SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________
Commission File No. 0-15511
Development Partners (A Massachusetts Limited Partnership)
(formerly Berry and Boyle Development Partners)
(Exact name of registrant as specified in its charter)
Massachusetts 04-2895800
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5110 Langdale Way, Colorado Springs, CO 80906
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(719) 527-0544
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 and 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 ___
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<PAGE>
<TABLE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------
June 30,
ASSETS 1998 December 31,
(Unaudited) 1997
Assets held for sale/Property, at
cost
<S> <C> <C>
Land $2,952,978 $5,114,512
Buildings and improvements 8,602,064 15,561,584
Equipment, furnishings and 993,367 1,923,541
fixtures
--------------- ---------------
12,548,409 22,599,637
Less accumulated (2,991,565) (5,191,727)
depreciation
--------------- ---------------
9,556,844 17,407,910
Cash and cash equivalents 158,186 392,010
Real estate tax escrows 80,785 28,204
Deposits and prepaid expenses 1,133 1,924
Tenant receivable 9,880 15,578
Due from affiliates (Note 8) 16,870 16,870
Investment in partnership - 283,168
Deferred expenses, net of
accumulated
amortization of $350,744 and 871 24,573
$327,042
--------------- ---------------
Total assets $9,824,569 $18,170,237
=============== ===============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Mortgage notes payable $8,487,134
$ -
Accounts payable 66,658 146,364
Accrued expenses 151,459 153,511
Due to affiliates (Note 8) 32,737 13,535
Tenant security deposits 27,751 78,124
--------------- ---------------
Total liabilities 278,605 8,878,668
General Partners' deficit (380) (88,541)
Limited Partners' equity 9,546,344 9,380,110
--------------- ---------------
Total liabilities and $9,824,569 $18,170,237
partners' equity
=============== ===============
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
-------------
Three Months Ended Six Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Rental income 447,693 $600,390 $1,055,442 $1,259,223
Interest income 21,770 5,447
26,356 11,754
Gain from sale of properties - - 140,391 -
------------- --------------- --------------- -------------
469,463 605,837 1,222,189 1,270,977
Expenses:
Operating Expenses 270,900 271,151 546,335 562,552
Interest 189,083 201,103 387,903 402,934
Depreciation and 14,377 110,927 23,702 221,854
amortization
General and administrative 64,973 44,807 127,172 80,932
Equity in (income) loss
from partnership (111,217) 1,480 (118,231) 2,933
------------- --------------- --------------- -------------
428,116 629,468 966,881 1,271,205
------------- --------------- --------------- -------------
Net income (loss) $41,347 ($23,631) $255,308 ($228)
============= =============== =============== =============
Net income (loss) allocated to:
General Partners $827 ($236) $88,161 ($2)
Basic and diluted per unit net income (loss) allocated to Investor Limited
Partner interest:
36,411 units issued $1.11 ($0.64) $4.59 ($0.01)
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
(Unaudited)
-------------
Investor Total
General Limited Partners'
Partners Partners Equity
<S> <C> <C> <C>
Balance at December 31, 1996 ($83,524) $9,681,727 $9,598,203
Cash distributions (3,901) (191,158) (195,059)
Net loss (1,116) (110,459) (111,575)
------------- --------------- ---------------
Balance at December 31, 1997 (88,541) 9,379,197 9,291,569
Cash distributions - - -
Net income 88,161 167,147 255,308
------------- --------------- ---------------
Balance at June 30, 1998 ($380) $9,546,344 $9,545,964
============= =============== ===============
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
-------------
Six Months Ended
June 30,
1998 1997
Cash flows from operating activities:
<S> <C>
Interest received $11,754
26,356
Cash received from rental income 1,010,767 1,257,360
General and administrative (114,159) (107,205)
expenses
Operating expense (640,940) (606,899)
Interest paid (421,083) (402,934)
------------- ------------------
Net cash provided by operating (139,059) 152,076
activities
Cash flows from investing activities:
Capital improvements (193,404) (87,259)
Proceeds from sale of 8,585,334 -
properties
Deposits - (2,330)
------------- ------------------
Net cash (used) provided by 8,391,930 (89,589)
investing activities
Cash flows from financing activities:
Distributions to partners - (127,439)
Principal payments on mortgage (8,487,134) (62,607)
note payable
Decrease (increase) in 439 -
deposits
------------- ---------------
Net cash used by financing (8,486,695) (190,045)
activities
------------- ---------------
Net (decrease) increase in cash and (233,824) (127,558)
cash equivalents
Cash and cash equivalents at 392,010 537,735
beginning of year
------------- ---------------
Cash and cash equivalents at end of $158,186 $410,177
year
============= ===============
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
