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, 1999
----------------------------------------
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
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
JUNE 30, 1999
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
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
BALANCE SHEETS
JUNE 30, 1999 AND DECEMBER 31, 1998
ASSETS
1999 1998
------------- ------------
(Unaudited)
INVESTMENTS IN INVESTEE ENTITIES $ 4,216,038 $ 4,074,023
Less reserve for realization of investments
in investee entity (3,469,267) (3,469,267)
------------- -----------
746,771 604,756
CASH EQUIVALENTS 127,725 170,981
OTHER ASSETS 73,350 73,350
------------- -----------
$ 947,846 $ 849,087
============= ==========
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES
Accounts payable and accrued expenses $ 29,724 $ 38,342
------------- ------------
Total liabilities 29,724 38,342
------------- ------------
COMMITMENTS AND CONTINGENCIES (Notes 3 and 4)
PARTNERS' EQUITY
Limited Partners' Equity - Units of Investor
Limited Partnership Interest, $1,000 stated
value per Unit-Issued and outstanding 26,588
units 1,140,276 1,033,973
General Partner's Deficit (222,154) (223,228)
------------- ------------
Total partners' equity 918,122 810,745
------------- ------------
$ 947,846 $ 849,087
============= ============
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 JUNE 30, 1999 AND 1998
AND FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
Three Months Six Months
Ended June 30, Ended June 30,
--------------------- ----------------------
1999 1998 1999 1998
--------- ---------- ---------- ----------
REVENUES:
Interest and other income $ 1,294 $ 820 $ 3,152 $ 3,210
--------- ---------- ---------- ----------
EXPENSES:
Operating and administrative 57,892 50,494 115,790 102,017
--------- ---------- ---------- ----------
LOSS FROM OPERATIONS (56,598) (49,674) (112,638) (98,807)
EQUITY IN INCOME OF
INVESTEE ENTITIES 107,374 68,617 220,015 135,866
--------- ---------- ---------- ----------
NET INCOME $50,776 $ 18,943 $107,377 $ 37,059
========= ========== ========== ==========
NET INCOME ALLOCATED
TO GENERAL PARTNER $ 508 $ 189 $ 1,074 $ 371
========= ========== ========= ==========
NET INCOME ALLOCATED
TO LIMITED PARTNERS $50,268 $ 18,754 $106,303 $ 36,688
========== ========== ========= ==========
NET INCOME PER UNIT OF
INVESTOR LIMITED PARTNERSHIP
INTEREST, BASED ON 26,588
UNITS ISSUED AND OUTSTANDING $ 1.89 $ .71 $ 4.00 $ 1.38
========= ========== ========== ==========
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 SIX MONTHS ENDED JUNE 30, 1999 AND
THE YEAR ENDED DECEMBER 31, 1998
Units of
Investor Investor
Limited Limited General
PartnershipPartners' Partner's
Interest Equity Deficit Total
--------- ---------- ---------- ------------
BALANCE, December 31, 26,588 $ 974,008 $ (223,834) $ 750,174
1997
Net income - 59,965 606 60,571
--------- ---------- ---------- ------------
BALANCE, December 31,
1998 26,588 1,033,973 (223,228) 810,745
Net income (Unaudited) - 106,303 1,074 107,377
--------- ---------- ---------- ------------
BALANCE, June 30, 1999
(Unaudited) 26,588 $1,140,276 $ (222,154) $ 918,122
========= ========== ========== ============
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 SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
1999 1998
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 107,377 $ 37,059
Adjustments to reconcile net income to
net cash use in operating activities:
Equity in income in investee entities (220,015) (135,866)
Distributions from investee entity 78,000 78,000
Decrease in accounts payable and
accrued expenses (8,618) (20,387)
------------ ------------
Net cash used in operating (43,256) (41,194)
activities ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash contributions to investee entity - (35,288)
------------ ------------
Cash used in investing activities - (35,288)
------------ ------------
NET DECREASE IN CASH (43,256) (76,482)
CASH AND CASH EQUIVALENTS, BEGINNING OF
PERIOD 170,981 175,288
------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 127,725 $ 98,806
============ ============
The accompanying notes are an integral part of these financial statements.
6
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1999
(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, 1999, BHP has 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, 1999 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1999. 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, 1998 for HPP'89, as filed with the
Securities and Exchange Commission.
Certain amounts in the 1998 Statements of Cash Flows have been
reclassified to conform to the 1999 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 member, 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 member. In addition, each
Investee Entity has entered into various agreements with its local general
partners or member, or their affiliates, to provide development,
management and other services, for which the local general partners or
other member (or their affiliates), are paid fees by the respective
Investee Entity.
