UNITED STATES PRIVATE
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 September 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
SEPTEMBER 30, 1997
TABLE OF CONTENTS
Page
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
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
BALANCE SHEETS
SEPTEMBER 30, 1997 AND DECEMBER 31, 1996
ASSETS
1997 1996
(Unaudited)
INVESTMENTS IN INVESTEE ENTITIES $ 3,998,118 $ 4,097,336
Less reserve for realization of
investments in Investee Entities (3,469,267) (3,469,267)
------------- ------------
528,851 628,069
CASH AND CASH EQUIVALENTS 173,739 163,316
OTHER ASSETS 81,005 101,155
------------ -----------
$ 783,595 $ 892,540
============ ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable $ 4,443 $ 3,734
Accrued expenses and other liabilities 38,880 42,110
----------- -----------
Total liabilities 43,323 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 964,205 1,069,565
General Partner's Deficiency (223,933) (222,869)
----------- ------------
Total partners' equity 740,272 846,696
---------- ------------
$ 783,595 $ 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 SEPTEMBER 30, 1997 AND 1996
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
Three Months Nine Months
Ended September 30, Ended September 30,
1997 1996 1997 1996
REVENUES:
Rental and related income $ - $ - $ - $ 533,027
Interest and other income 2,026 4,950 28,007 26,939
------- -------- -------- -----------
2,026 4,950 28,007 559,966
EXPENSES:
Operating and administrative 43,563 32,285 118,913 115,731
Professional fees 10,600 1,630 33,300 24,186
Depreciation and amortization - - - 124,804
Property operating expenses:
Payroll services - - - 52,597
Utilities - - - 84,691
Real estate taxes - - - 85,698
Other operating - - - 87,266
-------- --------- -------- -----------
54,163 33,915 152,213 574,973
------- -------- ------- -----------
(52,137) (28,965) (124,206) (15,007)
PROVISION FOR IMPAIRMENT OF
REAL ESTATE AT TRANSFER OF
OWNERSHIPINTEREST IN REAL
ESTATE TO INVESTEE ENTITY - - - (8,437,963)
--------- --------- --------- ------------
LOSS FROM OPERATIONS (52,137) (28,965) (124,206) (8,452,970)
INTEREST EXPENSE - - - (507,513)
EQUITY IN INCOME OF
INVESTEE ENTITIES 39,746 16,637 17,782 26,696
-------- -------- -------- ----------
NET LOSS BEFORE EXTRAORDINARY
GAIN (12,391) (12,328) (106,424) (8,933,787)
EXTRAORDINARY GAIN ON
EXTINGUISHMENT OF DEBT - - - 9,182,017
--------- --------- --------- -----------
NET INCOME (LOSS) $ (12,391) $(12,328) $(106,424) $ 248,230
========== ========= ========== ==========
NET INCOME (LOSS) ALLOCATED
TO GENERAL PARTNER $ (124) $ (123) $ (1,064) $ 2,482
========== ========= ========== ==========
NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $ (12,267) $(12,205) $(105,360) $ 245,748
========== ========= ========== ==========
NET INCOME (LOSS) PER UNIT OF
INVESTOR LIMITED PARTNERSHIP
INTEREST, BASED ON 26,588
UNITS ISSUED AND OUTSTANDING $ (.46) $ (.46) $ (3.96) $ 9.24
========== ======== ========== ==========
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 NINE MONTHS ENDED SEPTEMBER 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 1,069,56 (222,869) 846,696
Net Loss - (105,360) (1,064) (106,424)
------ ---------- --------- ----------
BALANCE, September 30,1997 26,588 $ 964,205 $(223,933) $ 740,272
====== ========== ========== =========
The accompanying notes are an integral part of these financial statements.