-------------
Reconciliation of net income (loss) to net cash provided by operating
activities:
Six Months Ended
June 30,
1998 1997
<S> <C> <C>
Net income (loss) $255,308 ($228)
Adjustments to reconcile net income
(loss)
to net cash provided by operating
activities:
Depreciation and amortization 23,702 221,854
Equity in (income) loss from (118,231) 2,933
partnership
Gain from sale of property (140,391)
Change in assets and liabilities
net of effects of
investing and financing
activities:
Decrease (increase) in real (52,581) (52,923)
estate tax escrow
Decrease (increase) in deposits 352 -
and prepaid expenses
Decrease (increase) in tenants 5,698 -
receivable
Increase (decrease) in accounts
payable and
accrued expenses (81,745) (11,183)
Decrease in due to 19,202 (6,514)
affiliates
(Decrease) increase in rents - (6,158)
received in advance
Increase (decrease) in tenant
security
deposits (50,373) 4,295
------------- ---------------
Net cash provided by operating ($139,059) $152,076
activities
============= ===============
</TABLE>
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Organization of Partnership:
Development Partners (A Massachusetts Limited Partnership), (the "Partnership"),
formerly Berry and Boyle Development Partners, was formed on October 23, 1985.
GP L'Auberge Communities, L.P., a California Limited Partnership, (formerly
Berry and Boyle Management) and L'Auberge Realty Advisors (A Massachusetts
Limited Partnership) ("Advisors"), are the General Partners. A total of 2,033
individual Limited Partners owning 36,411 Units have contributed $18,205,500 of
capital to the Partnership. At June 30, 1998, the total number of Limited
Partners was 1,990. Except under certain limited circumstances upon termination
of the Partnership, the General Partners are not required to make any additional
capital contributions. The General Partners or their affiliates will receive
various fees for services and reimbursement for various organizational and
selling costs incurred on behalf of the Partnership.
The Partnership will continue until December 31, 2010, unless earlier terminated
by the sale of all or substantially all of the assets of the Partnership, or as
otherwise provided in the Partnership Agreement (See Note 9.)
2. Significant Accounting Policies:
A. Basis of Presentation
The consolidated financial statements include the accounts of the
Partnership and its subsidiaries: Canyon View Joint Venture and
Broadmoor Pines. All intercompany accounts and transactions have been
eliminated in consolidation. The Partnership accounts for its
investment in Casabella Associates utilizing the equity method of
accounting. The Partnership's investment account is adjusted to reflect
its pro rata share of profits, losses and distributions from Casabella
Associates. Refer to Note 4 regarding the termination of the Broadmoor
Pines Joint Venture.
The Partnership follows the accrual method of accounting.
B. Cash and Cash Equivalents
The Partnership considers all highly liquid debt instruments purchased
with a maturity of three months or less to be cash equivalents. The
carrying value of cash and cash equivalents approximates fair value. It
is the Partnership's policy to invest cash in income-producing
temporary cash investments. The Partnership mitigates any potential
risk from such concentration of credit by placing investments with high
quality financial institutions.
C. Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
<PAGE>
2. Significant Accounting Policies, continued:
D. Depreciation
Depreciation is provided for by the use of the straight-line method
over estimated useful lives as follows:
Buildings and improvements 40 years
Equipment, furnishings and fixtures 5-15 years
E. Deferred Expenses
Costs of obtaining or extending various mortgages on the properties are
being amortized over the mortgage term using the straight line method,
which approximates the effective interest method.
F. Income Taxes
No provision is made for income taxes since the Partners are required
to include on their tax returns their pro rata share of the
Partnership's taxable income or loss. If the Partnership's tax returns
are examined by the Internal Revenue Service or a state taxing
authority, and such an examination results in a change in partnership
taxable income or loss, such change will be reported to the Partners.
G. Rental Income
Leases require the payment of rent in advance, however, rental income
is recorded as earned.
H. Long-Lived Assets
In 1996, the Partnership adopted Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Assets to be Disposed of. SFAS 121 requires that
long-lived assets be reviewed for impairment whenever events or changes
in circumstances indicate that their carrying value may not be
recoverable. The adoption of SFAS 121 had no effect on reported results
in 1996. As further discussed in Note 9, effective December 31, 1997,
the Partnership recorded its properties at the lower of carrying value
or net realizable value and has included these amounts as Assets Held
for Sale.
