. The increase is also due to higher rental administration costs at both properties. General and administrative expenses increased from $181,896 for the year ended December 31, 1996 to $213,441 in 1997. The increase is primarily due to an increase in expenses for Partnership accounting, tax and other administrative services. During the 1997 period, certain expenses incurred by RI-2, its affiliates, and an unaffiliated third party service provider in Page 5 servicing the Partnership, which were voluntarily absorbed by affiliates of RI-2 in prior periods, were reimbursable to RI-2 and its affiliates. The average occupancy levels at each of the Properties owned during the years ended December 31, 1998, 1997 and 1996 were as follows:
TWELVE MONTHS ENDED DECEMBER 31, PROPERTY 1998 1997 1996 - ------------------------------------------------------------------------------------- Creekside Oaks 95% 95% 94% Ponte Vedra Beach Village I 92% 93% 95% Rancho Antigua 95% 94% 94% Village at the Foothills I 96% 92% 94% - -------------------------------------------------------------------------------------
YEAR 2000 Due to the consummation of the sale of the Properties in January 1999, the Partnership is no longer engaged in the operation of real properties or any other business. As a result of the foregoing, and in view of the General Partner's plan to complete the full liquidation of the Partnership prior to January 1, 2000, the Partnership has no exposure to Year 2000 issues. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Since the Partnership sold its remaining Properties on January 29, 1999 and its mortgage indebtedness was repaid, the Partnership has no exposure to interest rate risk. In addition, the Partnership is expected to be liquidated during 1999. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Incorporated by reference to the Partnership's Annual Report to Unitholders for the year ended December 31, 1998, which is filed as an exhibit under Item 14. Supplementary Data is incorporated by reference to F-1 of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Effective December 1, 1997, the Partnership advised Coopers & Lybrand L.L.P. (now a part of PricewaterhouseCoopers LLP) that it was changing accounting firms and engaged KPMG LLP. Coopers & Lybrand L.L.P.'s report on the consolidated financial statements for the year ended December 31, 1996 contained no adverse opinion or disclaimer of opinion and was not qualified as to uncertainty, audit scope or accounting principles. There had been no disagreements with Coopers & Lybrand L.L.P. on any matters of accounting principles or practices, financial statement disclosure, or auditing scope procedure. The decision to change accountants was approved by CPS II and RI-2, the General Partners of the Partnership at that time. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE PARTNERSHIP The Partnership has no officers or directors. CPS II, as the General Partner of the Partnership, manages and controls the affairs of the Partnership and has general responsibility and authority in all matters affecting its business. CPS II is a California limited partnership organized on August 30, 1982. The general partner of CPS II is Continental American Development, Inc. ("ConAm Development"). The names and positions held by the directors and executive officers of ConAm Development are set forth below. There are no family relationships between any officers or directors. Page 6
NAME OFFICE Daniel J. Epstein President, Director and Principal Executive Officer E. Scott Dupree Vice President and Director Robert J. Svatos Vice President and Director Ralph W. Tilley Vice President J. Bradley Forrester Vice President
DANIEL J. EPSTEIN, 59, has been the President and a Director of ConAm Development and a general partner of Continental American Properties, Ltd. ("ConAm"), an affiliate of CPS II, since their inception. He is also Chairman and Chief Executive Officer of ConAm Management. Prior to organizing ConAm, Mr. Epstein was Vice President and a Director of American Housing Guild, which he joined in 1969. At American Housing Guild, he was responsible for the formation of the Multi-Family Division and directed its development and property management activities. Mr. Epstein holds a Bachelor of Science degree in Engineering from the University of Southern California. E. SCOTT DUPREE, 48, is a Senior Vice President and general counsel of ConAm Management responsible for negotiation, documentation, review and closing of acquisition, sale and financing proposals. Mr. Dupree also acts as principal legal advisor on general legal matters ranging from issues and contracts involving the management company to supervision of litigation and employment issues. Prior to joining ConAm Management in 1985, he was corporate counsel to Trusthouse Forte, Inc., a major international hotel and restaurant corporation. Mr. Dupree holds a B.A. from United States International University and a Juris Doctorate degree from the University of San Diego. ROBERT J. SVATOS, 40, is a Senior Vice President and is the Chief Financial Officer of ConAm Management. His responsibilities include the accounting, treasury and data processing functions of the organization. Prior to joining ConAm Management in 1988, he was the Chief Financial Officer for AmeriStar Financial Corporation, a nationwide mortgage banking firm. Mr. Svatos holds an M.B.A. in Finance from the University of San Diego and a Bachelor of Science degree in Accounting from the University of Illinois. He is a Certified Public Accountant. RALPH W. TILLEY, 44, is a Senior Vice President and Treasurer of ConAm Management. He is responsible for the financial aspects of syndications and acquisitions, the company's asset management portfolio and risk management activities. Prior to joining ConAm Management in 1980, he was a senior accountant with KPMG LLP, specializing in real estate. He holds a Bachelor of Science degree in Accounting from San Diego State University and is a Certified Public Accountant. J. BRADLEY FORRESTER, 41, is the President of ConAm Management. He is currently responsible for overseeing all aspects of the operations of the firm. His primary focus is on new business related activities including property acquisitions, property development and rehabilitation, and the acquisition of other property management companies. Prior to joining ConAm, Mr. Forrester served as Senior Vice President - Commercial Real Estate for First Nationwide Bank in San Francisco, where he was responsible for a $2 billion problem asset portfolio including bank-owned real estate and non-performing commercial real estate loans. His past experience includes significant involvement in real estate development and finance, property acquisitions and dispositions and owner's representation matters. Prior to entering the real estate profession, he worked for KPMG LLP in Dallas, Texas. Mr. Forrester holds a Bachelor of Science degree in Accounting from Louisiana State University. He received his CPA certification in the State of Texas. ITEM 11. EXECUTIVE COMPENSATION Neither the General Partner nor any of its directors or executive officers received any compensation from the Partnership. See Item 13 of this report for a description of certain costs of the General Partner and its affiliates reimbursed by the Partnership. