UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 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, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission File Number 33-24129
Historic Preservation Properties 1989 Limited Partnership
(Exact name of registrant as specified in its charter)
Delaware 04-3021042
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
Batterymarch Park II, Quincy, Massachusetts 02169
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 472-1000
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 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
Voting stock held by non-affiliates of the registrant: Not
Applicable.
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
FORM 10-Q
MARCH 31, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Partners' Equity (Deficiency) 5
Statements of Cash Flows 6
Notes to Financial Statements 7-13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-16
PART II - OTHER INFORMATION 17
Signatures 18
2
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
BALANCE SHEETS
MARCH 31, 1997 AND DECEMBER 31, 1996
1997 1996
(Unaudited)
ASSETS
INVESTMENTS IN
INVESTEE ENTITIES $ 4,049,926 $ 4,097,336
Less reserve for realization
of investments in Investee Entities (3,469,267) (3,469,267)
_____________ _____________
580,659 628,069
CASH AND CASH EQUIVALENTS 170,229 163,316
OTHER ASSETS 75,155 101,155
_____________ _____________
$ 826,043 $ 892,540
============= =============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable $ 5,215 $ 3,734
Accrued expenses and other liabilities 22,250 42,110
____________ _____________
Total liabilities 27,465 45,844
____________ _____________
COMMITMENTS AND CONTINGENCIES
PARTNERS' EQUITY:
Limited Partners' Equity-Units of Investor Limited
Partnership Interest, $1,000 stated value
per Unit-Issued and outstanding
26,588 units 1,021,928 1,069,565
General Partner's equity (deficiency) (223,350) (222,869)
_____________ ___________
Total partners' equity 798,578 846,696
_____________ ___________
$ 826,043 $ 892,540
============== ===========
The accompanying notes are an integral part of these financial
statements.
3
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
REVENUES:
Rental income $ - $ 533,027
Interest and other income 2,276 12,347
____________ ____________
2,276 545,374
____________ ____________
EXPENSES:
Operating and administrative 32,344 36,863
Professional fees 9,500 14,895
Depreciation and amortization - 124,804
Property operating expenses
Payroll services - 52,597
Utilities - 84,691
Real estate taxes - 85,698
Other operating - 87,266
___________ ___________
41,844 486,814
___________ ___________
(39,568) 58,560
PROVISION FOR IMPAIRMENT OF REAL ESTATE AT
TRANSFER OF OWNERSHIP INTEREST IN REAL
ESTATE TO INVESTEE ENTITY - (8,437,963)
____________ ___________
LOSS FROM OPERATIONS (39,568) (8,379,403)
INTEREST EXPENSE (140) (507,513)
EQUITY IN INCOME (LOSS) OF INVESTEE ENTITY (8,410) 6,970
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT - 9,182,017
___________ ___________
NET INCOME (LOSS) $ (48,118) $ 302,071
___________ ___________
NET INCOME (LOSS) ALLOCATED
TO GENERAL PARTNER $ (481) $ 3,021
___________ ___________
NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $ (47,637) $ 299,050
___________ __________
NET INCOME (LOSS) PER UNIT OF INVESTOR
LIMITED PARTNERSHIP INTEREST, BASED ON
26,588 UNITS OUTSTANDING $ (1.79) $ 11.25
___________ __________
The accompanying notes are an integral part of these financial
statements.
4
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIENCY)
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
<TABLE>
<CAPTION>
Units of
Investor Investor
Limited Limited General
Partnership Partners' Partner's
Interest Equity (Deficiency) Total
<S> <C> <C> <C> <C>
BALANCE, December 31, 1995 26,588 $ 600,455 $ (227,607) $ 372,848
Net loss - 469,110 4,738 473,848
_________ ___________ ______________ _________
BALANCE, December 31, 1996 26,588 1,069,565 (222,869) 846,696
Net income - (47,637) (481) (48,118)
_________ ___________ ______________ _________
BALANCE, March 31, 1997 26,588 $ 1,021,928 $ (223,350) $798,578
_________ ___________ ______________ _________
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996
(UNAUDITED)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $(48,118) $ 302,071
Adjustments to reconcile net income
(loss) to net cash provided by
(used in) operating activities:
Depreciation and amortization - 124,804
Amortization of discount
on mortgage payable - 233,893
Provision for impairment of real
estate at transfer of
ownership interest in real estate
to investee entity - 8,437,963
Extraordinary gain on
extinguishment of debt - (9,182,017)
Deferred interest expense added to
the principal of mortgage payable - 78,237
Equity in (income) loss in
investee entity 8,410 (6,970)
Decrease (increase) in other assets 26,000 (14,227)
Increase (decrease) in accounts
payable 1,481 (2,508)
Increase (decrease) in accrued
expenses and other liabilities (19,860) 73,550
__________ _________
Net cash provided by (used in)
operating activities (32,087) 44,796
__________ _________
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from investee entity 39,000 -
Purchase of furniture and equipment (2,694)
Cash payment at transfer of ownership
interest in investment in real
estate to investee entity - (679,567)
_________ _________
Net cash provided by (used in)
investing activities 39,000 (682,261)
_________ _________
NET INCREASE (DECREASE) IN CASH 6,913 (637,465)
CASH, BEGINNING OF PERIOD 163,316 788,602
_________ _________
CASH, END OF PERIOD $170,229 $151,137
_________ _________
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest $ - $169,535
_________ _________
The accompanying notes are an integral part of these financial statements.
