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 June 30, 1999
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>
(Unaudited)
ASSETS June 30, December 31,
1999 1998
Assets held for sale (Note 8)
<S> <C> <C>
Land $1,856,811 $1,856,811
Buildings and improvements 5,845,520 5,845,520
Equipment, furnishings and fixtures 669,655 669,655
--------------- --------------
8,371,986 8,371,986
Less accumulated depreciation and impairment (1,830,623) (1,830,623)
--------------- --------------
6,541,363 6,541,363
Cash and cash equivalents 519,665 602,283
Accounts receivable 65,850 839
--------------- --------------
Total assets $7,127,716 $7,144,485
=============== ==============
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Accounts payable $41,384 $46,156
Accrued expenses 36,526 60,110
Due to affiliates (Note 7) 24,560 53,117
Tenant security deposits 16,060 18,335
--------------- --------------
Total liabilities 118,530 177,718
General Partners' deficit (742) (1,590)
Limited Partners' equity 7,009,928 6,968,357
--------------- --------------
Total liabilities and partners' equity $7,127,716 $7,144,485
=============== ==============
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Rental income $223,325 $368,809 $447,858 $811,173
Interest income 5,124 14,760 10,599 20,434
Loss from sale of property - (80,778) - (80,778)
--------------- --------------- -------------- ---------------
228,449 302,791 458,457 750,829
Operating Expenses 89,280 188,806 186,248 375,169
Interest - 164,078 - 335,511
Depreciation and amortization - 11,125 - 19,053
General and administrative 147,230 61,372 229,790 131,597
Equity in income from partnership (609,270) - (649,105)
--------------- --------------- -------------- ---------------
236,510 (183,889) 416,038 212,225
--------------- --------------- -------------- ---------------
Net income before minority interest (8,061) 486,680 42,419 538,604
Minority interests' equity in
subsidiary loss - 2,508 - 8,232
--------------- --------------- -------------- ---------------
Net income (loss) ($8,061) $489,188 $42,419 $546,836
=============== =============== ============== ===============
Net income allocated to:
General Partners ($81) $9,281 $848 $10,070
Basic and diluted per unit net income (loss) allocated to Investor Limited
Partner interest:
36,963 units issued ($0.22) $12.98 $1.12 $14.52
<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, 1997 ($11,160) $6,613,536 $6,602,376
Minority interest absorbed - (4,103) (4,103)
Cash distributions - (166,334) (166,334)
Net income 9,570 525,258 534,828
--------------- --------------- --------------
Balance at December 31, 1998 (1,590) 6,968,357 6,966,767
Cash distributions - - -
Net income 848 41,571 42,419
--------------- --------------- --------------
Balance at June 30, 1999 ($742) $7,009,928 $7,009,186
=============== =============== ==============
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months
Ended
June 30,
1999 1998
---- ----
Cash flows from operating activities:
<S> <C> <C>
Interest received $10,599 $20,434
Cash received from rental income 445,583 778,073
General and administrative expenses (275,921) (145,571)
Operating expense (262,879) (501,934)
Interest paid (348,528)
- -
--------------- --------------
Net cash used in operating activities (82,618) (197,526)
Cash flows from investing activities:
Proceeds from sale of property 5,671,909
Capital improvements - (81,996)
Distributions received from partnership 1,792,448
Deferred costs - (874)
--------------- --------------
Net cash provided by investing activities - 7,381,488
Cash flows from financing activities:
Principal payments on mortgage notes payable - (3,147,794)
Distributions paid to the minority interest - 7,314
Cash paid for deposits - 452
--------------- --------------
Net cash used in financing activities - (3,140,028)
--------------- --------------
Net increase (decrease) in cash and cash equivalents (82,618) 4,043,934
Cash and cash equivalents at beginning of 602,283 469,355
year
--------------- --------------
Cash and cash equivalents at end of year $519,665 $4,513,289
=============== ==============
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Reconciliation of net income to net cash used in operating activities:
Six Months
Ended
June 30,
1999 1998
<S> <C> <C>
Net income $42,419 $546,836
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization - 19,053
Loss from sale of property - 80,778
Equity in income from partnership - (649,105)
Minority interests' equity in subsidiary - (8,232)
income
Change in assets and liabilities net of effects of investing and financing
activities:
Decrease in accounts receivable (65,011) (29,031)
Decrease in accounts payable and accrued expenses (28,356) (123,612)
Decrease in due to affiliates (28,557) (1,113)
Decrease in rents received in advance - (850)
Decrease in tenant security deposits (2,275) (32,250)
--------------- --------------
Net cash provided by operating activities ($82,618) ($197,526)
=============== ==============
</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 1,824
investors at June 30, 1999.