5
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
(UNAUDITED)
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ (106,424) $ 248,230
Adjustment to reconcile net income
(loss) to net cash 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 entities - 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 in investee entities (17,782) (26,696)
Decrease (increase) in other assets 20,150 (807)
Increase (decrease) in accounts payable 709 (2,211)
Increase (decrease) in expenses and other
liabilities (3,230) 68,698
---------- ------------
Net cash used in operation activities (106,577) (19,906)
========== ============
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of furniture and equipment - (2,694)
Cash payment at transfer of ownership
interest in investment in real estate
to investee entity - (679,567)
Cash distributions from investee entities 117,000 68,800
--------- -----------
Net cash provided by (used in) investing
activities 117,000 (613,461)
========= ===========
NET INCREASE (DECREASE) IN CASH 10,423 (633,367)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 163,316 788,602
---------- ----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 173,739 $ 155,235
=========== =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest $ - $ 301,349
=========== =========
NONCASH FINANCING ACTIVITITY:
Interest expense not paid form net
cash flow and added to the mortgage
payable balance. $ - $ 78,237
=========== =========
The accompanying notes are an integral part of these financial statements.
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 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 September 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 nine
months ended September 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)
SEPTEMBER 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 September 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 investment in 402 Julia
represented approximately 4% 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 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.
8
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
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 September 30, 1997 and is secured by the interest sold to the developer
general partner.
For the nine months ended September 30, 1997, HPP'89 recorded net loss of
$4,400 as well as amortization of $2,439 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 September 30, 1997, Portland Lofts had leased
approximately 95% of its residential units and approximately 89% of its net
rentable commercial space resulting in a combined occupancy of 93% for the
property.
HPP'89 contributed $3,820,000 through September 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. In 1996,
HPP'89 received $26,000 of distributions from Portland Lofts.
For the nine months ended September 30, 1997, Portland Lofts allocated a
net loss of $92,649 and paid cash distributions of $117,000 to HPP'89. As
mentioned above, generally, under the equity method of accounting, an
investment may not be carried below zero. During the quarter ended September
30, 1997, HPP'89's investment in Portland Lofts was reduced to zero due to
allocated losses and distributions received. Furthermore, HPP'89 was unable
to record $14,330 of its allocated losses and distributions of $15,206 were
recorded as equity income of Investee Entities for the quarter ended September
30, 1997. Although HPP'89's investment in Portland Lofts has been reduced
to zero, Portland Lofts is expected to continue as a going concern and to
continue to provide distributions to HPP'89. As of September 30, 1997, HPP'89
had cumulative unrecorded losses totaling $14,330.
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.
9
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
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 31, 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.
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 nine months ended September 30, 1997, HPP'89 recorded net income of
$87,734 from TCAMP. In 1996, HPP'89 received total distributions of $98,200
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.
At September 30, 1997, the economic occupancy at The Cosmopolitan Building
was approximately 98%.
HPP'89's investments in the Investee Entities at September 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 Entities (1,193,723) (1,213,944)
Reserves for realization of investments (3,469,267) (3,469,267)
Amortization of certain costs (45,663) (43,224)
Distributions received from Investee Entities (241,200) (124,200)
Sale of one third interest of Investee Entity (241,620) (241,620)
------------- ------------
$ 528,851 $ 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 income of Investee Entities reflected in the accompanying
statements of operations includes net allocated income of $20,221 (unaudited)
and annual amortization of certain costs of $2,439, for the nine months ended
September 30, 1997.