7
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
Following is a 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.
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 June 30, 1999 and December 31, 1998;
partnership liabilities include approximately $94,000 of trade payables
which have been fully reserved for at June 30, 1999 and December 31, 1998
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, 1999, 402 Julia had leased 87% of its residential
units and 100% of the commercial space for a combined occupancy of 90%.
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.
8
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
On September 16, 1993, HPP'89 sold one-third of its general partnership
interest in 402 Julia to the developer general partner for $185,000.
HPP'89's percentage of interest in 402 Julia was thereby reduced from 98%
to 65%. The terms of the sale required an initial payment of $100,000,
which was received in September 1993, and requires annual payments of
$3,500 through 2016 and a final payment of $4,500 in 2017. At June 30,
1999, the remaining uncollected payments total $67,500, which are secured
by the interest sold to the developer general partner. The sale
transaction did not generate any Investment Tax Credit recapture.
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 a net income from the 402 Julia Investment of $9,267 for
the six months ended June 30, 1999 and a net loss of $6,228 for the six
months ended June 30, 1998, as well as amortization of $1,626 for each of
the six months ended June 30, 1999 and 1998.
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, 1999, Portland
Lofts had leased approximately 90% of its residential apartment units and
100% of the commercial space for a combined occupancy of 92%.
HPP'89 contributed $3,820,000 through June 30, 1999 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.
9
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(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. 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, 1998, HPP'89 had
cumulative unrecorded losses totaling $90,987 relating to the Portland
Lofts investment.
For the six months ended June 30, 1999, HPP'89 was allocated a net loss of
$12,228 from Portland Lofts, thereby increasing the cumulative unrecorded
loss relating to the Portland Lofts investment to $103,215 at June 30,
1999.
For each of the six months ended June 30, 1999 and 1998, HPP'89 received
distributions of $78,000, from the Portland Lofts investment and 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'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. For the
six months ended June 30, 1999, the economic occupancy of TCAMP was 96%.
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 and received an option to buy the
mortgage note for the fair market value of the property. In exchange,
HPP'89 agreed to reduce the maturity date of the note from December 18,
1999 to December 18, 1996.
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.
10
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
Distributions from TCAMP to HPP'89 and the other member 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 accumulates 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 reduced to zero, 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 of $134,375 and $65,720 for the six months
ended June 30, 1999 and 1998, respectively, from the TCAMP Investment.
HPP'89's investments in the Investee Entities at June 30, 1999, and
December 31, 1998 are summarized as follows:
Cumulative: 1999 1998
------------ -------------
(Audited)
Investments and advances
made in cash $ 4,880,288 $ 4,880,288
Evaluation and acquisition costs 835,709 835,709
Interest capitalization and
other costs 39,615 39,615
Net equity in loss of Investee
Entities (657,400) (879,041)
Reserves for realization of
investments (3,469,267) (3,469,267)
Amortization of certain costs (51,354) (49,728)
Distributions received from
Investee Entities (589,200) (511,200)
Sale of one third interest of
Investee Entity (241,620) (241,620)
------------- -------------
$ 746,771 $ 604,756
============= =============
The above summary of HPP'89's investments in Investee Entities does not
include its investment in Jenkins Court.
The equity in income of Investee Entities reflected in the accompanying
statements of operations included income of $221,641, and $137,492 for the
six months ended June 30, 1999 and 1998, respectively, and amortization of
certain costs of $1,626, for each of the six months ended June 30, 1999
and 1998, respectively.
11
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HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
Summary combined balance sheets of the Investee Entities as of June 30,
1999 and December 31, 1998, and summary combined statements of operations
for the six months ended June 30, 1999 and 1998 are as follows:
COMBINED BALANCE SHEETS
ASSETS
1999 1998
------------ ------------
(Audited)
Buildings and improvements, (net
of accumulated depreciation;
$3,720,011,1999; $3,446,938, 1998) $ 15,102,333 $ 15,344,965
Land 2,041,326 2,041,326
Other assets (net of accumulated
amortization;$154,440,1999;$123,795,
1998) 570,567 600,899
Cash and cash equivalents 562,992 287,348
------------ ------------
Total assets $ 18,277,218 $ 18,274,538
============ ============
LIABILITIES AND PARTNERS' EQUITY
1999 1998
------------ -----------
Liabilities:
Mortgage and notes payable $ 13,247,579 $ 13,339,188
Other liabilities 627,843 726,135
------------ ------------
Total liabilities 13,875,422 14,065,323
------------ ------------
Partners' equity:
HPP'89 3,364,477 3,311,062
Other partners 1,037,319 898,153
------------ ------------
Total partners' equity 4,401,796 4,209,215
------------ ------------
Total liabilities and
partners' equity $ 18,277,218 $ 18,274,538
============ ============
Members' equity in TCAMP has been classified as partners' equity in the
combined balance sheets.