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 8.)
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 (Cheyenne Creek), Mariposa Joint Venture (Mariposa) and Canyon
View East Joint Venture (Canyon View East). All intercompany accounts
and transactions have been eliminated in consolidation. The Partnership
accounts for its investment in Casabella Associates (Casabella)
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,
Cheyenne Creek and Casabella.
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.
2. Significant Accounting Policies, continued
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
As discussed further in Note 8, as of December 31, 1997, the
Partnership recorded its property as Assets Held for Sale on the
consolidated balance sheets. Accordingly, the Partnership stopped
depreciating these assets effective January 1, 1998.
E. Deferred Expenses
Costs of obtaining 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
The Partnership utilizes the provisions of SFAS No. 121, Accounting for
the Impairment of Long -Lived Assets and for Long-Lived Assets to be
Disposed Of, to review for impairment. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset.
If such assets are considered to be impaired, the impairment to be
recognized is measured by the amount by which the carrying amount of
the assets exceeds the fair value of the assets. As further discussed
in Note 8, assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
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 8, 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.
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. As
further discussed in Note 5, the Partnership sold Cheyenne Creek in May
1998 and recorded a loss on sale of $80,778.
3. Cash and Cash Equivalents:
Cash and cash equivalents at June 30, 1999 and December 31, 1998 consisted of
the following:
1999 1998
---- ----
Cash on hand $519,665 $602,283
4. Joint Venture and Property Acquisitions:
The Partnership 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 and Casabella were
sold in May 1998.
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 owned a majority interest in the Pines on Cheyenne Creek 4. Joint
Venture and Property Acquisitions, continued
Joint Venture and, therefore, the accounts and operations of the Pines on
Cheyenne Creek Joint Venture were consolidated into the Partnership. The
Affiliated Partnership owned an 18% interest in the Pines on Cheyenne Creek.
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 June 30, 1999, 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 (4) 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.
On May 28, 1998, Cheyenne Creek was sold pursuant to the terms of a Sale
Agreement and Escrow Instructions (the "Agreement") dated January 26, 1998, as
amended. Cheyenne Creek was sold to G&I Cheyenne Creek LLC,
4. Joint Venture and Property Acquisitions, continued
a Delaware limited liability company unaffiliated with the Partnership. The net
selling price was $6,156,249, subject to certain customary adjustments net of a
credit to the purchaser of $56,700 for capital improvements. The Joint Venture
repaid mortgage financing in the approximate amount of $3,138,795 at closing
utilizing a portion of proceeds from the sale. The Partnership recorded a loss
on sale of approximately $80,778.
Mariposa
On February 3, 1989, the Partnership acquired a joint venture interest in the
Mariposa Joint Venture which owned and operated an 84-unit residential property
located in Scottsdale, Arizona known as Mariposa. Since the Partnership owned a
majority interest in the Mariposa Joint Venture, the accounts and operations of
the Mariposa Joint Venture were consolidated into those of the Partnership. The
Partnership had been designated the managing joint venture partner of the
Mariposa Joint Venture and had 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 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 sale agreement and the joint venture
agreement, through June 30, 1999, the Partnership has contributed $3,301,020 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.
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 were allocated to each joint venture partner pro
rata in accordance with the distribution of net cash from operations for such
fiscal year.
In the case of certain capital transactions and distributions as defined in the
joint venture agreement, the allocation of related profits, losses and cash
distributions, if any, would be different than as described above and would be
affected by the relative balances in the individual partners' capital accounts.
4. Joint Venture and Property Acquisitions, continued
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.
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 June 30, 1999, 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 (4) 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.
4. Joint Venture and Property Acquisitions, continued
All losses from operations and depreciation for the Canyon View East Joint
Venture were allocated 100% to the Partnership.
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 six months ended June 30, 1999, and 1998, the Canyon View East Joint
Venture had a net income of $261,610 and $47,204, 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 was
$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 was
also the developer of the Casabella property.
