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 December 31, 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 December 31, 1998
----- --------------------------------
Limited Partnership Units 4,485,504 units
<PAGE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
INDEX
PART I. Financial Information
Balance sheets -
December 31, 1998 and
September 30, 1998
Statements of operations -
Three months ended
December 31, 1998 and 1997
Statements of cash flows -
Three months ended
December 31, 1998 and 1997
Notes to financial statements
Management's discussion and analysis
of financial condition and results
of operations
Part II. Other information and signatures
<PAGE>
<TABLE>
<CAPTION>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
BALANCE SHEETS
December 31, September 30,
1998 1998
---------- ----------
(unaudited)
ASSETS
<S> <C> <C>
Cash ......................................... $ 222,723 $ 6,553
Mortgage note and other receivables
Mortgage note receivable, net of
deferred profit of $264,593 ............... 1,033,907 --
Other receivables .......................... 440,210 439,825
Property held for sale ....................... 2,472,224 4,279,599
Other assets ................................. 41,602 59,627
---------- ----------
$4,210,666 $4,785,604
========== ==========
LIABILITIES AND EQUITY
Liabilities:
Mortgage notes payable, bank ............... $ 659,550 $1,321,750
Accounts payable and other liabilities ..... 816,308 917,795
Deposit on land sales ...................... 75,000 --
---------- ----------
1,550,858 2,239,545
Partners' equity:
4,485,504 units authorized
and outstanding ............................ 2,659,808 2,546,059
---------- ----------
$4,210,666 $4,785,604
========== ==========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
THREE MONTHS ENDED
DECEMBER 31, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- -----------
<S> <C> <C>
Land Revenues:
Gross sales of land .................. $ 2,766,500 $ 484,500
Less profit deferred until
principal collections are
received ............................ 264,593 --
----------- -----------
2,501,907 484,500
Interest income ........................... 1,312 2,882
Other Income .............................. 11,035 1,655
----------- -----------
2,514,254 489,037
Cost and expenses:
Cost of sales ........................ 2,000,225 377,719
Selling, general and
administrative expenses ............ 318,437 126,909
Interest ............................. 23,986 --
Depreciation and property taxes ...... 57,857 50,428
----------- -----------
Total costs and expenses ........... 2,400,505 555,056
----------- -----------
Net income (loss) ......................... $ 113,749 $ (66,019)
=========== ===========
Net income (loss) per unit ................ $ 0.03 $ (0.01)
=========== ===========
Weighted average number of
units outstanding ....................... 4,485,504 4,485,504
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
<TABLE>
<CAPTION>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Cash was received from:
Collections on sales
and receivables ...................... $ 1,542,615 $ 527,106
Interest Income ....................... 1,312 2,882
Other cash received ................... 11,035 1,655
----------- -----------
1,554,962 531,643
----------- -----------
Cash was expended for:
Selling, general and administrative,
property taxes and other expenses .... 516,094 122,395
Interest paid (net of amounts
capitalized) ......................... 23,986 --
Improvements to property
held for sale ........................ 136,512 470,837
----------- -----------
676,592 593,232
Net cash provided by (used in)
operating activities ........................ 878,370 (61,589)
----------- -----------
Cash flow from financing activities:
Proceeds from mortgage notes payable
Bank ..................................... 17,800 382,781
Payments on mortgage payable:
Bank ..................................... (680,000) (360,000)
----------- -----------
Net cash provided by (used in)
financing activities ........................ (662,200) 22,781
----------- -----------
Net increase (decrease) in cash .............. 216,170 (38,808)
Cash at beginning of year .................... 6,553 48,738
----------- -----------
Cash at end of year .......................... $ 222,723 $ 9,930
=========== ===========
</TABLE>
(continued)
<PAGE>
<TABLE>
<CAPTION>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS (CONTINUED)
Reconciliation of net income (loss) to net cash
provided by (used in) operating activities
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(UNAUDITED)
