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SCHEDULE 14A INFORMATION
Consent Solicitation Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Consent Solicitation
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2)
[X] Definitive Consent Solicitation
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240,14a-12
DEVELOPMENT PARTNERS II
(A MASSACHUSETTS LIMITED PARTNERSHIP)
(Name of Registrant As Specified in Charter)
------------------------------------------------------------------------
(Name of Person(s) Filing Consent Solicitation Statement,
if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
Units of Limited Partnership Interest ("Units")
(2) Aggregate number of securities to which transaction applies:
36,963 Units
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on
which the filing fee is calculated and state how it was
determined): $7,221,652, equal to the estimated amount of cash
to be distributed to the partners upon liquidation of the
Registrant.
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid: $1,444
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: ______________________________________
(2) Form, Schedule or Registration Statement No.:_________________
(3) Filing Party:_________________________________________________
(4) Date Filed:___________________________________________________
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DEVELOPMENT PARTNERS II
(A MASSACHUSETTS LIMITED PARTNERSHIP)
5110 Langdale Way
Colorado Springs, Colorado 80906
(719) 527-0544
March 16, 1998
Dear Limited Partner:
We are pleased to let you know that, during the last quarter of 1997,
Development Partners II (A Massachusetts Limited Partnership) (the
"Partnership") implemented and completed a competitive bidding process for the
disposition of its remaining real property investments. The competitive bidding
process included the participation of a number of well-screened and
fully-qualified institutional real property purchasers and resulted in the
Partnership receiving and accepting offers to purchase its remaining properties.
The Partnership is now in a position, subject to the approval of a majority in
interest of the limited partners, to sell its remaining properties and dissolve
the Partnership. Accordingly, pursuant to the enclosed Consent Solicitation, the
Partnership is seeking the consent of the limited partners to dissolve the
Partnership and liquidate all of its remaining real property investments (the
"Dissolution"). The Dissolution and the principal terms of the offers are
discussed in more detail in the Consent Solicitation under "Description of
Dissolution."
FOR THE REASONS SET FORTH IN THE ENCLOSED CONSENT SOLICITATION, THE GENERAL
PARTNERS RECOMMEND THAT THE LIMITED PARTNERS CONSENT TO THE DISSOLUTION.
Accompanying the Consent Solicitation is the Partnership's Form 10-K for the
year ended December 31, 1996 and its most recent Form 10-Q for the quarter ended
September 30, 1997.
We urge you to read the enclosed document carefully and to return your signed
consent as soon as possible to GP L'Auberge Communities, L.P., c/o Gemisys, 7103
South Revere Parkway, Englewood, Colorado 80112. You may also return your
Consent to L'Auberge Communities, L.P., c/o Gemisys, via facsimile at
(303) 705-6171. For your convenience a postage-paid return envelope has been
included. If you have any questions about the enclosed material, please call our
Investor Services line at (800) 262-7778.
Very truly yours,
STEPHEN B. BOYLE GP L'AUBERGE COMMUNITIES, L.P.,
General Partner General Partner
By: L'Auberge Communities, Inc., its
general partner
By: Stephen B. Boyle, President
YOUR VOTE IS IMPORTANT
PLEASE SIGN AND DATE THE ENCLOSED CONSENT AND
RETURN IT IMMEDIATELY SO THAT YOUR VOTE CAN BE COUNTED.
<PAGE> 3
DEVELOPMENT PARTNERS II
(A MASSACHUSETTS LIMITED PARTNERSHIP)
5110 Langdale Way
Colorado Springs, Colorado 80906
CONSENT SOLICITATION
March 16, 1998
INTRODUCTION
This solicitation of written consents (the "Consent Solicitation") is
furnished by GP L'Auberge Communities, L.P., a California limited partnership,
and Stephen B. Boyle, the general partners (the "General Partners") of
Development Partners II (A Massachusetts Limited Partnership) (the
"Partnership"), in connection with the Partnership's solicitation of consents
from the Partnership's limited partners (the "Limited Partners") to dissolve the
Partnership and liquidate all of its remaining real property investments
(hereinafter referred to as "properties") (collectively, the "Dissolution") by
means of a liquidation strategy as described herein. If the Dissolution is
consented to by a majority in interest of the Limited Partners as described
herein, the Partnership's remaining properties will be sold and liquidated as
soon as is practicable, consistent with obtaining reasonable value therefor, and
the net proceeds will be distributed to the Limited Partners. As discussed
below, the Partnership has received and accepted offers from purchasers
unaffiliated with either General Partner to purchase its remaining properties,
although there can be no assurance that any or all such offers will result in
consummated sales of the properties. The General Partners recommend that the
Limited Partners consent to the Dissolution.
This Consent Solicitation 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. Actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
This Consent Solicitation, and the enclosed consent form (the
"Consent"), are first being mailed to the Limited Partners on or about March 20,
1998.
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DESCRIPTION OF DISSOLUTION
BACKGROUND AND REASONS FOR DISSOLUTION
The Partnership was organized in 1987 for the purpose of acquiring,
operating and ultimately selling or disposing of multifamily residential rental
properties. The Partnership's original investment objectives contemplated that
the properties would be held for approximately five to seven years, with
decisions about the timing of eventual property sales or other dispositions to
be left to the General Partners' discretion based on the anticipated economic
benefits of continued ownership and other factors. The national recession that
extended through the early 1990s had the effect of depressing real estate
values. Subsequently, the markets where the Partnership's properties are located
experienced an oversupply of new apartment developments. These conditions led
the General Partners to conclude that it was advisable for the Partnership to
hold its properties longer than initially anticipated.
Instead of selling the Partnership's properties during the downturn in
their markets, the Partnership continued to hold and operate its properties. As
improvement in the Partnership's markets became apparent, the General Partners
began to prepare the properties for sale and to devise and implement a
disposition strategy. In this regard, in September 1997, the Partnership sold
Mariposa Apartments in Scottsdale, Arizona to a purchaser unaffiliated with
either General Partner for a gross purchase price of $5,125,000. The Partnership
realized approximately $1,663,335 of net proceeds from the sale, all of which
was distributed to the Limited Partners in December 1997. The General Partners
did not receive a property disposition fee or other compensation or distribution
in connection with the sale of Mariposa Apartments.
The proposed Dissolution and sales transactions are the final step in
the disposition process. After considering various alternatives for marketing
the Partnership's remaining properties, the General Partners determined that,
given the quality of the properties, the most advantageous offers were likely to
be obtained by approaching a reasonable number of well-qualified institutional
real estate purchasers in a competitive bidding process. Accordingly, with the
assistance of a licensed real estate broker unaffiliated with either General
Partner (the "Unaffiliated Broker"), approximately 15 institutional real estate
purchasers representing a broad cross-section of the institutional real estate
capital market were approached. As a result of the competitive bidding process,
the Partnership received multiple offers to purchase each of its properties. In
order to maximize the sales prices, the Partnership permitted each offeror the
opportunity to increase its offer. From the resubmitted offers, the General
Partners selected the highest and best offer for each property and a purchase
and sale agreement (the "Purchase Agreement") has been executed with respect to
each property, subject to the consent of the Limited Partners to the
Dissolution. Certain of the principal terms of the Purchase Agreements are
discussed in this Consent Solicitation under "Description of Dissolution --
Liquidation Strategy; Pending Sales."
Sales of the properties at this time will enable the Partnership to
take advantage of the improved local economies where its properties are located.
The General Partners have reviewed comparable sales in the properties'
respective markets and have determined that the accepted
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offer for each property is fair and reasonable. Moreover, the General Partners
believe that the terms of each proposed sale described herein are advantageous
to the Partnership because of the price, the purchase of the properties for all
cash without a financing contingency and the strength and reliability of the
purchaser.
For the foregoing reasons, the General Partners believe that it is in
the best interests of the Partnership and the Limited Partners to dissolve the
Partnership and seek to sell and liquidate the remaining Partnership properties
and wind up the Partnership at this time rather than to continue to hold and
operate the properties for later sale.
EFFECTS OF THE DISSOLUTION
Under the Massachusetts Revised Uniform Limited Partnership Act, a
limited partnership may be dissolved at the time or upon the happening of events
specified in its partnership agreement. The Amended and Restated Certificate and
Agreement of Limited Partnership of the Partnership (the "Partnership
Agreement") provides that the Partnership shall be dissolved upon the vote or
written consent of a majority in interest of the Limited Partners. Under the
terms of the Partnership Agreement and applicable law, upon dissolution of the
Partnership the General Partners are to take full account of the Partnership's
assets and liabilities, liquidate the Partnership's remaining assets and apply
and distribute the liquidation proceeds in the order specified in the
Partnership Agreement. See "Liquidation and Winding Up" below. During the
winding up process, the Partnership's legal existence would continue solely for
purposes relating to the liquidation and winding up and the Limited Partners
would continue to have the voting and economic rights provided in the
Partnership Agreement.
Neither the Partnership Agreement nor Massachusetts law provides for a
specified period of time for completing the liquidation and winding up of the
Partnership. If the Dissolution is consented to by a majority in interest of the
Limited Partners, the General Partners would be authorized and directed to
settle and close the Partnership's business and dispose of and convey the
Partnership's property as soon as practicable, pursuant to the Purchase
Agreements described herein or otherwise, consistent with obtaining reasonable
value for the properties. In the event that one or more of the properties are
not sold pursuant to the Purchase Agreements described herein (see "Liquidation
Strategy; Pending Sales" below), the General Partners would continue to have
broad discretion to manage the business and affairs of the Partnership and the
winding up process and to determine the timing, terms and conditions of property
sales and other dispositions. Upon the dissolution and completion of the winding
up process, the Partnership will file a certificate of cancellation with the
Massachusetts Office of the Secretary of State and will be terminated. There are
no federal or state regulatory requirements that must be complied with or
approvals that must be obtained in connection with the Dissolution.
LIQUIDATION STRATEGY; PENDING SALES
The following table sets forth certain information regarding the
Partnership's remaining properties and the Purchase Agreements.
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<TABLE>
<CAPTION>
Purchase Agreements
Projected ----------------------------------------
Mortgage
Property Name and Number of Indebtedness Purchase Closing
Location Units at 3/30/98 Price Purchaser Date(1)
- ----------------- --------- ------------ ----------- --------- -------
<S> <C> <C> <C> <C> <C>
Canyon View East, 96 $ 3,824,280 $ 6,648,503 Tucson 4/24/98(3)
Tucson, AZ(2) Realty
Holding Co.
Inc.
Cheyenne Creek, 108 $ 3,114,835 $ 6,300,000 DRA 4/30/98
Colorado Springs, Advisors,
CO(4) Inc.
Casabella, 154 $ 6,734,895 $11,700,000 JPR Capital (6)
Scottsdale, AZ(5) LLC
</TABLE>
- ----------
(1) Subject to the consent of the Limited Partners to the Dissolution
proposed herein.
(2) The Partnership owns a joint venture interest in Canyon View East 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 East. Under the
terms of the Canyon View East Joint Venture Agreement, the
Partnership's co-venturers (or any of them) were granted a right of
first refusal to purchase Canyon View East 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 East 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 East Purchase Agreement and, therefore, that the right of first
refusal lapsed without exercise. Accordingly, the Partnership is
proceeding to close the sale of Canyon View East to TRH pursuant to the
Canyon View East Purchase Agreement. There can be no assurance,
however, that the co-venturer will not claim that the Partnership is
prohibited from selling the property to TRH and attempt to enjoin the
sale. The assertion of such a claim could materially delay the
Partnership's sale of Canyon View East. Canyon View East will be sold
together with an adjacent property which is owned by a public limited
partnership of which the General Partners or their affiliates are the
general partners, is the managing partner. Accordingly, the sale of
Canyon View East is also conditioned upon the consent of the limited
partners of the affiliated partnership to the dissolution of such
partnership. The $16,750,000 total purchase price for the two adjacent
properties was allocated between the joint ventures based on relative
gross rent potential of the two properties.
