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 quarterly period ended September 30, 1996
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. 0-16456
Development Partners II
(A Massachusetts Limited Partnership)
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Massachusetts 04-2946004
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(State or other jurisdiction of (I.R.S.
Employer incorporation or organization)
Identification No.)
5110 Langdale Way, Colorado Springs, CO 80906
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(Address of principal executive offices) (Zip Code)
(719) 576-5122
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(Registrant's telephone number, including area code)
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 ___
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<PAGE>
<TABLE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------
ASSETS
September 30
1996 December 31,
(Unaudited) 1995
Property, at cost (Notes 2, 4, and 6):
<S> <C> <C>
Land ......................................... $ 5,150,693 $ 5,148,247
Buildings and improvements ................... 15,989,689 15,989,689
Equipment, furnishings and fixtures .......... 2,221,035 2,077,104
------------ ------------
23,361,417 23,215,040
Less accumulated depreciation ................ (4,681,315) (4,359,624)
------------ ------------
18,680,102 18,855,416
Cash and cash equivalents (Notes 2 and 3) ...... 180,385 432,596
Short-term investments (Note 2) ................ 208,036 199,599
Deposits and prepaid expenses .................. 21,854 2,472
Accounts receivable ............................ 350 3,300
Investment in partnership (Notes 2 and 5) ...... 1,328,017 1,459,833
Deferred costs ................................. 10,488 9,300
Deferred expenses, net of accumulated
amortization of $508,259 and $492,788 (Note 2) 18,913 34,384
------------ ------------
Total assets .......................... $ 20,448,145 $ 20,996,900
============ ============
Mortgage notes payable (Note 6) ................ 9,916,942 9,991,674
Accounts payable ............................... 78,595 87,245
Accrued expenses ............................... 195,270 178,844
Due to affiliates (Note 8) ..................... 3,989 11,678
Tenant security deposits ....................... 62,255 60,630
------------ ------------
Total liabilities ..................... 10,257,051 10,330,071
Minority Interest (Note 4) ..................... 753,018 754,849
Partners' equity (Note 7) ...................... 9,438,076 9,911,980
------------ ------------
Total liabilities and partners' equity . $ 20,448,145 $ 20,996,900
============ ============
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
-------------
Nine Months Ended Three Months Ended
September 30 September 30
1996 1995 1996 1995
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Rental income ......................... $ 1,873,988 $ 1,998,679 $ 600,522 $ 669,517
Interest income ....................... $ 13,888 $ 31,363 $ 3,260 $ 7,816
----------- ----------- ----------- -----------
Total Revenue ............................ $ 1,887,876 $ 2,030,042 $ 603,782 $ 677,333
Operating Expenses ....................... 858,994 971,038 285,304 392,603
Interest ................................. 734,207 740,898 244,123 246,409
Depreciation and amortization ............ 337,164 325,139 113,894 107,336
General and administrative (Note 8) .... 276,968 147,441 71,485 47,387
Equity in (income) loss from partnership 10,870 10,002 33,768 18,876
(Note 7)
----------- ----------- ----------- -----------
2,218,203 2,194,518 748,574 812,611
----------- ----------- ----------- -----------
Net loss before minority interest ........ (330,327) (164,476) (144,792) (135,278)
Minority interests' equity in
subsidiary (income) loss (Note 5) ...... (4,965) 1,864 (1,158) 5,165
----------- ----------- ----------- -----------
Net loss ................................. ($ 335,292) ($ 162,612) ($ 145,950) ($ 130,113)
=========== =========== =========== ===========
Net loss allocated to:
General Partners ....................... (3,353) (1,626) (1,460) (1,301)
Per unit of Investor Limited
Partner interest:
36,963 units issued ............... (8.98) (4.36) (3.91) (3.48)
<PAGE>
DEVELOPMENT PARTNERS II
(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, 1994 (70,099) 10,432,258 10,362,159
