SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ] Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 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
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(State or other jurisdiction of
( incorporation or organization)
(I.R.S Employer Identification No.)
5110 Langdale Way, Colorado Springs, CO 80906
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(Address of principal executive offices) (Zip Code)
(719) 527-0544
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(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 ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Aggregate market value of voting securities held by non-affiliates: Not
applicable, since securities are not actively traded on any exchange.
Documents incorporated by reference: None
The Exhibit Index is located on page F-19.
<PAGE>
PART I
ITEM 1. BUSINESS
This form 10-K contains forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934. Such forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by the forward-looking
statements. Such factors include, among other things, (i) general economic and
business conditions; (ii) interest rate changes; (iii) competition; (iv)
demographic changes; (v) slow growth initiatives; (vi) governmental regulation,
including the interpretation of tax, labor and environmental laws; (vii); (viii)
required accounting changes; and (ix) other factors over which the Partnership
has little or no control.
Development Partners (A Massachusetts Limited Partnership) (the "Partnership"),
formerly Berry and Boyle Development Partners, was formed on October 23, 1985.
The General Partners are L'Auberge Realty Advisors (A Massachusetts Limited
Partnership), formerly Berry and Boyle Realty Advisors, and GP L'Auberge
Communities, L.P., a California Limited Partnership (formerly Berry and Boyle
Management).
The Partnership was formed to invest in, operate and ultimately dispose of a
diversified portfolio of income-producing residential real properties directly
or through its joint venture partner interest in joint ventures which own such
properties. In May 1998, the Partnership sold two of its properties.
Descriptions of such properties are included below in Item 2. as well as in Note
5 of the Notes to the Consolidated Financial Statements.
As further discussed in Item 2 below and in Note 10 of the Notes to the
Consolidated Financial Statements, after taking into consideration such factors
as the price to be realized, the possible risks of continued ownership and the
anticipated advantages to be gained for the partners, the General Partners
determined during 1997 that it would be in the best interests of the Partnership
and the partners to dissolve the Partnership and liquidate its assets in 1998
(the "Dissolution"). Under the provisions of the Partnership's Partnership
Agreement, the Dissolution of the Partnership requires the consent of a majority
in interest of the limited partners. In March 1998, the General Partners
requested the consent of the limited partners to the Dissolution pursuant to a
Consent Solicitation Statement first mailed to the limited partners on or about
March 20, 1998. The consent of a majority in interest of the limited partners to
the dissolution was obtained in April 1998. Two of the properties owned by the
Partnership or in which the Partnership owned an interest were sold to
purchasers unaffiliated with the General Partners. These properties were
Broadmoor and Casabella, both sold in May 1998. Net proceeds from these sales
were used to retire Canyon View's existing mortgage debt, which had been due to
mature in July 1998. Canyon View, the sole remaining property owned by the
Partnership, is under contract to be sold to a purchaser unaffiliated with the
General Partners. Net proceeds from this sale will not be reinvested by the
Partnership or its joint ventures, but will be distributed to the partners so
that the Partnership will, in effect, be self-liquidating.
On-site management of the remaining property is provided by an affiliate of the
General Partners. The terms of such property management services between the
Partnership (or joint venture) and the property manager are embodied in a
written management agreement with respect to each property. These fees do not
exceed 4% of the gross revenues. The property manager is responsible for on-site
operations and maintenance, generation and collection of rental income, and
payment of operating expenses.
The difference between rental income and expenses related to operations,
including items such as local taxes and assessments, utilities, insurance
premiums, maintenance, repairs and improvements, bookkeeping and payroll
expenses, legal and accounting fees, property management fees and other expenses
incurred, constitute the properties' operating cash flow. The Partnership's
administrative expenses are paid out of the Partnership's share of such cash
flow and from interest income, which the Partnership earns on its short-term
investments.
The success of the Partnership depends upon factors which are difficult to
predict and many of which are beyond the control of the Partnership. Such
factors include, among others, general economic and real estate market
conditions, both on a national basis and in those areas where the Partnership's
investment is located, competitive factors, the availability and cost of
borrowed funds, real estate tax rates, federal and state income tax laws,
operating expenses (including maintenance and insurance), energy costs,
government regulations, and potential liability under and changes in
environmental and other laws, as well as the successful management of the
property.
The Partnership's investment in real estate is also subject to certain
additional risks including, but not limited to, (i) competition from existing
and future projects held by other owners in the areas of the Partnership's
property, (ii) possible reduction in rental income due to an inability to
maintain high occupancy levels, (iii) adverse changes in mortgage interest
rates, (iv) possible adverse changes in general economic conditions and adverse
local conditions, such as competitive over-bidding, or a decrease in employment
or adverse changes in real estate zoning laws, (v) the possible future adoption
of rent control legislation which would not permit the full amount of increased
costs to be passed on to tenants in the form of rent increases, and (vi) other
circumstances over which the Partnership may have little or no control.
The Partnership's investment is subject to competition in the rental, lease and
sale of similar types of properties in the localities in which the Partnership's
real property investment is located, and the Partnership competes with other
real property owners and developers in the rental, leasing and sale of such
properties. Furthermore, the General Partners of the Partnership were affiliated
with other partnerships owning similar properties in the vicinity in which the
Partnership's property is located.
The Partnership considers itself to be engaged in only one industry segment,
multi-family real estate investment.
ITEM 2. PROPERTIES
The Partnership owns a majority joint venture interest in the Canyon View Joint
Venture, an Arizona joint venture that owns and operates Canyon View, a 168-unit
multifamily rental property in Tucson, Arizona. The Partnership owned and
operated Broadmoor, a 108-unit multifamily rental property in Colorado Springs,
Colorado, which was sold in May 1998. The Partnership also owned a minority
interest in Casabella Associates ("Associates"), which owned and operated
Casabella, a 154-unit multifamily rental property in Scottsdale, Arizona, which
was sold in May 1998. As further discussed below under "Pending Sales" and in
Note 10 of the Notes to Consolidated Financial Statements, Canyon View is under
contract to be sold to a purchaser unaffiliated with the General Partners.