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT As of March 1, 1999, no person was known by the Partnership to be the beneficial owner of more than five percent of the Units of the Partnership. Neither the General Partner nor any of its executive officers or directors own any Units. Page 7 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS CPS II received $60,000 as the General Partner's allocable share of Net Cash From Operations with respect to year ended December 31, 1998. Pursuant to the Agreement of Limited Partnership of the Partnership, for the year ended December 31, 1998, $9,860 of the Partnership's net income was allocated to CPS II. For a description of the share of Net Cash From Operations and the allocation of income and loss to which the General Partner is entitled, reference is made to Note 3 to the Consolidated Financial Statements, included in the Partnership's Annual Report to Unitholders for the year ended December 31, 1998, which is filed as an exhibit under Item 14. Effective July 1, 1997, all General Partner allocations were made solely to CPS II. The Partnership entered into property management agreements with ConAm Management pursuant to which ConAm Management assumed direct responsibility for day-to-day management of the Properties. It was the responsibility of ConAm Management to select resident managers, where appropriate, and monitor their performance. ConAm Management's services also included the supervision of leasing, rent collection, maintenance, budgeting, employment of personnel, payment of operating expenses, strategic asset management and related services. For such services, ConAm Management was entitled to receive a management fee equal to 5% of gross revenues. A summary of property management fees earned by ConAm Management during the past three years is incorporated by reference to Note 7 to the consolidated financial statements, included in the Partnership's Annual Report to Unitholders for the year ended December 31, 1998, which is filed as an exhibit under Item 14. Pursuant to Section 12(g) of the Partnership's Agreement of Limited Partnership, the General Partner may be reimbursed by the Partnership for certain of its costs. A summary of amounts paid to the General Partners or their affiliates during the past three years is incorporated by reference to Note 7 to the consolidated financial statements, included in the Partnership's Annual Report to Unitholders for the year ended December 31, 1998, which is filed as an exhibit under Item 14. Page 8 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULE AND REPORTS ON FORM 8-K (a)(1) FINANCIAL STATEMENTS:
PAGE ---- Consolidated Balance Sheets - December 31, 1998 and 1997 ................ (1) Consolidated Statements of Operations - For the years ended December 31, 1998, 1997 and 1996.......................................... (1) Consolidated Statements of Partners' Capital - For the years ended December 31, 1998, 1997 and 1996.......................................... (1) Consolidated Statements of Cash Flows - For the years ended December 31, 1998, 1997 and 1996 ......................................... (1) Notes to the Consolidated Financial Statements............................ (1) Independent Auditors' Report.............................................. (1) Report of Former Independent Accountants.................................. (1) (a)(2) FINANCIAL STATEMENT SCHEDULE: Schedule III - Real Estate and Accumulated Depreciation ................. (F-1) Independent Auditors' Report............................................. (F-2) Report of Former Independent Accountants................................. (F-3)
(1) INCORPORATED BY REFERENCE TO THE PARTNERSHIP'S ANNUAL REPORT TO UNITHOLDERS FOR THE YEAR ENDED DECEMBER 31, 1998, FILED AS AN EXHIBIT UNDER ITEM 14. (a)(3) EXHIBITS: (3) Amended and Restated Certificate and Agreement of Limited Partnership (included as, and incorporated herein by reference to, Exhibit A to the Prospectus of Registrant dated July 9, 1982 (the "Prospectus"), (contained in Amendment No. 1 to Registration Statement, No. 2-75519, of Registrant filed July 9, 1982). (4) Subscription Agreement and Signature Page (included as, and incorporated herein by reference to, Exhibit B to the Prospectus). (4.1) Amendment, dated January 18, 1999 to the Partnership's Amended and Restated Certificate of Limited Partnership Agreement (included as, and incorporated herein by reference to, Exhibit 4.1 to the Partnerships Report on Form 8-K filed on February 16, 1999). (10)(A) Financing Documents relating to Las Colinas I and II (Promissory Note, Deed of Trust, Assignment of Rents and Leases) (included as, and incorporated herein by reference to, Exhibit 10-I to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1992 (Commission file No. 0-11085)). (B) Amended and Restated Agreement of General Partnership of Country Place Village I Joint Venture dated as of July 1, 1992 (included as, and incorporated herein by reference to Exhibit 10.2 to the Registrant's Quarterly Report on Form 10-Q (Commission File No. 0-11085)). Page 9 (C) Amended and Restated Agreement of General Partnership of Creekside Oaks Joint Venture dated as of July 1, 1992 (included as, and incorporated herein by reference to Exhibit 10.3 to the Registrant's Quarterly Report on Form 10-Q (Commission File No. 0-11085)). (D) Amended and Restated Agreement of General Partnership of Ponte Vedra Beach Village I dated July 1, 1992 (included as, and incorporated herein by reference to Exhibit 10.4 of the Registrant's Quarterly Report on Form 10-Q (Commission File No. 0-11085)). (E) Joint Venture Agreement of Rancho Antigua (included as, and incorporated herein by reference to Exhibit 10(M) to the Registrant's 1991 Annual Report on Form 10-K for the year ended December 31, 1991 (Commission File No. 0-11085)). (F) Amended and Restated Agreement of General Partnership of Village at the Foothills I Joint Venture Limited Partnership dated July 1, 1992 (included as, and incorporated herein by reference to Exhibit 10.5 to the Registrant's Quarterly Report on Form 10-Q (Commission File No. 0-11085)). (G) Property Management Agreement between Creekside Oaks Joint Venture and ConAm Management Corporation for the Creekside Oaks property (included as, and incorporated herein by reference to Exhibit 10-G to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (H) Property Management Agreement between Ponte Vedra Beach Joint Venture and ConAm Management Corporation for the Ponte Vedra Beach Village I property (included as, and incorporated herein by reference to Exhibit 10-H to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (I) Property Management Agreement between Rancho Antigua Joint Venture and ConAm Management Corporation for the Rancho Antigua property (included as, and incorporated herein by reference to Exhibit 10-I to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (J) Property Management Agreement between Country Place Village I Joint Venture and ConAm Management Corporation for the Country Place Village I property (included as, and incorporated herein by reference to Exhibit 10-J to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (K) Property Management Agreement between Village at the Foothills I Joint Venture and ConAm Management for the Village at the Foothills I property (included as, and incorporated herein by reference to Exhibit 10-K to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (L) Loan Documents: Mortgage and Security Agreement, Promissory Note and Assignment of Rents and Leases with respect to the refinancing of Country Place Village I, between Registrant and The Penn Mutual Insurance Company (included as, and incorporated herein by reference to Exhibit 10-L to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (M) Loan Documents: Mortgage and Security Agreement, Promissory Note and Assignment of Rents and Leases with respect to the refinancing of Creekside Oaks, between Registrant and The Penn Mutual Insurance Company (included as, and incorporated herein by reference to Exhibit 10-M to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (N) Loan Documents: Mortgage and Security Agreement, Promissory Note and Assignment of Rents and Leases with respect to the refinancing of Ponte Vedra Beach Village I, between Registrant and The Penn Mutual Insurance Company (included as, and incorporated herein by reference to Exhibit 10-N to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). (O) Loan Documents: Deed of Trust and Assignment of Rents with Security Agreement and Financing Statement with respect to the refinancing of Rancho Antigua, between Registrant and The Penn Mutual Insurance Company (included as, and incorporated herein by reference to Exhibit 10-O to the Registrant's Annual Report on Form 10-K for the year ended December 31, 1993 (Commission File No. 0-11085)). Page 10 (P) Agreement for Purchase and Sale and Joint Escrow Instructions between Creekside Oaks Joint Venture and DOC Investors, L.L.C. dated January 26, 1999 