UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended June 30, 1998
Commission File Number 1-8893
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2501059
- --------------------------------- ---------------------------------------
(State of other jurisdiction (I.R.S. Employer Identification Number)
of incorporation or organization)
2501 S. Ocean Drive
Hollywood, Florida 33019
- ---------------------------------------- ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (954) 927-3080
--------------
NONE
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last report
Indicate by checkmark 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 [ X ] NO [ ]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
CLASS Outstanding at June 30, 1998
Limited Partnership Units 4,485,504 units
<PAGE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
INDEX
Page Number
-----------
PART I. Financial information
Balance sheets -
June 30, 1998 and
September 30, 1997 2
Statements of income -
Three months and nine months ended
June 30, 1998 and 1997 3
Statements of cash flows -
Three months and nine months ended
June 30, 1998 and 1997 4-5
Notes to financial statements 6
Management's discussion and analysis
of financial condition 7-10
Part II. Other information and signatures 11-12
<PAGE>
<TABLE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
BALANCE SHEETS
<CAPTION>
June 30, September 30,
1998 1997
---------- ----------
(unaudited)
<S> <C> <C>
ASSETS
Cash ......................................... $ 30,128 $ 48,738
Mortgage notes and other receivables:
Mortgage receivable ........................ -- 101,250
Other receivables .......................... 1,241 275,303
Property held for sale ....................... 4,153,845 4,739,939
Other assets ................................. 79,373 62,944
---------- ----------
$4,264,587 $5,228,174
========== ==========
LIABILITIES AND EQUITY
Liabilities:
Mortgage payable, bank ..................... $1,038,152 $1,675,972
Accounts payable and accrued
liabilities .............................. 843,855 761,325
Estimated cost of development
of land and property sold ................ -- 30,142
---------- ----------
1,882,007 2,467,439
Equity:
Partners' equity, 4,485,504 units
outstanding .............................. 2,382,580 2,760,735
---------- ----------
$4,264,587 $5,228,174
========== ==========
</TABLE>
See notes to financial statements
-2-
<PAGE>
<TABLE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
THREE MONTHS AND NINE MONTHS ENDED
JUNE 30, 1998 AND 1997
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------- ----------------------
1998 1997 1998 1997
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues $ 618,981 $ 327,224 $1,728,506 $2,307,755
--------- --------- ---------- ----------
Cost and expenses:
Cost of sales 499,621 305,115 1,370,755 1,198,078
Selling, general and
administrative expenses 185,998 152,308 499,861 569,107
Interest 31,282 - 54,617 33,434
Depreciation and
property taxes 70,094 2,209 181,428 97,352
--------- --------- ---------- ----------
Total costs and expenses 786,995 459,632 2,106,661 1,897,971
--------- --------- ---------- ----------
Net income (loss) $(168,014) $(132,408) $ (378,155) $ 409,784
========= ========= ========== ==========
Net income (loss) per unit $ (0.04) $ (0.03) $ (0.08) $ 0.09
========= ========= ========== ==========
Weighted average number of
units outstanding 4,485,504 4,485,504 4,485,504 4,485,504
========= ========= ========== ==========
</TABLE>
See notes to financial statements
-3-
<PAGE>
<TABLE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
THREE MONTHS AND NINE MONTHS ENDED
JUNE 30, 1998 AND 1997
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
---------------------------- ----------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Cash was received from:
Collections on sales
and receivables $ 687,577 $ 192,000 $ 1,850,032 $ 2,170,945
Interest income 702 224 6,821 810
Sale of utility system -- -- 228,660 127,393
Other 399 -- 18,305 1,000
----------- ----------- ----------- -----------
688,678 192,224 2,103,818 2,300,148
----------- ----------- ----------- -----------
Cash was expended for:
Selling, administrative
and property taxes 159,487 114,879 566,444 1,052,643
Interest paid (net of
amounts capitalized) 31,282 -- 54,617 79,307
Improvements to property 59,244 377,934 863,547 902,291
----------- ----------- ----------- -----------
250,013 492,813 1,484,608 2,034,241
----------- ----------- ----------- -----------
Net cash provided by (used
in) operating activities 438,665 (300,589) 619,210 265,907
----------- ----------- ----------- -----------
Cash flow from financing activities:
Proceeds from mortgage
notes payable: Bank -- 363,820 662,180 731,046
Payments on mortgage
payable: Bank (500,000) (100,000) (1,300,000) (180,000)
General partner -- -- -- (527,248)
Related party -- -- -- (325,000)
----------- ----------- ----------- -----------
Net cash provided by
(used in) financing
activities (500,000) 263,820 (637,820) (301,202)
----------- ----------- ----------- -----------
Net increase (decrease)
in cash (61,335) (36,769) (18,610) (35,295)
Cash, beginning of period 91,463 42,925 48,738 41,451
----------- ----------- ----------- -----------
Cash, end of period $ 30,128 $ 6,156 $ 30,128 $ 6,156
=========== =========== =========== ===========
</TABLE>
See notes to financial statements
-4-
<PAGE>
<TABLE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
RECONCILIATION OF NET LOSS TO NET CASH
USED IN OPERATING ACTIVITIES
THREE MONTHS AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------------ ------------------------
1998 1997 1998 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net income (loss) $(168,014) $(132,408) $(378,155) $ 409,784
--------- --------- --------- ---------
Adjustments to reconcile net
income (loss) to net cash
provided by (used in)
operating activities:
Depreciation 472 688 1,534 2,066
Change in assets and
liabilities:
Increase in:
Mortgage notes and
other receivables -- (143,717) -- (14,971)
Property held for sale -- (143,469) -- --
Other assets (40,171) (58,129) (17,963) (14,366)
Accounts payable and
accrued liabilities 151,481 176,446 82,530 --
Decrease in:
Mortgage notes and
other receivables 69,697 -- 375,312 --
Property held for sale 425,200 -- 586,094 356,466
Accounts payable and
accrued liabilities -- -- -- (473,072)
Estimated costs of
development of land
and property sold -- -- (30,142) --
--------- --------- --------- ---------
Total Adjustments 606,679 (168,181) 997,365 (143,877)
--------- --------- --------- ---------
Net cash flow provided by
(used in) operating
activities $ 438,665 $(300,589) $ 619,210 $ 265,907
========= ========= ========= =========
</TABLE>
See notes to financial statements.