I. New Accounting Standards
In 1997, the Partnership adopted Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share." This accounting
standard specifies new computation, presentation, and disclosure
requirements for earnings per share to be applied retroactively. Among
other things, SFAS 128 requires presentation of basic and diluted
earnings per share on the face of the income statement. The computation
of basic and diluted earnings per share was based on income available
to the Limited Partners divided by the weighted average number of units
outstanding during the period. The Partnership has no dilutive type
securities. The adoption of SFAS 128 had no effect on the results
previously reported.
<PAGE>
3. Cash and Cash Equivalents:
Cash and cash equivalents at June 30, 1998 and December 31, 1997 consisted of
the following:
1998 1997
---- ----
Cash on hand $158,186 $170,454
Money market accounts _______ 221,556
-------
$158,186 $392,010
======= =======
4. Joint Venture and Property Acquisitions:
The Partnership has invested in three properties located in Scottsdale and
Tucson, Arizona and Colorado Springs, Colorado. The success of the Partnership
will depend upon factors which are difficult to predict including general
economic and real estate market conditions, both on a national basis and in the
areas where the Partnership's investments are located. The Broadmoor Joint
Venture was effectively terminated on December 31, 1996. The Partnership has
eliminated the minority interest related to this joint venture, as such, the
Partnership owns 100% of the underlying assets as of June 30, 1998 and 1997.
Canyon View
On September 29, 1987, the Partnership acquired a majority interest in the
Canyon View Joint Venture which owns and operates a 168-unit multifamily
residential property located in Tucson, Arizona. The Partnership has been
designated as the managing joint venture partner and will control all decisions
regarding the operation and sale of the property.
In accordance with the terms of the purchase agreement and the joint venture
agreement, through June 30, 1998, the Partnership has contributed total capital
of $6,889,588 to the Canyon View Joint Venture, which was used to repay a
portion of the construction loan from a third party lender, to pay certain costs
related to the refinancing of the permanent loan, to cover operating deficits
incurred during the lease up period and to fund certain capital improvements. In
addition, the Partnership funded $745,902 of property acquisition costs which
were subsequently treated as a capital contribution to the joint venture.
Net cash from operations (as defined in the joint venture agreement) will be
distributed as available to each joint venture partner not less often than
quarterly, as follows:
First, to the Partnership until it has received an annual
non-cumulative 11.25% priority return on its capital contribution for
such year.
Second, the balance 75% to the Partnership and 25% to the other joint
venture partner.
Income from operations will be allocated to the Partnership and the other joint
venture partner generally in accordance with the distribution of net cash from
operations. Losses from operations will generally be allocated 100% to the
Partnership.
In the case of certain capital transactions and distributions, as defined in the
joint venture agreement, the allocation of related profits, losses and cash
distributions, if any, would be different than as described above and would be
affected by the relative balances in the individual partners' capital accounts.
4. Joint Venture and Property Acquisitions, continued:
Broadmoor
On October 12, 1988, the Partnership acquired L'Auberge Broadmoor ("Broadmoor")
(formerly Broadmoor Pines), a 108-unit residential property located in Colorado
Springs, Colorado and simultaneously contributed the property to a joint venture
comprised of the Partnership and the property developer (the "Broadmoor Pines
Joint Venture"). The Partnership owns a majority interest in the Broadmoor Pines
Joint Venture and, therefore, the accounts and operations of the Broadmoor Pines
Joint Venture have been consolidated into those of the Partnership.
The co-venture partner was Highland Properties, Inc. ("Highland"), a Colorado
based residential development, construction and management firm. Highland
developed the property known as L'Auberge Broadmoor.
The Partnership had been designated the managing joint venture partner of the
Broadmoor Pines Joint Venture and controlled the operations of the Broadmoor
Pines Joint Venture and the property.
Through June 30, 1998, the Partnership has made cash payments in the form of
capital contributions totaling $6,079,200 and has funded $684,879 of property
acquisition costs which were treated as a capital contribution to the joint
venture.