Canyon View
On September 29, 1987, the Partnership acquired a majority interest in the
Canyon View Joint Venture which owns and operates Canyon View. The Partnership
is the managing joint venture partner and controls 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 December 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 and to fund certain capital improvements. In
addition to such contributions, the Partnership incurred $745,902 of property
acquisition and organization costs which were subsequently treated as a capital
contribution to the joint venture.
As of January 15, 1999, the property was 87% occupied, compared to 87%
approximately one year ago. At December 31, 1998 and 1997,
the market rents for the various unit types were as follows:
Unit Type .............................. 1998 1997
- ---------------------------------------------- ------ ------
One bedroom one bath ......................... $ 765 $ 765
Two bedroom two bath ......................... 825 825
Two bedroom two bath w/den ................... 1,010 1,010
Broadmoor
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 net selling price for Broadmoor
was $8,048,532 subject to certain customary adjustments net of a credit to the
purchaser of $139,000 for capital improvements. The mortgage in the approximate
amount of $3,514,880 was paid at closing utilizing a portion of proceeds from
the sale. The Partnership recognized a gain on sale for financial reporting
purposes of $140,391.
<PAGE>
Casabella
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 net selling price was $11,418,702, subject to certain customary
adjustments net of a credit to the purchaser of $120,000 for capital
improvements. Proceeds from the sale were used to repay mortgage financing in
the approximate amount of $6,750,400 at closing. The net proceeds to Casabella
Associates from the sale of Casabella were approximately $4,570,300 of which the
Partnership's share was approximately $388,475.
Pending Sales
On February 19, 1998, the Partnership entered into Sales Agreement (the
"Agreement") to sell Canyon View to Tucson Realty Holding Co. Inc., an
unaffiliated third party. The selling price for Canyon View is approximately
$10,101,497. 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 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 proceeded
to close the sale of Canyon View to TRH pursuant to the Canyon View Purchase
Agreement. The co-venturer 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 filed a
lis pendens on the property as a means of prohibiting its sale to TRH. The
Partnership is seeking to expunge the lis pendens and defending against the
claims of the co-venturer. Although the Partnership believes that the lawsuit
has no merit, it has materially delayed the Partnership's sale of Canyon View.
In the event of a sale to TRH, Canyon View would be sold together with an
adjoining apartment phase owned by Canyon View East Joint Venture, an affiliated
entity which is the Managing Venturer of Development Partners II, a public
limited 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. The Closing Date is subject to the conclusion
of the lawsuit.
The Purchase Agreement provided that the purchaser, TRH, has the right to
conduct its "due diligence" review of the property. This review includes, but is
not limited to, a physical inspection and examination of title and environmental
matters. During the due diligence period, each purchaser has the customary right
to withdraw its offer for any reason. Because the property sale is subject to
the respective purchaser's due diligence review of the property, there can be no
assurance that the proposed sale described above will actually occur.
Alternatively, as is customary in similar real estate transactions, if, during
the due diligence period, the purchaser identifies conditions which are
unacceptable to it, the purchaser may seek a purchase price adjustment, which
the General Partners would consider and negotiate as they deem appropriate. The
Purchase Agreement provides that in the event that the purchaser defaults by
failing to close following the end of the due diligence period, the Partnership
will be entitled to retain the purchaser's deposit as liquidated damages.
ITEM 3. LEGAL PROCEEDINGS
There are no pending material legal proceedings to which the Partnership or any
joint venture in which it owns an interest is a party, or of which any of the
properties is subject. Although the General Partners do not believe it to be
material or with merit, for information regarding a lawsuit related to the
pending sale of Canyon View, see the discussion under the subheading "Pending
Sales" in Item 2 above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of 1998.
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
The transfer of Units is subject to certain limitations contained in the
Partnership Agreement. There is no public market for the Units and it is not
anticipated that any such public market will develop.
The number of Unit holders as of December 31, 1998 was 1,989.
Distributions are made to the Partners on a quarterly basis based upon Net Cash
from Operations, as calculated under Section 10 of the Partnership Agreement.
Total cash distributions to the Limited Partners for 1998 and 1997 were paid as
follows:
Date of
Quarter Ended Payment Amount
------------- ------- ------
December 31, 1996 February 28, 1997 $ 63,720
March 31, 1997 May 15, 1997 $ 63,719
June 30, 1997 August 15, 1997 $ 63,719
September 30, 1997 $ 0
December 31, 1997 $ 0
March 31, 1998 $ 0
June 30, 1998 $ 0
September 30, 1998 $ 0
December 31, 1998 $ 0
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data of the Partnership and consolidated
subsidiaries has been derived from consolidated financial statements audited by
PricewaterhouseCoopers, LLP, whose reports for the periods ended December 31,
1998, 1997 and 1996 are included elsewhere in the Form 10K and should be read in
conjunction with the full consolidated financial statements of the Partnership
including the Notes thereto.