-5-
<PAGE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS AND NINE MONTHS ENDED
JUNE 30, 1998 AND 1997
1. Interim financial statements:
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-Q and do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the nine months ended June 30, 1998 are not
necessarily indicative of the results that may be expected for the
fiscal year ending September 30, 1998. These statements should be read
in conjunction with the financial statements and notes thereto included
in the Company's Annual Report on Form 10-K for the fiscal year ended
September 30, 1997.
2. Income tax:
The Partnership has made no provision for income taxes since it is not
subject to income taxes. Instead, the partners are required to include
in their income tax returns their share of the Partnership's taxable
income or loss.
-6-
<PAGE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS THREE MONTHS
AND NINE MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
Results of Operations
During the three month periods ended June 30, 1998 and 1997, the
Partnership had revenues totaling $618,981 and $327,224, respectively, and net
losses, respectively, of ($168,014) or ($0.04) per unit, compared with a net
loss of ($132,408) or ($0.03) per unit. During the three month periods ended
June 30, 1998, revenues derived almost entirely from from the sale of 21
residential lots from Phase II of the Crestwood tract for gross proceeds of
$598,500.
During the nine month periods ended June 30, 1998 and 1997,
the Partnership had revenues totaling $1,728,506 and $2,307,755, respectively,
and a net loss of ($378,155) or ($0.08 per unit), compared with net income of
$409,784, or $0.09 per unit in the prior year. During the nine month period
ending June 30, 1998, revenues derived almost entirely from the sale of 59
residential losts from Phase II of the Crestwood tract.
Since the Partnership's activities consist principally of the sale of
its remaining properties, and the timing of closing dates for such sales is
usually subject to contingencies which often result in changes to such closing
dates, a comparison of sales and income results from comparable periods in
different years or successive quarters is not considered meaningful.
Liquidity and Capital Resources
Proceeds from collections on sales and receivables for the three months
ended June 30, 1998 totalled $687,577, and after cash expenditures for selling,
administrative expenses and property taxes, interest paid and improvements to
property held for sale the net cash provided by operating activities amounts to
$438,665. The Company made payments on mortgages payable during the period of
$500,000. As a result, the Partnership's cash balances, which were $91,463 at
March 31, 1998 decreased to $30,128 at June 30, 1998. See Financial Information
Statements of Cash Flows.
The Partnership's future revenues will depend solely upon its ability
to develop and/or sell its remaining real estate, and upon receipts from a prior
sale of a utility plant. The Partnership's properties are described in Item 2 of
its report on Form 10-K for the year ended September 30, 1997 (the "Incorporated
1997 10K"). An extract from the Incorporated 1997 10K containing Items 1 and 2
thereof is annexed to this report as an Exhibit and is incorporated herein by
reference. The development and marketing status of these properties is described
in Item 2 of the Incorporated 1997 10-K.
At June 30, 1998, the Partnership retained and was holding for sale (1)
99 residential lots and commercial property in the "Crestwood" tract in the
Village, (2) multi-family zoned land in the Crestwood tract presently zoned for
a total of approximately 394 units, (3) a tract of 4.54 acres in the Village
zoned for approximately 84 multi-family residential units (4) 171 lots in the
vicinity of the Village zoned for single family homes but presently the subject
-7-
<PAGE>
of litigation as to the availability of building permits, (5) a 470-acre tract
in the vicinity of the Village, and (6) 12 acres in the vicinity of the Village
being jointly developed with an unrelated party - see "Acreage in the Vicinity
of the Village.
As described in Item 2 of the Incorporated 1997 10K, the Partnership is
committed to the continuing development of phases II and III of the "Crestwood"
single-family tract as the most efficacious manner in which to enhance
liquidation values. Between 1995 and 1997, the Partnership substantially
completed the off-site and on-site improvements required for the development of
the 198 lots in the Crestwood single-family residential subdivision. The
construction cost was financed partially through the issuance of bonds and
partially with development financing obtained from Union Bank of Florida. A
total of $2,918,152 was borrowed from Union Bank of Florida, of which $1,038,152
was outstanding as of June 30, 1998. The loan, which bears interest at 2% above
the bank's prime lending rate, was originally to mature on January 31, 1998 but
has been extended until September 17, 1999. As closings of lot sales are held,
the Partnership is obligated to pay down the bank at the rate of $20,000 per
lot. The remaining cost of the development was financed utilizing the net
proceeds ($1,074,000) of bonds issued by the Indian Trail Water Control
District, a governmental authority. The bonds are a direct obligation of the
District (and not of the Partnership) and are repayable as to principal and
interest from taxes levied on the lots in the Crestwood subdivision. The
issuance of the bonds increased the annual real estate tax on the entire
subdivision by approximately $117,000, or $600 per lot. As lots are sold, the
responsibility for payment of the taxes passed from the Partnership to the lot
purchasers.
