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 September 30, 2000
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
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(State or other jurisdiction of (I.R.S.
Employer incorporation or organization)
Identification No.)
5110 Langdale Way, Colorado Springs, CO 80906
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(Address of principal executive offices) (Zip Code)
(719) 527-0544
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(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>
<TABLE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
---------------
ASSETS September 30, December 31,
2000 1999
Assets held for sale (Note 6)
<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 1,069,679 799,478
Deposits and prepaid expenses 2,662 2,514
Accounts receivable 50 5,315
--------------- ----------------
Total assets $7,613,754 $7,348,670
=============== ================
LIABILITIES AND PARTNERS' EQUITY
Accounts payable $25,804 $41,461
Accrued expenses 70,682 72,720
Due to affiliates (Note 5) 3,850 25,684
Rents received in advance 254 2,201
Tenant security deposits 13,455 13,805
--------------- ----------------
Total liabilities 114,045 155,871
General Partners' equity 2,985 1,095
Limited Partners' equity 7,496,724 7,191,704
--------------- ----------------
Total liabilities and partners' $7,613,754 $7,348,670
equity
=============== ================
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
---------------
Three Months Ended Nine Months Ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
Revenue:
<S> <C> <C> <C> <C>
Rental income $218,864 $240,090 $701,226 $687,948
Interest income 12,884 4,507 32,446 15,106
--------------- ---------------- ---------------- -------------
244,597 $703,054
231,747 733,672
Operating expenses 105,630 101,575 305,995 287,823
General and administrative 31,610 (11,008) 120,768 218,782
--------------- ---------------- ---------------- -------------
137,240 90,567 426,762 506,605
--------------- ---------------- ---------------- -------------
Net income (loss) $94,507 $154,030 $306,910 $196,449
=============== ================ ================ =============
Net income (loss) allocated to:
General Partners $1,890 $3,081 $6,138 $3,929
Basic and diluted per unit net income allocated to Investor Limited Partner
interest:
36,963 units issued $2.51 $4.08 $8.14 $5.21
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF PARTNERS' EQUITY
---------------
Investor Total
General Limited Partners'
Partners Partners Equity
<S> <C> <C> <C>
Balance at December 31, 1998 ($1,590) $6,968,357 $6,966,767
Cash distributions (943) (46,204) (47,147)
Net income 3,628 269,551 273,179
----------- --------------- ----------------
Balance at December 31, 1999 1,095 7,191,704 7,192,799
Cash distributions - - -
Net income 1,890 305,020 306,910
----------- --------------- ----------------
Balance at September 30, 2000 $2,985 $7,496,724 $7,499,709
=========== =============== ================
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------
Nine Months Ended
September 30,
2000 1999
---- ----
Cash flows from operating activities:
<S> <C> <C>
Interest received $32,447 $15,106
Cash received from rental income 698,929 684,273
General and administrative expenses (166,181) (270,011)
Operating expense (294,993) (303,398)
--------------- ----------------
Net cash provided by operating activities 270,201 125,970
--------------- ----------------
Net increase in cash and cash equivalents 270,201 79,766
Cash and cash equivalents at beginning of period 799,478 602,283
--------------- ----------------
Cash and cash equivalents at end of period $1,069,679 $682,049
=============== ================
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
---------------
Reconciliation of net income to net cash provided by operating activities:
Nine Months Ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Net income $306,910 $196,449
Adjustments to reconcile net income to net cash
provided by operating activities:
Change in assets and liabilities net of effects
of investing and financing activities: (1,444)
Increase in accounts receivable 5,265 (1,676)
Decrease (increase) in deposits and prepaid expenses (146) (27,067)
Decrease in accounts payable and accrued expenses (17,696) (36,617)
Decrease in due to affiliates (21,834) -
Decrease in rents received in advance (1,947) (3,675)
Decrease in tenant security deposits (350)
--------------- ----------------
Net cash provided by operating activities $270,201 $125,970
=============== ================
</TABLE>
<PAGE>
DEVELOPMENT PARTNERS II
(A Massachusetts Limited Partnership)
AND SUBSIDIARY
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 1,790
investors at September 30, 2000.
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 6.)
2. Significant Accounting Policies:
A. Basis of Presentation
The consolidated financial statements include the accounts of the
Partnership and its subsidiary: Canyon View East Joint Venture (Canyon
View East). All intercompany accounts and transactions have been
eliminated in consolidation.
The Partnership follows the accrual basis of accounting.
The Partnership considers itself to have been engaged in only one
industry segment, real estate.
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 40 years
Equipment, furnishings and fixtures 5-15 years
As discussed further in Note 6, 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. 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.
F. Rental Income
Leases require the payment of rent in advance, however, rental income
is recorded as earned.
G. 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 6, assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell.
3. Joint Venture and Property Acquisitions:
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.