(3) The Closing Date may occur earlier than the date indicated if the
consent of the Limited Partners to the Dissolution is received prior
thereto.
(4) The Partnership owns an approximate 82% joint venture interest in The
Pines at Cheyenne Creek Joint Venture which holds fee simple title to
this property. The Partnership's co-venturer is a private limited
partnership of which the General Partners or their affiliates are the
general partners. The former joint venture partner in the joint venture
retained an economic interest in the property's cash flow and sales
proceeds under certain circumstances. Such former joint venture partner
will not be entitled to receive any portion of the proceeds from the
sale of Cheyenne Creek.
(5) The Partnership owns an approximate 38% interest in Casabella
Associates, a general partnership which holds fee simple title to the
property. The Partnership's partners in Casabella Associates are two
public limited partnerships of which the General Partners or their
affiliates are the general partners. Accordingly, the sale of Casabella
is also conditioned upon the consent of the limited partners of the two
affiliated partnerships to the dissolution of such partnerships.
Casabella Associates' former joint venture partner in the joint
venture which previously held title to the property retained an
economic
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interest in the property's cash flow and sales proceeds under certain
circumstances. The former joint venture partner will not be entitled to
receive any portion of the proceeds of the sale of Casabella.
(6) Approximately 90 days after the Limited Partner consents described in
note (5) above are received, but not later than June 15, 1998.
Each Purchase Agreement provides that the purchaser 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 each of the property sales is
subject to the respective purchaser's due diligence review of the property,
there can be no assurance that any or all proposed sales 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. Each 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.
Assuming, for purposes of illustration, that the Partnership's
remaining properties were sold for an aggregate price of $24,648,503 (the total
of the purchase prices set forth above), the General Partners believe that,
after (i) repayment of mortgage indebtedness in the aggregate amount of
approximately $13,674,015, (ii) deducting estimated fees and expenses of the
sales, which currently are anticipated to total approximately $336,000,
including a real estate brokerage commission payable to the Unaffiliated Broker
in an amount equal to 1.25% of the sales price of each property, (iii) payment
of real estate taxes, (iv) giving effect to the interests of the Partnership's
partners or co-venturers in the properties, and (v) including the Partnership's
estimated cash balance of $120,000, approximately $7,221,652 (the "Dissolution
Proceeds") would be available to the Partnership.
The Dissolution Proceeds, less a $300,000 wind-up reserve which the
General Partners intend to establish to cover various expenses of winding up and
liquidating the Partnership, would be distributed to the Limited Partners as
promptly as possible following the sales of the properties. Assuming Dissolution
Proceeds of $7,221,652, for each $500 invested in the Partnership, the Limited
Partners would receive out of the Dissolution Proceeds approximately $187 (the
"Distribution Per Unit"). When added to the $45 per Unit that has been
distributed from the sale of Mariposa and the $82.62 per Unit distributed from
operations, Limited Partners will have received aggregate distributions of
approximately $314.62 per $500 Unit over the term of the investment.(1) In
addition, upon final winding up of the Partnership, any unexpended funds in the
wind-up reserve will be distributed to the Limited Partners.
__________________________
(1) Exhibit A attached to this Consent Solicitation sets forth certain
information regarding Partnership distributions on a quarterly basis for the
past three years and in the aggregate since inception.
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The foregoing estimates are presented for the Limited Partners'
reference only and should not be relied upon in determining whether to consent
to the Dissolution. The estimates assume that sales of the properties are
consummated pursuant to the terms of the Purchase Agreements. There can be no
assurance that such sales will occur. If one or more of the proposed sales does
not occur, the General Partners would seek substitute purchasers, although there
can be no assurance as to when such purchasers would be located or the terms on
which such purchasers would agree to purchase the properties. The Limited
Partners would have no right to approve the terms of any substituted sale. The
estimates do not give effect to the operating expenses or net income or net loss
of the Partnership for any period prior to the time the remaining properties are
sold, which could affect the amount of Dissolution Proceeds available for
distribution. Additionally, the estimates do not give effect to customary
closing adjustments, credits and prorations, the amounts of which are not known
at this time. For these reasons, the actual proceeds to be received by the
Limited Partners may vary materially from the Distribution Per Unit, and
therefore possibly be substantially less.
The timing of the Limited Partners' receipt of any Dissolution Proceeds
will depend on when a sale or other disposition of the Partnership's properties
can be completed. If the properties are sold pursuant to the terms of the
Purchase Agreements, the General Partners expect that the sales will be
consummated during the second quarter of 1998. The General Partners will
endeavor to distribute funds as expeditiously as possible after any sale.
LIQUIDATION AND WINDING UP
Pursuant to the Partnership Agreement, if the Dissolution is consented
to by a majority in interest of the Limited Partners, the General Partners are
to take full account of the Partnership's assets and liabilities, liquidate the
Partnership's assets and discharge or make adequate provision for the
liabilities of the Partnership in the following order:
(a) First, to creditors, in the order of priority provided by law;
(b) Second, to the setting up of any reserve for contingencies which
the General Partners may consider necessary; and
(c) After all such liabilities have been either discharged or
adequately provided for, to the partners, in accordance with Section 10 of the
Partnership Agreement.
It is not anticipated that the General Partners will receive any of the
proceeds from the Dissolution. The General Partners are not aware of any
liabilities or obligations of the Partnership, contingent or otherwise, except
as set forth on the Partnership's balance sheet included as part of its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997 (a copy
of which accompanies this Consent Solicitation and is incorporated herein by
reference) and liabilities and obligations incurred since September 30, 1997 in
the ordinary course of the Partnership's business.
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CERTAIN CONSIDERATIONS
The General Partners cannot predict when any of the Partnership's
properties will actually be sold or disposed of, or when the eventual
liquidation will occur, nor can the General Partners estimate with certainty the
amount of Dissolution Proceeds that will be available to distribute to the
Limited Partners upon the sale or other disposition of the Partnership's
remaining properties and completion of the liquidation. Moreover, there can be
no assurance that the properties will be sold or disposed of at prices equal to
the purchase prices contained in the Purchase Agreements described herein or
that the value of the properties will not increase after they are sold or
disposed of by the Partnership.
In considering whether to approve the Dissolution, the Limited Partners
should bear in mind that the General Partners have broad discretion to manage
the business and affairs of the Partnership. If the Dissolution is not approved,
the General Partners intend to continue to manage the Partnership and its
properties substantially as they are currently being managed and to continue to
entertain and consider indications of interest from third parties to acquire all
or a portion of the Partnership's properties. There can be no assurance that the
Dissolution will result in greater returns to the Limited Partners than a
continuation of the Partnership and eventual sale or disposition of its
properties at a later time.
Because of the General Partners' long-standing experience with the
Partnership properties, the property management affiliate of the General
Partners may be considered, among other independent property management
companies, to manage the Partnership's properties following their sale. In this
regard, DRA Advisors, Inc., the purchaser of Cheyenne Creek, has indicated its
intention to retain such property management affiliate following the sale
pursuant to an agreement terminable by purchaser on 30 days prior notice. If the
Limited Partners consent to the Dissolution, they also will be deemed to have
consented to any transaction that may be undertaken to accomplish the
liquidation and winding up of the Partnership and will not be entitled to
approve or disapprove of any such transaction, including transactions which may
involve the General Partners' management affiliate continuing as property
manager.
Neither Massachusetts law nor the Partnership Agreement provides the
Limited Partners with any dissenter's rights, or the right to seek an
independent appraisal of the value of the Partnership or its assets. Thus, the
Limited Partners will be bound to accept the consideration upon the sale of the
Partnership's properties if the Dissolution is consented to by the Limited
Partners.
RECOMMENDATION OF THE GENERAL PARTNERS
THE GENERAL PARTNERS BELIEVE THAT THE DISSOLUTION IS IN THE BEST
INTERESTS OF THE LIMITED PARTNERS AND RECOMMEND THAT THE LIMITED PARTNERS VOTE
"FOR" AND CONSENT TO THE DISSOLUTION.
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CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
If a majority of the Limited Partners consent to the Dissolution, the
General Partners intend to sell the Partnership's remaining properties and,
after payment of certain Partnership expenses and liabilities (see "Description
of Dissolution -- Liquidation and Winding Up"), distribute the proceeds to the
Partners in liquidation of the Partnership. Such a sale and distribution will
result in certain federal income tax consequences to a Limited Partner as
described below. Section references below are to the Internal Revenue Code of
1986, as amended (the "Code").
IN GENERAL
As a partnership for federal income tax purposes, the Partnership is
not subject to federal income tax as a separate taxable entity. Instead, each
Partner is required to report on its own federal income tax return such
Partner's distributive share of the Partnership's items of income, gain, loss,
deduction and credit, including any gain or loss recognized by the Partnership
on the sale of Partnership properties. Accordingly, a Limited Partner may be
subject to tax on such Limited Partner's distributive share of Partnership
income irrespective of whether such Limited Partner receives any cash
distribution from the Partnership. A Limited Partner's adjusted basis in its
Units is increased by such Limited Partner's distributive share of income and
gain of the Partnership for each taxable year, is reduced by its distributive
share of loss for such taxable year and is reduced by the amount of any actual
or deemed distributions made to such Limited Partner during such year. A
reduction in a Limited Partner's allocable share of Partnership liabilities that
were included in such Limited Partner's adjusted basis in its Units (e.g., as a
result of the repayment of a nonrecourse mortgage secured by a Partnership
property) is treated as a deemed distribution of cash for this purpose.
GAIN OR LOSS ON SALE OF PARTNERSHIP PROPERTY
The Partnership will separately recognize gain or loss for federal
income tax purposes with respect to the sale of each Partnership asset. The
Partnership will recognize a gain for tax purposes with respect to the sale of
an asset if the amount realized for such asset (i.e., the cash proceeds and
other consideration, if any, received reduced by the expenses of sale) exceeds
the Partnership's adjusted basis for such asset. The Partnership will recognize
a loss with respect to the sale of an asset if the Partnership's adjusted basis
for such asset exceeds the amount realized by the Partnership for such asset.
Overall, the Partnership expects to realize a gain of approximately $245,310, of
which approximately $242,438 or $6.56 per Unit, will be allocated to the Limited
Partners, in connection with the sale of its remaining properties pursuant to
the Purchase Agreements.
Under Section 702(a)(3) of the Code, the Partnership is required to
separately state, and each Partner is required to account separately for, such
Partner's distributive share of any Section 1245 gain (depreciation recapture),
Section 1231 gain or loss and net taxable income or loss from Partnership
operations for any taxable year in which Partnership property is sold. Section
1231 gain or loss is gain or loss (apart from depreciation recapture, if any)
resulting from the sale or exchange of "Section 1231 property," which is defined
generally as depreciable property used in
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the trade or business and held for more than one year and real property used in
the trade or business and held for more than one year which is not inventory or
other property held for sale to customers in the ordinary course of the trade or
business.
Except for gain attributable to depreciation recapture under Section
1245 of the Code, any gain or loss on the sale of Partnership assets is expected
to be Section 1231 gain or loss. To the extent that for any taxable year Section
1231 loss exceeds Section 1231 gain, such net Section 1231 loss will be treated
as an ordinary loss, subject to any applicable passive activity loss limitations
under Code Section 465. Passive activity losses generally can only offset
passive activity income; however, upon completion of the liquidation of the
Partnership, a Limited Partner's share of passive activity losses of the
Partnership, including suspended passive activity losses, may be utilized in the
taxable year in which such liquidation occurs to offset non-passive income from
other sources.
To the extent that for any taxable year Section 1231 gain exceeds
Section 1231 loss, such net Section 1231 gain will be treated as long-term
capital gain. However, Section 1231 gain will be treated as ordinary income to
the extent of prior Section 1231 losses from any source that were treated as
ordinary in any of the previous five years.
