SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ________________
Commission File No. 0-16456
Development Partners II (A Massachusetts Limited Partnership)
(formerly Berry and Boyle Development Partners II)
(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) 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 ___
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
---------------
<TABLE>
ASSETS
(Unaudited)
March 31, December 31,
1998 1997
---- ----
Assets held for sale/Property, at cost (Notes 9)
<S> <C> <C>
Land $3,722,346 $3,722,346
Buildings and improvements 11,998,544 11,998,544
Equipment, furnishings and fixtures 1,879,637 1,875,577
-------------- ---------------
17,600,527 17,596,467
Less accumulated depreciation and (4,842,299) (4,842,299)
impairment
-------------- ---------------
12,758,228 12,754,168
Cash and cash equivalents 451,735 469,355
Deposits and prepaid expenses 1,488 1,446
Accounts receivable 0 6,730
Investment in partnership 1,197,046 1,165,443
Deferred expenses, net of accumulated
amortization of $544,354 and $536,426 14,532 22,460
-------------- ---------------
Total assets $14,423,029 $14,419,602
============== ===============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Mortgage notes payable $6,939,120 $6,960,055
Accounts payable 51,967 89,606
Accrued expenses 125,614 137,348
Due to affiliates (Note 8) 47,979 16,787
Rents received in advance 850 850
Tenant security deposits 53,870 55,025
-------------- ---------------
Total liabilities 7,219,400 7,259,671
Minority Interest 566,731 557,555
General Partners' deficit (9,434) (11,160)
Limited Partners' equity 6,646,332 6,613,536
-------------- ---------------
Total liabilities and partners' $14,423,029 $14,419,602
equity
============== ===============
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------
Three Months
Ended
March 31,
1998 1997
Revenue:
<S> <C> <C>
Rental income $442,364 $652,246
Interest income 5,674 3,395
-------------- ---------------
448,038 655,641
Operating Expenses 186,363 298,079
Interest 171,433 242,844
Depreciation and amortization 7,928 117,171
General and administrative 70,224 45,540
Equity in income (loss) from partnership (31,604) 6,543
-------------- ---------------
404,344 710,177
-------------- ---------------
Net loss before minority interest 43,695 (54,536)
Minority interests' equity in
subsidiary (income) loss (9,172) 1,686
-------------- ---------------
Net loss $34,522 ($52,850)
============== ===============
Net income (loss) allocated to:
General Partners $690 ($528)
Basic and diluted per unit net loss allocated to Investor
Limited
Partner interest:
36,963 units issued $0.92 ($1.42)
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
---------------
Investor Total
General Limited Partners'
Partners Partners Equity
<S> <C> <C> <C>
Balance at December 31, 1996 (86,563) 9,288,893 9,202,330
Cash distributions - (1,663,335) (1,663,335)
Net loss 75,403 (1,012,022) (936,619)
--------------- -------------- ---------------
Balance at December 31, 1997 (11,160) 6,613,536 6,602,376
Cash distributions - - -
Net income (loss) 1,726 32,796 34,522
--------------- -------------- ---------------
Balance at March 31, 1998 ($9,434) $6,646,332 $6,636,898
=============== ============== ===============
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------
Three Months
Ended
March 31,
1998 1997
Cash flows from operating activities:
<S> <C> <C>
Interest received $5,674 $3,395
Cash received from rental income 441,209 648,591
General and administrative expenses (57,687) (35,917)
Operating expense (210,393) (290,733)
Interest paid (171,433) (242,844)
-------------- ---------------
Net cash (used) provided by operating 7,371 82,492
activities
Cash flows from investing activities:
Proceeds from sale of property
Capital Improvements (4,056) (51,078)
-------------- ---------------
Net cash provided by investing activities (4,056) (51,078)
Cash flows from financing activities:
Cash paid for loan refinancing (26,803)
Principal payments on mortgage notes (20,935) (5,532)
payable
-------------- ---------------
Net cash used by financing activities (20,935) (32,335)
-------------- ---------------
Net increase (decrease) in cash and cash equivalents (17,620) (921)
Cash and cash equivalents at beginning of 469,355 318,746
year
-------------- ---------------
Cash and cash equivalents at end of year $451,735 $317,825
============== ===============
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------