with respect to Creekside Oaks (included as, and incorporated herein by reference to, Exhibit 10.1 to the Partnerships Report on Form 8-K filed on February 16, 1999). (Q) Agreement for Purchase and Sale and Joint Escrow Instructions between Ponte Vedra Beach Village Joint Venture and DOC Investors, L.L.C. dated January 26, 1999 with respect to Ponte Vedra Beach Village I Apartments (included as, and incorporated herein by reference to, Exhibit 10.2 to the Partnerships Report on Form 8-K filed on February 16, 1999). (R) Agreement for Purchase and Sale and Joint Escrow Instructions between Rancho Antigua Joint Venture and DOC Investors, L.L.C. dated January 26, 1999 with respect to Rancho Antigua (included as, and incorporated herein by reference to, Exhibit 10.3 to the Partnerships Report on Form 8-K filed on February 16, 1999). (S) Agreement for Purchase and Sale and Joint Escrow Instructions between Village at the Foothills (Phase I) Joint Venture Limited Partnership and DOC Investors, L.L.C. dated January 26, 1999 with respect to Village at Foothills I Apartments (included as, and incorporated herein by reference to, Exhibit 10.3 to the Partnerships Report on Form 8-K filed on February 16, 1999). (13) Annual Report to Unitholders for the year ended December 31, 1998. (21) List of Subsidiaries - Joint Ventures (included as, and incorporated herein by reference to, Exhibit (22) to the Registrant's 1991 Annual Report on Form 10-K filed for the year ended December 31, 1991). (27) Financial Data Schedule (99) Portions of the Prospectus of the Registrant, dated June 24, 1981(included as, and incorporated herein by reference to, Exhibit 28 to the Registrant's 1988 Annual Report on Form 10-K filed for the year ended December 31, 1988). (b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed by the Partnership during the fourth quarter of the year ended December 31, 1998. (c) EXHIBITS See Item 14(a)(3) above. Page 11 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) 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. Dated: March 30, 1999 BY: ConAm Property Services II, Ltd. General Partner BY: Continental American Development, Inc. General Partner BY: /s/ Daniel J. Epstein -------------------------- Name: Daniel J. Epstein Title: President, Director and Principal Executive Officer Page 12 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated. CONAM PROPERTY SERVICES II, LTD. A General Partner By: Continental American Development, Inc. General Partner Date: March 30, 1999 BY: /s/ Daniel J. Epstein ------------------------------- Daniel J. Epstein Director, President and Principal Executive Officer Date: March 30, 1999 BY: /s/ E. Scott Dupree ------------------------------- E. Scott Dupree Vice President and Director Date: March 30, 1999 BY: /s/ Robert J. Svatos ------------------------------- Robert J. Svatos Vice President and Director Date: March 30, 1999 BY: /s/ Ralph W. Tilley ------------------------------- Ralph W. Tilley Vice President Date: March 30, 1999 BY: /s/ J. Bradley Forrester ------------------------------- J. Bradley Forrester Vice President Page 13 EX-13 2 EXHIBIT 13 EXHIBIT 13 CONAM REALTY INVESTORS 2 L.P. 1998 ANNUAL REPORT - -------------------------------------------------------------------------------- CONAM REALTY INVESTORS 2 L.P. - -------------------------------------------------------------------------------- ConAm Realty Investors 2 L.P. is a California limited partnership formed in 1981 to acquire, operate and hold for investment multifamily residential properties. At December 31, 1998, the Partnership's portfolio consisted of four apartment properties, two of which were located in Arizona and two in Florida. On January 29, 1999, with the consent of the Unitholders, the four remaining properties were sold for a price of $29,300,000 (before closing costs) and substantially all of the cash, less a contingency amount, was distributed to the Unitholders on February 26, 1999. CONTENTS 1 Message to Investors 2 Performance Summary 3 Financial Highlights 4 Consolidated Financial Statements 7 Notes to the Consolidated Financial Statements 13 Independent Auditors' Report 14 Report of Former Independent Accountants 15 Net Asset Valuation - -------------------------------------------------------------------------------- ADMINISTRATIVE INQUIRIES PERFORMANCE INQUIRIES/FORM 10-Ks ADDRESS CHANGES/TRANSFERS Brock, Tibbitts and Snell MAVRICC Management Systems, Inc. 625 Broadway, Suite 911 1845 Maxwell, Suite 101 San Diego, California 92101 Troy, MI 48084-4510 Attn: Financial Communications 248-637-7897 619-232-0365 - -------------------------------------------------------------------------------- CONAM REALTY INVESTORS 2 L.P. AND CONSOLIDATED VENTURES - -------------------------------------------------------------------------------- MESSAGE TO INVESTORS - -------------------------------------------------------------------------------- Presented for your review is the 1998 Annual Report for ConAm Realty Investors 2 L.P. (the "Partnership"). In this report we have included a performance summary which addresses operations at each of the properties (the "Properties") and the financial highlights for the year. We are pleased to announce that the proposed sale of the Partnership's four remaining Properties to DOC Investors, L.L.C., a Delaware limited liability company, was approved by a majority in interest of the Unitholders as of January 15, 1999 and that the sale was completed on January 29, 1999. Following the close of the sale of the Properties, a distribution of $223.00 per Unit, representing the majority of the net proceeds from the sale and other cash from operations, was paid to Unitholders on February 26, 1999. This distribution included the net proceeds from the sale of the Partnership's Properties in January 1999 of $213.03 per Unit, and cash from operations of $9.97 per Unit, both of which were distributed on February 26, 1999. CASH DISTRIBUTIONS The Partnership paid quarterly cash distributions of operating cashflow totaling $6.75 per Unit for the year ended December 31, 1998. The General Partner elected not to make a fourth quarter distribution pending the outcome of the solicitation of the consent of the Unitholders to the sale of the Partnership's Properties. Including the distribution of sale proceeds and cash from operations made on February 26, 1999, since inception, the Partnership has paid distributions totaling $566.94 per original $500 Unit. OPERATIONS OVERVIEW In 1998, operations at the Partnership's properties continued to be impacted to varying degrees by strong competition for residents. Population and job growth remained strong in Arizona and Florida, which has led to the addition of newly constructed complexes in the submarkets where the Partnership's properties are located. In Arizona, due to lower interest rates and the affordability of homes, many renters opted to purchase homes. Despite these trends, the Properties sustained a collective average occupancy of 94.5% in 1998 compared with 93.5% in 1997. Due to selective use of rent concessions and consistently attractive property appearance, occupancy levels also increased or remained stable at three of the Properties with rental income for all Properties increasing over prior year. During 1998 property aggregate operating expenses for the Partnership decreased somewhat, primarily due to lower repair and maintenance expenses at Ponte Vedra Beach Village I and Rancho Antigua, partially offset by an increase in repair and maintenance expenses at Village at the Foothills I and Creekside Oaks. SUMMARY The sale of the Properties on January 29, 1999 and the initial distribution of net sales proceeds and cash from operations on February 26, 1999 represents a major step toward the liquidation of the Partnership that is expected to be completed in August 1999. A final distribution of remaining Partnership cash, if any, will be made shortly thereafter. Very truly yours, /s/ Daniel J. Epstein Daniel J. Epstein, President Continental American Development Inc. General Partner of ConAm Property Services II, Ltd. March 30, 1999 1 - -------------------------------------------------------------------------------- PERFORMANCE