A Limited Partner will also realize gain or loss on the final
liquidation of the Partnership pursuant to the Dissolution to the extent that
the amount of any actual or deemed distribution to such Limited Partner differs
from such Limited Partner's adjusted basis for its Units. Any such loss (or
gain) will be long-term or short-term capital loss (or gain), depending on the
holding period of its Units. It is anticipated that a Limited Partner who
acquired its Units in the public offering will realize a capital loss of
approximately $74.73 per Unit in connection with the liquidation of the
Partnership.
CAPITAL GAINS AND LOSSES
Individuals, trusts and estates are generally subject to tax on net
long-term capital gain with respect to property held for more than 18 months at
a maximum rate of 20% (28% in the case of property held for more than one year
but not more than 18 months), except that long-term capital gain from the sale
of real property that would otherwise qualify for the 20% maximum rate will
instead be subject to a 25% maximum rate to the extent of prior depreciation
deductions allowed with respect to such real property. Capital losses generally
may be utilized in any taxable year only to the extent of capital gains plus, in
the case of a non-corporate taxpayer, up to $3,000 of ordinary income ($1,500 in
the case of a married individual filing a separate return). Unused capital
losses may be carried forward and utilized in subsequent years subject to the
same limitations.
THE FOREGOING IS A SUMMARY ONLY, AND SPECIAL CONSIDERATIONS MAY BE
APPLICABLE TO PARTICULAR TYPES OF LIMITED PARTNERS. EACH LIMITED PARTNER IS
ADVISED TO CONSULT ITS OWN TAX ADVISOR REGARDING THE SPECIFIC TAX CONSEQUENCES
OF THE DISSOLUTION, UNDER THE FEDERAL
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INCOME TAX LAWS, AS WELL APPLICABLE STATE, LOCAL, FOREIGN OR OTHER TAX LAWS NOT
DISCUSSED HEREIN.
CONSENT REQUIREMENTS AND WRITTEN CONSENTS
RECORD DATE
The General Partners have fixed 5:00 P.M. Central Time on March 12,
1998, as the record date (the "Record Date") for determining the Limited
Partners entitled to notice of and to act on the Dissolution. As of the close of
business on the Record Date, the General Partners anticipate that there will be
approximately 1,850 Limited Partners of record.
COMPLETION OF CONSENTS; DEADLINE FOR CONSENTING
A form of written consent (the "Consent") accompanies this Consent
Solicitation. EACH LIMITED PARTNER IS URGED TO COMPLETE, SIGN, DATE AND RETURN
THE CONSENT BY NOT LATER THAN APRIL 15, 1998 (THE "CONSENT DEADLINE"). This date
may be extended from time to time by the General Partners in its discretion
until not later than June 1, 1998, subject to applicable requirements to update
this Consent Solicitation.
A postage-paid, pre-addressed envelope has been provided for the
Limited Partners' convenience in returning Consents. Completed Consents should
be returned as soon as possible to GP L'Auberge Communities, L.P., c/o Gemisys,
7103 South Revere Parkway, Englewood, Colorado 80112. Limited Partners may also
return their Consents to GP L'Auberge Communities, L.P., c/o Gemisys, via
facsimile at (303) 705-6171; Attention: Development Partners II. Consents may be
marked either "FOR," "AGAINST," or "ABSTAIN" with respect to the Dissolution. If
a Limited Partner fails to return a Consent, or returns a Consent marked
"ABSTAIN," it will have the same effect as a disapproval of the Dissolution. If
a Consent is returned signed, but not marked "AGAINST" or "ABSTAIN," the Limited
Partner will be deemed to have consented to the Dissolution. THE GENERAL
PARTNERS RECOMMEND THAT THE LIMITED PARTNERS VOTE "FOR" AND CONSENT TO THE
DISSOLUTION.
APPROVAL OF DISSOLUTION
The Dissolution will be approved if consented to by the Consent
Deadline by a majority in interest of the Limited Partners as determined based
upon the total number of Units outstanding. Each Unit is entitled to one vote.
Accordingly, the Dissolution requires the approval of Limited Partners holding
of record not less than 18,482 of the total 36,963 Units outstanding.
REVOCATION OF CONSENTS
A Consent may be revoked by a Limited Partner by delivery to the
General Partners of a subsequent writing revoking the Consent. The writing must
bear a later date than the previously
-10-
<PAGE> 13
executed Consent and must be signed by the Limited Partner. To be effective, any
such revocation must be received by Gemisys Corporation or the General Partners,
as described above, on or before the Consent Deadline or such earlier date as of
which the Dissolution shall have been consented to by the requisite number of
Limited Partners.
EXPENSES OF SOLICITATION
The Partnership will bear all expenses of the solicitation of Consents,
whether or not the Dissolution is approved. After this Consent Solicitation is
mailed to the Limited Partners, Consents may be solicited by means of the mails,
facsimile transmissions, telephone or telegraph by the General Partners and
their respective regular employees and affiliates, none of whom will receive any
special or additional compensation for their services. The Partnership has
retained Gemisys Corporation, an independent firm, to aid in the solicitation of
Consents. The cost to the Partnership of doing so is currently estimated to be
$3,000. The Partnership will also be required to reimburse Gemisys Corporation
for its mailing services, postage, printing and similar pass-through costs.
The General Partners will request brokers, nominees and other
fiduciaries and custodians who hold Units in their names to furnish this Consent
Solicitation and any accompanying materials to the beneficial owners of such
Units.
IF YOU ARE A LIMITED PARTNER ON THE RECORD DATE, YOU ARE RESPECTFULLY
REQUESTED TO COMPLETE, DATE, SIGN AND RETURN THE ACCOMPANYING CONSENT IN THE
ENCLOSED ENVELOPE AT YOUR EARLIEST CONVENIENCE, BUT IN ANY EVENT PRIOR TO THE
CONSENT DEADLINE.
INTEREST OF THE GENERAL PARTNERS IN THE DISSOLUTION
Neither the General Partners nor any affiliate of a General Partner
will be entitled to receive any distribution, real estate brokerage or other fee
or compensation upon disposition of the Partnership's properties.
POTENTIAL CONFLICT OF INTEREST
The General Partners believe that neither they nor any of their
affiliates have any conflict of interest with the Limited Partners regarding the
recommendation to approve the Dissolution. In fact, if the Dissolution is not
approved, the General Partners would continue to receive 2% of all distributions
of net cash from operations and the General Partners' property management
affiliate would be entitled to continue to earn property management fees for its
services in managing the Partnerships' properties.
-11-
<PAGE> 14
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
According to information available from the Partnership's transfer
agent and public records, as of the date of the Record Date, no person or entity
owned beneficially 5% or more of the outstanding Units. The Partnership has not
issued any options, warrants or other rights to purchase securities of the
Partnership, nor has either General Partner loaned money to the Partnership.
As of the Record Date, neither of the General Partners nor any director
or officer of L'Auberge owned beneficially any Units.
MANAGEMENT
The Partnership is a limited partnership and, as such, has no executive
officers or directors. The General Partners of the Partnership are Stephen B,
Boyle and 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.
STEPHEN B. BOYLE
Stephen B. Boyle, age 57, 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.
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.
<TABLE>
<CAPTION>
Name Position
- ---------------------- ----------------------------------------------------
<S> <C>
Stephen B. Boyle President, Executive Officer and Director
Earl C. Robertson Executive Vice President and Chief Financial Officer
Donna Popke Vice President and Secretary
</TABLE>
Earl C. Robertson, age 50, has been Executive Vice President of
L'Auberge since April 1995 and its Chief Financial Officer of L'Auberge since
May 1996. Mr. Robertson joined L'Auberge in April 1995 as Executive Vice
President. Prior to joining L'Auberge, Mr.
-12-
<PAGE> 15
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 37, 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.
TERMINATION AND CHANGE IN CONTROL ARRANGEMENTS
The General Partners know of no termination or change-in-control
arrangement affecting the Partnership, except as contemplated by the Partnership
Agreement. The Partnership Agreement provides generally that the bankruptcy or
dissolution of a General Partner will cause a dissolution of the Partnership
unless there is a remaining general partner that elects to continue the business
of the Partnership. In the event there is no remaining general partner, the
Partnership may nonetheless be continued by vote of a majority in interest of
the Limited Partners. The Partnership Agreement also permits the General
Partners to withdraw from the Partnership subject to certain conditions. In such
event, the withdrawing General Partner is obligated to resell its interest in
the Partnership to the Partnership.
ADDITIONAL INFORMATION
This Consent Solicitation is accompanied by copies of the Partnership's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996 and its
Quarterly Report on Form 10-Q for the quarter ended September 30, 1997, as filed
with the Securities and Exchange Commission. The information in these reports is
incorporated herein by reference. The exhibits to such reports are not included
with this Consent Solicitation, but are available without charge to any person
entitled to receive this Consent Solicitation, upon written request, from the
General Partners, 5110 Langdale Way, Colorado Springs, Colorado 80906,
Attention: Development
-13-
<PAGE> 16
Partners II. A requested exhibit will be furnished by first-class mail, or other
equally prompt means, within one business day of such request.
GP L'AUBERGE COMMUNITIES, L.P.,
General Partner
By: L'Auberge Communities Inc.,
its General Partner
STEPHEN B. BOYLE, By: Stephen B. Boyle,
General Partner President
-14-
<PAGE> 17
EXHIBIT A
DISTRIBUTIONS TO LIMITED PARTNERS
Following is a summary of distributions to the Limited Partners for the
periods shown:
<TABLE>
<CAPTION>
Per $500 Unit Aggregate Amount
---------------------------------- --------------------------------
From Property From Property
Quarter Ended From Operations(1) Sales From Operations Sales
- -------------------- ----------------- ------------- --------------- --------------
<S> <C> <C> <C> <C>
March 31, 1995 $ 2.50 $ 92,408
June 30, 1995 $ 2.50 $ 92,408
September 30, 1995 $ 1.65 $ 60,989
December 31, 1995 $ 1.25 $ 46,204
March 31, 1996 $ 1.25 $ 46,204
June 30, 1996 $ 1.25 $ 46,204
September 30, 1996
December 31, 1996
March 31, 1997
June 30, 1997
September 30, 1997 $ 45 $1,663,335
Since Inception $ 82.62 $ 45 $3,054,055 $1,663,335
</TABLE>
- ----------
(1) The amounts set forth above representing Per $500 Unit distributions
From Operations may vary slightly among Limited Partners depending on a
Limited Partner's date of admission to the Partnership. Operating
distributions for the first four quarters following the initial
admission of Limited Partners were prorated based on a Limited
Partner's date of admission to the Partnership. The amount set forth
for the calculation of total Per $500 Unit distributions From
Operations since inception is based on average distributions for those
first four quarters.
<PAGE> 18
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 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
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 (I.R.S. Employer
of incorporation or organization) Identification No.)
5110 Langdale Way, Colorado Springs, CO 80906
(Address of principal executive offices) (Zip Code)
(719) 527-0544
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Units of Limited
Partnership Interests
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 and 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes _X_ No ___
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 __
<PAGE> 19
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. Actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
Development Partners II (A Massachusetts Limited Partnership) (the
"Partnership"), formerly Berry and Boyle Development Partners II, was formed on
January 9, 1987. The General Partners are Stephen B. Boyle and GP L'Auberge
Communities, L.P., a California Limited Partnership (formerly Berry and Boyle
Management).
The primary business of the Partnership is to operate and ultimately dispose of
a diversified portfolio of income-producing residential real properties through
its joint venture interest in such properties. Descriptions of such properties
are included below in Item 2, as well as in Notes 5 and 6 of the Notes to the
Consolidated Financial Statements included in this report and incorporated
herein by reference thereto.
The Partnership expects to sell its properties at some future time, 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. Proceeds from the sale, financing or refinancing of the properties
will not be reinvested by the Partnership, but will be distributed to the
partners, so that the Partnership will, in effect, be self-liquidating.