<TABLE>
Year Ended
----------------------------------------------------------------------
----------------------------------------------------------
12/31/98 12/31/97 12/31/96 12/31/95 12/31/94
<S> <C> <C> <C> <C> <C>
Rental income $1,620,776 $2,529,509 $2,427,779 $2,444,585 $2,598,360
Net income (loss) $ 254,188 ($ 111,575) ($ 217,956) $ 54,619 $ 227,996
Net income (loss) allocated to Partners:
Limited Partners - Per Unit- Basic and diluted
Aggregate 36,411 Units $ 4.55 ($ 3.03) ($ 5.93) $1.47 $6.14
General Partners $88,560 ($1,116) ($2,180) $1,092 $4,560
Cash distributions to Partners:
Limited Partners - Per Unit
Aggregate 36,411 Units $ - $5.25 $7.00 $13.75 $19.25
General Partners $ - $3,901 $5,202 $10,217 $14,304
Total assets $9,815,087 $18,170,237 $18,518,721 $19,144,374 $19,675,617
Long term obligations $ - $8,487,134 $8,615,326 $8,732,151 $8,838,924
</TABLE>
<PAGE>
ITEM 7. 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
At the close of the offering on February 26, 1987, the Partnership had admitted
2,033 Limited Partners who contributed capital of $18,205,500 to the
Partnership. These offering proceeds, net of organizational and offering costs
of $2,730,825, provided $15,474,675 of net proceeds to be used for the purchase
of income-producing residential properties, including related fees and expenses,
and working capital reserves. The Partnership has expended $14,277,559 to (i)
acquire its joint venture interests in the Canyon View Joint Venture, Broadmoor
Pines Joint Venture and Casabella Associates, (ii) pay acquisition expenses,
including acquisition fees to one of the General Partners, and (iii) pay certain
costs associated with the refinancing of the Canyon View and Broadmoor permanent
loans. The Partnership distributed $56,437 to the Limited Partners as a return
of capital resulting from excess reserves. The remaining net proceeds of
$1,140,679 were used to establish initial working capital reserves. These
reserves are used periodically to enable the Partnership to meet its various
financial obligations including contributions to the various joint ventures that
may be required. Through December 31, 1998, $605,677 cumulatively was
contributed to the joint ventures for this purpose.
In addition to the proceeds generated from the public offering, the Partnership
utilized external sources of financing at the joint venture level to purchase
properties. The Partnership Agreement limits the aggregate mortgage indebtedness
which may be incurred in connection with the acquisition of Partnership
properties to 80% of the purchase price of such properties.
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 December 31,
1998, the Partnership had cash and cash equivalents of $256,958 compared with
$392,010 at December 31, 1997. The aggregate net decrease of $135,052 resulted
primarily from cash provided from sale of properties of $8,048,532 and
distributions from partnership of $400,486 less mortgage repayments of
$8,487,134, offset by $57,075 of fixed asset additions and by cash required for
operations of $40,300.
In the event that the remaining 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 General Partners of
the Partnership do not believe that the outcome of the pending litigation
relating to the sale of the remaining property will have a material affect on
the results of operations, liquidity, or financial condition of the Partnership.
The Partnership's ability to generate cash adequate to meet its needs is
dependent primarily on the successful operation of its real estate investment.
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 investment and the collection of any mortgage receivable which may result
from such sale. 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 1999 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 property.
Results of Operations
For the year ended December 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 (through the date of sale, May 28, 1998), and
(iii) the Partnership's share of the income from Casabella Associates (through
the date of sale, May 22, 1998), 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:
<PAGE>
<TABLE>
Canyon Broadmoor Investment Consolidated
View Pines Partnership Totals
<S> <C> <C> <C> <C>
Total revenue ..................................... $ 1,172,563 $ 586,214 $ 32,224 $ 1,791,001
Expenses:
General and administrative ...................... -- -- 346,098 346,098
Operations ...................................... 685,995 210,475 -- 896,470
Depreciation and amortization ................... 11,319 13,254 -- 24,573
Interest ........................................ 227,708 160,194 -- 387,902
Equity in income from partnership ............... -- -- (118,230) (118,230)
----------- ----------- ----------- -----------
925,022 383,923 227,868 1,536,813
----------- ----------- ----------- -----------
Net income (loss) ................................. $ 247,541 $ 202,291 ($ 195,644) $ 254,188
=========== =========== =========== ===========
For the year ended December 31, 1997, the Partnership's operating results were
comprised 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 ....................................... $ 1,337,942 $ 1,197,642 $ 15,927 $ 2,551,511
Expenses:
General and administrative ........................ -- -- 168,193 168,193
Operations ........................................ 690,522 507,840 1,198,362
Depreciation and amortization ..................... 263,571 215,524 479,095
Interest .......................................... 461,612 345,783 807,395
Equity in loss from partnership ................... -- -- 10,041 10,041
----------- ----------- ----------- -----------
1,415,705 1,069,147 178,234 2,663,086
----------- ----------- ----------- -----------
Net income (loss) ................................... ($ 77,763) $ 128,495 ($ 162,307) ($ 111,575)
=========== =========== =========== ===========
For the year ended December 31, 1996, 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 $1,212,061 $1,218,002 $29,545 $2,459,608
Expenses:
General and administrative 10 - 245,117 245,127
Operations 684,240 477,662 1,161,902
-
Depreciation and amortization 251,459 189,993 441,452
-
Interest 466,778 347,028 813,806
-
Equity in loss from partnership - - 15,277 15,277
-------------- ------------- ------------ ---------------
1,402,487 1,014,683 260,394 2,677,564
-------------- ------------- ------------ ---------------
Net income (loss) ($190,426) $203,319 ($230,849) ($217,956)
============== ============= ============ ===============
</TABLE>
Comparison of 1998 and 1997 Operating Results:
Partnership operations for 1998 generated net income of $254,188 compared with
net loss of $111,575 for the corresponding period in 1997. Included in the net
income for 1998 is the gain on the sale of Broadmoor in the amount of $140,391.
The income from operations was $113,797 (excluding the gain on sale of
property). The operating revenue decreased by $900,901 or 35% due to the sale of
Broadmoor in May 1998, thus revenues excluding the gain on sale of property
represent only 5 months of operation of Broadmoor and a full year of operations
of Canyon View. Likewise, the operating expenses decreased $301,892 or 25%.
General and administrative expenses increased by $177,905 or 106% primarily due
to the legal fees associated with the litigation regarding the sale of Canyon
View.