1998 1997
----------- -----------
<S> <C> <C>
Reconciliation of net income (loss)
to cash provided by (used in)
operating activities:
Net income (loss) ............................ $ 113,749 $ (66,019)
----------- -----------
Adjustments to reconcile net
income (loss) to net cash
used in operating activities
Depreciation and amortization .............. 441 531
Change in assets and liabilities Increase in:
Mortgage notes and other
receivables ............................ (1,034,292) --
Property held for sale ................... -- (66,216)
Accounts payable and accrued
liabilities ............................ -- 26,574
Deposits on land sales ................... 75,000 --
Decrease in:
Mortgage notes and other
receivables ............................ -- 42,606
Property held for sale ................... 1,807,375 --
Other assets ............................. 17,584 20,751
Accounts payable and accrued
liabilities ............................ (101,487) --
Estimated cost of development
of land sold ........................... -- (19,816)
----------- -----------
Total adjustments ............................ 764,621 4,430
----------- -----------
Net cash flow provided by (used in)
operating activities ....................... $ 878,370 $ (61,589)
=========== ===========
</TABLE>
See notes to financial statements
<PAGE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
THREE MONTHS ENDED
DECEMBER 31, 1998 AND 1997
(UNAUDITED)
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 three months ended
December 31, 1998 are not necessarily indicative of the results that may be
expected for the fiscal year ending September 30, 1999. 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, 1998.
2. Income tax:
The Partnership has elected to continue its Partnership 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) and estimates that Federal tax due, if any, on gross income for Federal
tax purposes for the tax year ending December 31, 1998 will not be material. The
partners are required to include in their income tax returns their share of the
Partnership's taxable income or loss.
<PAGE>
ROYAL PALM BEACH COLONY, LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THREE MONTHS ENDED
DECEMBER 31, 1998 AND 1997
(UNAUDITED)
Note An extract from the Partnership's Annual Report filed with the Securities
and Exchange Commission with respect to the fiscal year ended September 30, 1998
(the "Incorporated 1998 10K") containing Items 1 and 2 thereof is annexed to
this report as an Exhibit and is incorporated herein by reference.
Results of Operations
During the three month periods ended December 31, 1998 and 1997, the
Partnership had net revenues totaling $2,514,254 and $489,037, respectively, and
net income of $113,749. or $0.03 per unit and a net loss of ($66,019) or ($0.01
per unit), respectively.
During the recent quarter, revenues derived principally from two sales
aggregating 79 lots from phases 2 and 3 of the Crestwood Tract development (see
item 2 of the Incorporated 1998 10-K). These lot sales aggregating $2,416,500
(of which $1,298,500 is represented by a non-interest-bearing promissory note
due in two installments with a final payment on September 30, 1999. The Company
recognized a profit of $597,482 on these transactions, of which $264,593 has
been deferred until principal collections are received. In addition, $350,000 in
gross sales was generated from the cash sale 7.7 acres of multi-family zoned
land, as to which a profit of $168,793 was recognized. Since the Partnership's
activities consisting 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 is not considered
meaningful.
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 were $318,437 in the quarter ended
December 31, 1998, compared with $126,909 in the corresponding quarter of 1997
primarily as the result of an increase in brokerage commissions on higher real
estate sales. In 1997 no interest was charged to operations because Phases 2 and
3 of the Crestwood tract were under development; interest was charged in 1998
because all development work had been completed.
Liquidity and Capital Resources
Although cash proceeds from collections on sales and receivables
totaled $1,542,615, the Partnership expended cash of $136,512 for improvements
to property held for sale and $516,094 for selling, general and administrative,
property taxes and other expenses. After payment of closing costs, commissions
and required reductions in bank debt of $20,000 per lot, the Partnership
realized net proceeds of approximately $650,000.
