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SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For Quarter Ended September 30, 2004 Commission file number 2-90654
AMRECORP REALTY FUND II
(Exact name of registrant as specified in its charter)
TEXAS 75-1956009
(State or other jurisdiction of (IRS Employer
incorporation or organization Identification
Number)
2800 N. Dallas Pkwy Suite 100
Plano, Texas 75093-5994
(Address of principal executive offices)
Registrant's telephone number, including area code: (972)836-8000.
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 such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes: Y No:
REGISTRANT IS A LIMITED PARTNERSHIP
TABLE OF CONTENTS
Item 1. Financial Statements
The following Unaudited financial statements are filed herewith:
Consolidated Balance Sheet as of September 30, 2004 and
December 31, 2003 Page 3
Consolidated Statements of Operations for the Three
and Nine months Ended September 30, 2004 and 2003
Page 4
Consolidated Statements of Cash Flows for the Nine
months Ended September 30, 2004 and 2003 Page 5
Item 2. Results of Operations and Management's Discussion and
Analysis of Financial Condition Page 6
Liquidity and Capital Resources Page 9
Other Information Page 11
Signatures Page 12
The statements, insofar as they relate to the period subsequent
to December 31, 2003 are Unaudited.
PART 1. FINANCIAL INFORMATION
Item 1. Financial Statements
AMRECORP REALTY FUND II
Condensed Consolidated Balance Sheets
September 30, December 31,
2004 2003
(Unaudited)
ASSETS
Real Estate assets, at cost
Land $580,045 $580,045
Buildings and improvements 4,794,733 4,794,733
5,374,778 5,374,778
Less: Accumulated depreciation (3,827,782) (3,680,782)
Real estate, net 1,546,996 1,693,996
Investments in Real Estate Held for Sale
Cash including cash investments 348,846 240,219
Escrow deposits 184,855 202,842
Deferred Costs and Fees 4,001 7,983
Other assets 23,390 13,320
Total assets $2,108,088 $2,158,360
LIABILITIES AND PARTNERS' EQUITY:
LIABILITIES:
Mortgage and notes payable $2,088,732 $2,137,546
Payable to Affiliates 342 320
Interest payable 0 16,611
Real estate taxes payable 87,065 0
Security deposits 23,291 23,213
Accounts payable and accrued expenses 73,933 153,286
Total liabilities 2,273,363 2,330,976
PARTNERS CAPITAL (DEFICIT):
Limited Partners (92,528) (99,796)
General Partners (72,747) (72,820)
Total Partners Capital (Deficit) (165,275) (172,616)
Total $2,108,088 $2,158,360
Liability and Partners Equity
See notes to Condensed Consolidated Financial Statements
AMRECORP REALTY FUND II
Condensed Consolidated Statement of Operations
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
REVENUES 2004 2003 2004 2003
Rental income $235,757 $224,260 $671,728 $654,980
Other property 11,011 3,839 22,867 15,029
Total revenues 246,768 228,099 694,595 670,009
EXPENSES
Salaries & wages 23,724 21,439 64,022 61,111
Maintenance & repairs 18,072 8,124 64,509 21,230
Utilities 14,057 8,365 33,650 25,916
Real estate taxes 29,000 29,250 87,500 87,750
General administrative 13,346 13,672 28,053 30,201
Contract services 12,800 12,451 43,068 35,974
Insurance 8,386 9,366 31,777 29,050
Interest 48,928 50,262 147,812 152,099
Depreciation and amortization 49,000 48,000 147,000 144,000
Property management fees 12,340 11,405 34,731 33,496
Amortization of deferred costs/fees 1,711 1,710 5,132 5,132
Total expenses 231,364 214,044 687,254 625,959
NET INCOME (LOSS) $15,404 $14,055 $7,341 $44,050
NET INCOME PER SHARE $1.06 $0.97 $0.50 $3.03
See Notes to Condensed Consolidated Financial Statements
AMRECORP REALTY FUND II
Condensed Consolidated Statement of Cash Flows
Unaudited
