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 June 30, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission File 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
JUNE 30, 1997
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Financial Statements
Balance Sheets
Statements of Operations 4
Statements of Partners' Equity (Deficiency) 5
Statements of Cash Flows 6
Notes to Financial Statements 7-12
Management's Discussion and Analysis of Financial
Condition and Results of Operations 13-15
PART II - OTHER INFORMATION 16
Signatures 17
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 1997 AND DECEMBER 31, 1996
1997 1996
(Unaudited)
ASSETS
INVESTMENTS IN INVESTEE ENTITIES $ 3,997,372 $ 4,097,336
Less reserve for realization of
investments in Investee Entities (3,469,267) (3,469,267)
------------ ------------
528,105 628,069
CASH AND CASH EQUIVALENTS 176,525 163,316
OTHER ASSETS 81,005 101,155
------------ ------------
$ 785,635 $ 892,540
============ ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable $ 3,732 $ 3,734
Accrued expenses and other liabilities 29,240 42,110
---------- ----------
Total liabilities 32,972 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 976,472 1,069,565
General Partner's Deficiency (223,809) (222,869)
---------- ----------
Total partners' equity 752,663 846,696
---------- ----------
$ 785,635 $ 892,540
========== ==========
The accompanying notes are an integral part of these financial statements.
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND 1996
AND FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
1997 1996 1997 1996
REVENUES:
Rental and related income $ - $ - $ - $ 533,027
Interest and other income 23,705 9,642 25,981 21,989
--------- -------- -------- -----------
23,705 9,642 25,981 555,016
EXPENSES:
Operating and administrative 42,726 46,583 75,070 83,446
Professional fees 13,200 7,661 22,700 22,556
Depreciation and amortization - - - 124,804
Property operating expenses:
Payroll services - - - 52,597
Utilities - - - 84,691
Real estate taxes - - - 85,698
Other operating - - - 87,266
---------- -------- ----------- -------------
Total expenses 55,926 54,244 97,770 541,058
---------- -------- ----------- -------------
(32,221) (44,602) (71,789) 13,958
PROVISION FOR IMPAIRMENT OF
REAL ESTATE AT TRANSFER OF
OWNERSHIP INTEREST IN REAL
ESTATE TO INVESTEE ENTITY - - - (8,437,963)
LOSS FROM OPERATIONS (32,221) (44,602) (71,789) (8,424,005)
INTEREST EXPENSE (140) - (280) (507,513)
EQUITY IN INCOME (LOSS) OF
INVESTEE PARTNERSHIP (13,554) 3,089 (21,964) 10,059
EXTRAORDINARY GAIN ON
EXTINGUISHMENT OF DEBT - - 9,182,017
---------- ---------- ---------- ------------
NET INCOME (LOSS) $ (45,915) $ (41,513) $ (94,033) $ 260,558
========== ========== =========== ============
NET INCOME (LOSS)
ALLOCATED TO GENERAL
PARTNER $ (459) $ (415) $ (940) $ 2,606
NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $ (45,456) $ (41,098) $ (93,093) $ 257,952
NET INCOME (LOSS) PER UNIT OF
INVESTOR LIMITED PARTNERSHIP
INTEREST, BASED PM 26,588 UNITS
OUTSTANDING $ (1.71) $ (1.55) $ (3.50) $ 9.70
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 SIX MONTHS ENDED JUNE 30, 1997 AND
FOR THE YEAR ENDED DECEMBER 31, 1996
(UNAUDITED)
Units of
Investor Investor
Limited Limited General
Partnership Partners' Partner's
Interest Equity (Deficiency) Total
BALANCE, December 31, 1995 26,588 $ 600,455 $ (227,607) $ 372,848
Net income - 469,110 4,738 473,848
--------- --------- ------------ ----------
BALANCE, December 31, 1996 26,588 1,069,565 (222,869) 846,696
Net loss - (93,093) (940) (94,033)
---------- ----------- ------------- ---------
BALANCE, June 30, 1997 26,588 $ 976,472 $ (223,809) $ 752,663
========== =========== ============= =========
The accompanying notes are an integral part of these financial statements.
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
(UNAUDITED)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (94,033) $ 260,558
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 21,964 (10,059)
Decrease (increase) in other assets 20,150 (152)
Increase (decrease) in accounts payable (2) 2,300
Increase (decrease) in accrued expenses and
other liabilities (12,870) 71,420
--------- --------
Net cash provided by (used in) operating
activities (64,791) 16,947
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from investee entity 78,000 39,400
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 78,000 (642,861)
---------- ----------
NET INCREASE (DECREASE) IN CASH 13,209 (625,914)
CASH, BEGINNING OF PERIOD 163,316 788,602
---------- ----------
CASH, END OF PERIOD $ 176,525 $ 162,688
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
JUNE 30, 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 June
30, 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 six
months ended June 30, 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.
