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 September 30, 1998
---------------------------------------------
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)
45 Broad Street, 3rd Floor, Boston, Massachusetts 02109
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 338-6900
Previous Address: Batterymarch Park II, Quincy, MA 02169
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.
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
FORM 10-Q
September 30, 1998
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Partners' Equity (Deficit) 5
Statements of Cash Flows 6
Notes to Financial Statements 7-13
Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-18
PART II - Other Information 19
Signatures 20
2
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
BALANCE SHEETS
SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
ASSETS
1998 1997
----------- -----------
(Unaudited)
INVESTMENT IN REAL ESTATE $ 4,108,780 $
4,000,210
Less reserve for realization of investments in (3,469,267) (3,469,267)
Investee entity
----------- -----------
639,513 530,943
CASH AND CASH EQUIVALENTS 107,329 175,288
OTHER ASSETS 76,850 77,505
----------- -----------
$ 823,692 $ 783,736
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 35,373 $ 33,562
----------- -----------
Total liabilities 35,373 33,562
----------- -----------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY
Limited Partners' Equity- Units of Investor
Partnership Interest, $1,000 stated value
per Unit-issued and outstanding 26,588 units 1,011,772 974,008
General Partner's Deficit (223,453) (223,834)
----------- -----------
Total partners' equity 788,319 750,174
----------- -----------
$ 823,692 $ 783,736
=========== ===========
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
Three Months Nine Months
Ended September 30, Ended September 30,
1998 1997 1998 1997
---------- ---------- --------- ---------
REVENUES:
Interest and other income $ 1,903 $ 2,026 $ 5,113 $ 6,507
---------- ---------- --------- ---------
1,903 2,026 5,113 6,507
---------- ---------- --------- ---------
EXPENSES:
Operating and administrative 55,233 54,163 157,250 130,713
---------- ---------- --------- ---------
LOSS FROM OPERATIONS (53,330) (52,137) (152,137) (124,206)
EQUITY IN INCOME OF
INVESTEE ENTITIES 54,416 39,746 190,282 17,782
---------- ---------- --------- ---------
NET INCOME (LOSS) $ 1,086 $ (12,391) $ 38,145 $(106,424)
========== ========== ========= =========
NET INCOME (LOSS) ALLOCATED
TO GENERAL PARTNERS $ 11 $ (124) $ 381 $ (1,064)
========== ========== ========= =========
NET INCOME (LOSS) ALLOCATED
TO LIMITED PARTNERS $ 1,075 $ (12,267) $ 37,764 $(105,360)
========== ========== ========= =========
NET INCOME (LOSS) PER UNIT OF
INVESTOR LIMITED PARTNERSHIP
INTEREST, BASED ON 26,588
UNITS ISSUED AND OUTSTANDING $ .04 $ (.46) $ 1.42 $ (3.96)
========== ========== ========= =========
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND
THE YEAR ENDED DECEMBER 31, 1997
Units of
Investor Investor
Limited Limited General
Partnership Partners' Partner's
Interest Equity Deficit Total
----------- ------------ ----------- ----------
BALANCE, December 31, 1996 26,588 $ 1,069,565 $(222,869) $ 846,696
Net loss - (95,557) (965) (96,522)
-------- ---------- --------- ---------
BALANCE, December 31, 1997 26,588 974,008 (223,834) 750,174
Net income (Unaudited) - 37,764 381 38,145
-------- ----------- --------- ---------
BALANCE, September 30, 1998
(Unaudited) 26,588 $ 1,011,772 $ 223,453) $ 788,319
======== =========== ========= =========
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
1998 1997
-------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 38,145 $ (106,424)
Adjustments to reconcile net income (loss) to
net cash
use in operating activities:
Equity in income in investee entities (190,282) (17,782)
Decrease in other assets 655 20,150
Increase (decrease) in accounts payable and 1,811 (2,521)
accrued expenses
-------------- ------------
Net cash used in operating activities (149,671) (106,577)
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash contributions to investee entity (35,288) -
Distributions from investee entity 117,000 117,000
-------------- ------------
Net cash provided by investing activities 81,712 117,000
-------------- ------------
NET INCREASE (DECREASE) IN CASH (67,959) 10,423
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 175,288 163,316
-------------- ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 107,329 $ 173,739
============== ============
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
(UNAUDITED)
(1) Organization and General Partner - BHP
Historic Preservation Properties 1989 Limited Partnership ("HPP'89" or
"the Partnership") 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, 1998, 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, 1998 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1998. 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, 1997 for HPP'89, as filed with the
Securities and Exchange Commission.