SUMMARY - -------------------------------------------------------------------------------- CREEKSIDE OAKS JACKSONVILLE, FLORIDA Creekside Oaks is a 120-unit apartment community situated in the Baymeadows-Deerwood neighborhood of southeast Jacksonville. The property reported average occupancy of 95% in 1998 and 1997. In recent years, the Jacksonville market experienced a significant increase in new construction and the issuance of new construction permits. This new construction softened the market by outpacing population and job growth and will continue to affect the region as new units become available. Vacancy rates remained low, due to increased use of rental concessions in the marketplace to attract and retain residents. PONTE VEDRA BEACH VILLAGE I PONTE VEDRA BEACH, FLORIDA Ponte Vedra Beach Village I is a 122-unit luxury apartment complex located in an oceanside residential area to the southeast of Jacksonville. Population and job growth in the Jacksonville area remained high, but construction of new apartments lead to softness in the market. As a result, the property reported an average occupancy level of 92% in 1998, down slightly from 93% in 1997. Rental income, however, increased due to an increase in rental rates. Property improvements in 1998 included roof replacements, carpet replacement and other improvements to maintain the appearance of the property. RANCHO ANTIGUA SCOTTSDALE, ARIZONA Rancho Antigua is a 220-unit apartment community located in Scottsdale, eight miles northeast of Phoenix. The property reported average occupancy of 95% in 1998, up slightly from 94% in 1997, and an increase in rental income due to an increase in occupancy and rental rates. The Scottsdale apartment market experienced continued strong competition, reflecting high levels of construction and notable competition from condominiums and single family houses, as affordable prices and low mortgage rates enticed renters to buy. The Scottsdale market is experiencing strong job and population growth. VILLAGE AT THE FOOTHILLS I TUCSON, ARIZONA Village at the Foothills I is a 60-unit apartment community located in the northwest area of Tucson. The property maintained an average occupancy rate of 96% during 1998, up significantly from 92% in 1997, and an increase in rental income due to an increase in occupancy and rental rates. Apartment vacancy rates remain high in this market, but significant population growth in Tucson over the last few years is slowly reducing the number of available units. Low interest rates and affordable home prices have also increased competition by luring many renters to purchase homes. This competition has led to the reemergence of rental incentives and other concessions in the marketplace to attract residents. 2 - -------------------------------------------------------------------------------- FINANCIAL HIGHLIGHTS - -------------------------------------------------------------------------------- SELECTED FINANCIAL DATA
For the years ended December 31, 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------ DOLLARS IN THOUSANDS, EXCEPT FOR PER UNIT DATA Total Income $ 4,483 $ 4,384 $ 4,328 $ 4,516 $ 4,718 Gain on Sale of Property -- -- -- 232 -- Net Income (Loss) 99 (203) (3) (113) 37 Net Cash Provided by Operating Activities 980 979 1,334 864 1,150 Long-term Obligations at Year End 11,323 11,555 11,770 11,969 14,219 Total Assets at Year End 17,715 18,370 18,920 19,931 24,772 Net Income (Loss) per Limited Partnership Unit* 1.11 (2.51) (0.03) (4.27) .42 Distributions per Limited Partnership Unit* 6.75 -- 9.00 9.00 5.50 Special Distributions per Limited Partnership Unit* -- -- -- 20.00 -- - ------------------------------------------------------------------------------------------------------ * 80,000 UNITS OUTSTANDING
CASH DISTRIBUTIONS PER LIMITED PARTNERSHIP UNIT 1998 1997 - ------------------------------------ -------------- ------------ First Quarter $ 2.25 $-- Second Quarter 2.25 -- Third Quarter 2.25 -- Fourth Quarter -- -- -------------- ----------- TOTAL $ 6.75 $-- - ------------------------------------ -------------- -----------
Cash distributions were reduced in 1998 due to a suspension of distributions in the fourth quarter pending the outcome of the solicitation of the consent of the Unitholders to the sale of the Properties. 3 CONAM REALTY INVESTORS 2 L.P. AND CONSOLIDATED VENTURES
- ------------------------------------------------------------------------------------------------------------------- CONSOLIDATED BALANCE SHEETS AT DECEMBER 31, AT DECEMBER 31, 1998 1997 - ------------------------------------------------------------------------------------------------------------------- ASSETS Investments in real estate: Land $ 5,744,972 $ 5,744,972 Buildings and improvements 23,718,118 23,681,664 -------------------------------------------- 29,463,090 29,426,636 Less accumulated depreciation (13,640,819) (12,689,727) --------------------------------------------- 15,822,271 16,736,909 Cash and cash equivalents 1,220,656 1,109,506 Restricted cash 345,558 342,282 Other assets, net of accumulated amortization of $323,015 in 1998 and $260,496 in 1997 326,486 181,421 - ------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 17,714,971 $ 18,370,118 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- LIABILITIES AND PARTNERS' CAPITAL Liabilities: Mortgages payable $ 11,322,919 $ 11,554,935 Accounts payable and accrued expenses 287,482 197,443 Due to general partner and affiliates 18,547 18,504 Security deposits 92,096 103,908 ------------------------------------------ Total Liabilities 11,721,044 11,874,790 ------------------------------------------ Partners' Capital (Deficit): General Partner (617,296) (567,156) Limited Partners (80,000 Units outstanding) 6,611,223 7,062,484 ------------------------------------------ Total Partners' Capital 5,993,927 6,495,328 - ------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND PARTNERS' CAPITAL $ 17,714,971 $ 18,370,118 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. 4 CONAM REALTY INVESTORS 2 L.P. AND CONSOLIDATED VENTURES
- ------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- INCOME Rental $ 4,434,497 $ 4,327,499 $ 4,264,370 Interest and other 48,321 56,229 63,467 --------------------------------------------------- Total Income 4,482,818 4,383,728 4,327,837 --------------------------------------------------- EXPENSES Property operating 2,297,544 2,329,300 2,222,474 Depreciation and amortization 1,013,611 1,017,912 1,005,471 Interest 887,381 904,630 920,596 General and administrative 185,683 213,441 181,896 Write-off of assets -- 121,100 -- --------------------------------------------------- Total Expenses 4,384,219 4,586,383 4,330,437 - ------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 98,599 $ (202,655) $ (2,600) - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) ALLOCATED: To the General Partner $ 9,860 $ (2,027) $ (26) To the Limited Partners 88,739 (200,628) (2,574) - ------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) $ 98,599 $ (202,655) $ (2,600) - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- PER LIMITED PARTNERSHIP UNIT (80,000 UNITS OUTSTANDING): NET INCOME (LOSS) $ 1.11 $ (2.51) $ (0.03) - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 GENERAL LIMITED PARTNER PARTNERS TOTAL - ------------------------------------------------------------------------------------------------------------------- BALANCE (DEFICIT) AT DECEMBER 31, 1995 $ (485,103) $ 7,985,686 $ 7,500,583 Net Loss (26) (2,574) (2,600) Distributions ($9.00 per Unit) (80,000) (720,000) (800,000) - ------------------------------------------------------------------------------------------------------------------- BALANCE (DEFICIT) AT DECEMBER 31, 1996 $ (565,129) $ 7,263,112 $ 6,697,983 Net Loss (2,027) (200,628) (202,655) - -------------------------------------------------------------------------------------------------------------------- BALANCE (DEFICIT) AT DECEMBER 31, 1997 $ (567,156) $ 7,062,484 $ 6,495,328 Net Income 9,860 88,739 98,599 Distributions ($6.75 per Unit) (60,000) (540,000) (600,000) - ------------------------------------------------------------------------------------------------------------------- BALANCE (DEFICIT) AT DECEMBER 31, 1998 $ (617,296) $ 6,611,223 $ 5,993,927 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. 5 CONAM REALTY INVESTORS 2 L.P. AND CONSOLIDATED VENTURES
