SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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
(State or other jurisdiction of (I.R.S. Employer incorporation
or organization) Identification No.)
5110 Langdale Way, Colorado Springs, CO 80906
(Address of principal executive offices) (Zip Code)
(719) 576-5122
(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 June 30,
1997 December 31,
(Unaudited) 1996
Property, at cost
<S> <C> <C>
Land $5,150,693 $5,150,693
Buildings and improvements 15,990,147 15,989,689
Equipment, furnishings and fixtures 2,391,387 2,311,300
---------------- ----------------
23,532,227 23,451,682
Less accumulated depreciation (5,031,686) (4,807,665)
---------------- ----------------
18,500,541 18,644,017
Cash and cash equivalents 162,211 318,746
Deposits and prepaid expenses 2,926 2,512
Accounts receivable 350 350
Investment in partnership 1,197,469 1,210,686
Deferred expenses, net of accumulated
amortization of $523,733 and $513,417 3,439 13,755
---------------- ----------------
Total assets $19,866,936 $20,190,066
================ ================
LIABILITIES AND PARTNERS' EQUITY
<S> <C> <C>
Mortgage notes payable $9,836,516 $9,890,787
Accounts payable 48,574 101,716
Accrued expenses 132,894 176,354
Due to affiliates (Note 8) 1,723 17,430
Rents received in advance - 2,607
Tenant security deposits 57,562 60,385
Minority Interest 727,721 738,457
---------------- ----------------
Total liabilities 10,804,990 10,987,736
General Partner's equity (87,967) (86,563)
Limited Partner's equity 9,149,913 9,288,893
---------------- ----------------
Total liabilities and partners' equity $19,866,936 $20,190,066
================ ================
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
---------------
Three Months Ended Six Months Ended
June 30, June 30,
1997 1996 1997 1996
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Rental income 620,303 $632,732 $1,272,549 $1,273,466
Interest income 2,571 5,025 5,966 10,628
---------------- ---------------- ---------------- ----------------
622,874 637,757 1,278,515 1,284,094
Operating Expenses 291,596 297,139 589,674 573,344
Interest 242,180 244,741 485,024 490,084
Depreciation and amortization 117,167 115,931 234,338 223,270
General and administrative 56,312 136,678 101,852 205,828
Equity in (income) loss from partnership 6,673 (12,825) 13,216 (22,898)
---------------- ---------------- ---------------- ----------------
713,928 781,664 1,424,104 1,469,628
---------------- ---------------- ---------------- ----------------
Net loss before minority interest (91,054) (143,907) (145,589) (185,534)
Minority interests' equity in
subsidiary (income) loss 3,518 (1,158) 5,205 468
---------------- ---------------- ---------------- ----------------
Net loss ($87,536) ($145,065) ($140,384) ($185,066)
================ ================ ================ ================
Net loss allocated to:
General Partners ($875) ($1,451) ($1,451) ($1,851)
Per unit net loss allocated to Investor
Limited
Partner interest:
36,963 units issued ($2.34) ($3.89) ($3.89) ($4.96)
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
---------------
Investor Total
General Limited Partners'
Partners Partners Equity
<S> <C> <C> <C>
Balance at December 31, 1995 (78,052) 9,990,032 9,911,980
Cash distributions (2,829) (138,612) (141,441)
Net loss (5,682) (562,527) (568,209)
---------------- ---------------- ----------------
Balance at December 31, 1996 (86,563) 9,288,893 9,202,330
Cash distributions - - -
Net loss (1,404) (138,980) (140,384)
---------------- ---------------- ----------------
Balance at June 30, 1997 ($87,967) $9,149,913 $9,061,946
================ ================ ================
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------
Six Months Ended
June 30,
1997 1996
---- ----
Cash flows from operating activities:
<S> <C> <C>
Interest received $5,966 $9,973
Cash received from rental income 1,267,119 1,274,687
General and administrative expenses (143,226) (233,649)
Operating expense (661,023) (643,500)
Interest paid (485,024) (490,084)
---------------- ----------------
Net cash provided by operating activities (16,188) (82,573)
Cash flows from investing activities:
Purchase of fixed assets (80,545) (93,689)
Proceeds from maturities of short-term - 123,225
investments
Distributions received from partnership - 63,496
---------------- ----------------
Net cash provided by investing activities (80,545) 93,032
Cash flows from financing activities:
Distributions to partners (92,408)
Principal payments on mortgage notes payable (54,270) (49,210)
Distributions paid to the minority interest (5,532) (7,376)
Contributions from the minority interest - 6,113
Cash paid for deposits - (2,060)
---------------- ----------------