JANUARY 1, 1996, THROUGH JULY 2, 1996
Net cash from operations (as defined in the joint venture agreement) was to be
distributed as available to each joint venture partner quarterly, as follows:
First, to the Partnership an amount equal to 11.25% per annum,
noncumulative (computed daily on a simple noncompounded basis from the
date of completion funding) of its respective capital investment, as
defined in the joint venture agreement;
Second, the balance 80% to the Partnership, and 20% to the property
developer.
Losses from operations and depreciation for the Broadmoor Pines Joint Venture
were allocated 100% to the Partnership.
All profits from operations to the extent of cash distributions shall first be
allocated to the Partnership and the property developer in the same proportion
as the cash distributions. Any remaining profits are allocated 80% to the
Partnership and 20% to the property developer.
In the case of certain capital transactions and distributions as defined in the
joint venture agreement, the allocation of related profits, losses and cash
distributions, if any, would be different than as described above and would be
affected by the relative balances in the individual partners' capital accounts.
<PAGE>
4. Joint Venture and Property Acquisitions, continued:
JULY 3, 1996, THROUGH MAY 22, 1998
On July 3, 1996, the Partnership and certain affiliates consummated an agreement
with Highland Properties, Inc. ("Highland") which separated the interests of
Highland and the Partnership, thus affording the Partnership greater flexibility
in the operation and disposition of the property. In consideration of a payment
by the Partnership to Highland totaling $8,683, and delivery of certain mutual
releases, Highland (i) relinquished its option to exercise its rights of first
refusal with regard to the sale of the property and (ii) assigned all of its
interest in the L'Auberge Broadmoor Joint Venture to the Partnership (while
preserving the economic interests of the venturer in these Joint Ventures),
which resulted in the dissolution of the L'Auberge Broadmoor Joint Venture.
Highland may still share in cash flow distributions or proceeds from the sale of
the property if certain performance levels are met.
On May 28, 1998, L'Auberge Broadmoor was sold pursuant to the terms of a Sale
Agreement and escrow Instructions (the "Agreement") dated January 26, 1998.
L'Auberge Broadmoor was sold to G&I Broadmoor LLC, a Delaware limited liability
company unaffiliated with the Partnership. The purchase price for Broadmoor was
$8,300,000 subject to certain customary adjustments and a $139,000 credit to the
purchasers. The mortgage in the approximate amount of $3,514,880 was paid at
closing utilizing a portion of proceeds from the sale. The Partnership realized
net proceeds of approximately $4,439,400 from the sale.
5. Mortgage Notes Payable:
All of the property owned by the Partnership is pledged as collateral for the
mortgage notes payable outstanding at June 30, 1998 and December 31, 1997, which
consisted of the following:
1998 1997
---- ----
Canyon View $ - $4,986,771
Broadmoor - 500,363
-------
$5,487,134
The loans had original maturity dates of July 15, 1997.
On July 10, 1997, the lender extended the terms of the Canyon View mortgage note
for a period of one year. Under the modification agreement, the monthly
principal and interest payment of $45,610 and the original interest rate of
9.125% remain unchanged. The terms of the agreement provide for a pre-payment
penalty of 0.5% of the outstanding loan amount in the event that the note is
paid prior to 60 days before it becomes due. On June 30, 1998, the Partnership
loaned Canyon View Joint Venture $4,931,624 to pay off the mortgage that was due
on July 15, 1998. There was no prepayment penalty assessed since the debt was
paid within 60 days of maturity.
On July 10, 1997, the lender extended the terms of the Broadmoor mortgage note
for a period of one year. Under the modification agreement, the monthly
principal and interest payment of $31,980 and the original interest rate of
9.75% remain unchanged. The terms of the agreement provide for a pre-payment
penalty of 0.5% of the outstanding loan amount in the event that the note is
paid prior to 60 days before it becomes due. As discussed in Note 4, the
mortgage in the approximate amount of $3,514,880 was paid at closing utilizing a
portion of proceeds from the sale. There was no prepayment penalty assessed
since the debt was paid within 60 days of maturity.
<PAGE>
5. Mortgage Notes Payable continued:
Interest included in Accrued expenses in the Consolidated Balance Sheets at June
30, 1998 and December 31, 1997 consisted of the following:
1998 1997
---- ----
Canyon View $ - $18,960
Broadmoor - 14,220
------
$33,180
6. Investment in Partnership:
On November 5, 1990, the Partnership contributed $400,000 to purchase an
approximate 8.5% interest in Casabella Associates, a general partnership among
the Partnership, Development Partners II (A Massachusetts Limited Partnership)
("DPII") and Development Partners III (A Massachusetts Limited Partnership)
("DPIII"). In addition to its contribution referred to above, the Partnership
incurred $83,668 of acquisition costs, including $41,400 in acquisition fees
paid to the General Partners. The difference between the partnership's carrying
value of the investment in Casabella Associates and the amount of underlying
equity in net assets is $65,345, representing a portion of the acquisition costs
stated above that were not recorded on the books of Casabella Associates.