Cash distributions .......... (6,902) (338,211) (345,113)
Net loss .................... (1,051) (104,015) (105,066)
------------ ------------ ------------
Balance at December 31, 1995 (78,052) 9,990,032 9,911,980
Cash distributions .......... (138,612) (138,612)
Net loss .................... (3,353) (331,939) (335,292)
------------ ------------ ------------
Balance at September 30, 1996 ($ 81,405) $ 9,519,481 $ 9,438,076
============ ============ ============
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (decrease) in cash and cash equivalents
-------------
Nine Months Ended
September 30
1996 1995
---- ----
Cash flows from operating activities:
<S> <C> <C>
Interest received ............................ $ 10,900 $ 33,348
Cash received from rental income ............. 1,875,613 1,993,260
Administrative expenses ...................... (293,762) (150,373)
Rental operations expenses ................... (856,486) (969,131)
Interest paid ................................ (734,207) (722,562)
----------- -----------
Net cash provided by operating activities ...... 2,058 184,542
Cash flows from investing activities:
Purchase of fixed assets ..................... (146,377) (320,640)
Proceeds from maturities of short-term ....... (5,450) 598,138
investments
Distributions received from partnership ...... 120,946 62,812
Deferred costs ............................... (1,189) 24,429
----------- -----------
Net cash provided (used) by investing activities (32,070) 364,739
Cash flows from financing activities:
Distributions to partners .................... (138,612) (282,882)
Principal payments on mortgage notes payable . (74,732) (68,283)
Distributions to the minority interest ....... (12,908) (15,489)
Contributions from the minority interest ..... 6,113 49,292
Deposits ..................................... (2,060) (28)
----------- -----------
Net cash provided (used) by financing activities (222,199) (317,390)
----------- -----------
Net increase (decrease) in cash and cash ....... (252,211) 231,891
equivalents
Cash and cash equivalents at beginning of year . 432,596 193,329
----------- -----------
Cash and cash equivalents at end of year ....... $ 180,385 $ 425,220
=========== ===========
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Increase (decrease) in cash and cash equivalents
-------------
Reconciliation of net loss to net cash provided by operating activities:
Nine Months Ended
September 30
1996 1995
---- ----
<S> <C> <C>
Net loss ....................................... ($335,292) ($162,612)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization .................. 337,164 325,139
Equity in (income) loss from partnership ....... 10,870 10,002
Minority interests' equity in subsidiary income 4,965 (1,864)
(loss)
Change in assets and liabilities net of effects
from investing and financing activities:
Decrease (increase) in accounts receivable ... (38) 2,118
Decrease (increase) in prepaid expenses ...... (17,322) 1,415
Decrease (increase) in accounts
payable and accrued expenses ............... 7,775 18,417
Increase (decrease) in due to affiliates ..... (7,689) (2,654)
Increase (decrease) in rents received in ..... (0) (431)
advance
Increase (decrease) in tenant security ..... 1,625 (4,988)
deposits
--------- ---------
Net cash provided by operating activities ...... $ 2,058 $ 184,542
========= =========
<PAGE>
</TABLE>
===============================================================================
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
--------------
===============================================================================
1. Organization of Partnership:
Development Partners II (A Massachusetts Limited Partnership) (the
"Partnership"), formerly Berry and Boyle Development Partners II, was formed on
January 9, 1987. GP L'Auberge Communities, L.P., a California Limited
Partnership, (formerly Berry and Boyle Management) and Stephen B. Boyle are the
General Partners. In September, 1995, with the consent of Limited Partners
holding a majority of the outstanding Units, as well as the consent of the
mortgage lenders for the Partnership's three properties, Richard G. Berry
resigned as a general partner of the Partnership. 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.