Net cash used by financing activities (59,802) (144,941)
---------------- ----------------
Net increase (decrease) in cash and cash (156,535) (134,482)
equivalents
Cash and cash equivalents at beginning of year 318,746 432,596
---------------- ----------------
Cash and cash equivalents at end of year $162,211 $298,114
================ ================
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------
Reconciliation of net loss to net cash provided by operating activities:
Six Months Ended
June 30,
1997 1996
---- ----
<S> <C> <C>
Net loss ($140,384) ($185,066)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 234,338 223,270
Equity in (income) loss from partnership 13,216 (22,898)
Minority interests' equity in subsidiary income (5,205) (468)
(loss)
Change in assets and liabilities net of effects of investing and financing
activities:
Decrease in accounts and interest receivable 1,730 2,295
Increase in prepaid expenses (414) (16,628)
Decrease in accounts payable and accrued expenses (98,332) (74,495)
Decrease in due to affiliates (15,707) (9,804)
(Decrease) increase in rents received in (2,607) 106
advance
(Decrease) increase in tenant security (2,823) 1,115
deposits
---------------- ----------------
($16,188) ($82,573)
================ ================
</TABLE>
<PAGE>
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
1,866 investors at June 30, 1997.
The accompanying consolidated financial statements present the activity of the
Partnership for the six months ended June 30, 1997 and 1996.
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.
<PAGE>
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.
D. 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
E. 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.
F. 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.
G. Rental Income
Leases require the payment of rent in advance, however, rental income
is recorded as earned.
H. Long-Lived Assets
The Partnership's long-lived assets include property and equipment and
deferred expenses. The Partnership evaluates rental properties for
impairment when conditions exist which may indicate that it is probable
that the sum of expected future cash flows (undiscounted) from rental
properties is less than its carrying value. Upon determination that a
permanent impairment has occurred, rental properties are reduced to
fair value. For the year ended December 31, 1996, and the quarter ended
June 30, 1997, permanent impairment conditions did not exist at any of
the Partnership's properties.
<PAGE>
3. Cash and Cash Equivalents:
Cash and cash equivalents at June 30, 1997, and December 31, 1996, consisted of
the following:
1997 1996
-------- --------
Cash on hand ............................. $162,211 $107,660
Certificate of deposit ................... 211,086
-------- --------
$162,211 $318,746
======== ========
4. Joint Venture and Property Acquisitions:
The Partnership has invested in three properties located in Scottsdale and
Tucson, Arizona and Colorado Springs, Colorado. The success of the Partnership
will depend upon factors which are difficult to predict including general
economic and real estate market conditions, both on a national basis and in the
areas where the Partnership's investments are located. The Mariposa 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, 1996.
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 controls and 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 the Partnership. The
Affiliated Partnership owns an 18% interest in the Pines on Cheyenne Creek. 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.
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 Cheyenne Creek.
In accordance with the terms of the purchase agreement, through June 30, 1997,
the Partnership has contributed $4,720,041 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.
<PAGE>
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 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 were 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 were 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
effected by the relative balances in the individual partners' capital accounts.
JULY 3, 1996, THROUGH JUNE 30, 1997
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 (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.
Highland may still share in the cash flow distributions or proceeds from sale if
certain performance levels are met.
For the six months ended June 30, 1997 and 1996, L'Auberge Cheyenne Creek had a
net loss of $28,226 and $2,538, respectively.
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
controls and 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. The
Mariposa 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,
1996.