Under the Partnership's agreement with Lennar Homes, Inc. ("Lennar"),
executed in August, 1996, (as described in the Incorporated 1997 10K) Lennar
contracted to purchase 86 lots over a two year period in Phase II of the
Residential Tract for an aggregate of $2,451,000. A closing on 8 lots occurred
prior to September 30, 1997, resulting in gross proceeds to the Partnership of
approximately $225,500 and net proceeds, after mandatory loan reductions of
$20,000 per lot and brokerage commissions and other and closing costs, of
approximately $43,000. An additional 16 lots were sold to Lennar and one lot to
another builder during the quarter ended December 31, 1997 for aggregate gross
proceeds of $484,500 and net proceeds, after mandatory loan reductions of
$20,000 per lot and brokerage commissions and other selling and closing costs,
of approximately $96,000. There were no sales pursuant to this agreement in the
quarters ended March 31 1998. During the quarter ended June 30, 1998 21 lots
were sold pursuant to this agreement for aggregate gross proceeds of $598,500
and net proceeds (after manadatory loans reductions, closing costs and
commissions of $469,000) were approximately $129,500.
During the current fiscal year, and based upon management's judgment
that ordinary operating expenses will not increase, the Partnership anticipates
that cash flow and liquidity requirements will be satisfied by the Union Bank
financing described above, land sales, contingent utility receipts described
"Utility Contingent Receipts" in the Incorporated 1997 10K, and bank financing.
As above indicated, however, sales of land are subject to conditions which might
not be satisfied, although the Partnership has no present knowledge of
circumstances which would render likely the non-satisfaction of such conditions.
-8-
<PAGE>
Affect of Land Sales on Future Cash Flow
The Partnership's future revenues will depend solely upon its ability to develop
and/or sell its remaining real estate, and upon receipts from a prior sale of a
utility plant. At June 30, 1998, the Partnership retained and was holding for
sale (1) 99 residential lots and commercial property in the"Crestwood" tract in
the Village, (2) multi-family zoned land in the Crestwood tract presently zoned
for a total of approximately 394 units, (3) a tract of 4.54 acres in the Village
zoned for approximately 84 multi-family residential units (4) 171 lots in the
vicinity of the Village with zoning which permits construction of single family
homes but presently the subject of litigation as to the availability of building
permits, (5) a 470-acre tract in the vicinity of the Village, and (6) 12 acres
in the vicinity of the Village being jointly developed with an unrelated party -
see "Acreage in the Vicinity of the Village. The development and marketing
status of these properties is described in the Incorporated 1997 10-K.
Although the Partnership has contracted to sell substantial portions of
its residential land inventory, the requirement to repay indebtedness incurred
to finance necessary on and off-site development work required by the terms of
sales contracts makes unlikely distributions to partners at least until the
latter part of fiscal 1999, and distributions in 1999 or thereafter will depend
upon the rate of sales of remaining land, and the prices obtainable therefor,
and collection of Contingent Utilities Receipts described in Item 2 of the
Incorporated 1997 10-K.
Total net cash flow which might become available for distribution is
also unpredictable due to uncertain conditions in the South Florida real estate
market in which the Partnership's remaining real estate is located, and
competition from other owners and developers of real estate in the South Florida
market. These conditions will continue to affect the realizable value of the
Partnership's remaining land, including decisions by parties holding options on
the Partnership's land to exercise such options in whole or in part. The rate of
construction in the Village of Royal Palm Beach could also significantly affect
future payments to the Partnership under the contract described under the
caption "Utilities Contingent Receivable" under Item 2 of the Incorporated 1997
10-K. As indicated under such caption, it is now considered unlikely that the
rate of new construction or water consumption in such area will increase to a
level which is sufficient to enable the Partnership to receive the full amount,
or even a substantial portion of such maximum payments prior to the expiration
of the contingent payment term.
Cost of Sales
Cost of sales relates to the sales of land as discussed above. This
item varies as a result of dissimilar profit margins and income recognition
methods on the various sales of land and buildings as discussed above. Selling,
Administrative and other expenses Selling, general and administrative expenses,
have not varied significantly between the periods.
Interest Expense
During the nine months ended June 30, 1998 interest of approximately
$115,000 was incurred and $61,000 was capitalized. During the nine months ended
June 30, 1997 interest of approximately $169,000 was incurred and $136,000 was
capitalized.
-9-
<PAGE>
Income Taxes
The Partnership, pursuant to the transitional grandfather rules of the
Internal Revenue Code dealing with publicly traded partnerships, has reported
its income as a Partnership. The application of the grandfather rules was
scheduled to terminate for the taxable year commencing after December 31, 1997.
Under the recently enacted Taxpayer Relief Act of 1997, a publicly traded
partnership that is currently governed by this provision may elect to continue
its Partnership tax status beyond December 31, 1997 by agreeing to pay an annual
3.5% Federal Tax on its gross income for Federal Income Tax purposes
(principally revenues less cost of land sold) from the conduct of its active
trade or business. The Partnership has made such election. These provisions will
become operativeas to the Partnership for the taxable year commencing October 1,
1998.