On February 13, 1987 the Securities and Exchange Commission declared the
Partnership's public offering of up to 60,000 units of Limited Partnership
Interests at $500 per unit (the "Units") effective and the marketing and sale of
the Units commenced shortly thereafter. The initial closing of the offering took
place on June 30, 1987 at which time the holders of 5,231 Units were admitted to
the Partnership. The Partnership continued to admit subscribers monthly
thereafter until August 10, 1988 when it terminated the offering having admitted
1,918 investors acquiring 36,963 Units totaling $18,481,500. There were 1,934
investors at September 30, 1996.
The accompanying consolidated financial statements present the activity of the
Partnership for the years ended September 30, 1996, and 1995.
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, by
the dissolution and liquidation of the Joint Ventures or as otherwise provided
in the Partnership Agreement.
2. Significant Accounting Policies:
A. Basis of Presentation
The consolidated financial statements include the accounts of the
Partnership and its subsidiaries: The Pines on Cheyenne Creek Joint
Venture, Mariposa Joint Venture and Canyon View East Joint Venture. 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.
The Partnership follows the accrual basis 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. Short-term investments
At September 30, 1996, short term investments consist solely of various
forms of U. S. Government backed securities, with an aggregate par
value of $208,036, which mature in March 1997. In 1994, the Partnership
adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities". The
Partnership has the intent and ability to hold its short term
investments to maturity. Accordingly, these securities have been
recorded at amortized cost, which approximates market value. There was
no cumulative effect recorded as a result of this accounting change.
D. 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.
E. Depreciation
Depreciation is provided for by the use of the straight-line method
over estimated useful lives as follows:
Buildings and improvements 39-40 years
Equipment, furnishings and fixtures 5-15 years
F. Deferred Expenses
Costs of obtaining the mortgages on the properties are being amortized
over the term of the related mortgage notes payable using the
straight-line method. Buy down fees relating to permanent loan
refinancings (see Note 6) are being amortized over a three year period.
G. Income Taxes
The Partnership is not liable for Federal or state income taxes because
Partnership income or loss is allocated to the Partners for income tax
purposes. If the Partnership's tax returns are examined by the Internal
Revenue Service or state taxing authority and such an examination
results in a change in Partnership taxable income (loss), such change
will be reported to the Partners.
H. Rental Income
Leases require the payment of rent in advance, however, rental income
is recorded as earned.
I. Long-Lived Assets
The Partnership's long-lived assets include property and equipment and
deferred expenses. The Partnership will evaluate the possible
impairment of long-lived assets whenever events or circumstances
indicate that the carrying value of the assets may not be recoverable.
<PAGE>
3. Cash and Cash Equivalents:
Cash and cash equivalents at September 30, 1996 and December 31, 1995 consisted
of the following:
1996 1995
---- ----
Cash on hand (Sweep Account) $ 180,385 $ 56,838
Certificate of deposit 100,000
Money market accounts - 275,758
------------ -------
$180,385 $432,596
======= =======
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.
Cheyenne Creek
On September 26, 1988, the Partnership and a limited partnership affiliated with
the General Partners (the "Affiliated Partnership") acquired L'Auberge Cheyenne
Creek ("Cheyenne Creek"), formerly The Pines on Cheyenne Creek, a 108-unit
residential property located in Colorado Springs, Colorado and simultaneously
contributed the property to the Pines on Cheyenne Creek Joint Venture comprised
of the Partnership, the Affiliated Partnership and the property developer. The
Partnership owns a majority interest in the Pines on Cheyenne Creek Joint
Venture and, therefore, the accounts and operations of the Pines on Cheyenne
Creek Joint Venture have been consolidated into those of the Partnership. The
Partnership and the Affiliated Partnership have been designated the co-managing
joint venture partners of the Pines on Cheyenne Creek Joint Venture and will
have control over all decisions affecting the joint venture and the property.
In accordance with the terms of the purchase agreement joint venture agreement,
through September 30, 1996, the Partnership has contributed $4,720,040 to the
Pines on Cheyenne Creek Joint Venture joint venture ($27,037 of which was
contributed in 1996) 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 $470,870 of property acquisition costs which were subsequently treated as
a capital contribution to the Pines on Cheyenne Creek Joint Venture.