The co-venture partner was an affiliate of Evans Withycombe, Inc. ("EWI"), a
Phoenix based residential development, construction and management firm. EWI
developed the property known as Mariposa.
In accordance with the terms of the purchase agreement, through June 30, 1997,
the Partnership has contributed $3,238,572: (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.
JANUARY 1, 1996, THROUGH MAY 13, 1996
Net cash from operations (as defined in the joint venture agreement) was 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 were
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
effected by the relative balances in the individual partners' capital accounts.
MAY 14, 1996, THROUGH JUNE 30, 1997
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 $38,732
and for certain mutual releases, 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 (while preserving the
economic interests of the venturer in the Joint Venture), which resulting in the
dissolution of the Mariposa Joint Venture. EWI may still share in the cash flow
distributions or proceeds from sale if certain performance levels are met.
For the six months ended June 30, 1997 and 1996, the Mariposa had net income of
$1,796 and $33,747, respectively.
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 controls and
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 $4,857,202 to the Canyon View East
Joint Venture through June 30, 1997, 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 six months ended June 30, 1997 and 1996, the Canyon View East Joint
Venture had a net loss of $8,677 and $40,589, 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
effected 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 maturity of the note will be extended from July 15,
1997, to July 15, 1998, for an extension fee of $2,500 plus 1/4 of 1% of the
loan balance as of the date of closing.
The co-venturer partner was an affiliate of Evans Withycombe, Inc. ("EWI"), a
Phoenix based residential development, construction and management firm. EWI is
also the developer of the Casabella property.
6. Mortgage Notes Payable:
All of the property owned by the Partnership is pledged as collateral for the
mortgage notes payable outstanding at June 30, 1997, and December 31, 1996,
which consisted of the following:
1997 1996
---------- ----------
Cheyenne Creek ....................... $3,141,774 $3,158,647
Mariposa ............................. 2,836,101 2,851,944
Canyon View East ..................... 3,858,641 3,880,196
---------- ----------
$9,836,516 $9,890,787
========== ==========
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%, were payable. The maturity of the note has been extended from September 15,
1997, to September 15, 1998, with the same terms and interest rate.
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 lender has agreed to extend the loan's maturity date from September
15, 1997, to September 15, 1998, with the same terms and interest rate.
Accrued interest at June 30, 1997, and December 31, 1996, consisted of the
following:
1997 1996
------- -------
Cheyenne Creek ........................... $13,161 $13,161
Mariposa ................................. 11,586 11,586
Canyon View East ......................... 15,763 15,763
------- -------
$40,510 $40,510
======= =======
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 June 30, 1997 and 1996, consisted of $1,723 and $17,430,
respectively, relating to reimbursable costs due to L'Auberge Communities, Inc.,
formerly Berry and Boyle Inc.
In 1997 and 1996 general and administrative expenses included $27,890 and
$45,571, 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
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).
Residential Services - L'Auberge, (formerly Berry and Boyle Residential
Services), the property manager of Cheyenne Creek, Canyon View East and
Mariposa, is an affiliate of the General Partners of the Partnership. During the
six months ended June 30, 1997 and 1996, property management fees of $49,981 and
$42,465, respectively, had been paid to Residential Services - L'Auberge. These
fees were 4% of rental revenue in 1997.
During the six months ended June 30, 1996, property management fees of $20,342
were paid or accrued to Evans Withycombe, Inc. These fees were 5% of rental
revenue.
9. Subsequent Event:
On May 6, 1997, the Partnership entered into a Purchase and Sales Agreement (
the "Agreement") to sell Mariposa in Scottsdale, Arizona, to an unaffiliated
purchaser. The purchase price for Mariposa is approximately $5,183,000. The
Agreement is subject to completion of customary due diligence to the
satisfaction of the purchaser, and the purchaser obtaining a financing
commitment for the purchase of the property on commercially reasonable terms and
conditions. Under the terms of the Agreement, it is anticipated that the closing
would occur within approximately 3 to 5 months after the date of the Agreement.