On May 22, 1998, Casabella Associates sold its only material asset, Casabella, a
154-unit multi family rental property in Scottsdale, Arizona pursuant to the
terms of a Sale Agreement and Escrow Instructions (the "Agreement") dated
February 4, 1998, as amended. Casabella was sold to Casabella Condominium
Ventures Limited Partnership, a limited partnership unaffiliated with the
Partnership. The purchase price was $11,700,000, subject to certain customary
adjustments and a $120,000 credit to the purchaser. The Partnership repaid
mortgage financing in the approximate amount of $6,750,400 at closing utilizing
a portion of proceeds from the sale. The net proceeds to Casabella Associates
from the sale of Casabella were approximately $4,570,300 of which the
Partnership's share is approximately $388,015.
The consolidated balance sheets of Casabella Associates and Casabella Joint
Venture at June 30, 1998 and 1997, are summarized as follows:
<TABLE>
Assets: 1998 1997
---- ----
<S> <C> <C>
Property, plant and equipment $ - $11,580,507
Accumulated depreciation (2,228,967)
-----------
Property, plant and equipment, net 9,351,540
Other assets 130,537
Total assets $ - $9,482,077
=========
Liabilities and partners' equity:
Mortgage note payable 6,766,437
Other liabilities 169,778
-------
Total liabilities 6,936,215
Partners' equity 2,545,862
Total liabilities and partners' equity$ - $9,482,077
=========
6. Investment in Partnership, continued:
The elements of the consolidated net income (loss) from Casabella Associates and
Casabella Joint Venture for the six months ended June 30, 1998, and 1997 are
summarized as follows:
Income: 1998 1997
---- ----
<S> <C> <C>
Rental income $636,657 $755,277
Other income 26,688 5,620
Gain on sale of property 2,066,086 _
--------- ---------------
2,729,431 760,897
Expenses and other deductions:
General and administrative 2,144 3,908
Operations 268,855 351,749
Depreciation and amortization 13,927 133,368
Interest 284,752 313,061
------- -------
569,708 802,086
------- -------
Net income (loss) $2,159,723 ($41,189)
========== =========
</TABLE>
7. Partners' Equity:
Under the terms of the Partnership Agreement profits are generally allocated 98%
to the Limited Partners and 2% to the General Partners; losses are allocated 99%
to the Limited Partners and 1% to the General Partners.
Cash distributions to the partners are governed by the Partnership Agreement and
are made, to the extent available, 98% to the Limited Partners and 2% to the
General Partners.
Gain from the sale of properties is to be allocated as defined in the
Partnership Agreement. The net proceeds on the sale of Broadmoor and Casabella
of $4.8 million were allocated as follows. The Limited Partners received 100% of
the cash distribution from sale. The total gain on sale of Broadmoor and
Casabella of $250,663 was allocated as follows. The General Partner received a
gain on sale allocation of approximately $88,114 and the Limited Partners
received a gain on sale allocation of approximately $162,549. These allocations
were in accordance with the terms of the Partnership Agreement.
8. Related Party Transactions:
L'Auberge Communities, Inc. is a General Partner of L'Auberge Communities,
which owns a 99% interest in GP L'Auberge Communities, L.P. (formerly Berry and
Boyle Management). Due to affiliates at June 30, 1998 and December 31, 1997
consisted of $32,737 and $13,535, respectively, relating to reimbursable costs
due to L'Auberge Communities, Inc.
As of June 30, 1998 and December 31, 1997, due from affiliates of $16,870 of
expense reimbursement is due from Lincoln Residential Services, property manager
of an affiliate of the general partners.
8. Related Party Transactions continued:
As of June 30, 1998 and 1997, general and administrative expenses included
$32,386 and $36,981 respectively, of salary reimbursements paid to the General
Partners for certain administrative and accounting personnel who performed
services for the Partnership.
During the six months ended June 30, 1998 and 1997, property management fees of
$41,645 and $48,464, respectively, had been paid to Residential
Services-L'Auberge, formerly Berry and Boyle Residential Services, an affiliate
of the General Partners of the Partnership. These fees represent 4% of rental
revenue.