The success of the Partnership will depend 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
investments are 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
properties.
On May 14, 1996, the Partnership and certain affiliates consummated an agreement
with Evans Withycombe Management, Inc. and certain of its affiliates ("EWI"), a
Phoenix based residential development, construction and management firm and
developer of the properties known as Mariposa and Casabella, 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, 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, Development Partners I and Development
Partners III (while preserving the economic interests of the venturer in these
Joint Ventures), which resulted in the dissolution of the Casabella Joint
Venture and the Mariposa 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 July 3, 1996, the Partnership and certain affiliates consummated an agreement
with Highland Properties, Inc. ("Highland"), a Colorado based residential
development, construction and management firm and developer of the property
known as L'Auberge Cheyenne Creek, formerly The Pines on Cheyenne Creek, 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. Highland may still share in the cash
flow distributions or the proceeds from sale of the properties if certain
performance levels are met
On-site management of Casabella, Mariposa, L'Auberge Cheyenne Creek ("Cheyenne
Creek") (formerly The Pines on Cheyenne Creek) and L'Auberge Canyon View East
("Canyon View East") is currently provided by an affiliate of the General
Partners. The terms of such property management services between the Partnership
and property managers are embodied in a written management agreement with
respect to each Property. The property manager in each case receives management
fees which are competitive with those obtainable in arm's-length negotiations
with independent parties providing comparable services in the localities in
which the properties are located. Such fees will not exceed 4% of the gross
revenues from each property. It is the responsibility of the General Partners to
select or approve property managers and to supervise their performance. Property
managers are 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 (and reserves therefor),
bookkeeping and payroll expenses, legal and accounting fees, property management
fees and other expenses incurred, constitute the properties' operating cash
flow. The Partnership's internal administrative expenses are paid out of the
Partnership's share of such cash flow from the various properties and from
interest income which the Partnership earns on its short-term investments.
The Partnership's investments in real estate are 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
properties, (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 investments are subject to competition in the rental, lease
and sale of similar types of properties in the localities in which the
Partnership's real property investments are located. Furthermore, the General
Partners of the Partnership are affiliated with other partnerships owning
similar properties in the vicinity in which the Partnership's properties are
located. In addition, other limited partnerships may be formed by affiliates of
the General Partners which will compete with the Partnership.
The Partnership considers itself to be engaged in only one industry segment,
real estate investment.
ITEM 2. PROPERTIES
The Partnership owns a majority joint venture interest in the Canyon View East
Joint Venture, an Arizona joint venture that owns and operates Canyon View East,
a 96-unit multifamily rental property in Tucson, Arizona, subject to first
mortgage financing in the original principal amount of $4,000,000. The
Partnership owns and operates Cheyenne Creek, a 108-unit multifamily rental
property in Colorado Springs, Colorado, subject to first mortgage financing in
the original principal amount of $3,252,000 and Mariposa, an 84-unit multifamily
rental property in Scottsdale, Arizona, subject to first mortgage financing in
the original principal amount of $2,940,000. The ownership of Cheyenne Creek and
Mariposa was formerly structured as a joint venture of which the partnership
owned a majority interest. With regard to the termination of the Mariposa Joint
Venture and Pines on Cheyenne Creek Joint Venture, see Note 5 of Notes to
Consolidated Financial Statements. The Partnership also owns a minority interest
in Casabella Associates, which in turn, owns and operates Casabella, a 154-unit
multifamily rental property in Scottsdale, Arizona, subject to first mortgage
financing in the original amount of $7,320,000.
Canyon View East
On March 8, 1989, the Partnership acquired a majority interest in a joint
venture which owns and operates a 96-unit residential property located in
Tucson, Arizona, known as Canyon View East. The Partnership has been designated
as the managing venturer of the joint venture. In accordance with the terms of
the purchase agreement and of the joint venture agreement, through December 31,
1996, the Partnership has contributed total capital of $4,334,180 to the joint
venture which was used to repay a portion of the construction loan from a third
party lender, to pay costs related to the permanent loan refinancing, to cover
operating deficits incurred during the lease up period and to fund certain
capital improvements. The Partnership also incurred $523,022 of property
acquisition and organization costs which were subsequently treated as a capital
contribution to the joint venture.
The property was 96% occupied as of February 27, 1997, compared to 89%
approximately one year ago. At December 1996 and 1995, the market rents for the
various unit types were as follows:
<TABLE>
<CAPTION>
Unit Type 1996 1995
- ------------------------------------------------ ---- ----
<S> <C> <C>
Two bedroom two bath ........................... $865 $865
Three bedroom two bath ......................... 980 980
</TABLE>
Cheyenne Creek
On September 26, 1988, the Partnership acquired a majority interest in the Pines
on Cheyenne Creek, a 108-unit residential property in Colorado Springs, Colorado
known as Cheyenne Creek. The other joint venture partners are the developer of
the property and a limited partnership affiliated with the General Partners (the
"Affiliated Partnership"). The Partnership and the Affiliated Partnership act as
co-managing venturers of the Pines on Cheyenne Creek Joint Venture. In
accordance with the terms of the purchase agreement and the joint venture
agreement, through December 31, 1996, the Partnership has contributed total
capital of $4,720,041 to the Pines on Cheyenne Creek Joint Venture which was
used to repay a portion of the construction loan from a third party lender, to
pay 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. The Partnership also incurred $470,870 of property acquisition and
organization costs which were subsequently treated as a capital contribution to
the Cheyenne Creek Joint Venture. The Affiliated Partnership has made
proportionate capital contributions for the same purposes as outlined above.
As of February 27, 1997, the property was 84% occupied, compared to 80%
approximately one year ago. At December 1996 and 1995, the market rents for the
various unit types were as follows:
<TABLE>
<CAPTION>
Unit Type 1996 1995
- ---------------------------------------------- ---- ----
<S> <C> <C>
One bedroom den .............................. $810 $785
Two bedroom two bath ......................... 925 885
</TABLE>
Mariposa
On February 3, 1989, the Partnership acquired a majority interest in the
Mariposa, an 84-unit multifamily rental property located in Phoenix, Arizona.
The Partnership has been designated as the managing venturer of the Mariposa
Joint Venture. In accordance with the terms of the purchase agreement and of the
joint venture agreement, through December 31, 1996, the Partnership has
contributed total capital of $2,808,098 to the Mariposa Joint Venture which was
used to repay a portion of the construction loan from a third party lender, to
pay costs related to the refinancing of the permanent loan and to fund certain
capital improvements. The Partnership also incurred $430,474 of property
acquisition and organization costs which were subsequently treated as a capital
contribution to the Mariposa Joint Venture.
The property was 98% occupied as of February 27, 1997, compared to 99%
approximately one year ago. At December 1996 and 1995, the market rents for the
various unit types were as follows:
<TABLE>
<CAPTION>
Unit Type 1996 1995
- ---------------------------------------------- ------ ------
<S> <C> <C>
One bedroom one bath ......................... $ 740 $ 715
Two bedroom two bath ......................... 870 855
Two bedroom two bath den ..................... 1,045 1,045
</TABLE>
Casabella
On September 28, 1990, the Partnership purchased an approximate 38% interest in
Casabella Associates ("Associates"), a general partnership consisting of the
Partnership and two other affiliated partnerships. Under the terms of the
purchase, the Partnership contributed $1,800,000 to Associates.
Associates has been designated as the managing partner of Casabella and will
control all decisions regarding the operation and sale of the property. In
addition to its $1,800,000 contribution to Associates, the Partnership incurred
$268,861 of acquisition expenses.
As of February 27, 1997, the property was 99% occupied, compared to 98%
approximately one year ago. At December 31, 1996 and 1995, the market rents for
the various unit types were as follows:
<TABLE>
<CAPTION>
Unit Type 1996 1995
- ---------------------------------------------- ------ ------
<S> <C> <C>
One bedroom two bath w/den ................... $ 950 $ 820
Two bedroom two bath ......................... 1,160 943
Two bedroom two bath w/den ................... 1,210 1,170
</TABLE>
ITEM 3. LEGAL PROCEEDINGS
There are no material pending 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 the subject.
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 1996.
<PAGE> 20
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 holders of Units as of December 31, 1996 was 1,907.
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 1996 and 1995 were paid as
follows:
<TABLE>
<CAPTION>
Date of
Quarter Ended Payment Amount
- ------------------------------------- ------------------ -------
<S> <C> <C>
March 31, 1995 ...................... May 15, 1995 $92,408
June 30, 1995 ....................... August 15, 1995 $92,408
September 30, 1995 .................. November 15, 1995 $60,989
December 31, 1995 ................... February 15, 1996 $46,204
March 31, 1996 ...................... May 15, 1996 $46,204
June 30, 1996 ....................... August 15, 1996 $46,204
September 30, 1996 .................. $ -0-
December 31, 1996 ................... $ -0-
</TABLE>
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
Coopers & Lybrand, LLP, whose reports for the periods ended December 31, 1996,
1995 and 1994 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>
<CAPTION>
Year Ended
----------------------------------------------------------------------
12/31/96 12/31/95 12/31/94 12/31/93 12/31/92
<S> <C> <C> <C> <C> <C>
Rental income $2,497,278 $2,668,640 $2,616,008 $2,448,937 $2,272,456
Net income (loss) ($568,209) ($105,066) ($83,198) ($365,788) ($576,469)
Net income (loss) allocated to Partners:
Limited Partners - Per Unit
Aggregate 36,963 Units ($15.22) ($2.81) ($2.23) ($9.80) ($15.44)
General Partners ($5,682) ($1,051) ($832) ($3,658) ($5,765)
Cash distributions to Partners:
Limited Partners:
Aggregate 36,963 Units $3.75 $9.15 $13.50 $9.00 $4.25
General Partners $2,829 $6,902 $10,184 $6,789 $3,206
Total assets $20,190,066 $20,996,900 $21,434,192 $22,138,698 $22,886,318
Long term obligations $9,890,787 $9,991,674 $10,083,673 $10,166,105 $10,192,000
</TABLE>
Long term obligations become due in 1997. The Partnership intends to refinance
this debt prior to the due date, although there can be no assurance that the
Partnership will be able to do so. See Note 7 of Notes to Consolidated Financial
Statements.
<PAGE> 21
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
Management's expectations regarding future financial performance and future
events. These forward-looking statements involve significant risk and
uncertainties, including those described herein. Actual results may differ
materially from those anticipated by such forward-looking statements.
Liquidity; Capital Resources
The 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 interests in the Pines on Cheyenne Creek Joint
Venture, the Mariposa Joint Venture, the Canyon View East Joint Venture and the
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 were 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 December 31, 1996, $666,512
cumulatively was contributed to the joint ventures for this purpose.
In addition to the proceeds generated from the public offering, the Partnership
has 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 joint ventures. In 1996, the
aggregate net decrease in working capital reserves was $313,449. The decrease
resulted primarily from cash provided by operations of $1,922, contributions
from the minority interest of $6,113 and distributions of $180,311 from
Casabella, offset by $236,642 of fixed asset additions, distributions to
partners of $141,441, distributions to the minority interest of $30,795 and
principal payments on mortgage notes payable of $100,887.
In 1995, the aggregate net decrease in working capital reserves was $409,232.
The decrease resulted primarily from cash provided by operations of $399,317,
contributions from the minority interest of $58,034 and distributions of $70,472
from the Partnership, offset by $488,268 of fixed asset additions, distributions
to partners of $345,113, distributions to the minority interest of $15,490 and
principal payments on mortgage notes payable of $91,999.
The Partnership's future ability to generate cash adequate to meet its needs is
dependent primarily on the successful operations of its real estate investments.