Reconciliation of net loss to net cash (used) provided by operating activities:
Three Months
Ended
March 31,
1998 1997
<S> <C> <C>
Net loss $34,522 ($52,850)
Adjustments to reconcile net loss to net cash (used)
provided by operating activities:
Depreciation and amortization 7,928 117,171
Equity in (income) loss from partnership (31,604) $6,543
Expenses paid with working capital
reserves of the Partnership -
Minority interests' equity in subsidiary income (loss) 9,172 (1,686)
Change in assets and liabilities net of effects of investing
and financing activities:
(Increase) decrease in accounts 6,730 (6,063)
receivable
Decrease in deposits and prepaid expenses - (1,654)
(Decrease) increase in accounts payable and accrued (49,415) (4,757)
expenses
(Decrease) increase in due to affiliates 31,192 29,443
(Decrease) increase in rents received in advance - (1,406)
Decrease in tenant security deposits (1,155) (2,249)
-------------- ---------------
Net cash (used) provided by operating $7,371 $82,492
activities
============== ===============
</TABLE>
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
----------
1. Organization of Partnership:
Development Partners II (A Massachusetts Limited Partnership) (the
"Partnership"), formerly Berry and Boyle Development Partners II, was formed on
January 9, 1987. GP L'Auberge Communities, L.P., a California Limited
Partnership, (formerly Berry and Boyle Management) and Stephen B. Boyle are the
General Partners. In September, 1995, with the consent of Limited Partners
holding a majority of the outstanding Units, as well as the consent of the
mortgage lenders for the Partnership's three properties, Richard G. Berry
resigned as a general partner of the Partnership. Except under certain limited
circumstances upon termination of the Partnership, the General Partners are not
required to make any additional capital contributions. The General Partners or
their affiliates will receive various fees for services and reimbursement for
various organizational and selling costs incurred on behalf of the Partnership.
On February 13, 1987 the Securities and Exchange Commission declared the
Partnership's public offering of up to 60,000 units of Limited Partnership
Interests at $500 per unit (the "Units") effective and the marketing and sale of
the Units commenced shortly thereafter. The initial closing of the offering took
place on June 30, 1987 at which time the holders of 5,231 Units were admitted to
the Partnership. The Partnership continued to admit subscribers monthly
thereafter until August 10, 1988 when it terminated the offering having admitted
1,918 investors acquiring 36,963 Units totaling $18,481,500. There were 1,849
investors at March 31, 1998.
The Partnership will continue until December 31, 2010, unless earlier terminated
by the sale of all, or substantially all, of the assets of the Partnership, or
as otherwise provided in the Partnership Agreement (See Note 9.)
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 4 and 5 regarding the termination of the joint ventures and sale
of Mariposa.
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. 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 mortgage term using the straight-line method, which
approximates the effective interest method.
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
In 1996, the Partnership adopted Statement of Financial Accounting
Standards No. 121 (SFAS 121), "Accounting for the Impairment of
Long-Lived Assets and Assets to be Disposed of." SFAS 121 requires that
long-lived assets be reviewed for impairment whenever events or changes
in circumstances indicate that their carrying value may not be
recoverable. The adoption of SFAS 121 had no effect on reported results
in 1996. Upon determination that a permanent impairment has occurred,
rental properties are reduced to fair value.
In the fourth quarter of 1997, the partnership recorded a charge to
operations of $861,066 related to impairment in its carrying value of
Cheyenne Creek. This impairment charge is based on the Partnership's
determination of fair market value as of the balance sheet date. The
Partnership entered into a sale agreement and is currently pursuing the
sale of Cheyenne Creek. As further discussed in Note 9, effective
December 31, 1997, the Partnership recorded its assets at the lower of
carrying value or net realizable value and has classified its
properties as Held for Sale.