Certain amounts in the 1997 Financial Statements have been reclassified to
conform to the 1998 presentation.
(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 which was 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.
7
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (continued)
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.
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. On
August 31, 1995, after maximum vesting of the remaining Rehabilitation Tax
Credits had been achieved for 1995 and considering the unlikelihood of a
successful plan of reorganization, Jenkins Court and the mortgage holder
entered into a settlement agreement under which Jenkins Court transferred
the deed and title of the property to the mortgage holder. The mortgage
holder released 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. The transfer
of deed and title of the property to the mortgage holder resulted in a
recapture of Rehabilitation Tax Credits in 1995 of $44,451 to HPP'89, of
which $44,007 was allocated to the Limited Partners of HPP'89. Tax credits
allocated to the Limited Partners of HPP'89 totaling $2,758,113 were
vested on or before June 15, 1995. Therefore, 98.4% of the Limited
Partners' tax credits were vested prior to the loss of the property.
Although Jenkins Court no longer owns investment property or 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 at December 31, 1997 and 1996; partnership
liabilities include approximately $94,000 of trade payables which have
been fully reserved for at December 31, 1997 and 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.
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, 1998, 402 Julia had leased 94% of its
residential units and 100% commercial space for a combined occupancy of
96% .
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.
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. At September
30, 1998 the remaining uncollected payments total $71,000 which are
secured by the interest sold to the developer general partner. The sale
transaction did not generate any Investment Tax Credit recapture.
On July 17, 1998, 402 Julia refinanced its mortgage debt by issuing a
promissory note to a new lender in the amount of $1,100,000 bearing
interest at 6.69%, amortizing over 30 years and maturing in August 2008,
at which time all unpaid interest and principal is due.
8
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (continued)
Rehabilitation Tax Credits generated by 402 Julia and previously allocated
to HPP'89 Limited Partners totaled $248,796 since inception. As of March
31, 1995, 100% of these credits were fully vested.
HPP'89 recorded net loss of $21,753 and $4,400 for the nine months ended
September 30, 1998 and 1997 respectively, as well as amortization of
$2,439 for each of the nine months ended September 30, 1998 and 1997, from
the 402 Julia Investment.
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 89
residential units and 29,250 square feet of 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, 1998,
Portland Lofts had leased approximately 95% of its residential apartment
units and 95% of the commercial space for a combined occupancy of 95%.
HPP'89 contributed $3,820,000 through September 30, 1998 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 credits were fully vested.
On May 21, 1996, Portland Lofts and the holder of its mortgage note and a
$550,000 unsecured note entered into a Settlement Agreement (the
Agreement) to resolve claims concerning the mortgage note and the
unsecured note (the Notes). According to the Agreement, Portland Lofts was
allowed until July 31, 1996 to pay $5,400,000 to the holder in full
satisfaction of the Notes.
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 $5,400,000 settlement amount with the holder, a separate
$400,000 note payable 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 as a result of the extraordinary gain on extinguishment
of debt, Portland Lofts generated net income of $1,547,514 during the year
ended December 31, 1996 of which HPP'89 has been allocated $1,532,039.
Consequently, 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 of $206,113 for the year ended December 31,
1996. At December 31, 1996, HPP'89's net investment balance in Portland
Lofts totaled approximately $180,000.