<PAGE>
Cash increased from $6,553 at September 30, 1998 to $222,723 at December 31,
1998. See Financial Information Statements of Cash Flows. The Partnership's cash
balances at any particular point depend primarily on the timing of sales of its
real estate, which timing can be affected by numerous factors. See Financial
Information Statements of Cash Flows.
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 land sales and
contingent utility receipts described under "Utility Contingent Receivable," in
Item 2 the Incorporated 1998 10-K. 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.
Affect of Land Sales on Future Cash Flow
The development and marketing status of the Partnership's properties is
described under Item 2 of the Incorporated 1998 10-K. 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 December 31, 1998, the Partnership retained and was holding for sale (1) 20
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
remaining total of approximately 359 units, (as to which land zoned for 290 of
such units is under contract) (3) a tract of 4.54 acres in the Village zoned for
approximately 100 multi-family residential units (4) 171 lots in the vicinity of
the Village zoned for 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.
Total net cash flow which might become available for distribution is
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 1998
10-K. As indicated under such caption, although the amount to be received by the
Partnership in respect of 1998 represents a substantial increase from receipts
in the two preceding years, it is nevertheless 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.
Environmental Matters
There are no environmental contingencies in respect of the Partnership or its
properties. Use of all of the Partnership's properties is subject to compliance
with state and county land use regulations relating to environmental matters,
which the Partnership takes into account in considering the values of its
properties.
<PAGE>
Income Taxes
The Partnership, pursuant to the transitional grandfather rules of the Internal
Revenue Code dealing with publicly traded partnerships, reported its income as a
Partnership for taxable years through December 31, 1997. The application of the
grandfather rules terminated for taxable years commencing after December 31,
1997. Under the 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 tax cost of land sold). The Partnership has elected to continue its
Partnership status beyond December 31, 1997, and estimates that federal tax due,
if any, on gross income for federal tax purposes for the tax year ending
December 31, 1998 will not be material. See Note 2 to the Financial Statements
included with this report.
<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, 1998.
(b) Reports on Form 8-K - None
<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: February 16, 1999 By: /s/David Simpson
----------------
David Simpson
President
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-END> DEC-31-1998
<CASH> 222,723
<SECURITIES> 0
<RECEIVABLES> 1,474,117
<ALLOWANCES> 0
<INVENTORY> 2,472,224
<CURRENT-ASSETS> 40,683
<PP&E> 21,843
<DEPRECIATION> 20,924
<TOTAL-ASSETS> 4,210,666
<CURRENT-LIABILITIES> 891,308
<BONDS> 659,550
0
0
<COMMON> 0
<OTHER-SE> 2,659,808
<TOTAL-LIABILITY-AND-EQUITY> 4,210,666
<SALES> 2,501,907
<TOTAL-REVENUES> 2,514,254
<CGS> 2,000,225
<TOTAL-COSTS> 2,000,225
<OTHER-EXPENSES> 376,294
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,986
<INCOME-PRETAX> 113,749
<INCOME-TAX> 0
<INCOME-CONTINUING> 113,749
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 113,749
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</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 $69,878,241.
As of September 30, 1998, 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, 1998, the Partnership's remaining
assets consisted principally of; (1) 99 residential lots (all of which were
under contract for sale) plus commercial property and multifamily-zoned land in
the "Crestwood" tract in the Village of Royal Palm Beach (the "Village"), (see
Item 2 -- Properties -- "Village of Royal Palm Beach" - 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
$734,584 (3) a tract of land in the Village reacquired by foreclosure in 1993
and included in the balance sheet at $288,724, (4) contingent receivables
relating to a prior sale of utility assets with a maximum future undiscounted
value of $5,247,000 (which amount, other than $438,573 earned as of September
30, 1998 but not payable to the Partnership until January, 1999, has not been
included in the balance sheet due to its contingent nature -- see Note 8 to the
Financial Statements), and (5) cash in the amount of $6,553. Since September 30.
1998, there have been substantial additional real estate sales. See Item 2 -
"Residential Lots Within the Crestwood Tract."