10
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
Summary combined balance sheets of the four Investee Entities as of
September 30, 1997 and December 31, 1996, as well as summary combined
statements of operations for the nine months ended September 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 $2,818,890,
1997;$2,350,515, 1996) $ 15,998,153 $ 16,382,387
Land 2,041,326 2,041,326
Other assets (net of accumulated
amortization;$72,434, 1997;
$47,543, 1996) 722,223 711,942
Cash 145,081 296,895
------------ ------------
Total assets $ 18,906,783 $ 19,432,550
============= ============
LIABILITIES AND PARTNERS' EQUITY
1997 1996
(Unaudited) (Audited)
Liabilities:
Mortgage and notes payable $ 13,452,128 $ 13,564,967
Other liabilities 797,829 743,804
-------------- ------------
Total liabilities 14,249,957 14,308,771
-------------- ------------
Partners' equity:
HPP'89 3,513,989 3,640,377
Other partners 1,142,837 1,483,402
-------------- ------------
Total partners' equity 4,656,826 5,123,779
Total liabilities and
partners' equity $ 18,906,783 $ 19,432,550
=============== ============
Members' equity in TCAMP has been classified as partners' equity
in the combined balance sheets.
11
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
COMBINED STATEMENTS OF OPERATIONS
1997 1996
(Unaudited) (Unaudited)
Revenue:
Rental revenue $ 2,713,607 $ 1,245,162
Interest and other income 60,159 33,118
----------- -----------
2,773,766 1,278,280
----------- -----------
Expenses:
Interest expense 950,420 632,964
Depreciation and amortization 457,730 235,219
Operating expenses 1,290,467 517,372
----------- -----------
2,698,617 1,385,555
----------- -----------
Net income (loss) from operations 75,149 (107,275)
Extraordinary item: gain on settlement
of debt - 1,656,579
----------- -----------
Net income $ 75,149 $ 1,549,304
============ ===========
Net income (loss) allocated to HPP'89 $ (9,315) $ 1,554,671
============= ===========
Net income (loss) allocated to other
partners $ 84,464 $ (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.
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.
12
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
(4) Mortgage Payable and Restricted Cash (Continued)
As discussed in Note 3, 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 nine months ended
September 30, 1997 and 1996, CMC was reimbursed $56,186, and $48,494,
respectively, for operating costs.
On November 1, 1995, HPP'89 entered into a management agreement with CMC,
which originally expired 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 September 30, 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 OPERATIONS
SEPTEMBER 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 nine months ended September 30, 1997, the Partnership received
$117,000 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 September 30, 1997 and December 31, 1996, the Partnership
had $173,739 and $163,316 of total cash, of which $73,739 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 $106,424 for the nine months ended September
30, 1997, including its allocable share of income from Investee Entities of
$17,782. The Partnership's allocable share of operating income and/or losses
in the Investee Entities ranges from 50% to 99%. Net income allocated from
the Investee Entities to the Partnership represents losses from 402 Julia and
Portland Lofts of $4,400 and $63,113, respectively, income from TCAMP of
$87,734, and amortization of $2,439.
14
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
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 nine months ended September 30, 1997, Portland Lofts allocated a net
loss of $92,649 and cash distributions of $117,000 to HPP'89. As mentioned
above, generally, under the equity method of accounting, an investment may not
be carried below zero. During the quarter ended September 30, 1997, HPP's
investment in Portland Lofts was reduced to zero due to allocation of losses
and distributions received. Furthermore, HPP'89 was unable to record $14,330
of its allocated losses and distributions of $15,206 were recorded as equity
income of Investee Entities for the quarter ended September 30, 1997.
Although HPP'89's investment in Portland Lofts has been reduced to zero,
Portland Lofts is expected to continue as a going concern and to continue
to provide distributions to HPP'89. As of September 30, 1997, HPP'89 had
cumulative unrecorded losses totaling $14,300.
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.
15
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 1997
(UNAUDITED)
402 Julia has had better than 90% occupancy levels since July 1990 and was
100% leased at September 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 nine months
ended September 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 September 30, 1997, Portland Lofts had approximately 95% occupancy of
residential units and 89% occupancy of net rentable commercial space for a
combined occupancy of approximately 93%.
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
SEPTEMBER 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.
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: November 1, 1997 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
President
and
Date: November 1, 1997 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
General Partner
18
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<PERIOD-END> SEP-30-1997
<CASH> 173,739
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<OTHER-EXPENSES> (17,782)
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