9
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (continued)
For the year ended December 31, 1997, Portland Lofts allocated a net loss
of $173,710 and paid cash distributions of $156,000 to HPP'89. As
mentioned above, generally, under the equity method of accounting, an
investment may not be carried below zero. During 1997, HPP'89's investment
in Portland Lofts was reduced to zero due to allocated losses and
distributions received. 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. At December
31, 1997, HPP'89 had cumulative unrecorded losses totaling $95,392
relating to the Portland Lofts investment.
For the nine months ended September 30, 1998, HPP'89 recognized an
unrecorded loss of $2,185 from Portland Lofts, thereby increasing the
cumulative unrecorded losses relating to the Portland Lofts investment as
of September 30, 1998 to $97,577. For the nine months ended September 30,
1997, HPP'89 recorded a net loss of $78,319 and had unrecorded losses of
$14,330 from the Portland Lofts investment.
For each of the nine months ended September 30, 1998 and 1997, HPP'89
received distributions of $117,000 from the Portland Lofts investment.
Distributions of $117,000 and $15,206 for the nine months ended September
30, 1998 and 1997, respectively, were recorded as equity in income of
investee entities.
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. At September 30, 1998,
the economic occupancy of TCAMP was 97%.
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.
The mortgage HPP'89 assumed relating to its purchase of the Cosmopolitan
Building had an original maturity date of December 18, 1999. On January 5,
1995, HPP'89 consummated the Second Amendment to the Loan Agreement
(Second Amendment) with the holder to resolve a dispute over funds in a
restricted escrow account. The terms of the Second Amendment allowed
HPP'89 to be paid the interest earned on and overfunded deposits to the
escrow account. Also, HPP'89 received an option to buy the mortgage note
for the fair market value of the property. In exchange, HPP'89 released
the principal funds of the escrow account (approximately $1,311,000) for
payment on the outstanding mortgage and agreed to reduce the maturity date
of the note from December 18, 1999 to December 18, 1996.
10
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HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (continued)
Effective March 15, 1996, HPP'89 contributed the Cosmopolitan Building,
and certain other assets and liabilities, to TCAMP (a 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. Until the other member's original $650,000 capital contribution had
been repaid in full, to the extent that the Partnership accumulated from
whatever sources operating reserve amounts greater than $140,000 at the
end of any fiscal year, the Partnership was 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 its original capital contribution.
On February 27, 1998, HPP'89 contributed to TCAMP $35,288, representing
operating reserves in excess of $140,000 at December 31, 1997. The funds
were then distributed from TCAMP to its other member as a return of its
original capital contribution. As of December 31, 1997, the outstanding
balance of the other member's unreturned original $650,000 capital
contribution was $223,773. On May 18, 1998, the other member's original
$650,000 capital contribution was repaid in full, thereby eliminating any
future requirements for HPP'89 to make additional capital contributions to
TCAMP.
As a result of the contribution of the Cosmopolitan to TCAMP for a 50%
ownership interest in TCAMP, HPP'89 no longer has operations directly
related to real estate activity. As of March 15, 1996 (the date of
contribution), the Partnership accounts for its investment in TCAMP under
the equity method of accounting. HPP'89 recorded net income from the TCAMP
investment of $97,474 and $87,735 for the nine months ended September 30,
1998 and 1997, respectively.
HPP'89's investments in the Investee Entities at September 30, 1998 and
December 31, 1997 are summarized as follows (excluding the investment in
Jenkins Court):
1998 1997
---------------- ---------------
(Audited)
Cumulative:
Investments and advances made in cash $ 4,880,288 $ 4,845,000
Evaluation and acquisition costs 835,709 835,709
Interest capitalization and other costs 39,615 39,615
Net equity in loss of Investee Entities (959,097) (1,151,818)
Reserves for realization of investments (3,469,267) (3,469,267)
Amortization of certain costs (48,915) (46,476)
Distributions received from Investee (397,200) (280,200)
Entities
Sale of one third interest of Investee (241,620) (241,620)
Entity
--------------- ----------------
$ 639,513 $ 530,943
================ ===============
11
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HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (continued)
The equity in income of Investee Entities reflected in the accompanying
statements of operations for the nine months ended September 30, 1998 and
1997 includes allocated income of $192,721 and $20,221, respectively, and
amortization of certain costs of $2,439 for each of the nine months ended
September 30, 1998 and 1997.