<PAGE>
20
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 have been 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 June 30, 1997, $666,512 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
1997, the aggregate net decrease in working capital reserves was $156,535. The
decrease resulted primarily from cash used for operations of $16,188, $80,545 of
fixed asset purchases, principal payments on mortgage notes payable of $54,270
and distributions to the minority interest of $5,532.
Property Status
Canyon View East
The property was 95% occupied as of June 30, 1997, compared to 83% approximately
one year ago. At June 30, 1997 and 1996, the market rents for the various unit
types were as follows:
Unit Type ................................ 1997 1996
- -------------------------------------------------- ---- ----
Two bedroom two bath ............................. $865 $865
Two bedroom two bath w/den ....................... 980 980
Three bedroom two bath ........................... 980 980
Mariposa
The property was 82% occupied as of June 30, 1997, compared to 87% approximately
one year ago. At June 30, 1997 and 1996, the market rents for the various unit
types were as follows:
Unit Type ............................ 1997 1996
- ---------------------------------------------- ------ ------
One bedroom one bath ......................... $ 730 $ 730
Two bedroom two bath ......................... 870 870
Two bedroom two bath den ..................... 1,065 1,040
Cheyenne Creek
As of June 30, 1997, the property was 76% occupied, compared to 93%
approximately one year ago. At June 30, 1997 and 1996, the market rents for the
various unit types were as follows:
Unit Type ............................ 1997 1996
- ---------------------------------------------- ---- ----
One bedroom den .............................. $820 $820
Two bedroom two bath ......................... 935 935
Casabella
As of June 30, 1997, the property was 86% occupied, compared to 73%
approximately one year ago. At June 30, 1997 and 1996, the average monthly rents
collected for the various unit types were as follows:
Unit Type ............................. 1997 1996
- ---------------------------------------------- ------ ------
One bedroom two bath w/den ................... $ 820 $ 820
Two bedroom two bath ......................... 940 940
Two bedroom two bath w/den ................... 1,160 1,160
Results of Operations
The Partnership's operating results for the three months ended June 30, 1997,
consisted of interest income, administrative expenses, the Partnership's share
of the loss from Casabella Associates and its share of the income and losses
allocated from the joint ventures, as follows:
<TABLE>
Cheyenne Canyon Partnership Consolidated
Creek Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $210,397 $184,878 $225,629 $1,970 $622,874
Expenses:
General and administrative - - - 56,312 56,312
Operations 104,920 93,993 92,683 291,596
Depreciation and amortization 45,870 29,625 41,672 - 117,167
Interest 78,687 69,261 94,232 - 242,180
Equity in (income) loss from - - - 6,673 6,673
partnership
------------- -------------- --------------
-------------- ----------------
229,477 192,879 228,587 62,985 713,928
------------- -------------- -------------- -------------- ----------------
Net income (loss) before minority (19,080) (8,001) (2,958) (61,015) (91,054)
interest
Minority Interests' share of net loss 3,518 - - - 3,518
------------- -------------- -------------- -------------- ----------------
Net income (loss) ($15,562) ($8,001) ($2,958) ($61,015) ($87,536)
============= ============== ============== ============== ================
<PAGE>
The Partnership's operating results for the three months ended June 30, 1996,
consisted of interest earned on short-term investments, administrative expenses,
the Partnership's share of the loss from Casabella Associates and its share of
the income and losses allocated from the joint ventures, as follows:
Cheyenne Canyon Partnership Consolidated
Creek Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $246,778 $179,094 $207,655 $4,230 $637,757
Expenses:
General and administrative - 383 - 136,295 136,678
Operations 116,536 81,725 98,128 750 297,139
Depreciation and amortization 44,467 30,878 40,586 - 115,931
Interest 79,496 70,003 95,242 - 244,741
Equity in (income) loss from - - - (12,825) (12,825)
partnership
------------ ------------ ---------------
------------ ------------------
240,499 182,989 233,956 124,220 781,664
