UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
For the quarter ended June 30, 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, MA 02169
(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
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
FORM 10-Q
JUNE 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 14-17
PART II - OTHER INFORMATION 18
Signatures 19
2
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 1998 AND DECEMBER 31, 1997
ASSETS
1998 1997
(Unaudited)
INVESTMENT IN REAL ESTATE $ 4,093,364 $ 4,000,210
Less reserve for realization
of investments in Investeeentity (3,469,267) (3,469,267)
------------ -------------
624,097 530,943
CASH AND CASH EQUIVALENTS 98,806 175,288
OTHER ASSETS 77,505 77,505
------------ -------------
$ 800,408 $ 783,736
=========== ============
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Accounts payable and
accrued expenses $ 13,175 $ 33,562
---------- -----------
Total liabilities 13,175 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 1,010,696 974,008
General Partner's Deficit (223,463) (223,834)
----------- ------------
Total partners' equity 787,233 750,174
----------- ------------
$ 800,408 $ 783,736
=========== ============
The accompanying notes are an integral part of these financial statements.
3
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
1998 1997 1998 1997
REVENUES:
Interest and other
income $ 820 $ 2,205 $ 3,210 $ 4,481
--------- -------- -------- --------
820 2,205 3,210 4,481
--------- -------- -------- --------
EXPENSES:
Operating and
administrative 50,494 34,566 102,017 76,550
--------- ------- -------- --------
LOSS FROM OPERATIONS (49,674) (32,361) (98,807) (72,069)
EQUITY IN INCOME (LOSS)
OF INVESTEE ENTITIES 68,617 (13,554) 135,866 (21,964)
--------- -------- ------- ---------
NET INCOME (LOSS) $ 18,943 $(45,915) $ 37,059 $(94,033)
========= ========= ======== =========
NET INCOME (LOSS)
ALLOCATED TO GENERAL
PARTNERS $ 189 $ (459) $ 371 $ (940)
======== ========= ======== =========
NET INCOME (LOSS)
ALLOCATED TO LIMITED
PARTNERS $ 18,754 $(45,456) $ 36,688 $(93,093)
======== ========= ======== =========
NET INCOME (LOSS) PER
UNIT OF INVESTOR LIMITED
PARTNERSHIP INTEREST,
BASED ON 26,588 UNITS
ISSUED AND OUTSTANDING $ .71 $ (1.71) $ 1.38 $ (3.50)
======== ========= ======= ========
The accompanying notes are an integral part of these financial statements.
4
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' EQUITY (DEFICIT)
FOR THE SIX MONTHS ENDED JUNE 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) - 36,688 371 37,059
------ ----------- --------- ---------
BALANCE,
June 30, 1998
(Unaudited) 26,588 $ 1,010,696 $ (223,463) $ 787,233
====== =========== =========== =========
The accompanying notes are an integral part of these financial statements.
5
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
(UNAUDITED)
1998 1997
CASH FLOWF FROM OPERATING ACTIVITIES:
Net income (loss) $ 37,059 $ (94,033)
Adjustments to reconcile net income
(loss) to net cash use in operating
activities:
Equity in income in investee entities (135,866) 21,964
Decrease in other assets - 20,150
Decrease in accounts payable and
accrued expenses (20,387) (12,872)
----------- -----------
Net cash used in operating
activities (119,194) (64,791)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash contributions to investee entity (35,288) -
Distributions from investee entity 78,000 78,000
----------- ----------
Net cash provided by investing
activities 42,712 78,000
---------- ----------
NET INCREASE (DECREASE) IN CASH (76,482) 13,209
CASH AND CASH EQUIVALENTS,
BEGINNING OF PERIOD 175,288 163,316
--------- ----------
CASH AND CASH EQUIVALENTS,
END OF PERIOD $ 98,806 $ 176,525
The accompanying notes are an integral part of these financial statements.
6
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 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 June
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 six months ended June
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
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 June 30, 1998, 402 Julia had leased 96% of its
residential units and 100% commercial space for a combined
occupancy of 97% .
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
June 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
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 $6,228 and $2,726 for the six
months ended June 30, 1998 and 1997 respectively, as well as
amortization of $1,626 for each of the six months ended June
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 June 30, 1998, Portland
Lofts had leased approximately 92% of its residential apartment
units and 95% of the commercial space for a combined occupancy
of 93%.