Summary combined balance sheets of the Investee Entities as of September
30, 1998 and December 31, 1997, and summary combined statements of
operations for the nine months ended September 30, 1998 and 1997 are as
follows:
COMBINED BALANCE SHEETS
ASSETS
1998 1997
----------- -----------
Buildings and Improvements,(net of (Audited)
accumulated depreciation;
1998, $3,305,696; 1997, $2,896,633) $15,465,117 $15,855,989
Land 2,041,326 2,041,326
Other assets(net of accumulated
amortization;1998, $85,652;
1997,$105,861) 623,694 561,218
Cash and cash equivalents 173,001 393,832
----------- -----------
Total assets $18,523,969 $18,631,534
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
1998 1997
----------- -----------
(Audited)
Liabilities:
Mortgage and notes payable $13,393,443 $13,412,706
Other liabilities 824,385 735,828
---------- -----------
Total liabilities 14,207,828 14,148,534
----------- -----------
Partners' (or Members') equity:
HPP'89 3,377,418 3,385,594
Other partners 938,723 1,097,406
----------- -----------
Total partners' equity 4,316,141 4,483,000
----------- -----------
Total liabilities and
partners' equity $18,523,969 $18,631,534
=========== ===========
COMBINED STATEMENTS OF OPERATIONS
1998 1997
----------- -----------
Revenue:
Rental revenue $ 2,839,801 $ 2,663,808
Interest and other income 100,852 108,892
----------- -----------
2,940,653 2,772,700
----------- -----------
Expenses:
Interest expense 936,195 950,420
Depreciation and amortization 459,093 457,730
Operating expenses 1,385,922 1,289,401
----------- -----------
2,781,210 2,697,551
----------- -----------
Net income $ 159,443 $ 75,149
=========== ===========
Net income (loss) allocated
to HPP'89 $ 73,536 $ (9,315)
=========== ===========
Net income allocated to other partners $ 85,907 $ 84,464
=========== ===========
12
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HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1998
(UNAUDITED)
(4) Transactions With Related Parties and Commitments
On October 1, 1995, HPP'89 engaged Claremont Management Corporation (CMC),
a Massachusetts corporation previously unaffiliated and a related party as
of March 15, 1996 through ownership by a member of TCAMP, to provide asset
management, accounting and investor services. CMC provided such services
for an annual management fee of $67,200 plus reimbursement of all its
costs of providing these services. The contract with CMC expired June 30,
1998. For the six months ended June 30, 1998 and nine months ended
September 30, 1997, CMC was reimbursed $50,716 and $56,186, respectively,
for operating costs.
Effective July 1, 1998, HPP'89 engaged Gunn Financial, Inc. (GFI), an
unaffiliated Massachusetts corporation, to provide accounting, asset
management and investor services. GFI will provide such services for an
annual management fee of $63,000, plus reimbursement of all its costs of
providing these services. The agreement expires on the earlier of June 30,
2006 or the liquidation of the Partnership, as defined. For the three
months ended September 30, 1998, GFI was reimbursed $26,462 for operating
costs.
In November 1995, HPP'89 entered into a management agreement with CMC, to
manage the Cosmopolitan Building. CMC's management agreement required 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, CMC was paid $21,940 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, the date 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.
(5) Fair Value of Financial Instruments
The fair values of cash equivalents, other assets, and accounts payable
and accrued expenses at September 30, 1998 and December 31, 1997
approximate their carrying amounts due to their short maturities.
13
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
SEPTEMBER 30, 1998
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 Partnerships
which owned or acquired real properties, the rehabilitation of which qualified
for Rehabilitation Tax Credits. The Partnership also originally invested
$5,000,000 in the Cosmopolitan, 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.
The Cosmopolitan is a 255 unit residential property located in St. Paul,
Minnesota. On January 5, 1995, the Partnership resolved a dispute with the
holder of the Cosmopolitan's mortgage over certain amounts in an escrow account.