Such ability is also dependent upon the future availability of bank borrowings,
and upon the future refinancing and sale of the Partnership's real estate
investments and the collection of any mortgage receivable which may result from
such sales. These sources of liquidity will be used by the Partnership for
payment of expenses related to real estate operations, debt service and
professional and management fees. 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 1997 are adequate to meet the
Partnership's operating cash needs in the coming year. With regard to certain
balloon payments on existing first mortgage debt on the Partnership's
properties, the General Partners do not anticipate having sufficient cash flow
to retire this debt. As these mortgage notes payable are due in fiscal 1997, the
partnership will seek to renegotiate these mortgage notes with its existing
lenders or seek new sources of financing for these properties on a long term
basis, although there can be no assurance that the Partnership will be able to
do so. The General Partners believe that existing cash flows from the properties
will be sufficient to support a level of borrowing that is at least equal to
amounts outstanding as of December 31, 1996. If the general economic climate for
real estate in these respective locations were to deteriorate resulting in an
increase in interest rates for mortgage financing or a reduction in the
availability of real estate mortgage financing or a decline in the market values
of real estate it may affect the Partnership's ability to complete these
refinancings.
Results of Operations
For the year ended December 31, 1996, the Partnership's operating results were
comprised of its share of the income (losses) from the Pines on Cheyenne Creek
Joint Venture, the Canyon View East Joint Venture and the Mariposa Joint
Ventures, and the Partnership's share of the income from Casabella Associates,
as well as partnership level interest income earned on its short-term
investments, reduced by administrative expenses. A summary of these operating
results appears below:
<TABLE>
<CAPTION>
The Canyon Partnership Consolidated
Pines Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $974,124 $712,602 $812,990 $15,808 $2,515,524
Expenses:
General and administrative 0 383 10 353,242 353,635
Operations 428,227 363,463 404,581 10,743 1,207,014
Depreciation and amortization 183,482 118,497 166,693 - 468,672
Interest 317,456 279,524 380,305 - 977,285
Equity in (income) loss from partnership - - - 68,837 68,837
---------------- ---------------- --------------- ------------- --------------
929,165 761,867 951,589 432,822 3,075,443
---------------- ---------------- --------------- ------------- --------------
Net income (loss) before minority interest 44,959 (49,265) (138,599) (417,014) (559,919)
Minority Interests' share of net loss (8,290) - - - (8,290)
---------------- ---------------- --------------- ------------- --------------
Net income (loss) $36,669 ($49,265) ($138,599) ($417,014) ($568,209)
================ ================ =============== ============= ==============
</TABLE>
For the year ended December 31, 1995, the Partnership's operating results were
comprised of its share of the income (losses) from the Pines on Cheyenne Creek
Joint Venture, the Canyon View East Joint Venture and the Mariposa Joint
Ventures, and the Partnership's share of the income from Casabella Associates,
as well as partnership level interest income earned on its short-term
investments, reduced by administrative expenses. A summary of these operating
results appears below:
<TABLE>
<CAPTION>
The Canyon Partnership Consolidated
Pines Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $1,010,840 $767,057 $892,366 $36,079 $2,706,342
Expenses:
General and Administrative 7,254 7,200 6,954 186,662 208,070
Operations 479,676 320,225 379,117 - 1,179,018
Depreciation and amortization 171,560 114,438 159,599 - 445,597
Interest 320,438 282,262 384,030 - 986,730
Equity in (income) loss from partnership - - - (13,892) (13,892)
-------------- -------------- -------------- -------------- --------------
978,928 724,125 929,700 172,770 2,805,523
-------------- -------------- -------------- -------------- --------------
Net income (loss) before minority interest 31,912 42,932 (37,334) (136,691) (99,181)
Minority Interests' share of net loss (5,885) - - - (5,885)
-------------- -------------- -------------- -------------- --------------
Net income (loss) $26,027 $42,932 ($37,334) ($136,691) ($105,066)
============== ============== ============== ============== ==============
</TABLE>
For the year ended December 31, 1994, the Partnership's operating results were
comprised of its share of the income (losses) from the Pines on Cheyenne Creek
Joint Venture, the Canyon View East Joint Venture and the Mariposa Joint
Ventures, and the Partnership's share of the income from Casabella Associates,
as well as partnership level interest income earned on its short-term
investments, reduced by administrative expenses. A summary of these operating
results appears below:
<TABLE>
<CAPTION>
The Canyon Investment Consolidated
Pines Mariposa View East Partnership Total
<S> <C> <C> <C> <C> <C>
Revenue $940,351 $731,544 $946,057 $36,804 $2,654,756
Expenses:
General and administrative 7,196 7,494 7,440 149,673 171,803
Operations 463,613 291,604 372,833 - 1,128,050
Depreciation and amortization 163,502 113,153 177,343 - 453,998
Interest 323,368 284,747 387,700 - 995,815
Equity in (income( loss from partnership (8,517) (8,517)
------------ -------------- ---------------------------------------------
957,679 696,998 945,316 141,156 2,741,149
------------ -------------- ---------------------------------------------
Net loss (17,328) 34,546 741 (104,352) (86,393)
Minority Interests' share of net loss 3,195 - - - 3,195
------------ -------------- ---------------------------------------------
Partnership's share of net loss ($14,133) $34,546 $741 ($104,352) ($83,198)
============ ============== =============================================
</TABLE>
Comparison of 1996 and 1995 Operating Results:
In accordance with its dispositions strategy, (see "Projected 1997 Operating
Results" below). the Partnership incurred one time costs associated with the
Evans Withycombe termination ($65,715), the Highland termination (($8,600) and
their related legal costs. (Refer to Note 5 of the Consolidated Financial
Statement.) In addition, the Partnership incurred one-time costs associated with
its property interior and exterior refurbishment program, the change in on-site
management following the Evans Withycombe termination, the outsourcing of much
of the Partnership's administration work to an administrative agent and the
relocation of the remaining administration, financial and investor services
functions to a more cost efficient location in Colorado Springs, Colorado.
Consequently, competitive pressures and disposition-related activities led to
rental operating expenses (including advertising, promotion, apartment locator
and concession costs) to increase by $27,996 or 2% over the prior year and total
general and administrative expenses of the Partnership increased $145,565 (70%)
over the prior year. As a result of the factors described above, distributions
to partners decreased $199,599 from $338,211 in 1995 to $138,612 in 1996.
Comparison of 1995 and 1994 Operating Results
Total revenue income increased $51,586, or 2% from the prior year. Increases in
operating revenue for Cheyenne Creek and Mariposa were partially offset by
decreased operating revenue at Canyon View East, where occupancy declined as a
result of increased competition from newly developed properties in its immediate
market area. This lower occupancy existed through most of 1995, but improved to
89% occupancy. Rental operating expenses increased $50,968, or 5% over the prior
year due primarily to increased maintenance and advertising and promotion costs.
General and administrative expenses increased $36,267 or 21%, due primarily to
increased salary expense allocations and legal costs and printing and mailing
costs associated with Richard G. Berry's withdrawal as a general partner of the
Partnership. Fixed asset purchases increased $453,809 to $488,268 from the prior
year. This increase resulted from approximately $348,000 of lobby and office
renovations at Cheyenne Creek, approximately $285,000 of which was borne by the
Partnership and the remainder by the Affiliated Partnership, and other items
such as carpet, floor tile and other replacements. As a result of the factors
described above, distributions to partners decreased $164,071 from $509,184 in
1994 to $345,113 in 1994.
Projected 1997 Operating Results:
Although there can be no assurance that the Partnership will dispose of any or
all of its properties during 1997, on March 25, 1997, the Partnership entered
into a letter of intent to sell Mariposa in Scottsdale, Arizona, to an
unaffiliated purchaser. The purchase price for Mariposa would be $5,183,000. The
letter of intent is subject to the completion of customary due diligence to the
satisfaction on the purchaser, the purchaser obtaining a financing commitment
for the purchase of the property on commercially reasonable terms and
conditions, the negotiation and execution of a definitive purchase agreement,
and certain other conditions. Accordingly, there can be no assurance that the
sale of the property will be consummated in accordance with the terms of the
letter of intent or at all. As a result of the forgoing, operating results of
the partnership may vary significantly during 1997.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Appendix A to this Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
<PAGE> 22
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors or executive officers. Information as to the
individual general partners of the Partnership and directors and executive
officers of L'Auberge Communities, Inc. (formerly Berry and Boyle Inc.), the
general partner of GP L'Auberge Communities, L.P., is set forth below.
Individual General Partners
Stephen B. Boyle, age 56, is President, Executive Officer and Director of
L'Auberge Communities, Inc. 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.
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.
GP L'Auberge Communities, L.P.
Information as to the directors and executive officers of L'Auberge Communities,
Inc., a general partner of GP L'Auberge Communities, L.P., which is a general
partner of the Partnership, and its affiliates, is set forth below. There are no
familial relationships between or among any officer and any other officer or
director.
Name Position
Stephen B. Boyle See above
Earl C. Robertson Executive Vice President and Chief Financial Officer
Donna Popke Vice President and Secretary
Earl C. Robertson, age 48, has been a senior development officer, partner and
consultant in several prominent real estate development companies for over
twenty years, including Potomac Investment Associates, developers of planned
golf course communities nationwide. Mr. Robertson was also a key member of the
management team that developed the nationally acclaimed Inn at the Market in
Seattle. He joined L'Auberge Communities, Inc. in June 1995.
Donna Popke, age 37, joined L'Auberge Communities, Inc. in July, 1995 and holds
the title of Vice President and Secretary. Prior to joining L'Auberge
Communities, Inc., Ms. Popke was employed by Olive & Associates in Denver,
Colorado in the field of public accounting for six years and later from 1989 to
1995 with David R. Sellon & Company, a Colorado Springs land development
company.
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 March 21, 1997, no person of record owned or was known by the General
Partners to own beneficially more than 5% of the Partnership's outstanding
Units.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the year ended December 31, 1996, 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 Note 9 in the Notes to 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 1996
to the General Partners $ 2,829
Allocation of Income or Loss to the General Partners ............. ($ 5,682)
Property management fees paid to an affiliate of the General Partners $ 81,243
Reimbursements to General Partners ................................... $ 83,195
<PAGE> 23
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
The Partnership has not filed, and was not required to
file, any reports on Form 8-K during the last quarter of
1996.
(c) See Exhibit Index contained herein
(d) See Page F-2.
<PAGE> 24
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 II
(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 26, 1997
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 26, 1997
--------------------
STEPHEN B. BOYLE Principal Executive
Officer of L'Auberge
Communities, Inc.
___/s/ Earl C. Robertson _ Executive Vice President and March 26, 1997
---------------------
EARL C. ROBERTSON Principal Financial Officer of
L'Auberge Communities, Inc.
<PAGE> 25
APPENDIX A
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
---------
CONSOLIDATED FINANCIAL STATEMENTS
ANNUAL REPORT TO THE SECURITIES AND EXCHANGE COMMISSION
For the year ended December 31, 1996
<PAGE> 26
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Accountants .................................... F-3
Consolidated Balance Sheets at December 31, 1996 and 1995 ............ F-4
Consolidated Statements of Operations for the years ended December 31, 1996,
1995 and 1994 ....................................................... F-5
Consolidated Statements of Partners' Equity (Deficit) for the years ended
December 31, 1996, 1995 and 1994 ..................................... F-6
Consolidated Statements of Cash Flows for the years ended December 31, 1996,
1995 and 1994 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.