I. New Accounting Standards
In 1997, the Partnership adopted Statement of Financial Accounting
Standards No. 128 (SFAS 128), "Earnings Per Share." This accounting
standard specifies new computation, presentation, and disclosure
requirements for earnings per share to be applied retroactively. Among
other things, SFAS 128 requires presentation of basic and diluted
earnings per share on the face of the income statement. The computation
of basic and diluted earnings per share was based on income available
to the Limited Partners divided by the weighted average number of units
outstanding during the period. The Partnership has no dilutive type
securities. The adoption of SFAS 128 had no effects on the per unit
results previously reported.
3. Cash and Cash Equivalents:
Cash and cash equivalents at March 31, 1998 and December 31, 1997 consisted of
the following:
1998 1997
---- ----
Cash on hand $451,735 $469,355
$451,735 $469,355
======== ========
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 Partnership holds a
majority interest in these properties and controls the operations of the joint
venture. The Mariposa joint venture was effectively terminated on December 31,
1996. Mariposa was sold on September 30, 1997.
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 and the joint venture
agreement, through March 31, 1998, the Partnership has contributed $4,720,041 to
the Pines on Cheyenne Creek Joint Venture which was used to: (1) repay a portion
of the construction loan from a third party lender, (2) pay certain costs
related to the refinancing of the permanent loan, (3) cover operating deficits
incurred during the lease up period, and (3) 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.
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 were first
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
affected by the relative balances in the individual partners' capital accounts.
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 Pines on 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 three months ended March 31, 1998, and 1997, The Pines on Cheyenne Creek
Joint Venture had a net income of $40,569 and a net loss of $7,459,
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 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 owned
100% of the underlying assets as of December 31, 1996.
The Partnership sold the Mariposa property on September 30, 1997 for a net sales
price of $5,037,000 to an unaffiliated third party. A gain on sale of
approximately $215,000 was recognized in the accompanying statement of
operations. Net proceeds from the sale of $1,663,335 were distributed to the
partners based on the terms of the original Joint Venture Agreement. This
agreement provides for EWI to receive a distribution of proceeds from sale in
the event certain performance levels are met. The property did not meet these
performance levels; as such, all proceeds were distributed to existing limited
partners. The Partnership repaid first mortgage financing in the amount of
$2,862,000 at closing utilizing a portion of the proceeds of the sale.
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 $4,857,203 to the Canyon View East
Joint Venture through March 31, 1998, 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.
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 were allocated 100% to the Partnership.
4. Joint Venture and Property Acquisitions, continued
All profits from operations were allocated to each joint venture partner in
accordance with, and to the extent of, the distribution of net cash from
operations. Any excess profits were 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.
For the three months ended March 31, 1998 and 1997, the Canyon View East Joint
Venture had net income of $26,652 and a net loss of $4,391, respectively.
5. Investment in Partnership:
On September 28, 1990, the Partnership contributed $1,800,000 to purchase an
approximate 38.3% 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.
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.
The consolidated balance sheets of Casabella Associates and Casabella Joint
Venture at March 31, 1998 and December 31, 1997, are summarized as follows:
<TABLE>
Assets: 1998 1997
---- ----
<S> <C> <C>
Property, plant and equipment $11,580,507 $11,580,507
Accumulated depreciation (2,228,967) (2,228,967)
----------- -----------
Property, plant and equipment, net 9,351,540 9,351,540
Other assets 223,730 130,537
------- -------
Total assets $9,575,270 $9,482,077
========= =========
Liabilities and partners' equity:
Mortgage note payable 6,734,895 6,766,437
Other liabilities 173,237 169,778
------- -------
Total liabilities 6,908,132 6,936,215
Partners' equity 2,667,138 2,545,862
--------- ---------
Total liabilities and partners' equity $9,575,270 $9,482,077
========= =========
The elements of the consolidated net income (loss) from Casabella Associates and
Casabella Joint Venture for the years ended March 31, 1998 and 1997are
summarized as follows:
Income: 1998 1997
---- ----
<S> <C> <C>
Rental income $411,717 $387,829
Other income 579 2,847
--- -----
412,296 390,676
Expenses and other deductions:
General and administrative 1,325 1,466
Operations 167,905 182,748
Depreciation and amortization 6,428 66,684
Interest 154,121 156,862
------- -------
329,779 407,760
------- -------
Net income (loss) $82,517 ($17,084)
======= =========
</TABLE>
6. Mortgage Notes Payable:
All of the property owned by the Partnership is pledged as collateral for the
nonrecourse mortgage notes payable outstanding at March 31, 1998 and December
31, 1997, which consisted of the following:
March 31, December 31,
1998 1997
Cheyenne Creek $3,114,838 $3,124,041
Canyon View East 3,824,282 3,836,014
--------- ---------
$6,939,120 $6,960,055
========= =========
The original maturity dates for these notes were September 15, 1997.