For the years ended September 30, 1996, and 1995, The Pines on Cheyenne Creek
Joint Venture had net profit of $26,923 and net loss of $10,107, respectively.
Net cash from operations (as defined in the joint venture agreement) is to be
distributed as available to each joint venture partner quarterly as follows:
First, to the Partnership and the Affiliated Partnership,
proportionately, an amount equal to 11.25% per annum, noncumulative
(computed daily on a simple noncompounded basis from the date of
completion funding) of their respective capital investment (as defined
in the joint venture agreement);
Second, the balance 65.25% to the Partnership, 14.75% to the Affiliated
Partnership, and 20% to the property developer.
All losses from operations and depreciation for the Pines on Cheyenne Creek
Joint Venture are allocated 81.56% to the Partnership and 18.44% to the
Affiliated Partnership, in proportion to their respective joint venture
interest.
All profits from operations to the extent of cash distributions shall first be
allocated to the Partnership, the Affiliated Partnership, and the property
developer in the same proportion as the cash distributions. Any remaining
profits are allocated 65.25% to the Partnership, 14.75% to the Affiliated
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.
Mariposa
On February 3, 1989, the Partnership acquired a joint venture interest in the
Mariposa Joint Venture which owns and operates an 84-unit residential property
located in Scottsdale, Arizona known as Mariposa. Since the Partnership owns a
majority interest in the Mariposa Joint Venture, the accounts and operations of
the Mariposa Joint Venture have been consolidated into those of the Partnership.
The Partnership has been designated the managing joint venture partner of the
Mariposa Joint Venture and will have control over all decisions affecting the
Mariposa Joint Venture and the property.
In accordance with the terms of the purchase agreement and the joint venture
agreement, through September 30, 1996, the Partnership has contributed
$3,156,561 to the Mariposa Joint Venture, which was used to: (1) repay a portion
of the construction loan from a third party lender, (2) cover operating deficits
incurred during the lease up period, (3) pay for certain capital improvements,
(4) fund $430,474 of property acquisition costs and (5) pay certain costs
associated with the refinancing of the permanent loan.
For the years ended September 30, 1996, and 1995, the Mariposa Joint Venture had
net income of $6,275 and net loss of $7,532, respectively. The minority interest
joint venture partner had insufficient basis to absorb its respective share of
losses, therefore, for financial statement purposes the excess of losses over
basis has been charged against the majority interest. Future minority interest
income, if any, from Mariposa will be credited against minority interest losses
previously absorbed by the majority interest. At September 30, 1996 the minority
interest losses absorbed by the majority interest totaled $5,875.
Net cash from operations (as defined in the joint venture agreement) is to be
distributed, as available, to each joint venture partner, not less often than
quarterly, as follows:
First, to the Partnership an amount equal to 10.6% per annum,
noncumulative (computed daily on a simple noncompounded basis from the
date of completion funding) of the Partnership's capital investment (as
defined in the joint venture agreement);
Second, the balance 70% to the Partnership and 30% to the other joint
venture partner.
All losses from operations and depreciation for the Mariposa Joint Venture are
allocated 99.5% to the Partnership and 0.5% to the other joint venture partner.
All profits from operations shall be allocated to each joint venture partner pro
rata in accordance with the distribution of net cash from operations for such
fiscal year.
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.
Canyon View East
On March 8, 1989, the Partnership acquired an interest in the Canyon View East
Joint Venture which owns and operates a 96-unit residential property located in
Tucson, Arizona known as Canyon View East. Since the Partnership owns a majority
interest in the Canyon View East Joint Venture, the accounts and operations of
the joint venture have been consolidated into those of the Partnership. The
Partnership has been designated the managing joint venture partner of the Canyon
View East Joint Venture and will have control over all decisions affecting the
Canyon View East Joint Venture and the property.