6
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(1) Organization and General Partner - BHP
Historic Preservation Properties 1989 Limited Partnership (HPP'89) was
formed on September 1, 1988 under the Delaware Revised Uniform Limited
Partnership Act. The purpose of HPP'89 is to invest in a diversified
portfolio of real properties, for which certain costs of rehabilitation
have qualified for rehabilitation tax credits (Rehabilitation Tax Credits).
The general partner of HPP'89 is Boston Historic Partners Limited
Partnership (BHP), a Massachusetts limited partnership. BHP was formed in
November 1986 for the purpose of organizing, syndicating and managing
publicly offered real estate limited partnerships (Public Rehabilitation
Partnerships). As of March 31, 1997, BHP had established three such
partnerships, including HPP'89.
(2) Basis of Presentation
The accompanying unaudited financial statements of HPP'89 have been
prepared in accordance with generally accepted accounting principles for
interim financial information and generally with instructions to Form 10-Q
and article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included. Operating
results for the three months ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December
31, 1997. For further information, refer to the financial statements and
footnotes thereto included in the Annual Report on Form 10-K for the year
ended December 31, 1996 for HPP'89, as filed with the Securities and
Exchange Commission.
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies
During 1989, HPP'89 acquired general partnership interests in three
Investee Entities, as well as a direct interest in a property located in
St. Paul, Minnesota. Each such Investee Entity placed a property in
service in December 1989 and commenced initial leasing activity.
As discussed below, in March 1996, HPP'89 contributed land, building
and improvements and furniture and equipment related to its property
located in St. Paul, Minnesota (the Cosmopolitan Building), and certain
other assets and liabilities, to a limited liability company for a 50%
ownership interest in the Investee Entity.
HPP'89's current allocable percentage of operating income and/or
losses in the Investee Entities ranges from 50% to 99%. Each of the
Investee Entities' agreements is different but, in general, provides for a
sharing of management duties and decisions among HPP'89 and the respective
local general partners or other managing members, and certain priorities to
HPP'89 with respect to return on and return of invested capital.
Significant Investee Entity decisions require the approval of both HPP'89
and the local general partners or other managing members. In addition,
each Investee Entity has entered into various agreements with its local
general partners or members, or their affiliates, to provide development,
management and other services, for which the local general partners or
other members (or their affiliates), are paid fees by the respective
Investee Entity.
Following is summary of information regarding the Investee Entities
and HPP'89's investments therein:
Jenkins Court Associates Limited Partnership (Jenkins Court) is a
Delaware limited partnership formed on December 20, 1988 to acquire,
construct, rehabilitate, operate and manage a 144,000 net rentable square
foot five-story building and 30,000 net rentable square feet of new retail
space, including storage areas and parking facilities, located at Old York
Road and Rydal Road, Jenkintown Borough, Pennsylvania.
HPP'89 contributed $6,563,064 through the date of Jenkins Court's
Chapter 11 filing (see below) to the capital of Jenkins Court and had a
general partnership interest therein. HPP'89's investment in Jenkins Court
represented approximately 36% of the aggregate amount which HPP'89
originally contributed to the capital of its three Investee Entities
acquired during 1989 and to purchase its direct interest in the
Cosmopolitan Building.
Due to slow leasing activity, Jenkins Court had difficulty making debt
service payments on its construction loan since the origin of its loan. In
July 1992, Jenkins Court and the lender entered into an agreement by which
the construction loan was bifurcated into two notes and a substantial
amount of accrued interest, late fees and extension fees was forgiven. In
June 1993, the lender extended the maturity date of the notes to June 15,
1994.
7
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
Management of Jenkins Court was negotiating with the lender to extend
the notes to June 15, 1995. On September 30, 1994, the lender sold the
notes to a real estate investment entity, who became the new holder of the
notes. Management of Jenkins Court entered negotiations with the new holder
to extend or restructure the notes. On November 23, 1994, the new holder
presented a demand for payment in full of the balance of the notes and accrued
interest thereon. On November 23, 1994, Jenkins Court filed a petition for
relief under Chapter 11 of the federal bankruptcy laws in United States
Bankruptcy Court for the jurisdiction of the Eastern District of
Pennsylvania. Under Chapter 11, certain claims against the Jenkins Court in
existence prior to the filing of the petition for relief under federal
bankruptcy laws were stayed while Jenkins Court continued business
operations as Debtor-in-Possession. Although the acceptance of a plan of
reorganization through the bankruptcy proceeding was highly unlikely,
Jenkins Court had achieved a short-term goal of maximizing the vesting of
the majority of its remaining tax credits on June 30, 1995.