<PAGE>
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.
(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. Thereafter, management commenced the development of one portion of the
Crestwood Tract, consisting 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. See Item 2 --Properties -"Village of Royal Palm Beach."
(2) Cash Available for Distribution
Management has now substantially completed 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. In addition, portions of
the sales proceeds from the sale of residential lots must be applied to
repayment of bank financing aggregating $1,321,750. Distributions may be made
during fiscal 1999, however, if the sales described herein under Item 2 close as
scheduled. See Item 2 - "Development and Sale of Residential Lots;" and Item 7
- -- "Management Discussion and Analysis of Financial Condition -- Liquidity and
Capital Resources." Future collections of contingent receivables relating to a
prior sale of a utility plant would also affect future distributions. 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."
<PAGE>
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 RTL Realty, of which
Randy Rieger is a partner. Mr. Rieger 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. 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 moved in a narrow range during 1996 and 1997
and declined during the past six months as the result of federal interest rate
cuts. If significant increases occur in the future, the real estate market could
suffer as a result.
Personnel:
As of December 30, 1998, Stein Management Company, Inc. ("Steinco")the Managing
General Partner, employed 1 person, who acts as an adminstrator of its books and
records. 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 26,000 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
<PAGE>
Boulevard and Okeechobee Road, lead directly from Palm Beach through West Palm
Beach 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 an approximately 14 acre portion of the Crestwood Tract
previously zoned for multi-family housing to permit the Partnership to develop a
14 acre shopping center site. The Partnership received site-plan approval in
mid-1996. The Partnership has executed an agreement to sell the entire 14 acre
portion to an unaffiliated shopping center developer ("Purchaser") in two
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.
The second phase consists of two additional parcels in the 14 acre portion
rezoned as described above, which adjoin the shopping center site, but as to
which building permits are not expected to be available until January, 2000. As
to such parcels, the Partnership has agreed 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.
The Partnership and the Purchaser have entered into a contract to sell an
additional 1.6 acres adjoining the above-described 14 acre shopping center site
for a gross purchase price of approximately $250,000. The purchaser is presently
preparing to seek the appropriate approvals from the Village and anticipates
approvals by June, 1999.
Residential Lots within the Crestwood Tract
As a result of management's decision to develop portions of the
Crestwood Tract, the Partnership replanned the configuration of the entire
tract. The project included a redesign of the Single Family Tract, and the
Partnership received final plat approval to increase to 198 the number of
residential lots for development 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 regulatory procedures, the installation of roads and utility
connections to each lot and the provision of drainage facilities.
<PAGE>
Between 1995 and 1997, the Partnership completed the off-site and
on-site improvements required for the development of the 198 lots in the
Residential Tract. 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
Transactions"). "). A total of $3,201,749 was borrowed from Union Bank of
Florida (including $293,152 for working capital purposes), of which $1,321,750
was outstanding as of September 30, 1998. The loan, which bears interest at 1%
above the bank's prime lending rate, matures on 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 Residential Tract.
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.
In the aggregate, and through December 30, 1998, the Partnership has
sold and conveyed 178 of the 198 lots in the Residential Tract, resulting in
gross proceeds to the Partnership of approximately $5,285,000 and net cash
proceeds, after mandatory loan reductions and brokerage commissions and other
closing costs, of approximately $930,000. (The gross proceeds include $1,298,500
owed to the Partnership by Morrison Homes of Florida, Inc., which debt is
secured by a first mortgage on 45 of the lots it purchased, requiring the
payment of $687,000 on June 29, 1999 and the balance on September 29, 1999.) Of
the foregoing, during the 1998 fiscal year only, the Partnership conveyed a
total of 59 lots (including 37 lots sold to Lennar Homes of Florida, Inc. - see
below) for aggregate gross proceeds of $1,684,000. After mandatory loan
reductions of $20,000 per lot and brokerage commissions and other closing costs,
net cash proceeds to the Company were $324,000
The remaining 20 lots in the Residential Tract are the last of a total
of 86 lots contracted for sale to Lennar Homes of Florida, Inc. The sale of such
20 lots is scheduled to be completed by June 30, 1999, and will result in gross
proceeds of $570,000 and estimated net cash proceeds, after mandatory loan
reduction and brokerage commissions and other closing costs, of approximately
$130,000.