Nine Months Ended
June 30,
2004 2003
CASH FLOWS FROM OPERATING ACTIVITY
Net income (loss) $7,341 $44,050
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation and amortization 147,000 144,000
Net Effect of changes in operating accounts
Escrow deposits 17,987 88,594
Deferred Costs 3,982 (17,527)
Accrued real estate taxes 87,065 87,685
Security deposits 78 4,282
Accounts payable (79,353) (92,188)
Other assets (10,070) 13,816
Net cash used by operating activities 174,030 272,712
CASH FLOWS FROM INVESTING ACTIVITIES
0 0
Net cash used by investing activities 0 0
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of mortgage notes payable (48,814) (44,485)
Proceeds from amounts due affiliates 22 (24,152)
Increase in accrued interest (16,611) (17,028)
Net cash provided by financing activities (65,403) (85,665)
NET INCREASE (DECREASE) IN CASH AND CASH 108,627 187,047
EQUIVALENTS
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 240,219 7,833
CASH AND CASH EQUIVALENT, END OF PERIOD $348,846 $194,880
See Notes to Condensed Consolidated Financial Statements
Basis of Presentation:
The accompanying unaudited condensed consolidated financial
statements have been prepared by Amrecorp Realty Fund II (the
"Company") pursuant to the rules and regulations of the
Securities and Exchange Commission. The financial statements
reflect all adjustments that are, in the opinion of management,
necessary to fairly present such information. All such
adjustments are of a normal recurring nature. Although the
Company believes that the disclosures are adequate to make the
information presented not misleading, certain information and
footnote disclosures, including a description of significant
accounting policies normally included in financial statements
prepared in accordance with accounting principles generally
accepted in the United States of America, have been condensed or
omitted pursuant to such rules and regulations.
These financial statements should be read in conjunction
with the financial statements and notes thereto included in the
Company's 2003 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The results of operations
for interim periods are not necessarily indicative of the results
for any subsequent quarter or the entire fiscal year ending
December 31, 2004.
Item 2. RESULTS OF OPERATIONS AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
Results of Operations
At September 30, 2004 the Partnership owned one property, Chimney
Square Apartments located in Abilene Texas with approximately
126,554 net rentable square feet. The occupancy of Chimney
Square averaged 99.2% during the third quarter of 2004 as
compared to 98.2% for the third quarter of 2003.
THIRD QUARTER 2004 COMPARED TO THIRD QUARTER 2003
Revenue from property operations increased $18,669 or 8.18%, for
the third quarter of 2004, as compared to the 2003 third quarter.
Rental income increased $11,497 or 5.13% from decreased vacancy.
Other income increased $7,172 or 186.82% primarily due to
increased fees. The following table illustrates the components:
Increase Percent
(Decrease) Change
Rental income $11,497 5.13%
Other property 7,172 186.82%
$18,669 8.18%
Property operating expenses increased $17,319 or 8.09%, for the
third quarter of 2004, as compared to the same period in 2003.
This was primarily due from increased maintenance & repairs.
Maintenance and repairs increased $9,948 or 122.45% due to
higher turnover cost. Utilities increased $5,692 or 68.05% due
to higher electric rates. Salaries increased $2,285 or 10.66%
due to increased maintenance for make readies. Insurance
decreased $980 or 10.46% due to lower property insurance rates.