On August 31, 1995, Jenkins Court and the mortgage holder entered into
a settlement agreement to resolve the bankruptcy litigation. As part of the
settlement agreement, Jenkins Court transferred the deed and title to the
property to the mortgage holder in lieu of foreclosure proceedings. The
mortgage holder agreed to release Jenkins Court and its guarantors for the
entire indebtedness and Jenkins Court received $25,000 to pay certain
professional fees incurred during the bankruptcy proceedings.
Rehabilitation Tax Credits generated by Jenkins Court and previously
allocated to HPP'89's Limited Partner totaled $2,799,919. The transfer of
deed and title of the property to the mortgage holder resulted in a
recapture of Rehabilitation Tax Credits in 1995 of $42,229 (unaudited) to
HPP'89, of which $41,807 (unaudited) was allocated to the Limited Partners
of HPP'89. Tax credits allocated to the Limited Partners of HPP'89 totaling
$2,758,113 (unaudited) were vested on or before June 15, 1995. Therefore,
98.5% (unaudited) of the Limited Partners' tax credits were vested prior to
the loss of the property.
Although Jenkins Court no longer owns its investment property and no
longer has property operations after August 31, 1995, the Jenkins Court
partnership will remain in existence until the resolution of certain
partnership assets and liabilities. Partnership assets include
approximately $312,000 of unsecured receivables from the developer and its
affiliates which have been fully reserved for as of December 31, 1996;
partnership liabilities include approximately $94,000 of trade payables
which have been fully reserved for as of December 31, 1996 since HPP'89
does not believe such amount will be recourse to HPP'89, as well as a
$250,000 default loan and accrued interest thereon which had been provided
by HPP'89 and secured by the developer's interest in an unaffiliated
limited partnership.
Since the fourth quarter of 1990, HPP'89 had reserved against its
investment in Jenkins Court, reducing such investment to zero due to the
substantial doubt that Jenkins Court would continue as a going concern. Due
to Jenkins Court's foreclosure in 1995, HPP'89's investment in Jenkins
Court and its corresponding reserve, both totaling $5,471,055, were
eliminated from the balance sheet as of December 31, 1995.
402 Julia Street Associates Limited Partnership (402 Julia) is a
Delaware limited partnership formed on July 25, 1989 to acquire, construct,
rehabilitate, operate and manage a 19,000 square foot site and the building
situated thereon and to rehabilitate the building into 24 residential units
and approximately 3,500 net rentable square feet of commercial space
located thereon at 402 Julia Street, New Orleans, Louisiana. At March 31,
1997, 402 Julia had leased 100% of its residential units and commercial
space.
HPP'89 originally contributed $775,000 to the capital of 402 Julia and
owns a general partnership interest therein. HPP'89's original investment
in 402 Julia represented approximately 4% of the aggregate amount which
HPP'89 has contributed to the capital of its three Investee Entities
acquired in 1989 and to purchase its direct interest in the Cosmopolitan
Building.
Rehabilitation Tax Credits generated by 402 Julia and previously
allocated to HPP'89's Limited Partners totaled $248,796 since inception.
As of March 1, 1995, 100% of these credits were fully vested.
On September 16, 1993, HPP'89 sold one-third of its general
partnership interest in 402 Julia to the developer general partner for
$185,000. HPP'89's percentage of interest in 402 Julia was thereby reduced
from 98% to 65%. The terms of the sale required an initial payment of
$100,000, which was received in September 1993, and requires annual
payments of $3,500 through 2016 and a final payment of $4,500 in 2017. A
total of $74,500 remains uncollected as of March 31, 1997 and is secured by
the interest sold to the developer general partner.
8
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
For the three months ended March 31, 1997, HPP'89 recorded net income
of $2,281 as well as amortization of $813, from 402 Julia.
Portland Lofts Associates Limited Partnership (Portland Lofts) is a
Delaware limited partnership formed on August 8, 1989 to acquire,
construct, rehabilitate, operate and manage three buildings containing 107
residential units including ground floor space useable as either commercial
space or as home/studio space for artists, located at 555 Northwest Park
Avenue in Portland, Oregon. At March 31, 1997, Portland Lofts had leased
approximately 88% of its residential units and approximately 81% of its net
rentable commercial space resulting in a combined occupancy of 86% for the
property.
HPP'89 contributed $3,820,000 through March 31, 1997 to the capital of
Portland Lofts and owns a general partnership interest therein. HPP'89's
investment in Portland Lofts represents approximately 21% of the aggregate
amount which HPP'89 originally contributed to the capital of its three
Investee Entities acquired in 1989 and to purchase its direct interest in
the Cosmopolitan Building.