As a result, the Partnership received approximately $286,000 from the escrow
account which was used to fund and reserve for the general and administrative
expenses of the Partnership, and obtained the opportunity to purchase the
mortgage note at the fair market value of the property, in exchange for the
release of the principal funds from the escrow account as a payment toward the
mortgage principal and a reduction of the mortgage term by three years.
Effective March 15, 1996, HPP'89 contributed the Cosmopolitan, and certain other
assets and liabilities, to TCAMP (a 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. TCAMP's mortgage bears interest at 9.14%;
amortizes over a 25 year schedule and requires monthly payments of principal,
interest, real estate tax and replacement reserve deposits totaling $94,551; the
mortgage matures in March 2003, at which time all unpaid principal and accrued
interest is due. After March 14, 1996, HPP'89 no longer has any operations
directly related to real estate activity or generates cash from rental activity
from the Cosmopolitan. As of March 15, 1996, the Partnership accounts for its
investment in TCAMP under the equity method of accounting.
Jenkins Court was a 174,000 square foot building located in Jenkintown,
Pennsylvania leased to office and retail tenants. Jenkins Court filed for
protection under Chapter 11 Federal Bankruptcy laws on November 23, 1994. On
August 31, 1995, after maximum vesting of the remaining Rehabilitation Tax
Credits had been achieved for 1995, and considering the unliklihood of a
successful plan of reorganization, 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.
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.
Due to the foreclosure proceeding related to Jenkins Court, HPP'89 no longer has
an investment in the property. As of December 31, 1995, the investment in
Jenkins Court and its corresponding reserve, both totaling $5,471,055, were
eliminated from the balance sheet.
Portland Lofts is a mix-use property located in Portland, Oregon with 89
residential units and 29,250 square feet of commercial space. In May 1996,
Portland Lofts reached a settlement agreement with the holder of its mortgage
note and an unsecured note. According to the Settlement Agreement, Portland
Lofts was allowed until, July 31, 1996, to pay $5,400,000 to the holder in full
satisfaction of both the mortgage note and an unsecured note.
14
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 1998
On June 20, 1996, Portland Lofts issued a promissory mortgage note in the amount
of $5,625,000 and a promissory note to a general partner in the amount of
$340,000 to provide sufficient funds to pay in full the $5,400,000 settlement
amount with the holder in full satisfaction of both the mortgage note, the
unsecured note payable and all related closing costs. The transaction resulted
in an extraordinary gain on extinguishment of debt of $1,656,579. The current
mortgage note on the property bears interest at 9.0%; amortizes over a 25-year
schedule; requires monthly payments of principal and interest of $47,205; and
matures on July 1, 2006, at which time all unpaid principal and interest is due.
402 Julia is a mix-use property located in New Orleans, Louisiana with 24
residential units and 3,500 square feet of commercial space. 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. On
July 17, 1998, 402 Julia refinanced its mortgage debt by issuing a promissory
note to a new lender in the amount of $1,100,000 bearing interest at 6.69%,
amortizing over 30 years and maturing in August 2008, at which time all unpaid
interest and principal is due.
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. TCAMP, Portland Lofts and 402
Julia have stabilized operations and, after considering the effects of TCAMP's
and Portland Lofts' recent respective refinancings, are expected to generate
cash flow. For each of the nine months ended September 30, 1998 and 1997, the
Partnership received distributions from Portland Lofts of $117,000,
respectively.
HPP'89's cash is used primarily to fund general and administrative expenses of
managing the public fund. The Partnership's only source of short term liquidity
is from distributions received from Investee Entities and the proceeds from the
previous sale of a partial interest in 402 Julia. The Partnership expects to
fund its expenses with cash flow distributions from Portland Lofts and TCAMP. As
of September 30, 1998 and December 31, 1997, the Partnership had $107,329 and
$175,288 of total cash.