The following table illustrates the components by category:
Increase Percent
(Decrease) Change
Salaries & wages $2,285 10.66%
Maintenance & repairs 9,948 122.45%
Utilities 5,692 68.05%
Real estate taxes (250) 0.85%
General administrative (326) 2.38%
Contract services 349 2.80%
Insurance (980) 10.46%
Interest (1,334) 2.65%
Depreciation and amortization 1,000 2.08%
Property management fees 935 8.20%
Net Increase (Decrease) $17,319 8.09%
FIRST NINE MONTHS 2004 COMPARED TO FIRST NINE MONTHS 2003
Revenue from property operations increased $24,586 or 3.67%, for
the first nine months of 2004, as compared to the 2003 same
period. Rental income increased $16,748 or 2.56% from decreased
vacancy. Other income increased $7,838 or 52.15% primarily due
to increased fees. The following table illustrates the
components:
Increase Percent
(Decrease) Change
Rental income $16,748 2.56%
Other property 7,838 52.15%
$24,586 3.67%
Property operating expenses increased $61,295 or 9.79%, for the
first nine months of 2004, as compared to the same period in
2003. This was primarily due from increased maintenance &
repairs. Maintenance and repairs increased $43,279 or 203.86%
due to higher turnover cost. Utilities increased $7,734 or
29.84% due to higher electric rates. Contract services increased
$7,094 or 19.72% due to increased cable costs. The following
table illustrates the components by category:
Increase Percent
(Decrease) Change
Salaries & wages $2,911 4.76%
Maintenance & repairs 43,279 203.86%
Utilities 7,734 29.84%
Real estate taxes (250) 0.28%
General administrative (2,148) 7.11%
Contract services 7,094 19.72%
Insurance 2,727 9.39%
Interest (4,287) 2.82%
Depreciation and amortization 3,000 2.08%
Property management fees 1,235 3.69%
Net Increase (Decrease) $61,295 9.79%
THIRD QUARTER 2003 COMPARED TO THIRD QUARTER 2002
Revenue from property operations increased $2,596 or 1.15%, for
the third quarter of 2003, as compared to the 2002 third quarter.
Rental income increased $4,699 or 2.14% from higher rental rates.
Other income decreased $2,103 or 35.39% primarily due to
decreased fees. The following table illustrates the components:
Increase Percent
(Decrease) Change
Rental income $4,699 2.14%
Other property (2,103) 35.39%
$2,596 1.15%
Property operating expenses increased $5,310 or 2.54%, for the
third quarter of 2003, as compared to the same period in 2002.
This was primarily due from increased general & administrative
costs. General & administrative costs increased $5,289 or 63.09%
primarily due to increased mailing costs, and professional fees.
Maintenance & repairs decreased $1,294 or 13.74% due to less
demand for maintenance supplies. Payroll increased $2,088 pr
10.79% due to increased salaries. The following table
illustrates the components by category:
Increase Percent
(Decrease) Change
Salaries & wages $2,088 10.79%
Maintenance & repairs (1,294) 13.74%
Utilities (48) 0.57%
Real estate taxes 334 1.16%
General administrative 5,289 63.09%
Contract services 480 4.01%
Insurance (534) 5.39%
Interest (1,216) 2.36%
Property management fees 211 1.88%
Net Increase $5,310 2.54%
(Decrease)
FIRST NINE MONTHS 2003 COMPARED TO FIRST NINE MONTHS 2002
Revenue from property operations decreased $704 or 0.10%, for the
first nine months of 2003, as compared to the 2002 first nine
months. Other income decreased $823 or 5.19% primarily due to
decreased fees. The following table illustrates the components:
Increase Percent
(Decrease) Change
Rental income $119 0.02%
Other property (823) 5.19%
($704) 0.10%
Property operating expenses increased $4,151 or 0.67%, for the
first nine months of 2003, as compared to the same period in
2002. This was primarily due from decreased general &
administrative costs. General & administrative costs decreased
$4,596 or 13.21% primarily due to decreased mailing costs, and
professional fees. Insurance increased $3,717 or 14.67% due to
increased rates at renewal. Contract services increased $3,519
or 10.84% due to higher cable rates. The following table
illustrates the components by category:
Increas Percent
(Decrease) Change
Salaries & wages $1,832 3.09%
Maintenance & repairs 52 0.25%
Utilities 1,385 5.65%
Real estate taxes 1,336 1.55%
General administrative (4,596) 13.21%
Contract services 3,519 10.84%
Insurance 3,717 14.67%
Interest (3,190) 2.05%
Property management fees 96 0.29%
Net Increase (Decrease) $4,151 0.67%
LIQUIDITY AND CAPITAL RESOURCES
While it is the General Partners primary intention to operate and
manage the existing real estate investments, the General Partner
also continually evaluates this investment in light of current
economic conditions and trends to determine if these assets
should be considered for disposal. Accordingly, in 1996 the
Partnership sold its investment in the shopping center located in
Lancaster, Texas, recognizing a loss of $10,177. Shorewood
Apartments, an apartment complex located in Charlotte, North
Carolina was sold in January 1997. Net proceeds from the sale
were 1.3 million dollars resulting in cash distribution of
$100.00 per unit.