In accordance with the terms of the purchase agreement and the joint venture
agreement, the Partnership has contributed $4,815,202 to the Canyon View East
Joint Venture through September 30, 1996, which was used to: (1) repay a portion
of the construction loan from a third party lender, (2) cover operating deficits
incurred during the lease up period, (3) fund $523,022 of property acquisition
costs and (5) pay certain costs associated with the permanent loan refinancing.
For the years ended September 30, 1996, and 1995, the Canyon View East Joint
Venture had a net loss of $84,637 and a net loss of $35,220, respectively.
Net cash from operations (as defined in the joint venture agreement) is to be
distributed, as available, to each joint venture partner, not less often than
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 the Partnership's capital investment (as
defined in the joint venture agreement);
Second, the balance 75% to the Partnership and 25% to the other joint
venture partners.
All losses from operations and depreciation for the Canyon View East Joint
Venture are allocated 100% to the Partnership.
All profits from operations shall be allocated to each joint venture partner in
accordance with, and to the extent of, the distribution of net cash from
operations. Any excess profits shall 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. Investment in Partnership:
On September 28, 1990, the Partnership contributed $1,800,000 to purchase an
approximate 38% interest in Casabella Associates, a general partnership among
the Partnership, Development Partners (A Massachusetts Limited Partnership)
("DPI") and Development Partners III (A Massachusetts Limited Partnership)
("DPIII"). In addition to its contribution referred to above, the Partnership
incurred $268,861 of acquisition costs, including $186,300 in acquisition fees
paid to the General Partners. The difference between the partnership's carrying
value of the investment in Casabella Associates and the amount of underlying
equity in net assets is $186,300, representing a portion of the acquisition
costs stated above that were not recorded on the books of Casabella Associates.
On September 28, 1990, Casabella Associates purchased a majority interest in the
Casabella I Joint Venture, an Arizona joint venture that owned and operated
Casabella Phase I, a 61-unit residential property located in Scottsdale,
Arizona. On April 23, 1991, Casabella Associates, acquired a majority interest
in the Casabella Joint Venture which owns Casabella Phase II, a 93-unit
residential community, located adjacent to Casabella Phase I. On that date,
Casabella Associates and EW Casabella I Limited Partnership contributed their
interests in the Casabella I Joint Venture to the Casabella Joint Venture. In
addition, the permanent lender funded a $7,320,000 permanent loan, the proceeds
of which were used to refinance the $2,700,000 loan pertaining to Phase I and,
together with cash contributions of Casabella Associates, repay the construction
loan for Phase II. As a result of such transactions, by operation of law,
Casabella Joint Venture, which is comprised of Casabella Associates and EW
Casabella I Limited Partnership, now owns both Phases I and II of Casabella.
Casabella is now managed and operated as one single 154-unit residential
community.
On June 30, 1992, Casabella Joint Venture refinanced its original $7,320,000
permanent loan using the proceeds of a new first mortgage loan in the amount of
$7,300,000. Under the terms of the new note, monthly principal and interest
payments of $61,887, based on a fixed interest rate of 9.125%, are required over
the term of the loan.
The balance of the note will be due on July 15, 1997.
6. Mortgage Notes Payable:
All of the property owned by the Partnership is pledged as collateral for the
mortgage notes payable outstanding at September 30, 1996 and December 31 1995
which consisted of the following:
1996 1995
---- ----
Cheyenne Creek $3,166,773 $ 3,189,972
Mariposa 2,859,582 2,881,413
Canyon View East 3,890,587 3,920,289
--------- ---------
$9,916,942 $9,991,674
========= ==========
On September 14, 1990, the Pines on Cheyenne Creek Joint Venture refinanced its
$3,200,000 permanent loan together with deferred interest utilizing the proceeds
of a new first mortgage loan in the amount of $3,252,000. Under the terms of the
new $3,252,000 note, interest only at the rate of 9% ($24,390) is payable
monthly during the first three years of the loan term. Commencing September 15,
1993 monthly payments of $29,076 including principal and interest, at the rate
10%, will be payable. The balance of the note is payable on September 15, 1997.