Cheyenne Creek
On September 10, 1997, the lender extended the terms of the Cheyenne Creek
mortgage note for a period of one year. Under the modification agreement,
monthly principal and interest payments of $29,076 and fixed interest rate of
10% remain unchanged. The terms of the agreement provided for a prepayment
penalty of .5% of the outstanding loan amount in the event that the note is paid
prior to 60 days before it becomes due. The balance of the note will be due on
September 15, 1998.
Canyon View East
On September 10, 1997, the lender extended the terms of the Canyon View East
mortgage note for a period of one year. Under the modification agreement,
monthly principal and interest payments of $35,047 and fixed interest rate of
9.75% remain unchanged. The terms of the agreement provided for a prepayment
penalty of .5% of the outstanding loan amount in the event that the note is paid
prior to 60 days before it becomes due. The balance of the note will be due on
September 15, 1998.
6. Mortgage Notes Payable, continued
Cheyenne Creek and Canyon View East:
As discussed in Note 9, the Partnership entered into a Sales Agreement for these
properties. The estimated sales price is sufficient to cover the mortgage note
balance. However, there can be no assurance that the sale of these properties
will occur.
In the event that the sales do not occur, the Partnership will seek new sources
of financing for the properties on a long term basis or seek to renegotiate the
mortgage note with its existing lender. 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 or sell the properties.
Interest included in Accrued expenses in the Consolidated Balance Sheets at
March 31, 1998 and 1996 consisted of the following:
1998 1997
---- ----
Cheyenne Creek $13,017 $13,017
Canyon View East 15,584 15,584
------ ------
$28,601 $28,601
====== ======
The principal balance of the mortgage notes payable appearing on the
consolidated balance sheets at March 31, 1998 and December 31, 1997 approximates
the fair value of such notes.
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:
L'Auberge Communities, Inc. is a General Partner of L'Auberge Communities,
which owns a 99% interest in GP L'Auberge Communities, L.P. (formerly Berry
and Boyle Management). Due to affiliates at March 31, 1998 and December 31,
1997 consisted of $47,979 and $16,787, respectively, relating to reimbursable
costs due to L'Auberge Communities, Inc.
As of March 31, 1998 and 1997, general and administrative expenses included
$19,289, and $15,067, respectively, of salary reimbursements paid to the General
Partners for certain administrative and accounting personnel who performed
services for the Partnership.
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
March 31, 1998, and 1997, property management fees of $17,702 and $25,522,
respectively, were paid to Residential Services - L'Auberge. These fees were 4%
of rental revenue.
9. Assets Held for Sale:
During the fourth quarter of 1997, the General Partners of the Partnership
committed to a plan to dispose of Pines on Cheyenne Creek in Colorado Springs,
Colorado and Canyon View East in Tucson, Arizona. On January 15, 1998 the
Partnership entered into Sales Agreements (the "Agreements") to sell the Pines
on Cheyenne Creek and Canyon View East to unaffiliated third parties. The
selling prices for the Pines on Cheyenne Creek and Canyon View East are
approximately $6,300,000 and $6,650,000, respectively. The Agreements are
subject to completion of customary due diligence to the satisfaction of the
purchaser, and the purchaser obtaining a financing commitment on commercially
reasonable terms and conditions. The Partnership expects to consummate these
sales in 1998. In addition, the sale is contingent upon the approval of the
Limited Partners. As of May 13, 1998, the Partnership has received sufficient
consents from the Limited Partners, approving the sale of the properties.