HPP'89 contributed $3,820,000 through June 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
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 six months ended June 30, 1998, HPP'89 recognized
unrecorded income of $15,009 from Portland Lofts, thereby
reducing the cumulative unrecorded losses relating to the
Portland Lofts investment as of June 30, 1998 to $80,383. For
the six months ended June 30, 1997, HPP'89 recorded a net loss
of $77,580 from the Portland Lofts investment.
For each of the six months ended June 30, 1998 and 1997,
HPP'89 received distributions of $78,000 from the Portland
Lofts investment. Distributions of $78,000 for the six months
ended June 30, 1998 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 June 30, 1998, the economic
occupancy of TCAMP was 98%.
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
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 $65,720 and $59,968 for the six months ended June
30, 1998 and 1997, respectively.
HPP'89's investments in the Investee Entities at June 30, 1998
and December 31, 1997 are summarized as follows:
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 (1,014,326) (1,151,818)
Reserves for realization of investments (3,469,267) (3,469,267)
Amortization of certain costs (48,102) (46,476)
Distributions received from Investee
Entities (358,200) (280,200)
Sale of one third interest of
Investee Entity (241,620) (241,620)
------------ ------------
$ 624,097 $ 530,943
The above summary does not include HPP'89's investment in Jenkins Court.
11
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1998
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments
and Contingencies (continued)
The equity in income (loss) of Investee Entities reflected in
the accompanying statements of operations for the six months
ended June 30, 1998 and 1997 includes allocated income (loss)
of $137,492 and ($20,338), respectively, and amortization of
certain costs of $1,626 for each of the six months ended June
30, 1998 and 1997.
Summary combined balance sheets of the four Investee Entities
as of June 30, 1998 and December 31, 1997, and summary combined
statements of operations for the six months ended June 30, 1998
and 1997 are as follows:
COMBINED BALANCE SHEETS
ASSETS
1998 1997
(Audited)
Buildings and improvements,
(net of accumulated depreciation;
1998, $3,169,342; 1997, $2,896,633) $ 15,607,799 $ 15,855,989
Land 2,041,326 2,041,326
Other assets (net of accumulated
amortization;1998, $111,613;
1997,$105,861) 515,649 561,218
Cash and cash equivalents 227,595 173,001
------------- -------------
Total assets $ 18,392,369 $ 18,631,534
============ ============
LIABILITIES AND PARTNERS' EQUITY
1998 1997
(Audited)
Liabilities:
Mortgage and notes payable $ 13,331,188 $ 13,412,706
Other liabilities 723,793 735,828
------------- -------------
Total liabilities 14,054,981 14,148,534
------------ -------------
Partners' (or Members') equity:
HPP'89 3,417,383 3,385,594
Other partners 920,005 1,097,406
------------- -------------
Total partners' equity 4,337,388 4,483,000
------------- -------------
Total liabilities and partners'
equity $ 18,392,369 $ 18,631,534
============= =============
Members' equity in TCAMP has been classified as partners' equity
in the combined balance sheets.
COMBINED STATEMENTS OF OPERATIONS
1998 1997
Revenue:
Rental revenue $ 1,888,496 $ 1,804,988
Interest and other income 73,870 26,461
------------ ------------
1,962,366 1,831,449
------------ ------------
Expenses:
Interest expense 630,137 638,477
Depreciation and amortization 298,120 304,883
Operating expenses 897,043 850,690
------------ ------------
1,825,300 1,794,050
------------ ------------
Net income $ 137,066 $ 37,399
============ ============
Net income (loss) allocated to HPP'89 $ 74,501 $ (20,339)
============ ============
Net income allocated to other partners $ 62,565 $ 57,738
============ ============
12
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 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 provides 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 1997, CMC was reimbursed $51,033 and $34,433,
respectively, for operating costs.
Effective July 1, 1998, HPP'89 engaged Gunn Financial, Inc.
(Gunn), an unaffiliated Massachusetts corporation, to provide
accounting, asset management and investor services. Gunn 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.
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 June 30, 1998 and December 31,
1997 approximate their carrying amounts due to their short
maturities.