Rehabilitation Tax Credits generated by Portland Lofts and allocated
to HPP'89's Limited Partners totaled $1,775,571 since inception. As of
April 1, 1996, 100% of these tax credit were fully vested.
On June 20, 1996, Portland Lofts issued a promissory mortgage note to
a bank in the amount of $5,625,000 and a promissory note to one of its
general partners in the amount of $340,000 to provide sufficient funds to
pay in full the previous mortgage holder an agreed upon settlement amount
of $5,400,000 for all outstanding debt, as well as a $400,000 note payable
to a separate lender, and all related closing costs. The transaction
resulted in an extraordinary gain on extinguishment of debt of $1,656,579.
In 1990, HPP'89 had reserved against its investment in Portland Lofts
reducing such investment to zero due to the substantial doubt that Portland
Lofts may not be able to continue as a going concern. Due to the debt
settlement and refinancing completed in June 1996, Portland Lofts is
expected to continue as a going concern. Generally, under the equity method
of accounting, an investment may not be carried below zero. Accordingly,
since the Portland Lofts Investment was fully reserved for, HPP'89 had
cumulative unrecorded losses of $1,325,926 at December 31, 1995.
Principally a result of the extraordinary gain on extinguishment of debt,
Portland Lofts generated net income of $1,547,514 for the year ended
December 31, 1996 of which HPP'89 has been allocated $1,532,039.
Consequently, in 1996, HPP'89 was able to recover all of its cumulative
unrecorded losses from Portland Lofts and recognize income in equity from
its investment in Portland Lofts. For the three months ended March 31,
1997, HPP'89 recorded a net loss of $35,498 and cash distributions of
$39,000 from Portland Lofts.
The Cosmopolitan at Mears Park, LLC (TCAMP) On December 18, 1989,
HPP'89 acquired the Cosmopolitan Building containing 255 residential units
and approximately 2,200 square feet of commercial space. The building was
renovated, and certain renovation costs qualified for Rehabilitation Tax
Credits. HPP'89 purchased the Cosmopolitan Building for one dollar and
assumed mortgage indebtedness with a face value of $22,500,000. In
accordance with the terms of the Purchase and Sale Agreement, HPP'89 paid
$5,000,000 at the closing which was used to repay a portion of the
outstanding mortgage loan principal.
The Cosmopolitan Building was originally recorded at the net purchase
price of the net indebtedness assumed by HPP'89 plus the amount paid at the
closing. Subsequent improvements were recorded at cost. HPP'89's
investment in The Cosmopolitan Building represented approximately 39% of
the aggregate amount which HPP'89 originally contributed to the capital of
its three Investee Entities acquired in 1989 and to purchase its direct
interest in the Cosmopolitan Building.
Rehabilitation Tax Credits generated by the purchase of the
Cosmopolitan Building and previously allocated to HPP'89's Limited Partners
totaled $4,307,491 since inception. As of December 1, 1994, 100% of these
tax credits were fully vested.
Effective March 15, 1996, HPP'89 contributed the Cosmopolitan
Building, and certain other assets and liabilities, to TCAMP (a Delaware
limited liability company) for a 50% ownership interest. Concurrently,
another member contributed $650,000 cash to TCAMP for a 50% ownership
interest. Simultaneously, TCAMP issued a mortgage note in the amount of
$7,000,000, the proceeds of which along with the $650,000 contributed cash
were used to settle in full HPP'89's mortgage note payable related to the
Cosmopolitan Building. The fair value of the Cosmopolitan Building and
other assets contributed by HPP'89 approximated the fair value of
liabilities transferred to TCAMP by HPP'89 and the amount paid by TCAMP to
settle in full HPP'89's mortgage note payable related to the Cosmopolitan
Building. This transaction resulted in a provision for impairment of real
estate of $8,437,963 to recognize a reduction to fair value at the date of
contribution to TCAMP and an extraordinary gain on debt extinguishment of
$9,182,017 to recognize the difference between the amount outstanding under
the mortgage payable and the amount accepted by the lender from TCAMP in
full settlement.
9
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
Distributions from TCAMP to HPP'89 and the other members are subject to the
order of distributions as specified in the Operating Agreement of TCAMP.
To the extent that HPP'89 accumulates operating reserve amounts greater
than $140,000 at the end of any fiscal year, HPP'89 is required to
contribute to TCAMP, such excess amounts as additional capital
contributions.
For the three months ended March 31, 1997, HPP'89 recorded net income
of $25,620 from TCAMP. Distributions in excess of net income and HPP'89's
original equity investment totaling $65,866 were recorded as equity income
from Investee Entities for the year ended December 31, 1996.