Comparison of 1997 and 1996 Operating Results:
The total revenue increased by $91,903 or 4% due to increased rental revenue at
Canyon View. Rental operating expenses increased $36,460 or 3% due primarily to
increases in maintenance and repair costs associated with the disposition of the
properties. General and administrative expenses decreased by $76,934 or 31%
primarily due to the re-stabilization of costs associated with the Partnership
administrative, financial and investor services functions following the office
relocation to Colorado Springs. Included is a one-time cost of the Evans
Withycombe termination ($5,681) and the cost of the Highland termination
($8,683) and its related legal cost which were incurred in May, June and July of
1996.
Projected 1999 Operating Results:
As further discussed in Item 2 above and in Note 10 of the Notes to the
Consolidated Financial Statements, the remaining property owned by the
Partnership is under contract to be sold to a purchaser unaffiliated with the
General Partners. The Closing Date is subject to the conclusion of the lawsuit
discussed in Item 2. If the sale does occur as anticipated, the Partnership will
likely be liquidated in 1999. Although there can be no assurance the Partnership
will dispose of its remaining property during 1999 pursuant to the Purchase
Agreements or otherwise, the Partnership will continue to seek to dispose of the
property. In the event that the Partnership were to dispose of the property
during 1999, operating results of the Partnership would vary significantly from
those achieved in prior periods.
Year 2000 Issues
The Partnership's management has addressed the Year 2000 issue of its management
information systems and financial reporting systems.
The remaining real-estate asset of the Partnership is Canyon View, a 168-unit
multi-family residential property. Canyon View's management information system
is AMSI and is already Year 2000 compliant.
The Partnership's only mission critical system is its financial reporting
software which is currently maintained on the Platinum accounting software
system, which has not been updated to handle the Year 2000 date change. Because
the Partnership has entered into a Purchase Agreement to sell its remaining
property, it is anticipated to be completely liquidated by the end of 1999 and
the year 2000 issue will not materially affect the results of operations or
financial condition of the Partnership. However, if any financial information
for the Partnership needs to be maintained into the year 2000, the Partnership's
management has already purchased AMSI's financial reporting system, which is
Year 2000 compliant. The financial records would be transferred to the AMSI
accounting software prior to the end of 1999.
The accounting systems are run on the Novell network, which needs to be upgraded
for compliance with the Year 2000. The Partnership's anticipated share of the
cost of this upgrade is $450. The upgrade is scheduled to take place by the end
of March 1999.
Management anticipates that all essential functions relative to maintaining the
Partnership, if any remain at that time, will be operational and the costs
associated with Year 2000 compliance will not have a material impact on the
Partnership.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE>
PART III
ITEM 10. DIRCTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership is a limited partnership and, as such, has no executive officers
or directors. The General Partners of the Partnership are GP L'Auberge
Communities, L.P., a California limited partnership, of which L'Auberge
Communities Inc. (formerly known as Berry and Boyle Inc.) ("L'Auberge") is the
general partner, and L'Auberge Realty Advisors (A Massachusetts Limited
Partnership).
GP L'Auberge Communities, L.P.
GP L'Auberge Communities, L.P. was formed in 1983 for the purpose of acting as a
general partner in partnerships formed to invest directly or indirectly in real
property. L'Auberge is the sole general partner of GP L'Auberge Communities,
L.P. The following sets forth certain biographical information with respect to
the executive officers and directors of L'Auberge other than Stephen B. Boyle
who is discussed above. There are no familial relationships between or among any
officer or director and any other officer or director.
Name Position
-----------------------------
Stephen B. Boyle President, Executive Officer and Director
-----------------------------
Earl C. Robertson Executive Vice President and Chief Financial Officer
-----------------------------
Donna Popke Vice President and Secretary
Stephen B. Boyle, age 58, is President, Executive Officer and Director of
L'Auberge and a general partner and co-founder of LP L'Auberge Communities, a
California limited partnership (formerly Berry and Boyle), a limited partnership
formed in 1983 to provide funds to various affiliated general partners of real
estate limited partnerships, one of which is GP L'Auberge Communities, L.P.
Earl C. Robertson, age 51, has been Executive Vice President of L'Auberge since
April 1995 and its Chief Financial Officer since May 1996. Mr. Robertson joined
L'Auberge in April 1995 as Executive Vice President. Prior to joining L'Auberge,
Mr. Robertson had over 20 years experience as a senior development officer,
partner and consultant in several prominent real estate development companies,
including Potomac Investment Associates, a developer of planned golf course
communities nationwide, where he was employed from 1989 to June 1993. He also
served as a consultant to Potomac Sports Properties from July 1993 to April
1995. Mr. Robertson was also a key member of the management team that developed
the nationally acclaimed Inn at the Market in Seattle.
Donna Popke, age 39, has been Vice President of L'Auberge since November 1995.
Ms. Popke joined L'Auberge in June 1994 as Accounting Manager. Prior to joining
L'Auberge, Ms. Popke was Accounting Manager for David R. Sellon & Company, a
Colorado Springs land development company, from August 1989 to June 1994 and for
Intermec of the Rockies from September 1985 to July 1989.
L'Auberge Realty Advisors (A Massachusetts Limited Partnership)
L'Auberge Realty Advisors (A Massachusetts Limited Partnership) was formed in
1985 for the purpose of acting as a general partner of
the Partnership. Its sole general partner is Stephen B. Boyle.
ITEM 11. EXECUTIVE COMPENSATION
None of the General Partners or any of their officers or directors received any
compensation from the Partnership. See Item 13 below with respect to a
description of certain transactions of the General Partners and their affiliates
with the Partnership.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of February 28, 1999, no person of record owned or was known by the General
Partners to own beneficially more than 5% of the Partnership's outstanding
Units. Neither of the General Partners nor any of their directors and officers
owns Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1998, the Partnership paid or accrued
remuneration to the General Partners or their affiliates as set forth below. In
addition to the information provided herein, certain transactions are described
in Notes 8 and 9 in the Notes to Consolidated Financial Statements appearing in
Appendix A, which are included in this report and are incorporated herein by
reference thereto.