On September 13 and 14, 1990 the Canyon View East and Mariposa Joint Ventures
refinanced their respective $4,000,000 and $2,940,000 original permanent loans.
Under the terms of the new $4,000,000 and $2,940,000 notes, interest only at the
rate of 9% ($30,000 and $22,050) is payable monthly during the first three years
of the loan term. Commencing September 15, 1993 monthly payments of principal
and interest, at the rate 9.75%, or $35,047 and $25,759, respectively were
payable. The balance of the notes are payable on September 15, 1997.
Accrued interest at September 30, 1996 and December 31, 1995 consisted of the
following:
1996 1995
---- ----
Cheyenne Creek $13,292 $13,292
Mariposa 11,706 11,706
Canyon View East 15,926 15,926
------ ------
$40,924 $40,924
====== ======
The aggregate principal amounts of long term borrowings due during the calendar
years 1996 and 1997 are $100,886 and $9,890,788, respectively.
The principal balance of the mortgage notes payable appearing on the
consolidated balance sheet approximates the fair value of such notes.
7. Partners' Equity:
Under the terms of the Partnership Agreement profits are 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 as defined in
the Partnership Agreement, such as the sale of an investment property or an
interest in a joint venture partnership.
8. Related Party Transactions:
Due to affiliates at September 30, 1996 and 1995 consisted of $2,047 and $3,756,
respectively, relating to reimbursable costs due to L'Auberge Communities, Inc.,
formerly Berry and Boyle Inc.
In 1996, and 1995 general and administrative expenses included $65,599 and
$55,963 respectively, of salary reimbursements paid to the General Partners for
certain administrative and accounting personnel who performed services for the
Partnership.
The officers and principal shareholders of Evans Withycombe, Inc., the developer
and property manager of Mariposa, together hold a two and one half percent
cumulative profit or partnership voting interest in LP L'Auberge Communities
(formerly Berry and Boyle).
During the years ended September 30, 1996, and 1995, $31,737 and $28,508,
respectively, of property management fees were paid or accrued to Evans
Withycombe, Inc through May 15, 1996 and to Lincoln Residenital Services,
thereafter.
Residential Services - L'Auberge, formerly Berry and Boyle Residential Services,
the property manager of Cheyenne Creek and Canyon View East, is an affiliate of
the General Partners of the Partnership. During the years ended September 30,
1996, and 1995, $60,068 and $71,464, respectively, of property management fees
had been paid or accrued to Residential Services - L'Auberge.
9 Significant Event:
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 the
properties... In consideration of a payment by the Partnership to EWI of $65,715
and for certain mutual releases, for EWI (i) relinquished its contract to manage
certain Partnership properties and its option to exercise its rights of first
refusal with regard to the sale of those properties and (ii) assigned all of its
interest in the Mariposa Joint Venture to the Partnership and its interest in
the Casabella Joint Venture to the Partnership, DPI and DPIII (while preserving
the economic interests of the venturer in these Joint Ventures), resulted in the
dissolution of the Casabella Joint Venture and the Mariposa Joint Venture.
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 $8,600, 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 Cheyenne Creek Joint Venture to the Partnership, and
(while preserving the economic interests of the venturer in these Joint
Ventures), which resulted in the dissolution of the L'Auberge Cheyenne Creek
Joint Venture.