Until the other member's original $650,000 capital contribution had been repaid
in full, to the extent that the Partnership accumulated from whatever sources
operating reserve amounts greater than $140,000 at the end of any fiscal year,
the Partnership was 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 its original capital contribution. On February 27, 1998, HPP'89 contributed
to TCAMP $35,288, representing operating reserves in excess of $140,000 at
December 31, 1997. The funds were then distributed from TCAMP to its other
member as a return of its original capital contribution. On May 18, 1998, TCAMP
had returned the total outstanding portion of its original capital contribution
to its other member, thereby eliminating any future requirements for HPP'89 to
make additional capital contributions to TCAMP.
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.
15
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 1998
Results of Operations. As a result of the contribution of the Cosmopolitan to
TCAMP for a 50% ownership interest in TCAMP, subsequent to March 14, 1996,
HPP'89 no longer had operations directly related to real estate activity. As of
the date of contribution, the Partnership accounts for its investment in TCAMP
under the equity method of accounting.
Due to the foreclosure proceeding related to Jenkins Court, HPP'89 no longer has
an investment in the property. As of December 31, 1995, the investment in
Jenkins Court and its corresponding reserve, both totaling $5,471,055, were
eliminated from the balance sheet.
The Partnership accounts for its investments in its three remaining investee
entities under the equity method. In general, under the equity method of
accounting for investments, the investment is recorded at cost and the current
allocable portion of earnings (losses) of an Investee Entity is recorded as
income (loss) with a corresponding increase (decrease) to the investment
account. The allocable portion of losses of an Investee Entity are not recorded
after the respective investment account is reduced to zero. The allocable
portion of earnings of an Investee Entity are not recorded until all previously
unrecorded losses are absorbed. The Partnership's allocable share of operating
income and/or losses in investee entities range from 50% to 99%.
Distributions received are recorded as reductions to the investment account.
Distributions received from an Investee Entity whose respective investment
account has been reduced to zero are recorded as income.
As of September 30, 1998, 402 Julia leased 94% of its residential units and 100%
commercial space for a combined occupancy of 96%. 402 Julia has benefited from a
relatively strong New Orleans market and continues to record stable operations.
402 Julia rents units to residential tenants, half of which are under short-term
operating leases with the remaining rented under month-to-month arrangements.
For the nine months ended September 30, 1998, 402 Julia recorded a net loss of
approximately $33,300 of which included depreciation and amortization of
approximately $45,000.
At September 30, 1998, Portland Lofts had leased approximately 95% of its
residential apartment units and 95% of the commercial space for a combined
occupancy of 95%. Portland Lofts rents space to residential tenants principally
under month-to-month arrangements and to commercial tenants under operating
leases of varying terms expiring through 2004. As of September 30, 1998, the
Partnership had entered into fifteen commercial leases. The Partnership's
largest commercial tenant occupancies 23% of the commercial space at September
30, 1998, representing only 5.8% of the total square feet of the property. For
the nine months ended September 30, 1998, Portland Lofts recorded a net loss of
approximately $2,200 of which included depreciation and amortization of
approximately $213,800.
TCAMP operates its 255 unit residential property in the competitive lowertown
district of St. Paul, Minnesota with traditional, annual operating leases to
individuals that expire within one year of signing. Despite the availability of
low mortgage rates in the single family house market, the building has increased
rental rates with the market and maintained occupancy above 95% for several
years.
At September 30, 1998, TCAMP had an economic occupancy of 97%. For the nine
months ended September 30, 1998, TCAMP recorded net income of approximately
$194,900, which included depreciation and amortization of approximately
$200,300.
In 1990, the Partnership fully reserved against its investment in Portland
Lofts, due to the substantial doubt it would continue as a going concern.
Accordingly, since the Portland Lofts investment was fully reserved for, the
Partnership had cumulative unrecorded losses of $1,325,926 associated with the
investment as of December 31, 1995. Principally as a result of an extraordinary
gain on extinguishment of debt, Portland Lofts generated net income of
$1,547,514 in 1996, 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.