13
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
JUNE 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 $92,735; 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
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
JUNE 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 six months ended June 30, 1998 and 1997, the Partnership
received distributions from Portland Lofts of $78,000, 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 from TCAMP if
such distributions are available to HPP'89 and are required to fund
expenses. As of June 30, 1998 and December 31, 1997, the Partnership
had $98,806 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
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
JUNE 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 June 30, 1998, 402 Julia leased 96% of its residential units and
100% commercial space for a combined occupancy of 97%. 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
six months ended June 30, 1998, 402 Julia recorded a net loss of
approximately $9,500 of which included depreciation and
amortization of approximately $22,000.
At June 30, 1998, Portland Lofts had leased approximately 92% of
its residential apartment units and 95% of the commercial space for
a combined occupancy of 93%. 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 June 30, 1998, the Partnership had entered into
fifteen commercial leases. The Partnership's largest commercial tenant
occupancies 23% of the commercial space at June 30, 1998, representing
only 5.8% of the total square feet of the property. For the six months
ended June 30, 1998, Portland Lofts recorded net income of
approximately $15,200 of which included depreciation and amortization
of approximately $142,500.
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 June 30, 1998, TCAMP had an economic occupancy of 98%. For the
six months ended June 30, 1998, TCAMP recorded net income of
approximately $131,400, which included depreciation and
amortization expense of approximately $298,100.
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
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
JUNE 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 six months ended June 30, 1998, HPP'89 recognized unrecorded
income of $15,008, reducing the unrecorded losses from the Portland
Lofts investment to $80,382. Distributions received from Portland
Lofts for the six months ended June 30, 1998 totaled $78,000 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 $18,943 for the three months ended June 30,
1998, compared to a net loss of $45,915 for the three months ended June
30, 1997. This increase of $64,858 in net income is primarily
attributable to the increase in equity in income (loss) of investee
entities of approximately $82,200, offset by an increase in operating
and administrative expenses of approximately $15,900. As mentioned
above, the Partnership's net investment balance in Portland Lofts
has been reduced to zero. Therefore, distributions for the three
months ended June 30, 1998 of $39,000 were recorded as equity
income of investee entities by the Partnership compared to
an allocated net loss of $42,083 from Portland Lofts for the same
period in 1997.
The Partnership recorded net income, under generally accepted
accounting principles, of $37,059 for the six months ended June 30,
1998, compared to a net loss of $94,033 for the six months ended June
30, 1997. This $131,092 increase in net income is primarily
attributable to the increase in equity in income (loss) of investee
entities of approximately $157,800, offset by an increase in operating
and administrative expenses of approximately $25,500. The increase in
HPP'89 share of equity in income (loss) is primarily due to the
activity from Portland Lofts. As mentioned the Partnership's net
investment balance in Portland Lofts has been reduced to zero.
Therefore, distributions for the six months ended June 30, 1998,
of $78,000 were recorded as equity income of investee entities
by the Partnership compared to an allocated net loss of
$77,581 from Portland Lofts for the same period in 1997.
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.
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.
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, or incur
substantial costs to address Year 2000 issues.
17
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
JUNE 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 Fork 8-K
(a) Exhibits
None.
(b) Reports from Form 8-K
None.
18
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
HISTORIC PRESERVATION PROPERTIES 1989
LIMITED PARTNERSHIP
By: Boston Historic Partners Limited Partnership
General Partner
By: Portfolio Advisory Services, Inc.
General Partner
Date: August 1, 1998 By: /s/Terrence P. Sullivan
Terrence P. Sullivan,
President
and
Date: August 1, 1998 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
General Partner
19
[ARTICLE] 5
<TABLE>
<S> <C>
[PERIOD-TYPE] 6-MOS
[FISCAL-YEAR-END] DEC-31-1998
[PERIOD-END] JUN-30-1998
[CASH] 98,806
[SECURITIES] 0
[RECEIVABLES] 77,505
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 0
[DEPRECIATION] 0
[TOTAL-ASSETS] 800,408
[CURRENT-LIABILITIES] 0
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 0
[TOTAL-LIABILITY-AND-EQUITY] 800,408
[SALES] 0
[TOTAL-REVENUES] 3,210
[CGS] 0
[TOTAL-COSTS] 102,017
[OTHER-EXPENSES] (135,866)
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 37,059
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 37,059
[EPS-PRIMARY] 1.38
[EPS-DILUTED] 1.38
</TABLE>