- -------------------------------------------------------------------------------------------------------------------- CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998 1997 1996 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss) $ 98,599 $ (202,655) $ (2,600) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation and amortization 1,013,611 1,017,912 1,005,471 Write-off of assets -- 121,100 -- Increase (decrease) in cash arising from changes in operating assets and liabilities: Fundings to restricted cash (306,551) (325,093) (327,279) Release of restricted cash 303,275 300,079 661,672 Other assets (207,584) -- 5,900 Accounts payable and accrued expenses 90,039 69,633 (10,135) Due to general partner and affiliates 43 573 482 Security deposits (11,812) (2,445) 135 ------------------------------------------------- Net cash provided by operating activities 979,620 979,104 1,333,646 - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES-- ADDITIONS TO REAL ESTATE (36,454) (417,120) (83,241) - -------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Distributions (600,000) (200,000) (800,000) Mortgage principal payments (232,016) (214,768) (198,801) --------------------------------------------------- Net cash used in financing activities (832,016) (414,768) (998,801) - -------------------------------------------------------------------------------------------------------------------- Net increase in cash and cash equivalents 111,150 147,216 251,604 Cash and cash equivalents, beginning of period 1,109,506 962,290 710,686 - -------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,220,656 $ 1,109,506 $ 962,290 - -------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: Cash paid during the period for interest $ 887,381 $ 904,630 $ 920,596 - ------------------------------------------------------------------------------------------------------------------- SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING ACTIVITIES: Write-off of buildings and improvements $ -- $ (261,100) $ -- Write-off of accumulated depreciation $ -- $ 140,000 $ -- - -------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS. 6 Notes to the Consolidated Financial Statements DECEMBER 31, 1998, 1997 AND 1996 1. ORGANIZATION ConAm Realty Investors 2 L.P. (formerly Hutton/ConAm Realty Investors 2) (the "Partnership") was organized as a Limited Partnership under the laws of the State of California pursuant to a Certificate and Agreement of Limited Partnership dated December 17, 1981 as amended and restated October 8, 1982 (the "Partnership Agreement"). The Partnership was formed for the purpose of acquiring and operating multi-family residential real estate. The original co-general partners of the Partnership were RI-2 Real Estate Services Inc. ("RI-2"), an affiliate of Lehman Brothers, Inc., and ConAm Property Services II, Ltd. ("CPS II"), an affiliate of Continental American Properties, Ltd. (the "General Partners"). On January 27, 1998, CPS II acquired RI-2's co-general partner interest in the Partnership, effective July 1, 1997, pursuant to a purchase agreement between CPS II and RI-2 dated August 29, 1997. As a result, CPS II now serves as the sole general partner (the "General Partner") of the Partnership. In conjunction with this transaction, the name of the Partnership was changed from Hutton/ConAm Realty Investors 2 to ConAm Realty Investors 2 L.P. On January 15, 1999, a majority in interest of Unitholders agreed to the sell the Partnership's remaining properties and liquidate the Partnership. The Partnership sold its properties on January 29,1999 (Note 10) and expects to liquidate during 1999. 2. SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES FINANCIAL STATEMENTS The consolidated financial statements are prepared on the accrual basis of accounting and include the accounts of the Partnership and its affiliated ventures when the Partnership has a controlling interest in the ventures. The effect of transactions between the Partnership and its ventures have been eliminated in consolidation. INVESTMENTS IN REAL ESTATE Investments in real estate are recorded at cost less accumulated depreciation and include the initial purchase price of the property, legal fees, acquisition and closing costs. Revenue is recognized when earned and expenses (including depreciation) are recognized when incurred in accordance with generally accepted accounting principles. Leases are generally for terms of one year or less. Depreciation is computed using the straight-line method based upon the estimated useful lives of the properties (25 years). Maintenance and repairs are charged to operations as incurred. Costs incurred for significant betterments and improvements are capitalized and depreciated over their estimated useful lives. For assets sold or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in net income for the period. IMPAIRMENT OF LONG-LIVED ASSETS The Partnership assesses its real estate investments for impairment whenever events or changes in circumstances indicate that the carrying amount of the real estate may not be recoverable. Recoverability of real estate to be held and used is measured by a comparison of the carrying amount of the real estate to future net cash flows (undiscounted and without interest) expected to be generated by the real estate. If the real estate is considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the real estate exceeds the fair value of the real estate. At December 31, 1998, the Partnership's properties were assets to be held and used as the Partnership did not have the ability to sell the properties without the approval of a majority of the Unitholders. 7 OTHER ASSETS Included in other assets are costs incurred in connection with obtaining financing for the Partnership's properties. Such costs are amortized over the initial term of the loan on a method which approximates the effective-interest method. INCOME TAXES No provision for income taxes has been made in the financial statements as the liability for such taxes is that of the partners rather than the Partnership. CASH AND CASH EQUIVALENTS Cash and cash equivalents consist of highly liquid short-term investments with original maturities of three months or less. CONCENTRATION OF CREDIT RISK Financial instruments which potentially subject the Partnership to a concentration of credit risk principally consist of cash and cash equivalents and restricted cash in excess of the financial institution's federally insured limits. The Partnership invests its cash and cash equivalents and restricted cash with high credit quality federally insured financial institutions or treasury based money market funds. RESTRICTED CASH Restricted cash consists of escrow deposits for real estate taxes and casualty insurance as required by the first mortgage lender. USE OF ESTIMATES Management of the Partnership has made a number of estimates and assumptions relating to the reporting of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period to prepare these financial statements in conformity with generally accepted accounting principles. Actual results could differ from those estimates. 