-10-
<PAGE>
PART II - OTHER INFORMATION
(a) Exhibits - 99- Copy of Items 1 and 2 from Annual Report of the
Registrant on Form 10-K for the fiscal year ended September 30,
1997.
(b) Reports on Form 8-K - None
-11-
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ROYAL PALM BEACH COLONY,
LIMITED PARTNERSHIP
By: Stein Management
Company,Inc.
Managing General Partner
DATE: August 17, 1998 By: /s/ Irving Cowan
---------------------
Irving Cowan
President
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> JUN-30-1998
<CASH> 30,128
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 4,153,845
<CURRENT-ASSETS> 4,185,214
<PP&E> 21,843
<DEPRECIATION> 20,041
<TOTAL-ASSETS> 4,264,587
<CURRENT-LIABILITIES> 843,855
<BONDS> 1,038,152
0
0
<COMMON> 0
<OTHER-SE> 2,382,580
<TOTAL-LIABILITY-AND-EQUITY> 4,264,587
<SALES> 1,703,380
<TOTAL-REVENUES> 1,728,506
<CGS> 1,370,755
<TOTAL-COSTS> 2,052,044
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 54,617
<INCOME-PRETAX> (378,155)
<INCOME-TAX> 0
<INCOME-CONTINUING> (378,155)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (378,155)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
Item 1. Business
(a) General Development Of Business
Royal Palm Beach Colony, Limited Partnership (the "Partnership" or the
"Registrant") was organized under the Delaware Revised Uniform Limited
Partnership Act. The Partnership is a successor to Royal Palm Beach Colony,
Inc., (the "Predecessor Company") a Florida corporation organized in 1963.
Pursuant to a Plan of Complete Liquidation (the "Plan"), the Predecessor Company
transferred all of its assets, subject to all of its liabilities, to the
Partnership in exchange for a number of partnership units ("Units") exactly
equal to the number of shares of common stock of the Predecessor Company
outstanding on July 11, 1985 (the "Effective Date").
On the Effective Date, the Units were distributed to the former
holders of common stock of the Predecessor Company on the basis of one (1) Unit
for each share of common stock of the Predecessor Company. The Partnership, as a
successor to the Predecessor Company, has registered its Units under Section 12
(b) of the Securities Exchange Act of 1934. Under the Amended Agreement of
Limited Partnership of the Registrant, the term of the Partnership expires
December 31, 2005, unless extended by vote of a majority of the partnership
units. Trading in Partnership Units The Units are currently trading
over-the-counter under the symbol "RPAMZ."
Results of Liquidation Activities
The Partnership's principal business has been to operate, manage and
dispose of the assets which were transferred to it on the Effective Date by the
Predecessor Company. Since the Effective Date of the Predecessor Company's
liquidation, the Partnership has engaged in a program of asset disposition
resulting in the sale of assets for an aggregate gross consideration of
$68,172,020. As of December 31, 1997, the Partnership had distributed an
aggregate of $29,156,000, or $6.50 per Unit, to the general and limited
partners. See Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters "Prior Distributions." As of September 30, 1997, the
Partnership's remaining assets consisted principally of; (1) 154 residential
lots plus commercial property and multifamily-zoned land in the Village of Royal
Palm Beach (the "Village"), a portion of which is now under development (see
Item 2 -- Properties -- "Village of Royal Palm Beach"), which land was
reacquired in January, 1992 by foreclosure of a mortgage and which is included
in the balance sheet at $3,948,208 (this tract is hereinafter referred to as the
"Crestwood" tract), (2) unsold land in Palm Beach County, Florida which is
included in the balance sheet at its book value of $503,005 (3) a tract of land
in the Village reacquired by foreclosure in 1993 and included in the balance
sheet at $288,726, (4) contingent receivables relating to a prior sale of
utility assets with a maximum future undiscounted value of $5,476,000 (which
amount, other than $228,660 earned as of September 30, 1997 but not payable to
the Partnership until January, 1998, has not been included in the balance sheet
due to its contingent nature -- see Note 10 to the Financial Statements), and
(5) a mortgage note receivable in the amount of $101,250 and (7) cash in the
amount of $48,738. Through December 31, 1997, there had been no material changes
in the Partnership's real estate assets, except for the closing of sales of 17
residential lots for aggregate gross proceeds of $484,500. See Item 2 -
"Residential Lots Within the Crestwood Tract."
Factors Affecting Future Operations and Distributions
The availability of cash for distribution in the future will depend
upon a variety of factors not currently determinable.
