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 March 31, 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>
---------------
March 31,
ASSETS 1998 December 31,
(Unaudited) 1997
Assets held for sale/Property, at cost (Notes 9)
<S> <C> <C>
Land $5,114,512 $5,114,512
Buildings and improvements 15,561,584 15,561,584
Equipment, furnishings and fixtures 1,959,071 1,923,541
---------------- ----------------
22,635,167 22,599,637
Less accumulated (5,191,563) (5,191,727)
depreciation
---------------- ----------------
17,443,604 17,407,910
Cash and cash equivalents 358,692 392,010
Real estate tax escrows 54,495 28,204
Deposits and prepaid expenses 1,947 1,924
Tenant receivable 6,281 15,578
Due from affiliates (Note 8) 16,870 16,870
Investment in partnership 290,184 283,168
Deferred expenses, net of accumulated
amortization of $336,367 and $327,042 15,248 24,573
---------------- ----------------
Total assets $18,187,321 $18,170,237
================ ================
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Mortgage notes payable $8,453,183 $8,487,134
Accounts payable 104,168 146,364
Accrued expenses 155,811 153,511
Due to affiliates (Note 8) 38,821 13,535
Rents received in advance - -
Tenant security deposits 70,199 78,124
---------------- ----------------
Total liabilities 8,822,182 8,878,668
General Partners' deficit (87,070) (88,541)
Limited Partners' equity 9,452,209 9,380,110
---------------- ----------------
Total liabilities and partners' equity $18,187,321 $18,170,237
================ ================
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
-------------
Three Months Ended
March 31,
1998 1997
---- ----
Revenue:
<S> <C> <C>
Rental income $607,749 $658,832
Interest income
4,586 6,307
-------------- -----------------
612,335 665,139
Expenses:
Operating Expenses 275,435 291,401
Interest 198,820 201,831
Depreciation and amortization 9,325 110,927
General and administrative 62,199 36,125
Equity in (income) loss
from partnership (7,014) 1,453
-------------- -----------------
538,765 641,737
-------------- -----------------
Net income (loss) $73,570 $23,402
============== =================
Net income (loss) allocated to:
General Partners $1,471 $468
Basic and diluted per unit net income (loss) allocated to Investor Limited
Partner interest:
36,411 units issued $1.98 $0.63
<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) 9,380,110 9,291,569
Cash distributions - - -
Net loss 1,471 72,099 73,570
-------------- ----------------- ---------------
Balance at March 31, 1998 ($87,070) $9,452,209 $9,365,139
============== ================= ===============
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
-------------
Three Months Ended
March 31,
1998 1997
---- ----
Cash flows from operating activities:
<S> <C> <C>
Interest received $4,586 $6,308
Cash received from rental income 609,121 655,047
General and administrative expenses (50,734) (43,030)
Operating expense (327,989) (286,176)
Interest paid (198,820) (201,831)
-------------- -------------------
Net cash provided by operating activities 36,164 130,318
Cash flows from investing activities:
Capital improvements (35,530) (46,607)
-------------- -------------------
Net cash (used) provided by investing activities (35,530) (46,607)
Cash flows from financing activities:
Distributions to partners - (63,719)
Principal payments on mortgage note payable (33,952) (30,941)
-------------- -----------------
Net cash used by financing activities (33,952) (94,660)
-------------- -----------------
Net (decrease) increase in cash and cash equivalents (33,318) (10,949)
Cash and cash equivalents at beginning of year 392,010 537,735
-------------- -----------------
Cash and cash equivalents at end of year $358,692 $526,786
============== =================
<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:
Three Months Ended
March 31,
1998 1997
---- ----
<S> <C> <C>
Net income (loss) $73,570 $23,402
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization 9,325 110,927
Equity in (income) loss from partnership (7,014) 1,453
Change in assets and liabilities net of effects
of investing and financing
activities:
Decrease (increase) in real estate tax escrow (26,291) (26,461)
Decrease (increase) in deposits and prepaid expenses (23) -
Decrease (increase) in tenants receivable 9,297 -
Increase (decrease) in accounts payable and
accrued expenses (40,061) 15,611
Decrease in due to affiliates 25,286 9,171
(Decrease) increase in rents received in advance - (6,158)
Increase (decrease) in tenant security
deposits (7,925) 2,373
-------------- -----------------
Net cash provided by operating activities $36,164 $130,318
============== =================
</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 March 31, 1998, the total number of Limited
Partners was 1,989. 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 8.)