<PAGE>
=======================================================================
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Liquidity; Capital Resources
In connection with its capitalization, the Partnership admitted 1,918 investors
who purchased a total of 36,963 Units aggregating $18,481,500. These offering
proceeds, net of organizational and offering costs of $2,772,225, provided
$15,709,275 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 $14,689,033 to (i) acquire its interest
in The Pines, Mariposa, Canyon View East and Casabella joint ventures, (ii) to
pay acquisition expenses, including acquisition fees to the General Partners,
(iii) pay costs associated with the refinancing of the permanent loans for The
Pines, Mariposa and Canyon View East and (iv) to cover operating deficits
incurred during the initial lease up period. The remaining net proceeds of
$1,020,242 will be used to establish working capital reserves sufficient to meet
the future needs of the Partnership, including contributions that may be
required at the various joint ventures, as determined by the General Partners.
As of September 30, 1996, $484,287 cumulatively was contributed to the joint
ventures for this purpose.
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 joint ventures. Thus far in
1996, the aggregate net decrease in working capital reserves was 243,774 (39%).
The decrease resulted primarily from cash used for operations of $2,058, and
distributions from Casabella Associates of $120,946, and contributions from the
minority interest of $6,113 offset by $146,377 of fixed asset purchases,
distributions to partners of $138,612, and principal payments on mortgage notes
payable of $74,732 and distributions to the minority interest of $12,908.
Property Status
The Pines
As of September 30, 1996, the property was 92% occupied, compared to 96%
approximately one year ago. At September 30, 1996 and 1995, the market rents for
the various unit types were as follows:
Unit Type 1996 1995
--------- ---- ----
One bedroom den $820 $775
Two bedroom two bath 935 875
Mariposa
The property was 83% occupied as of September 30, 1996, compared to 95%
approximately one year ago. At September 30, 1996 and 1995, the market rents for
the various unit types were as follows:
Unit Type 1996 1995
--------- ---- ----
One bedroom one bath $730 $705
Two bedroom two bath 870 845
Two bedroom two bath den 1,040 1,045
Canyon View East
The property was 88% occupied as of September 30, 1996, compared to 86%
approximately one year ago. At September 30, 1996 and 1995 the market rents for
the various unit types were as follows:
Unit Type 1996 1995
--------- ---- ----
Two bedroom two bath $725 $865
Two bedroom two bath w/den 815 980
Three bedroom two bath 980 980
Casabella
As of September 30, 1996, the property was 73% occupied, compared to 90%
approximately one year ago. At September 30, 1996 and 1995, the average monthly
rents collected for the various unit types were as follows:
Unit Type 1996 1995
--------- ---- ----
One bedroom two bath w/den $820 $805
Two bedroom two bath 940 930
Two bedroom two bath w/den 1,185 1,136
Results of Operations
The Partnership's operating results for the nine months ended September 30, 1996
consisted of interest earned on short-term investments of $12,282,
administrative expenses of $276,575, the Partnership's share of the loss from
Casabella Associates of $10,870 and its share of the income and losses allocated
from the joint ventures, as follows:
<TABLE>
Canyon The
View East Pines Mariposa
<S> <C> <C> <C>
Revenue ....................... $ 620,608 $ 719,614 $ 535,372
Expenses:
General and administrative .. 10 0 383
Operations .................. 299,130 323,960 232,179
Depreciation and amortization 120,386 130,246 86,532
Interest .................... 285,719 238,485 210,003
--------- --------- ---------
705,245 692,691 529,097
--------- --------- ---------
Net income (loss) ............. $ (84,637) $ 26,923 $ 6,275
========= ========= =========
</TABLE>
The Partnership's operating results for the nine months ended September 30, 1995
consisted of interest earned on short-term investments of $28,998,
administrative expenses of $131,591, the Partnership's share of the income from
Casabella Associates of $10,002 and its share of the losses allocated from the
joint ventures, as follows:
<TABLE>
Canyon The
View East Pines Mariposa
<S> <C> <C> <C>
Revenue ....................... $ 678,836 750,147 $ 571,083