<PAGE>
(1) Current Activities
In early 1992, a large portion of the Partnership's remaining land
consisted of the undeveloped 165 acre "Crestwood" Tract described above, which
had been sold during the process of the Partnership's liquidation but reacquired
by the Partnership in 1992 when the purchaser was unable to service the interest
and amortization payments to the Partnership on a $5,039,952 purchase money
mortgage. Management's attempts to remarket the Crestwood Tract on a bulk basis
were unsuccessful. Management perceived that due to changes in the market for
real estate in southern Florida, the Crestwood Tract would continue to be
difficult to market at acceptable prices. Among other factors depressing the
local market was the "overhang" of large undeveloped tracts which were on the
market as the result of bank insolvencies. Although management has considered
several options concerning the most advantageous manner of disposing of this
tract, including possible business combinations with other companies in the
construction business, it was determined that unitholder values could most
effectively be increased if some or all of the Crestwood Tract were temporarily
withheld from sale and selectively developed. In the judgment of management, the
prospective incremental increase in selling prices of developed land over
amounts which might reasonably be anticipated from the sale of the land in its
raw state would substantially exceed the cost of developing such land, and
warranted investment of a portion of the Partnership's cash assets in
development activities. Management therefore commenced the development of one
portion of the Crestwood Tract, consisting of originally of 170 lots zoned for
single family housing (increased in a revised site-plan to 198 lots), in order
to enhance its sale value. Management's decision to commence development was
influenced, in part, by an appraisal obtained in 1992 of the Crestwood Tract
which indicated that such tract had a then current fair market value in the
approximate amount of $4,500,000 and could have a significantly higher value if
rezoning and re-permitting work were accomplished. Management was further of the
opinion that the Crestwood Tract would have an indefinite but substantially
higher value if developed with roads and a utility infrastructure. See Item 2 --
Properties -"Village of Royal Palm Beach."
While management might consider a business combination with an
appropriate operating business, it is not presently actively seeking such
transactions. The Partnership is proceeding with the liquidation of its
remaining assets. In connection therewith, the Partnership substantially
completed development of the residential lots in the Crestwood tract during the
1997 fiscal year, and may develop other properties if such development would
enhance liquidation values. The status of real estate dispositions and
development is discussed in Item 2 below.
(2) Cash Available for Distribution
Management intends to continue to invest in the development of portions
of the Partnership's remaining land in Palm Beach County as a means of achieving
a higher return upon sale. Because of a substantial reduction in sales revenues
in 1993 and 1994, and the cash requirements for such land development activities
in 1995, together with cash expenditures in connection with the proposed
transaction with Regency Homes, Inc. and normal operating expenses, no cash has
been available for distribution since December 1992. Although at currently
targeted sales prices the Partnership could realize gross cash proceeds from the
sale of the Crestwood lots owned as of the end of the fiscal year (including 97
<PAGE>
lots then under contract) in a range of $4,500,000, there can be no assurance
that currently targeted prices will be realized, and initial sales proceeds will
be applied to repayment of debt, including bank financing aggregating
approximately $1,675,972 as of the end of the fiscal year. It is presently
uncertain whether that cash will be available for distribution in 1998. See Item
2 - "Development and Sale of Residential Lots;" and Item 7 -- "Management
Discussion and Analysis of Financial Condition -- Liquidity and Capital
Resources."
The timing of the resumption of liquidating distributions will depend
largely upon the timing of future sales of the Partnership's remaining land
(developed or undeveloped) and future collections of contingent receivables
relating to a prior sale of a utility plant. See Item 2 -- Properties, for a
discussion of other sources of and anticipated timing of the receipt of revenue
which will affect future distributions.
(b) Financial Information About Industry Segments
Not applicable.
(c) Narrative Description Of The Business
Regulation
Development and sales operations of the Partnership or by potential
purchasers of real estate from the Partnership have been subject to regulation
by a number of local, state and federal agencies concerning the nature and
extent of improvements, and compliance with zoning regulations, building codes,
health requirements and environmental protection. The Partnership believes that
it has been in substantial compliance with all such laws and regulations which
affect its properties and that it has developed the properties to the extent
required by contract or law. If such laws or regulations are amended, in
particular those concerning environmental protection, the cost of compliance
could be increased. Reference is made to the discussion concerning the impact of
land use regulatory issues affecting salability of certain properties remaining
in Palm Beach County in Item 2 -- Properties -- "Acreage in the Vicinity of the
Village."
Competition
The real estate business conducted by the Partnership is highly
competitive. The Partnership's sales of its remaining land will compete with
surrounding developments, and with owners of tracts of land in the area of all
its properties. There are substantial tracts of vacant land and land under
development in the general area of most of the Partnership's remaining real
estate. These competitive considerations could affect the decisions of potential
purchasers of the Partnership's remaining properties. The Partnership has
historically marketed its properties through direct mail advertising to major
brokers and developers, advertisements in major regional newspapers and direct
contacts between officers of the Managing General Partner and real estate
developers and brokers. The Partnership is currently marketing its remaining
properties through local real estate brokers, including Randy Rieger, who served
as interim Vice President and Chief Operating Officer of the Partnership's
managing general partner between September 1995 and February 1996. Mr. Rieger
currently provides services as an independent consultant to the Partnership for
management services in addition to ongoing brokerage services. See Item 13 --
"Certain Relationships and Related Transactions."
Impact of General Economic Conditions
The development and sale of real estate occurs within a historically
cyclical market, and is significantly influenced by general economic conditions.
<PAGE>
Sales of housing units and sales of tracts to builders are particularly affected
by the costs and availability of mortgage financing and the rise and fall of
interest rates in general. Interest rates have moved in a narrow range during
1996 and 1997. If significant increases occur in the future, the real estate
market could suffer as a result.
Personnel.
As of December 31, 1997, Stein Management Company, Inc. ("Steinco")the
Managing General Partner, employed 1 person, who acts as an an adminstrator. The
balance of the Partnership's affairs are carried out by independent brokers,
contractors and other consultants under the direction of the Board of Directors
of Steinco. See Item 10.