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 8, 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 March 31, 1998 and December 31, 1997 consisted of
the following:
1998 1997
---- ----
Cash on hand $134,641 $170,454
Money market accounts 224,051 221,556
------- -------
$358,692 $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 March 31, 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 March 31, 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 March 31, 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 MARCH 31, 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.
For the three months ended March 31, 1998 and 1997, the Broadmoor Pines had net
income of $85,003 and $42,311, respectively.
5. Mortgage Notes Payable:
All of the property owned by the Partnership is pledged as collateral for the
mortgage notes payable outstanding at March 31, 1998 and December 31, 1997,
which consisted of the following:
1998 1997
---- ----
Canyon View $4,963,525 $4,986,771
Broadmoor 3,489,658 3,500,363
--------- ---------
$8,453,183 $8,487,134
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. The balance of the note will be due
on July 15, 1998.
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. The balance of the note will be due
on September 15, 1998.
As discussed in Note 8, the Partnership entered into a Sales Agreement for these
properties. The estimated sales price is sufficient to cover the mortgage note
balance. However, there can be no assurance that the sale of the properties will
occur.
<PAGE>
5. Mortgage Notes Payable continued:
In the event the sales do not occur, the Partnership will seek new sources of
financing for these properties on a long term basis or seek to renegotiate the
mortgage notes with their existing lender. If the general economic climate for
real estate in these locations were to deteriorate resulting in an increase in
interest rates for mortgage financing or a reduction in the availability of real
estate mortgage financing or a decline in the market values of real estate, it
may affect the Partnership's ability to complete these refinancings or sell the
properties.
Interest included in Accrued expenses in the Consolidated Balance Sheets at
March 31, 1998 and December 31, 1997 consisted of the following:
1998 1997
---- ----
Canyon View $18,960 $18,960
Broadmoor 14,220 14,220
------ ------
$33,180 $33,180
======= =======
The principal balance of the mortgage notes payable appearing on the
consolidated balance sheets at March 31, 1998 and December 31, 1997 approximates
the fair value of such notes.
6. 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.
The allocation of the related profits, losses, and distributions, if any, would
be different than described above in the case of certain events defined in the
Partnership Agreement, such as the sale of an investment property or an interest
in a joint venture partnership.
7. 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 March 31, 1998 and December 31, 1997
consisted of $38,821 and $13,535, respectively, relating to reimbursable costs
due to L'Auberge Communities, Inc.
As of March 31, 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.
As of March 31, 1998 and 1997, general and administrative expenses included
$19,289 and $12,298, respectively, of salary reimbursements paid to the General
Partners for certain administrative and accounting personnel who performed
services for the Partnership.
During the three months ended March 31, 1998 and 1997, property management fees
of $24,152 and $25,283, 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.
<PAGE>
8. Assets Held for Sale:
During the fourth quarter of 1997, the General Partners of the Partnership
committed to a plan to dispose of Broadmoor in Colorado Springs, Colorado, and
Canyon View in Tucson, Arizona. On January 26, 1998, and February 19, 1998,
respectively, the Partnership entered into Sales Agreements (the "Agreements")
to sell Broadmoor and Canyon View to an unaffiliated third party. The selling
prices for Broadmoor and Canyon View are approximately $8,300,000 and
$10,101,497, respectively. The Agreements are 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 these sales 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 properties. However, a majority consensus
has not been reached for Casabella Associates, of which the Partnership holds a
minority interest. Casabella Associates owns a 154 unit residential community in
Scottsdale, Arizona.
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 proceeding 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 the right of first refusal to require the
Partnership to sell the property to the co-venturer 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. Consistent with the Partnership's obligation
under its purchase and sale agreement with TRH, the Partnership intends to seek
to expunge the lis pendens and to defend against the claims of the co-venturer.