HPP'89's investments in the Investee Entities at March 31, 1997 and
December 31, 1996 are summarized as follows:
Cumulative: 1997 1996
(Unaudited) (Audited)
Investments and advances made in
cash $ 4,845,000 $ 4,845,000
Evaluation and acquisition costs 835,709 835,709
Interest capitalization and other 39,615 39,615
costs
Equity in losses of Investee (1,221,541) (1,213,944)
Partnerships
Reserves for realization of (3,469,267) (3,469,267)
investments
Amortization of certain costs (44,037) (43,224)
Distributions received from Investee
Entities (163,200) (124,200)
Sale of one third interest of
Investee Partnership (241,620) (241,620)
_____________ _____________
$ 580,659 $ 628,069
____________ _____________
The above summary of HPP'89's investments in Investee Entities does
not include the investment in and accumulated activities of Jenkins Court.
The equity in loss of Investee Entities reflected in the accompanying
statements of operations includes net allocated loss of $7,597 (unaudited)
for the three months ended March 31, 1997, and annual amortization of
certain costs of $813 for the three months ended March 31, 1997.
Summary combined balance sheets of the four Investee Entities as of
March 31, 1997 and December 31, 1996, as well as summary combined
statements of operations for the three months ended March 31, 1997 and 1996
are as follows. Certain balances for 1996 have been reclassified to
conform to their 1997 presentation.
COMBINED BALANCE SHEETS
ASSETS
1997 1996
(Unaudited) (Audited)
Buildings and improvements, (net of
accumulated depreciation $2,534,904,
1997; $2,350,515, 1996) 16,255,192 16,382,387
Land 2,041,326 2,041,326
Other assets (net of accumulated
amortization $ 50,727, 1997;
and $47,543,1996) 445,513 711,942
Cash 475,232 296,895
____________ ____________
Total assets $ 19,217,263 $ 19,432,550
____________ ____________
10
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
LIABILITIES AND PARTNERS' EQUITY
1997 1996
(Unaudited) (Audited)
Liabilities:
Mortgage and notes payable 13,528,187 13,564,967
Other liabilities 817,670 743,804
___________ ____________
Total liabilities 14,345,857 14,308,771
___________ ____________
Partners' equity:
HPP'89 3,593,708 3,640,377
Other partners 1,277,698 1,483,402
----------- ------------
Total partners' equity 4,871,406 5,123,779
----------- ------------
Total liabilities and partners' equity $19,217,263 $19,432,550
=========== ===========
Members' equity in TCAMP has been classified as partners' equity in the
combined balance sheets.
COMBINED STATEMENTS OF OPERATIONS
1997 1996
(Unaudited) (Unaudited)
Revenue:
Rental revenue 896,601 354,982
Interest and other income 13,719 11,220
---------- -----------
910, 320 366,202
Expenses:
Interest expense 293,376 189,050
Depreciation and amortization 152,037 85,331
Operating expenses 446,032 105,677
---------- -----------
891,445 380,058
---------- -----------
Net income (loss) 18,875 (13,856)
---------- -----------
Net income (loss) allocated to HPP'89 (7,598) (17,729)
Net income allocated to ---------- -----------
other partners 26,473 3,873
========== ===========
Operations of the Cosmopolitan Building are included in the Partnership's
Statements of Operations for the quarter ending March 31, 1997.
11
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(4) Mortgage Payable and Restricted Cash
The mortgage HPP'89 assumed relating to its purchase of the
Cosmopolitan Building had an original maturity date of December 18, 1999
and a contract interest rate of 7%.
In December 1992, the Cosmopolitan's original mortgage lender was
purchased by Mellon Bank, N.A., referred to as the holder. The holder, as
of December 31, 1995, continued to service the mortgage loan and hold
escrowed funds.
In accordance with the terms of the original mortgage agreement
related to the Cosmopolitan, HPP'89 was required to establish an interest
bearing operating account (Operating Account) with the mortgage lender for
the Cosmopolitan in the initial amount of $1,000,000 to be utilized for
operating deficit and certain property expenditures. An additional
$1,000,000 was added to this account on January 15, 1990.
On January 5, 1995, HPP'89 consummated the Second Amendment to the
Loan Agreement (Second Amendment) with the holder by which HPP'89 received
an option to buy the mortgage note for the fair market value of the
property. In exchange, HPP'89 paid down approximately $1,311,000 from the
Operating Account to the outstanding mortgage balance, and the maturity
date of the note was reduced from December 18, 1999 to December 18, 1996.
Also, as part of the Second Amendment, HPP'89 received payment of
approximately $286,000 of interest that had been earned in the Operating
Account. As discussed below, HPP'89 was paid the $123,000 remaining in
the Operating Account on March 15, 1996, the date of purchase of the
mortgage note.