Office Facilities The Partnership's executive headquarters are located
at 2501 S. Ocean Drive, Hollywood, Florida 33019. The premises are owned by an
affiliate of Hasam Realty Limited Partnership ("Hasam L.P."), a general partner
of the Partnership, and are being made available to the Partnership as an
accommodation without charge.
Item 2. Properties
Palm Beach County, Florida
The Company originally owned approximately 2,000 acres in Palm Beach
County, in southeastern Florida, approximately 4,200 of which were located
within the Village. The Village of Royal Palm Beach The Village, an incorporated
municipality, is approximately eight miles from the Palm Beach International
Airport and eleven miles west of Palm Beach. Two major area highways, Southern
Boulevard and Okeechobee Road, lead directly from Palm Beach through West Palm
Beac to the Village. The Village has a population of approximately 16,000 and is
primarily residential. The Village has been developed in accordance with a
master plan and includes schools, shopping facilities, community recreation
areas, and its own police and fire departments.
The Crestwood Tract
Although the Partnership had previously sold nearly all of its land in
the Village, it reacquired in 1992, through foreclosure of a defaulted purchase
money mortgage, the 165 acre Crestwood Tract of undeveloped land in the Village.
When reacquired, the Crestwood Tract was zoned and preliminary approval had been
obtained for the development of 172 single-family homesites (the "Single Family
Tract") and 625 multi-family units. The Crestwood Tract is bisected by a
principal Village road and has access to all utilities, but is otherwise
undeveloped with the exception of the existence of portions of a drainage
system.
Commercial Land within the Crestwood Tract
In order to enhance the market value of the Crestwood Tract, the
Partnership obtained the rezoning of a 28 acre portion of the Crestwood Tract
previously zoned for multi-family housing to permit the Partnership to develop a
14 acre portion for use as a shopping center site. The Partnership received
site-plan approval in mid-1996. The Partnership has executed an agreement to
sell the entire 28 acre portion to an unaffiliated shopping center developer
("Purchaser") in four phases.
The closing on the first phase of the Commercial Site, consisting of a
11.8-acre shopping center site, occurred in February, 1997, resulting in gross
proceeds of approximately $1,538,757.
<PAGE>
The second and third phases consist of two additional parcels in the
14 acre portion rezoned as described above, and adjoin the shopping center site,
but as to which building permits are not expected to be available for
approximately four years. As to such parcels, the Partnership has agreed, for a
period ending in February, 2002, to accord an option to the Purchaser to acquire
the parcels, with the price to be paid dependent on the terms upon which the
Purchaser leases or sells such parcels to an unaffiliated third party. In such
event the Purchaser will pay to the Partnership, (i) in the event of a lease, a
sum equal to the five times the average annual rental under the lease, and (ii)
in the event of a sale, 50% of the net proceeds of the sale; provided that the
Partnership is not required to accept less than $3.50 per square foot. If the
Partnership itself obtains an unsolicited offer to lease or purchase the parcels
which the Partnership desires to accept, th Purchaser may exercise a right of
first refusal in which case the Partnership must accept (i) in the event of a
lease, a sum equal to five times the average annual rental to be paid by the
third party during the first five years of the proposed lease, and (ii) in the
event of a sale, 50% of the net proceeds to be paid by the third party. The
Partnership and the Purchaser are presently seeking approval from the Village to
accelerate the as of which certain of these parcels may be developed with retail
uses; this process, if successful (as to which there is no assurance) would
accelerate exercise of the options and payment to the Partnership
The final phase relates to a contiguous 14-acre parcel as to which
rezoning from the current multi-family to commercial use is not considered
feasible for several years. The Purchaser has been granted an option ending four
years after the first closing to acquire this parcel at $3.50 per square foot
(approximately $2,129,000 subject to survey). However, after two years from the
first closing, the Partnership is entitled to market this property for
multi-family residential purposes only. If the Partnership receives an offer for
a price which is less than the option price, it must offer to the Purchaser a
right of first refusal at the same price.
Randy Rieger, who became vice-president of the Partnership's managing
general partner in September, 1995 for an interim period following the death of
its President, is entitled to a commission of 10% of the net proceeds to the
Partnership on all of the above-described transactions. See Item 13.
Residential Lots within the Crestwood Tract
As a result of management's decision to develop portions of the
Crestwood Tract, the Partnership has replanned the configuration of the entire
tract. This project has included a redesign of the Single Family Tract, and the
Partnership has now received final plat approval to increase to 198 the number
of residential lots which may be developed for single family use (hereinafter
the "Residential Tract." "Development," as such term is applied to single-family
lots, entails the completion of all necessary zoning, land use, environmental
and other required regulatory procedures, the installation of roads and utility
connections to each lot and the provision of drainage facilities.
Between 1995 and 1997, the Partnership substantially completed the
off-site and on-site improvements required for the development of the 198 lots
in the Crestwood single-family residential subdivision. The total construction
cost was financed partially through the issuance of bonds and partially with
development financing obtained from Union Bank of Florida. (See Item 13 -
"Certain Relationships and Related Transaction"). A total of $2,355,972 was
borrowed from Union Bank of Florida, of which $1,675,972 was outstanding as of
September 30, 1997. The loan, which bears interest at 2%
<PAGE>
above the bank's prime lending rate, was originally to mature on January 31,
1998 but has been extended until June 30, 1998. As closings of lot sales are
held, the Partnership is obligated to pay down the bank at the rate of $20,000
per lot. The remaining cost of the development has been financed utilizing the
net proceeds ($1,074,000) of bonds issued by the Indian Trail Water Control
District, a governmental authority. The bonds are a direct obligation of the
District (and not of the Partnership) and are repayable as to principal and
interest from taxes levied on the lots in the Crestwood subdivision. The
issuance of the bonds increased the annual real estate tax on the entire
subdivision by approximately $117,000, or $600 per lot. As lots are sold, the
responsibility for payment of the taxes passed from the Partnership to the lot
purchasers.