As of September 30, 2004, the Partnership had $348,846 in cash
and cash equivalents as compared to $240,219 as of December 31
2003. The net increase in cash of $108,627 is principally due to
cash flow from operations.
On September 30, 2002 the partnership distributed $15.00 per
limited partnership unit to units of record September 30, 2002.
This distribution was made from excess cash on hand from cash
flow from operations.
The property is encumbered by non-recourse mortgage as of
September 30, 2004, with an interest rate of 9.325%. Required
principal payments on this mortgage note for the two years ended
December 31, 2005, are $59,039 and $2,079,227 respectively.
For the foreseeable future, the Partnership anticipates that
mortgage principal payments (excluding balloon mortgage
payments), improvements and capital expenditures will be funded
by net cash from operations. The primary source of capital to
fund future Partnership acquisitions and balloon mortgage
payments will be proceeds from the sale, financing or refinancing
of the properties.
On February 7, 1995 the Partnership refinanced the loan on
Chimney Square Apartments. The original loan matured and a new
$2,475,000 loan bearing interest at 9.325% per year was secured
from Newport Mortgage Company L.P. The loan matures on March 1,
2005. In connection with this loan, the lender required, and the
Partnership provided, a new single asset partnership known as
Chimney Square Apartments, owned 99% by the Fund.
In February 1991, Amrecorp Realty Inc., resigned as the Managing
General Partner of the Partnership. As was communicated to all
limited partners, this step was taken in order to minimize any
effect that Amrecorp's financial difficulties might have on the
partnership. Management of the Partnership's assets is performed
by Univesco, Inc., a Texas corporation, Robert J. Werra, CEO.
Management intends to continue operating the Partnership in its
present form while investigating options to improve operations of
the Partnership.
Item 3 - Quantitative and Qualitative Disclosure about Market
Risk
The Partnership is exposed to interest rate changes
primarily as a result of its real estate mortgages. The
Partnerships interest rate risk management objective is to limit
the impact of interest rate changes on earnings and cash flows
and to lower it's overall borrowing costs. To achieve its
objectives, the Partnership borrows primarily at fixed rates.
The Partnership does not enter into derivative or interest rate
transactions for any purpose.
The Partnerships' activities do not contain material risk
due to changes in general market conditions. The partnership
invests only in fully insured bank certificates of deposits, and
mutual funds investing in United States treasury obligations.
Item 4 - Controls and Procedures
Based on their most recent evaluation, which was completed
within 90 days of the filing of this Form 10-Q, our Acting
Principal Executive Officer and Chief Financial Officer, believe
our disclosure controls and procedures (as defined in Exchange
Act Rules 13a-14 and 15d-14) are effective. There were not any
significant changes in internal controls or in other factors that
could significantly affect these controls subsequent to the date
of their evaluation, and there has not been any corrective action
with regard to significant deficiencies and material weaknesses.
Part II
Other Information
Item 1. Legal Proceedings
See Part I Item 2. Management's Discussion
and Analysis of Financial Conditions and
Results of Operations.
Item 2. Changes in Securities.
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matter to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
None.
(A) The following documents are filed herewith or incorporated
herein by reference as indicated as Exhibits:
Exhibit Designation Document Description
Limited Partnership Agreement
incorporated by reference to Registration
Statement No. 2-90654 effective
July 6, 1984.