3. THE PARTNERSHIP AGREEMENT The Partnership Agreement provides that net cash from operations, as defined, is to be distributed quarterly, 90% to the limited partners and 10% to the General Partner. Net loss for any fiscal year is to be allocated 99% to the limited partners and 1% to General Partner. Net income for any fiscal year will generally be in accordance with the distributions of net cash from operations. Net proceeds from sales or refinancing are to be distributed 99% to the limited partners and 1% to the General Partner until each limited partner has received an amount equal to its adjusted capital value (as defined) and an annual, non-compounded cumulative 7% return thereon. The balance, if any, is to be distributed 85% to the limited partners and 15% to the General Partner. Gain from sales resulting from mortgage debt in excess of basis is to be allocated to each partner having a negative capital account balance, pro rata, to the extent of such negative balance. Thereafter, such gain is to be allocated in accordance with the distribution of net proceeds from sale or refinancing, with the balance allocated to the limited partners. Each partner shall look solely to the assets of the Partnership for all distributions with respect to the Partnership and their capital contribution thereto, and shall have no recourse therefore (upon dissolution or otherwise) against any General Partner or any limited partner; provided, however, that upon dissolution and termination of the Partnership the General Partner shall contribute to the capital of the Partnership an amount, not to exceed 1% of the aggregate capital contributions of all of the partners to the Partnership less that amount of all prior capital contributions of the General Partner, equal to any negative balance in their respective capital account. In addition, if upon distribution and termination of the Partnership the sum of the limited partners' capital contributions and an amount equal to the greater of a 7% cumulative annual return with respect to each limited partner's adjusted capital value, calculated commencing with the first anniversary date of the last additional closing date, as defined, and reduced by any net cash from operations distributed to such limited partner, or a 6% cumulative annual return with respect to each 8 limited partner's adjusted capital value, as defined, calculated from the date of his admission to the Partnership and reduced by any net cash from operations distributed to such limited partner, exceeds the aggregate distributions to the limited partners of net proceeds from sale or refinancing, the General Partner shall contribute to the Partnership for distribution to the limited partners an amount equal to the lesser of such excess or the aggregate distributions of net proceeds from sale or refinancing to the General Partner. Effective July 1, 1997, all general partner allocations are to be made solely to CPS II. 4. INVESTMENTS IN REAL ESTATE The Partnership's four remaining properties at December 31, 1998 were as follows:
APARTMENT PROPERTY NAME UNITS LOCATION DATE ACQUIRED PURCHASE PRICE - ------------------------------------ -------------- ---------------------------- ------------------ ----------------- Creekside Oaks 120 Jacksonville, FL 11/18/83 $ 6,254,953 Ponte Vedra Beach Village I 122 Ponte Vedra Beach, FL 2/10/84 7,196,318 Rancho Antigua 220 Scottsdale, AZ 3/8/84 11,465,844 Village at the Foothills I 60 Tucson, AZ 2/27/85 3,804,103 - ------------------------------------ -------------- ---------------------------- ------------------ -----------------
The joint venture agreement of Rancho Antigua substantially provides that: a. Net cash from operations is to be distributed 100% to the Partnership until it has received an annual, noncumulative 12% return on its adjusted capital contribution. Any remaining balance is to be distributed 60% to the Partnership and 40% to the co-venturer. b. Net income of the joint venture and gain from sale is to be allocated basically in accordance with the distribution of net cash from operations, as defined, and net proceeds from sales, respectively. All net losses are to be allocated 98% to 100% to the Partnership depending on the joint venture agreement. c. Net proceeds from a sale or refinancing is to be distributed 100% to the Partnership until it has received an amount equal to 120% of its adjusted capital contribution and an annual, cumulative 12% return on its adjusted capital contribution. Thereafter, the Partnership is to receive approximately 50% to 75% of the balance depending on the joint venture agreement. d. Upon dissolution or termination of the joint venture agreement, each venturer is obligated to contribute to the joint venture in cash an amount equal to any negative balance in its capital account, if any, as defined, after allocation of all net income, net loss, gain from sale and loss from sale. The joint venture agreements and limited partnership agreements of Creekside Oaks, Ponte Vedra Beach Village I and Village at the Foothills I substantially provide that: a. Available cash from operations is to be distributed 100% to the Partnership until it has received an annual, non-cumulative preferred return, as defined. Any remaining balance is to be distributed 99% to the Partnership and 1% to the General Partner. b. Net income is to be allocated first, proportionately to partners with negative capital accounts, as defined, until such capital accounts, as defined, have been increased to zero then, to the Partnership up to the amount of any payments made on account of its preferred return; thereafter, 99% to the Partnership and 1% to the General Partner. All losses are to be allocated first, to the partners with positive capital accounts, as defined, until such accounts have been reduced to zero then 99% to the Partnership and 1% to the General Partner. 9 c. Income from a sale is to be allocated first, to the Partnership until the Partnership's capital accounts, as defined, are equal to the fair market value of the ventures' assets at the date of the amendments then, any remaining balance will be allocated 99% to the Partnership and 1% to the General Partner. Net proceeds from a sale or refinancing are to be distributed first to the partners with a positive capital account balance, as defined; thereafter, 99% to the Partnership and 1% to the General Partner. d. Upon dissolution or termination of the joint venture agreement of the Village at the Foothills I, any proceeds from a liquidating transaction, as defined, will be distributed to the partners with positive capital account balances (after capital accounts have been adjusted to reflect the allocation of gain or loss attributable to the transaction giving rise to such proceeds, whether or not such gains or loss has been recognized for federal income tax purposes), as defined, in proportion to such positive capital account balances. e. Upon dissolution or termination of the joint venture agreement of the Village of the Foothills I, the General Partner will be required to contribute to partnership capital an amount equal to the lesser of (i) the excess of 1.01% of the capital account of the Partnership as of the date hereof over any deficit balance, if any, in their capital accounts on the date of dissolution or termination. 5. MORTGAGE PAYABLE On October 28, 1993, the Partnership obtained replacement financing on its Creekside Oaks, Ponte Vedra Beach I, and Rancho Antigua properties totaling $14,450,000. The loans are secured by the respective properties and an assignment of rents and leases and bear interest at an annual rate of 7.75%. Each of the loans is a non-recourse loan with monthly payments of principal and interest of $93,283 based on a twenty-five year amortization schedule and a seven year term with the balance of the principal due on November 1, 2000. On July 20, 1995, County Place Village I was sold and the underlying mortgage, in the amount of $2,051,078, was assumed by the Buyer. Mortgages payable at December 31, 1998, consist of the following first mortgage loans:
PROPERTY PRINCIPAL ----------------------------------------------------------------- Creekside Oaks $ 2,429,614 Ponte Vedra Beach Village I 3,667,342 Rancho Antigua 5,225,963 ----------------------------------------------------------------- Total $11,322,919 ----------------------------------------------------------------- -----------------------------------------------------------------