On June 30, 1998, the Partnership loaned Canyon View Joint Venture $4,931,624 to
payoff the mortgage that was due on July 15, 1998. The loan bears interest at
the rate of 1.5 percentage points in excess of the prime rate. Interest only
payments shall be payable commencing on July 31, 1998 and continuing until June
30, 2003, upon which the outstanding principal balance shall become due.
9. Assets Held for Sale:
During the fourth quarter of 1997, the General Partners of the Partnership
committed to a plan to dispose of Canyon View in Tucson, Arizona. On February
19, 1998, the Partnership entered into Sales Agreement (the "Agreement") to sell
Canyon View to an unaffiliated third party. The selling price for Canyon View is
approximately $10,101,497. The Agreement is subject to completion of customary
due diligence to the satisfaction of the purchaser, and the purchaser obtaining
a financing commitment on commercially reasonable terms and conditions. The
Partnership expects to consummate the sale in 1998. Under certain conditions,
the sale is contingent upon the approval of the Limited Partners. As of May 13,
1998, the Partnership had received sufficient consents from the Limited
Partners, approving the sale of the property.
Although the General Partners do not believe it to be material or with merit, a
lawsuit related to the pending sale of Canyon View has been filed.
The Partnership owns a joint venture interest in Canyon View Joint Venture which
holds fee simple title to this property. The Partnership's co-venturers are
unaffiliated with the Partnership and the General Partners. No co-venturer will
be entitled to receive any portion of the proceeds of the sale of Canyon View.
Under the terms of the Canyon View Joint Venture Agreement, the Partnership's
co-venturers (or any of them) were granted a right of first refusal to purchase
Canyon View on the same terms and conditions as an accepted third party offer to
purchase the property. With respect to the proposed sale to Tucson Realty
Holding Co. Inc. ("TRH"), the co-venturers had until the close of business on
March 13, 1998 to exercise the right of first refusal on the terms contained in
the Canyon View Purchase Agreement. On March 13, 1998, one of the co-venturers
purported to exercise the right of first refusal. The Partnership believes, and
has asserted, that the purported exercise was not in conformity with the
material terms and conditions of the Canyon View Purchase Agreement and,
therefore, that the right of first refusal lapsed without exercise. Accordingly,
the Partnership is attempting to close the sale of Canyon View to TRH pursuant
to the Canyon View Purchase Agreement.
The co-venturer has filed a lawsuit claiming that it, not TRH, has the right to
acquire Canyon View. The lawsuit seeks specific performance of its alleged
right of first refusal acquire the property Canyon View
or, if the court will not grant specific performance, monetary damages in an
amount to be proven at trial. In addition, the co-venturer has filed a lis
pendens on the property as a means of prohibiting its sale to TRH.
The Partnership is attempting to expunge the lis pendens defending against the
claims of the co-venturer. The Partnership and the General Partners have filed
an answer and counterclaim in which they denied the material
9. Assets Held for Sale continued:
allegations of the complaint and alleged their right to a declaration that the
co-venturer has no right to acquire Canyon view, as well as monetary damages in
an amount to be proven at trial.
TRH has intervened in the lawsuit and filed an answer and counterclaim in which
it denied the material allegations of the complaint and alleged their right to a
declaration that the co-venturer has no right to acquire Canyon View, as well as
monetary damages from the co-venturer in an amount to be proven at trial.
The co-venturer has recently filed an amended complaint alleging claims for
breach of the covenant of good faith and fair dealing and breach of fiduciary
duty against the Partnership and General Partners. The co-venturer has stated
its intention to seek compensatory and punitive damages for such claims. The
Partnership and the General Partners believe that such claims are meritless and
will defend against them.
The Partnership and General Partners have filed a motion for partial summary
judgement, which seeks a declaration that the co-venturer does not have the
right to acquire Canyon View. The court is scheduled to hear this motion on
October 5, 1998. As of this date, a trial date has not been scheduled.
Although the Partnership believes that the co-venturer's lawsuit has no merit,
it could materially delay the Partnership's sale of Canyon View.Canyon View will
be sold together with an adjacent property, which is owned by a joint venture in
which a public limited partnership of which the General Partners or their
affiliates are the general partners is the managing venturer. Accordingly, the
sale of Canyon View is also conditioned upon the consent of the limited partners
of the affiliated partnership to the dissolution of such partnership. The
$16,750,000 total purchase price for the two adjacent properties was allocated
between the two joint ventures based on gross rent potential of the two
properties.