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 Purchase Agreement. On March
13, 1998, one of the co-venturers purported to exercise the right of first
refusal. The Partnership believes, and has asserted, that the purported exercise
was not in conformity with the material terms and conditions of the Canyon View
Purchase Agreement and, therefore, that the right of first refusal lapsed
without exercise. Accordingly, the Partnership is proceeding to close the sale
of Canyon View East to TRH pursuant to the Canyon View Purchase Agreement. The
co-venturer has filed a lawsuit claiming that it, not TRH, has the right to
acquire Canyon View East. The lawsuit seeks specific performance of the right of
first refusal to require the Partnership to sell the property to the co-venturer
or, if the court will not grant specific performance, monetary damages in an
amount to be proven at trial. In addition, the co-venturer has filed a lis
pendens on the property as a means of prohibiting its sale to TRH. Consistent
with the Partnerships obligation under its purchase and sale agreement with TRH,
the Partnership intends to seek to expunge the lis pendens and to defend against
the claims of the co-venturer. Although the Partnership believes that the
pending lawsuit has no merit, it could materially delay the Partnership's sale
of Canyon View East. Canyon View East will be sold together with an adjacent
property which is owned by a joint venture in which a public limited partnership
of which the General Partners or their affiliates are the general partners is
the managing venturer. Accordingly, the sale of Canyon View 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 two
joint ventures based on gross rent potential of the two properties.
As it is the intent of the General Partners to pursue the sale of these
properties, the Partnership has recorded the assets at the lower of carrying
value or net realizable value and has included these amounts as Assets Held for
Sale on the Consolidated Balance Sheets at December 31, 1997. In accordance with
SFAS 121, the Partnership has stopped depreciating these assets effective
January 1, 1998. If closing of the sales were to occur, any proceeds from sale
will be allocated to the Partners in accordance with the terms of the
Partnership Agreement and the Partnership will likely be liquidated.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning the
General Partners' expectations regarding future financial performance and future
events. These forward-looking statements involve significant risk and
uncertainties, including those described herein. Actual results may differ
materially from those anticipated by such forward-looking statements.
Liquidity; Capital Resources
The working capital reserves of the Partnership consisted of cash and cash
equivalents and short-term investments. Together these amounts provide the
Partnership with the necessary liquidity to carry on its day-to-day operations
and to make necessary contributions to the various joint ventures. At March 31,
1998, the Partnership had cash and cash equivalents of $451,735 compared with
$469,355 at December 31, 1997. The aggregate net decrease in working capital
reserves was $17,620. The decrease resulted primarily from cash provided by
operations of $7,371, offset by 20,935 of principal payments on mortgage notes
payable, and $4,056 of fixed asset additions.
Property Status
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 $3,847,465. The
Partnership also owns a majority interest in the Pines at Cheyenne Creek Joint
Venture which owns and operates L'Auberge Cheyenne Creek (formerly The Pines on
Cheyenne Creek) ("Cheyenne Creek'), a 108-unit multifamily rental property in
Colorado Springs, Colorado, subject to first mortgage financing in the original
principal amount of $3,133,018. 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. Until its sale on September 30,
1997, the Partnership owned and operated Mariposa, an 84-unit multifamily rental
property in Scottsdale, Arizona. The ownership of Mariposa was formerly
structured as a joint venture of which the Partnership owned a majority
interest. The Pines at Cheyenne Creek originally included the developer of
Cheyenne Creek as a joint venturer. With regard to the termination of the
Mariposa Joint Venture and the resignation of the developer from the Pines on
Cheyenne Creek Joint Venture, see Note 4 of Notes to Consolidated Financial
Statements. As further discussed below under "Pending Sales" and in Note 9 of
the Notes to Consolidated Financial Statements, each of the properties owned by
the Partnership or in which the Partnership owns an interest is under contract
to be sold to a purchaser unaffiliated with the General Partners.