For financial reporting purposes, the original discount on the
mortgage note payable was recorded to reflect an effective interest rate of
10% over the life of the loan. Due to the advancement of the maturity date,
as discussed below, the effective interest rate was amended on January 1,
1995 to 14.04% to amortize the remaining discount over the remaining life
of the mortgage note. Amortization of the discount amounted to $233,893 for
1996 (unaudited), and as recorded as interest expense.
Effective March 15, 1996, HPP'89 contributed the Cosmopolitan
Building, and certain other assets and liabilities, to TCAMP for a 50%
ownership interest. Concurrently, another member contributed $650,000 cash
to TCAMP for a 50% ownership interest. Simultaneously, TCAMP issued a
mortgage note in the amount of $7,000,000, the proceeds of which along with
the $650,000 contributed cash were used to settle in full HPP'89's mortgage
note payable related to the Cosmopolitan Building. The fair value of the
Cosmopolitan Building and other assets contributed by HPP'89 approximated
the fair value of liabilities transferred to TCAMP by HPP'89 and the amount
paid by TCAMP to settle in full HPP'89's mortgage note payable related to
the Cosmopolitan Building. This transaction resulted in a provision for
impairment of real estate of $8,437,963 to recognize a reduction to fair
value at the date of contribution to TCAMP and an extraordinary gain on
debt extinguishment of $9,182,017 to recognize the difference between the
amount outstanding under the mortgage payable and the amount accepted by
the lender from TCAMP in full settlement.
(5) Transactions With Related Parties and Commitments
In July 1993, HPP'89 engaged Portfolio Advisory Services, Inc. (PAS),
corporate general partner of BHP, to provide asset management,
accounting, and investor services to HPP'89. PAS performed such services
for no fee, but was reimbursed for all operating costs of providing such
services. This agreement was extended until September 30, 1995. For the
period January 1, 1995 to September 30, 1995 PAS was reimbursed
approximately $68,000 (unaudited) for asset management, accounting and
investor services to HPP'89.
On October 1, 1995, HPP'89 engaged Claremont Management Corporation
(CMC), an unaffiliated Massachusetts corporation, to provide asset
management, accounting and investor services. CMC provides such services
for an annual management fee of $67,200 plus reimbursement of all its costs
providing these services. The initial term of the contract with CMC
extends until June 30, 1997, and is automatically extended on a yearly
basis unless otherwise terminated as provided for in the agreement. For
the three months ending March 31, 1997 and 1996, CMC was reimbursed
$12,184, and $16,173, respectively, for operating costs.
On November 1, 1995, HPP'89 entered into a management agreement with
CMC, expiring June 30, 1997, to manage the Cosmopolitan Building. CMC's
management agreement requires the payment of management fees equal to the
greater of $5,200 monthly or 4% of gross receipts as defined in the
agreements. For the period January 1, 1996 through March 15, 1996, and for
the period November 1, 1995 through December 31, 1995, CMC was paid
12
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
FOR THE THREE MONTHS ENDED MARCH 31, 1997
(UNAUDITED)
(5) Transactions With Related Parties and Commitments (Continued)
$21,940 and $14,400, respectively, in property management fees. The CMC
management agreement also required the Cosmopolitan to maintain with CMC at
all times an Operating Account in the amount of $100,000 and a Contingency
Reserve Account in the amount of $50,000 for the benefit of the
Cosmopolitan. On March 15, 1996 when HPP'89 contributed the property to
TCAMP, the property management contract between HPP'89 and CMC was
terminated and TCAMP directly engaged CMC under similar management fee
terms.
(6) Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts payable, and
accrued expenses and other liabilities at March 31, 1997 and December 31,
1996 approximate their carrying amounts due to the short maturities.
13
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
MARCH 31, 1997
(UNAUDITED)
Liquidity and Capital Resources. The Partnership terminated its
offering of Units on December 29, 1989, at which time Limited Partners had
purchased 26,588 Units, representing gross capital contributions of
$26,588,000. The Partnership originally invested an aggregate of
$11,158,064 in three Investee Entities which owned or acquired real
properties, the rehabilitation of which qualified for Rehabilitation Tax
Credits. The Partnership also originally invested $5,000,000 in real
property that the Partnership had purchased directly and was required to
place a total of $2,000,000 in an escrow account with the mortgage lender
for this property for the purpose of funding operating deficits.
Such amounts originally contributed represent approximately 100% of the
Limited Partners' capital contributions after deduction of selling
commissions, organizational and sales costs, acquisition fees and
reserves. The Partnership does not expect to make any additional
investments in new real estate.
As further discussed under Results of Operations, effective March 15
1996, HPP'89 contributed the Cosmopolitan Building and certain other
assets and liabilities to The Cosmopolitan at Mears Park, LLC (TCAMP) (a
Delaware limited liability company) for a 50% ownership interest in TCAMP.
As further discussed under Results of Operations, on August 31, 1995
Jenkins Court negotiated with the mortgage holder to transfer the deed and
the title of the property to the mortgage holder, in lieu of foreclosure.