------------ ------------ --------------- ------------ ------------------
Net income (loss) before minority $6,279 ($3,895) ($26,301) ($119,990) ($143,907)
interest
Minority Interests' share of net loss (1,158) - - - (1,158)
------------ ------------ --------------- ------------ ------------------
Net income (loss) $5,121 ($3,895) ($26,301) ($119,990) ($145,065)
============ ============ =============== ============ ==================
The Partnership's operating results for the six months ended June 30, 1997,
consisted of interest earned on short-term investments, administrative expenses,
the Partnership's share of the loss from Casabella Associates and its share of
the income and losses allocated from the joint ventures, as follows:
Cheyenne Canyon Partnership Consolidated
Creek Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $441,391 $381,690 $450,849 $4,585 $1,278,515
Expenses:
General and administrative - - - 101,852 101,852
Operations 220,291 181,929 187,454 589,674
Depreciation and amortization 91,741 59,251 83,346 - 234,338
Interest 157,584 138,714 188,726 - 485,024
Equity in (income) loss from - - - 13,216 13,216
partnership
----------- ------------ ---------------
------------- -----------------
469,616 379,894 459,526 115,068 1,424,104
----------- ------------ --------------- ------------- -----------------
Net income (loss) before minority (28,225) 1,796 (8,677) (110,483) (145,589)
interest
Minority Interests' share of net loss 5,205 - - - 5,205
----------- ------------ --------------- ------------- -----------------
Net income (loss) ($23,020) $1,796 ($8,677) ($110,483) ($140,384)
=========== ============ =============== ============= =================
<PAGE>
The Partnership's operating results for the six months ended June 30, 1996,
consisted of interest earned on short-term investments, administrative expenses,
the Partnership's share of the loss from Casabella Associates and its share of
the income and losses allocated from the joint ventures, as follows:
Cheyenne Canyon Partnership Consolidated
Creek Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $466,776 $380,740 $427,540 $9,038 $1,284,094
Expenses:
General and administrative 345 383 10 205,090 205,828
Operations 224,005 148,741 197,598 3,000 573,344
Depreciation and amortization 85,781 57,689 79,800 - 223,270
Interest 159,183 140,180 190,721 - 490,084
Equity in (income) loss from partnership - - - (22,898) (22,898)
----------- ------------ --------------
------------- -------------------
469,314 346,993 468,129 185,192 1,469,628
----------- ------------ -------------- ------------- -------------------
Net income (loss) before minority interest ($2,538) $33,747 ($40,589) ($176,154) ($185,534)
Minority Interests' share of net loss 468 - - - 468
----------- ------------ -------------- ------------- -------------------
Net income (loss) ($2,070) $33,747 ($40,589) ($176,154) ($185,066)
=========== ============ ============== ============= ===================
</TABLE>
Comparison of Operating Results for the Six Months Ended June 30, 1997 and 1996:
Total revenue remained stable, decreasing by less than 1% or $5,579. Operating
expenses increased by $16,330 or 3% primarily due to one-time costs of preparing
the properties for disposition, including an increase in advertising and
promotion expense. General and administrative expenses decreased by $103,976
primarily due to the 1996 termination fee of $70,715. The additional reduction
of $33,261 was due to the re-stabilization of costs associated with Partnership
administrative, financial and investor services functions following the office
relocation to Colorado Springs.
Thus far in 1997, the Partnership has not made cash distributions to its
Partners.
<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 COMMUNITIES INC.
A General Partner
BY: (s) Stephen B Boyle
Stephen B. Boyle, President
August 15, 1997
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1997
<PERIOD-END> Jun-30-1997
<CASH> 162,211
<SECURITIES> 0
<RECEIVABLES> 350
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 23,532,227
<DEPRECIATION> (5,031,686)
<TOTAL-ASSETS> 19,866,936
<CURRENT-LIABILITIES> 240,753
<BONDS> 9,836,516
0
0
<COMMON> 0
<OTHER-SE> 9,061,946
<TOTAL-LIABILITY-AND-EQUITY> 19,866,936
<SALES> 0
<TOTAL-REVENUES> 1,278,515
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 939,080
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 485,024
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (140,384)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