Canyon View East
The property was 89% occupied as of March 31, 1998, compared to 95%
approximately one year ago. At March 31, 1998 and 1997, the market rents for the
various unit types were as follows:
Unit Type 1998 1997
--------- ---- ----
Two bedroom two bath $1095 $865
Three bedroom two bath 1265 980
Cheyenne Creek
As of March 31, 1998, the property was 82% occupied, compared to 84%
approximately one year ago. The market rents for the various unit types were as
follows:
Unit Type 1998 1997
--------- ---- ----
One bedroom den $900 $810
Two bedroom two bath 1050 925
Results of Operations
For the three months ended March 31, 1998, the Partnership's operating results
were comprised of its share of the income (losses) from Cheyenne Creek, the
Canyon View East Joint Venture 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 (unaudited) appears below:
<TABLE>
Cheyenne Canyon Partnership Consolidated
Creek View East Level Totals
<S> <C> <C> <C> <C>
Revenue $224,806 $217,147 $411 $442,364
5,674 $5,674
--------------- --------------- ------------ --------------
224,806 217,147 6,085 448,038
Expenses:
General and administrative - - 70,224 70,224
Operations 93,200 92,999 164 186,363
Depreciation and amortization 3,840 4,088 - 7,928
Interest 78,025 93,408 - 171,433
Equity in (income) loss from - - (31,604) (31,604)
partnership
--------------- --------------- ------------ --------------
175,065 190,495 38,784 404,344
--------------- --------------- ------------ --------------
Net income (loss) before minority 49,741 26,652 (32,699) 43,695
interest
Minority Interests' share of net loss (9,172) - - (9,172)
--------------- --------------- ------------ --------------
Net income (loss) $40,569 $26,652 ($32,699) $34,523
=============== =============== ============ ==============
</TABLE>
<PAGE>
For the three months ended March 31, 1997, 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 (unaudited) appears below:
<TABLE>
Cheyenne Canyon Partnership Consolidated
Creek Mariposa View East Level Totals
<S> <C> <C> <C> <C> <C>
Revenue $230,994 $196,812 $225,220 $2,615 $655,641
Expenses:
General and administrative - - - 45,540 45,540
Operations 115,371 89,265 93,443 - 298,079
Depreciation and amortization 45,871 29,626 41,674 - 117,171
Interest 78,897 69,453 94,494 - 242,844
Equity in (income) loss from - - - 6,543 6,543
partnership
------------ ------------ ------------- ------------- ----------------
240,139 188,344 229,611 52,083 710,177
------------ ------------ ------------- ------------- ----------------
Net income (loss) before minority (9,145) 8,468 (4,391) (49,468) (54,536)
interest
Minority Interests' share of net loss 1,686 - - - 1,686
------------ ------------ ------------- ------------- ----------------
Net income (loss) ($7,459) $8,468 ($4,391) ($49,468) ($52,850)
============ ============ ============= ============= ================
</TABLE>
Comparison of Operating Results for the Three Months Ended March 31, 1998 and
1997:
Partnership operations for the three months ended March 31, 1998 generated net
income of $34,522 compared with a net loss of $52,850 for the corresponding
period in 1997. Revenue decreased by $207,603 or 32% primarily due to the fact
that Mariposa was sold on September 30, 1997. Likewise, the operating expenses
decreased by $111,716 or 60% primarily due to the sale of Mariposa. However,
part of the reduction in operating expenses were due to lower repairs and
maintenance at Cheyenne Creek, as well as lower advertising costs for both of
the remaining properties. General and administrative expenses increased by
$24,684 or 54% primarily due to the legal costs associated with the sales
contract, as well as preparation, printing and mailing of the consent
solicitation sent to the Limited Partners for the dissolution of the
Partnership.
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1998
<PERIOD-END> Mar-31-1998
<CASH> 451,735
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 17,600,527
<DEPRECIATION> (4,842,299)
<TOTAL-ASSETS> 14,423,029
<CURRENT-LIABILITIES> 280,280
<BONDS> 6,939,120
0
0
<COMMON> 0
<OTHER-SE> 7,203,629
<TOTAL-LIABILITY-AND-EQUITY> 14,423,029
<SALES> 0
<TOTAL-REVENUES> 448,038
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 232,911
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 171,433
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,522
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