12
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1999
(UNAUDITED)
(3) Investments in Investee Entities and Real Estate; Commitments and
Contingencies (Continued)
COMBINED STATEMENTS OF OPERATIONS
1999 1998
----------- ------------
Revenue:
Rental revenue $ 2,008,932 $1,888,496
Interest and other income 75,595 73,870
----------- ----------
2,084,527 1,962,366
----------- ----------
Expenses:
Interest expense 606,426 630,137
Depreciation and amortization 298,370 298,120
Operating expenses 909,149 897,043
----------- ----------
1,813,945 1,825,300
----------- ----------
Net income $ 270,582 $ 137,066
=========== ==========
Net income allocated to HPP'89 $ 131,412 $ 74,501
=========== ==========
Net income allocated to other
partners $ 139,170 $ 62,565
=========== ==========
(4) 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, CMC was reimbursed $50,716,
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 provides 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
liquidation of the Partnership, as defined. For the six months ended June
30, 1999, GFI was reimbursed $61,824 for operating costs.
(5) Fair Value of Financial Instruments
The fair values of cash equivalents and accounts payable and accrued
expenses at June 30, 1999 and December 31, 1998 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
JUNE 30, 1999
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 March 15, 1996, HPP'89 entered into a series of transactions to
settle and pay in full the outstanding mortgage note on the Cosmopolitan.
Effective that date, HPP'89 contributed the Cosmopolitan, and certain other
assets and liabilities, to The Cosmopolitan at Mears Park, LLC (TCAMP) for a 50%
ownership interest in TCAMP. Concurrently, another member contributed $650,000
cash to TCAMP for a 50% ownership interest in TCAMP. 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.
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)
JUNE 30, 1999
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 $1,000,000 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 mortgage note requires monthly payments of
principal and interest and escrow deposits (real estate and insurance) in the
aggregate amount of $7,091 and $1,312, respectively.
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,
Portland Lofts' and 402 Julia's recent respective refinancings, are expected to
generate cash flow. For each of the six months ended June 30, 1999 and 1998, the
Partnership received distributions from Portland Lofts of $78,000, respectively.
As of June 30, 1999, the Partnership had $127,725 of total cash. 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.
Distributions from TCAMP to the Partnership and the other member of TCAMP 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
reduced to zero, 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.
As of December 31, 1997, the outstanding balance of TCAMP's other member's
unreturned original $650,000 capital contribution was $223,773. On February 27,
1998, the Partnership 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's other member's original $650,000 capital
contribution was reduced to zero, thereby eliminating any future requirements
for the Partnership to make additional capital contributions to TCAMP.
In late 1998, a dispute developed between HPP'89 and the other member regarding
distributions from TCAMP. The dispute could result in a significant delay and/or
reduction of anticipated distributions by TCAMP to HPP'89, which, in turn, could
have a detrimental effect on HPP'89's short term liquidity. HPP'89 intends to
pursue all of its rights to distributions under the TCAMP Operating Agreement.
15
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULT OF OPERATIONS (CONTINUED)
JUNE 30, 1999
Cash flow generated from the Partnership's investment properties and the
Partnership's share of the proceeds from the sale of such properties is expected
to be the source of future long-term liquidity.
Results of Operations. 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, 1999, 402 Julia leased 87% of its residential units and 100% of
the commercial space for a combined occupancy of 90%. 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, 1999, 402 Julia recorded net
income of approximately $14,184 of which included depreciation and amortization
of approximately $21,916.
At June 30, 1999, Portland Lofts had leased approximately 90% of its residential
apartment units and 100% of the commercial space for a combined occupancy of
92%. 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, 1999, the Partnership had
entered into eighteen commercial leases. The Partnership's largest commercial
tenant occupancies 23% of the commercial space at June 30, 1999, representing
only 5.8% of the total square feet of the property. For the six months ended
June 30, 1999, Portland Lofts recorded a net loss of approximately $12,352 of
which included depreciation and amortization of approximately $142,888.
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.
For the six months ended June 30, 1999, TCAMP had an economic occupancy of 96%.
For the six months ended June 30, 1999, TCAMP recorded net income of
approximately $268,750, which included depreciation and amortization expense of
approximately $133,566.