These mortgages contain provisions for prepayment penalties if the mortgages are repaid prior to their maturity date of November 30, 2000. The loans were repaid in full in conjunction with the sale of the respective Property on January 29, 1999 (note 10). 6. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards No. 107, "Disclosures about Fair Value of Financial Instruments," requires that the fair values be disclosed for the Partnership's financial instruments. The carrying amount of cash and cash equivalents, restricted cash, accounts payable and accrued expenses, due to general partner and affiliates, and security deposits are reasonable estimates of their fair values due to the short-term nature of those instruments. The carrying amount of the mortgage payable is a reasonable estimate of fair value based on management's belief that the interest rates and terms of the debt are comparable to those commercially available to the Partnership in the marketplace for similar instruments. 10 7. TRANSACTIONS WITH RELATED PARTIES The following is a summary of fees earned and reimbursable expenses to the General Partner and affiliates for the years ended December 31, 1998, 1997 and 1996, and the unpaid portion at December 31, 1998:
EARNED AND UNPAID AT EARNED DECEMBER 31, ---------------------------------------------------- 1998 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------ RI-2 Real Estate Services Inc. and affiliates: Out-of-pocket expenses $ -- $ -- $ 402 $ 807 ConAm and affiliates: Property operating salaries -- 350,329 321,517 323,312 Property management fees 18,547 223,029 216,432 213,281 Admin. expenses -- -- 18,425 -- - ------------------------------------------------------------------------------------------------------------------ TOTAL $ 18,547 $ 573,358 $556,776 $537,400 - ------------------------------------------------------------------------------------------------------------------
8. RECONCILIATION OF FINANCIAL STATEMENT AND TAX INFORMATION The following is a reconciliation of the net income (loss) for financial statement purposes to net income (loss) for federal income tax purposes for the years ended December 31, 1998, 1997 and 1996:
1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Net income (loss) per financial statements $ 98,599 $ (202,655) $ (2,600) Tax basis joint venture net income (loss) in excess of GAAP basis joint venture net income (unaudited) (130,682) (201,705) (193,019) Loss on write-off of assets per financial statements not recognized for tax purposes (unaudited) -- 121,100 -- Other (unaudited) (16,000) 11,000 1,397 - ------------------------------------------------------------------------------------------------------------------- - ------------------------------------------------------------------------------------------------------------------- TAXABLE NET INCOME (LOSS)(UNAUDITED) $ (48,083) $ (272,260) $ (194,222) - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
The following is a reconciliation of partners' capital for financial statement purposes to partners' capital for federal income tax purposes as of December 31, 1998, 1997 and 1996:
1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------- Partners' capital per financial statements $ 5,993,927 $ 6,495,328 $ 6,697,983 Adjustment for cumulative difference between tax basis net income and net income per financial statements (unaudited) (5,201,262) (5,054,580) (4,984,975) - ------------------------------------------------------------------------------------------------------------------- PARTNERS' CAPITAL PER INCOME TAX RETURN (UNAUDITED) $ 792,665 $ 1,440,748 $ 1,713,008 - ------------------------------------------------------------------------------------------------------------------- - -------------------------------------------------------------------------------------------------------------------
At December 31, 1998, the tax basis of the Partnership's assets was $945,161 and the tax basis of the Partnership's liabilities was $152,496. The Partnership does not consolidate its investment in joint ventures for income tax purposes. 11 9. DISTRIBUTIONS PAID Cash distributions, per the consolidated statements of partners' capital, are recorded on the accrual basis, which recognizes specific record dates for payments within each year. The consolidated statements of cash flows recognize actual cash distributions paid during the year. The following table discloses the annual amounts as presented on the consolidated financial statements:
Distributions Distributions Payable Distributions Distributions Payable Beginning of Year Declared Paid End of Year - ------------------------------------------------------------------------------------------------------------------- 1998 $ -- $ 600,000 $ 600,000 $ -- 1997 200,000 -- 200,000 -- 1996 200,000 800,000 800,000 200,000 - -------------------------------------------------------------------------------------------------------------------
10. SALE OF PROPERTIES On January 29, 1999, the Partnership consummated the sale of the four remaining Properties to DOC Investors, L.L.C., a Delaware limited liability company, for a sales price of $29,300,000 (before selling costs and prorations). As required by the Partnership's partnership agreement, the General Partner solicited the consent of a majority in interest of the Unitholders to the sale pursuant to a Consent Solicitation Statement dated December 16, 1998. The requisite consent was obtained on January 15, 1999. The Partnership received approximately $17,217,000 of cash proceeds from the sale, net of closing costs of approximately $93,000 and repayment of indebtedness and prepayment penalties of approximately $11,990,000. On February 26, 1999, the Partnership distributed $17,840,000 ($223.00 per Unit) to the Unitholders and $88,653 to the General Partner. 12 - ------------------------------------------------------------------------------ INDEPENDENT AUDITORS' REPORT - ------------------------------------------------------------------------------ The General Partner ConAm Realty Investors 2 L.P.: We have audited the accompanying consolidated balance sheets of ConAm Realty Investors 2 L.P. (a California limited partnership) and consolidated ventures (the Partnership), as of December 31, 1998 and 1997, and the related consolidated statements of operations, partners' capital, and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. 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. As further discussed in Note 10 to the consolidated financial statements, the Partnership sold substantially all of its assets on January 29, 1999. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of ConAm Realty Investors 2 L.P. and consolidated ventures as of December 31, 1998 and 1997, and the results of their operations and their cash flows for the years then ended, in conformity with generally accepted accounting principles. KPMG LLP San Diego, California March 11, 1999 13 - ------------------------------------------------------------------------------ REPORT OF FORMER INDEPENDENT ACCOUNTANTS - ------------------------------------------------------------------------------ To the Partners of ConAm Realty Investors 2 L.P.: We have audited the consolidated balance sheet of ConAm Realty Investors 2 L.P. (formerly Hutton/ConAm Realty Investors 2), a California Limited Partnership, and Consolidated Ventures as of December 31, 1996 and the related consolidated statements of operations, partners' capital (deficit) and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. 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 audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of ConAm Realty Investors 2 L.P., a California Limited Partnership, and Consolidated Ventures as of December 31, 1996, and the consolidated results of their operations and their cash flows for the year then ended in conformity with generally accepted accounting principles. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 14, 1997 14