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 September 30, 2000, 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.
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 nine months ended September 30, 2000, and 1999, the Canyon View East
Joint Venture had a net income of $395,231 and $400,125, respectively.
4. 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.
5. 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 September 30, 2000 and December 31, 1999
consisted of $3,850 and $25,684, respectively, relating to reimbursable costs
due to L'Auberge Communities, Inc.
As of September 30, 2000 and 1999, general and administrative expenses included
$29,935, and $40,752, respectively, of salary reimbursements paid to the General
Partners for certain administrative and accounting personnel who performed
services for the Partnership.
During the nine months ended September 30, 2000 and 1999, property management
fees of $28,088 and $27,041, 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.
6. 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 to sell Canyon
View East to Tucson Realty Holding Co., Inc. ("TRH"), an unaffiliated third
party, for approximately $6.6 million. The sale was approved by the Limited
Partners in May 1998.
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
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 East in exchange for a cash payment.
Following the settlement, TRH elected to withdraw from the sale agreement, with
no liability to the Partnership, because of the long delay. On March 2, 2000,
the Partnership entered into a new purchase agreement to sell Canyon View to
Tucson Canyon View LLC ("TCV"), an unaffiliated third party for approximately
$7,400,000, subject to customary adjustments. Arsenault Holdings, LLC, an
unaffiliated party ("Arsenault"), subsequently acquired TCV's rights under the
Purchase Agreement and, on June 20, 2000, deposited $1.0 million in earnest
money with the escrow agent and waived certain contingencies. On
November 13, 2000, Arsenault deposited an additional $0.5 million in earnest
money. Subject to approval by Pima County, Arizona of the final
6. Assets Held for Sale, continued:
development plat for condominium conversion of the Canyon View East property,
the Partnership anticipates that the sale of Canyon View to Arsenault will close
during the fourth quarter of 2000.
As it is the intent of the General Partners to pursue the sale of Canyon View
East, 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 No. 121, the Partnership stopped depreciating these assets effective
January 1, 1998. Had the Partnership recorded depreciation on the assets held
for sale, the depreciation expense would have been approximately $212,000 each
year for the Canyon View East property. 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 September
30, 2000, the Partnership had cash and cash equivalents of $1,069,679 compared
with $799,478 at December 31, 1999. The aggregate net increase in working
capital reserves was $270,201, which was the result from cash provided 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. As further discussed in Note 6
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 91% occupied as of September 30, 2000, compared to 91%
approximately one year ago. At September 30, 2000 and 1999, the market rents for
the various unit types were as follows:
Unit Type 2000 1999
--------- ---- ----
Two bedroom two bath $875 $875
Three bedroom two bath 1,070 1,010
Results of Operations
For the three months ended September 30, 2000, 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 appears below:
<TABLE>
Canyon Consolidated
View East Partnership Totals
----------------
<S> <C> <C> <C>
Revenue $218,864 $12,884 $231,747
Expenses:
General and administrative - 31,610 31,610
Operations 105,630 - 105,630
---------------- ---------------- ----------------
Net income (loss) $113,234 ($18,726) $94,507
================ ================ ================
For the three months ended September 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 $240,090 $4,507 $244,597
-------------- ------------ -----------------
240,090 4,507 244,597
Expenses:
General and administrative - (11,008) (11,008)
Operations 101,575 - 101,575
-------------- ------------ -----------------
Net income (loss) $138,515 $15,515 $154,030
============== ============ =================
For the nine months ended September 30, 2000, 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 appears below:
Canyon Consolidated
View East Partnership Totals
<S> <C> <C> <C>
Revenue $701,226 $32,446 $733,672
-------------- ------------ -----------------
701,226 32,446 733,672
Expenses:
General and administrative - 120,768 120,768
Operations 305,995 - 305,995
-------------- ------------ -----------------
Net income (loss) $395,231 ($88,322) $306,910
============== ============ =================
For the nine months ended September 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 $687,948 $15,106 $703,054
-------------- ------------ -----------------
687,948 15,106 703,054
Expenses:
General and administrative - 218,782 218,782
Operations 287,823 - 287,823
-------------- ------------ -----------------
Net income (loss) $400,125 ($203,676) $196,449
============== ============ =================
</TABLE>
Comparison of Operating Results for the Nine Months Ended September 30, 2000 and
1999:
Partnership operations for 2000 generated net income of $306,910 compared with
net income of $196,449 for the corresponding period in 1999. The increase in
revenue of 30,618 or 4%, was due in part to higher average occupancy levels at
Canyon View East resulting in rental revenue increase of $13,278, as well as an
increase in interest income of $17,340. General and administrative expenses
decreased by $98,041 or 45%, primarily due the reduction of legal fees and
settlement costs associated with the Canyon View East litigation in 1999.
<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: November 14, 2000