Net Cash From Operations distributed during 1998
to the General Partners .......................... $ --
Allocation of Income (Loss) to the General Partners $88,560
Property management fees paid to an affiliate of the
General Partners .................................. $64,029
Reimbursements to General Partners ................. $67,956
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1,2 See Page F-2
3 See Exhibit Index contained herein.
(b) Reports on Form 8-K
None
(c) See Exhibit Index contained herein.
(d) See Page F-2.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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/ Earl C. Robertson________________
Earl C. Robertson, Executive Vice President and
Chief Financial Officer
Date: March 1, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
Signature Title Date
___/s/ Stephen B. Boyle _____ Director, President and March 1, 1999
-------------------- Principal Executive
STEPHEN B. BOYLE Officer of L'Auberge Communities, Inc.
___/s/ Earl C. Robertson Executive Vice President and March 1, 1999
--------------------- Principal Financial Officer of
EARL C. ROBERTSON L'Auberge Communities, Inc.
<PAGE>
APPENDIX A
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
---------
CONSOLIDATED FINANCIAL STATEMENTS
ANNUAL REPORT TO THE SECURITIES AND
EXCHANGE COMMISSION For each of the three
years in the period ended December 31, 1998
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
-------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants F-3
Consolidated Balance Sheets at December 31, 1998 and 1997 F-4
Consolidated Statements of Operations for the years ended
December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Partners' Equity (Deficit) for the
years ended December 31, 1998, 1997 and 1996 F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1998, 1997 and 1996 F-7 -- F-8
Notes to Consolidated Financial Statements F-9 -- F-18
All Schedules are omitted as they are not applicable, not required, or the
information is provided in the financial statements or the notes thereto.
Report of Independent Accountants
To the Partners of
Development Partners
(a Massachusetts Limited Partnership)
In our opinion, the accompanying consolidated balance sheets and related
consolidated statements of operations, partners' equity (deficit) and cash flows
present fairly in all material respects, the financial position of Development
Partners, a Massachusetts Limited Partnership (the "Partnership"), and its
subsidiaries as of December 31, 1998 and 1997, and the results of operations and
cash flows for each of the three years in the period ended December 31, 1998, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the General Partners of the Partnership;
our responsibility is to express an opinion on these financial statements based
on our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe our audits provide a reasonable basis for the opinion expressed above.
As discussed in Note 10, the General Partners of the Partnership have entered
into a sales agreement to sell the remaining property of the Partnership. If
closing of this sale were to occur, any proceeds from sale will be distributed
in accordance with the terms of the Partnership Agreement and the Partnership
will likely be liquidated during 1999.
PricewaterhouseCoopers, LLP
Denver, Colorado
February 26, 1999
<PAGE>
DEVELOPMENT PARTNERS
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
---------------
ASSETS
1998 1997
------------ ------------
Assets held for sale (Note 10)
<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 depreciation ........................................... (2,991,565) (5,191,727)
------------ ------------
9,556,844 17,407,910
Cash and cash equivalents ................................................. 256,958 392,010
Real estate tax escrows ................................................... -- 28,204
Deposits and prepaid expenses ............................................. 200 1,924
Tenant receivable ......................................................... 1,085 15,578
Due from affiliates (Note 9) .............................................. 16,870
Investment in partnership ................................................. -- 283,168
Deferred expenses, net of accumulated
amortization of $351,615 and $327,042 ................................... -- 24,573
------------ ------------
Total assets ..................................................... $ 9,815,087 $ 18,170,237
============ ============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Mortgage notes payable .................................................... $ 8,487,134
Accounts payable .......................................................... 28,110 146,364
Accrued expenses .......................................................... 157,142 153,511
Due to affiliates (Note 9) ................................................ 57,042 13,535
Rents received in advance ................................................. 1,747 --
Tenant security deposits .................................................. 26,201 78,124
------------ ------------
Total liabilities ................................................ 270,242 8,878,668
General Partners' equity (deficit) ........................................ 19 (88,541)
Limited Partners' equity .................................................. 9,544,826 9,380,110
------------ ------------
Total liabilities and partners' equity ............................ $ 9,815,087 $ 18,170,237
============ ============
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1998, 1997 and 1996
-------------
1998 1997 1996
---- ---- ----
Revenue:
<S> <C> <C> <C>
Rental income $1,620,776 $2,529,509 $2,427,779
Interest income
29,834 22,002 31,829
Gain from sale of properties 140,391
--------------- --------------- ---------------
1,791,001 2,551,511 2,459,608
Expenses:
Operating Expenses 896,470 1,198,362 1,161,902
Interest 387,902 807,395 813,806
Depreciation and amortization 24,573 479,095 441,452
General and administrative 346,098 168,193 245,127
Equity in (income) loss
from partnership (118,230) 10,041 15,277
--------------- --------------- ---------------
1,536,813 2,663,086 2,677,564
--------------- --------------- ---------------
Net income (loss) $254,188 ($111,575) ($217,956)
=============== =============== ===============
Net income (loss) allocated to:
General Partners $88,560 ($1,116) ($2,180)
Basic and diluted per unit net income (loss) allocated to Investor Limited
Partner interest:
36,411 units issued $4.55 ($3.03) ($5.93)
<PAGE>
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
for the years ended December 31, 1998, 1997 and 1996
-------------
Investor Total
General Limited Partners'
Partners Partners Equity
<S> <C> <C> <C>
Balance at December 31, 1995 ($76,142) $10,152,380 $10,076,238
Cash distributions (5,202) (254,877) (260,079)
Net loss (2,180) (215,776) (217,956)
--------------- --------------- ---------------
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
Minority interest absorbed (912) (912)
Net income 88,560 165,628 254,188
--------------- --------------- ---------------
Balance at December 31, 1998 $19 $9,544,826 $9,544,845