During November 1998 the Partnership completed the sale of a 7.7 acre
parcel in the multi-family zoned land in Crestwood to a church for $350,000.
In March 1998 the Partnership entered into a sale contract with TCR SFA
Apartments, Inc., an affiliate of Trammell Crow Residential (a national
residential builder) covering a substantial part of the remainder of the
multi-family zoned land (comprising land zoned for approximately 290 residential
units). The affiliate has assigned the sale contract to Gables East
Construction, Inc. which has acquired Trammell Crow Residential. The completion
of the sale, which is subject to the buyer obtaining necessary permits and
approvals, is scheduled for March 19, 1999 with the buyer having the option to
extend the closing for up to 60 days. The sale price being paid to the
Partnership for the land will generate approximately $2,175,000 in gross
proceeds, and approximately $1,800,000 in net proceeds after costs of sale and
brokerage fees.
<PAGE>
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 80 multi-family residential units and is being offered for sale in
its present state without further development. An agreement to sell this acreage
for $350,000 was terminated by the purchaser in June 1997 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 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, 1998,
$5,050,000 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 $303,000 has already been received.
To date, the Partnership has received the following Utility Contract payments:
Amount Received Based On
Fiscal Year Ended --------------------------------------------
September 30 Consumption Guaranteed Amounts
- ------------ ----------- ------------------
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 207,000 22,000
Total $5,850,000 $ 303,000
- --------------
* The Partnership is also entitled to receive approximately $438,000 in January,
1999.
<PAGE>
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. Management believes that there is sufficient capacity presently
available in the area served by the utility to enable the Partnership to realize
the maximum remaining $5,050,000 in contingent payments under the Utility
Contract. Although the amount to be received by the Partnership in respect of
1998 represents a substantial increase from receipts in the two preceding years,
it is nevertheless 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. There were no sales of these lots in 1998.
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
originally denied an application for septic tank permits, due to inadequate
drainage. 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 required additional mitigation. However, the South
Florida Water Management District has refused to permit development to proceed,
and the Partnership is currently engaged in administrative proceedings to set
aside such refusal. Numerous additional permits are required before building can
be commenced, and there is no assurance that all of such permits can be
obtained. The Partnership believes that should it eventually succeed in
obtaining septic permits for at least some of the lots, this would substantially
increase the value of such lots and that the aggregate realizable value of all
such lots will substantially exceed their book value of $379,560. Should the
Partnership be unsuccessful in overturning the administrative denial of septic
tank permits, the Partnership may elect to pursue other legal remedies,
including a possible claim for "inverse condemnation." There can be no assurance
that any such litigation would be successful.
<PAGE>
The Partnership is presently evaluating possible alternative uses of the second
tract, consisting of approximately 470 acres, which contains a significant
amount of wetlands. This property is presently zoned for agricultural use. The
use of this land is dependent on rezoning and the extension of roads, and
development activity on this tract may meet with opposition from governmental
agencies concerned with wildlife and wetlands preservation. In 1997 the
Partnership received an offer of $1,385,000 for this tract from the Nature
Conservancy on behalf of Palm Beach County. Negotiations have been protracted
and is no assurance that this transaction will be completed. However, management
is of the opinion that the realizable value of this property 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 the
land may be developed and therefore 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 parcel has been rezoned by Palm Beach County for
commercial use, but the sale is subject to 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 April 1999. There
is no assurance that such permits and approvals will be obtained, which involve
proceedings before several governmental bodies, or could be completed or
obtained within the required time frame.