Under the Partnership's agreement with Lennar Homes, Inc. ("Lennar"),
executed in August, 1996, Lennar contracted to purchase 86 lots over a two year
period in Phase II of the Residential Tract for an aggregate of $2,451,000. A
closing on 8 lots occurred prior to September 30, 1997, resulting in gross
proceeds to the Partnership of approximately $225,500 and net proceeds, after
mandatory loan reductions of $20,000 per lot and brokerage commissions and other
and closing costs, of approximately $43,000. An additional 17 lots were sold to
Lennar and one lot to another builder during the quarter ended December 31, 1997
for aggregate gross proceeds of $484,500 and net proceeds, after mandatory loan
reductions of $20,000 per lot and brokerage commissions and other selling and
closing costs, of approximately $96,000.
During the 1997 fiscal year, the Partnership conveyed a total of 35
(including the 8 lots sold to Lennar as described above) for aggregate gross
proceeds of $1,014,500. As of September 30, 1997, a total of 97 additional were
under contract to Lennar and another homebuilder as to which, if all closings
were held thereunder, aggregate gross sale proceeds of $2,764,500 would be
generated. These contracts are not subject to any contingencies other than
completion of the on-site improvements and acceptance thereof by the Village of
Royal Palm Beach, and the Partnership's ability to convey good title.
The Company has entered into a contract to sell approximately 7.7
acres in the multi-family zoned land to a church for $350,000 subject only to
site plan approval. The Company has received an offer from a major real estate
development firm to purchase a substantial portion of the remainder of the
multi-family zoned land (comprising land zoned for approximately 288 residential
units), subject to a number of contingencies and the purchaser's satisfactory
due diligence.
Other Acreage Within the Village
In March, 1993 the Partnership reacquired a separate tract of 4.54
acres in the Village by accepting a deed in lieu of foreclosure on a mortgage
with a principal balance of $300,000 (See Item 7 --"Foreclosure Transactions").
This parcel is bordered by a golf course and a principal Village road, is zoned
for approximately 100 multi-family residential units and is being offered for
sale in its present state without further development. An agreement to sell this
acreage for $325,000 was terminated by the purchaser in November 1996 and the
property is currently being remarketed.
Utility Contingent Receivable
In 1983 the Partnership's Predecessor Company sold to the Village of
Royal Palm Beach a water and sewage treatment system servicing the Village.
Pursuant to the agreement of sale ("Utility Contract"), the Predecessor company
<PAGE>
received $2,510,000 on closing, and was entitled to future payments to a maximum
of $10,900,000 as future connections, measured by consumption increases, were
made to the system over a period ending August, 2001. As of September 30, 1997,
$5,257,000 had not been received or earned. The Utility Contract also provided
for contingent extension periods aggregating not more than three additional
years to compensate for possible future governmental building moratoriums or
water use restrictions. The Partnership's consultants have advised it that the
term has been extended through 2003 as a result of water usage restrictions
imposed by the South Florida Water Management District in 1990 and 1991 and
moratorium actions taken by the Village of Royal Palm Beach in 1985 and 1986.
The Utility Contract also calls for payments to the Partnership equal to 25% of
any "Guaranteed Revenues" (payment by developers to secure guaranteed
allocations of plant capacity) collected by the Village to a maximum payment of
$500,000, of which $281,000 has already been received. It is not possible to
predict the amount or timing of future revenues to the Partnership under this
program.
To date, the Partnership has received the following Utility Contract
payments:
<TABLE>
<CAPTION>
Amount Received Based On
Fiscal Year Ended ---------------------------------------------
September 30 Consumption Guaranteed Amounts
------------ ----------- ------------------
<S> <C> <C>
1984 $ 919,000
1985 830,000
1986 637,000
1987 859,000
1988 240,000 $ 30,000
1989 761,000 45,000
1990 -0- 35,000
1991 293,000 21,000
1992 357,000 37,000
1993 168,000 47,000
1994 58,000 27,000
1995 413,000 20,000
1996 108,000 19,000
1997* -- --
Total $5,643,000 $ 281,000
</TABLE>
* The Partnership received $229,000 in January, 1998.
The Utility Contract with extensions management believes have already
accumulated will expire in 2003, subject to extensions of up to one additional
year. The ability of the Partnership to realize the maximum price is dependent
upon the rate at which the population in the Village grows, and levels of water
consumption which in turn depends upon economic, social and climatic factors
which cannot be predicted. Historically, water consumption tends to increase
based upon increases in population. During most of fiscal 1990, however, due to
drought conditions existing in most Southern Florida, the South Florida Water
Management District imposed mandatory water usage restrictions. The imposition
of these restrictions resulted in a decrease in aggregate water consumption in
the area from which the Partnership's receipts are projected while population
was increasing.