=============== =============== ===============
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
-------------
1998 1997 1996
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Interest received $29,834 $22,002 $39,411
Cash received from rental income 1,585,093 2,523,353 2,432,812
General and administrative expenses (286,835) (168,708) (236,943)
Operating expenses (947,310) (1,118,181) (1,220,694)
Interest paid (421,082) (807,893) (814,260)
--------------- ---------------------------------
Net cash (used in) provided by operating activities (40,300) 450,573 200,326
Cash flows from investing activities:
Capital improvements (57,075) (235,748) (287,833)
Proceeds from sale of property 8,048,532 - -
Proceeds from maturities of short-term investments - - 430,110
Distributions from 400,486 - 40,017
partnership
--------------- --------------- ---------------
Net cash provided by (used in) investing activities 8,391,943 (235,748) 182,294
Cash flows from financing activities:
Distributions to partners - (195,059) (260,079)
Cash paid for loan - (37,299) -
refinancing
Principal payments on mortgage note payable (8,487,134) (128,192) (116,825)
Decrease in deposits 439 - -
--------------- --------------- ---------------
Net cash used in financing activities (8,486,695) (360,550) (376,904)
--------------- --------------- ---------------
Net (decrease) increase in cash and cash equivalents (135,052) (145,725) 5,716
Cash and cash equivalents at beginning of year 392,010 537,735 532,019
--------------- --------------- ---------------
Cash and cash equivalents at end of year $256,958 $392,010 $537,735
=============== =============== ===============
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1998, 1997 and 1996
-------------
Reconciliation of net income (loss) to net cash (used in) provided by operating
activities:
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net income (loss) $254,188 ($111,575) ($217,956)
Adjustments to reconcile net income (loss)
to net cash (used in) provided by operating
activities:
Depreciation and amortization 24,573 479,095 441,452
Equity in (income) loss from partnership (118,230) 10,041 15,277
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 (228) 1,481
Decrease (increase) in deposits and prepaid 1,285 (1,285) 3,529
expenses
Decrease (increase) in tenants receivable 14,493 (15,578) 7,575
(Decrease) increase in accounts payable and
accrued expenses (114,623) 77,826 (37,296)
Increase (decrease) in due to/from affiliates, net 60,377 6,616 (18,769)
Increase (decrease) in rents received in advance 1,747 (6,158) 6,158
(Decrease) increase in tenant security
deposits (51,923) 11,819 (1,125)
--------------- --------------- ---------------
Net cash (used in) provided by operating activities ($40,300) $450,573 $200,326
=============== =============== ===============
</TABLE>
<PAGE>
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 December 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 can 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 10.)
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 (Canyon
View) and Broadmoor Pines (Broadmoor). 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 5 regarding the
termination of the Broadmoor Pines Joint Venture, and Note 6 regarding
the termination of the Casabella Joint Venture.
The Partnership follows the accrual method of accounting.
The Partnership considers itself to have been engaged in only one
industry segment, real estate.
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
As discussed further in Note 10, as of December 31, 1997, the
Partnership recorded its property as Assets Held for Sale on the
consolidated balance sheets. Accordingly, the Partnership stopped
depreciating these assets effective January 1, 1998.
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
The Partnership utilizes the provisions of SFAS No. 121, Accounting for
the Impairment of Long -Lived Assets and for Long-Lived Assets to be
Disposed Of, to review for impairment. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. As further discussed
in Note 10, assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
I. Reclassification
Certain items in the financial statements for the year ended December
31, 1996 have been reclassified to conform to the 1997 and 1998
presentation.
<PAGE>
3. Assets held for sale:
Assets held for sale consisted of the following at December 31, 1998:
<TABLE>
Initial Cost Costs Capitalized Gross Amount at Which Carried
to Subsequent to at Close of Period
Partnership Acquisition
----------------------------- --------------------------- ---------------------------------
Buildings Equipment, Buildings Equipment, Buildings Equipment,
Property and Furnishings and Furnishings and Furnishings Accumulated
Description Land Improv. & Fixtures Land Improv. & Fixtures Land Improv. & Fixtures Deprec. Total
- -------------- ------------------------------- --------------------------- -------------------------------- ------- ----------
Canyon View at Ventana,a 168-unit residential
rental complex located in Tucson, AZ
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$2,932,796 $8,591,969 $719,461 $20,182 $10,095 $273,906 $2,952,978 $8,602,064 $993,367 ($2,991,565) $9,556,844
------------------------------- --------------------------- -------------------------------- ----------- ----------
$2,932,796 $8,591,969 $719,461 $20,182 $10,095 $273,906 $2,952,978 $8,602,064 $993,367 ($2,991,565) $9,556,844
================================ ========================== ================================= =========== ==========
The changes in total real estate assets for the years ended The change in accumulated depreciation for the years ended
December 31, 1998, December 31, 1998,
1997, and 1996 are 1997, and 1996 are
as follows: as follows:
1998 1997 1996 1998 1997 1996
---- ---- ---- ---- ---- ----
Balance, beginning of $22,599,637 $22,363,889 $22,076,056 Balance, beginning of $5,191,727 $4,741,203 $4,322,133
year year
Additions during the
period:
Improvements 57,075 235,748 287,833 Depreciation for the - 450,524 419,070
period
Deductions during the
period:
Sale of (10,108,303) - - Disposition of Broadmoor (2,200,162) - -
Broadmoor
======================================== ===================================
Balance at end $12,548,409 $22,599,637 $22,363,889 Balance at end of year $2,991,565 $5,191,727 $4,741,203
of year
======================================== ===================================
</TABLE>
<PAGE>
4. Cash and Cash Equivalents:
Cash and cash equivalents at December 31, 1998 and 1997 consisted of the
following:
1998 1997
-------- --------
Cash on hand ........ $204,055 $170,454
Money market accounts 52,903 221,556
-------- --------
$256,958 $392,010
======== ========
5. Joint Venture and Property Acquisitions:
The Partnership had 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 December 31, 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 December 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.
5. Joint Venture and Property Acquisitions, continued:
For the years ended December 31, 1998, 1997 and 1996, the Canyon View Joint
Venture had a net income of $247,541 a net loss of $77,763 and $190,426,
respectively.