On May 22, 1998, Casabella Associates sold its only material asset, Casabella, a
154-unit multi family rental
property in Scottsdale, Arizona pursuant to the terms of a Sale Agreement and
Escrow Instructions (the "Agreement") dated February 4, 1998, as amended.
Casabella was sold to Casabella Condominium Ventures Limited Partnership, a
limited partnership unaffiliated with the Partnership. The net selling price was
$11,418,702, subject to certain customary adjustments net of a credit to the
purchaser of $120,000 for capital improvements. Casabella Associates repaid
mortgage financing in the approximate amount of $6,750,400 at closing utilizing
a portion of proceeds from the sale. The net proceeds to Casabella Associates
from the sale of Casabella were approximately $4,570,300 of which the
Partnership's share was approximately $1,750,425.
Casabella Associates recognized a gain on sale of $2,066,086, of which the
Partnership's share was approximately $791,310 less the $186,300 difference
between the Partnership's carrying value of its investment in Casabella
Associates and the amount of equity in the underlying assets. EWI did not share
in the proceeds from sale of the properties since certain performance levels
were not satisfied.
5. Investment in Partnership, continued:
The consolidated balance sheets of Casabella Associates and Casabella Joint
Venture at June 30, 1999 and December 31, 1998, are summarized as follows:
<TABLE>
Assets: 1999 1998
---- ----
<S> <C> <C>
Property, plant and equipment $ - $11,580,507
Accumulated depreciation (2,228,967)
-----------
Property, plant and equipment, net 9,351,540
Other assets 87,933
Total assets $ - $9,439,473
=========
Liabilities and partners' equity:
Mortgage notes payable 6,734,895
Other liabilities 173,237
-------
Total liabilities 6,908,132
Partners' equity 2,531,341
Total liabilities and partners' equity$ - $9,439,473
=========
The elements of the consolidated net income (loss) from Casabella Associates and
Casabella Joint Venture for the six months ended June 30, 1999 and 1998 are
summarized as follows:
Income: 1999 1998
---- ----
<S> <C> <C>
Rental income $ - $640,283
Other income 23,062
Gain on sale of property 1,899,836
---------
2,563,181
Expenses and other deductions:
General and administrative 2,144
Operations 268,885
Depreciation and amortization 13,927
Interest 284,752
-------
569,708
Net income (loss) $ - $1,993,473
=========
</TABLE>
6. 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. 7. 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 June 30, 1999 and December 31, 1998
consisted of $24,560 and $53,117, respectively, relating to reimbursable costs
due to L'Auberge Communities, Inc.
As of June 30, 1999 and 1998, general and administrative expenses included
$27,556, and $38,069, respectively, of salary reimbursements paid to the General
Partners for certain administrative and accounting personnel who performed
services for the Partnership.
During the six months ended June 30, 1999 and 1998, property management fees of
$17,647 and $32,457, respectively, had been paid to Residential
Services-L'Auberge, formerly Berry and Boyle Residential Services, an affiliate
of the General Partners of the Partnership. These fees are 4% of rental revenue.
8. Assets Held for Sale:
During the fourth quarter of 1997, the General Partners of the Partnership
committed to a plan to dispose of Canyon View East in Tucson, Arizona. In
February 1998, the Partnership entered into a sales agreement (the "Sales
Agreement") to sell Canyon View East to Tucson Realty Holding Co., Inc. ("TRH"),
an unaffiliated third party, for approximately $6,648,503. The sale was approved
by the Limited Partners in May 1998.
As previously reported, the sale of Canyon View East to TRH had been delayed
because of a lawsuit filed by another party claiming that it had properly
exercised a right of first refusal to purchase Canyon View East.
On June 30, 1999 the dispute was resolved,
and all litigation terminated, through the execution of a settlement agreement
by all parties. The settlement agreement included the termination of all rights
of the holder of the right of first refusal to purchase Canyon View Apartments
in exchange for a cash payment. The Partnership's contribution, after the
receipt of an anticipated insurance reimbursement, will be $65,000.
Following the consummation of the settlement, TRH elected to withdraw
from the sale transaction with no liability to the Partnership, because of the
long delay in achieving a closing of the transaction. While there can be no
assurance, certain market conditions suggest that the Canyon View East
Apartments may be sold at a potentially higher price than the price
contemplated in the Sale Agreement. Accordingly, the General Partners intend to
reoffer Canyon View for sale in an expeditious manner.