7
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
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.
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 June 30, 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
June 30, 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)
JUNE 30, 1997
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
For the six months ended June 30, 1997, HPP'89 recorded net loss of
$2,726 as well as amortization of $1,626 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 June 30, 1997, Portland Lofts had leased approximately
93% of its residential units and approximately 81% of its net rentable
commercial space resulting in a combined occupancy of 90% for the property.
HPP'89 contributed $3,820,000 through June 30, 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
six months ended June 30, 1997, HPP'89 recorded a net loss of $77,582 and cash
distributions of $78,000 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 is sued 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)
JUNE 30, 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.
At June 30, 1997, the economic occupancy at The Cosmopolitan Building
was approximately 98%. For the six months ended June 30, 1997, HPP'89
recorded net income of $59,970 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 June 30, 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 costs 39,615 39,615
Equity in losses of Investee Partnerships (1,234,282) (1,213,944)
Reserves for realization of investments (3,469,267) (3,469,267)
Amortization of certain costs (44,850) (43,224)
Distributions received from Investee Entities (202,200) (124,200)
Sale of one third interest of Investee
Partnership (241,620) (241,620)
-------------- ---------------
$ 528,105 $ 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 $20,338 (unaudited)
for the six months ended June 30, 1997, and annual amortization of certain
costs of $1,626 for the six months ended June 30, 1997.
Summary combined balance sheets of the four Investee Entities as of June
30, 1997 and December 31, 1996, as well as summary combined statements of
operations for the six months ended June 30, 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
$2,676,897, 1997; $2,350,515, 1996) $ 16,119,227 $ 16,382,387
Land 2,041,326 2,041,326
Other assets (net of accumulated
amortization $61,582, 1997;
$47,543,1996) 405,752 711,942
Cash 565,171 296,895
-------------- --------------
Total assets $ 19,131,476 $ 19,432,550
============== ===============
10
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 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 $ 13,490,615 $ 13,564,967
Other liabilities 879,494 743,804
------------- -------------
Total liabilities 14,370,109 14,308,771
------------- -------------
Partners' equity:
HPP'89 3,541,966 3,640,377
Other partners 1,219,401 1,483,402
------------- ------------
Total partners' equity 4,761,367 5,123,779
------------- ------------
Total liabilities and partners' equity $ 19,131,476 $ 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 $ 1,804,988 $ 1,245,162
Interest and other income 26,461 33,118
------------- -------------
1,831,449 1,278,280
------------- -------------
Expenses:
Interest expense 638,477 632,964
Depreciation and amortization 304,883 235,219
Operating expenses 850,690 517,372
------------- -------------
1,794,050 1,385,555
------------- ------------
Net income (loss) from operations 37,399 (107,275)
Extraordinary item: gain on settlement of debt - 1,656,579
------------- ------------
Net income $ 37,399 $ 1,549,304
------------- ------------
Net income (loss) allocated to HPP'89 $ (20,339) $ 1,554,671
------------- ------------
Net income (loss) allocated to other partners $ 57,738 (5,367)
------------ ------------
Operations of the Cosmopolitan Building are included in the Partnership's
Statement of Operations for the quarter ended March 31, 1996.
(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.
11
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
(UNAUDITED)
(4) Mortgage Payable and Restricted Cash (Continued)
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 above, 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 six months
ended June 30, 1997 and 1996, CMC was reimbursed $34,433, and $30,840,
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 $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 June 30, 1997 and December
31, 1996 approximate their carrying amounts due to the short maturities.
12
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 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 six months ended June 30, 1997, the
Partnership received $78,000 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 June 30, 1997 and December 31, 1996,
the Partnership had $176,525 and $163,316 of total cash, of which $76,525
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 $94,033 for the six months
ended June 30, 1997, including its allocable share of loss from Investee
Entities of $21,964 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 and 402 Julia of approximately $77,582 and $2,726,
amortization of approximately $1,600, as well as income from TCAMP of
approximately $59,970, 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 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 six months ended
June 30, 1997, HPP'89 recorded a net loss of $77,582 and cash distributions
of $78,000 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
29,250 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 June 30, 1997. This 24 unit residential building has
benefited from a relatively strong market in the warehouse district of
New Orleans.
TCAMP had an economic occupancy of approximately 98% for the six months
ended June 30, 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 June 30, 1997, Portland Lofts had approximately 93% occupancy of
residential units and 81% occupancy of net rentable commercial space for a
combined occupancy of approximately 90%.
14
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
JUNE 30, 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.
15
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
JUNE 30, 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.
16
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: August 1, 1997 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
President
and
Date: August 1, 1997 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
General Partner
17
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<PERIOD-END> JUN-30-1997
<CASH> 176,525
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