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 September 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>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------
<TABLE>
September 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 fixtures 993,367 1,923,541
--------------- ---------------
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 285,219 392,010
Real estate tax escrows - 28,204
Deposits and prepaid expenses 255 1,924
Tenant receivable 4,008 15,578
Due from affiliates (Note 8) 16,870 16,870
Investment in partnership - 283,168
Deferred expenses, net of accumulated
amortization of $351,615 and $327,042 - 24,573
--------------- ---------------
Total assets $9,863,196 $18,170,237
=============== ===============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Mortgage notes payable $ - $8,487,134
Accounts payable 123,748 146,364
Accrued expenses 76,638 153,511
Due to affiliates (Note 8) 70,247 13,535
Tenant security deposits 25,901 78,124
--------------- ---------------
Total liabilities 296,534 8,878,668
General Partners' deficit (173) (88,541)
Limited Partners' equity 9,566,835 9,380,110
--------------- ---------------
Total liabilities and partners' equity $9,863,196 $18,170,237
=============== ===============
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
-------------
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenue:
<S> <C> <C> <C> <C>
Rental income $267,027 $615,445 $1,401,375 $1,874,669
Interest income 105,429 5,185
52,879 16,939
Gain from sale of properties - - 140,391 -
-------------- ---------------- --------------- -------------
372,456 620,630 1,594,645 1,891,608
Expenses:
Operating Expenses 173,731 316,799 720,067 879,350
Interest 104,037 205,360 491,940 608,294
Depreciation and amortization 871 118,503 24,573 340,357
General and administrative 73,118 42,611 200,290 123,543
Equity in (income) loss
from partnership - 5,658 (118,231) 8,591
-------------- ---------------- --------------- -------------
351,757 688,931 1,318,639 1,960,135
-------------- ---------------- --------------- -------------
Net income (loss) $20,699 ($68,301) $276,006 ($68,527)
============== ================ =============== =============
Net income (loss) allocated to:
General Partners $414 ($683) $88,368 ($685)
Basic and diluted per unit net income (loss) allocated to Investor Limited
Partner interest:
36,411 units issued $0.56 ($1.86) $5.15 ($1.86)
<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 88,368 187,638 276,006
------------- --------------- ---------------
Balance at September 30, 1998 ($173) $9,566,835 $9,566,662
============= =============== ===============
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
-------------
Nine Months Ended
September 30,
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Interest received $52,879 $16,939
Cash received from rental income 1,360,722 1,882,367
General and administrative expenses (142,205) (142,181)
Operating expense (758,301) (847,825)
Interest paid (525,120) (608,294)
-------------- -----------------
Net cash provided by operating activities (12,025) 301,006
Cash flows from investing activities:
Capital improvements (193,404) (97,033)
Proceeds from sale of properties 8,585,334 -
Deposits -
-------------- -----------------
Net cash (used) provided by investing activities 8,391,930 (97,033)
Cash flows from financing activities:
Distributions to partners - (191,158)
Principal payments on mortgage note payable (8,487,134) (95,020)
Decrease (increase) in deposits 438 -
-------------- ---------------
Net cash used by financing activities (8,486,696) (286,178)
-------------- ---------------
Net (decrease) increase in cash and cash equivalents (106,791) (82,205)
Cash and cash equivalents at beginning of year 392,010 537,735
-------------- ---------------
Cash and cash equivalents at end of year $285,219 $455,530
============== ===============
<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:
Nine Months Ended
September 30,
1998 1997
---- ----
<S> <C> <C>
Net income (loss) $276,006 ($68,527)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 24,573 340,357
Equity in (income) loss from partnership (118,231) 8,591
Gain from sale of property (140,391)
Change in assets and liabilities net of effects of
investing and financing activities:
Decrease (increase) in real estate tax escrow 28,204 (26,461)
Decrease (increase) in deposits and prepaid expenses 1,230 (1,567)
Decrease (increase) in tenants receivable 11,570 -
Increase (decrease) in accounts payable and
accrued expenses (99,475) 48,266
Decrease in due to affiliates 56,712 (7,351)
(Decrease) increase in rents received in advance - (6,158)
Increase (decrease) in tenant security deposits (52,223) 13,856
-------------- ---------------
Net cash provided by operating activities ($12,025) $301,006
============== ===============
</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 September 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.
2.
<PAGE>
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 September 30, 1998 and December 31, 1997 consisted
of the following:
1998 1997
---- ----
Cash on hand $285,219 $170,454
Money market accounts 221,556
------- -------
$285,219 $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 September 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 September 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 September 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 September 30, 1998 and December 31, 1997,
which consisted of the following:
1998 1997
---- ----
Canyon View $ - $4,986,771
Broadmoor - 500,363
-------
$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
September 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 September 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 nine months ended September 30, 1998, and 1997
are summarized as follows:
Income: ................................... 1998 1997
----------- -----------
<S> <C> <C>
Rental income ........................... $ 640,283 $ 1,108,036
Other income ............................ 23,062 7,333
Gain on sale of property ................ 1899,836 _
----------- -----------
2,563,181 1,115,369
Expenses and other deductions:
General and administrative .............. 2,144 5,441
Operations .............................. 268,855 543,168
Depreciation and amortization ........... 13,927 196,751
Interest ................................ 284,752 471,083
----------- -----------
569,708 1,216,443
Net income (loss) ......................... $ 1,993,473 ($ 101,074)
=========== ===========
</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 September 30, 1998 and December 31, 1997
consisted of $70,247 and $13,535, respectively, relating to reimbursable costs
due to L'Auberge Communities, Inc.