As further discussed under Results of Operations, on June 20, 1996
Portland Lofts obtained alternative financing to fully satisfy its
mortgage note and other significant debt obligations.
The short term liquidity of the Investee Entities, with the exception
of Jenkins Court, depends on their ability to generate sufficient rental
income to fund operating expenses and debt service requirements. Both
TCAMP and Portland Lofts have stabilized operations after the effects of
their recent respective refinancings. Portland Lofts is expected to
generate cash flow to HPP'89 in 1997. During the three months ended March
31, 1997, the Partnership received $39,000 from Portland Lofts. During
1996, the Partnership received distributions from Portland Lofts and TCAMP
totaling $26,000 and $98,200, respectively.
HPP'89's cash is used primarily to fund general and administrative
expenses of operating the public fund. After the contribution of the
Cosmopolitan to TCAMP, the Partnership's only source of short term
liquidity is from distributions received from Investee Entities. The
Partnership expects to fund its expenses with cash flow distributions from
Portland Lofts and, if required, from TCAMP. As of March 31, 1997 and
December 31, 1996, the Partnership had $170,229 and $163,316 of total
cash, of which $70,695 and $63,641, respectively, was not insured by the
Federal Deposit Insurance Corporation.
To the extent that The Partnership accumulates from whatever sources
operating reserve amounts greater than $140,000 at the end of any fiscal
year, The Partnership is required to contribute such excess within thirty
days of the end of such fiscal year to TCAMP as additional capital
contributions to be distributed by TCAMP to its other member as a return
of the outstanding portion of her original capital contribution. Since
the Partnership anticipates funding its expenses principally from
distributions received from Portland Lofts, the Partnership does not
expect that this requirement will affect its ability to fund its expenses.
Cash flow generated from the Partnership's investment properties and
the Partnership's share of the proceeds from the sale of such properties
is expected to be the source of future long-term liquidity.
Results of Operations. The Partnership generated net loss, under
generally accepted accounting principles, of $48,118 for the three months
ended March 31, 1997, including its allocable share of loss from Investee
Entities of $8,410. The Partnership's allocable share of operating income
and/or losses in the Investee Entities range from 50% to 99%. Net loss
allocated from the Investee Entities to the Partnership represents a loss
from Portland Lofts of approximately $35,500, amortization of approximately
$800, as well as income from 402 Julia and TCAMP of approximately $2,300
and $25,600, respectively.
Effective March 15, 1996, HPP'89 contributed the Cosmopolitan Building,
and certain other assets and liabilities, to TCAMP for a 50% ownership
interest. Concurrently, another member contributed $650,000 cash to TCAMP
for a 50% ownership interest. Simultaneously, TCAMP issued a mortgage note
in the amount of $7,000,000 the proceeds of which along with the $650,000
contributed cash, were used to settle in full HPP'89's mortgage note
payable related to the Cosmopolitan Building. The fair value of the
Cosmopolitan Building and other assets contributed by HPP'89 approximately
the fair
14
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
value of liabilities transferred to TCAMP by HPP'89 and the amount paid by
TCAMP to settle in full HPP'89's mortgage note payable related to the
Cosmopolitan Building. This transaction resulted in a provision for
impairment of real estate of $8,437,963 to recognize a reduction to fair
value at the date of contribution to TCAMP and an extraordinary gain on
debt extinguishment of $9,182,017 to recognize the difference between the
amount outstanding under the mortgage payable and the amount accepted by
the lender from TCAMP in full settlement. This transaction did not
generate any recapture of Rehabilitation Tax Credits to the Partnership
because the tax credits were already fully vested.
As a result of the contribution of the Cosmopolitan to TCAMP for a 50%
ownership interest in TCAMP, HPP'89 will no longer have operations
including depreciation and amortization directly due to real estate
activity. As of the date of contribution, the Partnership accounts for its
investment in TCAMP under the equity method of accounting.
Jenkins Court transferred title and deed to its property to the holder
of the mortgage in August 1995 through foreclosure proceedings. Although
Jenkins Court no longer owns its investment property and will no longer
have property operations, the Jenkins Court partnership will remain in
existence until the resolution of certain partnership assets and
liabilities. These liabilities include a $250,000 default loan and accrued
interest thereon, which has been provided by HPP'89 and secured by the
developer's interest in an unaffiliated limited partnership. As a result
of the Chapter 11 proceedings, the Partnership is not expected to be liable
as a general partner of Jenkins Court for any remaining obligations of
Jenkins Court.
On May 21, 1996, Portland Lofts and the holder of its mortgage note and
an unsecured note entered into a Settlement Agreement (the Agreement) to
resolve the claims concerning these notes. According to the Agreement,
Portland Lofts was allowed until July 31, 1996 to pay $5,400,000 to the
note holder for full satisfaction of the mortgage note and the unsecured
note. On June 20, 1996, Portland Lofts obtained alternative financing from
a new mortgage holder and one of its general partners to pay in full the
mortgage note, an unsecured note, as well as another note payable to a
separate lender. The transaction resulted in a gain of extinguishment of
debt of $1,656,579.