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 owned a majority interest in the Broadmoor
Pines Joint Venture and, therefore, the accounts and operations of the Broadmoor
Pines Joint Venture were 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 December 31, 1998, the Partnership 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.
5. Joint Venture and Property Acquisitions, continued:
JULY 3, 1996, THROUGH DECEMBER 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.
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 net selling price for Broadmoor
was $8,048,532 subject to certain customary adjustments net of a credit to the
purchaser of $139,000 for capital improvements. 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. The partnership recognized a gain on sale for financial reporting
purposes of $140,391.
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. As of December 31, 1997, the difference between
the partnership's carrying value of the investment in Casabella Associates and
the amount of underlying equity in net assets was $65,345, representing a
portion of the acquisition costs stated above that were not recorded on the
books of Casabella Associates.
The co-venture partner was an affiliate of Evans Withycombe, Inc. ("EWI"), a
Phoenix based residential development, construction and management firm. EWI was
also the developer of the Casabella property.
On May 14, 1996, the Partnership and certain affiliates consummated an agreement
with Evans Withycombe Management, Inc. and certain of its affiliates ("EWI")
which separated the interests of EWI and the Partnership, thus affording the
Partnership greater flexibility in the operation and disposition of Casabella.
The Partnership, DPII, and DPIII paid $71,009 to EWI ($5,681 of which was the
Partnership's portion) and delivered certain mutual releases. EWI (i)
relinquished its contract to manage Casabella and its option to exercise its
rights to first refusal with regard to the sale of the property and (ii)
assigned all of its interest in the Casabella Joint Venture to the Partnership,
DPII and DPIII (while preserving the economic interest of the venture in these
Joint Ventures), which resulted in the dissolution of the Casabella Joint
Venture. EWI may still share in the cash flow distributions or the proceeds from
sale of the properties if certain performance levels are met.
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
6. Investment in Partnership, continued:
Limited Partnership, a limited partnership unaffiliated with the Partnership.
The net selling price was $11,418,702 subject to certain customary adjustments
net of a credit to the purchaser of $120,000 for certain capital improvements.
Casabella Associates 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 $388,475. EWI did
not share in the proceeds from sale of the properties since certain performance
levels were not satisfied. Casabella Associates recognized a gain on sale of
$2,066,086, of which the Partnership's share was approximately $175,617 less the
$65,345 difference between the Partnership's carrying value of it's investment
in Casabella Associates and the amount of underlying equity in net assets.
The consolidated balance sheets of Casabella Associates and Casabella Joint
Venture at December 31, 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 notes 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
=========
The elements of the consolidated net income (loss) from Casabella Associates and
Casabella Joint Venture for the years ended December 31, 1998, 1997 and 1996 are
summarized as follows:
Income: 1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Rental income $636,657 $1,507,910 $1,361,622
Other income 26,688 8,651 30,226
Gain on sale of property 2,066,086 -
--------- ------------ -------------
2,729,431 1,516,561 1,391,848
Expenses and other deductions:
General and administrative 2,144 6,114 6,223
Operations 268,885 747,479 665,878
Depreciation and amortization 13,927 255,643 266,730
Interest 284,752 625,459 633,360
------- ------- -------
569,708 1,634,695 1,572,191
------- --------- ---------
Net income (loss) $2,159,723 ($118,134) ($180,343)
========= ========== =========
</TABLE>
7. Mortgage Notes Payable:
All of the property owned by the Partnership was pledged as collateral for the
mortgage notes payable outstanding at December 31, 1997 which consisted of the
following:
1997
Canyon View $4,986,771
Broadmoor 3,500,363
------------
$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. On June 30, 1998, the Partnership
utilized excess proceeds from the sale of Broadmoor and Casabella to pay off
mortgage debt, due July 15, 1998, of $4,931,624 on behalf of Canyon View Joint
Venture. 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 5, on May 28,
1998 the mortgage in the approximate amount of $3,514,880 was paid at closing
utilizing a portion of proceeds from the sale. A prepayment penalty of $17,412
was assessed since the debt was paid more than 60 days before maturity. This
charge is included in interest expense on the Consolidated Statements of
Operations for the year ended December 31, 1998.
Interest included in accrued expenses in the Consolidated Balance Sheets at
December 31, 1997 consisted of the following:
1997
Canyon View $18,960
Broadmoor 14,220
---------
$33,180
The principal balance of the mortgage notes payable appearing on the
consolidated balance sheets at December 31, 1997 approximates the fair value of
such notes.
8. 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 $4,827,876 million were allocated as follows. The
Limited Partners received
8. Partners' Equity (continued):
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.
9. 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 December 31,
1998 and 1997 consisted of $57,042 and $13,535,
respectively, relating to reimbursable costs due to L'Auberge Communities, Inc.
In 1998, there was no balance due from affiliates.
In 1997, due from affiliates of $16,870, consisted of $3,042 of expense
reimbursements due from Canyon View West, an affiliate of the general partners,
as well as $13,828 of expense reimbursement is due from Lincoln Residential
Services, property manager of an affiliate of the general partners.
In 1998, 1997 and 1996, general and administrative expenses included $67,956,
$59,654 and $65,879, respectively, of salary reimbursements paid to the General
Partners for certain administrative and accounting personnel who performed
services for the Partnership.
During the years ended December 31, 1998, 1997 and 1996, property management
fees of $64,029, $97,167, and $103,969, 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 are 4% of
rental revenue.
10. 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. In February
1998, the Partnership entered into sales agreement (the "Sales Agreement") to
sell Canyon View to Tucson Realty Holding Co.,Inc. ("TRH"), an unaffiliated
third party, for approximately $10,101,497. The sale was approved by the Limited
Partners in May 1998.
Although the General Partners do not believe it to be material or with merit, a
lawsuit related to the pending sale of Canyon View was filed in March 1998.