<PAGE>
Management believes that there remain sufficient potential new home
water hookups in the area served by the utility to enable the Partnership to
realize the maximum remaining $5,257,000 in contingent payments under the
Utility Contract. Nevertheless, it is now considered unlikely that the rate of
new construction or water consumption in such area will be sufficient to enable
the Partnership to receive the full amount of such payments prior to the
expiration of the contingent payment term.
Acreage in the Vicinity of the Village
Substantially all of the property previously owned by the Predecessor
Company in Palm Beach County outside of the Village limits, originally
aggregating approximately 23,800 acres, was sold under the Predecessor Company's
retail installment sales program, which terminated prior to the inception of the
Partnership. The Partnership currently retains three tracts in the vicinity of
the Village.
The first tract originally consisted of 208 one-acre lots located
approximately eight miles northwest of the Village. These lots have been
improved with graded unpaved access roads and drainage facilities. One lot from
this tract was sold during 1996 for $12,000, and 36 were sold in 1997 for
$190,188, leaving a balance of 171 lots.
All of such lots are subject to numerous governmental regulations
under which new development may not be permitted unless adequate public
facilities (such as roads and drainage) must be in place concurrently with the
impacts of such development. The Indian Trail Water Control District prepared a
drainage plan which would result in an exemption for such lots from further
compliance with such concurrency requirements and would allow the issuance of
building permits for single-family residences on such lots. Such plan was
opposed by other governmental agencies, however, and the Palm Beach County
Health Department denied an application for septic tank permits, due to
inadequate drainage. Numerous additional permits are required before building
can be commenced, and there is no assurance that all of such permits can be
obtained.
Palm Beach County has adopted land development regulations under which
new development will not be permitted unless adequate public facilities (such as
roads) will be in place concurrently with the impacts of such development. The
Indian Trail Improvement District (formerly named the Indian Trail Water Control
District (the "District") is currently preparing a revised drainage plan which
could result in an exemption for such lots from further compliance with such
concurrency requirements and would allow the issuance of building permits for
single-family residences on such lots. Following the institution of
administrative proceedings to compel the issuance of septic tank permits, the
Partnership was successful in obtaining approval for such permits for 3 of the 4
lots for which application was made; the 4th lot was wetland and
requiredadditional mitigation. A plan covering all lots and allowing for
development has been opposed by certain governmental agencies, and it is
uncertain whether the plan will be adopted. If the plan is not approved, not all
of the lots may be usable for residential purposes. Nevertheless, the
Partnership believes that its success in obtaining some septic permits could
ultimately substantially increase the value of such lots and that the aggregate
realizable value of all such lots will be substantially above their book value
of $147,981.
<PAGE>
The second tract, consisting of 470 acres, had been reserved for use by
the District, in part, as a water retention area for such revised drainage plan.
The Partnership is presently evaluating possible alternative uses of this tract,
which contains a significant amount of wetlands. The use of this land is also
dependent on the extension of roads, and development activity on this tract may
meet with opposition from governmental agencies concerned with wildlife and
wetlands preservation. In 1996 the Partnership rejected an offer of $1,100,000
for this tract from the Nature Conservancy on behalf of Palm Beach County, and
retained Condemnation Counsel to negotiate a higher price. Subsequently, the
Partnership received an offer to purchase the 470 acre tract for $1,450,000 from
a user wishing to develop the property with a residential school and golf course
(with the Partnership also to retain a potentially valuable development site of
approximately 20 acres at the entrance to the larger parcel). The offer is
contingent upon completing the purchaser's due diligence to its satisfaction and
thereafter the obtaining of necessary land use approvals. There is no assurance
that this transaction will be completed or, if not, that a higher price can be
negotiated with the Nature Conservancy. However, management is of the opinion
that its realizable value is in excess of its current book value of $213,421.
The timing of future sales of the land discussed above, the manner in
which they may be developed and the ultimate realizable prices for this land are
dependent upon a complex and interrelated number of factors arising out of
governmental regulations concerning permissible land use.
The third tract in the vicinity of the Village the Partnership
previously held a disputed claim to approximately 24 acres of undeveloped land.
This claim had not originally been accorded value on the Partnership's balance
sheet and was considered to have little or no value. During 1994, in connection
with the resolution of this claim with adjoining land owners, and in order to
give value to such claim, the Partnership relinquished a portion of its claim,
acquired five adjoining acres for $141,879, and executed a joint development
agreement with one of such adjoining landowners relating to the Partnership's
acreage and such landowner's acreage (comprising approximately 22 acres in the
aggregate of which the Partnership now owns approximately 12 acres). The
Partnership and the joint developer have entered into an agreement to sell the
entire combined parcel for a price of $1.90 per square foot, subject to survey,
which would result in a gross selling price of approximately $1,986,000 (less
selling commissions) of which the Partnership's share would be approximately
$993,000. The sale is subject to the purchaser's ability to have the premises
rezoned for use as a shopping center, approval of the premises as a site for a
supermarket by a major supermarket chain, the provision of necessary utilities,
and the issuance of all necessary building and other permits. The closing date
(subject to all of the foregoing) was originally to be no later than June 30,
1997. The closing date has been extended until June 30, 1998. There is no
assurance that such permits will be obtained, nor can the Partnership predict
whether the rezoning process, which involves proceedings before several
governmental bodies, or the sale of the aforesaid residence, could be completed
or obtained within the required time frame.