In 1990, the Partnership fully reserved against its investment in
Portland Lofts, due to the substantial doubt it would continue as a going
concern. Generally, under the equity method of accounting, an investment
may not be carried below zero. Accordingly, since the Portland Lofts
investment was fully reserved for, the Partnership had cumulative
unrecorded losses of $1,325,926 as of December 31, 1995. Portland Lofts
generated net income of $1,547,514 in 1996, principally as a result of an
extraordinary gain on extinguishment of debt, of which HPP'89 has been
allocated $1,532,039. This allocated net income allowed HPP'89 to recover
all of its cumulative unrecorded losses from Portland Lofts. HPP'89's
income in equity recognized in 1996, totaled $206,113 before distributions
and after the recovery of cumulative unrecorded losses. For the three
months ended March 31, 1997, HPP'89 recorded a net loss of $35,498 and cash
distributions of $39,000 from Portland Lofts.
Both 402 Julia and TCAMP are residential properties with traditional,
annual operating leases to individuals that expire within one year of
signing. Portland Lofts is a mixed-use building with 91 residential units
and 23,470 square feet of commercial space. The residential leases are
traditional, annual operating leases to individuals that expire within one
year of signing. There are 16 commercial units, with operating leases
which range in length from one to eight years. The largest commercial
tenant occupies only 5.8% of the total square feet of the property.
402 Julia has had better than 90% occupancy levels since July 1990 and
was 100% leased at March 31, 1997. This 24 unit residential building has
benefited from a relatively strong market in the warehouse district of New
Orleans.
TCAMP had leased 100% of its units at March 31, 1997, and has met
occupancy projections. This 255 unit property operates in a very
competitive lowertown St. Paul market and has been leased above 90% since
1992.
As of March 31, 1997, Portland Lofts had approximately 88% occupancy of
residential units and 81% occupancy of net rentable commercial space for a
combined occupancy of approximately 86%.
15
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION (CONTINUED)
MARCH 31, 1997
(UNAUDITED)
Inflation and Other Economic Factors
Recent economic trends have kept inflation relatively low, although the
Partnership cannot make any predictions as to whether recent trends will
continue. The assets of the Partnership, principally investments in
Investee Entities, are highly leveraged in view of the fact that each
Investee property is subject to a long-term first mortgage loan.
Operating expenses and rental revenue of each Investee property are
subject to inflationary factors. Low rates of inflation could result in
slower rental rate increases, and to the extent that these factors are
outpaced by increases in property operating expenses (which could arise as
a result of general economic circumstances such as an increase in the cost
of energy or fuel, or from local economic circumstances), the operations
of the Partnership and its Investees could be adversely affected. Actual
deflation in prices generally would, in effect, increase the economic
burden of the mortgage debt service with a corresponding adverse effect.
High rates of inflation, on the other hand, raise the operating
expenses for projects, and to the extent they cannot be passed on to
tenants through higher rents, such increases could also adversely affect
Partnership and Investee operations. Although, to the extent rent
increases are commensurable, the burden imposed by the mortgage leverage
is reduced with a favorable effect. Low levels of new construction of
similar projects and high levels of interest rates may foster demand for
existing properties through increasing rental income and appreciation in
value.
16
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
MARCH 31, 1997
Item 1. Legal Proceedings
The Partnership is not a party to, to the best knowledge of the
General Partner, any material pending legal proceedings.
To the best knowledge of the General Partner, Jenkins Court
Associates L.P., Portland Lofts Associates L.P., 402 Julia Street
Associates
L.P. nor The Cosmopolitan at Mears Park, LCC are not currently
subject to any material pending legal proceedings.
Item 2. Changes in Securities - Not applicable.
Item 3. Defaults Upon Securities - Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders - Not
applicable.
Item 5. Other Information - Not applicable.
Item 6. Exhibits and Reports from Fork 8-K
(a) Exhibits
None.
(b) Reports from Form 8-K
None.
17
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
HISTORIC PRESERVATION PROPERTIES 1989
LIMITED PARTNERSHIP
By: Boston Historic Partners Limited Partnership
General Partner
By: Portfolio Advisory Services, Inc.
General Partner
Date: May 1, 1997 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
President
and
Date: May 1, 1997 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
General Partner
18
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<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 170,229
<SECURITIES> 0
<RECEIVABLES> 75,155
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 826,043
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 826,043
<SALES> 0
<TOTAL-REVENUES> 2,276
<CGS> 0
<TOTAL-COSTS> 41,844
<OTHER-EXPENSES> 8,410
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 140
<INCOME-PRETAX> (48,118)
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<NET-INCOME> (48,118)
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</TABLE>