Limited Partnership Agreement
incorporated by reference to Registration
Statement No. 2-90654 effective
July 6, 1984.
11 Not Applicable
15 Not Applicable
18 Not Applicable
19 Not Applicable
20 Not Applicable
23 Not Applicable
31.1
Certification Pursuant to
Rules 13a-14 and 15d-14 Under
the Securities Exchange Act of
1934, as Adopted Pursuant to
Section 302 of the Sarbanes-
Oxley Act of 2002, filed
herewith.
32.1 Certification Pursuant to 18
U.S.C. Section 1350, as
Adopted Pursuant to Section
906 of the Sarbanes-Oxley Act
of 2002, filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
AMRECORP REALTY FUND II
a Texas limited partnership
By: /s/ Robert J. Werra
Robert J. Werra,
General Partner
Date: October 30, 2004
Exhibit 31.1
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I Robert J. Werra, Acting Principal Executive Officer and Chief
Financial Amrecorp Realty Fund II ("the Company"), certify that:
1. I have reviewed this quarterly report on Form 10-Q of the
Company;
2. Based on my knowledge, this quarterly report does not
contain any untrue statement of a material fact or omit
to state a material fact necessary to make the statements
made, in light of the circumstances under which such
statements were made, not misleading with respect to the
period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and
other financial information included in this quarterly
report, fairly present in all material respects the
financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented
in this quarterly report;
4. I am responsible for establishing and maintaining
disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting (as defined in Exchange
Act Rules 13a-15(f) and 15d-15(f)) for the Company and
have:
a. designed such disclosure controls and procedures, or
caused such disclosure controls and procedures to be
designed under my supervision, to ensure that material
information relating to the company and its consolidated
subsidiaries is made known to me by others within those
entities, particularly for the periods presented in this
quarterly report;
b. designed such internal control over financial reporting,
or caused such internal control over financial reporting
to be designed under my supervision, to provide
reasonable assurance regarding the reliability of
financial reporting and the preparation of financial
statements for external purposes in accordance with
generally accepted accounting principles.
c. evaluated the effectiveness of the Company's disclosure
controls and procedures and presented in this report my
conclusions about the effectiveness of the disclosure
controls and procedures, as of the end of the period
covered by this report based on such evaluation; and
CERTIFICATION PURSUANT TO RULES 13a-14 AND 15d-14 UNDER
THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 - continued
d. disclosed in this report any change in the Company's internal
control over financial reporting that occurred during the
Company's most recent fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the
Company's internal control over financial reporting; and
5. I have disclosed based on my most recent evaluation of
internal control over financial reporting, to the Company's
auditors and Audit Committee of the Board of Directors (or
persons fulfilling the equivalent function):
a. all significant deficiencies and material weaknesses in the
design or operation of internal control over financial
reporting which are reasonably likely to adversely affect the
Company's ability to record, process, summarize, and report
financial data; and
b. any fraud, whether or not material, that involves management
or other employees who have a significant role in the
Company's internal control over financial reporting.
/s/ Robert J. Werra
Robert J. Werra
Acting Principal Executive Officer and Chief Financial Officer
October 30, 2004
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Amrecorp Realty Fund II
("the Company") on Form 10-Q for the period ending September 30,
2004 as filed with the Securities and Exchange Commission on the
date hereof ("the Report"), I, Robert J. Werra, Acting Principal
Executive Officer and Chief Financial Officer of the Company,
certify, pursuant to 18 U.S.C. 1350, as adopted pursuant to 906 of
the Sarbanes-Oxley Act of 2002, that:
(1) The report fully complies with the requirements of section
13(a) or 15(d) of the Securities Exchange Act of 1934, as
amended; and
(2) The information contained in the Report fairly presents,
in all material respects, the financial condition and results
of operations of the Company.
/s/ Robert J. Werra
Robert J. Werra
Acting Principal Executive Officer and Chief Financial Officer
October 30, 2004