As it is the intent of the General Partners to pursue the sale of the property,
the Partnership has recorded the asset at the lower of carrying value or net
realizable value and has included these amounts as Assets Held for Sale on the
Consolidated Balance Sheets effective December 31, 1997. In accordance with SFAS
121, the Partnership has stopped depreciating these assets effective January 1,
1998. If closing of the sale were to occur, any proceeds from sale will be
allocated to the Partners in accordance with the terms of the Partnership
Agreement and the Partnership will likely be liquidated.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning the
General Partners' expectations regarding future financial performance and future
events. These forward-looking statements involve significant risk and
uncertainties, including those described herein. Actual results may differ
materially from those anticipated by such forward-looking statements.
Liquidity; Capital Resources
The working capital reserves of the Partnership consisted of cash and cash
equivalents and short-term investments. Together these amounts provide the
Partnership with the necessary liquidity to carry on its day-to-day operations
and to make necessary contributions to the various properties. At June 30, 1998,
the Partnership had cash and cash equivalents of $158,186 compared with $392,010
at December 31, 1997. The aggregate net decrease of $233,824 resulted primarily
from cash provided from sale of properties $8,585,334 less mortgage repayments
of $8,487,134, offset by cash required for operations of $139,059, and $193,404
of fixed asset additions.
In the event that Partnership property is not sold pursuant to the Purchase
Agreement, the Partnership would continue to operate the property until a
substitute sale could be negotiated and consummated. The Partnership's ability
to generate cash adequate to meet its needs is dependent primarily on the
successful operations of its real estate investments. Such ability may also be
dependent upon the future availability of bank borrowings, and upon the future
refinancing and sale of the Partnership's real estate investments and the
collection of any mortgage receivable which may result from such sales. These
sources of liquidity will be used by the Partnership for payment of expenses
related to real estate operations, debt service and professional and management
fees and expenses. Net Cash From Operations and Net Proceeds, if any, as defined
in the Partnership Agreement, will then be available for distribution to the
Partners in accordance with Section 10 of the Partnership Agreement. The General
Partners believe that the current working capital reserves together with
projected cash flows for 1998 are adequate to meet the Partnership's operating
cash needs in the coming year if the Partnership is required to continue to own
and operate its remaining property.
Canyon View
As of June 30, 1998, the property was 75% occupied, compared to 84%
approximately one year ago. At June 30, 1998 and 1997, the market rents for the
various unit types were as follows:
Unit Type 1998 1997
--------- ---- ----
One bedroom one bath $725 $755
Two bedroom two bath 765 815
Two bedroom two bath w/den 825 980
Results of Operations
The Partnership's operating results for the three months ended June 30, 1998,
consisted of interest income, administrative expenses and the Partnership's
share of the income from Casabella Associates and the income allocated from
Canyon View and Broadmoor Pines, as follows:
<TABLE>
Canyon Broadmoor Investment Consolidated
View Pines Partnership Totals
<S> <C> <C> <C> <C>
Total revenue $288,424 $160,749 $20,290 $469,463
Gain on sale of property 140,391 140,391
Expenses:
General and administrative - - 64,973 64,973
Operations 171,160 99,740 270,900
Depreciation and amortization 5,224 9,153 14,377
Interest 114,124 74,959 189,083
Equity in (income) loss from partnership (226,420) - 115,203 (111,217)
---------------- --------------- -------------- ----------------
64,088 183,852 180,176 428,116
---------------- --------------- -------------- ----------------
Net income $224,336 $117,288 ($159,886) $181,738
================ =============== ============== ================
The Partnership's operating results for the three months ended June 30, 1997
consisted of interest income, administrative expenses, the Partnership's share
of the loss from Casabella Associates and the income allocated from Canyon View
and Broadmoor Pines, as follows:
Canyon Broadmoor Investment Consolidated
View Pines Partnership Totals
<S> <C> <C> <C> <C>
Total revenue $315,827 $286,301 $3,709 $605,837
Expenses:
General and administrative - - 44,807 44,807
Operations 160,493 110,658 271,151
Depreciation and amortization 62,863 48,064 110,927
Interest 115,117 85,986 201,103
Equity in (income) loss from - - 1,480 1,480