<PAGE> 27
Report of Independent Accountants
To the Partners of
Development Partners II
(A Massachusetts Limited Partnership):
We have audited the accompanying consolidated balance sheets of
Development Partners II (A Massachusetts Limited Partnership) and subsidiaries
as of December 31, 1996 and 1995, and the related consolidated statements of
operations, partners' equity (deficit) and cash flows for each of the three
years in the period ended December 31, 1996. 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by the
General Partners of the Partnership, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Development Partners II (A Massachusetts Limited Partnership) and subsidiaries
as of December 31, 1996 and 1995 and the consolidated results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Denver, Colorado
February 28, 1997
<PAGE> 28
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995
---------------
ASSETS
<TABLE>
<CAPTION>
1996 1995
---- ----
Property, at cost
<S> <C> <C>
Land $5,150,693 $5,148,247
Buildings and improvements 15,989,689 15,989,689
Equipment, furnishings and fixtures 2,311,300 2,077,104
--------------- ---------------
23,451,682 23,215,040
Less accumulated depreciation (4,807,665) (4,359,624)
--------------- ---------------
18,644,017 18,855,416
Cash and cash equivalents 318,746 432,596
Short-term investments - 199,599
Deposits and prepaid expenses 2,512 2,472
Accounts receivable 350 3,300
Investment in partnership 1,210,686 1,459,833
Deferred costs - 9,300
Deferred expenses, net of accumulated
amortization of $513,417 and $492,788 13,755 34,384
--------------- ---------------
Total assets $20,190,066 $20,996,900
=============== ===============
LIABILITIES AND PARTNERS' EQUITY
Mortgage notes payable $9,890,787 $9,991,674
Accounts payable 101,716 87,245
Accrued expenses 176,354 178,844
Due to affiliates (Note 9) 17,430 11,678
Rents received in advance 2,607 -
Tenant security deposits 60,385 60,630
Minority Interest 738,457 754,849
--------------- ---------------
Total liabilities 10,987,736 11,084,920
Partners' equity 9,202,330 9,911,980
--------------- ---------------
Total liabilities and partners' equity $20,190,066 $20,996,900
=============== ===============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 29
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
-------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Revenue:
<S> <C> <C> <C>
Rental income $2,497,278 $2,668,640 $2,616,008
Interest income 18,246 37,702 38,748
--------------- --------------- ---------------
2,515,524 2,706,342 2,654,756
Operating Expenses 1,207,014 1,179,018 1,128,050
Interest 977,285 986,730 995,815
Depreciation and amortization 468,672 445,597 453,998
General and administrative 353,635 208,070 171,803
Equity in (income) loss from partnership 68,837 (13,892) (8,517)
--------------- --------------- ---------------
3,075,443 2,805,523 2,741,149
--------------- --------------- ---------------
Net loss before minority interest (559,919) (99,181) (86,393)
Minority interests' equity in
subsidiary (income) loss (8,290) (5,885) 3,195
--------------- --------------- ---------------
Net loss ($568,209) ($105,066) ($83,198)
=============== =============== ===============
Net loss allocated to:
General Partners ($5,682) ($1,051) ($832)
Per unit net loss allocated to Investor Limited Partner interest:
36,963 units issued ($15.22) ($2.81) ($2.23)
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 30
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
-------------
<TABLE>
<CAPTION>
Investor Total
General Limited Partners'
Partners Partners Equity
-------- -------- ---------
<S> <C> <C> <C>
Balance at December 31, 1993 ($59,083) $11,013,624 $10,954,541
Cash distributions (10,184) (499,000) (509,184)
Net loss (832) (82,366) (83,198)
--------------- --------------- ---------------
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 (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
=============== =============== ===============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 31
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
-------------
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
Cash flows from operating activities:
<S> <C> <C> <C>
Interest received $17,516 $50,855 $35,870
Cash received from rental income 2,499,640 2,658,246 2,604,419
General and administrative expenses (339,475) (206,486) (184,636)
Operating expense (1,198,060) (1,116,194) (1,113,523)
Interest paid (977,699) (987,104) (996,155)
--------------- --------------- ---------------
Net cash provided by operating activities 1,922 399,317 345,975
Cash flows from investing activities:
Purchase of fixed assets (236,642) (488,268) (34,459)
Proceeds from maturities of short-term investments 200,329 635,346 187,341
Distributions received from partnership 180,311 70,472 141,710
Deferred costs 9,300 15,553 (24,853)
--------------- --------------- ---------------
Net cash provided by investing activities 153,298 233,103 269,739
Cash flows from financing activities:
Distributions to partners (141,441) (345,113) (509,184)
Principal payments on mortgage notes payable (100,887) (91,999) (82,432)
Distributions paid to the minority interest (30,795) (15,490) (23,050)
Contributions from the minority interest 6,113 58,034 7,262
Cash paid for deposits (2,060) 1,415 (64)
--------------- --------------- ---------------
Net cash used by financing activities (269,070) (393,153) (607,468)
--------------- --------------- ---------------
Net increase (decrease) in cash and cash equivalents (113,850) 239,267 8,246
Cash and cash equivalents at beginning of year 432,596 193,329 185,083
--------------- --------------- ---------------
Cash and cash equivalents at end of year $318,746 $432,596 $193,329
=============== =============== ===============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 32
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
-------------
Reconciliation of net loss to net cash provided by operating activities:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net loss ($568,209) ($105,066) ($83,198)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 468,672 445,597 453,998
Equity in (income) loss from partnership 68,837 (13,892) (8,517)
Minority interests' equity in subsidiary income (loss) 8,290 5,885 (3,195)
Change in assets and liabilities net of effects of
investing and financing activities:
Decrease (increase) in accounts and interest 2,217 10,336 (2,878)
receivable
Decrease in prepaid expenses 2,020 470
Increase in accounts payable and accrued expenses 11,981 66,781 15,557
(Decrease) increase in due to affiliates 5,752 70 (14,673)
(Decrease) increase in rents received in advance 2,607 (4,988) (480)
Decrease in tenant security deposits (245) (5,406) (11,109)
--------------- --------------- ---------------
Net cash provided by operating activities $1,922 $399,317 $345,975
=============== =============== ===============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 33
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 1,907
investors at December 31, 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, 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. Refer to
Notes 5 and 6 regarding the termination of the joint ventures.
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 December 31, 1995, short term investments consist solely of various
forms of U. S. Government backed securities, with an aggregate par
value of $200,000, which mature in February, 1996. As of December 31,
1996 there were no short term investments. Investments are recorded at
amortized costs which approximates market value.
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 mortgage term using the straight-line method, which
approximates the effective interest method.
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. On
a quarterly basis, the partnership evaluates the recoverability of the
rental property using undiscounted cash flow from operations.
J. Reclassification
Certain items in the financial statements for the years ended December
31, 1995 and 1994 have been reclassified to conform to the 1996
presentation.
<PAGE> 34
3. Property, at Cost:
Property, at cost, consisted of the following at December 31, 1996:
<TABLE>
<CAPTION>
Costs
Initial Capitalized
Cost Subsequent
to to
Partnership Acquisition
---------------------------------------- ------------------------------------
Buildings Equipment, Buildings Equipment,
Property and Furnishings and Furnishings
Description Land Improvements & Fixtures Land Improvements & Fixtures
- ------------------------- --------- ----------- ----------- ------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
L'Auberge Cheyenne Creek,
a 108-unit residential
rental complex located
Colo Springs, Colo $1,865,535 $ 6,105,495 $ 657,308 $ 0 $ 47,529 $503,620
Mariposa, an 84-unit
residential rental
complex located in
Scottsdale, Arizona 1,428,347 3,979,992 375,165 0 11,153 152,340
Canyon View East, a 96-unit
residential rental
complex located in
Tucson, Arizona 1,844,761 5,801,389 500,895 12,050 44,131 121,972
---------- ----------- ---------- ------- -------- --------
$5,138,643 $15,886,876 $1,533,368 $12,050 $102,813 $777,932
========== =========== ========== ======= ======== ========
<CAPTION>
Amount at Which carried
at Close of Period
------------------------------------------------------
Buildings Equipment,
Property and Furnishings
Description Land Improvements & Fixtures Total
- ------------------------- ---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
L'Auberge Cheyenne Creek,
a 108-unit residential
rental complex located
in Colo Springs, Colo $1,865,535 $6,153,024 $1,160,928 $9,179,487
Mariposa, an 84-unit
residential rental
complex located in
Scottsdale, Arizona 1,428,347 3,991,145 527,505 5,946,997
Canyon View East, a 96-unit
residential rental
complex located in
Tucson, Arizona 1,856,811 5,845,520 622,867 8,325,198
---------- --------- ---------- -----------
$5,150,693 $15,989,689 $2,311,300 $23,451,682
========== =========== ========== ===========
</TABLE>
Depreciation expense for the years ended December 31, 1996 1995 and 1994 and
accumulated depreciation at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
Accumulated
Depreciation
Depreciation Expense December 31,
1996 1995 1996 1995
1994
<S> <C> <C> <C> <C> <C>
Buildings and improvements $397,172 $399,602 $399,602 $3,180,253 $2,783,081
Equipment, furnishings and fixtures 50,869 33,764 33,764 1,627,412 1,576,543
------------------------------------------------------------------------
$448,041 $433,366 $433,366 $4,807,665 $4,359,624
========================================================================
</TABLE>
Each of the properties is encumbered by a nonrecourse mortgage note payable (see
Note 7).
<PAGE> 35
4. Cash and Cash Equivalents:
Cash and cash equivalents at December 31, 1996 and 1995 consisted of the
following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Cash on hand .......... $107,660 $ 56,838
Certificate of deposits 211,086 100,000
Money market accounts . _______ 275,758
-------- --------
$318,746 $432,596
-------- --------
</TABLE>
5. 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 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 joint venture agreement,
through December 31, 1996, the Partnership has contributed $4,720,041 to the
Pines on Cheyenne Creek Joint Venture 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 $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 December 31, 1996, 1995 and 1994, The Pines on Cheyenne
Creek Joint Venture had net income of $44,959, $31,912 and a net loss of
$17,328, respectively.
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 DECEMBER 31, 1996
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.
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. 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 and the joint venture
agreement, through December 31, 1996, the Partnership has contributed $3,238,572
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 December 31, 1996, 1995 and 1994, the Mariposa had net loss
of $49,265, and net income of $42,932 and $34,546, respectively.
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 DECEMBER 31, 1996
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.
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 $4,857,202 to the Canyon View East Joint Venture through December
31, 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 December 31, 1996, 1995 and 1994, the Canyon View East Joint
Venture had a net loss of $138,599, $37,334, and a net income of $741,
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.
6. 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, Berry and Boyle Development Partners (A Massachusetts Limited
Partnership) ("DPI") and Berry and Boyle 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 $7,300,000 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. As this mortgage note payable is due in fiscal 1997, the Partnership
of Casabella will seek to renegotiate this mortgage note with its existing
lender or seek new sources of financing for this property on a long term basis.
The General Partners of Casabella believe that existing cash flows from the
property will be sufficient to support a level of borrowing that is at least
equal to the amount outstanding as of December 31, 1996. If the general economic
climate for real estate in this location were to deteriorate resulting in an
increase in interest rates for mortgage financing or a reduction in the
availability of real estate mortgage financing or a decline in the market values
of real estate it may affect the Partnership's ability to complete this
refinancing.
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.
During 1996, 1995 and 1994, the Partnership received $180,311, $70,472, and
$141,710, respectively, of cash distributions from Casabella Associates.
The consolidated balance sheets of Casabella Associates and Casabella at
December 31, 1996 and 1995 are summarized as follows:
<TABLE>
<CAPTION>
Assets: 1996 1995
---- ----
<S> <C> <C>
Property, plant and equipment $11,453,820 $11,297,805
Accumulated depreciation (1,996,504) (1,752,197)
----------- -----------
Property, plant and equipment, net 9,457,316 9,545,608
Other assets 294,840 889,237
----------- -----------
Total assets $9,752,156 $10,434,845
========= ==========
Liabilities and partners' equity:
Mortgage note payable $6,885,673 $6,994,549
Other liabilities 202,487 125,170
---------- ----------
Total liabilities 7,088,160 7,119,719
Partners' equity 2,663,996 3,315,126
--------- ---------
Total liabilities and partners' equity $9,752,156 $10,434,845
========= ==========
</TABLE>
The elements of the consolidated net income (loss) from Casabella Associates and
Casabella Joint Venture for the years ended December 31, 1996, 1995 and 1994 are
summarized as follows:
<TABLE>
<CAPTION>
Income: 1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Rental income $1,341,037 $1,520,905 $1,486,525
Other income 50,811 103,410 88,580
------------ ----------- ------------
1,391,848 1,624,315 1,575,105
Expenses and other deductions:
General and administrative 6,223 10,200 10,052
Operations 665,878 561,516 521,969
Depreciation and amortization 266,730 375,234 371,172
Interest 633,360 642,857 651,528
------------ ---------- -----------
1,572,191 1,589,807 1,554,721
----------- --------- ---------
Net income (loss) ($ 180,343) $ 34,508 $ 20,384
============= =========== ==========
</TABLE>
7. Mortgage Notes Payable:
All of the property owned by the Partnership is pledged as collateral for the
mortgage notes payable outstanding at December 31, 1996 and 1994 which consisted
of the following:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Cheyenne Creek . $3,158,647 $3,189,972
Mariposa ....... 2,851,944 2,881,413
Canyon View East 3,880,196 3,920,289
---------- ----------
$9,890,787 $9,991,674
========== ==========
</TABLE>
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 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 balances of the notes are payable on September 15, 1997.