Expenses:
General and administrative .. 5,144 5,306 5,400
Operations .................. 302,914 390,409 277,715
Depreciation and amortization 117,640 123,942 83,557
Interest .................... 288,358 240,597 211,943
--------- --------- ---------
714,056 760,254 578,615
--------- --------- ---------
Net income (loss) ............. ($ 35,220) ($ 10,107) ($ 7,532)
========= ========= =========
</TABLE>
The Partnership's operating results for the three months ended September 30,
1996 consisted of interest earned on short-term investments of $4,230,
administrative expenses of $137,045, the Partnership's share of the income from
Casabella Associates of $12,233 and its share of the income and losses allocated
from the joint ventures, as follows:
<TABLE>
Canyon The
View East Pines Mariposa
<S> <C> <C> <C>
Revenue ....................... $ 193,068 $ 252,838 $ 154,632
Expenses:
General and administrative .. 0 0 0
Operations .................. 101,531 99,610 83,438
Depreciation and amortization 40,586 44,465 28,843
Interest .................... 94,998 79,302 69,823
--------- --------- ---------
237,115 223,377 182,104
--------- --------- ---------
Net loss ...................... $ (44,047) $ 29,461 $ (27,472)
========= ========= =========
</TABLE>
The Partnership's operating results for the three months ended September 30,
1995 consisted of interest earned on short-term investments of $6,543,
administrative expenses of $41,987, the Partnership's share of the loss from
Casabella Associates of $18,876 and its share of the losses allocated from the
joint ventures, as follows:
<TABLE>
Canyon The
View East Pines Mariposa
<S> <C> <C> <C>
Revenue ....................... $ 220,988 259,520 $ 189,304
Expenses:
General and administrative .. 1,800 1,800 1,800
Operations .................. 121,171 164,393 107,039
Depreciation and amortization 39,213 41,314 26,809
Interest .................... 95,900 80,023 70,486
--------- --------- ---------
258,084 287,530 206,134
--------- --------- ---------
Net income (loss) ............. ($ 37,096) ($ 28,010) ($ 16,830)
========= ========= =========
</TABLE>
Comparison of Operating Results for the Nine Months Ended September 30, 1996 and
1995:
Interest income decreased 51% over the prior period as a result of lower amount
of working capital invested in the Partnership's short term investments.
Transition costs associated with the outsourcing of much of the Partnership's
administration work to an administration agent and the relocation of the
remaining administration, financial and investor services functions to a more
cost efficient location in Colorado Springs, Colorado has temporarily increased
first half 1996 operating expenses. Furthermore, consistent with the
Partnership's disposition strategy, annual audit fees were moved from the
property level to the investment partnership level to more accurately present
on-site operational costs of the properties. Consequently, the total general and
administrative expenses of the Partnership increased 52% in the first nine
months of 1996 as compared with the same period in 1995, In addition, the
one-time cost of the Evans Withycombe termination ($70,715) and the Highland
termination ($8,600) and its related legal cost were incurred in May, June and
July of 1996. The operating costs for the Properties decreased by 12%
Thus far in 1996, the Partnership has made the following cash distributions to
its Partners:
Limited Partners $138,612
General Partners -
$138,612
<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 II
(A Massachusetts Limited Partnership)
(Registrant)
BY: GP L'AUBERGE MANAGEMENT, L.P.
A General Partner
BY: L'AUBERGE COMMUNITES INC.
A General Partner
BY: (s) Stephen B Boyle
Stephen B. Boyle, President
Date:___November 8______________________, 1996
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> Dec-31-1996
<PERIOD-END> Sep-30-1996
<CASH> 180,385
<SECURITIES> 208,036
<RECEIVABLES> 350
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 23,361,417
<DEPRECIATION> (4,681,315)
<TOTAL-ASSETS> 18,680,102
<CURRENT-LIABILITIES> 340,109
<BONDS> 9,916,942
0
0
<COMMON> 0
<OTHER-SE> 10,191,094
<TOTAL-LIABILITY-AND-EQUITY> 20,448,145
<SALES> 0
<TOTAL-REVENUES> 1,887,876
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 858,994
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 734,207
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (335,292)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