As it is the intent of the General Partners to pursue the sale of Canyon View,
the Partnership has recorded the asset 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 effective December 31, 1997. In accordance with SFAS
121, the Partnership stopped depreciating these assets effective January 1,
1998. If closing of the sale were to occur, any proceeds from sale will be
allocated to the Partners in accordance with the terms of the Partnership
Agreement and the Partnership will likely be liquidated.
<PAGE>
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 June 30,
1999, the Partnership had cash and cash equivalents of $519,665 compared with
$602,283 at December 31, 1998. The aggregate net decrease in working capital
reserves was $82,618, which was the result from cash used by operations.
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. Until May 1998, the
Partnership owned a majority interest in two joint ventures: (1) Pines at
Cheyenne Creek Joint Venture which owned and operated L'Auberge Cheyenne Creek
(formerly The Pines on Cheyenne Creek) ("Cheyenne Creek'), a 108-unit
multifamily rental property in Colorado Springs, Colorado; and (2) Casabella
Associates which in turn, owned and operated Casabella, a 154-unit multifamily,
rental property in Scottsdale, Arizona. Cheyenne Creek and Casabella were sold
in May 1998. 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. With regard to the termination
of the Mariposa Joint Venture, see Note 4 of Notes to Consolidated Financial
Statements. As further discussed in Note 8 of the Notes to Consolidated
Financial Statements, Canyon View East is under contract to be sold to a
purchaser unaffiliated with the General Partners.
Canyon View East
The property was 93% occupied as of June 30, 1999, compared to 89% approximately
one year ago. At June 30, 1999 and 1998, the market
rents for the various unit types were as follows:
Unit Type 1999 1998
--------- ---- ----
Two bedroom two bath $875 $875
Three bedroom two bath $1010 $1010
Results of Operations
For the three months ended June 30, 1999, the Partnership's operating results
were comprised of its share of the income (losses) from the Canyon View East
Joint Venture and the partnership level interest income earned on its short-term
investments, reduced by administrative expenses. A summary of these operating
results (unaudited) appears below:
<TABLE>
Canyon Consolidated
View East Partnership Totals
<S> <C> <C> <C>
Revenue $223,325 $5,124 $228,449
-------------- ------------ -----------------
223,325 5,124 228,449
Expenses:
General and administrative - 147,230 147,230
Operations 89,280 - 89,280
Depreciation and amortization - - -
Interest - - -
Equity in (income) loss from partnership - - -
-------------- ------------ -----------------
89,280 147,230 236,510
-------------- ------------ -----------------
Net income (loss) $134,045 ($142,106) ($8,061)
============== ============ =================
For the three months ended June 30, 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:
Cheyenne Canyon Partnership Consolidated
Creek View East Level Totals
<S> <C> <C> <C> <C>
Revenue $146,926 $223,534 $13,109 $383,569
Gain (loss) from sale of property (80,778) ($80,778)
Expenses:
General and administrative - - 61,372 61,372
Operations 85,941 102,367 498 188,806
Depreciation and amortization 7,037 4,088 - 11,125
Interest 67,551 96,527 - 164,078
Equity in (income) loss from partnership - - (609,270) (609,270)
----------------- ----------------- --------------- ---------------
160,529 202,982 (547,400) (183,889)
----------------- ----------------- --------------- ---------------
Net income (loss) before minority interest (94,381) 20,552 560,509 486,680
Minority Interests' share of net loss 2,508 - - 2,508
----------------- ----------------- --------------- ---------------
Net income (loss) ($91,873) $20,552 $560,509 $489,188
================= ================= =============== ===============
For the six months ended June 30, 1999, the Partnership's operating results were
comprised of its share of the income (losses) from the Canyon View East Joint
Venture and the partnership level interest income earned on its short-term
investments, reduced by administrative expenses. A summary of these operating
results (unaudited) appears below:
Canyon Consolidated
View East Partnership Totals
<S> <C> <C> <C>
Revenue $447,858 $10,599 $458,457
-------------- ------------ -----------------
447,858 10,599 458,457
Expenses:
General and administrative - 229,790 229,790
Operations 186,248 - 186,248
Depreciation and amortization - - -
Interest - - -
Equity in (income) loss from partnership - - -
-------------- ------------ -----------------
186,248 229,790 416,038
-------------- ------------ -----------------