Although the Partnership believes that the pending 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 these
properties, the Partnership has recorded the assets 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 sales 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 March 31,
1998, the Partnership had cash and cash equivalents of $358,692 compared with
$392,010 at December 31, 1997. The aggregate net decrease of $33,318 resulted
primarily from cash provided by operations of $36,164, offset by $35,530 of
fixed asset additions and principal payments on mortgage notes payable of
$33,952,
With regard to certain balloon payments on existing first mortgage debt (see
Note 5 of the Notes to Consolidated Financial Statements) on the Partnership's
properties which are due and payable in 1998, the General Partners anticipate
repaying such loans utilizing a portion of the sales proceeds from the pending
sales of the properties. In the event that one or more of the pending sales is
not consummated, the General Partners will seek to renegotiate these mortgage
notes with its existing lenders or seek new sources of financing for these
properties. To date, the General Partners have neither sought to extend or
renegotiate the existing mortgage debt nor have they sought new financing for
the properties and there can be no assurance that they would be successful in
doing so. The General Partners believe that existing cash flows from the
properties will be sufficient to support a level of borrowing that is at least
equal to amounts outstanding as of March 31, 1998. If the general economic
climate for real estate in these respective locations were to deteriorate
resulting in an increase in interest rates for mortgage financing or a reduction
in the availability of real estate mortgage financing or a decline in the market
values of real estate it may affect the Partnership's ability to complete these
refinancings.
In the event that Partnership properties are not sold pursuant to the Purchase
Agreements, the Partnership would continue to operate the properties until
substitute sales 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 properties assuming the existing mortgage debt can be extended,
renegotiated or refinanced.
Results of Operations
For the three months ended March 31, 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:
<TABLE>
Canyon Broadmoor Investment Consolidated
View Pines Partnership Totals
<S> <C> <C> <C> <C>
Total revenue .......................................... $ 323,805 $ 285,074 $ 3,456 $ 612,335
Expenses:
General and administrative ........................... -- -- 62,199 62,199
Operations ........................................... 164,700 110,735 275,435
Depreciation and amortization ........................ 5,224 4,101 9,325
Interest ............................................. 113,585 85,235 198,820
Equity in (income) loss from ......................... -- -- (7,014) (7,014)
partnership
--------- --------- --------- ---------
283,509 200,071 55,185 538,765
--------- --------- --------- ---------
Net income ............................................. $ 40,296 $ 85,003 ($ 51,729) $ 73,570
========= ========= ========= =========
For the three months ended March 31, 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 ...................................... $ 363,960 $ 296,288 $ 4,891 $ 665,139
Expenses:
General and administrative ....................... 36,125 36,125
Operations ....................................... 171,714 119,687 291,401
Depreciation and amortization .................... 62,863 48,064 110,927
Interest ......................................... 115,605 86,226 201,831
Equity in (income) loss from partnership ......... -- -- 1,453 1,453
--------- --------- --------- ---------
350,182 253,977 37,578 641,737
--------- --------- --------- ---------
Net income ......................................... $ 13,778 $ 42,311 ($ 32,687) $ 23,402
========= ========= ========= =========
</TABLE>
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997:
Partnership operations for the three months ended March 31, 1998 generated net
income of $73,570 compared with a net income of $23,402 for the corresponding
period in 1997. The total revenue decreased by $52,804 or 8% due to decreased
rental revenue at Canyon View and Broadmoor. Rental operating expenses decreased
$15,966 or 5% due primarily to decreases in advertising expenses for both Canyon
View and Broadmoor, as well as a reduction in property taxes for Canyon View.
General and administrative expenses increased by $26,074 or 72% primarily due to
the legal costs associated with the sales contract, as well as preparation,
printing and mailing of the consent solicitation sent to the Limited Partners
for the dissolution of the Partnership.
<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: None
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: May 15, 1998
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 358,692
<SECURITIES> 0
<RECEIVABLES> 6,281
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 22,635,167
<DEPRECIATION> (5,191,563)
<TOTAL-ASSETS> 18,187,321
<CURRENT-LIABILITIES> 368,999
<BONDS> 8,453,183
0
0
<COMMON> 0
<OTHER-SE> 9,365,139
<TOTAL-LIABILITY-AND-EQUITY> 18,187,321
<SALES> 0
<TOTAL-REVENUES> 612,335
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 339,945
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 198,820
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,570
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