In 1990, the Partnership fully reserved against its investment in Portland
Lofts, due to the substantial doubt it would 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.
16
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
JUNE 30, 1999
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. 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
allocation of losses and distributions received. Accordingly, HPP'89 had
cumulative unrecorded losses at December 31, 1998 of $90,987. For the six months
ended June 30, 1999, HPP'89 recognized a net loss of $12,228, increasing
unrecorded losses from the Portland Lofts investment to $103,215 as of June 30,
1999. Distributions received from Portland Lofts for each of the six months
ended June 30, 1999 and 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 $50,776 for the three months ended June 30, 1999, compared to
net income of $18,943 for the three months ended June 30, 1998. The increase in
net income is primarily attributable to the increase in equity in income of
investee entities of approximately $39,000 offset by an increase in operating
and administrative expenses of approximately $7,000. The increase in equity in
income of investee entities is due to the operating activities from TCAMP and
402 Julia. HPP'89's allocated net income from TCAMP increased by approximately
$27,000 for the three months ended June 30, 1999 compared to the same period in
1998. TCAMP's net income increased due to an increase in rental income, as a
result of higher apartment rental rates and a decrease in real estate tax
expense. TCAMP's average apartment rental rate increased approximately 7% in
the three months ended June 30, 1999 compared to the same period in 1998.
HPP'89's allocated net income from 402 Julia increased approximately $12,000,
for the three months ended June 30, 1999 compared to the same period in 1998,
due to decreases in professional fees and interest expense. Professional fees
and interest expense of 402 Julia both decreased as a result of the refinancing
of the property's mortgage in July 1998. Operating and administrative expenses
of the Partnership increased in the three months ended June 30, 1999 compared
to the same period in 1998, due to increased costs for audit and tax
preparation.
The Partnership recorded net income, under generally accepted accounting
principles, of $107,377 for the six months ended June 30, 1999 compared to net
income of $37,059 for the six months ended June 30, 1998. The increase in net
income is primarily attributable to the increase in equity in income of
investee entities of approximately $84,000 offset by an increase in operating
and administrative expenses of approximately $14,000. The increase in equity in
income of investee entities is due to the operating activities from TCAMP and
402 Julia. HPP'89's allocated net income from TCAMP increased by approximately
$69,000 for the six months ended June 30, 1999 compared to the same period in
1998, due to increases in apartment and furniture rental income and a decrease
in real estate tax expense. TCAMP's average apartment rental rate increased by
approximately 8% in the six months ended June 30, 1999 compared to the six
months ended June 30, 1998. HPP'89's allocated net income from 402 Julia
increased approximately $15,000 for the six months ended June 30, 1999 compared
to the same period in 1998, as a result of decreases in interest and
professional fee expenses. Interest and professional fee expenses of 402 Julia
decreased as a result of the refinancing of property's mortgage in July 1998.
Operating and administrative expenses of the Partnership increased in the six
months ended June 30, 1999 compared to the same period in 1998, as a result of
increased costs for audit, tax preparation and printing expenses.
Inflation and Other Economic Factors
Recent economic trends have kept inflation relatively low, although the
Partnership cannot make any predictions as to whether recent trends will
continue. The assets of the Partnership, principally investments in Investee
Entities, are highly leveraged in view of the fact that each Investee property
is subject to a long-term first mortgage loan. Operating expenses and rental
revenue of each Investee property are subject to inflationary factors. Low rates
of inflation could result in slower rental rate increases, and to the extent
that these factors are outpaced by increases in property operating expenses
(which could arise as a result of general economic circumstances such as an
increase in the cost of energy or fuel, or from local economic circumstances),
the operations of the Partnership and its Investees could be adversely affected.
Actual deflation in prices generally would, in effect, increase the economic
burden of the mortgage debt service with a corresponding adverse effect.
17
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
JUNE 30, 1999
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.
18
<PAGE>
HISTORIC PRESERVATION PROPERTIES 1989 LIMITED PARTNERSHIP
PART II - OTHER INFORMATION
JUNE 30, 1999
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: August 1, 1999 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
President
and
Date: August 1, 1999 By: /s/ Terrence P. Sullivan
Terrence P. Sullivan,
General Partner
20
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 127,725
<SECURITIES> 0
<RECEIVABLES> 73,350
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 947,846
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 947,846
<SALES> 0
<TOTAL-REVENUES> 3,152
<CGS> 0
<TOTAL-COSTS> 115,790
<OTHER-EXPENSES> (220,015)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 107,377
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 107,377
<EPS-BASIC> 4.00
<EPS-DILUTED> 4.00
</TABLE>