Net income (loss) $261,610 ($219,191) $42,419
============== ============ =================
For the six months ended June 30, 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:
Cheyenne Canyon Partnership Consolidated
Creek View East Level Totals
<S> <C> <C> <C> <C>
Revenue $371,732 $440,681 $19,194 $831,607
Gain (loss) from sale of property (80,778) ($80,778)
------------------ ----------------- ---------------- ----------------
290,954 440,681 19,194 750,829
Expenses:
General and administrative - - 131,597 131,597
Operations 179,141 195,366 662 375,169
Depreciation and amortization 10,877 8,176 - 19,053
Interest 145,576 189,935 - 335,511
Equity in (income) loss from partnership - - (649,105) (649,105)
------------------ ----------------- ---------------- ----------------
335,594 393,477 (516,846) 212,225
------------------ ----------------- ---------------- ----------------
Net income (loss) before minority interest (44,640) 47,204 536,040 538,604
Minority Interests' share of net loss 8,232 - - 8,232
------------------ ----------------- ---------------- ----------------
Net income (loss) ($36,408) $47,204 $536,040 $546,836
================== ================= ================ ================
</TABLE>
Comparison of Operating Results for the Six Months Ended June 30, 1999 and 1998:
Partnership operations for the six months ended June 30, 1999 generated net
income of $42,419 compared with a net income of $546,836 for the corresponding
period in 1998. Revenue decreased
by $292,372 or 39% primarily due to the fact that Cheyenne Creek was sold on May
28, 1998. Likewise, the operating expenses decreased by $188,921 or 50%
primarily due to the sale of Cheyenne Creek. General and administrative expenses
increased by $98,193 or 43%, due to the $65,000 payment for the Canyon View
litigation settlement, as well as an increase in legal costs of $56,482, offset
by a $23,289 reduction in expenses including professional fees associated with
the sale of the properties in 1998, as well as accounting fees and investor
services.
Year 2000 Issues
The Partnership's management has addressed the Year 2000 issue of its management
information systems and financial reporting systems.
The remaining real-estate asset of the Partnership is Canyon View, a 168-unit
multi-family residential property. Canyon View's management information system
is AMSI and is already Year 2000 compliant.
The Partnership's only mission critical system is its financial reporting
software which is currently maintained on the Platinum accounting software
system, which has not been updated to handle the Year 2000 date change. Because
the Partnership intends to sell its remaining property, it is anticipated to be
completely liquidated by the end of 1999 and the year 2000 issue will not
materially affect the results of operations or financial condition of the
Partnership. However, if any financial information for the Partnership needs to
be maintained into the year 2000, the Partnership's management has already
purchased AMSI's financial reporting system, which is Year 2000 compliant. The
financial records would be transferred to the AMSI accounting software prior to
the end of 1999.
The accounting systems are run on a Novell network, which has been upgraded for
compliance with the Year 2000. The Partnership's share of the cost of this
upgrade approximately $595.
Management anticipates that all essential functions relative to maintaining the
Partnership, if any remain at that time, will be operational and the costs
associated with Year 2000 compliance will not have a material impact on the
Partnership.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings
Response: None
ITEM 2. Changes in Securities
Response: None
ITEM 3. Defaults Upon Senior Securities
Response: None
ITEM 4. Submission of Matters to a Vote of Security Holders
Response: None
ITEM 5. Other Information
ITEM 6. Exhibits and Reports on Form 8-K
Response: None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
By: GP L'Auberge Communities, L.P., A California Limited Partnership,
General Partner
By: L'Auberge Communities, Inc., its General Partner
By: ____/s/ Stephen B. Boyle________________
Stephen B. Boyle, President
Date: August 12, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Jun-30-1999
<CASH> 519,665
<SECURITIES> 0
<RECEIVABLES> 65,850
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 8,371,986
<DEPRECIATION> (1,830,623)
<TOTAL-ASSETS> 7,127,716
<CURRENT-LIABILITIES> 118,530
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 7,009,186
<TOTAL-LIABILITY-AND-EQUITY> 7,127,716
<SALES> 0
<TOTAL-REVENUES> 458,457
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 416,038
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 42,419
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