As these mortgage notes payable are due in fiscal 1997, the Partnership will
seek to renegotiate these mortgage notes with its existing lenders or seek new
sources of financing for these properties on a long term basis. The General
Partners believe that existing cash flows from the properties will be sufficient
to support a level of borrowing that is at least equal to amounts outstanding as
of December 31, 1996. If the general economic climate for real estate in these
respective locations were to deteriorate resulting in an increase in interest
rates for mortgage financing or a reduction in the availability of real estate
mortgage financing or a decline in the market values of real estate it may
affect the Partnership's ability to complete these refinancings.
Interest included in Accrued expenses on the Balance Sheets of the Consolidated
Financial Statements at December 31, 1996 and 1995 consisted of the following:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Cheyenne Creek . $13,161 $13,292
Mariposa ....... 11,586 11,706
Canyon View East 15,763 15,926
------- -------
$40,510 $40,924
======= =======
</TABLE>
The aggregate principal amounts of long term borrowings due during the calendar
year 1997 is $9,890,787.
The principal balance of the mortgage notes payable appearing on the
consolidated balance sheets at December 31, 1996 and 1995 approximates the fair
value of such notes.
8. 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.
9. Related Party Transactions:
Due to affiliates at December 31, 1996 and 1995 consisted of $17,430 and
$11,678, respectively, relating to reimbursable costs due to L'Auberge
Communities, Inc., formerly Berry and Boyle Inc.
In 1996, 1995 and 1994, general and administrative expenses included $83,195,
$87,138, and $70,793, 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).
During the years ended December 31, 1996, 1995 and 1994, property management
fees of $14,590, $38,308, and $36,576, respectively were paid or accrued to
Evans Withycombe, Inc. These fees were 5% of rental revenue.
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 years ended
December 31, 1996, 1995 and 1994, property management fees of $81,243, $94,973,
and $94,060, respectively, had been paid to Residential Services - L'Auberge.
These fees were 4% of rental revenue in 1996, and 5% of rental revenue in 1995
and 1994.
<PAGE> 36
EXHIBIT INDEX
Exhibit
Number
(4)(a)(1) Amended and Restated Certificate and Agreement of Limited
Partnership (included in Partnership's Registration Statement
No. 33-10345, declared effective on February 13, 1987,
(the"Registration Statement") and incorporated herein by reference)
(4)(a)(2) Seventeenth Amendment to Amended and Restated Certificate of
Limited Partnership dated May 31, 1990 (included as an exhibit to
the Partnership's Form 10-K for the year ended December 31, 1990
and incorporated herein by reference).
(4)(b) Subscription Agreement (included as an exhibit in the Registration
Statement and incorporated herein by reference).
(10)(a) Agreement of Joint Venture of Casabella Associates dated September
27, 1990 (filed as Exhibit (10)(f) to the Form 10-K of Berry and
Boyle Development Partners for the year ended December 31, 1990,
and incorporated herein by reference).
(10)(b) Property Management Agreement between Canyon View East Joint
Venture and L'Auberge Communities Inc. dated May 15, 1996.
(10)(c) Property Management Agreement between Pines on Cheyenne Creek
Joint Venture and Berry and Boyle Residential Services dated
August 1, 1990 (included as an exhibit to the Partnership's Form
10-K for the year ended December 31, 1990, and incorporated herein
by reference).
(10)(d) Documents pertaining to the $3,252,000 permanent loan for The
Pines on Cheyenne Creek Joint Venture (included as an exhibit to
the Partnership's Form 10-K for the year ended December 31, 1990,
and incorporated herein by reference).
(10)(e) Documents pertaining to the $4,000,000 permanent loan for the
Canyon View East Joint Venture (included as an exhibit to the
Partnership's Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference).
(10)(f) Documents pertaining to the $2,940,000 permanent loan for the
Mariposa Joint Venture (included as an exhibit to the
Partnership's Form 10-K for the year ended December 31, 1990, and
incorporated herein by reference).
(10)(g) Documents pertaining to the $7,300,000 permanent loan for the
Casabella Joint Venture filed as an exhibit to the Annual Report
on Form 10K for the year ended December 31, 1992 for Berry and
Boyle Development Partners III and incorporated herein by
reference.
(10)(h) Property Management Agreement regarding Casabella between
Casabella Associates and L'Auberge Communities Inc. dated
November 1, 1996.
(10)(i) First Amendment to Joint Venture Agreement of L'Auberge Cheyenne
Creek Joint Venture and Related Assignment of Joint Venture
Interest.
(10)(j) Agreement regarding Mariposa Joint Venture.
(10)(k) Agreement regarding Casabella Joint Venture.
(27) Financial Data Schedule
<PAGE> 37
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, 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> 38
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<PAGE> 39
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS September 30,
1997 December 31,
(Unaudited) 1996
Property, at cost
<S> <C> <C>
Land $3,722,346 $5,150,693
Buildings and improvements 11,998,544 15,989,689
Equipment, furnishings and fixtures 1,842,809 2,311,300
----------------- ----------------
17,563,699 23,451,682
Less accumulated depreciation (3,887,976) (4,807,665)
----------------- ----------------
13,675,723 18,644,017
Cash and cash equivalents 2,258,571 318,746
Deposits and prepaid expenses 15,385 2,512
Accounts receivable 21,808 350
Investment in partnership 1,171,974 1,210,686
Deferred expenses, net of accumulated
amortization of $527,172 and $513,417 - 13,755
-----------------------------------
Total assets $17,143,461 $20,190,066
================= ================
LIABILITIES AND PARTNERS' EQUITY
<S> <C> <C>
Mortgage notes payable $6,980,483 $9,890,787
Accounts payable 175,279 101,716
Accrued expenses 144,287 176,354
Due to affiliates (Note 8) 3,171 17,430
Rents received in advance - 2,607
Tenant security deposits 58,125 60,385
Minority Interest 723,865 738,457
----------------- ----------------
Total liabilities 8,085,210 10,987,736
General Partner's equity (88,004) (86,563)
Limited Partner's equity 9,146,255 9,288,893
----------------- ----------------
Total liabilities and partners' equity $17,143,461 $20,190,066
================= ================
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 40
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1997 1996 1997 1996
Revenue:
<S> <C> <C> <C> <C>
Rental income 616,708 $600,522 $1,889,257 $1,873,988
Interest income 2,869 3,260 8,835 13,888
---------------- ----------------- ---------------- -----------------
619,577 603,782 1,898,092 1,887,876
Operating Expenses 357,919 285,304 947,593 858,994
Interest 257,502 244,123 742,526 734,207
Depreciation and amortization 133,162 113,894 367,500 337,164
General and administrative 54,142 71,485 155,994 276,968
Equity in (income) loss from partnership 25,495 33,768 38,711 10,870
---------------- ----------------- ---------------- -----------------
828,220 748,574 2,252,324 2,218,203
---------------- ----------------- ---------------- -----------------
Net loss before minority interest (208,643) (144,792) (354,232) (330,327)
Minority interests' equity in
subsidiary (income) loss 3,856 (1,158) 9,060 (4,965)
---------------- ----------------- ---------------- -----------------
Net loss from operations ($204,787) ($145,950) ($345,172) ($335,292)
---------------- ----------------- ---------------- -----------------
Gain from sale of property 201,093
---------------- ----------------- ---------------- -----------------
Net loss ($204,787) ($145,950) ($144,079) ($335,292)
================ ================= ================ =================
Net loss allocated to:
General Partners ($2,048) ($1,460) ($1,441) ($3,353)
Per unit net loss allocated to Investor Limited Partner interest:
36,963 units issued ($5.48) ($3.91) ($3.86) ($8.98)
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 41
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
---------------
<TABLE>
<CAPTION>
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 (1,441) (142,638) (144,079)
---------------- ----------------- ----------------
Balance at September 30, 1997 ($88,004) $9,146,255 $9,058,251
================ ================= ================
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 42
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1997 1996
Cash flows from operating activities:
<S> <C> <C>
Interest received $8,835 $10,900
Cash received from rental income 1,884,390 1,875,613
General and administrative expenses (184,920) (293,762)
Operating expense (902,506) (856,486)
Interest paid (754,112) (734,207)
----------------- ----------------
Net cash provided by operating activities 51,687 2,058
Cash flows from investing activities:
Proceeds from sale of property 5,023,278 -
Purchase of fixed assets (207,635) (146,377)
Proceeds from maturities of short-term investments - (5,450)
Distributions received from partnership - 120,946
Deposits with escrow agents (11,385) -
Deferred costs - (1,189)
----------------- ----------------
Net cash provided by investing activities 4,804,258 (32,070)
Cash flows from financing activities:
Distributions to partners (138,612)
Principal payments on mortgage notes payable (2,910,303) (74,732)
Distributions paid to the minority interest (5,532) (12,908)
Contributions from the minority interest - 6,113
Cash paid for deposits (285) (2,060)
----------------- ----------------
Net cash used by financing activities (2,916,120) (222,199)
----------------- ----------------
Net increase (decrease) in cash and cash equivalents 1,939,825 (252,211)
Cash and cash equivalents at beginning of year 318,746 432,596
----------------- ----------------
Cash and cash equivalents at end of year $2,258,571 $180,385
================= ================
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 43
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:
<TABLE>
Nine Months Ended
September 30,
1997 1996
<S> <C> <C>
Net loss ($144,079) ($335,292)
Gain from sale of property (201,093) -
----------------- ----------------
Net loss from operations (345,172) (335,292)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 367,500 337,164
Equity in (income) loss from partnership 38,711 10,870
Minority interests' equity in subsidiary income (loss) (9,060) 4,965
Change in assets and liabilities net of effects of investing and financing
activities:
Increase in accounts and interest receivable (21,458) (38)
Increase in prepaid expenses (1,203) (17,322)
Increase in accounts payable and accrued expenses 41,495 7,775
Decrease in due to affiliates (14,259) (7,689)
Decrease in rents received in advance (2,607)
(Decrease) increase in tenant security deposits (2,260) 1,625
----------------- ----------------
($293,485) ($333,234)
================= ================
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
<PAGE> 44
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 September 30, 1997.
The accompanying consolidated financial statements present the activity of the
Partnership for the nine months ended September 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> 45
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
September 30, 1997, permanent impairment conditions did not exist at
any of the Partnership's properties.
<PAGE> 46
3. Cash and Cash Equivalents:
Cash and cash equivalents at September 30, 1997, and December 31, 1996,
consisted of the following:
1997 1996
Cash on hand ............................. $2,258,571 $ 107,660
Certificate of deposit ................... 211,086
---------- ----------
$2,258,571 $ 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 September 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> 47
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 SEPTEMBER 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).
Highland may still share in the cash flow distributions or proceeds from sale if
certain performance levels are met.