- ----------------------------------------------------------------------------------------------------------------------- NET ASSET VALUATION - ----------------------------------------------------------------------------------------------------------------------- COMPARISON OF ACQUISITION COSTS TO DECEMBER 31, 1998 PROPERTY VALUES AND DETERMINATION OF NET ASSET VALUE PER UNIT AT DECEMBER 31, 1998 (UNAUDITED) ACQUISITION COST (PURCHASE PRICE PLUS GENERAL PARTNERSHIP'S NET ASSET PARTNER'S SHARE OF PROPERTY VALUE PROPERTY DATE OF ACQUISITION ACQUISITION FEES) VALUE (1) DETERMINATION - ----------------------------------------------------------------------------------------------------------------------- Creekside Oaks 11-18-83 $6,238,445 $ 5,500,000 Ponte Vedra Beach 02-10-84 7,123,950 7,700,000 Rancho Antigua 03-08-84 11,446,176 13,700,000 Village at the Foothills I 02-27-85 3,756,741 2,400,000 -------------------- 29,300,000 Less closing costs (93,114) ------------------ 29,206,886 Cash and cash equivalents (including previously restricted cash) 1,566,214 Other assets 326,486 ------------------ Total assets 31,099,586 ------------------ Less: Secured debt 11,322,919 Prepayment penalties 587,939 Other liabilities 398,125 Contingency amounts (2) 861,950 ------------------ Total liabilities 13,170,933 ------------------ Partnership Net Asset Value (3) 17,928,653 ------------------ Net Asset Value Allocated: Limited Partners 17,840,000 General Partner 88,653 ------------------ 17,928,653 ------------------ NET ASSET VALUE PER UNIT (80,000 UNITS OUTSTANDING) $ 223.00 - -----------------------------------------------------------------------------------------------------------------------
(1) Represents the Partnership's share of the fair market value of the properties as reflected in the purchase and sale agreements pursuant to which the properties were sold on January 29, 1999. The purchase prices contained in such agreements were negotiated and agreed to in December 1998. (2) Includes an amount for estimated future costs related to the sale and liquidation of the Partnership and an amount the General Partner determined to set aside for contingencies, net of expected cash provided by operations through the date of sale. (3) The Partnership Net Asset Value assumes a sale at December 31, 1998 of all the Partnership's properties at prices equal to the sales prices set forth in the purchase and sale agreements described in Note (1) above, payment of all Partnership liabilities, and the distribution of the net proceeds of such sale and other Partnership cash to the Partners. Since the Partnership sold all of its real property assets in January 1999, is in dissolution, and is in the process of winding up and liquidating, the foregoing Partnership Net Asset Value is intended to approximate the liquidation value of the Partnership and the Net Asset Value Per Unit is intended to approximate the per Unit amount which is expected to be distributed to the Limited Partners in connection with the Partnership's liquidation. The Net Asset Valuation does not take into account the illiquid nature of an investment in the Units or the fact that at December 31, 1998 a holder of Units would likely not have been able to sell its Units for the Net Asset Value Per Unit set forth above. Fiduciaries of Limited Partners which are subject to ERISA or other provisions of law requiring valuation of Units should consider all relevant factors, including but not limited to Net Asset Value Per Unit, in determining the fair market value of the investment in the Partnership for such purposes. 15 SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1998
CREEKSIDE PONTE VEDRE RANCHO VILLAGE AT RESIDENTIAL PROPERTY: OAKS BEACH VILLAGE I ANTIGUA THE FOOTHILLS I TOTAL - ---------------------------------------------------------------------------------------------------------------------------- Location Jacksonville, Fl. P.V. Beach, FL. Scottsdale, AZ Tucson, AZ na Construction date 1982 1983 1984 1984 na Acquisition date 11/18/83 02/10/84 03/08/84 02/27/85 na Life on which depreciation in latest income statements is computed (2) (2) (2) (2) Encumbrances $ 2,429,614 $ 3,667,342 $ 5,225,963 $ -- $ 11,322,919 Initial cost to Partnership: Land 400,317 1,115,028 3,490,498 798,823 5,704,666 Buildings and improvements 5,854,636 6,181,290 7,975,346 3,005,280 23,016,552 Costs capitalized subsequent to acquisition-- Land, buildings and improvements 281,499 554,569 141,634 25,270 1,002,972 Write-off of buildings and improvements -- (261,100) -- -- (261,100) Gross amount at which carried at close of period: (1) Land 403,193 $ 1,045,472 $ 3,497,484 $ 798,823 $ 5,744,972 Buildings and improvements 6,133,259 6,444,315 8,109,994 3,030,550 23,718,118 - ---------------------------------------------------------------------------------------------------------------------------- Total $ 6,536,452 $ 7,489,787 $11,607,478 $ 3,829,373 $ 29,463,090 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- Accumulated depreciation $ (3,611,614) $ (3,585,642) $(4,776,310) $ (1,667,253) $ (13,640,819) - ----------------------------------------------------------------------------------------------------------------------------
(1) The aggregate costs for Land, Buildings and Improvements for federal tax purposes are $23,971,019. (2) Building and improvements - 25 years; personal property - 10 years A reconciliation of the carrying amount of real estate and accumulated depreciation for the years ended December 31, 1998, 1997 and 1996 follows:
1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------------------- INVESTMENTS IN REAL ESTATE: Beginning of period $ 29,426,636 $ 29,270,616 $ 29,187,375 Additions 36,454 417,120 83,241 Dispositions and disposals -- (261,100) -- - ---------------------------------------------------------------------------------------------------------------------------- End of period $ 29,463,090 $ 29,426,636 $ 29,270,616 - ---------------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------------- ACCUMULATED DEPRECIATION: Beginning of period $ 12,689,727 $ 11,874,334 $ 10,931,382 Depreciation expense 951,092 955,393 942,952 Dispositions and disposals -- (140,000) -- - ---------------------------------------------------------------------------------------------------------------------------- End of period $ 13,640,819 $ 12,689,727 $ 11,874,334 - ---------------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING INDEPENDENT AUDITORS' REPORT. F-1 - ------------------------------------------------------------------------------ INDEPENDENT AUDITORS' REPORT - ------------------------------------------------------------------------------ The General Partner ConAm Realty Investors 2 L.P.: Under date of March 11, 1999, we reported on the consolidated balance sheets of ConAm Realty Investors 2 L.P. (a California limited partnership) and consolidated ventures (the Partnership) as of December 31, 1998 and 1997, and the related consolidated statements of operations, partners' capital, and cash flows for the years then ended, as contained in the 1998 annual report to Unitholders. These consolidated financial statements and our report thereon are incorporated by reference in the 1998 annual report on Form 10-K. In connection with our audits of the aforementioned consolidated financial statements, we also have audited the related consolidated financial statement schedule III. This consolidated financial statement schedule is the responsibility of the Partnership's management. Our responsibility is to express an opinion on this consolidated financial statement schedule based on our audits. In our opinion, the consolidated financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. KPMG LLP San Diego, California March 11, 1999 F-2 - ------------------------------------------------------------------------------ REPORT OF FORMER INDEPENDENT ACCOUNTANTS - ------------------------------------------------------------------------------ Our report on the consolidated financial statements of ConAm Realty Investors 2 L.P. (formerly Hutton/ConAm Realty Investors 2), a California Limited Partnership, and Consolidated Ventures has been incorporated by reference in this Form 10-K from the Annual Report to Unitholders of ConAm Realty Investors 2 L.P. for the year ended December 31, 1996. In connection with our audit of such financial statements, we have also audited the related financial statement schedule listed in the index of this Form 10-K. In our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. COOPERS & LYBRAND L.L.P. Hartford, Connecticut February 14, 1997 F-3 EX-27 3 EXHIBIT 27
5 12-MOS DEC-31-1998 DEC-31-1998 1,566,214 0 0 0 0 0 29,463,090 (13,640,819) 17,714,971 398,125 11,322,919 0 0 0 5,993,927 17,714,971 4,434,497 4,482,818 0 2,297,544 1,199,294 0 887,381 98,599 0 98,599 0 0 0 98,599 1.11 1.11
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