partnership
----------------- -------------- -------------- ----------------
338,473 244,708 46,287 629,468
----------------- -------------- -------------- ----------------
Net income ($22,646) $41,593 ($42,578) ($23,631)
================= ============== ============== ================
<PAGE>
For the six months ended June 30, 1998, the Partnership's operating results were
comprised of its share of the income and expenses from (i) the Canyon View Joint
Venture, (ii) Broadmoor Pines, and (iii) the Partnership's share of the income
from Casabella Associates, partnership level interest income earned on short
term investments, reduced by administrative expenses (referred to collectively
in the table below under the heading "Investment Partnership"). A summary of
these operating results (unaudited) appears below:
Canyon Broadmoor Investment Consolidated
View Pines Partnership Totals
<S> <C> <C> <C> <C>
Total revenue $612,229 $445,823 $23,746 $1,081,798
Gain on sale of property 140,391 140,391
Expenses:
General and administrative - - 127,172 127,172
Operations 335,860 210,475 546,335
Depreciation and amortization 10,448 13,254 23,702
Interest 227,709 160,194 387,903
Equity in (income) loss from - - (118,231) (118,231)
partnership
----------------- --------------- ------------- -------------
574,017 383,923 8,941 966,881
----------------- --------------- ------------- -------------
Net income $38,212 $202,291 $14,805 $255,308
================= =============== ============= =============
For the six months ended June 30, 1997, the Partnership's operating results were
comprised of the income and expenses from (i) the Canyon View Joint Venture,
(ii) the Broadmoor Pines Joint Ventures, and (iii) the Partnership's share of
the income from Casabella Associates, partnership level interest income earned
on short term investments, reduced by administrative expenses (referred to
collectively in the table below under the heading "Investment Partnership"). A
summary of these operating results (unaudited) appears below:
Canyon Broadmoor Investment Consolidated
View Pines Partnership Totals
<S> <C> <C> <C> <C>
Total revenue $679,787 $582,590 $8,600 $1,270,977
Expenses:
General and administrative - - 80,932 80,932
Operations 332,207 230,345 562,552
Depreciation and amortization 125,726 96,128 221,854
Interest 230,722 172,212 402,934
Equity in (income) loss from - - 2,933 2,933
partnership
----------------- --------------- ------------ -------------
688,655 498,685 83,865 1,271,205
----------------- --------------- ------------ -------------
Net income ($8,868) $83,905 ($75,265) ($228)
================= =============== ============ =============
</TABLE>
Comparison of Operating Results for the Six Months Ended June 30, 1998 and 1997:
Partnership operations for the six months ended June 30, 1998 generated net
income of $255,308 compared with a net loss of $228 for the corresponding period
in 1997. The gain on the sale of Broadmoor was $140,391. The revenue from
operations decreased by $189,179 or 15% primarily due to reflecting only a
portion of the quarter's revenue due to the sale of Broadmoor on May 28, 1998.
Likewise, the operating expenses decreased $16,217 or 3% due primarily to the
sale of Broadmoor. General and administrative expenses increased by $46,240 or
57% primarily due to the legal costs associated with the lawsuit filed in
connection with the sales contract on Canyon View as discussed in Note 9.
<PAGE>
PART II - OTHER INFORMATION
-----------------
ITEM 1. Legal Proceedings
Response: None
ITEM 2. Changes in Securities
Response: None
ITEM 3. Defaults Upon Senior Securities
Response: None
ITEM 4. Submission of Matters to a Vote of Security Holders
Response: None
ITEM 5. Other Information
Response: None
ITEM 6. Exhibits and Reports on Form 8-K
Response: The Partnership reported the sale of Broadmoor on Form 8-K
filed on June 10, 1998.
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.
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
By: GP L'Auberge Communities, L.P., a California Limited Partnership,
General Partner
By: L'Auberge Communities, Inc., its General Partner
By: ____/s/ Stephen B. Boyle________________
Date: August 14, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Jun-30-1998
<CASH> 158,186
<SECURITIES> 0
<RECEIVABLES> 26,750
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,548,409
<DEPRECIATION> (2,991,565)
<TOTAL-ASSETS> 9,824,569
<CURRENT-LIABILITIES> 278,605
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,545,964
<TOTAL-LIABILITY-AND-EQUITY> 9,824,569
<SALES> 0
<TOTAL-REVENUES> 1,055,442
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 697,209
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 387,903
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 255,308
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