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 is
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 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 Sales 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 Sales 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 Sales Agreement.
10. Assets Held for Sale, continued:
In March 1998, the co-venturer 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 filed a lis pendens on the property as a means of
blocking the sale to TRH.
The Partnership is attempting to expunge the lis pendens and is defending
against the claims of the co-venturer. The Partnership 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 in an amount to be proven at
trial. In September 1998, the Partnership amended its counterclaim to allege
additional claims for unjustifiable lis pendens, declaratory judgment,
fraudulent and negligent misrepresentation, constructive fraud and fiduciary
breach and private cause of action for scheme and artifice to defraud.
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.
In July 1998, the co-venturer 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.
On January 6, 1999, the court denied each side's respective motion for summary
judgment. Discovery is still underway and the trial, which was scheduled for
January 12, 1999, was continued to May 18, 1999. Although the Partnership
believes that the co-venturer's lawsuit has no merit, it has delayed the
Partnership's sale of Canyon View. The General Partners do not believe that the
outcome of this case will have a material affect on the results of operations,
liquidity, or financial condition of the Partnership.
As it is the intent of the General Partners to pursue the sale of Canyon View to
TRH, 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 as of December 31, 1998 and 1997. In accordance
with SFAS 121, the Partnership stopped depreciating these assets effective
January 1, 1998. If closing of the sale were to occur, any proceeds from the
sale of Canyon View will be allocated to the Partners in accordance with the
terms of the Partnership Agreement and the Partnership will likely be
liquidated.
<PAGE>
F-19
EXHIBIT INDEX
Exhibit No.
(4)(a)(1) Amended and Restated Certificate and Agreement of Limited
Partnership (filed as an exhibit to the Partnership's Registration
Statement No. 33-02101, filed December 12, 1985 (the "Registration
Statement") and
incorporated herein by reference).
(4)(a)(3) Fifteenth Amendment to the Amended and Restated Certificate and
Agreement of Limited Partnership dated October 29, 1990.(filed as
Exhibit 4(a)(3) to the Partnership's Annual Report on Form 10-K
for the year ended December 31, 1990 and incorporated herein by
reference).
(4)(b) Form of Subscription Agreement (filed as an exhibit to the
Registration Statement and incorporated herein by reference).
(10)(a) Development Agreement among the Partnership, Epoch Properties,Inc.
and the Canyon View Joint Venture and exhibits thereto (filed asan
exhibit to the Registration Statement and incorporated herein
by reference).
(10)(b) Documents pertaining to the $4,00,000 permanent loan for the
Canyon View Joint Venture (filed as an exhibit to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1989 and incorporated herein by reference).
(10)(e) Documents pertaining to the $3,650,000 permanent loan for the
Broadmoor Pines Joint Venture (filed as an exhibit to the
Partnership's Annual Report on Form 10-K for the year ended
December 31, 1990 and incorporated herein by reference).
(10)(d) Agreement of Joint Venture of Casabella Associates dated September
27, 1990 (filed as Exhibit 10(f) to the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1990 and
incorporated herein by reference).
(10)(h) Property Management Agreement between Canyon View Joint Venture
and Berry and Boyle Residential Services dated August 1, 1990
(filed as Exhibit 10(j) to the Partnership's Annual Report on Form
10-K for the year ended December 31, 1990 and incorporated herein
by reference).
(10)(i) Property Management Agreement between Broadmoor Pines Joint
Venture and Berry and Boyle Residential Services dated August 1,
1990 (filed as Exhibit 10(k) to the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1990 and incorporated
herein by reference).
(10)(k) Documents pertaining to the $7,300,000 permanent loan for
Casabella Joint Venture filed as an exhibit to the Annual Report
on Form 10K for the year ended December 31, 1991 for Berry and
Boyle Development Partners III and incorporated herein by
reference.
(10)(l) First Amendment to Joint Venture Agreement of L'Auberge Broadmoor
Joint Venture and Related Assignment of Joint Venture Interest.
<PAGE>
F-20
(10)(m) Agreement regarding Casabella Joint Venture (included as an exhibit
to the Partnership's Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference).
(10)(n) Property Management Agreement (Canyon View) dated May 15, 1996,
between L'Auberge Communities Inc. and Canyon View Joint Venture
(included as an exhibit to the Partnership's Form 10-K for the
fiscal year ended December 31, 1996 and incorporated herein by
reference).
(10)(o) Property Management Agreement (Casabella) dated November 1, 1996,
between L'Auberge Communities Inc. and Casabella Associates
(included as an exhibit to the Partnership's Form 10-K for the
fiscal year ended December 31, 1996 and incorporated herein by
reference).
(10)(p) Purchase and Sale Agreement and Escrow Instructions dated
January 26, 1998 between the Partnership and DRA Advisors, Inc.
related to the sale of Broadmoor (included as an exhibit
to the Partnership's Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference)
(10)(q) Purchase and Sale Agreement and Escrow Instructions dated February
4, 1998 between Casabella Associates and JPR Capital, L.L.C.
related to the sale of Casabella (included as an exhibit
to the Partnership's Form 10-K for the fiscal year ended December
31, 1997 and incorporated herein by reference)
(10)(r) Purchase and Sale Agreement and Escrow Instructions dated
February 19, 1998 between Canyon View Joint Venture and Tucson
Realty Holding Co. Inc. related to the sale of Canyon View
(included as an exhibit to the Partnership's Form 10-K for the
fiscal year ended December 31, 1997 and incorporated herein by
reference).
(27) Financial Data Schedule
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 256,958
<SECURITIES> 0
<RECEIVABLES> 1,085
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 12,548,409
<DEPRECIATION> (2,991,565)
<TOTAL-ASSETS> 9,556,844
<CURRENT-LIABILITIES> 270,242
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 9,815,087
<SALES> 0
<TOTAL-REVENUES> 1,791,001
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,148,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 387,902
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 254,188
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