16
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 1998
For the year ended December 31, 1997, Portland Lofts allocated a net loss of
$173,710 and cash distributions of $156,000 to HPP'89. During 1997, HPP'89's
investment in Portland Lofts was reduced to zero due to allocation of losses and
distributions received. Accordingly, HPP'89 had cumulative unrecorded losses at
December 31, 1997 of $95,392. For the nine months ended September 30, 1998,
HPP'89 recognized unrecorded losses of $2,185, increasing the unrecorded losses
from the Portland Lofts investment to $97,577. Distributions received from
Portland Lofts for the nine months ended September 30, 1998 totaled $117,000 and
were recorded as equity income of investee entities. 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.
The Partnership recorded net income, under generally accepted accounting
principles, of $1,086 for the three months ended September 30, 1998, compared to
a net loss of $12,391 for the three months ended September 30, 1997. This
increase of $13,477 in net income is primarily attributable to the increase in
equity in income of investee entities of approximately $14,700. The increase in
the Partnership's share of equity in income is primarily due to the activity
from Portland Lofts, offset by an increase in 402 Julia's net allocated losses.
As mentioned above, the Partnership's net investment balance in Portland Lofts
had been reduced to zero in the third quarter of 1997, as a result of allocated
net losses and distributions received. Therefore, for the three months ended
September 30, 1997, the Partnership recorded a loss of $738, reducing the
Portland Lofts net investment balance to zero, offset by distributions received
in excess of the investment balance of $15,206 recorded as equity income of
investee entities. For the same period 1998, the Partnership received
distributions of $39,000 in excess of the net investment balance in Portland
Lofts that were also recorded as equity income of investee entities. The
increase in 402 Julia's net loss of $13,850 for the three months ended September
30, 1998, compared to the same period in 1997, is primarily attributed to the
amortization of the deferred loan commitment fee related to 402 Julia's original
mortgage which was refinanced prior to its maturity in July of 1998.
The Partnership recorded net income, under generally accepted accounting
principles, of $38,145 for the nine months ended September 30, 1998, compared to
a net loss of $106,424 for the nine months ended June 30, 1997. This $144,569
increase to net income is primarily attributable to the increase in equity in
income of investee entities of approximately $172,500, offset by an increase in
operating and administrative expenses of approximately $26,500. The increase in
HPP'89's share of equity in income is primarily due to the activity from
Portland Lofts, offset by an increase in 402 Julia's net allocated losses. As
mentioned above, the Portland Lofts investment was reduced to zero in the third
quarter of 1997. Therefore, for the nine months ended September 30, 1997, the
Partnership had recorded a net loss of $78,314 offset by distributions of
$15,206 received in excess of the net investment balance from Portland Lofts
compared to distributions of $117,000 recorded as equity income of investee
entities for the same period in 1998. The increase in 402 Julia's net loss of
$17,352 for the nine months ended September 30, 1998, compared to the same
period in 1997, is primarily attributed to the amortization of the deferred loan
commitment fee related to 402 Julia's original mortgage.
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 substantial 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.
17
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
SEPTEMBER 30, 1998
Inflation and Other Economic Factors (continued)
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. High levels
of new construction of similar projects and low levels of interest rates may
reduce demand for existing retail properties.
Year 2000 Issues
The Partnership and its Investee Entities have analyzed the effect of the Year
2000 on their respective financial and computer systems and have incorporated
and/or expect to have incorporated the necessary modifications to avert any
negative consequences. The Partnership does not anticipate Year 2000 issues to
have any material effect on its operations or the operations of the Investee
Entities. The Partnership also does not anticipate that it shall incur
substantial costs to address Year 2000 issues.
18
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
SEPTEMBER 30, 1998
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 Form 8-K
(a) Exhibits
None.
(b) Reports from Form 8-K None.
19
<PAGE>
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, 1998 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
President
and
Date: November 1, 1998 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
General Partner
20
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 107,329
<SECURITIES> 0
<RECEIVABLES> 76,850
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 823,692
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 823,692
<SALES> 0
<TOTAL-REVENUES> 5,113
<CGS> 0
<TOTAL-COSTS> 157,250
<OTHER-EXPENSES> (190,282)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 38,145
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 38,145
<EPS-PRIMARY> 1.42
<EPS-DILUTED> 1.42
</TABLE>