For the nine months ended September 30, 1997 and 1996, L'Auberge Cheyenne Creek
had a net loss of $49,134 and a net profit of $26,923, 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 September 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 SEPTEMBER 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.
On September 30, 1997, Mariposa was sold pursuant to the terms of a Purchase and
Sale Agreement and Escrow Instructions, dated as of May 6, 1997 as amended.
Mariposa was sold to Mariposa Condominium Ventures Limited Partnership, an
Arizona limited partnership unaffiliated with the Partnership. The purchase
price for Mariposa was $5,125,000 subject to certain customary adjustments and
the repayment of mortgage financing in the amount of $2,862,140 paid at closing
utilizing a portion of proceeds from the sale.
For the nine months ended September 30, 1997 and 1996, the Mariposa had net
operating loss of $84,577 and net profit of $6,275, 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 September 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 nine months ended September 30, 1997 and 1996, the Canyon View East
Joint Venture had a net loss of $31,868 and $84,637, 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 is July 15, 1998.
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 September 30, 1997, and December 31, 1996,
which consisted of the following:
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cheyenne Creek ....................... $3,133,018 $3,158,647
Mariposa ............................. -- 2,851,944
Canyon View East ..................... 3,847,465 3,880,196
---------- ----------
$6,980,483 $9,890,787
</TABLE>
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 is September 15, 1998.
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 maturity date of the note for Canyon view East is September 15,
1998. On September 30, 1997, the $2,862,140 mortgage financing for Mariposa was
repaid in full at closing utilizing a portion of proceeds from the sale of
Mariposa.
Accrued interest at September 30, 1997, and December 31, 1996, consisted of the
following:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Cheyenne Creek ........................... $13,161 $13,161
Mariposa ................................. -- 11,586
Canyon View East ......................... 15,763 15,763
------- -------
$28,924 $40,510
</TABLE>
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, 1997 and 1996, consisted of $3,171 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 $46,096 and
$65,599, 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
nine months ended September 30, 1997 and 1996, property management fees of
$74,361 and $60,068, respectively, had been paid to Residential Services -
L'Auberge. These fees were 4% of rental revenue in 1997. During the nine months
ended September 30, 1996, property management fees of $31,737 were paid or
accrued to Evans Withycombe, Inc. These fees were 5% of rental revenue.
<PAGE> 48
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 properties, as determined by the General Partners. As of
September 30, 1997, $666,512 cumulatively was contributed to the properties for
this purpose.
On September 30, 1997, Mariposa was sold pursuant to the terms of a Purchase and
Sale Agreement and Escrow Instructions, dated as of May 6, 1997 as amended.
Mariposa was sold to Mariposa Condominium Ventures Limited Partnership, an
Arizona limited partnership unaffiliated with the Partnership. The purchase
price for Mariposa was $5,125,000 subject to certain customary adjustments and
the repayment of mortgage financing in the amount of $2,862,140 paid at closing
utilizing a portion of proceeds from the sale.
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 increase in working capital reserves was $1,939,825. The
increase resulted primarily from cash proceeds from the sale of Mariposa in the
amount of $5,023,278 less funds held in escrow in the amount of $11,385; plus
cash provided from operations of $51,687, less $207,635 of fixed asset
purchases, principal payments on mortgage notes payable of $2,910,303 and
distributions to the minority interest of $5,532.
Property Status
Canyon View East
The property was 92% occupied as of September 30, 1997, compared to 88%
approximately one year ago. At September 30, 1997 and 1996, the market rents for
the various unit types were as follows:
<TABLE>
<CAPTION>
Unit Type ............................ 1997 1996
---- ----
<S> <C> <C>
Two bedroom two bath ......................... $ 875 $ 725
Two bedroom two bath w/den ................... 1,010 815
Three bedroom two bath ....................... l,010 980
</TABLE>
<PAGE> 49
Mariposa
As described above, Mariposa was sold on September 30, 1997 to an unaffiliated
party.
The property was 87% occupied as of September 30, 1997, compared to 83%
approximately one year ago. At September 30, 1997 and 1996, the market rents for
the various unit types were as follows:
<TABLE>
<CAPTION>
Unit Type ............................ 1997 1996
---- ----
<S> <C> <C>
One bedroom one bath ......................... $ 730 $ 730
Two bedroom two bath ......................... 870 870
Two bedroom two bath den ..................... 1,065 1,040
</TABLE>
Cheyenne Creek
As of September 30, 1997, the property was 90% occupied, compared to 92%
approximately one year ago. At September 30, 1997 and 1996, the market rents for
the various unit types were as follows:
<TABLE>
<CAPTION>
Unit Type ............................ 1997 1996
---- ----
<S> <C> <C>
One bedroom den .............................. $835 $820
Two bedroom two bath ......................... 935 935
</TABLE>
Casabella
As of September 30, 1997, the property was 86% occupied, compared to 73%
approximately one year ago. At September 30, 1997 and 1996, the average monthly
rents collected for the various unit types were as follows:
<TABLE>
<CAPTION>
Unit Type ............................. 1997 1996
---- ----
<S> <C> <C>
One bedroom two bath w/den ................... $ 820 $ 820
Two bedroom two bath ......................... 940 940
Two bedroom two bath w/den ................... 1,160 1,160
</TABLE>
<PAGE> 50
Results of Operations
The Partnership's operating results for the three months ended September 30,
1997, consisted of interest income, administrative expenses, the Partnership's
share of the loss from Casabella Associates and its share of the income and
losses allocated from the joint ventures, as follows:
<TABLE>
<CAPTION>
Cheyenne Canyon Partnership Consolidated
Creek Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $228,441 $169,301 $220,368 $1,467 $619,577
Expenses:
General and administrative - - - 54,142 54,142
Operations 117,614 136,798 103,507 357,919
Depreciation and amortization 50,764 38,810 43,588 - 133,162
Interest 80,972 80,066 96,464 - 257,502
Equity in (income) loss from parntership - - - 25,495 25,495
-------------- -------------- -------------- ----------- -----------
249,350 255,674 243,559 79,637 828,220
-------------- -------------- -------------- ----------- ------------
Net income (loss) before minority (20,909) (86,373) (23,191) (78,170) (208,643)
interest
Minority Interests' share of net 3,856 - - - 3,856
loss
-------------- -------------- -------------- ----------- ------------
Net income (loss) ($17,053) ($86,373) ($23,191) ($78,170) ($204,787)
============== ============== ============== =========== ============
</TABLE>
The Partnership's operating results for the three months ended September 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:
<TABLE>
<CAPTION>
Cheyenne Canyon Partnership Consolidated
Creek Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $252,838 $154,632 $193,068 $3,244 $603,782
Expenses:
General and administrative - - - 71,485 71,485
Operations 99,610 83,438 101,531 725 285,304
Depreciation and amortization 44,465 28,843 40,586 - 113,894
Interest 79,302 69,823 94,998 - 244,123
Equity in (income) loss from - - - 33,768 33,768
partnership
------------- ---------------- --------------- ----------- ----------
223,377 182,104 237,115 105,978 748,574
------------- ---------------- --------------- ----------- -------------
Net income (loss) before minority $29,461 ($27,472) ($44,047) ($102,734) ($144,792)
interest
Minority Interests' share of net (1,158) - - - (1,158)
loss
------------- ---------------- --------------- ----------- -------------
Net income (loss) $28,303 ($27,472) ($44,047) ($102,734) ($145,950)
============= ================ =============== =========== =============
</TABLE>
The Partnership's operating results for the nine months ended September 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:
<TABLE>
<CAPTION>
Cheyenne Canyon Partnership Consolidated
Creek Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $669,832 $550,991 $671,217 $6,052 $1,898,092
Expenses:
General and administrative - - - 155,994 155,994
Operations 337,905 318,727 290,961 947,593
Depreciation and amortization 142,505 98,061 126,934 - 367,500
Interest 238,556 218,780 285,190 - 742,526
Equity in (income) loss from - - - 38,711 38,711
partnership
----------- ------------- ------------- ----------- -----------
718,966 635,568 703,085 194,705 2,252,324
----------- ------------- ------------- ------------ --------------
Net income (loss) before minority (49,134) (84,577) (31,868) (188,653) (354,232)
interest
Minority Interests' share of net 9,060 - - - 9,060
loss
----------- ------------- ------------- ------------ --------------
Net income (loss) from operations ($40,074) ($84,577) ($31,868) ($188,653) ($345,172)
----------- ------------- ------------- ------------ --------------
Gain from sale of property $201,093 201,093
----------- ------------- ------------- ------------ --------------
Net income (loss) ($40,074) $116,516 ($31,868) ($188,653) ($144,079)
=========== ============= ============= ============ ==============
</TABLE>
<PAGE> 51
The Partnership's operating results for the nine months ended September 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:
<TABLE>
<CAPTION>
Cheyenne Canyon Partnership Consolidated
Creek Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $719,614 $535,372 $620,608 $12,282 $1,887,876
Expenses:
General and administrative - 383 10 276,575 276,968
Operations 323,960 232,179 299,130 3,725 858,994
Depreciation and amortization 130,246 86,532 120,386 - 337,164
Interest 238,485 210,003 285,719 - 734,207
Equity in (income) loss from - - - 10,870 10,870
partnership
-------------- ------------- -------------- -------------- -------------
692,691 529,097 705,245 291,170 2,218,203
-------------- ------------- -------------- ------------- --------------
Net income (loss) before minority $26,923 $6,275 ($84,637) ($278,888) ($330,327)
interest
Minority Interests' share of net (4,965) - - - (4,965)
loss
-------------- ------------- -------------- ------------- --------------
Net income (loss) $21,958 $6,275 ($84,637) ($278,888) ($335,292)
============== ============= ============== ============= ==============
</TABLE>
Comparison of Operating Results for the Nine Months Ended September 30, 1997 and
1996:
Total revenue increased by $10,216 or 1%. Operating expenses increased by
$88,599 or 10% primarily due to one-time costs of preparing the properties for
disposition, including an increase in repairs, maintenance, advertising and
promotion expense. General and administrative expenses decreased by $120,974
primarily due to the Evans Withycombe termination fee of $70,715 in 1996. A
contributing factor to the additional reduction of $50,259 was due in part 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> 52
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
(A.) Exhibit - None
(B.) Report on Form 8-K, Item 2, dated September 30, 1997
filed October 13, 1997
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
November 12, 1997
<PAGE> 53
DEVELOPMENT PARTNERS II
(A MASSACHUSETTS LIMITED PARTNERSHIP)
THIS CONSENT is solicited by and on behalf of the Partnership. The
General Partners recommend a vote "FOR" the Proposal. A vote "FOR" the Proposal
also will constitute your consent to all actions necessary to consummate all
transactions with respect to the Proposal contemplated by the Consent
Solicitation.
THIS CONSENT WILL BE RECORDED IN ACCORDANCE WITH THE INSTRUCTIONS
BELOW. IF NO INSTRUCTIONS ARE INDICATED, BY YOUR SIGNATURE BELOW YOU WILL BE
DEEMED TO HAVE CONSENTED TO THE PROPOSAL AS RECOMMENDED BY THE GENERAL PARTNERS.
PLEASE MARK THE APPROPRIATE BOX:
With the General Partners' recommendation to dissolve the Partnership
and settle and close the Partnership's business and dispose of and convey the
Partnership's property as soon as practicable, consistent with obtaining
reasonable value for the properties, I vote:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
The undersigned acknowledges receipt of the Consent Solicitation dated
March 16, 1998 pertaining to the Proposal.
Dated: _______________________ ----------------------------
Signature
----------------------------
Signature (if held jointly)
----------------------------
Title
Please sign exactly as name appears hereon. When Units are held by joint
tenants, both should sign. When signing as an attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in corporate name by President or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE TO: GP L'Auberge Communities, L.P., c/o Gemisys, 7103 South
Revere Parkway, Englewood, Colorado 80112. If you have any questions, please
call THE L'AUBERGE INVESTOR SERVICES LINE at (800) 262-7778.