As of September 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.
<PAGE>
8. Related Party Transactions continued:
As of September 30, 1998 and 1997, general and administrative expenses included
$46,844 and $40,509 respectively, of salary reimbursements paid to the General
Partners for certain administrative and accounting personnel who performed
services for the Partnership.
During the nine months ended September 30, 1998 and 1997, property management
fees of $34,244 and $72,317, 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. 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 right of
first refusal to acquire 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.
<PAGE>
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. The Partnership has moved to amend its
counterclaim to allege additional claims.
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 hearing date on that motion is scheduled for
mid-November 1998. The determination by the court will be rendered some time
thereafter. The trial is scheduled for mid January 1999.
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. 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 September 30,
1998, the Partnership had cash and cash equivalents of $285,219 compared with
$392,010 at December 31, 1997. The aggregate net decrease of $106,791 resulted
primarily from cash provided from sale of properties of $8,585,334 less mortgage
repayments of $8,487,134, offset by $193,404 of fixed asset additions and by
cash required for operations of $12,025.
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 September 30, 1998, the property was 75% occupied, compared to 89%
approximately one year ago. At September 30, 1998 and 1997,
the market rents for the various unit types were as follows:
Unit Type 1998 1997
--------- ---- ----
One bedroom one bath $725 $725
Two bedroom two bath 765 795
Two bedroom two bath w/den 825 1,010
Results of Operations
The Partnership's operating results for the three months ended September 30,
1998, consisted of interest income, administrative expenses and the income
allocated from Canyon View, as follows:
<TABLE>
Canyon Investment Consolidated
View Partnership Totals
<S> <C> <C> <C>
Total revenue .......................................... $ 262,027 $ 110,429 $ 372,456
Expenses:
General and administrative ........................... -- 73,118 73,118
Operations ........................................... 173,731 173,731
Depreciation and amortization ........................ 871 871
Interest ............................................. 104,037 104,037
--------- --------- ---------
278,639 73,118 351,757
--------- --------- ---------
Net income ............................................. ($ 16,612) $ 37,311 $ 20,699
========= ========= =========
The Partnership's operating results for the three months ended September 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 $312,316 $304,788 $3,526 $620,630
Expenses:
General and administrative 42,611 42,611
Operations 179,195 137,604 316,799
Depreciation and amortization 63,544 54,959 118,503
Interest 117,117 88,243 205,360
Equity in (income) loss from partnership 5,658 5,658
---------------- ---------------- ------------- -----------
359,856 280,806 48,269 688,931
---------------- ---------------- ------------- -----------
Net income ($47,540) $23,982 ($44,743) ($68,301)
================ ================ ============= ===========
<PAGE>
For the nine months ended September 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>
Rental $874,256 $445,823 $134,175 $1,454,254
Gain from sale of property 140,391 140,391
Expenses:
General and administrative - - 200,290 200,290
Operations 509,592 210,475 720,067
Depreciation and amortization 11,319 13,254 24,573
Interest 331,746 160,194 491,940
Equity in (income) loss from - - (118,231) (118,231)
partnership
--------------- ---------------- ------------- -------------
852,657 383,923 82,059 1,318,639
--------------- ---------------- ------------- -------------
Net income $21,599 $61,900 $52,116 $276,006
=============== ================ ============= =============
For the nine months ended September 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 $992,103 $887,379 $12,126 $1,891,608
Expenses:
General and administrative 123,543 123,543
Operations 511,402 367,948 879,350
Depreciation and amortization 189,270 151,087 340,357
Interest 347,839 260,455 608,294
Equity in (income) loss from 8,591 8,591
partnership
---------------- ---------------- ------------- -------------
1,048,511 779,490 132,134 1,960,135
---------------- ---------------- ------------- -------------
Net income ($56,408) $107,889 ($120,008) ($68,527)
================ ================ ============= =============
</TABLE>
Comparison of Operating Results for the Nine Months Ended September 30, 1998 and
1997:
Partnership operations for the nine months ended September 30, 1998 generated
net income of $276,006 compared with a net loss of $68,527 for the corresponding
period in 1997. The gain on the sale of Broadmoor was $140,391. The revenue from
operations decreased by $437,354 or 23% primarily due to reflecting only a
portion of the year's revenue due to the sale of Broadmoor on May 28, 1998.
Likewise, the operating expenses decreased $159,283 or 18% due primarily to the
sale of Broadmoor. General and administrative expenses increased by $76,747 or
62% 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________________
President
Date: November 13, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Sep-30-1998
<CASH> 285,219
<SECURITIES> 0
<RECEIVABLES> 21,133
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,548,409
<DEPRECIATION> (2,991,565)
<TOTAL-ASSETS> 9,863,196
<CURRENT-LIABILITIES> 296,534
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 9,566,662
<TOTAL-LIABILITY-AND-EQUITY> 9,863,196
<SALES> 0
<TOTAL-REVENUES> 1,594,645
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 944,930
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 491,940
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 276,006
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
